Document:

EXECUTION COPY

                

            

             

            STOCK PURCHASE AGREEMENT

            This stock purchase agreement (this “Agreement”), dated as of February 2, 2009, is entered into by and among Pipeline Data Inc., a Delaware corporation, with principal offices located at 1515 Hancock Street, Suite 301, Quincy, MA 02169 (the “Company”), and
            the investors listed on the Schedule of Buyers attached hereto (each, a “Buyer” and, collectively, the “Buyers”). Capitalized terms used and not defined elsewhere in this Agreement have the respective meanings assigned to such terms in the Appendix
            hereto.

            WHEREAS:

            A.        The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the
            “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”).

            B.        The Buyers, severally and not jointly, desire to purchase from the Company, and the Company wishes to sell to the Buyers, upon the terms and conditions stated in this Agreement, shares of the Common Stock (defined below) of the Company and shares of the Series A Convertible Preferred Stock of the Company, par value $.001 (the
            “Series A Preferred”), as described in Section 1. The rights, preferences, terms and conditions of the Series A Preferred are as set forth in the Certificate of Designation, Preferences and Rights of Series A Preferred Stock attached hereto as Exhibit A.

            C.        Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Investors' Rights Agreement, in the form attached as Exhibit B (as the same may be amended, supplemented, restated or modified and in effect from time to time,
            the “Investors' Rights Agreement”), pursuant to which the Company agrees to provide certain registration rights under the 1933 Act, and other rights to the Buyers, with respect to the Shares and the Registrable Securities (as defined in the Investors’ Rights Agreement).

            NOW THEREFORE, the Company and each of the Buyers, severally and not jointly, hereby agree as follows:

            
                	
                             

                        	
                            1.

                        	
                            PURCHASE AND SALE OF SHARES.

                        

            

            a.         Purchase and Sale of Shares. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below, the Company shall issue and sell to each Buyer and
            each Buyer severally agrees to purchase from the Company the shares of Common Stock and Series A Preferred set forth next to each such Buyer’s name on the Schedule of Buyers attached hereto. The aggregate purchase price for the Shares purchased by each Buyer shall be as set forth opposite such Buyer’s name on the Schedule of Buyers (the
            “Purchase Price”). Upon the effectiveness of amendments to the Certificate of Incorporation of the Company contemplated in Sections 3(b) and 4(m) authorizing 500,000,000 shares of Common Stock, 10,000,000 shares of Preferred Stock, and Preferred Stock having voting and other rights as set forth in the Certificate of
            Designation, Preferences and Rights of Series B Preferred Stock

             

            
                

                

            

             

            
                

            

            attached hereto as Exhibit C (the “Series B Preferred”), the Common Stock and Series A Preferred purchased pursuant to this Agreement shall be automatically exchanged for 5,000,000 shares of the Series B Preferred and the Series A Preferred shall be cancelled.

            b.         Closing Date. The closing (the “Closing”) shall be on the date first set forth above, subject to the satisfaction (or waiver) of all of the conditions to the Closing set forth in Sections
            7 and 8 (or such later or earlier date as is mutually agreed to by the Company and the Buyers) (the “Closing Date”). The Closing shall occur remotely via the exchange of electronic signature pages which shall be followed by the exchange of original signature pages via overnight delivery to each party’s principal business address or at such
            other place as either party designates in writing.

            c.         Form of Payment and Delivery of Shares. On the date that is the later of ten (10) days from the Closing Date, the date that this transaction is permitted to close under applicable Securities Laws, or the date that all conditions to Buyers’ obligations to purchase the
            Shares as set forth in Section 8 are satisfied in full, (i) each Buyer shall pay to the Company the Purchase Price (less the ComVest Fees and Expenses), by wire transfer of immediately available funds in accordance with the Company’s written wire instructions, and (ii) the Company shall deliver (or cause its transfer agent to deliver) to each Buyer certificates representing the Shares that such Buyer is purchasing hereunder on
            the Closing Date (the “Share Certificates”), duly executed on behalf of the Company and registered in the name of such Buyer or its designee.

            d.         Failure to Satisfy Conditions to Purchase Shares. In the event all of the conditions to Buyers’ obligations to purchase the Shares as set forth in Section 8 are not satisfied in full within ninety (90) days of the date of
            this Agreement, the Transaction Documents shall automatically terminate and the Buyers and the Company shall be relieved of any and all obligations under the Transaction Documents, including, but not limited to, any obligation of the Buyers to pay the Purchase Price to the Company. Upon such termination, the Company hereby grants each Buyer a full, complete, and unconditional release from any and all obligations under this Agreement and the Transaction Documents.

            
                	
                             

                        	
                            2.

                        	
                            BUYER’S REPRESENTATIONS AND WARRANTIES.

                        

            

            Each Buyer represents and warrants, as of the date of this Agreement and as of each Closing Date, with respect to only itself, that:

            a.         Investment Purpose. Such Buyer is acquiring the Shares purchased by such Buyer hereunder, for such Buyer’s own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered under, or
            exempted from the registration requirements of, the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Shares for any minimum or other specific term and reserves the right to dispose of the Shares at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

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

             

            
                

                

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

            d.         Information. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Shares that have been requested by such Buyer. Such Buyer and its
            advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in this Agreement or in any of the other Transaction Documents. Such Buyer understands that its investment in the Shares involves a high
            degree of risk and that it has reviewed the Company’s SEC Documents and the disclosures contained therein, including, without limitation, those set forth under the heading “Risk Factors.” Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Shares.

            e.         No Governmental Review. Such Buyer understands that no Governmental Entity has passed on or made any recommendation or endorsement of the Shares or the fairness or suitability of an investment in the Shares nor have such authorities passed upon or endorsed the merits of the
            offering of the Shares.

            f.         Transfer or Resale. Such Buyer understands that, except as provided in the Investors' Rights Agreement: (i) the Shares have not been and are not being registered under the 1933 Act or any other Securities Laws, and may not be offered for sale, sold, assigned or transferred
            unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that the Shares to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that the Shares can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as
            amended (or a successor rule thereto) (“Rule 144”); (ii) any sale of the Shares made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of the Shares under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance
            with some other exemption under the 1933 Act or any other Securities Laws; and (iii) except as set forth in the Investors' Rights Agreement, neither the Company nor any other person is under any obligation to register the Shares under the 1933 Act or any other Securities Laws. Notwithstanding the foregoing provisions of this paragraph, the Shares may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Shares.

            g.         Legends. Such Buyer understands that, except as set forth below, the Share Certificates shall bear a restrictive legend in the following form (the “1933 Act Legend”) (and a stop-transfer order may be placed against
            transfer of such Share Certificates):

             

            
                

                

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            THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
            STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

            The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Shares, if (i) such Shares are registered for resale under the 1933 Act, (ii) such holder provides the Company with reasonable assurances that the Shares can be sold pursuant to Rule 144(k) promulgated under the 1933 Act (or a successor rule thereto), or (iii) such holder
            provides the Company reasonable assurances that the Shares have been or are being sold pursuant to Rule 144.

            h.         Authorization; Enforcement; Validity. Such Buyer is a validly existing corporation, partnership, limited liability company or other entity and has the requisite corporate, partnership, limited liability or other organizational power and authority to purchase the Shares pursuant
            to this Agreement. The Transaction Documents entered into by such Buyer have been duly and validly authorized, executed and delivered on behalf of such Buyer and are valid and binding agreements of such Buyer enforceable against such Buyer in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors’ rights generally and general principles of equity.
             

            i.          Residency. Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.

            j.          No Other Agreements. As of the applicable Closing Date, such Buyer has not, directly or indirectly, made any agreements with the Company relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the
            Transaction Documents.

            
                	
                             

                        	
                            3.

                        	
                            REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                        

            

            The Company represents and warrants, as of the date of this Agreement, to each Buyer, with respect to itself both before and after giving effect to the Acquisition, that except as set forth in the Schedules to this Agreement delivered by the Company to Buyer or in the schedules to the Acquisition Agreement:

             

            
                

                

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            a.         Organization and Qualification; Subsidiaries. The Company was formed on June 23, 1997. Set forth in Schedule 3(a) is a true and correct list of the Company’s Subsidiaries and the jurisdiction in which each is organized or
            incorporated, together with the authorized and outstanding Capital Stock or other equity interests of each such entity. Other than with respect to the entities listed on Schedule 3(a), the Company does not directly own any security, equity interest or beneficial ownership interest in any other Person (including through joint venture or partnership agreements) or have any interest in any other Person. Each of the Company and its
            Subsidiaries is a corporation, limited liability company, partnership or other entity and is duly organized or formed and validly existing in good standing under the laws of the jurisdiction in which it is incorporated or organized and has the requisite corporate, partnership, limited liability company or other organizational power and authority to own its properties and to carry on its business as now being conducted and as proposed to be conducted by the Company and its
            Subsidiaries. Each of the Company and its Subsidiaries is duly qualified to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted or proposed to be conducted by the Company and its Subsidiaries will make such qualification necessary, except to the extent that the failure to be so qualified or be in good standing could not have and could not be, individually or in the aggregate, reasonably be expected to
            have a Material Adverse Effect. Except as set forth in Schedule 3(a), the Company holds all right, title and interest in and to 100% of the Capital Stock, equity or similar interests of each of its Subsidiaries, in each case, free and clear of any Liens (as defined below), including any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of free and clear ownership by a current holder, and
            no such Subsidiary owns capital stock or holds an equity or similar interest in any other Person.

            b.         Authorization; Enforcement; Validity. Each of the Company and its Subsidiaries has the requisite corporate or other organizational power and authority to enter into and perform its obligations under this Agreement and each of the other Transaction Documents to which such Person
            is a party and to issue the Shares in accordance with the terms hereof and thereof. The execution and delivery of the Transaction Documents by the Company and each of its Subsidiaries and the consummation by the Company and each of its Subsidiaries of the transactions contemplated hereby and thereby, including the issuance of the Shares to be issued at the Closing, have been duly authorized by the respective boards of directors (or a committee thereof), members, managers, trustees,
            stockholders, other equityholders or holders of beneficial interests, as applicable, of the Company and each of its Subsidiaries, as applicable, and no further consent or authorization is required by the Company, any of its Subsidiaries or any of their respective boards of directors, members, managers, trustees, stockholders, other equityholders or holders of beneficial interests, as applicable. Notwithstanding the foregoing, the parties to this Agreement acknowledge that the
            Company does not currently have enough authorized shares of Common Stock (as defined below) to satisfy all conversions of Shares of the Series A Preferred. The parties to this Agreement agree that promptly after Closing the Company will prepare the necessary corporate documentation to amend its Certificate of Incorporation and will make the applicable proxy filing pursuant to the applicable Securities Laws and the Buyers shall approve the amendment of the Company’s Certificate
            of Incorporation to increase the number of authorized shares of Common Stock to 500,000,000, to increase the number of authorized shares of Preferred Stock to 10,000,000, and to authorize Preferred Stock having the voting and other rights of the Series B Preferred. This Agreement and the other Transaction Documents have been duly executed and delivered by the Company and each of its Subsidiaries

             

            
                

                

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            that is a party thereto, and constitute the valid and binding obligations of the Company and each of its Subsidiaries, enforceable against the Company and each of its Subsidiaries in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors’ rights generally and general principles of equity.

            c.         Capitalization. The authorized Capital Stock of the Company consists of 155,000,000 shares, of which 150,000,000 are designated as Common Stock, par value $.001 (“Common Stock”) and 5,000,000 are designated as
            Preferred Stock, par value $.001 (“Preferred Stock”). No shares of Preferred Stock are outstanding. Pursuant to the Certificate of Designation, Preferences and Rights of Series A Preferred Stock, adopted by the Company and attached hereto as Exhibit A, 5,000,000 shares of Preferred Stock are designated as Series A Preferred. Of the Common Stock authorized:

            
                	
                             

                        	
                            (i)

                        	
                            49,976,937 shares are issued and outstanding;

                        

            

            (ii)       12,150,309 shares are reserved for issuance pursuant to the Company’s stock option, restricted stock and employee stock purchase plans described in the SEC Documents (the “Equity Plans”), including 12,150,309 shares issuable pursuant to outstanding
            awards under the Equity Plans;

            (iii)      15,463,453 shares are reserved for issuance pursuant the Company’s outstanding warrants described on Schedule 3(c)(iii) (the “Existing Warrants”), 11,100,000 of which are reserved for issuance pursuant to
            warrants related to the Bond Financing (as defined below);

            (iv)      28,576,038 shares are reserved for issuance pursuant the Company’s outstanding Convertible Debentures described on Schedule 3(c)(iv) (the “Convertible Debentures”) (the convertibility feature of certain
            Convertible Debentures shall be removed at Closing leaving a single Convertible Debenture convertible into 114,500 shares of Common Stock); and

            (v)       483,259 shares are reserved for issuance to Millennium Merchant Services.

            No shares of Common Stock are reserved for issuance under any plan, agreement or arrangement, other than shares of Common Stock reserved for issuance under the Equity Plans and with respect to the Existing Warrants, the Convertible Debentures and except as described in the foregoing provisions of this Section 3(c), there are no shares of Capital
            Stock, Options, Convertible Securities or other equity securities of the Company authorized, issued or outstanding, and the Company is not under any current or future obligations to issue any such shares of Capital Stock, Options, Convertible Securities or other equity securities of the Company. All of the outstanding and issuable shares of Capital Stock have been, or upon issuance will be, validly issued and are, or upon issuance will be, fully paid and nonassessable.
            Schedule 3(c) sets forth (x) a list of all outstanding Options, Existing Warrants and Convertible Debentures and the exercise or conversion price for each and (y) the maximum number of securities of the Company or any of its Subsidiaries that may be issued to Millennium Merchant Services.

             

            
                

                

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            Except as set forth on Schedule 3(c)(1)-(5):

            (1)       no shares of the Capital Stock of the Company or any of its Subsidiaries are subject to preemptive rights or any other similar rights or any Liens suffered or permitted by the Company or any of its Subsidiaries;

            (2)       there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable for, any shares of Capital Stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or
            arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of Capital Stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable for, any shares of Capital Stock of the Company or any of its Subsidiaries;

            (3)       to the Knowledge of the Company, there are no voting trusts, proxies or other agreements, commitments or understandings of any character with respect to the voting of any shares of Capital Stock of the Company or any of its Subsidiaries, and there are no agreements or arrangements under which the Company or any of its
            Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Investors' Rights Agreement);

            (4)       there are no outstanding securities or instruments of the Company or any of its Subsidiaries that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the
            Company or any of its Subsidiaries;

            (5)       there are no securities or instruments containing anti-dilution or similar provisions that will or may be triggered by the issuance of the Shares;

            (6)       the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and

            (7)       to the Company’s Knowledge, no officer or director of the Company or beneficial owner of any of the Company’s outstanding Common Stock has pledged Common Stock in connection with a margin account or other loan secured by such Common Stock.

            The Company has furnished to each Buyer true and correct copies of:

            (X)      The Company’s Certificate of Incorporation, as amended and in effect (the “Certificate of Incorporation”); and

            
                	
                             

                        	
                            (Y)

                        	
                            The Company’s Bylaws, as amended and in effect (the “Bylaws”).

                        

            

             

            
                

                

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            All of the equity interests of each of the Subsidiaries are certificated or otherwise represented in tangible form.

            d.         Issuance of Securities. The Shares are duly authorized. Subject to the need to increase the number of authorized shares of Common Stock as discussed in Section 3(b) hereof, upon issuance of the Shares, such Shares and
            Conversion Shares will be validly issued, fully paid and nonassessable and free from taxes and Liens with respect to the issuance thereof, with the holders being entitled to all rights accorded to a holder of Series A Preferred or Common Stock, as applicable. The issuance by the Company of the Shares is exempt from registration under the 1933 Act and any other applicable Securities Laws.

            e.         No Conflicts. Except as set forth on Schedule 3(e), the execution and delivery of this Agreement and the other Transaction Documents by the Company and each of its Subsidiaries, the performance by the Company and each of its
            Subsidiaries of its obligations hereunder and thereunder and the consummation by the Company and each of its Subsidiaries of the transactions contemplated hereby and thereby (including the reservation for issuance and the issuance of the Shares) will not:

            (i)        result in a violation of the certificate or articles of incorporation, certificate or articles of organization, bylaws, operating agreement, partnership agreement or any other governing documents, as applicable, of any such Person;

            (ii)       conflict with, or constitute a breach or default (or an event which, with the giving of notice or passage of time or both, constitutes or would constitute a breach or default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or other remedy with respect to, any agreement,
            indenture, instrument or other document to which any such Person is a party or by which such Person is bound; or

            (iii)      result in a violation of any Law, rule, regulation, order, judgment or decree (including Securities Laws and the rules and regulations, if any, of the Principal Market) applicable to any such Person or by which any property or asset of any such Person is bound or affected.

            Neither the Company nor any of its Subsidiaries is in violation of any term of its certificate or articles of incorporation, certificate or articles of organization, bylaws, operating agreement, partnership agreement or any other governing document, as applicable. Neither the Company nor any of its Subsidiaries is or has been in violation of any term of or in default under (or with the giving of
            notice or passage of time or both would be in violation of or default under) (x) any material contract, agreement, mortgage, indebtedness, indenture, instrument, document, judgment, decree or order of the Company or its Subsidiaries or (y) any Law applicable to the Company or its Subsidiaries. Except for the filings and listings expressly contemplated by the Investors' Rights Agreement and the filing of the Certificates of Designation, neither the Company nor any of its Subsidiaries
            is, has been, or will be required to obtain any consent, authorization or order of, or make any filing or registration with, any court or Governmental Entity in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. All consents,

             

            
                

                

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            authorizations, orders, filings and registrations that the Company or any of its Subsidiaries is or has been required to obtain as described in the preceding sentence have been obtained or effected on or prior to the date of this Agreement and prior to the date of the effectiveness of such requirement.

            
                	
                             

                        	
                            f.

                        	
                            SEC Documents; Financial Statements.

                        

            

            (i)        Since December 31, 2007, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date this representation is made (including all exhibits included
            therein and financial statements and schedules thereto and documents incorporated by reference therein) being referred to herein as the “SEC Documents” and the Company’s consolidated balance sheet as of September 30, 2008, as included in the Company’s quarterly report on Form 10-Q for the period then ended, as filed with the SEC on November 14, 2008 and as amended on November 18, 2008, being referred to
            herein as the “Most Recent Balance Sheet”). Each of the SEC Documents was filed with the SEC via the SEC’s EDGAR system within the time frames prescribed by the SEC for the filing of such SEC Documents such that each filing was timely filed with the SEC (with giving effect to any extensions of time permitted by Rule 12b-25 under the 1934 Act). As of their respective dates, the SEC Documents complied in all material
            respects with the Securities Laws. None of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Since the filing of each of the SEC Documents, no event has occurred that would require an amendment or supplement to any such SEC Document
            and as to which such an amendment or supplement has not been filed and made publicly available on the SEC’s EDGAR system no less than five (5) Business Days prior to the date this representation is made. Except as set forth on Schedule 3(f)(i), the Company has not received any written comments from the SEC staff that have not been resolved to the satisfaction of the SEC staff.

