Document:

Exhibit
      4.2

     

    THE
      SECURITIES REPRESENTED BY THIS WARRANT WERE ISSUED IN AN OFFSHORE TRANSACTION
      TO
      PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S PROMULGATED
      PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") PURSUANT TO
      REGULATIONS S. ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS WARRANT HAVE
      NOT
      BEEN REGISTERED UNDER THE ACT, OR ANY U.S. STATE SECURITIES LAWS, AND MAY NOT
      BE
      OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF (I) EXCEPT
      IN
      ACCORDANCE WITH THE PROVISIONS OF REGULATION S, (II) PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE ACT OR (III) PURSUANT TO AN EXEMPTION WHICH
      IS
      CONFIRMED IN AN OPINION OF COMPANY COUNSEL. IN ADDITION, HEDGING TRANSACTIONS
      INVOLVING THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE CONDUCTED UNLESS
      IN ACCORDANCE WITH THE ACT.

     

    THIS
      WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS
      REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS
      AVAILABLE.

     

    THIS
      WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME (U.S.) ON THE EXPIRATION
      DATE
      (AS DEFINED HEREIN).

    

    No.
      __________

    

    TRACEGUARD
      TECHNOLOGIES, INC.

    

    WARRANT
      TO PURCHASE _______ SHARES OF

    COMMON
      STOCK, PAR VALUE $0.001 PER SHARE

    

    For
      VALUE
      RECEIVED, ______ (“Warrantholder”), is entitled to purchase, subject to the
      provisions of this Warrant, from TraceGuard Technologies, Inc., a Nevada
      corporation (“Company”), at any time not later than 5:00 p.m., Eastern time
      (U.S.), on April __, 2011 (the “Expiration Date”), at an exercise price per
      share equal to $0.80 (the exercise price in effect being herein called the
      “Warrant Price”), ______ shares (“Warrant Shares”) of the Company’s common
      stock, par value $0.001 per share (“Common Stock”). The number of Warrant Shares
      purchasable upon exercise of this Warrant and the Warrant Price shall be subject
      to adjustment from time to time as described herein.

    

    Section
      1. Transfers.
      As
      provided herein, this Warrant may be transferred only pursuant to (i) an
      effective registration statement filed under the Securities Act of 1933, as
      amended (the “Securities Act”), (ii) an exemption from such registration, or
      (iii) the provisions of Regulation S promulgated under the Securities Act.
      Subject to such restrictions, the Company shall transfer this Warrant from
      time
      to time upon the books to be maintained by the Company for that purpose, upon
      surrender thereof for transfer properly endorsed or accompanied by appropriate
      instructions for transfer and such other documents as may be reasonably required
      by the Company, including, if required by the Company, an opinion of its counsel
      to the effect that such
      transfer is exempt from the registration requirements of the Securities Act,
      to
      establish that such transfer is being made in accordance with the terms hereof,
      and a new Warrant shall be issued to the transferee and the surrendered Warrant
      shall be canceled by the Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Section
      2. Exercise
      of Warrant.
      

    

    (a) Subject
      to the provisions hereof, the Warrantholder may exercise this Warrant in whole
      or in part at any time prior to its expiration upon surrender of the Warrant,
      together with delivery of the duly executed Warrant exercise form attached
      hereto as Appendix A (the “Exercise Agreement”) and payment by cash, certified
      check or wire transfer of funds for the aggregate Warrant Price for that number
      of Warrant Shares then being purchased, to the Company during normal business
      hours on any business day at the Company’s principal executive offices outside
      the United States (or such other office or agency of the Company as it may
      designate by notice to the Warrantholder). The Warrant Shares so purchased
      shall
      be deemed to be issued to the Warrantholder or the Warrantholder’s designee, as
      the record owner of such shares, as of the close of business on the date on
      which this Warrant shall have been surrendered (or evidence of loss, theft
      or
      destruction thereof and security or indemnity satisfactory to the Company),
      the
      Warrant Price shall have been paid and the completed Exercise Agreement shall
      have been delivered. Certificates for the Warrant Shares so purchased,
      representing the aggregate number of shares specified in the Exercise Agreement,
      shall be delivered to the Warrantholder within a reasonable time, not exceeding
      ten (10) business days, after this Warrant shall have been so exercised. The
      certificates so delivered shall be in such denominations as may be requested
      by
      the Warrantholder and shall be registered in the name of the Warrantholder
      or
      such other name as shall be designated by the Warrantholder. If this Warrant
      shall have been exercised only in part, then, unless this Warrant has expired,
      the Company shall, at its expense, at the time of delivery of such certificates,
      deliver to the Warrantholder a new Warrant representing the number of shares
      with respect to which this Warrant shall not then have been exercised. As used
      herein, “business day” means a day, other than a Saturday or Sunday, on which
      banks in New York City are open for the general transaction of business. Upon
      exercise, the Warrantholder will be required to make the representations and
      warranties contained in the Exercise Agreement.

