Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Mobilemail (US) Inc. - Exhibit 10.6

EXHIBIT 10.6 

MOBILEMAIL (US) INC. 

2007 STOCK OPTION PLAN 

ARTICLE 1. THE PLAN 

	1.1 	Title 

This plan is entitled the “2007 Stock Option Plan” (the "Plan")
of Mobilemail (US) Inc., a Nevada corporation (the "Company”). 

	1.2 	Purpose 

The purpose of the Plan is to enhance the long-term stockholder
value of the Company by offering opportunities to directors, officers, employees
and eligible consultants of the Company and any Related Company, as defined
below, to acquire and maintain stock ownership in the Company in order to give
these persons the opportunity to participate in the Company's growth and
success, and to encourage them to remain in the service of the Company or a
Related Company.

ARTICLE 2. DEFINITIONS

The following terms will have the following meanings in the
Plan:

"Board" means the Board of Directors of the Company.

"Cause," unless otherwise defined in the
instrument evidencing the award or in an employment or services agreement
between the Company or a Related Company and a Participant, means a material
breach of the employment or services agreement, dishonesty, fraud, misconduct,
unauthorized use or disclosure of confidential information or trade secrets, or
conviction or confession of a crime punishable by law (except minor violations),
in each case as determined by the Plan Administrator, and its determination
shall be conclusive and binding.

"Code" means the Internal Revenue Code of 1986, as
amended from time to time.

"Common Stock" means the common stock, $0.001 par value,
of the Company.

"Consultant Participant" means a Participant who is
defined as a Consultant Participant in Article 5.

"Corporate Transaction," unless otherwise defined in the
instrument evidencing the Option or in a written employment or services
agreement between the Company or a Related Company and a Participant, means
consummation of either.

	(a) 	
      a merger or consolidation of the Company with or into any
      other corporation, entity or person or

	 	 
	(b) 	
      a sale, lease, exchange or other transfer in one
      transaction or a series of related transactions of all or substantially
      all the Company's outstanding securities or all or substantially all the
      Company's assets; provided, however, that a Corporate Transaction shall
      not include a Related Party Transaction.

"Disability," unless otherwise defined by the
Plan Administrator, means a mental or physical impairment of the Participant
that is expected to result in death or that has lasted or is expected to last
for a continuous period of 12 months or more and that causes the Participant to
be unable, in the 

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opinion of the Company, to perform his or her duties for the
Company or a Related Company and to be engaged in any substantial gainful
activity.

"Employment Termination Date" means, with respect to a
Participant, the first day upon which the Participant no longer has an
employment or service relationship with the Company or any Related Company.

"Exchange Act" means the Securities Exchange Act of
1934, as amended.

"Fair Market Value" means the per share value of the
Common Stock determined as follows (a) if the Common Stock is listed on an
established stock exchange or exchanges or the NASDAQ National Market, the
closing price per share on the last trading day immediately preceding such date
on the principal exchange on which it is traded or as reported by NASDAQ; (b) if
the Common Stock is not then listed on an exchange or the NASDAQ National
Market, but is quoted on the NASDAQ Small Cap Market, the NASDAQ electronic
bulletin board or the National Quotation Bureau pink sheets, the average of the
closing bid and asked prices per share for the Common Stock as quoted by NASDAQ
or the National Quotation Bureau, as the case may be, on the last trading day
immediately preceding such date; or (c) if there is no such reported market for
the Common Stock for the date in question, then an amount determined in good
faith by the Plan Administrator. 

"Grant Date" means the date on which the Plan
Administrator completes the corporate action relating to the grant of an Option
or such later date specified by the Plan Administrator, and on which all
conditions precedent to the grant have been satisfied, provided that conditions
to the exercisability or vesting of Options shall not defer the Grant Date.

"Incentive Stock Option" means an Option granted with
the intention, as reflected in the instrument evidencing the Option, that it
qualify as an "incentive stock option" as that term is defined in Section 422 of
the Code.

"Nonqualified Stock Option" means an Option other than
an Incentive Stock Option. "Option" means the right to purchase Common
Stock granted under Article 7. "Option Expiration Date" has the meaning
set forth in Article 7.6.

"Option Term" has the meaning set forth in Article
7.3.

"Participant" means the person to whom an Option is
granted and who meets the eligibility requirements imposed by Article 5,
including Consultant Participants, as defined in Article 5.

"Plan Administrator" has the meaning set forth in
Article 3.1.

"Related Company" means any entity that, directly or
indirectly, is in control of or is controlled by the Company.

"Related Party Transaction" means (a) a merger or
consolidation of the Company in which the holders of Common Stock immediately
prior to the merger hold at least a majority of the Common Stock in the
Successor Corporation immediately after the merger; (b) a sale, lease, exchange
or other transaction in one transaction or a series of related transactions of
all or substantially all the Company's assets to a wholly-owned subsidiary
corporation; (c) a mere reincorporation of the Company; or (d) a transaction
undertaken for the sole purpose of creating a holding company that will be owned
in substantially the same proportion by the persons who held the Company's
securities immediately before such transaction.

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"Retirement," unless otherwise defined by the
Plan Administrator from time to time for purposes of the Plan, means retirement
on or after the individual's normal retirement date under the Company's 401(k)
plan or other similar successor plan applicable to salaried employees.

"Securities Act" means the Securities Act of 1933, as
amended.

"Successor Corporation" has the meaning set forth in
Article 11.3.1.

"Vesting Commencement Date" means the Grant Date or such
other date selected by the Plan Administrator as the date from which the Option
begins to vest for purposes of Article 7.4.

ARTICLE 3. ADMINISTRATION

	3.1 	Plan Administrator 

The Plan shall be administered by the Board or a committee
appointed by, and consisting of two or more members of, the Board (the "Plan
Administrator"). If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the
members of any committee acting as Plan Administrator, with respect to any
persons subject or likely to become subject to Section 16 of the Exchange Act,
the provisions regarding (a) "outside directors" as contemplated by Section
162(m) of the Code and (b) "nonemployee directors" as contemplated by Rule 16b-3
under the Exchange Act. Committee members shall serve for such term as the Board
may determine, subject to removal by the Board at any time. At any time when no
committee has been appointed to administer the Plan, then the Board will be the
Plan Administrator. 

	3.2 	Administration and Interpretation by Plan
      Administrator 

Except for the terms and conditions explicitly set forth in the
Plan, the Plan Administrator shall have exclusive authority, in its discretion,
to determine all matters relating to Options under the Plan, including the
selection of individuals to be granted Options, the type of Options, the number
of shares of Common Stock subject to an Option, all terms, conditions,
restrictions and limitations, if any, of an Option and the terms of any
instrument that evidences the Option. The Plan Administrator shall also have
exclusive authority to interpret the Plan and the terms of any instrument
evidencing the Option and may from time to time adopt and change rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.

ARTICLE 4. STOCK SUBJECT TO THE PLAN 

	4.1 	Authorized Number of Shares
  

Subject to adjustment from time to time as provided in Article
11.1, the number of shares of Common Stock available for issuance under the Plan
shall be four million one hundred thousand (4,100,000) shares. 

	4.2 	Reuse of Shares 

Any shares of Common Stock that have been made subject to an
Option that cease to be subject to the Option (other than by reason of exercise
or settlement of the Option to the extent it is exercised for or settled in
shares) shall again be available for issuance in connection with future grants
of Options 

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under the Plan. In the event shares issued under the Plan are
reacquired by the Company pursuant to any forfeiture provision or right of
repurchase, such shares shall again be available for the purposes of the Plan;
provided, however, that the maximum number of shares that may be issued upon the
exercise of Incentive Stock Options shall equal the share number stated in
Article 4.1, subject to adjustment from time to time as provided in Article
11.1; and provided, further, that for purposes of Article 4.3, any such shares
shall be counted in accordance with the requirements of Section 162(m) of the
Code.

	4.3 	Limitations 

Subject to adjustment from time to time as provided in Article
11.1, not more than an aggregate of four million one hundred thousand
(4,100,000) shares shall be available for issuance pursuant to grants of
Stock Options under the Plan. 

ARTICLE 5. ELIGIBILITY 

An Option may be granted to any officer, director or employee
of the Company or a Related Company that the Plan Administrator from time to
time selects. An Option may also be granted to any consultant, agent, advisor or
independent contractor who provides services to the Company or any Related
Company (a “Consultant Participant”), so long as such Consultant Participant (a)
is a natural person or an alter ego entity of the natural person providing the
services; (b) renders bona fide services that are not in connection with the
offer and sale of the Company's securities in a capital-raising transaction; and
(c) does not directly or indirectly promote or maintain a market for the
Company's securities.

ARTICLE 6. OPTIONS 

	6.1 	Form and Grant of Options

The Plan Administrator shall have the authority, in its sole
discretion, to determine the type or types of Options to be granted under the
Plan. Options may be granted singly or in combination.

	6.2 	Settlement of Options

The Company may settle Options through the delivery of shares
of Common Stock, the granting of replacement Options or any combination thereof
as the Plan Administrator shall determine. Any Option settlement, including
payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Option payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents.

ARTICLE 7. GRANTS OF OPTIONS 

	7.1 	Grant of Options 

The Plan Administrator shall have the authority, in its sole
discretion, to grant Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.

	7.2 	Option Exercise Price

The exercise price for shares purchased under an Option shall
be as determined by the Plan Administrator, provided that: 

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(a) the exercise price for Options granted to Participants
other than Consultant Participants but shall not be less than the minimum
exercise price required by Article 8.3 with respect to Incentive Stock Options
and shall not be less than 85% of Fair Market Value of the Common Stock on the
Grant Date with respect to Nonqualified Stock Options; 

(b) the exercise price for Options granted to Consultant
Participants shall not be less than 85% of Fair Market Value of the Common Stock
on the Grant Date. 

	7.3 	Term of Options 

Subject to earlier termination in accordance with the terms of
the Plan and the instrument evidencing the Option, the maximum term of an Option
(the "Option Term") shall be as established for that Option by the Plan
Administrator or, if not so established, shall be ten years from the Grant
Date.

	7.4 	Exercise of Options 

The Plan Administrator shall establish and set forth in each
instrument that evidences an Option the time at which, or the installments in
which, the Option shall vest and become exercisable, any of which provisions may
be waived or modified by the Plan Administrator at any time.

The Plan Administrator, in its sole discretion, may adjust the
vesting schedule of an Option held by a Participant who works less than
"full-time" as that term is defined by the Plan Administrator or who takes a
Company-approved leave of absence.

To the extent an Option has vested and become exercisable, the
Option may be exercised in whole or from time to time in part by delivery to the
Company of a written stock option exercise agreement or notice, in a form and in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised, the
restrictions imposed on the shares purchased under such exercise agreement, if
any, and such representations and agreements as may be required by the Plan
Administrator, accompanied by payment in full as described in Article 7.5. An
Option may be exercised only for whole shares and may not be exercised for less
than a reasonable number of shares at any one time, as determined by the Plan
Administrator.

	7.5 	Payment of Exercise Price

The exercise price for shares purchased under an Option shall
be paid in full to the Company by delivery of consideration equal to the product
of the Option exercise price and the number of shares purchased. Such
consideration must be in accordance with the requirements of the Chapter 78 of
the Nevada Revised Statutes and the Articles of Incorporation and Bylaws of the
Company, must be paid before the Company will issue the shares being purchased
and must be in a form or a combination of forms acceptable to the Plan
Administrator for that purchase.

	7.6 	Post-Termination Exercises

The Plan Administrator shall establish and set forth in each
instrument that evidences an Option whether the Option shall continue to be
exercisable, and the terms and conditions of such exercise, if the Participant
ceases to be employed by, or to provide services to, the Company or a Related
Company, which provisions may be waived or modified by the Plan Administrator at
any time. If not so established in the instrument evidencing the Option, the
Option shall be exercisable according to the following terms and conditions,
which may be waived or modified by the Plan Administrator at any time:

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	(a) 	
      Except as otherwise set forth in this Article 7.6, any
      portion of an Option that is not vested and exercisable on the Employment
      Termination Date shall expire on such date.

	 	 	 
	(b) 	
      Any portion of an Option that is vested and exercisable
      on the Employment Termination Date shall expire on the earliest to occur
      of

	 	 	 
		(i) 	
      if the Participant's Employment Termination Date occurs
      for reasons other than Cause, Retirement, Disability or death, the day
      which is three months after such Employment Termination Date;

	 	 	 
		(ii) 	
      if the Participant's Employment Termination Date occurs
      by reason of Retirement, Disability or death, the one-year anniversary of
      such Employment Termination Date; and

	 	 	 
		(iii) 	
      the last day of the Option Term (the "Option Expiration
      Date").

	 	 	 
		
      Notwithstanding the foregoing, if the Participant dies
      after his or her Employment Termination Date but while an Option is
      otherwise exercisable, the portion of the Option that is vested and
      exercisable on such Employment Termination Date shall expire upon the
      earlier to occur of (y) the Option Expiration Date and (z) the one-year
      anniversary of the date of death, unless the Plan Administrator determines
      otherwise.

	 	 	 
		
      Also notwithstanding the foregoing, in case of
      termination of the Participant's employment or service relationship for
      Cause, all Options granted to that Participant shall automatically expire
      upon first notification to the Participant of such termination, unless the
      Plan Administrator determines otherwise. If a Participant's employment or
      service relationship with the Company is suspended pending an
      investigation of whether the Participant shall be terminated for Cause,
      all the Participant's rights under any Option shall likewise be suspended
      during the period of investigation. If any facts that would constitute
      termination for Cause are discovered after the Participant's relationship
      with the Company or a Related Company has ended, any Option then held by
      the Participant may be immediately terminated by the Plan Administrator,
      in its sole discretion.

	 	 	 
	(c) 	
      A Participant's transfer of employment or service
      relationship between or among the Company and any Related Company, or a
      change in status from an employee to a consultant, agent, advisor or
      independent contractor or a change in status from a consultant, agent,
      advisor or independent contractor to an employee, shall not be considered
      a termination of employment or service relationship for purposes of this
      Article 7. Unless the Plan Administrator determines otherwise, a
      termination of employment or service relationship shall be deemed to occur
      if a Participant's employment or service relationship is with an entity
      that has ceased to be a Related Company.

	 	 	 
	(d) 	
      The effect of a Company-approved leave of absence on the
      application of this Article 7 shall be determined by the Plan
      Administrator, in its sole discretion.

	 	 	 
	(e) 	
      If a Participant's employment or service relationship
      with the Company or a Related Company terminates by reason of Disability
      or death, the Option shall become fully vested and exercisable for all the
      shares subject to the Option. Such Option shall remain exercisable for the
      time period set forth in this Article 7.6.

ARTICLE 8. INCENTIVE STOCK OPTION LIMITATIONS 

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Notwithstanding any other provisions of the Plan, and to the
extent required by Section 422 of the Code, Incentive Stock Options shall be
subject to the following additional terms and conditions:

	8.1 	Dollar Limitation 

To the extent the aggregate Fair Market Value (determined as of
the Grant Date) of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time during any calendar year (under the Plan and
all other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.

	8.2 	Eligible Employees 

Individuals who are not employees of the Company or one of its
parent corporations or subsidiary corporations may not be granted Incentive
Stock Options.

	8.3 	Exercise Price 

The exercise price of an Incentive Stock Option shall be at
least 100% of the Fair Market Value of the Common Stock on the Grant Date, and
in the case of an Incentive Stock Option granted to a Participant who owns more
than 10% of the total combined voting power of all classes of the stock of the
Company or of its parent or subsidiary corporations (a "Ten Percent
Stockholder"), shall not be less than 110% of the Fair Market Value of the
Common Stock on the Grant Date. The determination of more than 10% ownership
shall be made in accordance with Section 422 of the Code.

	8.4 	Exercisability 

An Option designated as an Incentive Stock Option shall cease
to qualify for favorable tax treatment as an Incentive Stock Option to the
extent it is exercised (if permitted by the terms of the Option) (a) more than
three months after the Employment Termination Date if termination was for
reasons other than death or disability, (b) more than one year after the
Employment Termination Date if termination was by reason of disability, or (c)
after the Participant has been on leave of absence for more than 90 days, unless
the Participant's reemployment rights are guaranteed by statute or contract.

	8.5 	Taxation of Incentive Stock Options
  

In order to obtain certain tax benefits afforded to Incentive
  Stock Options under Section 422 of the Code, the Participant must hold the shares
  acquired upon the exercise of an Incentive Stock Option for two years after
  the Grant Date and one year after the date of exercise.

  A Participant may be subject to the alternative minimum tax at the time of exercise
  of an Incentive Stock Option. The Participant shall give the Company prompt
  notice of any disposition of shares acquired on the exercise of an Incentive
  Stock Option prior to the expiration of such holding periods.

	8.6 	Code Definitions 

For the purposes of this Article 8, "parent corporation,"
"subsidiary corporation" and "disability" shall have the meanings attributed to
those terms for purposes of Section 422 of the Code.

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ARTICLE 9. WITHHOLDING 

	9.1 	General 

The Company may require the Participant to pay to the Company
the amount of any taxes that the Company is required by applicable federal,
state, local or foreign law to withhold with respect to the grant, vesting or
exercise of an Option. The Company shall not be required to issue any shares of
Common Stock under the Plan until such obligations are satisfied.