            (ii)       As of their respective dates, the consolidated financial statements of the Company and its Subsidiaries included in the SEC Documents complied in all material respects with applicable accounting requirements and the Securities Laws with respect thereto. Such consolidated financial statements have been prepared in
            accordance with GAAP, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes) and fairly present in all material respects the financial position of the Company and its Subsidiaries as of the dates thereof and the results of their operations and cash flows for the periods then ended in accordance with
            GAAP (subject, in the case of unaudited statements, to normal year-end audit adjustments that are not material individually or in the aggregate).

            (iii)      Since December 31, 2007, none of the Company, its Subsidiaries and their respective officers, directors and Affiliates or, to the Company’s Knowledge, any stockholder of the Company has made any filing with the SEC or issued any press

             

            
                

                

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            release on behalf of the Company or any of its Subsidiaries or otherwise relating to the Company or any of its Subsidiaries that contains any untrue statement of a material fact or omits any statement of material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading or has provided any other
            information to any Buyer, including information referred to in Section 2(d), that, considered in the aggregate, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading.

            (iv)      Except as set forth in Schedule 3(f)(iv), the Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date this representation is made and in effect on the date this
            representation is made and to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound that has not been previously filed as an exhibit (including by way of incorporation by reference) to its reports filed or made with the SEC under the 1934 Act.

            (v)       The accounting firm that has expressed its opinion with respect to the consolidated financial statements included in the Company’s most recently filed annual report on Form 10-KSB (the “Audit Opinion”) is independent of the Company pursuant to the
            standards set forth in Rule 2-01 of Regulation S-X promulgated by the SEC and such firm was otherwise qualified to render the Audit Opinion under applicable Securities Laws. Each accounting firm that since such filing has conducted or will conduct a review or audit of any of the Company’s consolidated financial statements is independent of the Company pursuant to the standards set forth in Rule 2-01 of Regulation S-X promulgated by the SEC and is otherwise qualified to conduct
            such review or audit and render an audit opinion under applicable Securities Laws.

            (vi)      There is no transaction, arrangement or other relationship between the Company and an unconsolidated or other off-balance-sheet entity that is required to be disclosed by the Company in its reports pursuant to the 1934 Act that has not been so disclosed in the SEC Documents at least five (5) Business Days prior to the date
            of this Agreement.

            (vii)     Since December 31, 2007, there have been no internal or SEC inquiries or investigations (formal or informal) regarding accounting or revenue recognition discussed with, reviewed by or initiated at the direction of any executive officer, board of directors or any committee thereof of the Company or any of its
            Subsidiaries.

            (viii)    The Company is not a “shell company” (as defined in Rule 12b-2 under the 1934 Act).

             

            
                

                

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            g.         Sarbanes-Oxley Compliance; Internal Accounting Controls; Disclosure Controls and Procedures; Books and Records.

            (i)        Except for as set forth in the SEC Documents, the Company and its Subsidiaries are in all material respects in compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder (collectively,
            “Sarbanes-Oxley”).

            (ii)       Since December 31, 2007, except as set forth on Schedule 3(g)(ii), neither the Company nor any of its Subsidiaries nor any director or officer, of the Company or any of its Subsidiaries has received or otherwise had or obtained Knowledge of any complaint, allegation,
            assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any of its Subsidiaries or its internal accounting controls, including any complaint, allegation, assertion or claim that the Company or any of its Subsidiaries has engaged in questionable accounting or auditing practices.

            (iii)      No attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported evidence of a material violation of Securities Laws, breach of fiduciary duty or similar violation by the Company or any of its Subsidiaries or any of their respective officers,
            directors, employees or agents to their respective boards of directors or any committee thereof or pursuant to Section 307 of Sarbanes-Oxley.

            (iv)      Except as set forth in the SEC Documents, the Company has, and has caused each of its Subsidiaries to, at all times keep books, records and accounts with respect to all of such Person’s business activities, in accordance with sound accounting practices and GAAP consistently applied. Except as set forth in the SEC
            Documents, The Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorizations, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (C) access to assets or
            incurrence of liability is permitted only in accordance with management’s general or specific authorization and (D) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any differences.

            (v)       The Company has timely filed and made publicly available on the SEC’s EDGAR system no less than five (5) Business Days prior to the date of this representation, all certifications and statements required by (A) Rule 13a-14 or Rule 15d-14 under the 1934 Act and (B) Section 906 of Sarbanes-Oxley
            with respect to any Company SEC Documents.

            (vi)      Except as set forth in the SEC Documents, the Company maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the 1934 Act. Except as set forth in the SEC Documents, such disclosure controls and

             

            
                

                

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            procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files with or submits to the SEC (A) is recorded, processed, summarized and reported accurately within the time periods specified in the SEC’s rules and forms and (B) is accumulated and communicated to the Company’s management, including its
            principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

            (vii)     Except as set forth in the SEC Documents, the Company maintains internal control over financial reporting required by Rule 13a-14 or Rule 15d-14 under the 1934 Act. As set forth in the SEC Documents, such internal control over financial reporting contains material weaknesses.

            h.         Absence of Certain Changes. Since December 31, 2007, neither the Company nor any of its Subsidiaries has taken any steps, and neither the Company nor any of its Subsidiaries currently expects to take any steps, to seek protection pursuant to any bankruptcy law, nor does the
            Company or any of its Subsidiaries have any Knowledge or reason to believe that the creditors of such Person intend to initiate involuntary bankruptcy proceedings or any knowledge of any fact that would reasonably lead a creditor to do so. Neither the Company nor any of its Subsidiaries is as of the date this representation is made, nor after giving effect to the transactions contemplated hereby or by any of the other Transaction Documents will be, Insolvent. Except as set forth in
            the SEC Documents, since December 31, 2007, neither the Company nor any of its Subsidiaries has declared or paid any dividends or sold any assets outside of the ordinary course of business. Except as set forth in the SEC Documents, since December 31, 2006, neither the Company nor any of its Subsidiaries has had any capital expenditures outside the ordinary course of its business.

            i.          Absence of Litigation. Except as set forth on Schedule 3(i) or as disclosed in the SEC Documents, (i) there has at no time been any action, suit, proceeding, inquiry or investigation
            (“Litigation”) before or by any court, public board, Governmental Entity, self-regulatory organization or body pending or, to the Company’s Knowledge, threatened against or affecting the Company or any of its Subsidiaries or any of their assets, and (ii) to the Company’s Knowledge, no director or officer of the Company or any of its Subsidiaries has been involved in securities-related Litigation during the
            past five (5) years. No Litigation disclosed in the SEC Documents or on Schedule 3(i) is material to the business, operations, results of operations, condition (financial or otherwise), or properties of the Company or any of its Subsidiaries in any respect.

            j.          Full Disclosure; No Undisclosed Events, Liabilities, Developments or Circumstances. Since December 31, 2007 or as set forth in the SEC Documents, there has been no Material Adverse Effect and no circumstances exist that, individually or in the aggregate, could reasonably
            be expected to be, cause or have a Material Adverse Effect. Except (A) as and to the extent disclosed or reserved against on the Most Recent Balance Sheet, (B) as incurred since the date thereof in the ordinary course of business consistent with past practice, or (C) as set forth on Schedule 3(j), neither the Company, nor any of its Subsidiaries has any material liabilities or obligations of any nature, whether fixed or unfixed,
            known or unknown, secured or unsecured, absolute, accrued, contingent or otherwise and whether due or to become due. No representation or warranty or other statement made by the Company in this Agreement or any of

             

            
                

                

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            the other Transaction Documents, the Schedules hereto or any certificate or instrument delivered pursuant to this Agreement contains any untrue statement or omits to state a material fact necessary to make any such statement, in light of the circumstances in which it was made, not misleading.

            k.         Acknowledgment Regarding Buyers’ Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to the Company in connection with this Agreement and the other Transaction
            Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of any party to this Agreement or any of the other Transaction Documents (or in any similar capacity) with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by any Buyer or any of its representatives or agents in connection with the
            Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Shares. The Company further represents to each Buyer that the decision of the Company and each of its Subsidiaries to enter into the Transaction Documents has been based solely on the independent evaluation by such Person and its representatives.

            l.          No General Solicitation. Neither the Company nor any of its Affiliates, nor any Person acting on the behalf of any of the foregoing, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D), including
            advertisements, articles, notices, or other communications published in any newspaper, magazine or similar media or broadcast over radio, television or internet or any seminar or meeting whose attendees have been invited by general solicitation or general advertising, in connection with the offer or sale of the Shares.

            m.        No Integrated Offering. Neither the Company nor any of its Affiliates, nor any Person acting on the behalf of any of the foregoing, has, directly or indirectly, made any offers or sales of any security or solicited any offers to purchase any security, under circumstances that would
            require registration of any of the Shares under the 1933 Act or cause this offering of the Shares to be integrated with prior offerings by the Company for purposes of the 1933 Act or any other regulatory or self-regulatory authority.

            n.         Employee Relations. Except as set forth on Schedule 3(n), neither the Company nor any of its Subsidiaries is involved in any labor union dispute nor, to the Knowledge of the Company, is any such dispute threatened. To the
            Knowledge of the Company, none of the employees of either the Company or any of its Subsidiaries is or has been a member of a union that relates, or following the Closing will relate, to such employee’s relationship with the Company, and neither the Company nor any of its Subsidiaries is or following the Closing will be, a party to a collective bargaining agreement. No executive officer (as defined in Rule 3b-7 under the 1934 Act), nor any other individual whose termination
            would be required to be disclosed on a Current Report on Form 8-K, has notified the Company that such individual intends to leave the Company or otherwise terminate such individual’s employment with the Company. The current employees of the Company and its Subsidiaries constitute all of the employees necessary to conduct the Company’s business as presently conducted and as proposed to be conducted (as described to Buyers prior to the date hereof). Except as set forth
            on

             

            
                

                

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            Schedule 3(n), to the Knowledge of the Company, no such employee is, has been, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the employment of each such individual does
            not, has not and will not subject the Company or any of its Subsidiaries to any material liability with respect to any of the foregoing matters. To the Company’s Knowledge, the Company and each of its Subsidiaries is in compliance in all material respects with all Laws relating to employment and employment practices, terms and conditions of employment and wages and hours. The Company and each of its Subsidiaries is in compliance in all material respects with all Laws relating
            to employee benefits and employee benefit plans (as such terms are defined in ERISA).

            o.         Intellectual Property Rights. Except as set forth on Schedule 3(o), the Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trademark applications and registrations, trade names,
            service marks, service mark registrations, service names, patents, patent rights, patent applications, copyrights (whether or not registered), inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights (collectively, “Intellectual Property”) necessary to conduct their respective businesses as conducted as of the date this representation is made. Except as set forth
            in Schedule 3(o), (i) none of the rights of the Company or any of its Subsidiaries in its Intellectual Property have expired or terminated, or are expected to expire or terminate within five (5) years from the date of this Agreement, (ii) there has been no infringement by the Company or any of its Subsidiaries or, to the Company’s Knowledge, any of the Company’s or any of its Subsidiaries’ licensors or licensees of
            any Intellectual Property rights of others, (iii) to the Company’s Knowledge, there has been no infringement by any third parties of any Intellectual Property owned or licensed by the Company or any of its Subsidiaries, or of any development of similar or identical trade secrets or technical information by others, (iv) there is no claim, action or proceeding pending or threatened in writing against, the Company, any of its Subsidiaries or, to the Company’s Knowledge, any
            of their respective licensors regarding their Intellectual Property or infringement of other Intellectual Property rights, and there is no claim, action or proceeding pending or threatened in writing against the Company, any of its Subsidiaries or, to the Company’s Knowledge, any of their respective licensors regarding their Intellectual Property or infringement of other Intellectual Property rights, (v) there are no facts or circumstances that could reasonably be expected to
            give rise to any of the foregoing, (vi) there is no patent or patent application which contains claims that interfere with the issued or pending claims of any of the Intellectual Property owned or licensed by the Company or any of its Subsidiaries, and (vii) none of the technology employed by the Company or any of its Subsidiaries has been obtained or is being used by the Company or any of its Subsidiaries in violation of any material contractual obligation binding on the Company or
            any of its Subsidiaries or is being used by any of the officers, directors or employees of the Company or of its Subsidiaries on behalf of the Company or any of its Subsidiaries in violation of the rights of any Person or Persons. The Company and its Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and the value of all of their material Intellectual Property.

            p.         Environmental Laws. Except as set forth on Schedule 3(p), each of the Company and its Subsidiaries (i) has no Knowledge of any violation in any material respect of any Environmental Laws (as defined below), (ii) has no
            Knowledge of any current or prior

             

            
                

                

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            liability for failure to comply with any Environmental Law, (iii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business as presently conducted, and (iv) is in compliance with all terms and conditions of any such permit, license or approval.

            q.         Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as is prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. All of the
            Company’s insurance policies are in full force and effect and are valid, outstanding and enforceable, and all premiums with respect thereto are currently paid and no basis exists for early termination of any of such insurance policies on the part of the insurer thereunder. None of Company or its Subsidiaries has failed to give any notice or present any claim under any such insurance policies in due and timely fashion, and there are no outstanding unpaid claims under any such
            insurance policies. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to result in a material increase in the
            Company’s current cost of such insurance.

            r.         Regulatory Permits. The Company and its Subsidiaries possess all certificates, authorizations, approvals, licenses and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses
            (“Permits”) except to the extent that the failure to be in possession of any Permits, individually or in the aggregate, could not have, and could not be reasonably expected to have, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such Permit. The Company and its Subsidiaries are in compliance with the
            Permits in all material respects, and have no Knowledge that they will not be able to obtain necessary Permits as and when necessary to enable the Company and its Subsidiaries to conduct their respective businesses.

            s.         Principal Market. The Company is not in violation of any of the rules, regulations or requirements of the OTC Bulletin Board (the “Principal Market”) and has no Knowledge of any facts or circumstances which would
            reasonably lead to suspension or termination of the trading of the Common Stock on the Principal Market in the foreseeable future. Since December 31, 2007, (i) the Company’s Common Stock has been quoted on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or on the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or termination of the
            trading of the Common Stock on the Principal Market.

            t.          Tax Status. The Company and each of its Subsidiaries (i) has filed all federal, state and foreign income and all other tax returns, reports and declarations required to be filed and all such returns, reports and declarations are true and accurate in all material respects,
            (ii) has paid all taxes (whether or not shown on any tax return) required to be paid, except those being contested in good faith and for which the Company has made appropriate reserves on its books, (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes

             

            
                

                

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            for periods subsequent to the periods to which such returns, reports or declarations (referred to in clause (i) above) apply and (iv) has withheld and paid to the appropriate taxing authority or other governmental body all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. There
            are no unpaid taxes claimed in writing to be due from the Company or any of its Subsidiaries by the taxing authority of any jurisdiction which, individually or in the aggregate, is expected to have a Material Adverse Effect, and there is no basis for any such claim. Neither the Company nor any of its Subsidiaries is a “United States real property holding corporation” (“USRPHC”) as that term is defined in
            Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

            u.         Transactions With Affiliates. Except as set forth on Schedule 3(u) or in the SEC Documents, no Related Party of the Company or any of its Subsidiaries, nor any Affiliate thereof, is presently, has been within the past three
            years, or will be as a result of the transactions contemplated by this Agreement and the other Transaction Documents, a party to any transaction, contract, agreement, instrument, commitment, understanding or other arrangement or relationship with the Company or any of its Subsidiaries, whether for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments or consideration to or from any such Related Party. No
            Related Party of the Company or any of its Subsidiaries, or any of their respective Affiliates, has any direct or indirect ownership interest in any Person (other than ownership of less than 2% of the outstanding common stock of a publicly traded corporation) in which the Company or any of its Subsidiaries has any direct or indirect ownership interest or with which the Company or any of its Subsidiaries competes or has a business relationship.

            v.         Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, or other similar anti-takeover provision under the
            Certificate of Incorporation or the laws of the State of Delaware to the transactions contemplated by this Agreement, the Company’s issuance of the Shares in accordance with the terms hereof and any Buyer’s ownership and voting of the Shares (or Conversion Shares). The Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.

            w.        Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company, used any corporate
            funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government
            official or employee.

            x.         Outstanding Indebtedness; Liens. Except as set forth on Schedule 3(x), (i) neither the Company nor any of its Subsidiaries has, and upon consummation of the transactions contemplated hereby and by the other Transaction
            Documents will not have, any outstanding

             

            
                

                

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            Indebtedness other than Permitted Indebtedness, (ii) there are no, and upon consummation of the transactions contemplated hereby and by the other Transaction Documents there will not be any, Liens on any of the assets of the Company and its Subsidiaries other than the Permitted Liens, and (iii) there are no, and upon consummation of the transactions contemplated hereby and by the other Transaction
            Documents there will not be any, financing statements securing obligations of any amounts owed by the Company or any of its Subsidiaries filed against the Company or any of its Subsidiaries or any of their respective assets, other than those relating to Permitted Liens.

            y.         Real Property. Neither the Company nor any of its Subsidiaries owns any real property. Schedule 3(y) contains a complete and correct list of all the real property, facilities and fixtures that (i) are leased or, in the case of
            fixtures, otherwise owned or possessed by the Company or any of its Subsidiaries, (ii) in connection with which the Company or any of its Subsidiaries has entered into an option agreement, participation agreement or acquisition agreement or (iii) the Company or any of its Subsidiaries has agreed to lease or otherwise acquire or may be obligated to lease or otherwise acquire in connection with the conduct of its business (collectively, including any of the foregoing acquired after
            the date of this Agreement, the “Real Property”), which list identifies all of the Real Property and specifies which of the Company and its Subsidiaries leases, owns or possesses each item of the Real Property. Schedule 3(y) also contains a complete and correct list of all leases and other agreements with respect to which the Company or any of its Subsidiaries is a party
            or otherwise bound or affected with respect to the Real Property, except master leases affiliated with any sub leases, easements, rights of way, access agreements, surface damage agreements, surface use agreements or similar agreements that pertain to Real Property that is contained wholly within the boundaries of any leased Real Property otherwise described on Schedule 3(y) (the “Real Property
            Leases”). Except as set forth in Schedule 3(y), all of the Real Property Leases are valid and in full force and effect and are enforceable against all parties thereto. Except as set forth in Schedule 3(y), neither the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any other party thereto is in default in any material
            respect under any of such Real Property Leases and no event has occurred which with the giving of notice or the passage of time or both would constitute a default under, or otherwise give any party the right to terminate, any of such Real Property Leases, or could adversely affect the Company’s or any of its Subsidiaries’ interest in and title to the Real Property subject to any of such Real Property Leases. No Real Property Lease is subject to termination, modification
            or acceleration as a result of the transactions contemplated hereby.

            z.         Tangible Assets. The Company and its Subsidiaries have good and marketable title to all of the tangible assets that are material to their businesses (the “Assets”), in each case free and clear of any Lien, other
            than Permitted Liens. The Assets include all tangible assets necessary for the conduct of the Company’s and its Subsidiaries businesses as presently proposed to be conducted. The Assets that are facilities, fixtures, equipment, and other personal property have been maintained in accordance with normal industry practice, and are in good operating condition and repair (subject to normal wear and tear), and are suitable for the purposes for which they are now used and proposed to
            be used. There are no existing agreements, options, commitments or rights with, of or to any Person to acquire any such Assets, or any interests therein.