    

    (b) Notwithstanding
      anything herein to the contrary, this Warrant may be exercised in whole or
      in
      part at any time prior to the Expiration Date by means of a “cashless exercise”
in which the Warrantholder shall be entitled to receive a certificate for the
      number of Warrant Shares equal to the quotient obtained by dividing [(A-B)
      (C)]
      by (A), where:

    

    (A)
      = the
      VWAP on the business day immediately preceding the date of such
      election;

    

    (B)
      = the
      Warrant Price of this Warrant, as adjusted; and

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (C)
      = the
      number of Warrant Shares issuable upon exercise of this Warrant in accordance
      with the terms of this Warrant by means of a cash exercise rather than a
      cashless exercise.

    

    For
      purposes hereof, “VWAP” means, for any business day, the volume weighted average
      price of the Common Stock for the nearest preceding business day on the OTC
      BB
      or other principal exchange or market on which the Common Stock trades as
      reported by Bloomberg Financial L.P. (based on a trading day from 9:30 A.M.
      to
      4:02 P.M. Eastern Time (US). In connection with a cashless exercise of this
      Warrant, the Warrantholder shall deliver a duly executed Exercise Agreement
      and
      this Warrant. The Company’s delivery of shares of Common Stock and, if
      applicable, the delivery of a replacement Warrant shall conform to the
      requirements set forth in Section 2(a) herein.

    

    Section
      3. Compliance
      with the Securities Act of 1933.
      The
      Company may cause the legend set forth on the first page of this Warrant to
      be
      set forth on each Warrant or similar legend on any security issued or issuable
      upon exercise of this Warrant, unless counsel for the Company is of the opinion
      as to any such security that such legend is unnecessary.

    

    Section
      4. Payment
      of Taxes.
      The
      Company will pay any documentary stamp taxes attributable to the initial
      issuance of Warrant Shares issuable upon the exercise of the Warrant; provided,
      however, that the Company shall not be required to pay any tax or taxes which
      may be payable in respect of any transfer involved in the issuance or delivery
      of any certificates for Warrant Shares in a name other than that of the
      Warrantholder in respect of which such shares are issued, and in such case,
      the
      Company shall not be required to issue or deliver any certificate for Warrant
      Shares or any Warrant until the person requesting the same has paid to the
      Company the amount of such tax or has established to the Company’s reasonable
      satisfaction that such tax has been paid. The Warrantholder shall be responsible
      for income taxes due under federal, state or other law, if any such tax is
      due.

    

    Section
      5. Mutilated
      or Missing Warrants.
      In case
      this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall
      issue in exchange and substitution of and upon cancellation of the mutilated
      Warrant, or in lieu of and substitution for the Warrant lost, stolen or
      destroyed, a new Warrant of like tenor and for the purchase of a like number
      of
      Warrant Shares, but only upon receipt of evidence reasonably satisfactory to
      the
      Company of such loss, theft or destruction of the Warrant, and with respect
      to a
      lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect
      thereto, if requested by the Company.

    

    Section
      6. Reservation
      of Common Stock.
      The
      Company hereby represents and warrants that there have been reserved, and the
      Company shall at all applicable times keep reserved until issued (if necessary)
      as contemplated by this Section 7, out of the authorized and unissued shares
      of
      Common Stock, sufficient shares to provide for the exercise of the rights of
      purchase represented by this Warrant. The Company agrees that all Warrant Shares
      issued upon due exercise of the Warrant shall be, at the time of delivery of
      the
      certificates for such Warrant Shares, duly authorized, validly issued, fully
      paid and non-assessable shares of Common Stock of the Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Section
      7. Adjustments.
      Subject
      and pursuant to the provisions of this Section 7, the Warrant Price and number
      of Warrant Shares subject to this Warrant shall be subject to adjustment from
      time to time as set forth hereinafter.

    

    (a) If
      the
      Company shall, at any time or from time to time while this Warrant is
      outstanding, pay a dividend or make a distribution on its Common Stock in shares
      of Common Stock, subdivide its outstanding shares of Common Stock into a greater
      number of shares or combine its outstanding shares of Common Stock into a
      smaller number of shares, then the number of Warrant Shares purchasable upon
      exercise of the Warrant immediately prior to the date upon which such change
      shall become effective, shall be adjusted by the Company so that the
      Warrantholder thereafter exercising the Warrant shall be entitled to receive
      the
      number of shares of Common Stock which, if the Warrant had been exercised
      immediately prior to such event, (i) the Warrantholder would have owned upon
      such exercise and been entitled to receive by virtue of such dividend,
      distribution or subdivision, or (ii) in the case of a combination, such number
      of shares into which the number of shares the Warrantholder would have owned
      upon such exercise would have been reduced to as a result of such combination.
      Whenever the number of shares of Common Stock purchasable upon exercise of
      this
      Warrant is adjusted as provided in this Section 7(a), then the Warrant Price
      shall also be adjusted by multiplying the Warrant Price in effect immediately
      prior to such adjustment, by a fraction, the numerator of which shall equal
      to
      the number of shares subject to this Warrant immediately prior to such
      adjustment, and the denominator of which shall equal to the number of shares
      subject to this Warrant immediately after such adjustment. Such adjustments
      shall be made successively whenever any event listed above shall
      occur.