	9.2 	Payment of Withholding Obligations in Cash
      or Shares 

The Plan Administrator may permit or require a Participant to
satisfy all or part of his or her tax withholding obligations by (a) paying cash
to the Company, (b) having the Company withhold from any cash amounts otherwise
due or to become due from the Company to the Participant, (c) having the Company
withhold a portion of any Common Stock that would otherwise be issued to the
Participant having a value equal to the tax withholding obligations (up to the
employer's minimum required tax withholding rate), or (d) surrendering any
Common Stock that the Participant previously acquired having a value equal to
the tax withholding obligations (up to the employer's minimum required tax
withholding rate to the extent the Participant has held the surrendered shares
for less than six months).

ARTICLE 10. ASSIGNABILITY

Neither an Option nor any interest therein may be assigned,
pledged or transferred by the Participant or made subject to attachment or
similar proceedings other than by will or by the applicable laws of descent and
distribution, and, during the Participant's lifetime, such Options may be
exercised only by the Participant. Notwithstanding the foregoing, and to the
extent permitted by Section 422 of the Code, the Plan Administrator, in its sole
discretion, may permit a Participant to assign or transfer an Option or may
permit a Participant to designate a beneficiary who may exercise the Option or
receive payment under the Option after the Participant's death; provided,
however, that any Option so assigned or transferred shall be subject to all the
terms and conditions of the Plan and those contained in the instrument
evidencing the Option.

ARTICLE 11. ADJUSTMENTS

	11.1 	Adjustment of Shares

In the event, at any time or from time to time, a stock
dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to stockholders other than
a normal cash dividend, or other change in the Company's corporate or capital
structure, including, without limitation, a Related Party Transaction, results
in (a) the outstanding Common Stock, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of Common Stock of the Company, then the Plan Administrator shall
make proportional adjustments in (i) the maximum number and kind of securities
subject to the Plan and issuable as Incentive Stock Options as set forth in
Article 4 and the maximum number and kind of securities that may be made subject
to Options and to Options to any individual as set forth in Article 4.3, and
(ii) the number and kind of securities that are subject to any outstanding Award
and the per share price of such securities, without any change in the aggregate
price to be paid therefor. The determination by the Plan Administrator as to the
terms of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Article 11.1 but shall be
governed by Articles 11.2 and 11.3, respectively.

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	11.2 	Dissolution or Liquidation

To the extent not previously exercised or settled, and unless
otherwise determined by the Plan Administrator in its sole discretion, Options
shall terminate immediately prior to the dissolution or liquidation of the
Company. To the extent a forfeiture provision or repurchase right applicable to
an Option has not been waived by the Plan Administrator, the Option shall be
forfeited immediately prior to the consummation of the dissolution or
liquidation.

	11.3 	Corporate Transaction

Options 

	(a) 	
      In the event of a Corporate Transaction, except as
      otherwise provided in the instrument evidencing an Option (or in a written
      employment or services agreement between a Participant and the Company or
      Related Company) and except as provided in subsection (b) below, each
      outstanding Option shall be assumed or an equivalent option or right
      substituted by the surviving corporation, the successor corporation or its
      parent corporation, as applicable (the "Successor Corporation").

	 	 
	(b) 	
      If, in connection with a Corporate Transaction, the
      Successor Corporation refuses to assume or substitute for an Option, then
      each such outstanding Option shall become fully vested and exercisable
      with respect to 100% of the unvested portion of the Option. In such case,
      the Plan Administrator shall notify the Participant in writing or
      electronically that the unvested portion of the Option specified above
      shall be fully vested and exercisable for a specified time period. At the
      expiration of the time period, the Option shall terminate, provided that
      the Corporate Transaction has occurred.

	 	 
	(c) 	
      For the purposes of this Article 11.3, the Option shall
      be considered assumed or substituted for if following the Corporate
      Transaction the option or right confers the right to purchase or receive,
      for each share of Common Stock subject to the Option immediately prior to
      the Corporate Transaction, the consideration (whether stock, cash, or
      other securities or property) received in the Corporate Transaction by
      holders of Common Stock for each share held on the effective date of the
      transaction (and if holders were offered a choice of consideration, the
      type of consideration chosen by the holders of a majority of the
      outstanding shares); provided, however, that if such consideration
      received in the Corporate Transaction is not solely Common Stock of the
      Successor Corporation, the Plan Administrator may, with the consent of the
      Successor Corporation, provide for the consideration to be received upon
      the exercise of the Option, for each share of Common Stock subject
      thereto, to be solely Common Stock of the Successor Corporation
      substantially equal in fair market value to the per share consideration
      received by holders of Common Stock in the Corporate Transaction. The
      determination of such substantial equality of value of consideration shall
      be made by the Plan Administrator and its determination shall be
      conclusive and binding.

	 	 
	(d) 	
      All Options shall terminate and cease to remain
      outstanding immediately following the Corporate Transaction, except to the
      extent assumed by the Successor Corporation.

	11.4 	Further Adjustment of Options
  

Subject to Articles 11.2 and 11.3, the Plan Administrator shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change of control of the Company,
as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to the
Participants, with respect to Options. Such authorized action may include (but
shall not be limited to) establishing, amending or waiving the type, 

9

terms, conditions or duration of, or restrictions on, Options
so as to provide for earlier, later, extended or additional time for exercise,
lifting restrictions and other modifications, and the Plan Administrator may
take such actions with respect to all Participants, to certain categories of
Participants or only to individual Participants. The Plan Administrator may take
such action before or after granting Options to which the action relates and
before or after any public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation or change of control that is the
reason for such action.

	11.5 	Limitations 

The grant of Options shall in no way affect the Company's right
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

	11.6 	Fractional Shares 

In the event of any adjustment in the number of shares covered
by any Option, each such Option shall cover only the number of full shares
resulting from such adjustment.

ARTICLE 12. AMENDMENT AND TERMINATION 

	12.1 	Amendment or Termination of Plan
  

The Board may suspend, amend or terminate the Plan or any
portion of the Plan at any time and in such respects as it shall deem advisable;
provided, however, that to the extent required for compliance with Section 422
of the Code or any applicable law or regulation, stockholder approval shall be
required for any amendment that would (a) increase the total number of shares
available for issuance under the Plan, (b) modify the class of employees
eligible to receive Options, or (c) otherwise require stockholder approval under
any applicable law or regulation. Any amendment made to the Plan that would
constitute a "modification" to Incentive Stock Options outstanding on the date
of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only.

	12.2 	Term of Plan 

Unless sooner terminated as provided herein, the Plan shall
terminate ten years after the earlier of the Plan's adoption by the Board and
approval by the stockholders.

	12.3 	Consent of Participant

The suspension, amendment or termination of the Plan or a
portion thereof or the amendment of an outstanding Option shall not, without the
Participant's consent, materially adversely affect any rights under any Option
theretofore granted to the Participant under the Plan. Any change or adjustment
to an outstanding Incentive Stock Option shall not, without the consent of the
Participant, be made in a manner so as to constitute a "modification" that would
cause such Incentive Stock Option to fail to continue to qualify as an Incentive
Stock Option. Notwithstanding the foregoing, any adjustments made pursuant to
Article 12 shall not be subject to these restrictions.

ARTICLE 13. GENERAL 

	13.1 	Evidence of Options 

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Options granted under the Plan shall be evidenced by a written
instrument that shall contain such terms, conditions, limitations and
restrictions as the Plan Administrator shall deem advisable and that are not
inconsistent with the Plan.

	13.2 	No Individual Rights

Nothing in the Plan or any Option granted under the Plan shall
be deemed to constitute an employment contract or confer or be deemed to confer
on any Participant any right to continue in the employ of, or to continue any
other relationship with, the Company or any Related Company or limit in any way
the right of the Company or any Related Company to terminate a Participant's
employment or other relationship at any time, with or without Cause.

	13.3 	Issuance of Shares 

Notwithstanding any other provision of the Plan, the Company
shall have no obligation to issue or deliver any Common Stock under the Plan or
make any other distribution of benefits under the Plan unless, in the opinion of
the Company's counsel, such issuance, delivery or distribution would comply with
all applicable laws (including, without limitation, the requirements of the
Securities Act), and the applicable requirements of any securities exchange or
similar entity.

The Company shall be under no obligation to any Participant to
register for offering or resale or to qualify for exemption under the Securities
Act, or to register or qualify under state securities laws, any Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.

To the extent the Plan or any instrument evidencing an Option
provides for issuance of stock certificates to reflect the issuance of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock
exchange.

	13.4 	No Rights as a Stockholder

No Option or Stock Option denominated in units shall entitle
the Participant to any cash dividend, voting or other right of a stockholder
unless and until the date of issuance under the Plan of the shares that are the
subject of such Option.

	13.5 	Compliance With Laws and Regulations
  

Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.

	13.6 	Participants in Other Countries
  

The Plan Administrator shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or desirable to
comply with provisions of the laws of other countries in which the 

11

Company or any Related Company may operate to assure the
viability of the benefits from Options granted to Participants employed in such
countries and to meet the objectives of the Plan.

	13.7 	No Trust or Fund 

The Plan is intended to constitute an "unfunded" plan. Nothing
contained herein shall require the Company to segregate any monies or other
property, or Common Stock, or to create any trusts, or to make any special
deposits for any immediate or deferred amounts payable to any Participant, and
no Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.

	13.8 	Severability 

If any provision of the Plan or any Option is determined to be
invalid, illegal or unenforceable in any jurisdiction, or as to any person, or
would disqualify the Plan or any Option under any law deemed applicable by the
Plan Administrator, such provision shall be construed or deemed amended to
conform to applicable laws, or, if it cannot be so construed or deemed amended
without, in the Plan Administrator's determination, materially altering the
intent of the Plan or the Option, such provision shall be stricken as to such
jurisdiction, person or Option, and the remainder of the Plan and any such
Option shall remain in full force and effect.

	13.9 	Choice of Law 

The Plan and all determinations made and actions taken pursuant
heretoshall be governed by the laws of the State of Nevada without giving effect
to principles of conflicts of law.

ARTICLE 14. EFFECTIVE DATE 

The effective date is February 8, 2007, being the date on which
the Plan was adopted by the Board. If the stockholders of the Company do not
approve the Plan within 12 months after the Board's adoption of the Plan, any
Incentive Stock Options granted under the Plan will be treated as Nonqualified
Stock Options.

MOBILEMAIL (US) INC. 

	per: 	/s/ Peter Åhman 	 
	  	  	 
	Peter Åhman 	 
	President, CEO, CFO and Director 	 

12Exhibit 10.1

    
      

    

    Exhibit
      10.1

    

    Execution
      Copy

    

    

    SECURITIES
      PURCHASE AGREEMENT

    

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”),
      dated
      as of February 6, 2007, by and between DIGITAL ANGEL CORPORATION, a Delaware
      corporation (the “Company”),
      and
      each of the entities whose names appear on the signature pages hereof. Such
      entities are each referred to herein as an “Investor”
and,
      collectively, as the “Investors”.

    

    A.   The
      Company wishes to sell to each Investor, and each Investor wishes to purchase,
      upon
      the
      terms and subject to the conditions set forth in this Agreement, (i) a 10.25%
      Senior Secured Debenture in the form attached hereto as Exhibit
      A
      (a
“Debenture”
and,
      collectively with the other Debentures issued hereunder, the “Debentures”)
      and
      (ii) a warrant in the form attached hereto as Exhibit
      B
      (a
“Warrant”
and,
      collectively with the other Warrants issued hereunder, the “Warrants”).
      The
      Debentures may be repaid or redeemed upon the satisfaction of certain conditions
      with shares of the Company’s common stock, $0.005 par value per share (the
“Common
      Stock”).
      The
      shares of Common Stock with which the Debentures may be repaid or redeemed
      are
      referred to herein as the “Stock
      Option Shares”
and
      the
      shares of Common Stock issuable upon exercise of the Warrants are referred
      to
      herein as the “Warrant
      Shares”.
      The
      Debentures, the Stock Option Shares, the Warrants and the Warrant Shares are
      collectively referred to herein as the “Securities”.
      

    

    B.   The
      Warrants will (i) entitle the Investors to purchase an aggregate 699,600 Warrant
      Shares, (ii) have an exercise price equal to $2.973, subject to adjustment
      as
      provided therein, and (iii) expire on the fifth (5th) anniversary of the Closing
      Date, subject to extension as provided therein.

    

    C.   The
      Company’s obligations under the Debentures, including without limitation its
      obligation to make payments of principal thereof and interest thereon,
are
      guaranteed by certain of the Company’s subsidiaries pursuant to a Subsidiary
      Guarantee in the form attached hereto as Exhibit
      C
      (the
“Subsidiary
      Guarantee”),
      and
are
      secured pursuant to the terms of a Security Agreement in the form attached
      hereto as Exhibit
      D
      (the
“U.S.
      Security Agreement”)
      and,
      with respect to Signature, the terms of an additional security agreement that
      comports with the laws of the United Kingdom (the “Signature
      Security Agreement”
and,
      together with the U.S. Security Agreement, the “Security
      Agreement”).

    

    D.   The
      Company has agreed to effect the registration of the Stock Option Shares and
      the
      Warrant Shares for resale by the holders thereof under the Securities Act of
      1933, as amended (the “Securities
      Act”),
      pursuant to a Registration Rights Agreement in the form attached hereto as
      Exhibit
      E
      (the
“Registration
      Rights Agreement”).
      

    

    E.   The
      sale
      of the Debentures and the Warrants by the Company to the Investors will be
      effected in reliance upon the exemption from securities registration afforded
      by
      the provisions of Regulation D (“Regulation
      D”),
      as
      promulgated by the Commission (as defined below) under the Securities
      Act.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      consideration of the mutual promises made herein, and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      Company and each Investor hereby agree as follows:

    

    
      	
              1.

            	
              PURCHASE
                AND SALE OF DEBENTURES AND WARRANTS. 

            

    

    

    1.1    Closing.
      Upon
      the terms and subject to the satisfaction or waiver of the conditions set forth
      herein, the Company agrees to sell and each Investor agrees to purchase (i)
      a
      Debenture (a “Debenture”)
      with a
      principal amount equal to the amount set forth below such Investor’s name on the
      signature pages hereof and (ii) a Warrant exercisable into the number of shares
      of Common Stock set forth below such Investor’s name on the signature pages
      hereof. The date on which the closing of such purchase and sale occurs (the
      “Closing”)
      is
      hereinafter referred to as the “Closing
      Date”.
      The
      Closing will be deemed to occur at the offices of Mazzeo Song LLP, 708 Third
      Avenue, 19th
      Floor,
      New York, New York 10017 when (A) this Agreement and the other Transaction
      Documents (as defined below) have been executed and delivered by the Company
      and
      each Investor, (B) each of the conditions to the Closing described in this
      Agreement has been satisfied or waived as specified therein and (C) payment
      of
      each Investor’s Purchase Price (as defined below) payable with respect to the
      Debenture and Warrant being purchased by such Investor at the Closing has been
      made by wire transfer of immediately available funds. At the Closing, the
      Company shall deliver to each Investor duly executed instruments representing
      the Debenture and Warrant purchased by such Investor at the Closing.

    

    1.2    Certain
      Definitions.
      When
      used herein, the following terms shall have the respective meanings
      indicated: 

    

    “Additional
      Debt”
means
      the Bank Facility and the St. Paul Facility.

    

    “Affiliate”
means,
      as to any Person (the “subject
      Person”),
      any
      other Person (a) that directly or indirectly through one or more
      intermediaries controls or is controlled by, or is under direct or indirect
      common control with, the subject Person, (b) that directly or indirectly
      beneficially owns or holds ten percent (10%) or more of any class of voting
      equity of the subject Person, or (c) ten percent (10%) or more of the
      voting equity of which is directly or indirectly beneficially owned or held
      by
      the subject Person. For the purposes of this definition, “control”
when
      used with respect to any Person means the power to direct the management and
      policies of such Person, directly or indirectly, whether through the ownership
      of voting securities, through representation on such Person’s board of directors
      or other management committee or group, by contract or otherwise. 

    

    “Affiliate
      Transaction”
has
      the
      meaning specified in Section
      4.5(a)
      of this
      Agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Allocation
      Amount”
has
      the
      meaning specified in Section
      4.16
      of this
      Agreement.

    

    “Amendment”
means
      an amendment to, or an amendment and restatement of, the certificate of
      incorporation, bylaws and any other applicable organizational documents of
      the
      Company necessary to permit the Company to issue Common Stock, and/or securities
      convertible into or exercisable for shares of Common Stock, for non-cash
      consideration or cash consideration less than fair market value; in each such
      case, without any stockholder consent or approval.

    

    “Bank
      Facility”
means
      the credit facility to be obtained by the Company from Greater Bay Business
      Funding or such other similar commercial lending institution; provided
      that (i)
      the maximum amount of Debt that the Company is permitted to incur under such
      facility shall not exceed $8,000,000; and (ii) such facility shall be secured
      only by the accounts receivable of the Company and Outerlink Corporation, and
      the security interest granted to the Investors under the U.S. Security Agreement
      with respect to the accounts receivable of the Company and Outerlink Corporation
      shall be subordinated to such security interest granted to such
      bank.