             

            
                

                

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            aa.       Material Contracts, Etc. The Company is not subject to any charter, contract, agreement, instrument, corporate or other legal restriction, or any judgment, decree, order, rule, regulation or other Law that has, has had, or could reasonable expected in the future to have, a Material
            Adverse Effect. Other than as disclosed in the SEC Documents, the Company or one of its Subsidiaries, as applicable, has performed all material obligations required to be performed by it to date under each of its material contracts (as set forth in Schedule 3(aa), the “Material Contracts”), and neither the Company nor any of its Subsidiaries, as applicable, nor, to the
            Company’s knowledge, any other party to any Material Contract has breached or improperly terminated any Material Contract, or is in default under any Material Contract, and there exists no condition or event which, after notice or lapse of time or both, would constitute any such breach, termination or default. Each of the Material Contracts is in full force and effect, and is a legal, binding and enforceable obligation of or against the parties thereto, and no Material
            Contract will fail to be the legal, binding and enforceable obligation of or against the parties thereto as a result of the transactions contemplated by this Agreement and the Transaction Documents. Neither the Company nor any of its Subsidiaries, as applicable, has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in any Material Contract. Neither the Company nor any of its Subsidiaries, as applicable, has received any written notice of the
            intention of any party to terminate any Material Contract or repudiate any provision thereof.

            bb.       Investment Company. The Company is not, and upon Closing will not be, an “investment company,” a company controlled by an “investment company,” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an
            “investment company,” as such terms are defined in the Investment Company Act.

            cc.       Stock Options. Except as set forth on Schedule 3(cc), every Option issued by the Company pursuant to the Equity Plans (i) has (or, if no longer outstanding, had), with respect to each share of Common Stock into which it is convertible or
            for which it is exercisable or exchangeable, an exercise price equal to or greater than the fair market value per share of Common Stock on the date of grant of such Option, (ii) was issued in compliance with the terms of the plan under which it was issued and in compliance with applicable Laws, rules and regulations, including the rules and regulations of the Principal Market, and (iii) has been accounted for in accordance with GAAP and otherwise been disclosed accurately and
            completely and in accordance with the requirements of the Securities Laws, including Rule 402 of Regulation S-K promulgated by the SEC, and the Company has paid, or properly reserved for, all taxes payable with respect to each such Option (including with respect to the issuance and exercise thereof), and has not deducted any amounts from its taxable income that it is not entitled to deduct with respect to any such stock option (including the issuance and exercise
            thereof).

            
                	
                             

                        	
                            4.

                        	
                            AFFIRMATIVE COVENANTS.

                        

            

            a.         Best Efforts. Each party shall use its reasonable best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Sections 7 and 8 of this
            Agreement.

            b.         Form D and Blue Sky. The Company agrees to timely file a Form D with respect to the Shares as required under Regulation D. The Company shall, on or before the

             

            
                

                

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            Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Shares for, sale to the Buyers at the Closing pursuant to this Agreement under applicable Securities Laws of the states of the United States, and shall provide to each Buyer evidence of any such action so taken on or prior to the Closing Date. The Company shall
            make all filings and reports relating to the offer and sale of the Shares required under applicable Securities Laws of the states of the United States.

            c.         Reporting Status. During the period commencing on the date of this Agreement and ending two years after the date as of which the Investors (as that term is defined in the Investors' Rights Agreement) may sell all of the Shares or Conversion Shares without restriction pursuant
            to Rule 144 promulgated under the 1933 Act (or successor thereto) (the “Reporting Period”), the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the Securities Laws otherwise would permit such termination. Notwithstanding the foregoing, a decision by the majority
            of the Buyers to take the Company private or to suspend reporting shall act as a waiver of this requirement.

            d.         Use of Proceeds. The Company will use the proceeds from the sale of the Shares to repay outstanding Indebtedness and for general working capital purposes.

            e.         Financial Information. The Company agrees to send the following to each Investor (as defined in the Investors' Rights Agreement) during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are immediately available to the public through the
            EDGAR system, promptly after the filing thereof with the SEC, a copy of each of its quarterly reports on Form 10-QSB or 10-Q and annual reports on Form 10-KSB or 10-K, as the case may be (each, a “Periodic Report”), Current Reports on Form 8-K, registration statements (other than on Form S-8) and amendments and supplements to each of the foregoing, (ii) unless immediately available through Bloomberg or other nationally
            recognized media outlet, facsimile copies of all press releases issued by the Company or any of its Subsidiaries, contemporaneously with the issuance thereof, and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.

            f.         Internal Accounting Controls. During the Reporting Period, the Company shall, and, shall cause each of its Subsidiaries to:

            (i)        at all times keep books, records and accounts with respect to all of such Person’s business activities, in accordance with sound accounting practices and GAAP consistently applied;

            (ii)       maintain a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorizations, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and
            to maintain asset and liability accountability, (C) access to assets or incurrence of liability is permitted only in accordance with management’s general or specific authorization and (D) the recorded accountability for assets and liabilities is compared with the existing

             

            
                

                

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            assets and liabilities at reasonable intervals and appropriate action is taken with respect to any differences;

            (iii)      timely file and make publicly available on the SEC’s EDGAR system, all certifications and statements required by (A) Rule 13a-14 or Rule 15d-14 under the 1934 Act and (B) Section 906 of Sarbanes Oxley with respect to any Periodic Reports;

            (iv)      maintain disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the 1934 Act, and to cause such disclosure controls and procedures to be effective at all times to ensure that the information required to be disclosed by the Company in the reports that it files with or submits to the SEC (A) is
            recorded, processed, summarized and reported accurately within the time periods specified in the SEC’s rules and forms and (B) is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure; and

            (v)       maintain internal control over financial reporting required by Rule 13a-14 or Rule 15d-14 under the 1934 Act, and to cause such internal control over financial reporting to be effective at all times and not contain any material weaknesses.

            g.         Listing. As soon as practicable after the Closing, the Company shall use its commercially reasonable efforts to promptly secure the listing of all of the Registrable Securities (as defined in the Investors' Rights Agreement) upon a national securities exchange or automated
            quotation system, and shall maintain, so long as any shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. So long as any Shares are outstanding, the Company shall use its best efforts to maintain the Common Stock’s listing on such national securities exchange or automated quotation system or the Principal Market and shall not take any action that would reasonably be
            expected to result in the suspension or termination of trading of the Common Stock on such national securities exchange or automated quotation system or the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(g).

            h.         Expenses. Upon the Closing Date, the Company shall pay ComVest Investment Partners III, L.P. (“ComVest”) a transaction fee of $450,000 and shall reimburse each Buyer for all of its reasonable legal, accounting,
            consulting, due diligence, travel and other expenses incurred in connection with the negotiation and evaluation of the investment contemplated hereby and by the other Transaction Documents (the “ComVest Fees and Expenses”), provided that the Company’s $75,000 deposit paid to ComVest shall be credited against such expense reimbursement.

            
                	
                             

                        	
                            i.

                        	
                            Disclosure of Transactions and Other Material Information.

                        

            

            (i)        By the fourth (4th) Business Day following the Closing Date, the Company shall file a Form 8-K (the “Announcing Form 8-K”) with the SEC. The Announcing Form 8-K, shall comply fully with the applicable 8-K rules and shall

             

            
                

                

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            describe the terms of the transactions contemplated by the Transaction Documents, including the purchase of the Shares. The Company shall file all exhibits relating to this Agreement required to be filed by the SEC and Securities Laws or other Laws as exhibits to the Company’s Annual Report on Form 10-KSB to be filed with the SEC on or around March 31, 2009.

            (ii)       Subject to the agreements and covenants set forth in this Section 4(i), the Company shall not issue any press releases or any other public statements with respect to the transactions contemplated hereby or disclosing the name of any Buyer; provided, however, that the
            Company shall be entitled, without the prior approval of any Buyer, to make any press release with respect to such transactions (A) in substantial conformity with the Announcing Form 8-K and contemporaneously therewith and (B) as is required by applicable Law.

            (iii)      Notwithstanding any provision herein to the contrary, the Company shall not, and shall cause each of its Subsidiaries and its and each of their respective Affiliates, officers, directors, employees and agents not to, provide any Buyer with any material nonpublic information regarding the Company or any of its Subsidiaries
            from and after the filing of the Announcing Form 8-K with the SEC, without the express prior written consent of such Buyer, other than notices required under the Transaction Documents which may constitute material non-public information. Notwithstanding anything to the contrary herein, in the event that the Company believes that a notice or communication to any Buyer or Investor (as defined in Section 4(j)) contains material,
            nonpublic information relating to the Company or any of its Subsidiaries, the Company so shall indicate to the such Buyer or Investor contemporaneously with delivery of such notice or communication, and such indication shall provide such Buyer or Investor the means to refuse to receive such notice or communication other than notices required under the Transaction Documents which may constitute material non-public information; and in the absence of any such indication, the holders of
            the Shares shall be allowed to presume that all matters relating to such notice or communication do not constitute material, nonpublic information relating to the Company or any of its Subsidiaries.

            j.          Pledge of Securities. The Company acknowledges and agrees that the Shares of a Buyer may be pledged by such Buyer or its transferees (each, including each Buyer, an “Investor”) in connection with a bona fide
            margin agreement or other loan secured by the Shares. The pledge of Shares shall not be deemed to be a transfer, sale or assignment of the Shares hereunder, and no Investor effecting any such pledge of Shares shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Shares may
            reasonably request in connection with a pledge of the Shares to such pledgee by an Investor.

            k.         Patriot Act, Investor Secrecy Act and Office of Foreign Assets Control. As required by federal law and such Buyer’s policies and practices, each Buyer may need to obtain, verify and record certain customer identification information and documentation in connection with
            opening or maintaining accounts, or establishing or continuing to provide

             

            
                

                

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            services, and, during the Reporting Period, the Company agrees to, and shall cause each of its Subsidiaries to, provide such information to the extent it is in possession of such information and can provide the same without violating an obligation of confidentiality to a third party with respect thereto.

            l.          Board of Directors; Bylaws Amendments. As of the date hereof, the Company shall take such action, including amending the Bylaws, as may be required to cause the number of directors constituting the Company’s board of directors immediately after the Closing Date to
            be reduced to five (5) directors. Notwithstanding the foregoing, the parties agree to abide by applicable laws and the rules promulgated thereunder, including but not limited to, the Securities Acts, the rules of Principal Market and the Delaware General Corporate Law. The Company agrees to grant inspection rights to the Buyers after Closing.

            m.        Other Amendments. The Company, with the agreement and cooperation of the Buyer, shall take all necessary corporate action with a record date following the issuance of the Shares, to approve, and to recommend to the Company’s stockholders for approval, and shall use its best
            efforts to solicit approval of its stockholders, which approval shall include the affirmative vote of the Buyer, of: (i) an amendment to the Certificate of Incorporation of the Company (a) to increase the authorized shares of Common Stock to 500,000,000 and the authorized shares of Preferred Stock to 10,000,000 (the “Authorized Share Increase”), resulting in 510,000,000 total shares of authorized Capital Stock, (b) to
            correct the reference in the Certificate of Incorporation regarding the waiver of Section 203 from “directors” to “stockholders,” and (c) to authorized Preferred Stock having the voting and other rights of the Series B Preferred. Thereafter, the Company, with the agreement and cooperation of the Buyer, shall make any filings under all applicable Securities Laws necessary to report and approve the foregoing actions.

            n.         Option Redemption. The parties agree that the Company shall redeem all options outstanding prior to the date hereof under the Company’s 2005 Stock Incentive Plan for fair market value in accordance with Section 6(h) of such plan and shall void all options outstanding
            prior to the date hereof under the Company’s 2001-02 Non-Statutory Equity Incentive Plan, as amended December 1, 2003, pursuant to Section 16 of such plan.

            
                	
                             

                        	
                            5.

                        	
                            NEGATIVE COVENANTS.

                        

            

            a.         Prohibition Against Variable Priced Securities. From the date of this Agreement until the first date following the Closing Date on which no Buyer holds any Shares (or Conversion Shares), the Company shall not in any manner issue or sell any Options or Convertible Securities
            that are convertible into or exchangeable or exercisable for shares of Common Stock at a price that varies or may vary with the market price of shares of Common Stock, including by way of one or more resets to a fixed price or increases in the number of shares of Common Stock issued or issuable, or at a price that upon the passage of time or the occurrence of certain events automatically is reduced or is adjusted or at the option of any Person may be reduced or adjusted, whether or
            not based on a formulation of the then-current market price of the Common Stock.

             

            
                

                

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            b.         Corporate Existence. During the Reporting Period, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets (including, for the avoidance of any doubt, all or substantially all of the assets of the Subsidiaries
            in the aggregate), except in the event of a merger or consolidation or sale or transfer of all or substantially all of the Company’s assets (including, for the avoidance of any doubt, all or substantially all of the assets of the Subsidiaries in the aggregate) where (i) the surviving or successor entity in such transaction (A) assumes the Company’s obligations hereunder and under the other Transaction Documents and (B) is a publicly traded corporation the common stock of
            which is listed on a national securities exchange or quoted on the over-the-counter bulletin board, and (ii) immediately before and immediately after giving effect to such transaction, no Event of Noncompliance (as defined in the Certificate of Designation) shall have occurred and be continuing.

            c.         Investment Company. From the date of this Agreement until the first date following the Closing Date on which no Buyer holds any Shares (or Conversion Shares), the Company shall not become an “investment company,” a company controlled by an “investment
            company,” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act.

            d.         No Avoidance of Obligations. During the Reporting Period, the Company shall not, and shall cause each of its Subsidiaries not to, enter into any agreement which would limit or restrict the Company’s or any of its Subsidiaries’ ability to perform under, or take any
            other voluntary action to avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it under, this Agreement, the Certificate of Designation and the other Transaction Documents.

            e.         Regulation M. Neither the Company, nor any of its Subsidiaries nor any of their respective Affiliates will take any action prohibited by Regulation M under the 1934 Act in connection with the offer, sale and delivery of the Shares contemplated hereby.

            f.         No Integrated Offering. Neither the Company, nor any of its Subsidiaries, nor any of their respective Affiliates, nor any Person acting on behalf of any of the foregoing shall, directly or indirectly, make any offers or sales of any security or solicit any offer to purchase any
            security, under any circumstances that would require registration of any of the Shares under the 1933 Act.

            g.         Protective Provisions. So long as any shares of Series A Preferred or Series B Preferred remain outstanding, written consent of a majority of the holders of Series A Preferred and Series B Preferred shall be required to authorize the Company or to permit any of its subsidiaries
            to (by amendment, merger, consolidation or otherwise):

            (i)        consummate or agree to consummate a Liquidation Event (as defined in the Certificate of Designation) of the Company or public offering of the securities of the Company;

            (ii)       redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common

             

            
                

                

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            Stock, except (A) as unanimously approved by the Board of Directors or (B) the repurchase of shares of Common Stock from employees, officers, directors and consultants performing services for the Company or one or more of its subsidiaries pursuant to agreements approved by the Board of Directors under which the Company has the right to purchase such shares upon the cessation of
            employment at a price equal to the lesser of the original purchase price or then fair market value;

            (iii)      amend the Company’s Certificate of Incorporation or Bylaws; or alter or change the rights, preferences or privileges of the shares of Series A Preferred or Series B Preferred so as to affect adversely or harm the interests of the shares of Series A Preferred or Series B Preferred, by merger, consolidation,
            recapitalization or otherwise; or increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock unless the same ranks junior to the Series A Preferred and Series B Preferred with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends and rights of redemption; or reclassify, or obligate itself to reclassify, any class or series of shares into securities
            having preference or being on a parity with the Series A Preferred or Series B Preferred in any respect; or authorize or issue, or obligate itself to issue, any equity security (including any other security convertible into or exercisable for any such equity security and any stock appreciation, phantom stock or similar vehicle) having a preference over, or being on a parity with, Series A Preferred or Series B Preferred with respect to dividends, liquidation, redemption or
            otherwise, other than the issuance of any authorized but unissued shares of Series A Preferred or Series B Preferred designated in the applicable Certificate of Designation (including any security convertible into or exercisable for such shares of Series A Preferred or Series B Preferred);

            (iv)      declare or pay any dividend or make any other distribution on shares of capital stock of the Company other than dividends on the Series A Preferred or Series B Preferred;

            (v)       declare or file for bankruptcy or any similar event or suffer an undischarged involuntary bankruptcy proceeding for more than 30 days;

            
                	
                             

                        	
                            (vi)

                        	
                            materially change the nature of the Company’s business;

                        

            

            (vii)     enter into any sale or license (or similar arrangement) with any third party of any material intellectual property, any material product or any material technology of the Company, other than in the ordinary course of business;

            (viii)    change the authorized number directors or composition of the Board of Directors of the Company;

            (ix)      take any action that would adversely affect or harm the rights or interest of the Series A Preferred or Series B Preferred; or

            (x)       directly or indirectly, by voluntary action, (A) seek to avoid or evade the observance, or performance of any protective provision set forth in this Section  

             

            
                

                

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            5 or other term or provision hereof, or (B) impair any right, power or privilege of any holder of Series A Preferred or Series B Preferred.

            6.         TRANSFER AGENT INSTRUCTIONS. The Company shall issue instructions to its transfer agent and any subsequent transfer agent, to issue certificates or credit shares to the applicable balance accounts at the Depository Trust Company
            (“DTC”), registered in the name of each Buyer or its respective nominee(s), for the Shares and any Conversion Shares in such amounts as specified from time to time by such Buyer to the Company. Prior to registration of the Shares and the Conversion Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g). The Company
            warrants that no instruction other than the transfer agent instructions referred to in this Section 6 and stop transfer instructions to give effect to Section 2(f) (in the case of the Shares and the Conversion Shares, prior to registration thereof under the 1933 Act) will be given by the Company to its transfer agent and that the Shares shall otherwise be freely transferable on the
            books and records of the Company as and to the extent provided in this Agreement and the Investors' Rights Agreement. If a Buyer provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Shares may be made without registration under the 1933 Act or the Buyer provides the Company with reasonable assurance that the Shares can be sold pursuant to Rule 144 without any restriction as to the number of
            securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer and, in the case of the Shares, promptly instruct its transfer agent to issue one or more Share Certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable
            harm to the Buyers by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6, that each Buyer shall be entitled, in addition
            to all other available remedies, to an injunctive order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

            7.         CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO SELL. The obligation of the Company to issue and sell the Shares to each Buyer is subject to the satisfaction, at or before the Closing (unless otherwise specifically provided in Section 1
            or this Section 7), of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

            a.         Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

            b.         Such Buyer shall have delivered to the Company such Buyer’s Purchase Price (less the ComVest Fees and Expenses) for the Shares being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

             

            
                

                

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            c.         The representations and warranties of such Buyer herein shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date), and such Buyer shall have performed,
            satisfied and complied with the covenants, agreements and conditions required to be performed, satisfied or complied with by such Buyer pursuant to the Transaction Documents to which such Buyer is a party at or prior to such Closing Date.