    

    (b) In
      case
      the Company shall reorganize its capital, reclassify its capital stock (other
      than as provided in Section 7(a)), recapitalize, consolidate with, or merge
      with
      or into, another corporation, and pursuant to the terms of such reorganization,
      reclassification, recapitalization, merger, or consolidation, stock, securities,
      property or other assets is to be received by or distributed to the holders
      of
      Common Stock in lieu of or with respect to shares of Common Stock, then in
      each
      such case, the Warrantholder, upon exercise of this Warrant, shall be entitled
      to receive in lieu of the Warrant Shares or other securities and property
      receivable upon exercise of this Warrant prior to the consummation of such
      reorganization, reclassification, recapitalization, consolidation or merger,
      or
      if the Common Stock is not changed, exchanged or extinguished in such
      transaction then in addition to the rights specified herein, the stock or other
      securities, property or assets to which the Warrantholder would have been
      entitled to had it exercised this Warrant immediately prior to such consumation,
      by a holder of the number of shares of Common Stock for which this Warrant
      is
      exercisable immediately prior to such event. In case of any such reorganization,
      reclassification, recapitalization, merger or consolidation, the successor
      or
      acquiring corporation (if other than the Company) shall expressly assume the
      due
      and punctual observance and performance of each and every covenant and condition
      of this Warrant to be performed and observed by the Company and all the
      obligations and liabilities hereunder, subject to such modifications as may
      be
      deemed appropriate (as determined in good faith by resolution of the Board
      of
      Directors of the Company) in order to provide for adjustments of shares of
      Common Stock for which this Warrant is exercisable which shall be as nearly
      equivalent as practicable to the adjustments provided for in this Section 7(b).
      The foregoing provisions of this Section 7(b) shall similarly apply to
      successive reorganizations, reclassifications, recapitalizations, mergers or
      consolidations.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (c) An
      adjustment to the Warrant Price or the number or type of securities issuable
      upon exercise of this Warrant shall become effective immediately after the
      payment date in the case of each dividend or distribution and immediately after
      the effective date of each other event which requires an
      adjustment.

    

    (d) In
      the
      event that, as a result of an adjustment made pursuant to this Section 7, the
      Warrantholder shall become entitled to receive any shares of capital stock
      of
      the Company other than shares of Common Stock, the number of such other shares
      so receivable upon exercise of this Warrant shall be subject thereafter to
      adjustment from time to time in a manner and on terms as nearly equivalent
      as
      practicable to the provisions with respect to the Warrant Shares contained
      in
      this Warrant.

    

    Section
      8. Fractional
      Interest.
      The
      Company shall not be required to issue fractions of Warrant Shares upon the
      exercise of this Warrant. If any fractional share of Common Stock would, except
      for the provisions of the first sentence of this Section 9, be deliverable upon
      such exercise, the Company, in lieu of delivering such fractional share, shall
      pay to the exercising Warrantholder an amount in cash equal to the Market Price
      of such fractional share of Common Stock on the date of exercise.

    

    Section
      9. Benefits.
      Nothing
      in this Warrant shall be construed to give any person, firm or corporation
      (other than the Company and the Warrantholder) any legal or equitable right,
      remedy or claim, it being agreed that this Warrant shall be for the sole and
      exclusive benefit of the Company and the Warrantholder.

    

    Section
      10. Notices
      to Warrantholder.
      Upon
      the happening of any event requiring an adjustment of the Warrant Price, the
      Company shall promptly give written notice thereof to the Warrantholder at
      the
      address appearing in the records of the Company, stating the adjusted Warrant
      Price and the adjusted number of Warrant Shares resulting from such event and
      setting forth in reasonable detail the method of calculation and the facts
      upon
      which such calculation is based. Failure to give such notice to the
      Warrantholder or any defect therein shall not affect the legality or validity
      of
      the event giving rise to, or the, subject adjustment.

    

    Section
      11. Notice
      of Corporate Action.
      If at
      any time:

     

    (a) other
      than pursuant to a split or combination pursuant to Section 7(a) hereof, the
      Company shall take a record of the holders of its Common Stock for the purpose
      of entitling them to receive a dividend or other distribution, or any right
      to
      subscribe for or purchase any evidences of its indebtedness, any shares of
      stock
      of any class or any other securities or property, or to receive any other right,
      or

    

    (b) there
      shall be any capital reorganization of the Company, any reclassification, other
      than pursuant to a split or combination pursuant to Section 7(a) hereof, or
      recapitalization of the capital stock of the Company or any consolidation or
      merger of the Company with, or any sale, transfer or other disposition of all
      or
      substantially all the property, assets or business of the Company to, another
      corporation or,

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (c) there
      shall be a voluntary or involuntary dissolution, liquidation or winding up
      of
      the Company;