    

    “Board
      of Directors”
means
      the Company’s board of directors.

    

    “Business
      Day”
means
      any
      day
      other than a Saturday, a Sunday or a day on which the Principal Market is closed
      or on which banks in the City of New York are required or authorized by law
      to
      be closed.

    

    “Cap
      Amount”
      means
      19.99% of the aggregate number of shares of Common Stock outstanding immediately
      prior to the Closing (subject to adjustment upon a stock split, stock dividend,
      recapitalization, reorganization, reclassification or other event that
      subdivides all of the outstanding shares of Common Stock).

     

    “Closing”
and
      “Closing
      Date”
have
      the respective meanings specified in Section
      1.1
      of this
      Agreement.

    

    “Commission”
means
      the Securities and Exchange Commission, and any successor regulatory
      agency.

    

    “Common
      Stock”
has
      the
      meaning specified in the recitals to this Agreement. 

    

    “Company
      Subsidiaries”
means
      the Subsidiaries of the Company set forth on Schedule
      1.2(a) and
      such
      other Subsidiaries of the Company that become party to the Subsidiary Guarantee
      and/or the Security Agreement.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Debt”
means,
      as to any Person at any time, without duplication: (a) all indebtedness,
      liabilities and obligations of such Person for borrowed money; (b) all
      indebtedness, liabilities and obligations of such Person to pay the deferred
      purchase price of Property or services (except trade accounts payable of such
      Person arising in the ordinary course of business that are (i) not past due
      by
      more than 90 days or (ii) being contested in good faith by such Person); (c)
      all
      capital lease obligations of such Person; (d) all Debt of others guaranteed
      by
      such Person; (e) all indebtedness, liabilities and obligations secured by a
      Lien
      existing on Property owned by such Person, whether or not the indebtedness,
      liabilities or obligations secured thereby have been assumed by such Person
      or
      are non-recourse to such Person; (f) all reimbursement obligations of such
      Person (whether contingent or otherwise) in respect of letters of credit,
      bankers’ acceptances, surety or other bonds and similar instruments; and (g) all
      liabilities and obligations of such Person to redeem or retire shares of capital
      stock of such Person . 

    

    “Disclosure
      Documents”
means
      all SEC Documents filed with the Commission at least five (5) Business Days
      prior to the Execution Date.

    

    “Dollars”
or
      “$”
means
      U.S. Dollars.

    

    “DTC”
means
      The Depositary Trust Company (and any successor entity).

    

    “Effective
      Date”
has
      the
      meaning specified in the Registration Rights Agreement.

    

    “Environmental
      Law”
means
      any federal, state, provincial, local or foreign law, statute, code or
      ordinance, principle of common law, rule or regulation, as well as any Permit,
      order, decree, judgment or injunction issued, promulgated, approved or entered
      thereunder, relating to pollution or the protection, cleanup or restoration
      of
      the environment or natural resources, or to the public health or safety, or
      otherwise governing the generation, use, handling, collection, treatment,
      storage, transportation, recovery, recycling, discharge or disposal of hazardous
      materials.

    

    “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as amended, and the
      regulations and published interpretations thereunder.

    

    “Event
      of Default”
has
      the
      meaning specified in the Debentures.

    

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended (or any successor act), and
      the
      rules and regulations promulgated thereunder (or respective successors
      thereto).

    

    “Excluded
      Securities”
means
      (i) the Debentures and Warrants; (ii) the Stock Option Shares, Warrant Shares
      and any other securities issued upon the conversion or exercise of any other
      options, warrants, convertible securities or any other agreements outstanding
      as
      of the Issue Date and disclosed on Schedule
      3.5(i)
      hereto;
      (iii) shares of Common Stock issuable or issued to employees from time to time
      upon the exercise of options or other awards or purchase rights granted or
      to be
      granted in the discretion of the Board of Directors pursuant to one or more
      employee stock option plans or restricted stock plans in effect as of the Issue
      Date or new plans or amendments to existing plans adopted after the Issue Date
      by the independent members of the Board of Directors; and (iv) shares of Common
      Stock issued in connection with any stock split, stock dividend or
      recapitalization of the Company.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Execution
      Date”
means
      the date of this Agreement. 

     

    “GAAP”
means
      U.S. generally accepted accounting principles, applied on a consistent basis.
      Accounting principles are applied on a “consistent basis” when the accounting
      principles applied in a current period are comparable in all material respects
      to those accounting principles applied in a preceding period.

    

    “Governmental
      Authority”
means
      any nation or government, any state, provincial or political subdivision thereof
      and any entity exercising executive, legislative, judicial, regulatory or
      administrative functions of or pertaining to government, including, without
      limitation, any stock exchange, securities market or self-regulatory
      organization.

    

    “Governmental
      Requirement”
means
      any law, statute, code, ordinance, order, rule, regulation, judgment, decree,
      injunction, franchise, license or other directive or requirement of any federal,
      state, county, municipal, parish, provincial or other Governmental Authority
      or
      any department, commission, board, court, agency or any other instrumentality
      of
      any of them.

    

    “Intellectual
      Property”
means
      the collective reference to all existing rights, priorities and privileges
      relating to intellectual property, whether arising under United States,
      multinational or foreign laws or otherwise, including, without limitation,
      (i)
      all copyrights arising under the laws of the United States, any other country
      or
      any political subdivision thereof, whether registered or unregistered and
      whether published or unpublished, all registrations and recordings thereof,
      and
      all applications in connection therewith, including, without limitation, all
      registrations, recordings and applications in the United States Copyright
      Office, (ii) all letters patent of the United States, any other country or
      any
      political subdivision thereof, all reissues and extensions thereof, and all
      applications for letters patent of the United States or any other country and
      all divisions, continuations and continuations-in-part thereof, (iii) all
      trademarks, trade names, corporate names, company names, business names,
      fictitious business names, trade dress, service marks, logos, domain names
      and
      other source or business identifiers, and all goodwill associated therewith,
      now
      existing or hereafter adopted or acquired, all
      registrations and recordings thereof, and all applications in connection
      therewith, whether in the United States Patent and Trademark Office or in any
      similar office or agency of the United States, any State thereof or any other
      country or any political subdivision thereof, or otherwise, and all common
      law
      rights related thereto, (iv) all trade secrets arising under the laws of the
      United States, any other country or any political subdivision thereof, (v)
      all
      rights to obtain any reissues, renewals or extensions of the foregoing, (vi)
      all
      licenses for any of the foregoing, and (vii) all causes of action for
      infringement of the foregoing.

    

    “Investment
      Company Act”
has
      the
      meaning specified in Section
      3.25
      of this
      Agreement.

    

    “Investor
      Party”
has
      the
      meaning specified in Section
      4.9
      of this
      Agreement.

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “Key
      Employee”
has
      the
      meaning specified in Section
      3.16
      of this
      Agreement.

    

    “Lien”
means,
      with respect to any Property, any mortgage, pledge, hypothecation, assignment,
      deposit arrangement, security interest, tax lien, financing statement, pledge,
      charge, or other lien, charge, easement, encumbrance, preference, priority
      or
      other security agreement or preferential arrangement of any kind or nature
      whatsoever on or with respect to such Property (including, without limitation,
      any conditional sale or other title retention agreement having substantially
      the
      same economic effect as any of the foregoing).

    

    “Listing
      Deadline Date”
has
      the
      meaning specified in Section
      4.20
      of this
      Agreement.

     

    “Material
      Adverse Effect”
means
      an effect that is material and adverse to
      (i) the
      consolidated business, properties, assets, operations, results of operations,
      financial condition, credit worthiness or prospects of the Company and the
      Company Subsidiaries taken as a whole, (ii) the ability of the Company or any
      Company Subsidiary to perform its material obligations under this Agreement
      or
      the other Transaction Documents or (iii) the rights and benefits to which an
      Investor is entitled under this Agreement or any of the other Transaction
      Documents.

     

    “Material
      Contracts”
means,
      as to the Company and the Company Subsidiaries, any agreement
      required pursuant to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
      as applicable, promulgated under the Securities Act to be filed as an exhibit
      to
      any report,
      schedule, registration statement or definitive proxy statement filed or required
      to be filed by the Company with the Commission under
      the
      Exchange Act or any rule or regulation promulgated thereunder,
      and any
      and all material amendments, modifications, supplements, renewals or
      restatements thereof.

    

    “McMurdo
      Transaction”
means
      the contemplated acquisition of certain assets of McMurdo Limited’s marine
      electronics business pursuant to the Asset Sale and Purchase Agreement, dated
      December as of 14, 2006, between Signature Industries Limited and McMurdo
      Limited.

    

    “Pension
      Plan”
means
      an employee pension benefit plan (as defined in ERISA) maintained by the Company
      for employees of the Company or any of its Affiliates.

    

    “Permitted
      Debt”
means
      the following:

    

    (a)    the
      Debentures;

    

    (b)    Debt
      outstanding on the Execution Date and disclosed on Schedule
      3.5(iv)
      hereto;

    

    (c)    Subordinated
      Debt;

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (d)    Debt
      consisting of capitalized lease obligations and purchase money indebtedness
      incurred in connection with acquisition of capital assets and obligations under
      sale-leaseback or similar arrangements provided in each case that such
      obligations are not secured by Liens on any assets of the Company or the Company
      Subsidiaries other than the assets so leased; and

    

    (e)    the
      Additional Debt.

    

    “Permitted
      Liens”
means
      each of the following:

    

    (a)    Liens
      in
      existence on the Execution Date and disclosed on Schedule
      3.5(v)
      hereto;

    

    (b)    encumbrances
      consisting of easements, rights-of-way, zoning restrictions or other
      restrictions on the use of real Property or imperfections to title that do
      not
      (individually or in the aggregate) materially impair the ability of the Company
      or any Company Subsidiary to use such Property in its businesses, and none
      of
      which is violated in any material respect by existing or proposed structures
      or
      land use;

    

    (c)    Liens
      for
      taxes, assessments or other governmental charges (including without limitation
      in connection with workers’ compensation and unemployment insurance) that are
      not delinquent or which are being contested in good faith by appropriate
      proceedings, which proceedings have the effect of preventing the forfeiture
      or
      sale of the Property subject to such Liens, and for which adequate reserves
      (as
      determined in accordance with GAAP) have been established; 

    

    (d)    Liens
      of
      mechanics, materialmen, warehousemen, carriers, landlords or other similar
      statutory Liens securing obligations that are not yet due and are incurred
      in
      the ordinary course of business or which are being contested in good faith
      by
      appropriate proceedings, which proceedings have the effect of preventing the
      forfeiture or sale of the Property subject to such Liens, for which adequate
      reserves (as determined in accordance with GAAP) have been established;

    

    (e)    mortgages
      on real Property in existence on the Execution Date and disclosed on
Schedule
      3.22
      hereto,
      and any replacements thereof, securing amounts not greater than the amounts
      secured thereby on the Execution Date; and.

    

    (f)    Liens
      on
      the accounts receivable of the Company and Outerlink Corporation securing solely
      the Company’s obligations under the Bank Facility. 

    

    “Person”
means
      any individual, corporation, trust, association, company, partnership, joint
      venture, limited liability company, joint stock company, Governmental Authority
      or other entity. 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    “Principal
      Market”
means
      the American Stock Exchange or such other principal exchange, market or
      quotation system on which the Common Stock is listed, traded or
      quoted.

    

    “Property”
means
      property and/or assets of all kinds, whether real, personal or mixed, tangible
      or intangible (including, without limitation, all rights relating
      thereto).

    

    “Pro
      Rata Share”
means,
      with respect to an Investor, the ratio determined by dividing (i) the principal
      amount of the Debenture purchased hereunder by such Investor at the Closing
      by
      (ii) the aggregate principal amount of all Debentures purchased hereunder by
      all
      of the Investors at the Closing.

    

    “Purchase
      Price”
means,
      with respect to Securities purchased at the Closing, the original principal
      amount of the Debenture purchased at the Closing.

    

    “Registration
      Rights Agreement”
has
      the
      meaning specified in the recitals to this Agreement.

    

    “Registration
      Statement”
has
      the
      meaning specified in the Registration Rights Agreement.

    

    “Registrable
      Securities”
has
      the
      meaning specified in the Registration Rights Agreement.

    

    “Regulation
      D”
has
      the
      meaning specified in the recitals to this Agreement.

    

    “Reserved
      Amount”
has
      the
      meaning specified in Section
      4.3
      of this
      Agreement.

    

    “Restricted
      Payment”
means
      (a) any dividend or other distribution (whether in cash, Property or
      obligations), direct or indirect, on account of (or the setting apart of money
      for a sinking or other analogous fund for the benefit of) any shares of any
      class of capital stock of the Company or the Company Subsidiaries now or
      hereafter outstanding, except a dividend payable solely in shares of that class
      of stock to all of the holders of that class; (b) any redemption, exchange,
      retirement, sinking fund or similar payment, purchase or other acquisition
      for
      value, direct or indirect, of any shares of any class of capital stock of the
      Company or any of its Affiliates now or hereafter outstanding, except the
      Securities; (c) any prepayment of principal of, premium, if any, or interest
      on,
      or any redemption, conversion, exchange, purchase, retirement, sinking fund
      or
      defeasance of, any Debt (whether upon acceleration of such Debt or otherwise)
      other than the Securities (it being understood that regularly scheduled payments
      of principal and interest shall not be deemed a Restricted Payment); and
      (d) any loan, advance or payment to any officer, director or stockholder of
      the Company or any of its Affiliates, exclusive of reasonable compensation
      and
      reimbursements paid to officers or directors in the ordinary course of business
      or pursuant to any contract in existence on the date of this Agreement or
      approved by the independent members of the Board of Directors.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “Rule
      144”
means
      Rule 144 under the Securities Act or any successor provision.

    

    “SEC
      Documents”
means
      all reports, schedules, registration statements and definitive proxy statements
      filed (or required to be filed) by the Company with the Commission from and
      after December 31, 2005.

    

    “Securities”
      means
      the Debentures, the Stock Option Shares, the Warrants and the Warrant
      Shares.

     

    “Securities
      Act”
has
      the
      meaning specified in the recitals of this Agreement.

    

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 promulgated under Regulation SHO under
      the Exchange 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.

    

    “Signature”
means
      Signature
      Industries Limited, a Company Subsidiary.

    

    “St.
      Paul Facility”
means
      the contemplated refinancing of the Company’s St. Paul facility; provided
      that (i)
      the refinancing, including any additional Debt that the Company incurs under
      such refinancing (collectively, the “Refinancing”)
      shall
      be supported by a proper valuation of the facility; (ii) the assets securing
      the
      Refinancing shall be limited to the same assets securing the existing Debt
      on
      the facility on the date hereof; and (iii) the Company and the Company
      Subsidiaries shall be in compliance with the terms of this Agreement, including
      Section
      4.10(b),
      after
      giving effect to the Refinancing.

    

    “Stock
      Option Shares”
has
      the
      meaning specified in the recitals to this Agreement.

    

    “Stockholder
      Amendment Approval” means
      the
      affirmative vote by the holders of sixty-six and two-thirds percent of the
      votes
      cast (including sixty-six and two-thirds percent of the votes cast by each
      class
      entitled to vote as a separate class) at a meeting of the Company’s stockholders
      approving the Amendment.

     

    “Stockholder
      Cap Approval” means
      the
      affirmative vote by the holders of a majority of the votes cast (including
      a
      majority of the votes cast by each class entitled to vote as a separate class)
      at a meeting of the Company’s stockholders approving the issuance of Common
      Stock in excess of the Cap Amount.

     

    “Stockholder
      Amendment Approval Date”
means
      the first date on which (i) the Stockholder Amendment Approval has been duly
      obtained and (ii) the Amendment with respect to the Company’s certificate of
      incorporation has been accepted for filing by the Secretary of State of the
      State of Delaware and is in full force and effect.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    “Subordinated
      Debt”
means
      Debt of the Company which meets each of the following requirements:
      (a) such Debt is wholly unsecured; (b) such Debt is contractually
      subordinated, as to payment and liquidation, to the payment in full of the
      Debentures on such terms and pursuant to written agreements in such form and
      substance as are reasonably acceptable to the holders of a majority in principal
      amount of the Debentures, that restrict the Company from pre-paying any amounts
      in respect of the principal of such Debt (upon acceleration or otherwise) prior
      to the scheduled maturity thereof, and that restrict the subordinated creditor
      from commencing any judicial or other collection efforts or exercising any
      other
      remedies prior to the date that is ninety-one (91) days following the payment
      in
      full of the Debentures; and (c) such Debt does not mature prior to the date
      that
      is ninety-one (91) days following the latest Maturity Date (as defined in the
      Debentures) of the Debentures then outstanding.