            8.         CONDITIONS TO BUYERS’ OBLIGATIONS TO PURCHASE. The obligation of each Buyer hereunder to purchase the Shares from the Company at the Closing is subject to the satisfaction, at or before the Closing, of each of the following conditions, provided that these conditions are
            for each Buyer’s sole benefit and may be waived only by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

            a.         Each of the Company and its Subsidiaries shall have executed each of the Transaction Documents to which it is a party and delivered the same to such Buyer.

            b.         The representations and warranties of the Company herein shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such date) and the Company and its Subsidiaries
            shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date.

            c.         The Board of Directors (or a committee thereof) of the Company and its Subsidiaries, as applicable, shall have adopted resolutions consistent with Section 3(b) above and in a form reasonably acceptable to such Buyer (the
            “Resolutions”).

            d.         The Company shall have received the resignation of six (6) current directors and the election of the Director Nominees (as hereafter defined) as members of the Company Board of Directors effective upon the Closing to fill the remaining vacancies created by such decrease in the size of the board and such resignations, such that
            immediately upon the Closing, the board shall consist of the Director Nominees and MacAllister Smith.

            e.         The transfer agent instructions shall have been delivered to and acknowledged in writing by the Company’s transfer agent, and the Company shall have delivered a copy thereof to such Buyer.

            f.         The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such entity’s state or other jurisdiction of incorporation or organization issued by the Secretary of State (or other applicable authority) of such state or jurisdiction of
            incorporation or organization as of a date within ten (10) days of the Closing Date.

            g.         The Company shall have delivered to such Buyer a secretary’s certificate, dated as of the Closing Date, in form and substance satisfactory to the Buyers, certifying as to (A) the Resolutions, and (B) the Bylaws, each as in effect at the Closing.

             

            
                

                

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            h.         The Company shall have entered into that certain Amended and Restated Senior Secured Note Due June 29, 2011 with an original issue date of June 29, 2006, as amended from time to time, and the Company shall not be in breach or default of any of its obligations under the Bond Financing.

            i.          The Company shall have fully performed its obligations under that certain Second Amended and Restated Put Modification Agreement Second Extension dated February 2, 2009 between the Company, Charge.com, Inc., a Delaware corporation (formerly known as Charge.com Acquisition, Inc.), Gregory Danzig, Kauai Investment Holdings,
            LLC, a Florida limited liability company, and David Dazig, or the Company shall have obtained a waiver or extension of time for such performance, and the Company shall not be in breach or default of any of its obligations to such persons.

            j.          Subject to Section 3(b) and Section 4(m), the Company shall have made all filings under all applicable Securities Laws necessary to consummate the issuance of the Shares pursuant to this Agreement in compliance with such
            laws.

            k.         The Company shall have delivered to such Buyer a letter from the Company’s transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Closing Date.

            l.          The Company shall have procured all of the third-party consents required for the consummation of the transactions contemplated by this Agreement as set forth in the Schedules delivered by it.

            m.        The Company shall have delivered an executed copy to such Buyer of a Management Agreement with ComVest Investment Partners III, L.P. (the “Management Agreement”).

            n.         The Company and its Subsidiaries shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.

            o.         The transactions contemplated by this Agreement must be permitted to occur under applicable Securities Laws.

            9.         INDEMNIFICATION. In consideration of each Buyer’s execution and delivery of this Agreement and the other Transaction Documents to be executed by such Buyer and acquiring the Shares hereunder and thereunder and in addition to all of the Company’s and its
            Subsidiaries’ other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless such Buyer and each other holder of the Shares and all of their Affiliates, stockholders, partners, officers, directors, members, managers, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including those retained in connection with the transactions contemplated by this Agreement)
            (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and

             

            
                

                

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            disbursements (collectively, the “Indemnified Liabilities”), incurred by any Indemnitees as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company or any of its Subsidiaries in any of the Transaction Documents or any other certificate, instrument or
            document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company or any of its Subsidiaries contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Indemnitees and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents in accordance with
            the terms thereof or any other certificate, instrument or document contemplated hereby or thereby in accordance with the terms thereof (other than a cause of action, suit or claim brought or made against an Indemnitee by such Indemnitee’s owners, investors or Affiliates), (d) any other transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Shares, or (e) the status of such Buyer or holder of the Shares
            as an investor in the Company. Indemnified Liabilities shall specifically include any cause of action, suit or claim brought or made against an Indemnitee by CoCard Marketing Group, LLC. Indemnified Liabilities shall not include that which results from the gross negligence or willful misconduct of the Indemnitee. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and
            satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9 shall be the same as those set forth in Sections 6(c) and 6(d) of the Investors’ Rights Agreement, including those procedures with respect to the settlement of claims and the Company’s rights to
            assume the defense of claims.

            
                	
                             

                        	
                            10.

                        	
                            GOVERNING LAW; MISCELLANEOUS.

                        

            

            a.         Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law
            provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the New York City, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
            irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at
            the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties acknowledge that each Buyer has an office in the State of New York and will have made the payment of the Purchase Price from its bank account located in the State of New York. EACH PARTY HEREBY
            IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE

             

            
                

                

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            ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

            b.         Counterparts. This Agreement and any amendments hereto may be executed and delivered in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall
            constitute one and the same agreement, and shall become effective when counterparts have been signed by each party hereto and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature to this Agreement or any amendment hereto is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party
            executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. At the request of any party each other party shall promptly re-execute an original form of this Agreement or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature
            to this Agreement or any amendment hereto or the fact that such signature was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

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

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

            e.         Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between each Buyer, the Company, its Subsidiaries, their Affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the
            instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended, modified or supplemented other than by an instrument in writing signed by the Company and the Buyers holding more than fifty
            percent (50%) of the Shares. Any such amendment shall bind all holders of the Shares. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Shares then outstanding.

            f.         Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
            facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a

             

            
                

                

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            nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

            If to the Company:

            Pipeline Data, Inc.

            1515 Hancock Street

            Suite 301

            Quincy, MA 02169

            Attention:    Chief Executive Officer

            Facsimile:     315-389-5333

            

            With a copy, which shall not constitute notice, to:

            Sheila G. Corvino, Esq.

            811 Dorset West Road

            Dorset, VT 05251

            Facsimile:     802-867-2468

             

            If to a Buyer, to it at the address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers, or, in the case of a Buyer or any party named above, at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other
            party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service,
            receipt by facsimile or deposit with a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

            g.         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without
            the prior written consent of the holders of at least two thirds (2/3) of the Shares then outstanding, including by merger or consolidation, such consent not to be unreasonably withheld. Subject to compliance with all applicable Securities Laws, a Buyer may assign some or all of its rights hereunder upon written notice to the Company; provided, however, that any such assignment shall
            not release such Buyer from its obligations hereunder unless such obligations are assumed by such assignee (as evidenced in writing) and the Company has consented to such assignment and assumption, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary contained in the Transaction Documents, a Buyer shall be entitled to pledge the Shares in connection with a bona fide margin account or other loan or financing arrangement secured by the
            Shares.

             

            
                

                

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            h.         No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and, to the extent provided in Section 9 hereof, each Indemnitee, and is not
            for the benefit of, nor may any provision hereof be enforced by, any other Person.

            i.          Survival. The representations and warranties of each Buyer and the Company contained in Sections 2 and 3, the agreements and covenants set forth in
            Sections 4, 5, 6 and 10, and the indemnification and contribution provisions set forth in Section 9, shall survive the Closing in accordance with their terms. Each Buyer shall be responsible only for its own representations, warranties,
            agreements and covenants hereunder.

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

            k.         Placement Agent. The Company represents and warrants to each Buyer that it has not engaged any placement agent, broker or financial advisor in connection with the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss
            or expense (including attorneys’ fees and out-of-pocket expenses) arising in connection with any claim for any such payment.

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

            m.        Remedies. Each Buyer and each holder of the Shares shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies that such Buyer and holders have been granted at any time under any other agreement or contract and all of the rights that such
            Buyer and holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security or proving actual damages), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law, or in equity.

            n.         Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and the Company or
            any of its Subsidiaries does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

            o.         Payment Set Aside. To the extent that the Company or any of its Subsidiaries makes a payment or payments to a Buyer pursuant to this Agreement, the Investors' Rights Agreement, the Shares, or any other Transaction Document or a Buyer enforces or

             

            
                

                

                31

                 

                

            

             

            
                

            

            exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company or any of its Subsidiaries, by a trustee, receiver or any other Person
            under any law (including any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

            p.         Independent Nature of Buyers. The obligations of each Buyer hereunder are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer hereunder. Each Buyer shall be
            responsible only for its own representations, warranties, agreements and covenants hereunder. The decision of each Buyer to purchase the Shares pursuant to this Agreement has been made by such Buyer independently of any other Buyer and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or any of its
            Subsidiaries which may have been made or given by any other Buyer or by any agent or employee of any other Buyer, and no Buyer or any of its agents or employees shall have any liability to any other Buyer (or any other Person or entity) relating to or arising from any such information, materials, statements or opinions. Nothing contained herein, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as a partnership, an association, a
            joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby. Each Buyer shall be entitled to independently protect and enforce its rights, including the rights arising out of this Agreement, the Shares, and the other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding
            for such purpose.

            q.         Interpretative Matters. Unless the context otherwise requires, (i) all references to Sections, Schedules, Appendices or Exhibits are to Sections, Schedules, Appendices or Exhibits contained in or attached to this Agreement, (b) each accounting term not otherwise defined in
            this Agreement has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter, (d) the words “hereof,” “herein” and words of similar effect shall reference this Agreement in its entirety, and (e) the use of the word “including” in this Agreement shall be
            by way of example rather than limitation. All references herein and in each of the other Transaction Documents to “dollars” or “$” shall mean the lawful money of the United States of America.

            *          *          *          *          *

            
                

                

                 

                 

                32

                 

                

            

             

            
                

            

            

            IN WITNESS WHEREOF, Buyers and the Company have caused this Stock Purchase Agreement to be duly executed as of the date first written above.

             

            COMPANY:

             

            PIPELINE DATA, INC.

             

            By: /s/ MacAllister Smith

            Name: MacAllister Smith

            Title: Chief Executive Officer

             

            BUYERS:

             

            PIPELINE HOLDINGS, LLC,

            a Delaware limited liability company

             

            By its Manager:

             

            COMVEST PIPELINE HOLDINGS, LLC,

            a Delaware limited liability company

             

            
                	
                            

                            By:    COMVEST INVESTMENT PARTNERS III, L.P.,

                                      its Sole Member

                            

                                      By:    ComVest Partners III, LLC,

                                                its General Partner

                            

                            

                                                By: /s/ Daniel Nenadovic

                                                Name: Daniel Nenadovic

                        

            

             

             

            
                 
            

                            

             

                            

             

            
                

                

                Signature Page to Stock Purchase Agreement

                 

                

            

             

            
                

            

            APPENDIX

            CERTAIN DEFINED TERMS

            For purposes of this Agreement, the following terms shall have the following meanings:

            “Affiliate” means, with respect to any Person, another Person that, directly or indirectly, (i) has a 5% equity interest in that Person, (ii) has a common ownership with that Person, (iii) controls that Person, (iv) is controlled by that Person or (v) shares common control with that Person; and
            “control” or “controls” means that a Person has the power, direct or indirect, to conduct or govern the policies of another Person.

            “Bloomberg” means Bloomberg Financial Markets (or any successor thereto).

            “Bond Financing” means the financing as set forth in that certain Securities Purchase Agreement dated June 29, 2006 between the Company and certain purchasers, as amended from time to time.

            “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the New York City are authorized or required by law to remain closed.

            “Capital Lease Obligation” means, as to any Person, any obligation that is required to be classified and accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP, and the amount of such obligation shall be the capitalized amount thereof, determined in accordance with
            GAAP.

            “Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, and any and all equivalent ownership interests in a Person (other than a corporation).

            “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another Person if a primary purpose or intent of the Person incurring such liability, or a primary effect thereof, is to
            provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

            “Conversion Shares” means shares of Common Stock issued or issuable upon the exercise or conversion of any shares of Series A Preferred or shares of Series B Preferred.

            “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable or exercisable for shares of Common Stock.

            “Director Nominees” means Pete Kight, Randy McCoy, Daniel K. Nenadovic (Chairman) and an individual to be named by Buyer, in Buyer’s sole and absolute discretion, within a reasonable time after Closing.

             

            
                

                

                1

                 

                

            

             

            
                

            

            “Environmental Laws” means all Laws relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or workplace, including any of the foregoing relating to the presence,
            use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Materials.

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

            “GAAP” means U.S. generally accepted accounting principles.

            “Governmental Entity” means the government of the United States or any other nation, or any political subdivision thereof, whether state, provincial or local, or any agency (including any self-regulatory agency or organization), authority, instrumentality, regulatory body, court, central bank or other entity exercising
            executive, legislative, judicial, taxing, regulatory or administration powers or functions of or pertaining to government.

            “Hazardous Materials” means any hazardous, toxic or dangerous substance, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated
            biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law).

            “Indebtedness” of any Person means, without duplication:

            
                	
                             

                        	
                            (i)

                        	
                            All indebtedness for borrowed money;

                        

            

            (ii)       All obligations issued, undertaken or assumed as the deferred purchase price of property or services.

            (iii)      All reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments;

            (iv)      All obligations evidenced by notes, bonds, debentures, redeemable capital stock or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses;

            (v)       All indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller, bank or other financing source under such
            agreement in the event of default are limited to repossession or sale of such property);

            
                	
                             

                        	
                            (vi)

                        	
                            All Capital Lease Obligations;

                        

            

             

            
                

                

            

            2

            

            
                

            

            (vii)     All indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract
            rights) owned by any Person, even though the Person that owns such assets or property has not assumed or become liable for the payment of such indebtedness; and

            (viii)    All Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

            “Insolvent” means, with respect to any Person as of any date, (i) the present fair saleable value of such Person’s assets is less than the amount required to pay such Person’s total indebtedness, contingent or otherwise, or (ii) such Person is unable to pay its debts and liabilities, subordinated,
            contingent or otherwise, as such debts and liabilities become absolute and matured.

            “Investment Company Act” means the Investment Company Act of 1940, as amended.

            “Knowledge,” “Knowledge of the Company,” “to the Company’s Knowledge” and similar language means the actual knowledge of any “officer” (as such term is defined in Rule 16a-1
            under the 1934 Act) of the Company or of any Subsidiary after a reasonable inquiry.

            “Laws” means all present or future federal, state local or foreign laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, judgments, decrees, rulings, consent agreements, directed duties, requests, licenses, authorizations and permits of, and
            agreements with, any Governmental Entity.

            “Lien” means with respect to any asset or property, any mortgage, lien, pledge, hypothecation, charge, security interest, encumbrance or adverse claim of any kind and any restrictive covenant, condition, restriction or exception of any kind that has the practical effect of creating a mortgage, lien, pledge,
            hypothecation, charge, security interest, encumbrance or adverse claim of any kind (including any of the foregoing created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor with respect to a Capital Lease Obligation, or any financing lease having substantially the same economic effect as any of the foregoing).

            “Material Adverse Effect” means any changes, circumstances, effects, occurrences or events that, individually or in the aggregate, have or could reasonably be expected to have, a material adverse effect on (i) the business, properties, assets, operations, results of operations, condition (financial or otherwise),
            credit worthiness or prospects of the Company and its Subsidiaries, taken as a whole, (ii) any of the transactions contemplated by the Transaction Documents, or (iii) the authority or ability of the Company or any of its Subsidiaries to enter into the Transaction Documents and perform its obligations thereunder.

            “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

            “Permitted Indebtedness” means:

             

            
                

                

                3

                 

                

            

             

            
                

            

            
                	
                             

                        	
                            (i)

                        	
                            Senior Indebtedness;

                        

            

            
                	
                             

                        	
                            (ii)

                        	
                            Indebtedness relating to Tax Liens (as hereafter defined);

                        

            

            (iii)                  obligations of the Company and its Subsidiaries for collection or deposit in the ordinary course of business;

            (iv)                  unsecured account trade payables that are (A) entered into or incurred in the ordinary course of the Company’s and its Subsidiaries’ business, (B) on terms that require full payment within ninety (90) days from the date entered into or incurred, and (C) not
            unpaid in excess of sixty (60) days from the receipt of invoice, or are being contested in good faith and as to which a reserve has been accrued on the Most Recent Balance Sheet in accordance with GAAP;

            (v)                   capital or equipment lease financing arrangements in the ordinary course of business; and

            
                	
                             

                        	
                            (vi)

                        	
                            Indebtedness set forth on Schedule 3(x).

                        

            

            “Permitted Lien” means:

            
                	
                             

                        	
                            (i)

                        	
                            Liens securing Senior Indebtedness;

                        

            

            (ii)                   Liens for taxes or other governmental charges not at the time due and payable, or which are being contested in good faith by appropriate proceedings diligently prosecuted, so long as foreclosure, distraint, sale or other similar proceedings have not been initiated,
            and in each case for which the Company and its Subsidiaries maintain adequate reserves in accordance with GAAP in respect of such taxes and charges (“Tax Liens”);

            (iii)                  Liens arising in the ordinary course of business in favor of carriers, warehousemen, mechanics and materialmen, or other similar Liens imposed by law, which remain payable without penalty or which are being contested in good faith by appropriate proceedings diligently
            prosecuted, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto, and in each case for which adequate reserves in accordance with GAAP are being maintained;

            (iv)                  Liens arising in the ordinary course of business in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA);

            (v)                   Liens resulting from capital or equipment lease financing arrangements in the ordinary course of business;

            (vi)                  Easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens arising in the ordinary course of business and not materially detracting from the value of the property subject thereto and not interfering in any material respect with
            the ordinary conduct of the business of the Company or any of its Subsidiaries; and

             

            
                

                

                4

                 

                

            

             

            
                

            

            
                	
                             

                        	
                            (vii)

                        	
                            Liens resulting from the Material Contracts.

                        

            

            “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, a Governmental Entity or any other legal entity.

            “Public Disclosure” or “Publicly Disclose” means the Company’s public dissemination of information through the filing via the Electronic Data Gathering, Analysis, and Retrieval system of the SEC of a Periodic Report or Current Report disclosing such
            information pursuant to the requirements of the 1934 Act.

            “Related Party” means a Person’s or any of its Subsidiary’s officers, directors, persons who were officers or directors at any time during the previous two years, stockholders (other than any holder of less than 5% of the outstanding shares of such Person), or Affiliates of such Person or any of its
            Subsidiaries, or any individual related by blood, marriage or adoption to any such individual or any entity in which any such entity or individual owns a beneficial interest.

            “SEC Documents” has the meaning ascribed in Section 3(f).

            “Securities Laws” means the securities laws (including “Blue Sky” laws), legislation and regulations of, and the instruments, policies, rules, orders, codes, notices and interpretation notes of, the securities regulatory authorities (including the SEC) of the United States and any applicable states and
            other jurisdictions.

            “Senior Indebtedness” means the indebtedness represented by that certain Amended and Restated Senior Secured Note Due June 29, 2011 with an original issue date of June 29, 2006 as amended from time to time.

            “Shares” means the Common Stock and Series A Preferred purchased pursuant to this Agreement, along with any and all Series B Preferred exchanged therefor in accordance with Section 1.

            “Subsidiary” means any corporation, association, business entity, partnership, limited liability company or other entity of which a Person, either alone or together with one or more other Subsidiaries, (i) directly or indirectly owns or controls securities or other interests representing more than fifty (50%) of the
            voting power of such entity, or (ii) is entitled, by contract or otherwise, to elect, appoint or designate directors constituting a majority of the members of such entity’s board of directors or other governing body.