    

    then,
      in
      any one or more of such cases, the Company shall give to Warrantholder (i)
      at
      least 10 days’ prior written notice of the date on which a record date shall be
      selected for such dividend, distribution or right or for determining rights
      to
      vote in respect of any such reorganization, reclassification, merger,
      consolidation, sale, transfer, disposition, liquidation or winding up, and
      (ii)
      in the case of any such reorganization, reclassification, merger, consolidation,
      sale, transfer, disposition, dissolution, liquidation or winding up, at least
      10
      days’ prior written notice of the date when the same shall take place, and
provided,
      however,
      that
      the failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice; and provided,
      further,
      that if
      any action is taken on written consent in lieu of a meeting, notice shall be
      made as soon as reasonably practicable thereafter. Such notice in accordance
      with the foregoing clause also shall specify, as applicable, (i) the date on
      which any such record is to be taken for the purpose of such dividend,
      distribution or right, the date on which the holders of Common Stock shall
      be
      entitled to any such dividend, distribution or right, and the amount and
      character thereof, and (ii) the date on which any such reorganization,
      reclassification, merger, consolidation, sale, transfer, disposition,
      dissolution, liquidation or winding up is to take place and the time, if any
      such time is to be fixed, as of which the holders of Common Stock shall be
      entitled to exchange their shares of Common Stock for securities or other
      property deliverable upon such disposition, dissolution, liquidation or winding
      up. Each such written notice shall be sufficiently given if addressed to
      Warrantholder at the last address of Warrantholder appearing on the books of
      the
      Company and delivered in accordance with Section 13 hereof.

     

    Section
      12. Identity
      of Transfer Agent.
      The
      Transfer Agent for the Common Stock is Nevada Agency and Trust Company. Upon
      the
      appointment of any subsequent transfer agent for the Common Stock or other
      shares of the Company’s capital stock issuable upon the exercise of the rights
      of purchase represented by the Warrant, the Company will mail to the
      Warrantholder a statement setting forth the name and address of such transfer
      agent.

     

    Section
      13. Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number specified
      in
      this Section prior to 6:30 p.m. Eastern time (U.S.) on a Trading Day,
      (b) the next Trading Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number specified
      in
      this Section on a day that is not a Trading Day or later than 6:30 p.m.
      Eastern time (U.S.) on any Trading Day, (c) the Trading Day following the
      date of mailing, if sent by U.S. nationally recognized overnight courier
      service, or (d) upon actual receipt by the party to whom such notice is
      required to be given. The address for such notices and communications shall
      be
      as follows:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              If
                to the Company:

            	
              TraceGuard
                Technologies, Inc.

            
	 	
              #6
                Ravnitzki Street

            
	 	
              Petach
                Tikva 49277 Israel

            
	 	
              Fax
                No.: 011-972-3-542-3710

            
	 	
              Attn:   David
                Ben-Yair, CFO

            
	 	 
	
              With
                a copy to:

            	
              Moses
                & Singer LLP

            
	 	
              The
                Chrysler Building

            
	 	
              405
                Lexington Avenue

            
	 	
              New
                York, NY 10174-1299

            
	 	
              Fax
                No.: 917-206-4381

            
	 	
              Attn:
                Allan Grauberd, Esq.

            

    

     

    If
      to
      Warrantholder: To
      the
      address or facsimile number set forth in that certain Confidential Private
      Placement Subscription Agreement between the Warrantholder and the Company,
      dated as of April __, 2008; or such other address or facsimile number as may
      be
      designated in writing hereafter, in the same manner, by such
      Person.

     

    Section
      14. Successors.
      All the
      covenants and provisions hereof by or for the benefit of the Warrantholder
      shall
      bind and inure to the benefit of its respective successors and assigns
      hereunder. 

    

    Section
      15. Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Warrant shall be governed by and construed and enforced in accordance
      with the internal laws of the State of Nevada, without regard to the principles
      of conflicts of law thereof to the extent such principles would require the
      application of the laws of another jurisdiction.

    

    Section
      16. No
      Rights as Stockholder.
      Prior
      to the exercise of this Warrant, the Warrantholder shall not have or exercise
      any rights as a stockholder of the Company by virtue of its ownership of this
      Warrant.

    

    Section
      17. Amendment;
      Waiver.
      Any
      term of this Warrant may be amended or waived upon the written consent of the
      Company and the Warrantholder.

    

    Section
      18. Section
      Headings.
      The
      section headings in this Warrant are for the convenience of the Company and
      the
      Warrantholder and in no way alter, modify, amend, limit or restrict the
      provisions hereof.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as
      of
      the __ day of April, 2008.

    

    
      	
              TRACEGUARD
                TECHNOLOGIES, INC.

            	 
	 	 	 
	
              By:

            	
               

            	 
	
              Name:

            	 	 
	
              Title:

            	 	 

    

    

    The
      Warrantholder accepts and agrees to the terms and conditions of this Warrant,
      including, without limitation, the last sentence of Section 3
      hereof.

    

    
      	
              Date:
                April __, 2008

            	
              By:

            	
               

            	 
	 	 	
              Name:

            	 
	 	 	
              Title:

            	 

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    APPENDIX
      A

    TRACEGUARD
      TECHNOLOGIES, INC.

    WARRANT
      EXERCISE FORM

    

    To
      TraceGuard Technologies, Inc.:

    

    ___ The
      undersigned hereby irrevocably elects to exercise the right of purchase
      represented by the within Warrant (“Warrant”) for, and to purchase thereunder by
      the payment of the Warrant Price and surrender of the Warrant, _______________
      shares of Common Stock (“Warrant Shares”) provided for therein, and requests
      that certificates for the Warrant Shares be issued as follows: 

    

    _______________________________

    Name

    ________________________________

    Address

    ________________________________

    ________________________________

     

    and
      delivered to the above address (which must be outside the United States);

    

    and,
      if
      the number of Warrant Shares shall not be all the Warrant Shares purchasable
      upon exercise of the Warrant, that a new Warrant for the balance of the Warrant
      Shares purchasable upon exercise of this Warrant be registered in the name
      of
      the undersigned Warrantholder or the undersigned’s Assignee as below indicated
      and delivered to the address stated below.