    

    “Subsequent
      Placement”
means
      any issuance, sale or exchange by the Company or any Company Subsidiary at
      any
      time after the Closing Date, or any agreement or obligation of the Company
      or
      any Company Subsidiary to issue, sell or exchange, at any time after the Closing
      Date, (i) any shares of common stock of the Company or any Company Subsidiary,
      (ii) any other equity security of the Company or any Company Subsidiary,
      including without limitation preferred stock, (iii) any other security of the
      Company or any Company Subsidiary which by its terms is convertible into or
      exchangeable or exercisable for any equity security of the Company or any
      Company Subsidiary, (iv) any option, warrant or other right to subscribe for,
      purchase or otherwise acquire any such security described in the foregoing
      clauses
      (i)
      through
(iii),
      or (v)
      any debt instruments or securities, including promissory notes and convertible
      debt instruments; provided,
      however,
      that
      the term “Subsequent
      Placement”
shall
      not be deemed to include any issuance, sale or exchange of Excluded
      Securities.

    

    “Subsidiary”
means,
      with respect to any Person, any corporation or other entity of which at least
      a
      majority of the outstanding shares of stock or other ownership interests having
      by the terms thereof ordinary voting power to elect a majority of the board
      of
      directors (or Persons performing similar functions) of such corporation or
      entity (regardless of whether or not at the time, in the case of a corporation,
      stock of any other class or classes of such corporation shall have or might
      have
      voting power by reason of the happening of any contingency) is at the time
      directly or indirectly owned or controlled by such Person or one or more of
      its
      Subsidiaries or by such Person and one or more of its Subsidiaries.

    

    “Termination
      Date”
means
      the first date on which there are no Debentures outstanding.

     

    “Trading
      Day”
means
      any day on which shares of Common Stock are purchased and sold on the Principal
      Market.

    

    “Transaction
      Documents”
means
      (i) this Agreement, (ii) the Debentures, (iii) the Warrants, (iv) the
      Registration Rights Agreement, (v) the Security Agreement, (vi) the Subsidiary
      Guarantee and (vi) all other agreements, documents and other instruments
      executed and delivered by or on behalf of the Company or any of its officers
      at
      the Closing.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    “Transfer
      Agent”
has
      the
      meaning specified in Section
      2.5
      of this
      Agreement.

    

    “U.S.
      Company Subsidiaries”
means
      the Company Subsidiaries that are domiciled in the United States.

    

    “VWAP”
on
      a
      Trading Day means the volume weighted average price of the Common Stock for
      such
      Trading Day on the Principal Market as reported by Bloomberg Financial Markets
      or, if Bloomberg Financial Markets is not then reporting such prices, by a
      comparable reporting service of national reputation selected by the Investors
      and reasonably satisfactory to the Company. If the VWAP cannot be calculated
      for
      the Common Stock on such Trading Day on any of the foregoing bases, then the
      Company shall submit such calculation to an independent investment banking
      firm
      of national reputation reasonably acceptable to the Investors holding a majority
      of the Registrable Securities then outstanding, and shall cause such investment
      banking firm to perform such determination and notify the Company and the
      Investors of the results of determination no later than two (2) Business Days
      from the time such calculation was submitted to it by the Company. All such
      determinations shall be appropriately adjusted for any stock dividend, stock
      split, reverse stock split or other similar transaction during such
      period.

    

    1.3    Other
      Definitional Provisions.
      All
      definitions contained in this Agreement are equally applicable to the singular
      and plural forms of the terms defined. The words “hereof”, “herein” and
“hereunder” and words of similar import contained in this Agreement refer to
      this Agreement as a whole and not to any particular provision of this
      Agreement.

    

    
      	
              2.

            	
              REPRESENTATIONS
                AND WARRANTIES OF EACH INVESTOR.

            

    

    

    Each
      Investor (with respect to itself only) hereby represents and warrants to the
      Company and agrees with the Company that, as of the Execution Date:

    

    2.1    Authorization;
      Enforceability.
      Such
      Investor is duly and validly organized, validly existing and in good standing
      under the laws of the jurisdiction of its incorporation or organization as
      set
      forth below such Investor’s name on the signature page hereof with the requisite
      corporate power and authority to purchase the Debentures and Warrants to be
      purchased by it hereunder and to execute and deliver this Agreement and the
      other Transaction Documents to which it is a party. This Agreement constitutes,
      and upon execution and delivery thereof, each other Transaction Document to
      which such Investor is a party will constitute, such Investor’s valid and
      legally binding obligation, enforceable in accordance with its terms, subject
      to
      (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
      moratorium or other similar laws of general application relating to or affecting
      the enforcement of creditors’ rights generally and (ii) general principles of
      equity.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    2.2    Accredited
      Investor.
      Such
      Investor (i) is an “accredited investor” as that term is defined in Rule 501 of
      Regulation D, (ii)
      was
      not
      formed or organized for the specific purpose of making an investment in the
      Company, and (iii)
      is
      acquiring the Securities solely for its own account and not with a present
      view
      to the public resale or distribution of all or any part thereof, except pursuant
      to sales that are registered under, or exempt from the registration requirements
      of, the Securities Act; provided,
      however,
      that in
      making such representation, such Investor does not agree to hold the Securities
      for any minimum or specific term and reserves the right to sell, transfer or
      otherwise dispose of the Securities at any time in accordance with the
      provisions of this Agreement and with Federal and state securities laws
      applicable to such sale, transfer or disposition.
      Such
      Investor can bear the economic risk of a total loss of its investment in the
      Securities and has such knowledge and experience in business and financial
      matters so as to enable it to understand the risks of and form an investment
      decision with respect to its investment in the Securities.

    

    2.3    Information.
      The
      Company has, prior to the Execution Date, provided such Investor
      with information
      regarding the business, operations and financial condition of the
      Company and
      has,
      prior to the Execution Date, granted to such Investor the opportunity to ask
      questions of and receive answers from representatives of the Company, its
      officers, directors, employees and agents concerning the Company in order for
      such Investor to make an informed decision with respect to its investment in
      the
      Securities. Neither such information nor any other investigation conducted
      by
      such Investor or any of its representatives shall modify, amend or otherwise
      affect such Investor’s right to rely on the Company’s representations and
      warranties contained in this Agreement.

    

    2.4    Limitations
      on Disposition.
      Such
      Investor acknowledges that, except as provided in the Registration Rights
      Agreement, the Securities have not been and are not being registered under
      the
      Securities Act and may not be transferred or resold without registration under
      the Securities Act or unless pursuant to an exemption therefrom. 

     

    2.5    Legend.
      Such
      Investor understands that the certificates representing the Securities may
      bear
      at issuance a restrictive legend in substantially the following
      form:

    

    “The
      securities represented by this certificate have not been registered under the
      Securities Act of 1933, as amended (the “Securities Act”), or any state
      securities laws, and may not be offered for sale or sold unless a registration
      statement under the Securities Act and applicable state securities laws shall
      have become effective with respect thereto, or an exemption from registration
      under the Securities Act and applicable state securities laws is available
      in
      connection with such offer or sale. These securities [and the securities
      issuable upon exercise hereof] (i) may be pledged or hypothecated in connection
      with a bona fide margin account or other financing secured by such securities
      or
      (ii) may be transferred or assigned to an affiliate of the holder hereof without
      the necessity of an opinion of counsel or the consent of the issuer
      hereof.”

    

    Notwithstanding
      the foregoing, it is agreed that, as long as (A) the resale or transfer
      (including without limitation a pledge) of any of the Securities is registered
      pursuant to an effective registration statement, (B) such Securities have been
      sold pursuant to Rule 144, subject to receipt by the Company of customary
      documentation reasonably acceptable to the Company in connection therewith,
      or
      (C) such Securities are eligible for resale under Rule 144(k) or any successor
      provision, such Securities shall be issued without any legend or other
      restrictive language and, with respect to Securities upon which such legend
      is
      stamped, the Company shall issue new certificates without such legend to the
      holder upon request. The Company shall execute and deliver written instructions
      to the transfer agent for its Common Stock (the “Transfer
      Agent”)
      as may
      be necessary to satisfy any request by an Investor for removal of such legends
      no later than the close of business on the third (3rd)
      Business Day following the receipt of the request from an Investor to the extent
      such legends may be removed in accordance with this Section
      2.5.
      

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    2.6    Reliance
      on Exemptions.
      Such
      Investor understands that the Securities are being offered and sold to it in
      reliance upon specific exemptions from the registration requirements of U.S.
      federal and state securities laws and that the Company is relying upon the
      truth
      and accuracy of the representations and warranties of such
      Investor
      set forth in this Section
      2
      in order
      to determine the availability of such exemptions and the eligibility of
such
      Investor
      to acquire the Securities. Such Investor acknowledges that it did not purchase
      the Securities based upon any advertisement in any publication of general
      circulation. Such Investor is relying on the representations, acknowledgements
      and agreements made by the Company in Section
      3
      and
      elsewhere in this Agreement in making investing, trading and/or other decisions
      concerning the Company’s securities.

     

    2.7    Non-Affiliate
      Status; Common Stock Ownership.
      Such
      Investor is not an Affiliate of the Company or of any other Investor and is
      not
      acting in association or concert with any other Person in regard to its purchase
      of the Securities or otherwise in respect of the Company. Such Investor’s
      investment in the Securities is not for the purpose of acquiring, directly
      or
      indirectly, control of, and it has no intent to acquire or exercise control
      of,
      the Company or to influence the decisions or policies of the Board of Directors.
      

    

    2.8    Fees.
      Such
      Investor has not agreed to pay any compensation or other fee, cost or related
      expenditure to any underwriter, broker, agent or other representative in
      connection with the transactions contemplated hereby. 

     

    2.9    No
      Conflicts.
      The
      execution and performance of this Agreement and the other Transaction Documents
      to which it is a party do not conflict in any material respect with any
      agreement to which such Investor is a party or is bound, any court order or
      judgment applicable to such Investor, or the constituent documents of such
      Investor.

     

    2.10  
        No
      Governmental Review.
      Such
      Investor understands that no U.S. federal or state agency or any other
      Governmental Authority has passed on or made any recommendation or endorsement
      of the Securities or the fairness or suitability of an investment in the
      Securities nor have such authorities passed upon the
      accuracy of any information provided to such Investor or made any findings
      or
      determinations as to the merits of the offering of the Securities. 

     

    2.11  
        Certain
      Trading Activities.
      Such
      Investor has not, in violation of the securities laws, directly or indirectly,
      nor has any Person acting on behalf of or pursuant to any understanding with
      such Investor, engaged in any transactions in the securities of the Company
      (including, without limitations, any Short Sales involving the Company’s
      securities) since the time that such Investor was first contacted by the Company
      or Kaufman Bros. L.P. regarding the investment in the Company contemplated
      by
      the Transaction Documents. Such Investor covenants that neither it nor any
      Person acting on its behalf or pursuant to any understanding with it will engage
      in any transactions in the securities of the Company (including Short Sales)
      prior to the time that the transactions contemplated by this Agreement are
      publicly disclosed pursuant to Section
      4.1(c).
      

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    3.    
REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.
      The
      Company hereby represents and warrants to each Investor and agrees with each
      Investor that, as of the Execution Date:

    

    3.1    Organization,
      Good Standing and Qualification.
      Each of
      the Company and the Company Subsidiaries is
      duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization and has all requisite power
      and authority to carry on its business as now conducted. Each of the Company
      and
      the Company Subsidiaries is duly qualified to transact business and is in good
      standing in each jurisdiction in which it conducts business except where the
      failure so to qualify has not had or would not reasonably be expected to have
      a
      Material Adverse Effect.

    

    3.2    Authorization;
      Consents.
      The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under the Transaction Documents, to issue and sell
      the
      Debentures and the Warrants to the Investors in accordance with the terms hereof
      and thereof, and to issue the Stock Option Shares under the Debentures and
      the
      Warrant Shares upon exercise of the Warrants. Each Company Subsidiary has the
      requisite power and authority to enter into and perform its obligations under
      the Subsidiary Guarantee and the Security Agreement. All
      corporate action on the part of the Company by its officers, directors and
      stockholders necessary for the authorization, execution and delivery of, and
      the
      performance by the Company of its obligations under, the Transaction Documents
      has been taken, and no further consent or authorization of the Company, its
      Board of Directors, stockholders, any Governmental Authority or any other Person
      (other than (i) such approval as may be required under the Securities Act and
      applicable state laws in respect of the Registration Rights Agreement, (ii)
      the
      listing approval from the American Stock Exchange for the issuance of the
      Warrant Shares and the Stock Option Shares, (iii) the Stockholder Amendment
      Approval, and (iv) if 70% of the Cap Amount is reached, the Stockholder Cap
      Approval) is required (pursuant to any rule of the Principal Market or
      otherwise). All
      corporate action on the part of each Company Subsidiary by its officers,
      directors, stockholders, members or governors necessary for the authorization,
      execution and delivery of, and the performance by such Company Subsidiary of
      its
      obligations under the Subsidiary Guarantee and the Security Agreement has been
      taken. The
      Board
      of Directors has determined that the sale and issuance of the Securities, and
      the consummation of the other transactions contemplated hereby and by the other
      Transaction Documents, are in the best interests of the Company.

    

    3.3    Enforcement.
      This
      Agreement has been duly executed and delivered by the Company, and at the
      Closing, each of the Company and the Company Subsidiaries will have duly
      executed and delivered each of the other Transaction Documents to which such
      entity is a party. This Agreement constitutes, and at the Closing, each of
      the
      other Transaction Documents to which the Company or any of the Company
      Subsidiaries is a party will constitute, the valid and legally binding
      obligations of the Company and the Company Subsidiaries, enforceable against
      the
      Company and the Company Subsidiaries in accordance with their respective terms,
      subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,
      moratorium, reorganization or other similar laws of general application relating
      to or affecting the enforcement of creditors’ rights generally and (ii) general
      principles of equity. 

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    3.4    Disclosure
      Documents; Agreements; Financial Statements; Other Information.
      The
      Company is subject to the reporting requirements of the Exchange Act and, except
      as described on Schedule
      3.4(i),
      the
      Company has filed with the Commission all SEC Documents that the Company was
      required to file with the Commission on or after December 31, 2005. The Company
      is not aware of any event occurring or expected to occur on or prior to the
      Closing Date (other than the transactions effected hereby or ongoing sales
      efforts that could result in a material contract) that would require the filing
      of, or with respect to which the Company intends to file, a Form 8-K after
      the
      Closing. Each SEC Document filed on or after December 31, 2005, as of the date
      of the filing thereof with the Commission (or if amended or superseded by a
      filing prior to the Execution Date, then on the date of such amending or
      superseding filing), complied in all material respects with the requirements
      of
      the Securities Act or Exchange Act, as applicable, and the rules and regulations
      promulgated thereunder and, as of the date of such filing (or if amended or
      superseded by a filing prior to the Execution Date, then on the date of such
      filing), such SEC Document (including all exhibits and schedules thereto and
      documents incorporated by reference therein) did not, contain an untrue
      statement of material fact or omit to state a material fact required to be
      stated therein or necessary to make the statements therein, in light of the
      circumstances under which they were made, not misleading. All documents required
      to be filed as exhibits to the SEC Documents filed on or after December 31,
      2005
      have been filed as required. Except as set forth in the Disclosure Documents,
      the Company has no liabilities, contingent or otherwise, other than liabilities
      incurred in the ordinary course of business which, under GAAP, are not required
      to be reflected in the financial statements included in the Disclosure Documents
      and which, individually or in the aggregate, are not material to the
      consolidated business or financial condition of the Company and the Company
      Subsidiaries taken as a whole. As of their respective dates, the financial
      statements of the Company included in the SEC Documents filed on or after
      December 31, 2005 complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the
      Commission with respect thereto. Such financial statements have been prepared
      in
      accordance with GAAP consistently applied at the times and during the periods
      involved (except (i) as may be otherwise indicated in such financial statements
      or the notes thereto, or (ii) in the case of unaudited interim statements,
      to
      the extent they may exclude footnotes or may be condensed or summary statements)
      and fairly present in all material respects the financial position of the
      Company as of the dates thereof and the results of its operations and cash
      flows
      for the periods then ended (subject, in the case of unaudited statements, to
      normal year-end adjustments). The Company will prepare the financial statements
      to be included in any reports, schedules, registration statements and definitive
      proxy statements that the Company is required to file or files with the
      Commission after the date hereof in accordance with GAAP (except in the case
      of
      unaudited interim statements, to the extent they may exclude footnotes or may
      be
      condensed or summary statements).

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    3.5    Capitalization;
      Debt
      Schedule.
      The
      capitalization of the Company, including its authorized capital stock, the
      number of shares issued and outstanding, the number of shares issuable and
      reserved for issuance pursuant to the Company’s stock option plans and
      agreements, the number of shares issuable and reserved for issuance pursuant
      to
      securities (other than the Warrants) exercisable for, or convertible into or
      exchangeable for any shares of Common Stock and the number of shares initially
      to be reserved for issuance upon exercise of the Warrants, is set forth on
      Schedule
      3.5(i)
      hereto.
      All outstanding shares of capital stock of the Company have been, or upon
      issuance will be, validly issued, fully paid and non-assessable. Except as
      disclosed on Schedule
      3.5(ii)
      hereto,
      no Subsidiary of the Company other than the Company Subsidiaries possesses
      or
      owns assets having a fair market value in excess of $50,000. Except as disclosed
      on
      Schedule 3.5(iii)
      hereto,
      the Company or a Company Subsidiary owns all of the capital stock of each
      Company Subsidiary, which capital stock is validly issued, fully paid and
      non-assessable, and no shares of the capital stock of the Company or any Company
      Subsidiary are subject to preemptive rights or any other similar rights of
      the
      stockholders of the Company or any such Company Subsidiary or any Liens created
      by or through the Company or any such Company Subsidiary. Except as disclosed
      on
Schedule
      3.5(i)
      or as
      contemplated herein, 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 the Company or any Company Subsidiary, or
      arrangements by which the Company or any Company Subsidiary is or may become
      bound to issue additional shares of capital stock of the Company or any Company
      Subsidiary (whether
      pursuant to anti-dilution, “reset” or other similar provisions).
      Schedule
      3.5(iv)
      identifies all Liabilities (as defined in Section
      4.10(b) hereof)
      of the Company and/or the Company Subsidiaries currently outstanding in excess
      of $50,000 as of the date hereof, and Schedule
      3.5(v) identifies
      all Liens encumbering any of the assets of the Company and/or the Company
      Subsidiaries as of the date hereof.