            “Transaction Documents” means this Agreement, the Investors' Rights Agreement, the Management Agreement, the Certificate of Designation, Preferences and Rights of Series A Preferred Stock, the Certificate of Designation, Preferences and Rights of Series B Preferred Stock, and each of the other agreements or instruments
            to which the Company or any of its Subsidiaries is a party or by which it is bound and which is entered into by the parties hereto or thereto in connection with the transactions contemplated hereby and thereby, or which is otherwise delivered by the Buyers, the Company or any of its Subsidiaries in connection with the transactions contemplated hereby and thereby.

             

            
                

                

                5ex10-8.htm

    Exhibit 10.8

    
 

    

    

    

    

    LOAN
AND SECURITIES PURCHASE AGREEMENT

    
 

    by
and between

    
 

    GLOBAL
DIVERSIFIED INDUSTRIES, INC.

    

    and

    
 

    DEBT
OPPORTUNITY FUND, LLLP

    
 

    DATED
DECEMBER 19, 2008

    

    

    LOAN
AND SECURITIES PURCHASE AGREEMENT

    
 

    This LOAN
AND SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated this 19th day of
December, 2008, is made by and between GLOBAL DIVERSIFIED INDUSTRIES, INC., a
Nevada corporation (the “Borrower”), and DEBT OPPORTUNITY FUND, LLLP, a limited
liability limited partnership organized under the laws of the State of Florida
(the “Lender”).

    
 

    RECITALS

    
 

    WHEREAS,
pursuant to the terms and conditions of this Agreement, the Borrower wishes to
borrow up to $6,000,000 from the Lender (the “Loan”) to be evidenced by the
issuance of a Senior Secured Promissory Note in the form attached hereto as
Exhibit A (the
“Note”);

    

    WHEREAS,
as part of the agreement to make the Loan, the Lender has requested that
Borrower sell and issue to the Lender a Series 4 Warrant to purchase an aggregate of  68,168,164 shares of common stock, par value
$.001 per share (the “Common Stock”), of Borrower initially at an exercise price
of $.05 per share in the form attached hereto as Exhibit B (the
“Series __4 Warrant” or the “Warrant”); and

    

               WHEREAS,
the Lender desires to provide the Loan to the Borrower and purchase the Warrant
from Borrower according to the terms hereinafter set forth.

     

    NOW,
THEREFORE, the Borrower
and the Lender hereby agree as follows:

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
I

    THE
LOAN AND PURCHASE AND SALE OF THE WARRANT

    
 

    1.1 The Loan and Purchase and
Sale of the
Warrant.  Subject to the terms and conditions hereof and in
reliance on the representations and warranties contained herein, or made
pursuant hereto, (a) the Borrower will borrow, and the Lender will lend to the
Borrower, at the closing of the transactions contemplated hereby (the
“Closing”), the aggregate amount of up to $6,000,000 under the Note, subject to
a deduction for an original issue discount of 2%, less the fee owed pursuant to
Section 12.9 hereof, and (b) Borrower will issue and sell to the Lender, and the
Lender will purchase from Borrower at the Closing, the Warrant for making the
Loan to the Borrower.

     

    1.2 Closing.  The
Closing shall be deemed to occur at the offices of Bush Ross, P.A., 1801 N.
Highland Avenue, Tampa, Florida 33602, at 5:00 p.m. EST on December 19,
2008, or at such other place, date or time as mutually agreeable to the parties
(the “Closing Date”).

     

    1.3 Closing
Matters.  Subject to the terms and conditions hereof, the
following actions shall be taken:

     

    (a) On the
Closing Date, (i) the Borrower will deliver to the Lender the documents set
forth in Section 5.1 hereof, (ii) the Lender shall advance $1,500,000 under the
Note by, after applying the 2% original issue discount of $30,000, delivering
the sum of $1,470,000, less fees owed pursuant to Section 12.9 below, by wire
transfer of immediately available funds in accordance with instructions of the
Borrower.

     

    (b) After the
Closing Date, subject to satisfaction of the conditions set forth in Article V
below, the Lender shall advance an additional $4,500,000 under the Note by,
after applying the 2% original issue discount, delivering $4,410,000 by wire
transfers to the Borrower, consisting of no more than three (3) separate
financings (each such subsequent payment referred to herein as a “Subsequent
Funding” with all such payments referred to herein as the “Funded Amount”), with
the first Subsequent Funding occurring on January 9, 2009, the second Subsequent
Funding occurring on January 13, 2009, and
the third Subsequent Funding occurring on January 15, 2009.

     

    ARTICLE
II

    SECURITY
DOCUMENTS

     

    2.1  Security
Documents.

     

    (a) Security Agreement and
Collateral Assignment.  All of the obligations of the Borrower
under the Note shall be secured by a lien on all the personal property and
assets of the Borrower now existing or hereinafter acquired granted pursuant to
(i) a security agreement from each Borrower dated of even date herewith between
the Borrower and the Lender in the form attached hereto as Exhibit C (“Security
Agreements), and (ii) such other documents as the Lender may reasonably require
from Borrower to secure its interests under this Agreement.

     

    (b) Guaranty.  All
of the obligations of the Borrower under the Note shall be guaranteed pursuant
to a guaranty agreement in the form attached hereto as Exhibit D (“Guaranty
Agreement”) by each of the following subsidiaries of the Borrower (each a
“Subsidiary” and collectively, the “Subsidiaries”): Lutrex Enterprises, Inc., a
corporation, organized under the laws of the State of California (“Lutrex”), and
Global Modular, Inc., a corporation organized under the laws of the State of
Nevada (“GMI”).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE III

    REPRESENTATIONS
AND WARRANTIES OF THE BORROWER

    
 

    Borrower
hereby represents and warrants to the Lender as of the date of this Agreement as
follows:

    
 

    3.1 Organization and
Qualification. Borrower is a corporation duly organized and validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, and has all requisite corporate power and authority to carry on
its business as now conducted. Borrower is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, “Material Adverse Effect” means any material adverse
effect on the business, properties, assets, operations, results of operations,
or condition (financial or otherwise) of the Borrower and the Subsidiaries,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of Borrower or any Subsidary to perform its obligations in
all material respects under the Transaction Documents.

     

    3.2  Subsidiaries.
Boorrower has no other subsidiaries other than the Subsidiaries. The Borrower
owns, directly or indirectly, all of the capital stock of each Subsidiary, free
and clear of any and all Liens, except Permitted Liens (as defined in Section
8.3), and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights. Each Subsidiary is a corporation duly organized
and validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, and has all requisite corporate power and authority to
carry on its business as now conducted. Each Subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse
Effect.

     

    3.3 Compliance.

     

    (a) Neither
Borrower nor any Subsidiary (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by Borrower or any Subsidiary under), nor has
Borrower or any Subsidiary received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it or any
of its properties is bound, except such that, individually or in the aggregate,
such default(s) and violations(s) would not have a Material Adverse Effect, (ii)
is in violation of any order of any court, arbitrator or governmental body, or
(iii) is in violation of any of the provisions of its certificate or articles of
incorporation, bylaws or other organizational or charter documents.

     

    (b) The
business of Borrower and each Subsidiary is presently being conducted in
accordance with all applicable foreign, federal, state and local governmental
laws, rules, regulations and ordinances (including, without limitation, rules
and regulations of each governmental and regulatory agency, self regulatory
organization and Trading Market applicable to any Borrower or any Subsidiary),
except such that, individually or in the aggregate, the noncompliance therewith
would not have a Material Adverse Effect. Borrower and each Subsidiary has all
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its business as now
being conducted by it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals, individually or in the aggregate, would not have a Material Adverse
Effect, and no Borrower or Subsidiary has received any written notice of
proceedings relating to the revocation or modification of any of the foregoing.
For purposes of this Agreement, “Trading Market” means the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the NYSE Arca, OTC Bulletin Board, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the Nasdaq Capital
Market.

     

    3.4 Capitalization.

     

    (a) As of the
date hereof and without giving effect to the sale of the Warrant at Closing as
contemplated hereby, the Borrower’s authorized capital stock consists of (1)
2,750,000,000 shares of Common Stock, par
value $.001 per share, of which 15,369,885
shares are outstanding and (2) 150,000,000
shares of preferred stock, par value $.001 per share, of which (x)  0 shares have been designated as Series A
Convertible Preferred Stock, par value $0.001 per share, of which 0 shares are outstanding, (y) 3,500,000 shares have been designated as Series B
Preferred Stock, par value $0.001, of which 3,484,294 shares are outstanding, and (z) 2,750,000 shares have been designated as Series C
Preferred Stock, par value $0.001, of which 1,750,000 shares are outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued, are
fully paid and nonassessable. 211,857,329
shares of Common Stock are reserved for issuance upon the exercise or conversion
of all outstanding warrants, convertible notes, options, or other securities
exchangeable, convertible or exercisable into shares of Common
Stock.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) Except
for the Warrant, or as disclosed on Schedule 3.4 attached
hereto:

     

    (i) no holder
of shares of the Borrower’s capital stock has any preemptive rights or any other
similar rights or has been granted or holds any Liens or encumbrances suffered
or permitted by the Borrower;

     

    (ii) there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of any Borrower or any Subsidiary, or contracts, commitments,
understandings or arrangements by which any Borrower or any Subsidiary is or may
become bound to issue additional shares of capital stock of any Borrower or any
Subsidiary or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of any Borrower or any Subsidiary;

     

    (iii) there are
no agreements or arrangements under which any Borrower or any Subsidiary is
obligated to register the sale of any of their securities under the Securities
Act of 1933, as amended (the “Securities Act”);

     

    (iv) there are
no outstanding securities or instruments of any Borrower or any Subsidiary that
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which any Borrower or any
Subsidiary is or may become bound to redeem a security of a Borrower or a
Subsidiary;

     

    (v) there are
no securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Warrant; and

     

    (vi) the
Borrower has no stock appreciation rights or “phantom stock” plans or agreements
or any similar plan or agreement.

     

    3.5 Issuance of the
Warrant.

     

    (a) The
Warrant to be issued hereunder is duly authorized and, upon issuance in
accordance with the terms hereof, shall be free from all taxes, Liens and
charges with respect to the issuance thereof. As of the Closing Date, the
Borrower has authorized and has reserved free of preemptive rights and other
similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to one hundred twenty percent (120%) of
the aggregate number of shares of Common Stock to effect the exercise of the
Warrant (the “Warrant Shares”).

     

    (b) The
Warrant Shares, when issued and paid for upon exercise of the Warrant will be
validly issued, fully paid and nonassessable and free from all taxes, Liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of the Common Stock.

     

    (c) Assuming
the accuracy of each of the representations and warranties made by the Lender
and set forth in Article IV hereof (and assuming no change in applicable law and
no unlawful distribution of the Warrant by the Lender or other Persons), the
issuance by the Borrower to the Lender of the Warrant is exempt from
registration under the Securities Act.

     

    3.6 Authorization; Enforcement;
Validity. Borrower has the respective requisite corporate power and
authority to enter into and perform, as applicable, its obligations under this
Agreement, the Security Agreement, the Note, the Warrant, and each of the other
agreements or instruments entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Note and the Warrant (including without limitation,
the Warrant Shares) in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by Borrower and the
consummation by each Borrower of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Note and the
Warrant, have been duly authorized by its Board, and no further consent or
authorization is required by the Borrower, it Board or stockholders. This
Agreement, the Note and the other Transaction Documents have been duly executed
and delivered by Borrower and constitutes the legal, valid and binding
obligations of Borrower enforceable against the Borrower in accordance with
their respective terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws of general application affecting enforcement of
creditors’ rights and remedies generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law or by principles of public policy
thereunder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.7 Dilutive Effect.
Borrower understands and acknowledges that the Borrower’s obligation to issue
the Warrant Shares upon exercise of the Warrant is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Borrower.

     

    3.8 No Conflicts. The
execution, delivery and performance of the Transaction Documents by Borrower and
the consummation by Borrower of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance of the Warrant
Shares) will not (i) result in a violation of any articles or certificate of
incorporation, any certificate of designations, preferences and rights of any
outstanding series of preferred stock or bylaws of Borrower or any Subsidiary or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which Borrower or any Subsidiary is a
party (except where such defaults, conflicts, rights of termination, amendment,
acceleration or cancellation have been waived or postponed until the fulfillment
of the Borrower’s obligations under the Transaction Documents), or (iii) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and rules and regulations of any governmental or any
regulatory agency, self-regulatory organization, or Trading Market applicable to
the Borrower) or by which any property or asset of the Borrower is bound or
affected, except in the case of clauses (ii) and (iii), for such breaches,
violations or defaults as would not be reasonably expected to have a Material
Adverse Effect.

     

    3.9 Governmental
Consents. Except for (i) filings required under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) to disclose the existence of the
transactions contemplated by this Agreement, (ii) application(s) to each Trading
Market for the listing of the Warrant Shares for trading thereon in the time and
manner required thereby, and (iii) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities laws,
Borrower is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental or any regulatory
agency, self-regulatory organization or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents, in each case, in accordance with the terms hereof or
thereof. Borrower is unaware of any facts or circumstances relating to Borrower
or any Subsidiary that might prevent Borrower from obtaining or effecting any of
the foregoing.

     

    3.10 Registration and Approval of
Sale of Securities. Based
in material part upon the representations and warranties herein (and in the
other Transaction Documents) of the Lender, Borrower has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Warrant hereunder (except in the case of
state securities laws, for any failures to comply that, individually or in the
aggregate, will not have a Material Adverse Effect). Assuming the accuracy of
the representations and warranties in Article IV hereof (and assuming no change
in applicable law and no unlawful distribution of the Warrant by the Lender or
other Persons), no registration under the Securities Act is required for the
offer and sale of the Warrant by the Borrower to the Lender as is contemplated
hereby. Neither the Borrower nor any Person acting on its behalf, directly or
indirectly, has or will sell, offer to sell or solicit offers to buy the Warrant
or similar securities to, or solicit offers with respect thereto from, or enter
into any negotiations relating thereto with, any Person, or has taken or will
take any action so as to either (a) bring the issuance and sale of the Warrant
under the registration provisions of the Securities Act or applicable state
securities laws, or (b) trigger shareholder approval provisions under the rules
or regulations of any Trading Market. Neither the Borrower nor any of its
affiliates that it controls, nor any Person acting on its or their behalf, has:
(x) engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of any of the Warrant; or (y) directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Warrant pursuant to
this Agreement to be integrated with prior offerings by the Borrower for
purposes of the Securities Act in a manner that would prevent the Borrower from
selling the Warrant pursuant to Regulation D and Rule 506 thereof under the
Securities Act, nor will the Borrower or any of its affiliates that it controls
or Persons acting on its or their behalf engage in any form of general
solicitation or take any action or steps that would cause the offering of the
Warrant to be integrated with other offerings.

     

    3.11 Placement Agent’s
Fees. Except as set forth in Section 12.9 below, no brokerage or finder’s
fee or commission are or will be payable to any Person with respect to the
transactions contemplated by this Agreement based upon arrangements made by
Borrower or any Subsidiary. The Borrower agrees that it shall be responsible for
the payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for Persons engaged by the Lender or any of its
affiliates) relating to or arising out of the transactions contemplated hereby.
The Borrower shall pay, and hold the Lender harmless against, any liability,
loss or expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any claim for any such fees
or commissions.

     

    3.12 Litigation. Except as
disclosed in Schedule
3.12, there is no action, suit, written notice of violation, or written
notice of any proceeding pending or, to the knowledge of the Borrower,
threatened against or affecting the Common Stock, Borrower, or any Subsidiary or
any of their respective executive officers, directors or properties before or by
any court, arbitrator, governmental or administrative agency, regulatory
authority (federal, state, county, local or foreign), self regulatory authority
or Trading Market (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Warrant or (ii) would, if there were an unfavorable decision,
have or reasonably be expected to result in a Material Adverse Effect. To the
Borrower’s knowledge, neither the Borrower nor any Subsidiary, nor any director
or executive officer thereof (in his/her capacity as such), is or, within the
last five years, has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. To the knowledge of the Borrower, there has not been,
and there is not pending or threatened in writing, any investigation by the
United States Securities and Commission (the “Commission” or “SEC”) involving
the Borrower or any current director or executive officer of the Borrower. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Borrower under the
Exchange Act or the Securities Act. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Borrower, threatened in writing
against or involving the Borrower or any of their respective properties or
assets, which individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Borrower or any executive officers or directors of
the Borrower in their capacities as such, which individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.13 Indebtedness and Other
Contracts. Except as disclosed in the SEC Documents (as defined in
Section 3.14 below), neither any Borrower nor any Subsidiary (a) has any
outstanding Indebtedness (as defined below in this Section 3.13), (b) is a party
to any contract, agreement or instrument, the violation of which, or default
under, by any other party to such contract, agreement or instrument would result
in a Material Adverse Effect, (c) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (d) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Borrowers’ officers, has or is expected to have a
Material Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of
any Person means, without duplication (i) all indebtedness for borrowed money,
(ii) all obligations issued, undertaken or assumed as the deferred purchase
price of property or services (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments,
(iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created or
arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary obligations
under any leasing or similar arrangement which, in connection with generally
accepted accounting principles, consistently applied for the periods covered
thereby, is classified as a capital lease, (vii) all indebtedness referred to in
clauses (i) through (vi) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, Lien, pledge, change, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (viii) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (i) through (vii) above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; and (z) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.  All Indebtedness of the Company, or any Subsidiary,
in excess of $100,000 is set forth on Schedule 3.13
attached hereto.

     

    3.14 Financial Information; SEC
Documents. The Borrower has filed all reports required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Borrower was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
“SEC Documents”) on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Documents prior to the expiration of
any such extension. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each registration
statement and any amendment thereto filed by the Borrower during the two years
preceding the date hereof pursuant to the Securities Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the Securities Act
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the Securities Act, as of its issue date and as of the closing
of any sale of securities pursuant thereto did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The financial
statements of the Borrower included in the SEC Documents comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP and remain subject to
year end adjustments, and fairly present in all material respects the financial
position of the Borrower and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal year-end audit
adjustments.

     

    3.15 Absence of Certain Changes
or Developments. Except as disclosed in Schedule 3.15
attached hereto or as disclosed in the SEC Documents or as contemplated herein
and in the Transaction Documents, since December 31, 2007:

     

    (a) there has
been no Material Adverse Effect, and no event or circumstance has occurred or
exists with respect to the Borrower or its businesses, properties, operations or
financial condition, which, under Exchange Act, Securities Act, or rules or
regulations of any Trading Market, requires public disclosure or announcement by
the Borrower but which has not been so publicly announced or
disclosed;

     

    (b) Borrower
has not:

     

    (i) issued
any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto, except pursuant to the exercise or conversion of
securities outstanding as of such date;

     

    (ii) borrowed
any amount in excess of $100,000 or incurred or become subject to any other
liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as adjusted to
reflect the current nature and volume of the business of the
Borrower;

     

    (iii) discharged
or satisfied any Lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of
$100,000;

     

    (iv) declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock, in each case in excess
of $50,000 individually or $100,000 in the aggregate;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, in each case in excess of $100,000, except in the ordinary course of
business;

     

    (vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in
excess of $100,000, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business;

     

    (vii) suffered
any material losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;

     

    (viii) made any
changes in employee compensation except in the ordinary course of business and
consistent with past practices;

     

    (ix) made
capital expenditures or commitments therefor that aggregate in excess of
$250,000;

     

    (x) entered
into any material transaction, whether or not in the ordinary course of business
that has not been disclosed in the SEC Documents;

     

    (xi) made
charitable contributions or pledges in excess of $10,000;

     

    (xii) suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;

     

    (xiii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment;

     

    (xiv) altered
its method of accounting, except to the extent required by GAAP;

     

    (xv) issued
any equity securities to any officer, director or affiliate (as such term is
defined in Rule 144 of the Securities Act), except pursuant to existing stock
option, equity incentive or similar incentive plans; or

     

    (xvi) entered
into an agreement, written or otherwise, to take any of the foregoing
actions.