    

    ___ The
      undersigned hereby irrevocably elects to exercise this Warrant by means of
      a
      cashless exercise pursuant to the terms of Section 2(b) of this Warrant. For
      purposes of calculating the number of shares of Common Stock issuable upon
      such
      cashless exercise, the Warrantholder has used the following
      factors:

    

    (A) the
      VWAP
      on the business day immediately preceding the date of such election =
      $__________

    (B) the
      Warrant Price of this Warrant, as adjusted = ________

    (C) the
      number of Warrant Shares issuable upon exercise of this Warrant in accordance
      with the terms of this Warrant by means of a cash exercise rather than a
      cashless exercise = __________

    

    Total
      number of shares of Common Stock issuable upon this cashless exercise of this
      Warrant = ____________

    

    The
      undersigned hereby represents and warrants to the Company that (check only
      one
      of the appropriate answers)

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    ___
      A. the
      undersigned is not a U.S. Person and the Warrant is not being exercised on
      behalf of a U.S. Person; or

    

    ___
      B the
      undersigned is hereby furnishing a written opinion of counsel, in a form
      reasonably acceptable to the Company, to the effect that the Warrant and the
      Warrant Shares delivered upon exercise of the Warrant have been registered
      under
      the Securities Act or are exempt from registration thereunder.

    

    In
      addition, the undersigned acknowledges that this Warrant may not be exercised
      in
      the United States, and that the Warrant Shares may not be delivered in the
      United States upon exercise, other than in an offering deemed to meet the
      definition of "offshore transaction" pursuant to Rule 902(h) of Regulation
      S,
      unless registered under the Securities Act or an exemption from such
      registration is available.

    

    Dated:
      ___________________, ____

    

    
      	
              Note:
                The signature must correspond with

            	Signature: _________________________________
	
              the
                name of the Warrantholder as written

            	 	 
	
              on
                the first page of the Warrant in every

            	
              _________________________________

            
	
              particular,
                without alteration or enlargement

            	
              Name
                (please print)

            
	
              or
                any change whatever, unless the Warrant

            	 	 
	
              has
                been assigned.

            	            _________________________________
	 	            _________________________________
	 	            Address
	 	            _________________________________

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    APPENDIX
      B

    ASSIGNMENT
      FORM

    

    (To
      assign the foregoing warrant, execute

    this
      form
      and supply required information. 

    Do
      not
      use this form to exercise the warrant.)

    

    FOR
      VALUE
      RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
      assigned to

     

    

    _______________________________________________
      whose address is

    

    _______________________________________________________________.

    

    _______________________________________________________________

    

    Dated:
      ______________, _______

    

    

    
      	
              Holder's Signature:

            	
              _____________________________

            
	 	 
	
              Holder's Address:

            	
              _____________________________

            
	 	 
	 	
              _____________________________

            

    

     

    Signature
      Guaranteed: ___________________________________________

    

    NOTE:
      The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatsoever, and must be guaranteed by a bank or trust company. Officers of
      corporations and those acting in any fiduciary or other representative capacity
      should file proper evidence of authority to assign the foregoing
      Warrant.Exhibit
      10.1

    

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement dated as of April 18, 2008 (this “Agreement”)
      is
      made by and between TraceGuard Technologies, Inc., a Nevada corporation, with
      principal executive offices located at 330 Madison Avenue, 9th
      Floor,
      New York, New York 10017 (the “Company”),
      and
      Golden Gate Investors, Inc. (“Holder”).
      

     

    WHEREAS,
      Holder desires to purchase from the Company, and the Company desires to issue
      and sell to Holder, upon the terms and subject to the conditions of this
      Agreement, a Convertible Debenture of the Company in the aggregate principal
      amount of $1,500,000 (the “Debenture”);
      and

     

    WHEREAS,
      upon the terms and subject to the conditions set forth in the Debenture the
      Debenture is convertible into shares of the Company’s common stock, $.001 par
      value (the “Common
      Stock”).

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants contained
      herein, the parties hereto, intending to be legally bound, hereby agree as
      follows:

     

    
      	 	
              I.

            	
              PURCHASE
                AND SALE OF DEBENTURE

            

    

     

    A. Transaction.
      Holder
      hereby agrees to purchase from the Company, and the Company has offered and
      hereby agrees to issue and sell to Holder in a transaction exempt from the
      registration and prospectus delivery requirements of the Securities Act of
      1933,
      as amended (the “Securities
      Act”),
      the
      Debenture.