    

    3.6    Due
      Authorization; Valid Issuance.
      The
      Debentures are duly authorized and, when issued, sold and delivered in
      accordance with the terms of this Agreement, will be duly and validly issued,
      free and clear of any Liens imposed by or through the Company. The Warrants
      are
      duly authorized and, when issued, sold and delivered in accordance with the
      terms of this Agreement, will be duly and validly issued, free and clear of
      any
      Liens imposed by or through the Company. The Stock Option Shares issuable under
      the Debentures and the Warrant Shares issuable under the Warrants are duly
      authorized and reserved for issuance. Assuming the accuracy of each Investor’s
      representations contained herein, the issuance and sale of the Debentures and
      Warrants under this Agreement will be effected in compliance with all applicable
      Federal and state securities laws.

    

    3.7    Form
      S-3.
      The
      Company is eligible to register the Stock Option Shares and Warrant Shares
      for
      resale in a secondary offering by each Investor on a registration statement
      on
      Form S-3 under the Securities Act.
      To the
      Company’s knowledge, as
      of the
      date hereof and as of the Closing Date, there
      exist no facts or circumstances (including without limitation any required
      approvals or waivers of any circumstances that may delay or prevent the
      obtaining of accountant’s consents) that could reasonably be expected to
      prohibit or delay the preparation, filing or effectiveness of such registration
      statement on Form S-3.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    3.8    No
      Conflict.
      Neither
      the Company nor any Company Subsidiary is in violation of any provisions of
      its
      charter, bylaws or any other governing document. Except as set forth on
Schedule
      3.8,
      neither
      the Company nor any Company Subsidiary is in violation of or in default (and
      no
      event has occurred which, with notice or lapse of time or both, would constitute
      a default) under any provision of any instrument or contract to which it is
      a
      party or by which it or any of its Property is bound, or in violation of any
      provision of any Governmental Requirement applicable to the Company or any
      Company Subsidiary, except for any violation or default that has not had or
      would not reasonably be expected to have a Material Adverse Effect. (i) The
      execution, delivery and performance of this Agreement and the other Transaction
      Documents and (ii) (A) the consummation of the transactions contemplated hereby
      and thereby (including without limitation, the issuance of the Debentures and
      the Warrants, the reservation for issuance of the Stock Option Shares and the
      Warrant Shares and, prior to the Stockholder Amendment Approval Date, the
      issuance of the Warrant Shares in a manner consistent with Article 9 of the
      Company’s certificate of incorporation as in effect as of the date hereof) and
      (B) following the Stockholder Amendment Approval Date, the issuance of the
      Stock
      Option Shares and the Warrant Shares, will not result in any violation of any
      provisions of the Company’s or any Company Subsidiary’s charter, bylaws or any
      other governing document or in a default under any provision of any instrument
      or contract to which the Company or Company Subsidiary is a party or by which
      it
      or any of its Property is bound, or in violation of any provision of any
      Governmental Requirement applicable to the Company or Company Subsidiary or
      be
      in conflict with or constitute, with or without the passage of time and giving
      of notice, either a default under any such provision, instrument or contract
      or
      an event which results in the creation of any Lien upon any assets of the
      Company or of any Company Subsidiary or the triggering of any preemptive or
      anti-dilution rights (including
      without limitation pursuant to any “reset” or similar provisions) or
      rights
      of first refusal or first offer,
      or
      any
      other rights that would allow or permit the holders of the Company’s securities
      or any other Person to purchase shares of Common Stock or other securities
      of
      the Company or Company Subsidiary (whether
      pursuant to a stockholder rights plan provision or otherwise).

    

    3.9    Financial
      Condition; Taxes; Litigation.

    

    3.9.1  The
      financial condition of each of the Company and each Company Subsidiary is,
      in
      all material respects, as described in the Disclosure Documents, except for
      changes in the ordinary course of business and normal year-end adjustments
      that
      are not, in the aggregate, materially adverse to the consolidated business
      or
      financial condition of the Company and the Company Subsidiaries taken as a
      whole. There has been no (i) material adverse change to the business,
      operations, properties, financial condition, prospects or results of operations
      of the Company and the Company Subsidiaries taken as a whole since the date
      of
      the Company’s most recent financial statements contained in the Disclosure
      Documents or
      (ii)
      change by the Company in its accounting principles, policies and methods except
      as required by changes in GAAP.

     

    3.9.2  Each
      of
      the Company and the Company Subsidiaries has prepared in good faith and duly
      and
      timely filed all tax returns required to be filed by it and such returns are
      complete and accurate in all material respects and the Company and the Company
      Subsidiaries each has paid all taxes required to have been paid by it, except
      for taxes which it reasonably disputes in good faith or the failure of which
      to
      pay has not had or would not reasonably be expected to have a Material Adverse
      Effect. Neither the Company nor any Company Subsidiary has any liability with
      respect to taxes that accrued on or before the date of the most recent balance
      sheet of the Company included in the Disclosure Documents in excess of the
      amounts accrued with respect thereto that are reflected on such balance sheet.
      

    

    3.9.3  Neither
      the Company nor any Company Subsidiary is the subject of any pending or, to
      the
      Company’s knowledge, threatened inquiry, investigation or administrative or
      legal proceeding of a material nature by the Internal Revenue Service, the
      taxing authorities of any state or local jurisdiction, the Commission, any
      state
      securities commission or other Governmental Authority. 

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    3.9.4  Except
      as
      set forth in the Disclosure Documents (and if not set forth therein, except
      as
      set forth on Schedule
      3.9.4),
      there
      is no material claim, litigation or administrative proceeding pending, or,
      to
      the Company’s knowledge, threatened or contemplated, against the Company or any
      Company Subsidiary, or against any officer, director or employee of the Company
      or any such Company Subsidiary in connection with such person’s employment
      therewith. Neither the Company nor any Company Subsidiary is a party to or
      subject to the provisions of, any order, writ, injunction, judgment or decree
      of
      any court or Government Authority which has had or would reasonably be expected
      to have a Material Adverse Effect.

    

    3.10  
        Acknowledgement
      of Dilution.
      The
      Company acknowledges that the issuance of Stock Option Shares under the
      Debentures and the Warrant Shares upon exercise of the Warrants may result
      in
      dilution of the outstanding shares of Common Stock, which dilution may be
      substantial under certain market conditions. The Company further acknowledges
      that its obligation to issue (i) Stock Option Shares in accordance with the
      terms of the Debentures in stock and (ii) Warrant Shares in accordance with
      the
      terms of the Warrants shall not be affected, regardless of the effect of any
      such dilution. The
      Company further acknowledges that, to the extent not otherwise prohibited by
      the
      terms of this Agreement, each Investor may enter into hedging transactions
      with
      respect to the Common Stock and that
      such
      sales or transactions may have a downward effect on the market price of the
      Common Stock.

    

    3.11  
        Intellectual
      Property.
      Except
      as set forth in the Disclosure Documents (and if not set forth therein, except
      as set forth on Schedule
      3.11):

    

    (a)    The
      Company and the Company Subsidiaries own, free and clear of claims or rights
      or
      any other Person, with full right to use, sell, license, sublicense, dispose
      of,
      and bring actions for infringement of, or, to the knowledge of the Company,
      has
      acquired licenses or other rights to use, all Intellectual Property necessary
      for the conduct of its business as presently conducted (other than with respect
      to software which is generally commercially available and not used or
      incorporated into the Company’s products and open source software which may be
      subject to one or more “general public” licenses). All works that are used or
      incorporated into the Company’s or any of the Company Subsidiaries’ services,
      products or services or products actively under development and which is
      proprietary to the Company or such Company Subsidiary was developed by or for
      the Company or the Company Subsidiaries by the current or former employees,
      consultants or independent contractors of the Company or the Company
      Subsidiaries or purchased or licensed by the Company or one or more Company
      Subsidiaries. 

    

    (b)    The
      business of the Company and the Company Subsidiaries as presently conducted
      and
      the production, marketing, licensing, use and servicing of any products or
      services of the Company and the Company Subsidiaries do not, to the knowledge
      of
      the Company, infringe or conflict with any patent, trademark, copyright, or
      trade secret rights of any third parties or any other Intellectual Property
      of
      any third parties in any material respect. Neither the Company nor any Company
      Subsidiary has received written notice from any third party asserting that
      any
      Intellectual Property owned or licensed by the Company or the Company
      Subsidiaries, or which the Company or any Company Subsidiary otherwise has
      the
      right to use, is invalid or unenforceable by the Company or such Company
      Subsidiary and, to the Company’s knowledge, there is no valid basis for any such
      claim (whether or not pending or threatened). 

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (c)    No
      claim
      is pending or, to the Company’s knowledge, threatened against the Company or any
      Company Subsidiary nor has the Company or any Company Subsidiary received any
      written notice or other written claim from any Person asserting that any of
      the
      Company’s or a Company Subsidiary’s present or contemplated activities infringe
      or may infringe in any material respect any Intellectual Property of such
      Person, and the Company is not aware of any infringement by any other Person
      of
      any material rights of the Company or any Company Subsidiary under any
      Intellectual Property Rights.

    

    (d)    All
      licenses or other agreements under which the Company or any Company Subsidiary
      is granted Intellectual Property (excluding licenses to use software utilized
      in
      the Company’s or such Company Subsidiary’s internal operations and which is
      generally commercially available) are in full force and effect and, to the
      Company’s knowledge, there is no material default by any party thereto. The
      Company has no reason to believe that the licensors under such licenses and
      other agreements do not have and did not have all requisite power and authority
      to grant the rights to the Intellectual Property purported to be granted
      thereby.

    

    (e)    All
      licenses or other agreements under which the Company or any Company Subsidiary
      has granted rights to Intellectual Property to others (including all end-user
      agreements) are in full force and effect, there has been no material default
      by
      the Company or any Company Subsidiary thereunder and, to the Company’s
      knowledge, there is no material default of any provision thereof relating to
      Intellectual Property by any other party thereto. 

    

    (f)    The
      Company and the Company Subsidiaries have taken all steps required in accordance
      with commercially reasonable business practice to establish and preserve their
      ownership in their owned Intellectual Property and to keep confidential all
      material technical information developed by or belonging to the Company or
      the
      Company Subsidiaries which has not been patented or copyrighted. To the
      Company’s knowledge, neither the Company nor any Company Subsidiary is making
      any unlawful use of any Intellectual Property of any other Person, including,
      without limitation, any former employer of any past or present employees of
      the
      Company or any Company Subsidiary. To the Company’s knowledge, neither the
      Company, any Company Subsidiary nor any of their respective employees has any
      agreements or arrangements with former employers of such employees relating
      to
      any Intellectual Property of such employers, which materially interfere or
      conflict with the performance of such employee’s duties for the Company or any
      Company Subsidiary or result in any former employers of such employees having
      any rights in, or claims on, the Company’s or any Company Subsidiary’s
      Intellectual Property. Each employee of the Company and of each Company
      Subsidiary is subject to the policies regarding confidentiality and proprietary
      information described in the Company’s current employee handbook, which policies
      are reasonably sufficient to protect the Intellectual Property interests of
      the
      Company or a Company Subsidiary in inventions created by its employees. The
      Company and each Company Subsidiary has obtained executed assignment agreements
      from any current or former employees with respect to the development by such
      employees of intellectual property that have become the subject of registered
      patents or of outstanding applications for registration. The Company and each
      Company Subsidiary has taken reasonable security measures to guard against
      unauthorized disclosure or use of any of its Intellectual Property that is
      confidential or proprietary; and the Company has no reason to believe that
      any
      Person (including, without limitation, any former employee or consultant of
      the
      Company or of any Company Subsidiary) has unauthorized possession of any of
      its
      Intellectual Property, or any part thereof, or that any Person has obtained
      unauthorized access to any of its Intellectual Property. The Company and each
      Company Subsidiary has complied in all material respects with its respective
      obligations pursuant to all agreements relating to Intellectual Property rights
      that are the subject of licenses granted by third parties, except for any
      non-compliance that has not had or would not reasonably be expected to have
      a
      Material Adverse Effect.

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    3.12  
        Registration
      Rights; Rights of Participation.
      Except
      as set forth on Schedule
      3.12,
      (A) the
      Company has not granted or agreed to grant to any person or entity any rights
      (including “piggy-back” registration rights) to have any securities of the
      Company registered with the Commission or any other governmental authority
      which
      has not been satisfied in full, or are being satisfied in full pursuant to
      existing registration statements or waived on or prior to the date hereof,
      and
      (B) no person or entity, including, but not limited to, current or former
      stockholders of the Company, underwriters, brokers, agents or other third
      parties, has any right of first refusal, preemptive right, right of
      participation, anti-dilutive right or any similar right to participate in,
      or to
      receive securities or other assets of the Company solely as a result of the
      transactions contemplated by this Agreement or the other Transaction
      Documents.

    

    3.13  
        Solicitation;
      Other Issuances of Securities.
      Neither
      the Company nor any Company Subsidiary or Affiliate, nor any Person acting
      on
      its or their behalf, (i) has engaged in any form of general solicitation or
      general advertising (within the meaning of Regulation D) in connection with
      the
      offer or sale of the Securities, (ii) has, directly or indirectly, made any
      offers or sales of any security or the right to purchase any security, or
      solicited any offers to buy any security or any such right, under circumstances
      that would require registration of the Securities under the Securities Act
      or
      (iii) has issued any shares of Common Stock or shares of any series of preferred
      stock or other securities or instruments convertible into, exchangeable for
      or
      otherwise entitling the holder thereof to acquire shares of Common Stock which
      would be integrated with the sale of the Securities to such Investor or the
      issuance of the Warrant Shares for purposes of the Securities Act or of
any
      applicable stockholder approval provisions, including, without limitation,
      under
      the rules and regulations of the American Stock Exchange nor, other than as
      required by the Registration Rights Agreement, will the Company or any Company
      Subsidiary or Affiliate take any action or steps that would require registration
      of any of the Securities under the Securities Act or cause the offering of
      the
      Securities to be so integrated with other offerings.

    

    3.14  
        Fees.
      Except
      as set forth on Schedule
      3.14,
      the
      Company is not obligated to pay any brokers, finders or financial advisory
      fees
      or commissions to any underwriter, broker, agent or other representative in
      connection with the transactions contemplated hereby. The Company will indemnify
      and hold harmless such Investor from and against any claim by any person or
      entity alleging that such Investor is obligated to pay any such compensation,
      fee, cost or related expenditure in connection with the transactions
      contemplated hereby.

    

    3.15  
        Foreign
      Corrupt Practices.
      Neither
      the Company, any Company Subsidiary nor, to the knowledge of the Company, any
      director, officer, agent, employee or other person acting on behalf of the
      Company or any Company Subsidiary, has (i) used any corporate funds for any
      unlawful contribution, gift, entertainment or other unlawful expenses relating
      to political activity, (ii) made any direct or indirect unlawful payment to
      any
      foreign or domestic government official or employee, or (iii) violated any
      provision of the Foreign Corrupt Practices Act of 1977, as amended, or made
      any
      bribe, rebate, payoff, influence payment, kickback or other unlawful payment
      to
      any foreign or domestic government official or employee.

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    3.16  
        Key
      Employees.
      Except
      as set forth on Schedule
      3.16,
      each of
      the Company’s and each Company Subsidiary’s executive officers (as defined in
      Rule 501(f) of the Securities Act) (each, a “Key
      Employee”)
      is
      currently serving in the capacity described in the Disclosure Documents. Except
      as set forth on Schedule
      3.16,
      the
      Company has no knowledge of any fact or circumstance (including without
      limitation (i) the terms of any agreement to which such person is a party or
      any
      litigation in which such person is or may become involved and (ii) any illness
      or medical condition that could reasonably be expected to result in the
      disability or incapacity of such person) that would limit or prevent any such
      person from serving in such capacity on a full-time basis in the foreseeable
      future, or of any intention on the part of any such person to limit or terminate
      his or her employment with the Company or any Company Subsidiary. To the
      knowledge of the Company, no Key Employee has borrowed money pursuant to a
      currently outstanding loan that is secured by Common Stock or any right or
      option to receive Common Stock. 