     

    3.16 Solvency. Borrower
has not taken, nor does it have any intention to take, any steps to seek
protection pursuant to any bankruptcy or similar law. Borrower has no actual
knowledge nor has it received any written notice that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any fact
that, as of the date hereof, would reasonably lead a creditor to do so. After
giving effect to the transactions contemplated hereby to occur at the Closing,
Borrower will not be Insolvent (as hereinafter defined). For purposes of this
Agreement, “Insolvent” means (i) Borrower is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (ii) Borrower intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iii) Borrower has unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

     

    3.17 Off-Balance Sheet
Arrangements. There is no transaction, arrangement, or other relationship
between Borrower and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Borrower in its Exchange Act filings and is not
so disclosed or that if made or not made would be reasonably likely to have a
Material Adverse Effect.

     

    3.18 Foreign Corrupt
Practices. Neither Borrower, nor any Subsidiary, nor any of its
respective directors, officers, agents, employees or other Persons acting on
behalf of such subsidiaries has, in the course of their respective actions for
or on behalf of Borrower or any of its subsidiaries (a) used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity, (b) made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate funds,
(c) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended or (d) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

     

    3.19 Transactions With
Affiliates. Except as set forth on Schedule 3.19, none
of the officers, directors or employees of Borrower is presently a party to any
transaction with Borrower or any Subsidiary (other than for ordinary course
services as employees, officers or directors), including any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity
in which any such officer, director, or employee has a substantial interest or
is an officer, director, trustee or partner.

     

    3.20 Insurance. Borrower
and each Subsidiary are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of Borrower believes to be prudent and customary in the businesses in which
Borrower and each Subsidiary are engaged. Neither Borrower nor any Subsidiary
has been refused any insurance coverage sought or applied for and neither
Borrower nor any Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse
Effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.21 Employee Relations.
Neither Borrower nor any Subsidiary is a party to any collective bargaining
agreement or employs any member of a union. No Executive Officer of Borrower (as
defined in Rule 501(f) of the Securities Act) has notified Borrower that such
officer intends to leave the Borrower or otherwise terminate such officer’s
employment with the Borrower. No Executive Officer of Borrower, to the knowledge
of the Borrower, is, or is now, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and, to the actual knowledge of the Borrower, the
continued employment of each such executive officer does not subject Borrower or
any Subsidiary to any liability with respect to any of the foregoing
matters.  Borrower and each Subsidiary are in compliance with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.

     

    3.22 Title. Except as set
forth on Schedule
3.22, Borrower and each Subsidiary have good and marketable title to all
personal property owned by them which is material to their respective business,
in each case free and clear of all Liens (except for Permitted Liens). Any real
property and facilities held under lease by Borrower or any Subsidiary are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by Borrower or any Subsidiary.

     

    3.23 Intellectual Property
Rights. The Borrower and the Subsidiaries own or possess the rights to
use all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted (collectively, the “Intellectual Property Rights”)
without any conflict with the rights of others, except any failures as,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. Neither Borrower nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by Borrower or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the
Borrower, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights. The Borrower and the Subsidiaries have taken reasonable measures to
protect the value of the Intellectual Property Rights.

     

    3.24 Environmental Laws.
Borrower and each of the Subsidiaries (a) are in compliance with any and all
Environmental Laws (as hereinafter defined), (b) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (c) are in compliance with all terms
and conditions of any such permit, license or approval where, in each of the
foregoing clauses (a), (b) and (c), the failure to so comply could be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect.
The term “Environmental Laws” means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively,
“Hazardous Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.

     

    3.25 Tax Matters. Borrower
and each of the Subsidiaries (a) have made or filed all federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (b) have paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and (c) have set aside on its books reasonably adequate provision for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply, except where such failure would not have
a Material Adverse Effect. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of Borrower know of no basis for any such claim.

     

    3.26 Sarbanes-Oxley
Act; Internal
Accounting and Disclosure Controls. The Borrower is in compliance in all
material respects with the requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof and applicable to it, and any and all rules
and regulations promulgated by the SEC thereunder that are effective and
applicable to it as of the date hereof. The Borrower maintains a system of
internal accounting controls sufficient, in the judgment of the Borrower’s board
of directors, to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions are taken with respect to any differences. The Borrower has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Borrower and designed such disclosure controls and
procedures to ensure that material information relating to the Borrower,
including its Subsidiaries, is made known to the certifying officers by others
within those entities, particularly during the period in which the Borrower’s
most recently filed periodic report under the Exchange Act, as the case may be,
is being prepared. The Borrower’s certifying officers have evaluated the
effectiveness of the Borrower’s controls and procedures as of the date prior to
the filing date of the most recently filed periodic report under the Exchange
Act (such date, the “Evaluation Date”). The Borrower presented in its most
recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Borrower’s
internal controls (as such term is defined in Item 307(c) of Regulation S-B
under the Exchange Act) or, to the Borrower’s knowledge, in other factors that
could significantly affect the Borrower’s internal controls. The Borrower
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with United States GAAP and the
applicable requirements of the Exchange Act.

     

    3.27 Investment Company
Status. The Borrower is not, and immediately after receipt of payment for
the Warrant will not be, an “investment company,” an “affiliated person” of,
“promoter” for or “principal underwriter” for, or an entity “controlled” by an
“investment company,” within the meaning of the Investment Company
Act.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.28 Material Contracts.
Each contract of a Borrower that involves expenditures or receipts in excess of
$250,000 (each, a “Material Contract”) is in full force and effect and is valid
and enforceable in accordance with its terms. Each Borrower is and has been in
full compliance with all applicable terms and requirements of each its Material
Contract and no event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with or result in a violation
or breach of, or give a Borrower or any other entity the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify any Material Contract. Each
Borrower has not given or received from any other Person any notice or other
communication (whether oral or written) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any Material
Contract.

     

    3.29 [Intentionally
Omitted].

     

    3.30 No Disagreements with
Accountants. There are no disagreements of any kind presently existing,
or reasonably anticipated by the Borrower to arise, between the Borrower and the
accountants formerly or presently employed by the Borrower.

     

    3.31 Senior
Debt.  Except as disclosed on Schedule 3.31, there
is no Indebtedness of a Borrower that is senior to or ranks pari passu with the Note in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution.

     

    3.32 Manipulation of
Price. Borrower has not, and to its knowledge no one acting on its behalf
has, taken, directly or indirectly, any action designed to cause or to result or
that could reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Borrower to facilitate the sale
or resale of the Warrant.

     

    3.33 Listing and Maintenance
Requirements. The Borrower has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock is or
has been listed or quoted to the effect that the Borrower is not in compliance
with the listing or maintenance requirements of such Trading Market. The
Borrower is in compliance with all such maintenance requirements.

     

    3.34 Application of Takeover
Protections. Borrower and its Board of Directors have taken all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the respective
Certificates of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Lender as a
result of the Lender and the Borrower fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Borrower’s issuance of the Warrant and the Lender’s ownership of the
Warrant.

     

    3.35 Disclosure. All
written disclosure provided to the Lender regarding each Borrower, its business
and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Borrower are true and correct and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.

     

    ARTICLE IV

    REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER

     

    The
Lender hereby represents and warrants to the Borrower as of the date of this
Agreement as follows:

     

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

     

    4.2 Own Account. The
Lender understands that the Warrant is a “restricted security” and has not been
registered under the Securities Act or any applicable state securities law and
is acquiring the Warrant as principal for its own account and not with a view to
or for distributing or reselling such Warrant or Warrant Shares or any part
thereof except in compliance with the Securities Act, has no present intention
of distributing the Warrant or Warrant Shares and has no arrangement or
understanding with any other persons regarding the distribution of the Warrant
or Warrant Shares (this representation and warranty not limiting the Lender’s
right to sell the Warrant or Warrant Shares pursuant to a Registration Statement
(defined below) or otherwise in compliance with applicable federal and state
securities laws), except in compliance with the Securities Act. The Lender is
acquiring the Warrant hereunder in the ordinary course of its business. The
Lender does not have any agreement or understanding, directly or indirectly,
with any Person to distribute the Warrant or Warrant Shares.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    4.3 Lender Status. At the
time the Lender was offered the Warrant, it was, and at the date hereof it is,
and on each date on which it exercises any warrant issued by the Borrower, it
will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities
Act.

     

    4.4 Experience of Such
Lender. The Lender, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Warrant and the shares issuable thereunder, and
has so evaluated the merits and risks of such investment. The Lender is able to
bear the economic risk of an investment in the Warrant and the shares issuable
thereunder and, at the present time, is able to afford a complete loss of such
investment.

     

    4.5 General Solicitation.
The Lender is not purchasing the Warrant as a result of any advertisement,
article, notice or other communication regarding the Warrant published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.

     

    4.6 No Short Position.
Neither the Lender nor any of its affiliates has an open short position in the
Common Stock of the Borrower. From and after Closing, the Lender will not use
any share of Common Stock acquired pursuant to this Agreement to cover any short
position until such time as the Registration Statement covering such share of
Common Stock has been declared effective by the Commission. For purposes of this
Agreement a “short sale” or “short position” includes, without limitation, all
“short sales” as defined in Rule 200 promulgated under Regulation SHO under the
1934 Act and all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, swaps and similar arrangements (including on a
total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.

     

    ARTICLE V

    CONDITIONS
TO CLOSING OF THE PURCHASER

    
 

    The
obligation of the Lender to make the Loan and purchase the Warrant at the
Closing is subject to the fulfillment to the Lender’s satisfaction on or prior
to the Closing Date of each of the conditions set forth in Sections 5.1 through
5.7 below, any of which may be waived by such Lender. The obligation of the
Lender to make an advance in connection with a Subsequent Funding is subject to
the fulfillment to the Lender’s satisfaction on or prior to the date of each
such Subsequent Funding of each of Sections 5.2 though 5.8 below, any of which
may be waived by such Lender.

    

    5.1 Other Agreements and
Documents. The Borrower shall have delivered the following agreements and
documents:

     

    (a) The Note
in the form of Exhibit
A attached hereto, executed by the Borrower;

     

    (b) The
Warrant in the form of Exhibit B attached
hereto;

     

    (c) The
Security Agreement in the form of Exhibit C attached
hereto, executed by each Borrower;

     

    (d) The
Subsidiary Guaranty Agreement in the form of Exhibit D attached
hereto, executed by each Subsidiary;

     

    (e) An
opinion of counsel to the Borrower, dated the date of the Closing, substantially
in the form of Exhibit
E hereto, with such exceptions and limitations as shall be reasonably
acceptable to counsel to the Lender;

     

    (f) The
Subordination Agreements in the form of Exhibit F attached
hereto, executed by the Company.

     

    (g) The
Irrevocable Transfer Agent Instructions, substantially in the form
of

     

    Exhibit G attached
hereto, shall have been delivered to the Borrower’s transfer agent;

     

    (h) Financing
Statements on Form UCC-1 with respect to the personal property and assets of
each Borrower and each Subsidiary as to which the Lender will hold a security
interest;

     

    (i) A
Certificate of Good Standing from the state of incorporation of each Borrower
and each Subsidiary;

     

    (j) A
certificate of the Secretary of each Borrower, dated as of the Closing Date,
certifying the Board resolutions approving this Agreement and the transactions
contemplated hereby and in a form acceptable to Lender;

     

    (k) A
certificate of each Borrower’s CEO, dated as of the Closing Date, certifying the
fulfillment of the conditions specified in Sections 5.2 and 5.3 of this
Agreement and such other matters as the Lender shall reasonably request;
and

     

    (l) A
completed and duly executed Florida documentary stamp tax return on Form
DR-228.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.2 Representations and
Warranties Correct. The representations and warranties in Article III
hereof shall be true and correct when made, and shall be true and correct on the
Closing Date, the date of any Subsequent Funding, as applicable, with the same
force and effect as if they had been made on and as of the Closing Date, and the
Subsequent Funding Date, as applicable, except to the extent any such
representation or warranty is stated to relate solely to an earlier date, in
which case such representation or warranty shall be true and correct on and as
of such earlier date.

     

    5.3 Performance. All
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by the Borrower on or prior to the Closing Date and the
Subsequent Funding Date, as applicable, shall have been performed or complied
with by the Borrower in all material respects.

     

    5.4 No Impediments.
Neither the Borrower nor the Lender shall be subject to any order, decree or
injunction of a court or administrative agency of competent jurisdiction that
prohibits the transactions contemplated hereby or would impose any material
limitation on the ability of such Lender to exercise its full rights under the
Note or full rights of ownership of the Warrant. At the time of the Closing and
the Subsequent Funding, the Loan and purchase of the Warrant by the Lender
hereunder shall be legally permitted by all laws and regulations to which the
Lender and the Borrower are subject.

     

    5.5 Trading Markets. The
listing or trading of the Warrant Shares on each Trading Market shall have been
approved by such Trading Market authority.

     

    5.6 Material Adverse Changes;
Investigation. There shall have been no change which would have a
Material Adverse Effect on Borrower or any Guarantor since the date of the most
recent financial statements of such person delivered to Lender from time to
time. No fact shall have been discovered with regard to (a) a Borrower,
Subsidiary or any affiliates thereof or (b) this transaction, which in the
Lender’s sole determination would make the consummation of the transactions
contemplated by this Agreement (including completion of any Subsequent Funding)
not in the Lender’s best interests.

     

    5.7 Further
Assurances.  Borrower shall have delivered such further
documentation or assurances as Lender may reasonably require.

     

    5.8 Pay-Off; Release.
Borrower’s senior lender, State Financial, shall have been paid-off, in full,
and released any and all liens in the assets of the Borrower.

     

    ARTICLE VI

    CONDITIONS
TO CLOSING OF THE BORROWER

     

    The
Borrower’s obligations to issue the Note and the Borrower’s obligation to sell
the Warrant at the Closing are subject to the fulfillment to its satisfaction on
or prior to the Closing Date of each of the following conditions:

     

    6.1 Representations. The
representations made by the Lender pursuant to Article IV hereof shall be true
and correct when made and shall be true and correct on the Closing
Date.

     

    6.2  No Impediments.
Neither the Borrower nor the Lender shall be subject to any order, decree or
injunction of a court or administrative agency of competent jurisdiction that
prohibits the transactions contemplated hereby or would impose any material
limitation on the ability of the Lender to exercise full rights of ownership of
the Warrant. At the time of the Closing, the making of the Loan and purchase of
the Warrant by the Lender hereunder shall be legally permitted by all laws and
regulations to which the Lender and the Borrower are subject.

     

    ARTICLE
VII

    AFFIRMATIVE
COVENANTS

    
 

    The
Borrower hereby covenants and agrees, so long as any amounts remain outstanding
under the Note, as follows:

    7.1 Maintenance of Corporate
Existence. Borrower shall and shall cause its subsidiaries to, maintain
in full force and effect its corporate existence, rights and franchises and all
material terms of licenses and other rights to use licenses, trademarks, trade
names, service marks, copyrights, patents or processes owned or possessed by it
and necessary to the conduct of its business, except where the failure to
maintain such corporate existence, rights, franchises, licenses and rights to
use licenses, trademarks, trade names, service marks, copyrights, patents or
processes would not (a) result in a Material Adverse Effect or (b) materially
adversely affect the rights of Lender under any Transaction
Document.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.2 Maintenance of
Properties. Borrower shall and shall cause its subsidiaries to, keep each
of its properties necessary to the conduct of its business in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and Borrower shall and shall its subsidiaries to at all
times comply with each material provision of all material leases to which it is
a party or under which it occupies property.

     

    7.3 Payment of Taxes.
Borrower shall and shall cause its subsidiaries to, promptly pay and discharge,
or cause to be paid and discharged when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income, profits,
assets, property or business of the Borrower and its subsidiaries; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall be contested timely and in good faith by appropriate
proceedings, if the Borrower or its subsidiaries shall have set aside on its
books adequate reserves with respect thereto, and the failure to pay shall not
be prejudicial in any material respect to the holders of the Warrant, and
provided, further, that the Borrower or its subsidiaries will pay or cause to be
paid any such tax, assessment, charge or levy forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security
therefor.

     

    7.4 Payment of
Indebtedness. Borrower shall, and shall cause its subsidiaries to, pay or
cause to be paid when due all Indebtedness incident to the operations of the
Borrower or its subsidiaries (including, without limitation, claims or demands
of workmen, materialmen, vendors, suppliers, mechanics, carriers, warehousemen
and landlords) which, if unpaid might become a Lien (except for Permitted Liens)
upon the assets or property of the Borrower or its subsidiaries, except where
the Borrower (or its subsidiary, as the case may be) disputes the payment of
such Indebtedness in good faith by appropriate proceedings.

     

    7.5 Reservation of Common
Stock. The Borrower shall continue to reserve, free of preemptive rights
and other similar contractual rights of stockholders, a number of its authorized
but unissued shares of Common Stock not less than one hundred twenty percent
(120%) of the aggregate number of shares of Common Stock to effect the exercise
of the Warrant.

     

    7.6 Maintenance of
Insurance. Borrower shall and shall cause its subsidiaries to, keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by theft, fire, explosion and other
risks customarily insured against by companies in the line of business of the
Borrower or its subsidiaries, in amounts sufficient to prevent the Borrower and
its subsidiaries from becoming a co-insurer of the property insured; and the
Borrower shall and shall cause its subsidiaries to maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated or as may be required by law,
including, without limitation, general liability, fire and business interruption
insurance, and product liability insurance as may be required pursuant to any
license agreement to which the Borrower or its subsidiaries is a party or by
which it is bound.

     

    7.7 Notice of Adverse
Change. The Borrower shall promptly give notice to all holders of the
Note or Warrant (but in any event within seven (7) days) after becoming aware of
the existence of any condition or event which constitutes, or the occurrence of,
any of the following:

     

    (a) any Event
of Default (as hereinafter defined);

     

    (b) any other
event of noncompliance by Borrower or its subsidiaries under this Agreement in
any material respect;

     

    (c) the
institution of an action, suit or proceeding against Borrower or any subsidiary
before any court, administrative agency or arbitrator, including, without
limitation, any action of a foreign government or instrumentality, which, if
adversely decided, would result in a Material Adverse Effect whether or not
arising in the ordinary course of business; or

     

    (d) any
information relating to Borrower or any subsidiary which would reasonably be
expected to result in a material adverse effect on its inability to perform its
obligations of under any Transaction Document.

     

    Any
notice given under this Section 7.7 shall specify the nature and period of
existence of the condition, event, information, development or circumstance, the
anticipated effect thereof and what actions the Borrower have taken and/or
proposes to take with respect thereto.

    

    7.8 Compliance With
Agreements. Borrower shall and shall cause its subsidiaries to comply in
all material respects, with the terms and conditions of all material agreements,
commitments or instruments to which the Borrower or any of its subsidiaries is a
party or by which it or they may be bound.