     

    B. Purchase
      Price; Form of Payment.
      The
      purchase price for the Debenture to be purchased by Holder hereunder shall
      be
      $1,500,000 (the “Purchase
      Price”).
      Simultaneously with the execution of this Agreement, Holder shall pay the
      Purchase Price by wire transfer of $225,000 in immediately available funds
      to
      the Company and delivery to the Company of a Secured Promissory Note in the
      principal amount of $1,275,000, in the form attached hereto as Exhibit
      A
      (the
“Promissory
      Note”).
      Simultaneously with the execution of this Agreement, the Company shall deliver
      the Debenture (which shall have been duly authorized, issued and executed I/N/O
      Holder or, if the Company otherwise has been notified, I/N/O Holder’s nominee)
      to the Holder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Notwithstanding
      the foregoing, only with respect to the Promissory Note issued by the Holder
      on
      the date hereof, the Holder shall make the following prepayments under the
      Promissory Note if the following conditions are satisfied: (i) $200,000 shall
      be
      prepaid from the outstanding principal balance of the Promissory Note on the
      date that is the three month anniversary of the date hereof, if (a) no Event
      of
      Default (as defined in the Debenture) has occurred under the Debenture through
      such date, (b) the Volume Weighted Average Price (as defined in the Debenture)
      per share of the Common Stock of the Company for the 10 consecutive Trading
      Days
      (as defined in the Debenture) immediately preceding such anniversary date is
      not
      less than $0.20 per share (as
      adjusted for any stock splits, stock dividends, combinations, subdivisions,
      recapitalizations or the like), and (c) the
      Company has received not less than $250,000 in the aggregate of additional
      equity funding from one or more third party investors after the date
      hereof;
      and
      (ii) $225,000
      shall be prepaid from the outstanding principal balance of the Promissory Note
      on the date that is the five month anniversary of the date hereof, if (x) no
      Event of Default (as defined in the Debenture) has occurred under the Debenture
      through such date; and (y) the Volume Weighted Average Price per share of the
      Common Stock of the Company for the 10 consecutive Trading Days immediately
      preceding such anniversary date is not less than $0.20 per share (as
      adjusted for any stock splits, stock dividends, combinations, subdivisions,
      recapitalizations or the like). Any amounts so prepaid by the Holder under
      the
      terms of this section (i) may be applied, in the sole and absolute discretion
      of
      Holder, to any other amounts that Holder may otherwise be obligated or required
      to prepay under the terms of the Promissory Note; and
      (ii)
      shall not impact the funding obligations or prepayment obligations of the Holder
      under this Agreement, the Debenture or any Additional Debenture, if any, or
      the
      Second Promissory Note, the Third Promissory Note, or the Fourth Promissory
      Note, if any, as otherwise set forth in this Agreement. For sake of clarity,
      the
      preceding sentence shall not be construed to permit the Holder to offset any
      prepayment made pursuant to this Article I.B. against any other prepayment
      that
      may be required to be made pursuant to this Article I.B.

     

    C. Second
      Debenture.
      Provided that no Event of Default (as defined in the Debenture) has occurred
      under the Debenture (provided that Holder may, in its sole and absolute
      discretion waive the occurrence of such Event of Default with respect to this
      Section), Holder shall, in Holder’s sole and absolute discretion, select a date
      during the Second Debenture Period (as defined below) (with such date as
      selected by Holder referred to herein as the “Second
      Debenture Date”)
      at
      which the Company shall sell and the Holder shall purchase a debenture in the
      principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
      (the “Second
      Debenture”),
      with
      such purchase price paid via a cash payment of $250,000 and the issuance of
      a
      promissory note in the principal amount of $1,250,000 (the “Second
      Promissory Note”),
      with
      the form of and terms of the Second Debenture and the Second Promissory Note
      and
      payment of the purchase price subject to the same terms and conditions of this
      Agreement, the Debenture and the Promissory Note, as applicable, including
      the
      entry into a Stock Pledge Agreement on the same terms as set forth in the Stock
      Pledge Agreement (as defined herein) entered into in connection with this
      Agreement and the Debenture, and when the Second Debenture is issued, the term
      “Debenture” as used in this Agreement shall be deemed to include the Second
      Debenture in all respects and when the Second Promissory Note is issued, the
      term “Promissory Note” as used in this Agreement shall be deemed to include the
      Second Promissory Note in all respects. The closing of the purchase and sale
      of
      the Second Debenture and the issuance of the Second Promissory Note shall occur
      within thirty days of the Second Debenture Date. For the purposes of this
      Agreement, the “Second Debenture Period” shall mean the period that commences on
      the date hereof and terminates upon the date that the remaining Principal Amount
      of the Debenture is equal to an amount not greater than $250,000.

    

      
        	