    

    3.17  
        Employee
      Matters.
      There
      is no strike, labor dispute or union organization activities pending or, to
      the
      knowledge of the Company, threatened between the Company or any Company
      Subsidiary and any of their employees. Other than as set forth on Schedule
      3.17
      or in
      the Disclosure Documents, no employees of the Company or any Company Subsidiary
      belong to any union or collective bargaining unit. The Company and each Company
      Subsidiary has complied in all material respects with all applicable federal
      and
      state equal opportunity and other laws related to employment.

    

    3.18  
        Environment.
      Except
      as
      disclosed in the Disclosure Documents, the Company and the Company Subsidiaries
      have no liabilities under any Environmental Law, nor, to the Company's
      knowledge, do any factors exist that are reasonably likely to give rise to
      any
      such liability, affecting any of the properties owned or leased by the Company
      or any Company Subsidiary that, individually or in the aggregate, has
      had
      or would reasonably be expected to have a
      Material Adverse Effect. Neither the Company nor any Company Subsidiary has
      violated any Environmental Law applicable to it now or previously in effect,
      other than such violations or infringements that, individually or in the
      aggregate, have not had and would not reasonably be expected to have a Material
      Adverse Effect.

     

    3.19  
        ERISA.
      Except
      as described on Schedule
      3.19,
      the
      Company does not maintain or contribute to, or have any obligation under, any
      Pension Plan. The Company is in compliance in all material respects with the
      presently applicable provisions of ERISA and the United States Internal Revenue
      Code of 1986, as amended, with respect to each Pension Plan except in any such
      case for any such matters that, individually or in the aggregate, have not
      had,
      and would not reasonably be expected to have, a Material Adverse
      Effect.

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    3.20     Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents and the information to be disclosed
      by
      the Company pursuant to Section
      4.1(d),
      the
      Company confirms that neither it nor any other Person acting on its behalf
      has
      provided any of the Investors or their agents or counsel with any information
      that it believes constitutes or might constitute material, nonpublic
      information. The Company understands and confirms that the Investors will rely
      on the foregoing representation and the obligations of the Company under
Section
      4.1
      in
      effecting transactions in securities of the Company. All disclosure furnished
      by
      or on behalf of the Company to the Investors regarding the Company and the
      Company Subsidiaries, and their respective businesses and the transactions
      contemplated hereby, including the Schedules to this Agreement, is true and
      correct and does not contain any untrue statement of a material fact or omit
      to
      state any material fact necessary in order to make the statements made therein,
      in light of the circumstances under which they were made, not misleading. The
      press releases disseminated by the Company during the twelve months preceding
      the date of this Agreement
      did not,
      at the time they were issued, contain
      any untrue statement of a material fact or omit to state a material fact
      required to be stated therein or necessary in order to make the statements,
      in
      light of the circumstances under which they were made and when made, not
      misleading. The Company acknowledges and agrees that no Investor makes or has
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in Section
      2.

    

    3.21  
        Insurance.
      The
      Company maintains insurance for itself and the Company Subsidiaries in such
      amounts and covering such losses and risks as are reasonably sufficient and
      customary in the businesses in which the Company and the Company Subsidiaries
      are engaged. As
      of the
      date hereof and as of the Closing Date, no
      notice
      of cancellation has been received for any of such policies and the Company
      is in
      compliance in all material respects with all of the terms and conditions
      thereof. The Company has no reason to believe that it will not be able to renew
      its existing insurance coverage as and when such coverage expires or to obtain
      similar coverage from similar insurers as may be necessary to continue to
      conduct its business as currently conducted without a significant increase
      in
      cost. Without limiting the generality of the foregoing, the Company maintains
      Director’s and Officer’s insurance in an amount not less than $5 million for
      each covered occurrence.

    

    3.22  
        Property.
      Except
      as set forth on Schedule
      3.22,
      the
      Company and the
      Company Subsidiaries
      have good and marketable title to all real and personal Property owned by them,
      in each case free and clear of all Liens, except for Permitted Liens. Any
      Property held under lease by the Company or the Company Subsidiaries is held
      by
      them under valid, subsisting and enforceable leases with such exceptions as
      are
      not material and do not interfere with the use made or proposed to be made
      of
      such Property by the Company or any Company Subsidiary. Schedule
      3.22
      sets
      forth all real property owned by the Company and all mortgages or other liens
      (other than Permitted Liens specified in paragraphs (b), (c) and (d) in the
      definition thereof) encumbering such Property. 

    

    3.23  
        Regulatory
      Permits.
      The
      Company and the Company Subsidiaries possess all certificates, authorizations
      and permits issued by the appropriate federal, state or foreign regulatory
      authorities necessary to conduct their respective businesses,
      except
      where the failure to have any such certificate,
      authorization
      or permit would not have a Material Adverse Effect,
      and
      neither the Company nor any such Company Subsidiary has received any notice
      of
      proceedings relating to the revocation or modification of any such certificate,
      authorization or permit.

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    3.24  
        Exchange
      Act Registration; Listing.
      The
      Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
      Act and is listed on the American Stock Exchange. The Company currently meets
      the continuing eligibility requirements for listing on the American Stock
      Exchange and has not received any notice from such exchange that it may not
      currently satisfy such requirements or that such continued listing is in any
      way
      threatened. The Company has taken no action designed to, or which, to the
      knowledge of the Company, may have the effect of, terminating the registration
      of the Common Stock under the Exchange Act or delisting the Common Stock from
      the American Stock Exchange. 

    

    3.25  
        Investment
      Company Status.
      The
      Company is not, and immediately after any Closing will not be, an “investment
      company”
or
      an
      entity “controlled”
by
      an
“investment
      company”
within
      the meaning of the Investment Company Act of 1940, as amended (the “Investment
      Company Act”),
      and
      shall conduct its business in a manner so that it will not become subject to
      the
      Investment Company Act.

    

    3.26  
        Transfer
      Taxes.
      No
      stock transfer or other taxes (other than income taxes) are required to be
      paid
      in connection with the issuance and sale of any of the Securities, other than
      such taxes for which the Company has established appropriate reserves and
      intends to pay in full on or before the Closing.

    

    3.27  
        Sarbanes-Oxley
      Act; Internal Controls and Procedures.
      The
      Company is in material compliance with any and all applicable requirements
      of
      the Sarbanes-Oxley Act of 2002, as amended, and any and all applicable rules
      and
      regulations promulgated by the SEC thereunder that are effective as of the
      date
      hereof. The Company maintains internal accounting controls, policies and
      procedures, and such books and records as are reasonably designed to provide
      reasonable assurance that (i)
      all
      transactions to which the Company or any Company Subsidiary is a party or by
      which its properties are bound are effected by a duly authorized employee or
      agent of the Company, supervised by and acting within the scope of the authority
      granted by the Company’s senior management; (ii)
      the
      recorded accounting of the Company’s consolidated assets is compared with
      existing assets at regular intervals; and
      (iii) all
      transactions to which the Company or any Company Subsidiary is a party, or
      by
      which its properties are bound, are recorded (and such records maintained)
      in
      accordance with all Government Requirements and as may be necessary or
      appropriate to ensure that the financial statements of the Company are prepared
      in accordance with GAAP.

    

    3.28  
        Embargoed
      Person.
      None of
      the funds or other assets of the Company or the Company Subsidiaries shall
      constitute property of, or shall be beneficially owned, directly or indirectly,
      by any person subject to trade restrictions under United States law, including,
      but not limited to, the International Emergency Economic Powers Act,
      50 U.S.C. § 1701 et seq.,
      the
      Trading with the Enemy Act, 50 U.S.C. App. 1 et seq.,
      and any
      Executive Orders or regulations promulgated under any such United States laws
      (each, an “Embargoed
      Person”),
      with
      the result that the investments evidenced by the Securities are or would be
      in
      violation of law. No Embargoed Person shall have any interest of any nature
      whatsoever in the Company or any Company Subsidiary with the result that the
      investments evidenced by the Securities are or would be in violation of law.
      None of the funds or other assets of the Company or the Company Subsidiaries
      shall be derived from any unlawful activity with the result that the investments
      evidenced by the Securities are or would be in violation of
      law.

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    3.29
          Transactions
      with Interested Persons.
      Except
      as set forth in the Disclosure Documents, no officer, director or employee
      of
      the Company or any Company Subsidiary is or has made any arrangements with
      the
      Company or any Company Subsidiary to become a party to any transaction with
      the
      Company or any Company Subsidiary (other than for services as employees,
      officers and directors), including any contract, agreement or other arrangement
      providing for the furnishing of services to or by, providing for rental of
      real
      or personal property to or from, or otherwise requiring payments to or from
      any
      officer, director or such employee or, to the knowledge of the Company, any
      entity in which any officer, director, or any such employee has a substantial
      interest or is an officer, director, trustee or partner.

    

    3.30  
        Customers
      and Suppliers.
      The
      relationships of the Company and the Company Subsidiaries with their respective
      customers and suppliers are maintained on commercially reasonable terms. Except
      as set forth on Schedule
      3.30
      hereto,
      to the Company’s knowledge, no customer or supplier of the Company or any
      Company Subsidiary has any plan or intention to terminate its agreement with
      the
      Company or such Company Subsidiary, which termination would reasonably be
      expected to have a Material Adverse Effect.

    

    3.31  
        Accountants.
      The
      Company’s accountants, who
      the
      Company expects will render their opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-K for the
      year ended December 31, 2006, are, to the Company’s knowledge, independent
      accountants as required by the Securities Act.

    

    3.32  
        No
      Other Agreements.
      The
      Company has not, directly or indirectly, entered into any agreement with or
      granted any right to any Investor relating to the terms or conditions of the
      transactions contemplated by the Transaction Documents, except as expressly
      set
      forth in the Transaction Documents.

    

    3.33  
        Solvency.
      The
      Company believes that (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing Debt; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business as now conducted and as
      proposed to be conducted; and (iii) the expected cash flows of the Company
      for
      future periods, together with the proceeds the Company would receive upon
      liquidation of its assets and the proceeds from expected debt or equity
      offerings, after taking into account all anticipated uses of such amounts,
      would
      be sufficient to pay all Debt when such Debt is required to be paid. The Company
      has no knowledge of any facts or circumstances which led it to believe that
      it
      will be required to file for reorganization or liquidation under bankruptcy
      or
      reorganization laws of any jurisdiction, and has no present intention to so
      file.

    

    
      	
              4.

            	
              COVENANTS
                OF THE COMPANY AND EACH INVESTOR.

            

    

    

    4.1    Filings
      and Disclosure Reports.
      The
      Company agrees with each Investor that the Company will:

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (a)    file
      a
      Form D with respect to the Securities issued at the Closing as and when required
      under Regulation D and provide a copy thereof to such Investor promptly after
      such filing; 

     

    (b)    at
      or
      prior to the Closing, take such action as the Company reasonably determines
      upon
      the advice of counsel is necessary to qualify the Securities for sale under
      applicable state or “blue-sky” laws or obtain an exemption therefrom, and shall
      promptly provide evidence of any such action to such Investor at such Investor’s
      request; 

     

    (c)    on
      or
      prior to 5:00 p.m. (eastern time) on the third Business Day
      following the Execution Date,
      file
      with the Commission a Current Report on Form 8-K disclosing the material terms
      of and including as exhibits this Agreement and the other Transaction Documents
      and the transactions contemplated hereby and thereby; provided,
      however,
      that
      each Investor shall have a reasonable opportunity to review and comment on
      such
      Form 8-K prior to the issuance or filing thereof; and provided,
      further,
      that if
      the Company fails to file a Form 8-K disclosing the material terms of this
      Agreement and the other Transaction Documents within the time frames described
      herein, any Investor may issue a press release disclosing such information
      without any notice to or consent by the Company. Thereafter, the Company shall
      timely file any filings and notices required by the Commission or applicable
      law
      with respect to the transactions contemplated hereby;

    

    (d)    on
      or
      prior to the earlier of (i) February 16, 2007 and (ii) the date on which the
      Company closes the Bank Facility, the Company shall issue a press release
      relating to the Bank Facility and the transactions contemplated by this
      Agreement and the other Transaction Documents;
      provided,
      however,
      that
      each Investor shall have a reasonable opportunity to review and comment on
      such
      press release prior to the issuance thereof; and

    

    (e)    on
      or
      prior to the earlier of (i) March 2, 2007 and (ii) the date that the Company
      publicly releases its fiscal year 2006 results, the Company shall publicly
      disclose financial results and other information such that the Investors are
      no
      longer in possession of material, nonpublic information that has been provided
      by the Company or any other Person acting on the Company’s behalf.

    

    4.2    Existence
      and Compliance.
      The
      Company agrees that it will, and will cause each Company Subsidiary to, while
      any Investor holds any Securities:

     

    (a)    maintain
      its corporate existence in good standing;

    

    (b)    comply
      with all Governmental Requirements applicable to the operation of its business,
      except for instances of noncompliance that would not reasonably be expected
      to
      have, individually or in the aggregate, a Material Adverse Effect;

    

    (c)    comply
      with all agreements, documents and instruments binding on it or affecting its
      Properties or business, including, without limitation, all Material Contracts,
      except for instances of noncompliance that would not reasonably be expected
      to
      have, individually or in the aggregate, a Material Adverse
      Effect;

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    (d)    provide
      each Investor with copies of all materials sent to its stockholders at the
      same
      time as such materials are delivered to such stockholders (provided
      that
      such
      delivery shall be deemed effected in accordance herewith if the Company provides
      the Investors with a link to the EDGAR filing containing such materials);

     

    (e)    timely
      file with the Commission all reports required to be filed pursuant to the
      Exchange Act and refrain from terminating its status as an issuer required
      by
      the Exchange Act to file reports thereunder even if the Exchange Act or the
      rules or regulations thereunder would permit such termination; 

     

    (f)    take
      commercially reasonable steps to limit sales of Common Stock by the Company’s
      Key Employees listed on Schedule
      4.2(f)
      during
      the period beginning on the Execution Date and ending on the Effective Date,
      other than pursuant to any 10b-5(1) trading plans in effect as of the Execution
      Date and disclosed to each Investor in writing prior to such date;
      and

     

    (g)    use
      commercially reasonable efforts to maintain adequate insurance coverage
      (including D&O insurance) for the Company and each Company
      Subsidiary.

     

    4.3    Reservation
      of Common Stock.
      The
      Company shall, on the Closing Date, have authorized and reserved for issuance
      to
      the Investors free from any preemptive rights, and shall keep available at
      all
      times during which any Debentures or Warrants are outstanding, a number of
      shares of Common Stock (the “Reserved
      Amount”)
      that,
      on the Closing Date, is not less than two hundred percent (200%) of the
      sum
      of (i)
      the
      number of Stock Option Shares that would be issuable if the Debentures were
      then
      repaid in full in Stock Option Shares (and not in cash) plus
      (ii)
      the
      number of Warrant Shares that would be issuable if the Warrants were then
      exercised in full; in each such case, without regard to any limitation or
      restriction on (x) the issuance of such Securities or (y) the exercise of any
      Warrants.
      The
      Reserved Amount shall be allocated among the Investors in accordance with each
      Investor’s Pro Rata Share. In the event that an Investor shall sell or otherwise
      transfer any of such Investor’s Debentures or Warrants, each transferee shall be
      allocated a pro
      rata
      portion
      of such transferor’s Reserved Amount. Any portion of the Reserved Amount
      allocated to any Investor or other Person which no longer holds any Debentures
      or Warrants shall be reallocated to the remaining Investors pro
      rata
      based on
      the number of the Registrable Securities held by such Investors at such time.
      In
      the event that the Reserved Amount is insufficient at any time to cover one
      hundred twenty five percent (125%) of the Registrable Securities issued
      or
      issuable to the Investors under the Debentures and the Warrants (such number
      to
      be determined (x) using 92% of the VWAP or the exercise price of the Warrants,
      as applicable, in effect at such time and (y) without regard to any limitation
      or restriction on (1) the issuance of such Registrable Securities or (2) the
      exercise of any Warrants),
      the
      Company shall take such action (including without limitation holding a meeting
      of its stockholders) to increase the Reserved Amount to cover two hundred
      percent (200%) of such Registrable Securities, such increase to be effective
      not
      later than the thirtieth (30th) day (or sixtieth (60th) day, in the event
      stockholder approval is required for such increase) following the Company’s
      receipt of written notice of such deficiency. While any Warrants are
      outstanding, the Company shall not reduce the Reserved Amount without obtaining
      the prior written consent of each Investor then holding a
      Warrant.

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    4.4    Use
      of
      Proceeds.
      The
      Company shall use the proceeds from the sale of the Debentures and Warrants
      (i)
      for working capital and general corporate purposes of the Company and the
      Company Subsidiaries and (ii) for the payment of a portion of the purchase
      price
      in connection with the McMurdo Transaction. The Company shall not use the
      proceeds from the sale of the Debentures and Warrants to fund the operations
      of
      any Subsidiary or other Person other than a Company Subsidiary.

    

    4.5    Transactions
      with Affiliates. (a)
      The
      Company agrees that, during the period beginning on the Execution Date and
      ending on the Termination Date, any transaction or arrangement between the
      Company or any Company Subsidiary, on the one hand, and any Affiliate
      of the Company or any Company Subsidiary (including, in the case of the Company,
      any Company Subsidiary, and in the case of a Company Subsidiary, the Company
      or
      any other Company Subsidiary), or any officer, director, manager, shareholder,
      member or employee of the foregoing, on
      the
      other hand (each, an “Affiliate
      Transaction”),
      shall
      be effected on an arms’ length basis and shall be approved by the independent
      members of board of directors of the Company or the board of directors or
      equivalent thereof of the Company Subsidiary, as the case may be.