     

    7.9 Other Agreements.
Borrower shall not enter into any agreement in which the terms of such agreement
would restrict or impair the right or ability to perform of the Borrower under
any Transaction Document.

     

    7.10  Compliance With Laws.
Borrower shall and shall cause each of its subsidiaries to duly comply in all
material respects with any material laws, ordinances, rules and regulations of
any foreign, federal, state or local government or any agency thereof, or any
writ, order or decree, and conform to all valid requirements of governmental
authorities relating to the conduct of their respective businesses, properties
or assets.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.11  Protection of Licenses,
etc. Borrower shall and shall cause its subsidiaries to, maintain, defend
and protect to the best of their ability licenses and sublicenses (and to the
extent the Borrower or a subsidiary is a licensee or sublicensee under any
license or sublicense, as permitted by the license or sublicense agreement),
trademarks, trade names, service marks, patents and applications therefor and
other proprietary information owned or used by it or them, (except where the
failure to defend and protect such licenses and sublicenses would not (a) result
in a Material Adverse Effect or (b) materially adversely affect the rights of
Lender under any Transaction Document) and shall keep duplicate copies of any
licenses, trademarks, service marks or patents owned or used by it, if any, at a
secure place selected by the Borrower.

     

    7.12 Accounts and Records;
Inspections.

     

    (a) Borrower
shall keep true records and books of account in which full, true and correct
entries will be made of all dealings or transactions in relation to the business
and affairs of the Borrower and its subsidiaries in accordance with GAAP applied
on a consistent basis.

     

    (b) Borrower
shall permit the holder(s) of the Note and the Warrant or any of such holder’s
officers, employees or representatives during regular business hours of the
Borrower, upon reasonable notice and as often as such holder may reasonably
request, to visit and inspect the offices and properties of the Borrower and its
subsidiaries and to make extracts or copies of the books, accounts and records
of the Borrower or its subsidiaries at such holder’s expense.

     

    (c) Nothing
contained in this Section 7.12 shall be construed to limit any rights which a
holder of the Note or the Warrant may otherwise have with respect to the books
and records of any Borrower or its subsidiaries, to inspect its properties or to
discuss its affairs, finances and accounts.

     

    7.13 Maintenance of
Office. Borrower will maintain its principal office at the address of the
Borrower set forth in Section 12.6 of this Agreement where notices, presentments
and demands in respect of this Agreement, the Note or the Warrant may be made
upon the Borrower, until such time as the Borrower shall notify the holders of
the Note and the Warrant in writing, at least thirty (30) days prior thereto, of
any change of location of such office.

     

    7.14 Use of Proceeds. The
Borrower shall use the proceeds received from the Loan for the purposes set
forth on Schedule
7.14 attached hereto.

     

    7.15 Payments on the
Note.  The Borrower shall make all payments required by the
Note in the time, the manner and the form as provided in the Note.

     

    7.16 SEC Reporting
Requirements. For so long as the Lender beneficially owns the Warrant,
and until such time as all Warrant Shares are saleable by the Lender without
restriction as to volume or manner of sale under Rule 144 under the Securities
Act, the Borrower shall timely file all reports required to be filed with the
Commission pursuant to the Exchange Act, and the Borrower shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination. As long as the Lender owns the Warrant or Warrant Shares, the
Borrower will prepare and furnish to the Lender and make publicly available in
accordance with Rule 144 or any successor rule such information as is required
for the Lender to sell the Warrant or Warrant Shares under Rule 144 without
regard to the volume and manner of sale limitations. The Borrower further
covenants that it will take such further action as any holder of the Warrant or
Warrant Shares may reasonably request, all to the extent required from time to
time to enable such Person to sell such Warrant or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

     

    7.17 Listing Maintenance.
The Borrower hereby agrees to use best efforts to maintain the listing or
trading of the Common Stock on a Trading Market. The Borrower further agrees, if
the Borrower applies to have the Common Stock traded on any other Trading
Market, it will include in such application all of the Warrant Shares, and will
take such other action as is necessary to cause all of the Warrant Shares to be
listed on such other Trading Market as promptly as possible. The Borrower will
take all action reasonably necessary to continue the listing and trading of its
Common Stock on, and will comply in all respects with the Borrower’s reporting,
filing and other obligations under the bylaws or rules of, each such Trading
Market on which the Borrower’s Common Stock is listed or trades.

     

    7.18 Disclosure of
Transaction. The Borrower shall issue a press release describing the
material terms of the transactions contemplated hereby (the “Press Release”) and
shall also file with the Commission a Current Report on Form 8-K (the “Form
8-K”) describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the Security Agreement, the
Guaranty Agreements, the Guarantor Security Agreements, the form of Warrant and
the Press Release) as soon as practicable following the Closing Date but in no
event more than four (4) Trading Days (defined below) following the Closing
Date, which Press Release and Form 8-K shall be subject to prior review and
reasonable comment by the Lender. For purposes of this Agreement, “Trading Day”
means any day during which the principal Trading Market on which the Common
Stock is listed or traded shall be open for trading.

     

    7.19 Further Assurances.
From time to time, Borrower shall execute and deliver to the Lender and the
Lender shall execute and deliver to the Borrower such other instruments,
certificates, agreements and documents and take such other action and do all
other things as may be reasonably requested by the other party in order to
implement or effectuate the terms and provisions of this Agreement and any of
the Transaction Documents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.20 Piggy-Back
Registrations  (a) If at any time the Company shall determine
to prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities (other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee or director benefit plans), then the Company shall send to
Lender written notice of such determination and, if within twenty days (20)
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Warrant Shares (the “Registrable
Securities”) such holder requests to be registered, subject to customary
underwriter cutbacks applicable to all holders of registration rights on a pro
rata basis (along with other holders of piggyback registration rights with
respect to the Company);  provided, that
(A) the Company shall not be required to register any Registrable Securities
pursuant to this Section 7.20 that are (I) eligible for resale under Rule 144
without the requirement to be in compliance with Rule 144(c)(1) and otherwise
without restriction or limitation pursuant to Rule 144, or (II) that are the
subject of a then effective registration statement and (B) if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities pursuant to this Section 7.20 in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 7.20 hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7.20 for the same period as
the delay in registering such other securities.

     

    (b) Registration
Expenses. All fees and expenses incident to the Company’s performance of
or compliance with its obligations under this Agreement (excluding any
underwriting discounts and selling commissions and all legal fees and expenses
of legal counsel for Lender) shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration
Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any trading market on which the Common Stock is then
listed for trading, (B) in compliance with applicable state securities or Blue
Sky laws (including, without limitation, fees and disbursements of counsel for
the Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as requested by
the Holders) and (C) with respect to any filing that may be required to be made
by any broker through which a Holder intends to make sales of Registrable
Securities with the Corporate Financing Department of Financial Industry
Regulatory Authority, Inc. (“FINRA”) pursuant NASD Rule
2710(b)(10)(A)(i), so long as the broker is receiving no more than a customary
brokerage commission in connection with such sale, (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the holders of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Section.  In addition, the Company shall be responsible for all
of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Section (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions of any holder of Registerable
Securities.

    

    7.21 Additional Issuances of
Securities.  (i) For purposes of this Section 7.21, the
following definitions shall apply:

     

                          (1) “Approved Stock Plan” means any
employee benefit plan or other agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company’s securities may be
issued to any employee, consultant, officer or director for services provided to
the Company provided,
however, in no event
may the aggregate Common Stock and Common Stock issuable upon exercise of
Convertible Securities issued pursuant to all Approved Stock Plans exceed 1,53,698 shares of Common Stock.

    

                          (2)  “Buyer” the holder(s) of the
Warrants or Warrant Shares.

    

                          (3)
“Convertible Securities”
means any stock or securities (other than Options) convertible into or
exercisable or exchangeable for shares of Common Stock.

    

                          (4)  “Excluded Securities” means any
Common Stock issued or issuable: (i) in connection with any Approved Stock Plan;
or (ii) upon exercise of any Options or Convertible Securities which are
outstanding on the day immediately preceding the date of this Agreement and
properly disclosed in the disclosure schedules attached to the Securities
Purchase Agreement, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.

    

                          (5)
“Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities.

    

                      (6)
“Common Stock
Equivalents” means, collectively, Options and Convertible
Securities.

    

                    (ii)          From
the date hereof until the date that is twenty-four month after the date of this
Agreement (the “Trigger
Date”), the Company will not, (i) directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition of) any of its, or
its Subsidiaries, equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent
Placement”) or (ii) be party to any solicitations, negotiations or
discussions with regard to the foregoing, unless the Company shall have first
complied with this Section 7.21(ii).

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

                               (1)
The Company shall deliver to each Buyer written notice (the “Offer Notice”) of any proposed
or intended issuance or sale or exchange (the “Offer”) of the securities
being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged, (y) identify
the persons or entities (if known) to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to issue and sell to
or exchange with such Buyers all of the Offered Securities, allocated among such
Buyers (a) based on such Buyer’s pro rata portion of the aggregate principal
amount of the Notes purchased hereunder (the “Basic Amount”), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional
portion of the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the “Undersubscription
Amount”).

    

                               (2)                 To
accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the tenth (10 th )
Business Day after such Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth
the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and,
if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the “Notice of
Acceptance”).  If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Buyer who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent its deems reasonably
necessary.

    

                               (3)                 The
Company shall have five (5) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the “Refused
Securities”), but only to the offerees described in the Offer Notice (if
so described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring person or persons or less favorable to the Company than those set
forth in the Offer Notice.

    

                               (4)                 In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
7.21(ii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to
Section 7.21(ii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 7.21(ii)(3) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered
Securities.  In the event that any Buyer so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have again
been offered to the Buyers in accordance with Section 7.21(ii)(1)
above.

    

                               (5)                 Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company
shall issue to the Buyers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 7.21(ii)(3) above
if the Buyers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and the Buyers
of a purchase agreement relating to such Offered Securities reasonably
satisfactory in form and substance to the Buyers and their respective
counsel.

    

                               (6)                 Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 7.21(ii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.

    

               For
purposes of Articles VII-IX, the term “subsidiary” shall be deemed to include
each Subsidiary and any subsidiary of the Borrower acquired or formed after the
date hereof.

    
 

    ARTICLE
VIII

    NEGATIVE
COVENANTS

     

    Borrower
hereby covenants and agrees, so long as any amounts under the Note remain
outstanding, it will not (and not allow any subsidiary to), without the prior
written consent of the holder(s) of the Note, directly or
indirectly:

     

    8.1 Distributions and
Redemptions. (i) Except with respect to the [Series B Preferred Stock]
and [Series C Preferred Stock] of the Borrower, declare or pay any dividends or
make any distributions to any holder(s) of any shares of capital stock of the
Borrower or (ii) purchase, redeem or otherwise acquire for value, directly or
indirectly, any shares of Common Stock of the Borrower or warrants or rights to
acquire such Common Stock; or (iii) purchase, redeem or otherwise acquire for
value, directly or indirectly, any shares of preferred stock of the Borrower or
warrants or rights to acquire such stock, except as may be required by the terms
of such preferred stock.

     

    8.2 Reclassification.
Effect any reclassification, combination or reverse stock split of the Common
Stock.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    8.3 Liens. Except as
provided in this Agreement, create, incur, assume or permit to exist any
mortgage, lien, pledge, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or of
a Borrower or any subsidiary under any conditional sale or other title retention
agreement or any capital lease, upon or with respect to any property or asset of
either Borrower or any subsidiary (each, a “Lien” and collectively, “Liens”),
except that the foregoing restrictions shall not apply to:

     

    (a) liens for
taxes, assessments and other governmental charges, if payment thereof shall not
at the time be required to be made, and provided such reserve as shall be
required by generally accepted accounting principles consistently applied shall
have been made therefor;

     

    (b) liens of
workmen, materialmen, vendors, suppliers, mechanics, carriers, warehouseman and
landlords or other like liens, incurred in the ordinary course of business for
sums not then due or being contested in good faith, if an adverse decision in
which contest would not materially affect the business of a
Borrower;

     

    (c) liens
existing on the date hereof securing Indebtedness of a Borrower or any
subsidiary that are senior to liens on the same assets held by the Lender and
that are filed prior to the date hereof and disclosed in the SEC
Documents;

     

    (d) statutory
liens of landlords, statutory liens of banks and rights of set-off, and other
liens imposed by law, in each case incurred in the ordinary course of business
(i) for amounts not yet overdue or (ii) for amounts that are overdue and that
are being contested in good faith by appropriate proceedings, so long as such
reserves or other appropriate provisions, if any, as shall be required by
generally accepted accounting principles shall have been made for any such
contested amounts;

     

    (e) liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);

     

    (f) any
attachment or judgment lien not constituting an Event of Default;

     

    (g) easements,
rights-of-way, restrictions, encroachments, and other minor defects or
irregularities in title, in each case which do not and will not interfere in any
material respect with the ordinary conduct of the business of a Borrower or any
of its subsidiaries;

     

    (h) any (i)
interest or title of a lessor or sublessor under any lease, (ii) restriction or
encumbrance that the interest or title of such lessor or sublessor may be
subject to, or (iii) subordination of the interest of the lessee or sublessee
under such lease to any restriction or encumbrance referred to in the preceding
clause (ii), so long as the holder of such restriction or encumbrance agrees to
recognize the rights of such lessee or sublessee under such lease;

     

    (i) liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of
goods;

     

    (j) any
zoning or similar law or right reserved to or vested in any governmental office
or agency to control or regulate the use of any real property;

     

    (k) liens
securing obligations (other than obligations representing debt for borrowed
money) under operating, reciprocal easement or similar agreements entered into
in the ordinary course of business of a Borrower and its subsidiaries;
and

     

    (l) the
replacement, extension or renewal of any lien permitted by this Section 8.3 upon
or in the same property theretofore subject or the replacement, extension or
renewal (without increase in the amount or change in any direct or contingent
obligor) of the Indebtedness secured thereby.

     

    All of
the foregoing Liens described in subsections (a) – (n) above shall be referred
to as “Permitted Liens”.

    
 

    8.4 Indebtedness. Create,
incur, assume, suffer, permit to exist, or guarantee, directly or indirectly,
any Indebtedness, excluding, however, from the operation of this
covenant:

     

    (a) Indebtedness
to the extent disclosed in the disclosure schedules attached hereto and
otherwise existing on the date hereof;

     

    (b) Indebtedness
which may, from time to time be incurred or guaranteed by a Borrower, which in
the aggregate principal amount does not exceed $250,000 and is subordinate to
the Indebtedness under this Agreement;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) the
endorsement of instruments for the purpose of deposit or collection in the
ordinary course of business;

     

    (d) Indebtedness
relating to contingent obligations of a Borrower and its subsidiaries under
guaranties in the ordinary course of business of the obligations of suppliers,
customers, and licensees of a Borrower and its subsidiaries;

     

    (e) Indebtedness
relating to loans from a Borrower to its subsidiaries;

     

    (f) Indebtedness
relating to capital leases in an amount not to exceed $250,000;

     

    (g)  accounts
or notes payable arising out of the purchase of merchandise, supplies,
equipment, software, computer programs or services in the ordinary course of
business.

     

    8.5 Liquidation or Sale. Sell, transfer,
lease or otherwise dispose of 10% or more of its consolidated assets (as shown
on the most recent financial statements of either Borrower or a subsidiary, as
the case may be) in any single transaction or series of related transactions
(other than the sale of inventory in the ordinary course of business), or
liquidate, dissolve, recapitalize or reorganize in any form of
transaction.

     

    8.6 Change of Control
Transaction. Enter into a Change in Control Transaction. For purposes of
this Agreement, “Change in Control Transaction” means the occurrence of (a) an
acquisition by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of a Borrower, by
contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of a Borrower (except that the acquisition of the Warrant by the
Lender shall not constitute a Change in Control for purposes of this Section),
(b) a replacement at one time or over time of more than one-half of the members
of the Board of a Borrower that is not approved by a majority of those
individuals who are members of the Board on the date hereof (or by those
individuals who are serving as members of the Board on any date whose nomination
to the Board was approved by a majority of the members of the Board who are
members on the date hereof), (c) the merger or consolidation of a Borrower or
any subsidiary of a Borrower in one or a series of related transactions with or
into another entity (except in connection with a merger involving a Borrower
solely for the purpose, and with the sole effect, of reorganizing that Borrower
under the laws of another jurisdiction; provided that the certificate of
incorporation and bylaws (or similar charter or organizational documents) of the
surviving entity are substantively identical to those of the Borrower and do not
otherwise adversely impair the rights of the Lender), or (d) the execution by a
Borrower of an agreement to which the Borrower is a party or by which it is
bound, providing for any of the events set forth above in (a), (b) or
(c).

     

    8.7 Amendment of Charter
Documents. Amend or waive any provision of the Certificate of
Incorporation or Bylaws of Borrower in any way that materially adversely affects
the rights of the Lender without the prior written consent of the
Lender.

     

    8.8 Loans and Advances.
Except for loans and advances outstanding as of the Closing Date and disclosed
in the SEC Documents, make any advance or loan to, or guarantee any obligation
of, any Person, except for intercompany loans or advances and those provided for
in this Agreement.

     

    8.9 Transactions with
Affiliates.

     

    (a) Make any
intercompany transfers from Borrower of monies or other assets in any single
transaction or series of transactions, except as otherwise permitted in this
Agreement.

     

    (b) Engage in
any transaction with any of the officers, directors, employees or affiliates of
a Borrower or of its subsidiaries, except on terms no less favorable to the
Borrower or the subsidiary as could be obtained in an arm’s length
transaction.

     

    (c)  Divert
(or permit anyone to divert) any business or opportunity of a Borrower or
subsidiary to any other corporate or business entity.

     

    8.10 Other Business. Enter
into or engage, directly or indirectly, in any business other than the business
currently conducted or proposed to be conducted as of the date of this Agreement
by a Borrower or any subsidiary, except where the entry into such new lines of
business in the aggregate does not involve expenditures by a Borrower or its
subsidiaries in excess of $250,000 in a calendar year or the issuance of
securities in the aggregate with a value in excess of $250,000 in a calendar
year.

     

    8.11 Investments. Make any
investments in excess of $250,000 in a calendar year in the aggregate in, or
purchase any stock, option, warrant, or other security or evidence of
Indebtedness of, any Person (exclusive of any subsidiary), other than
obligations of the United States Government or certificates of deposit or other
instruments maturing within one year from the date of purchase from financial
institutions with capital in excess of $50 million.