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    D. Third
      Debenture.
      Provided that no Event of Default (as defined in the Debenture) has occurred
      under the Debenture (provided that Holder may, in its sole and absolute
      discretion waive the occurrence of such Event of Default with respect to this
      Section), Holder shall, in Holder’s sole and absolute discretion, select a date
      during the Third Debenture Period (as defined below) (with such date as selected
      by Holder referred to herein as the “Third
      Debenture Date”)
      at
      which the Company shall sell and the Holder shall purchase a debenture in the
      principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
      (the “Third
      Debenture”),
      with
      such purchase price paid via a cash payment of $250,000 and the issuance of
      a
      promissory note in the principal amount of $1,250,000 (the “Third
      Promissory Note”),
      with
      the form of and terms of the Third Debenture and the Third Promissory Note
      and
      payment of the purchase price subject to the same terms and conditions of this
      Agreement, the Debenture and the Promissory Note, as applicable, including
      the
      entry into a Stock Pledge Agreement on the same terms as set forth in the Stock
      Pledge Agreement (as defined herein) entered into in connection with this
      Agreement and the Debenture, and when the Third Debenture is issued, the term
      “Debenture” as used in this Agreement shall be deemed to include the Third
      Debenture in all respects and when the Third Promissory Note is issued, the
      term
“Promissory Note” as used in this Agreement shall be deemed to include the Third
      Promissory Note in all respects. The closing of the purchase and sale of the
      Third Debenture and the issuance of the Third Promissory Note shall occur within
      thirty days of the Third Debenture Date. For the purposes of this Agreement,
      the
“Third Debenture Period” shall mean the period that commences on the date of the
      issuance of the Second Debenture to Holder and terminates upon the date that
      the
      remaining Principal Amount of the Second Debenture is equal to an amount not
      greater than $250,000.

     

    E. Fourth
      Debenture.
      Provided that no Event of Default (as defined in the Debenture) has occurred
      under the Debenture (provided that Holder may, in its sole and absolute
      discretion waive the occurrence of such Event of Default with respect to this
      Section), Holder shall, in Holder’s sole and absolute discretion, select a date
      during the Fourth Debenture Period (as defined below) (with such date as
      selected by Holder referred to herein as the “Fourth
      Debenture Date”)
      at
      which the Company shall sell and the Holder shall purchase a debenture in the
      principal amount of $1,500,000 in exchange for a purchase price of $1,500,000
      (the “Fourth
      Debenture”),
      with
      such purchase price paid via a cash payment of $250,000 and the issuance of
      a
      promissory note in the principal amount of $1,250,000 (the “Fourth
      Promissory Note”),
      with
      the form of and terms of the Fourth Debenture and the Fourth Promissory Note
      and
      payment of the purchase price subject to the same terms and conditions of this
      Agreement, the Debenture and the Promissory Note, as applicable, including
      the
      entry into a Stock Pledge Agreement on the same terms as set forth in the Stock
      Pledge Agreement (as defined herein) entered into in connection with this
      Agreement and the Debenture, and when the Fourth Debenture is issued, the term
      “Debenture” as used in this Agreement shall be deemed to include the Fourth
      Debenture in all respects and when the Fourth Promissory Note is issued, the
      term “Promissory Note” as used in this Agreement shall be deemed to include the
      Fourth Promissory Note in all respects. The closing of the purchase and sale
      of
      the Fourth Debenture and the issuance of the Fourth Promissory Note shall occur
      within thirty days of the Fourth Debenture Date. For the purposes of this
      Agreement, the “Fourth Debenture Period” shall mean the period that commences on
      the date of the issuance of the Third Debenture to Holder and terminates upon
      the date that the remaining Principal Amount of the Third Debenture is equal
      to
      an amount not greater than $250,000.

    

      
        	
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    F. Non-Funding
      Penalty.
      Notwithstanding the foregoing requirements of Holder to purchase each of the
      Second Debenture, Third Debenture and Fourth Debenture (each, an “Additional
      Debenture”
and
      collectively, the “Additional
      Debentures”),
      in
      the event that Holder does not purchase any or all of the Additional Debentures
      within 10 business days of the date that the delivery of funds associated with
      such purchase would otherwise be due, upon 20 days’ prior written notice from
      the Company of such failure to so purchase any or all of the Additional
      Debentures, Holder shall pay an amount equal to $25,000 (the “Non-Funding
      Penalty”)
      to the
      Company, provided however that in the event that the Common Stock shall trade
      on
      the Trading Market (as defined in the Debenture) at a price per share that
      is
      $0.065 per share or lower at any time during the six month period commencing
      on
      the date hereof and ending on the six month anniversary of the date hereof
      (as
      adjusted for any stock splits, stock dividends, combinations, subdivisions,
      recapitalizations or the like),
      for a
      period of ten consecutive Trading Days (as defined in the Debenture), then
      the
      Non-Funding Penalty shall be reduced to equal $5,000. The amount payable by
      the
      Holder to the Company in connection with any damages, losses, claims or other
      amounts in connection with the failure of the Holder to purchase any or all
      of
      the Additional Debentures shall not exceed $25,000 (or $5,000, subject to the
      terms of this Section) in the aggregate. Upon the payment of the Non-Funding
      Penalty to the Company, the Holder shall have no further obligations or duties
      under this Agreement, the Debenture or any agreements or debentures entered
      into
      in connection with any of the Additional Debentures, if any, with respect to
      the
      purchase of any Additional Debenture or other duties to deliver any additional
      funds to the Company, provided however, that other than with respect to the
      removal of the requirement to enter into any Additional Debenture, the Company
      and the Holder shall remain obligated and bound by the remaining terms and
      conditions of this Agreement, the Debenture, the Promissory Note and any
      agreements or debentures previously entered into in connection with any
      Additional Debenture. The Company’s sole and exclusive remedy in the event that
      the Holder fails to purchase any or all of the Additional Debentures shall
      be
      the right of the Company to receive the Non-Funding Penalty from the Holder.
      