    

    (b)    In
      addition to (and without limiting) the provisions of Section
      4.5(a),
      the
      Company agrees that, during the period beginning on the Execution Date and
      ending on the Termination Date, the Company shall not permit Signature to (i)
      engage in any Affiliate Transaction, or (ii) dividend or make any other
      distribution of its cash or other properties to any Person other than
      distributions of cash to the Company that has been generated by the cash flow
      of
      Signature’s operations from and after the Closing Date.

    

    4.6    Use
      of
      Investor Name.
      Except
      as may be required by applicable law and/or this Agreement, the Company shall
      not use, directly or indirectly, any Investor’s name or the name of any of its
      Affiliates in any advertisement, announcement, press release or other similar
      communication unless it has received the prior written consent of such Investor
      for the specific use contemplated or as otherwise required by applicable law
      or
      regulation.

    

    4.7    Limitations
      on Disposition.
      No
      Investor shall sell, transfer, assign or dispose of any Securities,
      unless:

     

    (a)    there
      is
      then in effect an effective registration statement under the Securities Act
      covering such proposed disposition and such disposition is made in accordance
      with such registration statement; or

    

    (b)    such
      Investor has notified the Company in writing of any such disposition, and
      furnished the Company with an opinion of counsel, reasonably satisfactory to
      the
      Company, that such disposition will not require registration of such Securities
      under the Securities Act; provided,
      however,
      that no
      such opinion of counsel will be required (A) if the sale, transfer,
      assignment or disposition is made to an Affiliate of such Investor, (B) if
      the
      sale, transfer, assignment or disposition is made pursuant to Rule 144 and
      such Investor provides the Company with evidence reasonably satisfactory to
      the
      Company that the proposed transaction satisfies the requirements of Rule 144,
      (C) if such
      Securities are eligible for resale under Rule 144(k) or any successor
      provision
      or
      (D) if in connection with a bona
      fide
      pledge
      or hypothecation of any Securities under a margin arrangement with a
      broker-dealer or other financial institution or the sale of any such Securities
      by such broker-dealer or other financial institution following such Investor’s
      default under such margin arrangement.

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    4.8    Disclosure
      of Non-Public Information.
      In
      addition to the Company’s obligations under Section
      4.1,
      the
      Company agrees that it will not at any time following the Execution Date
      disclose material non-public information to any Investor without first obtaining
      such Investor’s written consent to such disclosure. 

    

    4.9    Indemnification
      of Investors.
      The
      Company will indemnify and hold each Investor and its directors, managers,
      officers, shareholders, members, partners, employees and agents (each, an
“Investor
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Investor Party may suffer or incur as a result
      of or
      relating to (a) any breach of any of the representations, warranties, covenants
      or agreements made by the Company in this Agreement or in the other Transaction
      Documents or (b) any action instituted against an Investor, or any of them
      or
      their respective Affiliates, by any stockholder of the Company who is not an
      Affiliate of such Investor, with respect to any of the transactions contemplated
      by the Transaction Documents (unless such action is based upon a breach of
      such
      Investor’s representation, warranties or covenants under the Transaction
      Documents or any agreements or understandings such Investor may have with any
      such stockholder or any violations by such Investor of state or federal
      securities laws or any conduct by such Investor which constitutes fraud, gross
      negligence, willful misconduct or malfeasance). If any action shall be brought
      against any Investor Party in respect of which indemnity may be sought pursuant
      to this Agreement, such Investor Party shall promptly notify the Company in
      writing, and the Company shall have the right to assume the defense thereof
      with
      counsel of its own choosing. Any Investor Party shall have the right to employ
      separate counsel in any such action and participate in the defense thereof,
      but
      the fees and expenses of such counsel shall be at the expense of such Investor
      Party except to the extent that (i) the employment thereof has been specifically
      authorized by the Company in writing, (ii) the Company has failed after a
      reasonable period of time following such Investor Party’s written request that
      it do so, to assume such defense and to employ counsel or (iii) in such action
      there is, in the reasonable opinion of such separate counsel, a material
      conflict on any material issue between the position of the Company and the
      position of such Investor Party. The Company will not be liable to any Investor
      Party under this Agreement (i) for any settlement by an Investor Party effected
      without the Company’s prior written consent, which shall not be unreasonably
      withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
      claim, damage or liability is attributable to such Investor Party’s wrongful
      actions or omissions, or gross negligence or to such Investor Party’s breach of
      any of the representations, warranties, covenants or agreements made by such
      Investor in this Agreement or in the other Transaction Documents.

    

    4.10  
        Limitation
      on Debt and Liens; Financial Covenants.
      

    

    (a)    During
      the period beginning on the Execution Date and ending on the Termination Date,
      the Company shall refrain, and shall ensure that each Company Subsidiary
      refrains, from (A) incurring any Debt other than Permitted Debt, and (B)
      granting, establishing or maintaining any Lien on any of its Property other
      than
      Permitted Liens.

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    (b)    When
      used
      in this Section
      4.10(b),
      the
      following terms shall have the respective meanings indicated: 

    

    “Accounts
      Receivable”
means,
      as to any Person at any time of determination, all accounts receivable of such
      Person (i) not including prepaid deposits, deferred revenue and offsets, and
      (ii) excluding (1) all receivables that remain unpaid for over 90 days from
      the
      respective invoice dates thereof, (2) if 35% or more of all receivables of
      such
      Person is payable by any one debtor and its Affiliates, then all receivables
      payable by such debtor and its Affiliates in excess of 35% of the total amount
      of all receivables of such Person; (3) all receivables payable by any Affiliate
      of such Person; (4) all receivables generated as a result of pre-billing,
      progress billing, retention billing, bill and hold accounts, ship in place
      accounts, contra revenue accounts or cross-aged balances; (5) all receivables
      of
      a debtor and its Affiliates if 35% or more of all receivables payable by such
      debtor and its Affiliates remain unpaid for over 90 days from the respective
      invoice dates thereof; and (6) all receivables payable by debtors whose
      principal place of business is located outside of the United States, Canada
      and
      the member nations of the European Union after a total of $1,000,000 of
      receivables payable by such debtors have been included as “qualifying”
receivables for purposes of determining the Accounts Receivable of such
      Person.

    

    “Consolidated
      Liabilities”
means,
      at any time of determination, the total Liabilities of the Company and the
      Company Subsidiaries at such time, without duplication.

    

    “Consolidated
      Net Tangible Assets”
means,
      at any time of determination, the total Net Tangible Assets of the Company
      and
      the Company Subsidiaries at such time, without duplication.

    

    “Consolidated
      U.S. Liabilities”
means,
      at any time of determination, the total Liabilities of the Company and the
      U.S.
      Company Subsidiaries at such time, without duplication.

    

    “Consolidated
      U.S. Net Tangible Assets”
means,
      at any time of determination, the total Net Tangible Assets of the Company
      and
      the U.S. Company Subsidiaries at such time, without duplication.

    

    “Liabilities”
means,
      as to any Person at any time of determination, all Debt (including Permitted
      Debt) of such Person, provided
      that
      with respect to any revolving credit line facility of such Person, only (x)
      that
      portion of such facility that has actually been drawn under such facility at
      such time plus
      (y)
      any
      additional amount that such Person is obligated to draw pursuant to the terms
      of
      such facility at any time on or after such time, shall be included as a
      Liability of such Person.

    

    “Net
      Tangible Assets”
means,
      as to any Person at any time of determination, the aggregate value of (i) all
      cash and cash equivalents of such Person; (ii) all Accounts Receivable of such
      Person, (iii) all inventory of such Person, valued at cost and multiplied by
      0.90 and excluding the portion of all work in process inventory that is in
      excess of 20% of the total inventory of such Person; and (iv) all real and
      personal property and equipment of such Person net of
      depreciation.

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    During
      the period beginning on the Execution Date and ending on the Termination Date,
      the Company shall, and shall ensure that each of the Company Subsidiaries,
      comply with each of the following financial covenants:

    

    (i)    
the
      Consolidated Net Tangible Assets shall at all times be equal to or exceed
      $35,000,000;

    

    (ii)    the
      Consolidated U.S. Net Tangible Assets shall at all times be equal to or exceed
      $16,500,000;

    

    (iii)   the
      Net
      Tangible Assets of Signature shall at all times be equal to or exceed
      $11,500,000;

    

    (iv)   the
      Consolidated Liabilities shall at all times be less than
      $20,000,000;

    

    (v)    the
      Consolidated U.S. Liabilities shall at all times be less than $15,000,000;
      and

    

    (vi)   the
      Liabilities of Signature shall at all times be less than
      $2,000,000.

    

    In
      furtherance of the foregoing financial covenants, the Company shall, on or
      prior
      to the 30th
      day
      following each fiscal quarter following the Closing Date (or, if such fiscal
      quarter is the Company’s fourth fiscal quarter, then on or prior to the
      45th
      day
      following such fiscal quarter), deliver to each Investor a certificate certified
      by the Chief Financial Officer of the Company certifying (i) that at all times
      during such fiscal quarter, the Company and the Company Subsidiaries were,
      to
      such officer’s knowledge, in compliance with each of the foregoing financial
      covenants and (ii) the actual Net Tangible Assets and Liability amounts for
      each
      of the foregoing financial covenant categories as of the last day of such fiscal
      quarter. Following the closing of the McMurdo Transaction, but in no case later
      than six months after the Closing Date, the Company and Investors agree to
      review and renegotiate the foregoing financial covenants in good faith to take
      into account the then current financial condition of the Company and Company
      Subsidiaries, specifically taking into account the McMurdo
      Transaction.

    

    4.11  
        Restricted
      Payments.
      During
      the period beginning on the Execution Date and ending on the Termination Date,
      the Company will not, and will not permit any Company Subsidiary to, make any
      Restricted Payments other than Restricted Payments made by a Company Subsidiary
      to the Company (provided,
      that
      any Restricted Payment by Signature that would be permitted under this
Section
      4.11
      shall be
      further subject to the restrictions contained in Section
      4.5(b)(ii)).
      

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    4.12  
        Disposition
      of Property.
      During
      the period beginning on the Execution Date and ending on the Termination Date,
      the
      Company will not, and will not permit any Company Subsidiary to, (i)
dispose
      in a single transaction or in a series of related transactions all or any part
      of its Property unless (x) such disposition is in the ordinary course of
      business and for fair market value (provided,
      any
      such disposition does not exceed $50,000 per annum), and (y) such Property
      is
      not material to the Company’s or any Company Subsidiary’s business, operations
      or financial condition or performance or (ii) sell, assign or otherwise transfer
      any equity interest in any Company Subsidiary to a Person other than the Company
      or another Company Subsidiary. 

    

    4.13  
        Modification
      of Organizational Documents.
      Except
      as described on Schedule
      4.13 and
      Section 4.17, and as may be required to comply with the listing requirements
      of
      the Principal Market, during the period beginning on the Execution Date and
      ending on the Termination Date, the Company will not, nor will it permit any
      Company Subsidiary to, consent to or implement any termination, amendment,
      modification, supplement or waiver of the certificate or articles of
      incorporation, articles of organization, bylaws, regulations or other
      constituent documents of the Company or any such Company
      Subsidiary.

    

    4.14  
        Issuance
      Limitation.
      During
      the period beginning on the Execution Date and ending on the date that is 90
      days after the Effective Date, the Company shall not effect a Subsequent
      Placement. During
      the period beginning on the Execution Date and ending on the Termination Date,
      the Company will not permit any Company Subsidiary to effect a Subsequent
      Placement.
      During
      the period beginning on the Execution Date and ending on the Stockholder
      Amendment Approval Date, the Company shall not effect a Subsequent Placement
      that constitutes a Dilutive Issuance (as defined in the Warrants).

    

    4.15  
        Acquisitions
      and Investments.
      Other
      than any purchase of additional equity securities of a Company Subsidiary or
      another Affiliate, during
      the period beginning on the Execution Date and ending on the Termination Date,
      the
      Company will not, nor will it permit any Company Subsidiary to, purchase or
      otherwise acquire the capital stock or other equity interests in or assets
      (constituting a business unit) of, any Person or agree to do so, unless the
      Company believes in good faith that the acquired business or entity will
      generate positive cash flow during the twelve-month period immediately following
      such acquisition.

    

    4.16  
        Limitation
      on Issuance of Stock Option Shares and Warrant Shares.
      Each
      Investor acknowledges and agrees that the aggregate number of shares of Common
      Stock that may be issued by the Company pursuant to this Agreement, the
      Debentures and the Warrants may not at any time exceed the Cap Amount without
      the Stockholder Cap Approval and that the Company shall have no obligation
      to
      issue shares of Common Stock pursuant to this Agreement, the Debentures or
      the
      Warrants in excess of the Cap Amount unless the Stockholder Cap Approval has
      been obtained. In furtherance of the limitation set forth in the immediately
      preceding sentence, at any time following the Closing Date, the aggregate number
      of Stock Option Shares and Warrant Shares that such Investor may receive under
      such Investor’s Debenture and/or upon the exercise of such Investor’s Warrant
      may not exceed the product of (A) the Cap Amount and (B) such Investor’s Pro
      Rata Share (the “Allocation
      Amount”).
      In
      the event that an Investor shall sell or otherwise transfer any of such
      Investor’s Debentures or Warrants, each transferee shall be allocated a
pro
      rata
      portion
      of such transferor’s Allocation Amount. Any portion of the Allocation Amount
      allocated to any Investor or other Person which no longer holds any Debentures
      or Warrants shall be reallocated to the remaining Investors pro
      rata
      based on
      the number of the Registrable Securities held by such Investors at such
      time.

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    4.17  
        Stockholder
      Approvals.
      

    

    (a)    The
      Company shall use its commercially reasonable efforts to obtain the Stockholder
      Amendment Approval as promptly as practicable after the date hereof. In
      furtherance of the foregoing, the Company shall hold a stockholders meeting
      no
      later than May 31, 2007. If the Stockholder Amendment Approval is not obtained
      at such meeting, the Company shall continue to use its commercially reasonable
      efforts to obtain the Stockholder Amendment Approval at each annual or other
      stockholder meeting held by the Company until such approval has been obtained
      (provided, that
      the
      Company shall ensure that a stockholder meeting is called at least once every
      90
      days until the Stockholder Amendment Approval has been obtained).

    

    (b)    The
      Company shall use its commercially reasonable efforts to obtain the Stockholder
      Cap Approval as promptly as practicable after the first date on which the total
      number of shares of Common Stock issued
      or
      issuable by the Company pursuant to this Agreement, the Debentures and the
      Warrants is equal to or greater than 70% of the Cap Amount. In furtherance
      of
      obtaining the Stockholder Cap Approval if and when such approval is required,
      the Company shall use its commercially reasonable efforts to obtain the
      Stockholder Cap Approval at each annual or other stockholder meeting held by
      the
      Company until such approval has been obtained (provided, that,
      if
      and when such approval is required, the Company shall ensure that a stockholder
      meeting is called at least once every 90 days until the Stockholder Cap Approval
      has been obtained). 

    

    4.18  
        Issuance
      of Stock Option Shares and Warrant Shares.
      The
      Company shall cause all Stock Option Shares and the Warrant Shares, when issued
      and delivered in accordance with the terms of the Debentures or the Warrants,
      as
      the case may be, to be duly and validly issued, fully paid and nonassessable,
      free and clear of any Liens imposed by or through the Company.

    

    4.19  
        Newly
      Created Subsidiaries.
      During
      the period beginning on the Execution Date and ending on the Termination Date,
      if
      the
      Company creates or acquires any new Subsidiary that owns, at the time of
      creation or acquisition or any time thereafter, assets having a fair market
      value in excess of $50,000, then the Company shall cause such new Subsidiary
      to
      become party to the Subsidiary Guarantee and Security Agreement.

    

    4.20  
        Listing
      on American Stock Exchange.
      The
      Company
      shall use its commercially reasonable efforts to obtain listing approval from
      the American Stock Exchange for the issuance of the Warrant Shares and Stock
      Option Shares as promptly as practicable but in no event later than March 2,
      2007 (the “Listing
      Deadline Date”).
      If
      such listing approval is not obtained by the Listing Deadline Date, the term
      of
      the Warrant shall be extended by a number days equal to the number of days
      between the Listing Deadline Date and the date on which the Company obtains
      such
      listing approval; provided,
      that
      each Investor shall have the right to pursue all other remedies provided under
      the Transaction Documents. 

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    4.21  
        Events
      of Default.
      Upon
      the occurrence of an Event of Default, the Company shall (i) notify the
      Investors of the nature of such Event of Default as soon as practicable (but
      in
      no event later than one Business Day after the Company becomes aware of such
      Event of Default), and (ii) not later than two Business Days after delivering
      such notice to the Investors, issue a press release disclosing such Event of
      Default and take such other actions as may be necessary to ensure that none
      of
      the Investors are in the possession of material, nonpublic information as a
      result of receiving such notice from the Company.