     

    8.12 Registration
Statements. Without the consent of the Lender, file any registration
statement with the Commission until the earlier of: (i) 60 Trading Days
following the date that a registration statement or registration statements
registering all the Warrant Shares is declared effective by the Commission; and
(ii) the date the Warrant Shares are saleable by Lender under Rule 144 under the
Securities Act without limitation as to volume or manner of sale; provided that
this Section shall not prohibit the Borrower from filing a registration
statement on Form S-4 or other applicable form for securities to be issued in
connection with acquisitions of businesses by a Borrower or its subsidiaries, or
post effective amendments to registration statements that were declared
effective prior to the date hereof or to a registration statement filed with the
Commission on Forms S-4 or S-8.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE IX

    EVENTS
OF DEFAULT

     

    9.1 Events of Default.
The occurrence and continuance of any of the following events shall constitute
an event of default under this Agreement (each, an “Event of Default” and,
collectively, “Events of Default”):

     

    (a) if
Borrower shall default in the payment of any sums due under the Note or other
Transaction Document when the same shall become due and payable; and in each
case such default shall have continued without cure for five (5) days after
written notice (a “Default Notice”) is given to the Borrower of such
default;

     

    (b) if (i)
Borrower shall default in the performance of any of the covenants contained in
Articles VII or VIII hereof and (x) such default shall have continued without
cure for ten (10) Trading Days after a Default Notice is given to the Borrower
or (y) such default shall have materially adversely affected the Lender
regardless of any action taken by the Borrower to cure such default; (ii)
Borrower shall default in the performance of any other agreement or covenant
contained in this Agreement or the Transaction Documents and such default shall
not have been remedied to the satisfaction of the Lender within thirty (30) days
after a Default Notice shall have been given to the Borrower; or
(iii)  Borrower or any Guarantor shall default in the performance of
any other obligation now or hereafter owed by Borrower or any Guarantor to
Lender and such default is not cured within the grace period, if any, provided
therein.

     

    (c) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed or quoted on at least one of the
following: the OTC Bulletin Board, the American Stock Exchange, the Nasdaq
Global Market, the Nasdaq Capital Market or The New York Stock Exchange, Inc.
for a period of ten (10) consecutive Trading Days and such suspension from
listing (or listing on an alternate exchange or quotation system) is not cured
within ten (10) days after the tenth (10th) consecutive day of such suspension
from listing;

     

    (d) the
Borrower’s notice to the Lender, including by way of public announcement, at any
time, of its inability to comply for any reason or its intention not to comply
with proper requests for issuance of Warrant Shares upon exercise of the
Warrant;

     

    (e) the
Borrower shall fail to (i) timely deliver the shares of Common Stock upon
exercise of a Warrant by the fifth (5th) Trading Day after the date of delivery
required therefor or otherwise in accordance with the provisions of the
Transaction Documents, (ii) file a Registration Statement in accordance with the
terms of the Registration Rights Agreement, or (iii) make the payment of any
fees and/or liquidated damages under this Agreement or any Transaction Document,
which failure in the case of items (i) and (iii) of this Section is not remedied
within five (5) Trading Days after the incurrence thereof and, solely with
respect to item (iii) above, five (5) Trading Days after the Lender delivers a
Default Notice to the Borrower of the incurrence thereof;

     

    (f) if any
material representation or warranty made in this Agreement, any Transaction
Document or in or any certificate delivered by Borrower or its subsidiaries
pursuant hereto or thereto shall prove to have been incorrect in any material
respect when made;

     

    (g) Borrower
shall (A) default in any payment of any amount or amounts of principal of or
interest on any Indebtedness (other than the Indebtedness hereunder) the
aggregate principal amount of which Indebtedness is in excess of $250,000 or (B)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders or beneficiary or beneficiaries of
such Indebtedness to cause with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity;

     

    (h)  if
Borrower or its subsidiaries shall default in the observance or performance of
any term or provision of an agreement to which it is a party or by which it is
bound, which default will have a Material Adverse Effect and such default is not
waived or cured within the applicable grace period provided for in such
agreement;

     

    (i) if a
final judgment which, either alone or together with other outstanding final
judgments against Borrower and its subsidiaries, exceeds an aggregate of
$250,000 shall be rendered against Borrower or any subsidiary and such judgment
shall have continued undischarged or unstayed for thirty-five (35) days after
entry thereof;

     

    (j) Borrower
or any subsidiary shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
or admit in writing its inability to pay its debts (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press release regarding
same, or (vii) take any action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing; or

     

    (k) a
proceeding or case shall be commenced in respect of Borrower or any subsidiary,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Borrower or any of its subsidiaries or (iii) similar relief in respect of
it under any law providing for the relief of debtors, and such proceeding or
case described in clause (i), (ii) or (iii) shall continue undismissed, or
unstayed and in effect, for a period of sixty (60) days or any order for relief
shall be entered in an involuntary case under United States Bankruptcy Code (as
now or hereafter in effect) or under the comparable laws of any jurisdiction
(foreign or domestic) against a Borrower or any subsidiary or action under the
laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing
shall be taken with respect to a Borrower or any subsidiary and shall continue
undismissed, or unstayed and in effect for a period of thirty (30)
days.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    9.2  Remedies.

     

    (a) Upon the
occurrence and continuance of an Event of Default, the Lender may at any time
(unless all defaults shall theretofore have been remedied) at its option, by
written notice or notices to the Borrower, each effective upon dispatch, declare
the entire unpaid principal amounts then outstanding under the Note and other
Transaction Documents, all interest accrued and unpaid under the Note and other
Transaction Documents and all other obligations of the Borrower to the Lender
under this Agreement or any of the other Transaction Documents to be forthwith
due and payable. Thereupon, the then outstanding principal amounts under the
Note and other Transaction Documents, all such accrued interest and all such
other obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each Borrower, and the Lender may immediately enforce
payment of all such amounts and exercise any or all of the rights and remedies
of the Lender under this Agreement and other Transaction Documents, including
without limitation the right to resort to any or all collateral securing any
obligations under the Transaction Documents and exercise any or all of the
rights of a secured party pursuant to the Uniform Commercial Code of Florida and
other applicable similar statutes in other jurisdictions.  The remedy
conferred by this Section 9.2(a) shall not be exclusive of any other remedy
provided by any Transaction Document or now or hereafter available at law, in
equity, by statute or otherwise.

     

    (b) The
Lender, by written notice or notices to the Borrower, may in its own discretion
waive an Event of Default and its consequences and rescind or annul such
declaration; provided that, no such waiver shall extend to or affect any
subsequent Event of Default or impair any right resulting
therefrom.

     

    (c) In case
any one or more Events of Default shall occur and be continuing, the Lender may
proceed to protect and enforce its rights by an action at law, suit in equity or
other appropriate proceeding, whether for the specific performance of any
agreement contained herein or in any Transaction Document or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law. In case of a default
in the payment of any amount due under the Note or other Transaction Document,
the Borrower will pay to the Lender such further amount as shall be sufficient
to cover the cost and the expenses of collection, including, without limitation,
actual attorney’s fees, expenses and disbursements. No course of dealing and no
delay on the part of a Lender in exercising any rights shall operate as a waiver
thereof or otherwise prejudice such Lender’s rights. No right conferred hereby
or by any Transaction Document upon the Lender shall be exclusive of any other
right referred to herein or therein or now available at law in equity, by
statute or otherwise.

     

    ARTICLE X

    CERTIFICATE
LEGENDS

     

    10.1 Legend. The Warrant
and the certificates representing Warrant Shares shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or “blue sky”
laws):
 

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

     

    The
Borrower shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates, registered in the name of each
Lender or its respective nominee(s), for the Warrant Shares in such amounts as
specified from time to time by the Lender to the Borrower upon exercise of the
Warrant in the form of Exhibit G attached
hereto (the “Irrevocable Transfer Agent
Instructions”). Prior to registration of the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in this Section 10.1. Certificates evidencing the Warrant Shares shall
not contain any legend (including the legend set forth in Section 10.1 hereof),
(i) while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act, or
(ii) following any sale of such Warrant Shares pursuant to Rule 144, or (iii) if
such Warrant Shares are eligible for sale under Rule 144 by the Lender without
limitation as to volume or manner of sale, or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Borrower shall cause its counsel to issue a legal opinion to the Borrower’s
transfer agent promptly after the effective date of a registration statement
covering such Warrant Shares, if required by the Borrower’s transfer agent, to
effect the removal of the legend hereunder. If all or any portion of the Warrant
is exercised at a time when there is an effective registration statement to
cover the resale of the Warrant Shares, such Warrant Shares, as the case may be,
shall be issued free of all legends. The Borrower agrees that following the
effective date of the registration statement covering Warrant Shares or at such
time as such legend is no longer required under this Section 10.1, it will, no
later than five (5) Trading Days following the delivery by the Lender to the
Borrower or the Borrower’s transfer agent of a certificate representing Warrant
Shares, as the case may be, issued with a restrictive legend (such date, the
“Delivery Date”), deliver or cause to be delivered to the Lender a certificate
representing such securities that is free from all restrictive and other
legends. The Borrower may not make any notation on its records or give
instructions to any transfer agent of the Borrower that enlarge the restrictions
on transfer set forth in this Section. Whenever a certificate representing the
Warrant Shares is required to be issued to the Lender without a legend, in lieu
of delivering physical certificates representing the Warrant Shares, provided
the Borrower’s transfer agent is participating in the Depository Trust Company
(“DTC”) Fast Automated Securities Transfer program, the Borrower shall use its
reasonable best efforts to cause its transfer agent to electronically transmit
the Warrant Shares to the Lender by crediting the account of such Lender’s Prime
Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system
(to the extent not inconsistent with any provisions of this
Agreement).

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    10.2 Liquidated Damages.
The Borrower understand that a delay in the delivery of unlegended certificates
for the Warrant Shares as set forth in Section 10.1 hereof beyond the Delivery
Date could result in economic loss to the Lender. If the Borrower fails to
deliver to a Lender such shares via DWAC or a certificate or certificates
pursuant to this Section hereunder by the Delivery Date, the Borrower shall pay
to the Lender, in cash, as partial liquidated damages and not as a penalty, for
each $500 of Warrant Shares (based on the closing price of the Common Stock
reported by the principal Trading Market on the date such securities are
submitted to the Borrower’s transfer agent) subject to Section 10.1, $10 per
Trading Day (increasing to $15 per Trading Day five (5) Trading Days after such
damages have begun to accrue and increasing to $20 per Trading Day ten (10)
Trading Days after such damages have begun to accrue) for each Trading Day after
the Legend Removal Date until such certificate is delivered. Nothing herein
shall limit the Lender’s right to pursue actual damages for the Borrower’s
failure to deliver certificates representing any securities as required by the
Transaction Documents, and the Lender shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.

     

    10.3 Sales by the Lender.
The Lender agrees that the removal of the restrictive legend from certificates
representing the Warrant or Warrant Shares as set forth in Section 10.1 is
predicated upon the Borrower’s reliance that the Lender will sell any such
securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom.

     

    ARTICLE XI

    INDEMNIFICATION

    
 

    11.1 Indemnification by the
Borrower. Borrower agrees to defend, indemnify and hold harmless the
Lender and shall reimburse the Lender for, from and against each claim, loss,
liability, cost and expense (including without limitation, interest, penalties,
costs of preparation and investigation, and the actual fees, disbursements and
expenses of attorneys, accountants and other professional advisors)
(collectively, “Losses”) directly or indirectly relating to, resulting from or
arising out of (a) any untrue representation, misrepresentation, breach of
warranty or non-fulfillment of any covenant, agreement or other obligation by or
of Borrower contained in any Transaction Document or in any certificate,
document, or instrument delivered by a Borrower to the Lender pursuant to
Section 5.4 hereof; or (b) any action instituted against the Lender or its
affiliates, by any stockholder of the Borrower who is not an affiliate of the
Lender, with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of the Lender’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings the Lender may have with any such stockholder or
any violations by the Lender of state or federal securities laws or any conduct
by the Lender which constitutes fraud, gross negligence, willful misconduct or
malfeasance).

     

    11.2 Indemnification by the
Lender. Lender shall defend, indemnify and hold harmless the Borrower and
the Subsidiaries and shall reimburse the Borrower and the Subsidiaries for, from
and against each Loss directly or indirectly relating to, resulting from or
arising out of any untrue representation, misrepresentation, or breach of
warranty by or of the Lender contained in any Transaction Document delivered to
the Borrower or any of its subsidiaries pursuant thereto.

     

    11.3 Procedure.

     

    (a) The
indemnified party shall promptly notify the indemnifying party of any claim,
demand, action or proceeding for which indemnification will be sought under this
Agreement; provided, that the failure of any party entitled to indemnification
hereunder to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Article XI except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice.

     

    (b) In case
any such action, proceeding or claim is brought against an indemnified party in
respect of which indemnification is sought hereunder, the indemnifying party
shall be entitled to participate in and, unless in the reasonable, good-faith
judgment of the indemnified party a conflict of interest between it and the
indemnifying party exists with respect to such action, proceeding or claim (in
which case the indemnifying party shall be responsible for the reasonable fees
and expenses of one separate counsel for the indemnified party), to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party.
If the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense (but not
control) with counsel of its choice at its sole cost and expense (except that
the indemnifying party shall remain responsible for the reasonable fees and
expenses of one separate counsel for the indemnified party in the event in the
reasonable, good-faith judgment of the indemnified party a conflict of interest
between it and the indemnifying party exists).

     

    (c) In the
event that the indemnifying party advises an indemnified party that it will
contest such a claim for indemnification hereunder, or fails, within thirty (30)
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the indemnifying party elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the
indemnified party’s costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be Losses subject to
indemnification hereunder.

     

    (d) The
parties shall cooperate fully with each other in connection with any negotiation
or defense of any such action or claim and shall furnish to the other party all
information reasonably available to such party which relates to such action or
claim. Each party shall keep the other party fully apprised at all times as to
the status of the defense or any settlement negotiations with respect
thereto.

     

    (e) Notwithstanding
anything in this Article XI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof which imposes any
future obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. The
indemnification obligations to defend the indemnified party required by this
Article XI shall be made by periodic payments of the amount thereof during the
course of investigation or defense, as and when the Loss is incurred, so long as
the indemnified party shall refund such moneys if it is ultimately determined by
a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar rights of the indemnified party against
the indemnifying party or others, and (ii) any liabilities the indemnifying
party may be subject to pursuant to the law.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
XII

    MISCELLANEOUS

    12.1 Governing Law. This
Agreement and the rights of the parties hereunder shall be governed in all
respects by the laws of the State of New York wherein the terms of this
Agreement were negotiated.

     

    12.2 Survival. Except as
specifically provided herein, the representations, warranties, covenants and
agreements made herein shall survive the Closing.

     

    12.3 Amendment. This
Agreement may not be amended, discharged or terminated (or any provision hereof
waived) without the written consent of each Borrower and the
Lender.

     

    12.4 Successors and
Assigns. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon and enforceable by and
against, the successors, assigns, heirs, executors and administrators of the
parties hereto. The Lender may transfer or assign its some or all of its rights
hereunder, including, without limitation, sell a participation interest in the
Loan, and the Borrower may not assign their rights or obligations hereunder
without the consent of the Lender.

     

    12.5 Entire Agreement.
This Agreement, the Transaction Documents and the other documents delivered
pursuant hereto and simultaneously herewith constitute the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and thereof.

     

    12.6 Notices, etc. All
notices, demands or other communications given hereunder shall be in writing and
shall be sufficiently given if delivered either personally, by facsimile, or by
a nationally recognized courier service marked for next business day delivery or
sent in a sealed envelope by first class mail, postage prepaid and either
registered or certified with return receipt, addressed as follows:

     

    

    if to the
Borrower:

    
 

    Phillip Hamilton

    Global Diversified Industries, Inc.

    1200 Airport Drive

    Chowchilla,
CA 93610

    Fax: (559) 665-5700

    
with a
copy (which shall not constitute notice hereunder) to:

    Robert W. Crabtree

    Crabtree Schmidt, Attorneys at Law

    1100 14th Street 

    Modesto,
CA 95354

    Phone 209 522-5231 

    Fax 209 526-0632

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    if to the
Lender:

    
 

    Debt
Opportunity Fund, LLLP

    20711
Sterlington Drive

    Land
O'Lakes, Florida  34638

    Phone:
(813) 909-2233

    Fax:
(813) 388-4430

    

    with a
copy to:

     

    Brent A.
Jones, Esq.

    Bush
Ross, P.A.

    1801 N.
Highland Ave.

    Tampa,
FL 33602

    Phone:
(813) 224-9255

    Fax:
(813) 223-9620

    

    Such
communications shall be effective immediately if delivered in person or by
confirmed facsimile, upon the date acknowledged to have been received in return
receipt, or upon the next business day if sent by overnight courier
service.

    

    12.7 Delays or Omissions.
No delay or omission to exercise any right, power or remedy accruing to the
holder(s) of the Note or Warrant upon any breach or default of a Borrower under
this Agreement shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence, therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement must be, made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.

     

    12.8 Severability. The
invalidity of any provision or portion of a provision of this Agreement shall
not affect the validity of any other provision of this Agreement or the
remaining portion of the applicable provision. It is the desire and intent of
the parties hereto that the provisions of this Agreement shall be enforced to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.

     

    12.9 Expenses. The
Borrower shall bear their own expenses and legal fees incurred on their behalf
with respect to the negotiation, execution and consummation of the transactions
contemplated by this Agreement and shall pay all documentary stamp or similar
taxes imposed by any authority upon the transactions contemplated by this
Agreement or any Transaction Document. Without requiring any documentation
therefor, the Borrower will reimburse the Lender $60,000 for all fees and
expenses incurred by it with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement and the
transactions contemplated hereby and due diligence conducted in connection
therewith, including the fees and disbursements of counsel and auditors for the
Lender. Such reimbursement shall be paid on the Closing Date by the Lender
deducting such $60,000 from the Purchase Price as provided in Section 1.1 of
this Agreement. In addition, the Borrower shall be responsible for payment of
(a) the placement agent fee to Midtown Partners & Co., LLC, a Florida
limited liability company, and (b) a $120,000 due diligence/ management fee to
Total Capital Management, LLC, a Florida limited liability
company.  The Borrower shall pay all reasonable, documented
third-party fees and expenses incurred by the Lender in connection with the
enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all actual reasonable attorneys’ fees and
expenses.

     

    12.10 Consent to Jurisdiction;
Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN THE STATE AND COUNTY OF NEW YORK FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT
AND THE TRANSACTION DOCUMENTS. EACH OF THE PARTIES TO THIS AGREEMENT IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH SUCH PARTY
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN ANY SUCH COURTS AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY
SUCH COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE PARTIES
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO
TRIAL BY JURY IN ANY SUCH LEGAL PROCEEDING. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN THE MANNER
SPECIFIED IN SECTION 12.6 AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION SUCH PARTY MAY NOW OR HEREAFTER HAVE TO SERVICE
OF PROCESS IN SUCH MANNER.

     

    12.11 Titles and Subtitles.
The titles of the articles, sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.

     

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

     

    
      	
               
      

            	
              [Signature Page
      Follows]

            

    

    
      	
               
      

            	 

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    IN
WITNESS WHEREOF, the parties hereto have duly executed this Loan and Securities
Purchase Agreement, as of the day and year first above written.

    
 

    
      
        	 
      	 
      	 
      	 
      
	 
      	
                GLOBAL
      DIVERSIFIED INDUSTRIES, INC.

                 

              
	 
      	
                By:

              	________________________________________
	 
      	 
      	
                Name:

              	
                Phillip
      Hamilton

              
	 
      	 
      	
                Title:

              	
                Chief
      Executive Officer

              

      

    

    

    
      
        	 
      	 
      	 
      	 
      
	 
      	
                DEBT
      OPPORTUNITY FUND, LLLP,

                  a
      Florida limited liability limited partnership

                 

                By:
      Total Capital Management, LLC,

                         a
      Florida limited liability company,

                         as
      its General Partner

                 

                 

              
	 
      	
                By:

              	________________________________________
	 
      	 
      	
                Name:

              	
                Sean
      Lyons

              
	 
      	 
      	
                Title:

              	
                Manager

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