    

    4.22  
        Certain
      Representations.
      Each
      Investor shall notify the Company if, as of any date on which an Investor is
      to
      receive Stock Option Shares and/or Warrant Shares that are not subject to an
      effective registration statement with the Commission, such Investor is unable
      to
      make the following representations: (i) such Investor is an “accredited
      investor”, (ii) such Investor acknowledges that the Securities may not be
      transferred or resold without registration under the Securities Act or unless
      pursuant to an exemption therefrom, and (iii) such Investor understands that
      the
      Securities are being delivered to it in reliance upon specific exemptions from
      the registration requirements of U.S. federal and state laws. If an Investor
      delivers the notice contemplated in this Section
      4.22,
      the
      Company shall not be obligated to deliver any Stock Option Shares or Warrant
      Shares to such Investor until such Investor has provided a certificate making
      the representations contained in this Section
      4.22.
      If an
      Investor does not deliver the notice contemplated in this Section
      4.22,
      then
      such Investor shall be deemed to have made the representations contained in
      this
Section
      4.22,
      and the
      Company shall deliver the Stock Option Shares and the Warrant Shares as and
      when
      due.

    

    5.    
CONDITIONS
      TO CLOSING.

    

    5.1    Conditions
      to Investors’ Obligations at the Closing.
      Each
      Investor’s obligations to effect the Closing, including without limitation its
      obligation to purchase a Debenture and Warrant at the Closing, are conditioned
      upon the fulfillment (or waiver by such Investor in its sole and absolute
      discretion) of each of the following events as of the Closing Date, and the
      Company shall use commercially reasonable efforts to cause each of such
      conditions to be satisfied:

    

    
      	 	
              5.1.1

            	
              the
                representations and warranties of the Company set forth in this Agreement
                and in the other Transaction Documents shall be true and correct
                in all
                material respects as of such date as if made on such date (except
                that to
                the extent that any such representation or warranty relates to a
                particular date, such representation or warranty shall be true and
                correct
                in all material respects as of that particular date);
                

            

    

    

    
      	 	
              5.1.2

            	
              the
                Company shall have complied with or performed in all material respects
                all
                of the agreements, obligations and conditions set forth in this Agreement
                and in the other Transaction Documents that are required to be complied
                with or performed by the Company on or before the Closing;
                

            

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    
      	 	
              5.1.3

            	
              the
                Company shall have delivered to such Investor a certificate, signed
                by the
                Chief Executive Officer and Chief Financial Officer of the Company,
                certifying that the conditions specified in this Section
                5.1
                have been fulfilled as of the Closing, it being understood that such
                Investor may rely on such certificate as though it were a representation
                and warranty of the Company made
                herein;

            

    

    

    
      	 	
              5.1.4

            	
              the
                Company shall have delivered to such Investor reasonably acceptable
                opinions of counsel for the Company and of counsel for the Company
                Subsidiaries, dated as of the Closing Date;

            

    

    

    
      	 	
              5.1.5

            	
              the
                Company shall have executed and delivered to such Investor the Debenture
                and the Warrant being purchased by such Investor at the
                Closing;

            

    

    

    
      	 	
              5.1.6

            	
              the
                Company shall have executed and delivered to such Investor the
                Registration Rights Agreement, the Security Agreement and the Subsidiary
                Guarantee, each Company Subsidiary shall have executed and delivered
                to
                such Investor the Security Agreement and the Subsidiary Guarantee,
                and
                certificates evidencing the Pledged Securities (as defined in the
                Security
                Agreement) shall have been delivered to Imperium Advisers, LLC, as
                collateral agent;

            

    

    

    
      	 	
              5.1.7

            	
              the
                Company shall have delivered to such Investor a certificate, signed
                by the
                Secretary or an Assistant Secretary of the Company, attaching (i)
                the
                certificate of incorporation and by-laws of the Company and (ii)
                resolutions passed by its Board of Directors to authorize the transactions
                contemplated hereby and by the other Transaction Documents, and (iii)
                resolutions passed by the respective boards of directors of the Company
                Subsidiaries to authorize the transactions contemplated by the Security
                Agreement and the Subsidiary Guarantee, and certifying that such
                documents
                are true and complete copies of the originals and have not been amended
                or
                superseded, it being understood that such Investor may rely on such
                certificate as a representation and warranty of the Company made
                herein;

            

    

    

    
      	 	
              5.1.8

            	
              the
                Company shall have obtained the written agreement of the Key Employees
                listed on Schedule
                4.2(f) to
                refrain from selling shares of Common Stock for the period specified
                in,
                and in accordance with, Section
                4.2(f)
                of
                this Agreement;

            

    

    

    
      	 	
              5.1.9

            	
              there
                shall have occurred no material adverse change in the Company’s
                consolidated business or financial condition since the date of the
                Company’s most recent financial statements contained in the Disclosure
                Documents; 

            

    

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    
      	 	
              5.1.10

            	
              the
                Company shall have authorized and reserved for issuance the aggregate
                number of shares of Common Stock required to be authorized and reserved
                under Section
                4.3;

            

    

    

    
      	 	
              5.1.11

            	
              there
                shall be no injunction, restraining order or decree of any nature
                of any
                court or Government Authority of competent jurisdiction that is in
                effect
                that restrains or prohibits the consummation of the transactions
                contemplated hereby and by the other Transaction Documents;
                

            

    

    

    
      	 	
              5.1.12

            	
              the
                Investors shall have completed their due diligence to their satisfaction;
                

            

    

    

    
      	 	
              5.1.13

            	
              the
                Company shall have, or shall have caused Signature to, deliver to
                the
                Investors a written consent executed by the Royal Bank of Scotland
                and the
                National Westminster Bank that consents to the security interest
                and Liens
                being granted by Signature in favor of the Investors under the Security
                Agreement; and

            

    

    

    
      	 	
              5.1.14

            	
              the
                Company shall have paid the expenses described in Section
                6.10
                of
                this Agreement.

            

    

    

    5.2    Conditions
      to Company’s Obligations at the Closing.
      The
      Company’s obligations to effect the Closing with an Investor are conditioned
      upon the fulfillment (or waiver by the Company in its sole and absolute
      discretion) of each of the following events as of the Closing Date:

    

    
      	 	
              5.2.1

            	
              the
                representations and warranties of such Investor set forth in this
                Agreement and in the other Transaction Documents to which it is a
                party
                shall be true and correct in all material respects as of such date
                as if
                made on such date (except that to the extent that any such representation
                or warranty relates to a particular date, such representation or
                warranty
                shall be true and correct in all material respects as of that
                date);

            

    

    

    
      	 	
              5.2.2

            	
              such
                Investor shall have complied with or performed all of the agreements,
                obligations and conditions set forth in this Agreement that are required
                to be complied with or performed by such
                Investor
                on or before the Closing; 

            

    

    

    
      	 	
              5.2.3

            	
              there
                shall be no injunction, restraining order or decree of any nature
                of any
                court or Government Authority of competent jurisdiction that is in
                effect
                that restrains or prohibits the consummation of the transactions
                contemplated hereby and by the other Transaction Documents;
                

            

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    
      	 	
              5.2.4

            	
              such
                Investor shall have executed each Transaction Document to which it
                is a
                party and shall have delivered the same to the
                Company;

            

    

     

    
      	 	
              5.2.5

            	
              such
                Investor shall have tendered to the Company the Purchase Price for
                the
                Debenture and the Warrant being purchased by it at the Closing
                by wire transfer of immediately available
                funds;

            

    

     

    
      	 	
              5.2.6

            	
              the
                Company shall have obtained the requisite approval from its board
                of
                directors to enter into the Transaction Documents and perform its
                obligations thereunder; and

            

    

     

    
      	 	
              5.2.7

            	
              the
                Company shall have paid the fees set forth on Schedule
                3.14.

            

    

     

    6.    
MISCELLANEOUS.

    

    6.1    Survival;
      Severability.
      The
      representations, warranties, covenants and indemnities made by the parties
      herein and in the other Transaction Documents shall survive the Closing
      notwithstanding any due diligence investigation made by or on behalf of the
      party seeking to rely thereon. In the event that any provision of this Agreement
      becomes or is declared by a court of competent jurisdiction to be illegal,
      unenforceable or void, this Agreement shall continue in full force and effect
      without said provision; provided
      that in
      such case the parties shall negotiate in good faith to replace such provision
      with a new provision which is not illegal, unenforceable or void, as long as
      such new provision does not materially change the economic benefits of this
      Agreement to the parties.

    

    6.2    Successors
      and Assigns.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective successors and permitted assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and permitted
      assigns any rights, remedies, obligations or liabilities under or by reason
      of
      this Agreement, except as expressly provided in this Agreement. An Investor
      may
      assign its rights and obligations hereunder in connection with any private
      sale
      or transfer of the Securities in accordance with the terms hereof, as long
      as,
      as a condition precedent to such transfer, the transferee executes an
      acknowledgment agreeing to be bound by the applicable provisions of this
      Agreement, in which case the term “Investor” shall be deemed to refer to such
      transferee as though such transferee were an original signatory hereto. The
      Company may not assign its rights or obligations under this
      Agreement.

    

    6.3    No
      Reliance.
      Each
      party acknowledges that (i) it has such knowledge in business and financial
      matters as to be fully capable of evaluating this Agreement, the other
      Transaction Documents and the transactions contemplated hereby and thereby,
      (ii)
      it is not relying on any advice or representation of any other party in
      connection with entering into this Agreement, the other Transaction Documents
      or
      such transactions (other than the representations made in this Agreement or
      the
      other Transaction Documents), (iii) it has not received from any other party
      any
      assurance or guarantee as to the merits (whether legal, regulatory, tax,
      financial or otherwise) of entering into this Agreement or the other Transaction
      Documents or the performance of its obligations hereunder and thereunder, and
      (iv) it has consulted with its own legal, regulatory, tax, business, investment,
      financial and accounting advisors to the extent that it has deemed necessary,
      and has entered into this Agreement and the other Transaction Documents based
      on
      its own independent judgment and, if applicable, on the advice of such advisors,
      and not on any view (whether written or oral) expressed by any other
      party.

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    6.4    Independent
      Nature of Investors’ Obligations and Rights.
      The
      obligations of each Investor hereunder are several and not joint with the
      obligations of the other Investors hereunder, and no Investor shall be
      responsible in any way for the performance of the obligations of any other
      Investor hereunder. The Company acknowledges and agrees that nothing contained
      herein or in any other Transaction Document, and no action taken by any Investor
      pursuant hereto or thereto, shall be deemed to constitute the Investors as
      a
      partnership, an association, a joint venture or any other kind of entity, or
      a
“group” as described in Section 13(d) of the Exchange Act, or create a
      presumption that the Investors are in any way acting in concert with respect
      to
      such obligations or the transactions contemplated by this Agreement. Each
      Investor has been represented by its own separate counsel in connection with
      the
      transactions contemplated hereby, shall be entitled to protect and enforce
      its
      rights, including without limitation rights arising out of this Agreement or
      the
      other Transaction Documents, individually, and shall not be required to join
      any
      other Investor as an additional party in any proceeding for such
      purpose.

    

    6.5    Injunctive
      Relief.
      The
      Company acknowledges and agrees that a breach by it of its obligations hereunder
      will cause irreparable harm to each Investor and that the remedy or remedies
      at
      law for any such breach will be inadequate and agrees, in the event of any
      such
      breach, in addition to all other available remedies, such Investor shall be
      entitled to an injunction restraining any breach and requiring immediate and
      specific performance of such obligations without the necessity of showing
      economic loss or the posting of any bond.

    

    6.6    Governing
      Law; Jurisdiction; Waiver of Jury Trial.
      (a)
      This Agreement shall be governed by and construed under the laws of the State
      of
      New York applicable to contracts made and to be performed entirely within the
      State of New York. Each party hereby irrevocably submits to the exclusive
      jurisdiction of the state and federal courts sitting in the City and County
      of
      New York for the adjudication of any dispute hereunder or any other Transaction
      Document or in connection herewith or therewith or with any transaction
      contemplated hereby or thereby, 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 in effect
      for notices to it under this Agreement and agrees that such service shall
      constitute good and sufficient service of process and notice thereof. Nothing
      contained herein shall be deemed to limit in any way any right to serve process
      in any manner permitted by law.

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

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

    

    6.7    Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original, and all of which together shall constitute one and the
      same
      instrument. This Agreement may be executed and delivered by facsimile
      transmission.

    

    6.8    Headings.
      The
      headings used in this Agreement are used for convenience only and are not to
      be
      considered in construing or interpreting this Agreement. 

    

    6.9    Notices.
      Any
      notice, demand or request required or permitted to be given by the Company
      or
      the Investor pursuant to the terms of this Agreement shall be in writing and
      shall be deemed delivered (i) when delivered personally or by verifiable
      facsimile transmission, unless such delivery is made on a day that is not a
      Business Day, in which case such delivery will be deemed to be made on the
      next
      succeeding Business Day, (ii) on the next Business Day after timely delivery
      to
      an overnight courier and (iii) on the Business Day actually received if
      deposited in the U.S. mail (certified or registered mail, return receipt
      requested, postage prepaid), addressed as follows:

    

    If
      to
      the Company:

    

    Digital
      Angel Corporation

    Suite
      201

    1690
      South Congress

    Delray
      Beach, Florida 33483

    
      	 	
              Attn:

            	
              Kevin
                McGrath

            

    

    
      	 	
              Tel:

            	
              (561) 276-0477

            

    

    
      	 	
              Fax:
                

            	
              (561)
                805-8001

            

    

    

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

    

    Winthrop
      & Weinstine, P.A.

    Suite
      3500

    225
      South
      6th
      Street

    Minneapolis,
      Minnesota 55402

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    
      	 	
              Attn:

            	
              Philip
                T. Colton

            

    

    
      	 	
              Tel:

            	
              (612)
                604-6729

            

    

    
      	 	
              Fax:

            	
              (612)
                604-6929

            

    

    

    and
      if to
      any Investor, to such address for such Investor as shall appear on the signature
      page hereof executed by such Investor, or as shall be designated by such
      Investor in writing to the Company in accordance with this Section
      6.9. 

    

    6.10  
        Expenses.
      The
      Company and each Investor shall pay all costs and expenses that it incurs in
      connection with the negotiation, execution, delivery and performance of this
      Agreement or the other Transaction Documents, provided,
      however,
      that
      that the Company shall, at the Closing, pay to Imperium Advisers, LLC
      (“Imperium”)
      an
      amount up to $65,000 in immediately available funds as reimbursement for its
      out-of-pocket expenses (including without limitation legal fees and expenses)
      incurred or to be incurred by it in connection with its due diligence
      investigation of the Company and the negotiation, preparation, execution,
      delivery and performance of this Agreement and the other Transaction
      Documents.
      At the
      Closing, the amount due for such fees and expenses may be netted out of the
      Purchase Price payable by any Investor managed by Imperium
      and an invoice shall be submitted to identify the amount to be
      reimbursed.

    

    6.11  
        Entire
      Agreement; Amendments.
      This
      Agreement and the other Transaction Documents constitute the entire agreement
      between the parties with regard to the subject matter hereof and thereof,
      superseding all prior agreements or understandings, whether written or oral,
      between or among the parties. Except as expressly provided herein, neither
      this
      Agreement nor any term hereof may be amended except pursuant to a written
      instrument executed by the Company and (i) prior to the Termination Date, by
      the
      holders of a majority of the aggregate principal of the Debentures then
      outstanding and the holders of a majority of the aggregate number of the Warrant
      Shares into which the Warrants then outstanding are exercisable (without
      regard to any limitation on the exercise of the Warrants),
      and
      (ii) on and after the Termination Date, by the holders of a majority of the
      aggregate number of the Warrant Shares into which the Warrants then outstanding
      are exercisable (without
      regard to any limitation on the exercise of the Warrants). Any
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given.

    

    

    [Signature
      Pages to Follow]

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
      first-above written.

    

    
      	
              DIGITAL
                ANGEL CORPORATION

            
	 	 
	 	 
	
              By:

            	
              /s/
                Kevin N. McGrath

            	 
	 	
              Name:
                Kevin N. McGrath

            
	 	
              Title:  
                President and Chief Executive Officer

            
	 	 
	 	 
	
              IMPERIUM
                MASTER FUND, LTD.

            
	 	 
	
              By:
                

            	
              Imperium
                Advisers, LLC

            
	 	 	 	 
	 	 	 	 
	 	
              By:

            	
              /s/
                Maurice Hryshko

            	 
	 	 	
              Name:
                Maurice Hryshko

            	 
	 	 	
              Title:  
                Counsel

            	 

    

    

    

    
      	
              Principal
                Amount of Debenture Purchased at Closing:

            	
              $6,000,000

            
	 	 
	
              Number
                of Shares into which Warrant Exercisable:

            	
              699,600

            

    

    

    

    ADDRESS:

    

    c/o
      Imperium Advisers, LLC 

    153
      East
      53rd
      Street-
      29th
      Floor

    New
      York,
      NY 10022 

    Attn: Maurice
      Hryshko, Esq.

    Tel:
      (212) 433-1360 

    Fax:
      (212) 433-1361

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