     

    G. Non-Funding
      Election.
      In the
      event that the Common Stock shall trade on the Trading Market (as defined in
      the
      Debenture) at a price per share that is $0.056 per share or lower at any time
      during the six month period commencing on the date hereof and ending on the
      six
      month anniversary of the date hereof (as
      adjusted for any stock splits, stock dividends, combinations, subdivisions,
      recapitalizations or the like),
      for a
      period of ten consecutive Trading Days, the Holder shall have the right, in
      the
      Holder’s sole and absolute discretion, during the time period commencing on the
      date hereof and ending on the six month anniversary of the date hereof, to
      terminate the right and obligation of the Holder to purchase any or all of
      the
      Additional Debentures through the delivery of written notice to the Holder
      of
      such termination in the manner provided in Section XVII hereof. In the event
      that Holder so terminates Holder’s right and obligation to purchase any of all
      of the Additional Debentures under the terms of this Section I.H., the Holder
      shall have no obligation to pay any of the Non-Funding Penalty and shall have
      no
      further obligations or duties under this Agreement, the Debenture or any
      agreements or debentures entered into in connection with any of the Additional
      Debentures, if any, with respect to the purchase of any Additional Debenture
      or
      other duties to deliver any additional funds to the Company, provided however,
      that other than with respect to the removal of the requirement to enter into
      any
      Additional Debenture and pay any of the Non-Funding Penalty, the Company and
      the
      Holder shall remain obligated and bound by the remaining terms and conditions
      of
      this Agreement, the Debenture, the Promissory Note and any agreements or
      debentures previously entered into in connection with any Additional Debenture.
      

    

      
        	
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    H. Company
      Redemption of Debenture and Termination of Additional Debenture
      Purchases.
      Provided that no Event of Default has occurred under the Debenture, the Company
      shall have the right, in the Company’s sole and absolute discretion, during the
      time period commencing on the date hereof and terminating on the 120th
      day
      following the date hereof, to (i) redeem the Debenture for a redemption price
      equal to 99% of the outstanding principal amount of the Debenture, plus any
      accrued and unpaid interest thereon (such aggregate amount referred to herein
      as
      the “Redemption Amount”), and (ii) terminate the right and obligation of the
      Holder to purchase all Additional Debentures through (x) the delivery of written
      notice to the Holder of such termination in the manner provided in Section
      XVII
      hereof and (y) the delivery to the Holder of a payment in cash equal to the
      Redemption Amount within 3 business days of the delivery of such notice.
      Notwithstanding the foregoing, the payment of the Redemption Amount shall first
      be satisfied by and offset against any amounts due to the Company under the
      Promissory Note and such amounts of the Promissory Note so applied against
      the
      Redemption Amount that the Company is required or permitted to redeem shall
      reduce the amount outstanding under the Promissory Note by a like amount. After
      the application of the amount owed under the Promissory Note, if any, to the
      Redemption Amount, the Company shall immediately pay in cash to the Holder
      any
      remaining amount owed by the Company to the Holder in connection with the
      payment of the Redemption Amount.

     

    
      	 	
              II.

            	
              HOLDER’S
                REPRESENTATIONS AND
                WARRANTIES

            

    

     

    Holder
      represents and warrants to and covenants and agrees with the Company as
      follows:

     

    1. Holder
      is
      purchasing the Debenture and the Common Stock issuable upon conversion or
      redemption of the Debenture (the “Conversion
      Shares”
and,
      collectively with the Debenture, the “Securities”)
      for
      its own account, for investment purposes only and not with a view towards or
      in
      connection with the public sale or distribution thereof in violation of the
      Securities Act.

     

    2. Holder
      is
      (i) an “accredited investor” within the meaning of Rule 501 of Regulation D
      under the Securities Act, (ii) experienced in making investments of the kind
      contemplated by this Agreement, (iii) capable, by reason of its business and
      financial experience, of evaluating the relative merits and risks of an
      investment in the Securities, and (iv) able to afford the loss of its investment
      in the Securities.

     

    3. Holder
      understands that the Securities are being offered and sold by the Company in
      reliance on an exemption from the registration requirements of the Securities
      Act and equivalent state securities and “blue sky” laws, and that the Company is
      relying upon the accuracy of, and Holder’s compliance with, Holder’s
      representations, warranties and covenants set forth in this Agreement to
      determine the availability of such exemption and the eligibility of Holder
      to
      purchase the Securities;

     

    4. Holder
      understands that the Securities have not been approved or disapproved by the
      Securities and Exchange Commission (the “Commission”)
      or any
      state or provincial securities commission.

     

    5. This
      Agreement has been duly and validly authorized, executed and delivered by Holder
      and is a valid and binding agreement of Holder enforceable against it in
      accordance with its terms, subject to applicable bankruptcy, insolvency,
      fraudulent conveyance, reorganization, moratorium and similar laws affecting
      creditors’ rights and remedies generally and except as rights to indemnity and
      contribution may be limited by federal or state securities laws or the public
      policy underlying such laws.

    

      
        	
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              III.

            	
              THE
                COMPANY’S REPRESENTATIONS

            

    

     

    The
      Company represents and warrants as of the date hereof to the Holder that, except
      as set forth on Schedule III attached hereto, the statements contained in this
      Section 3 are complete and accurate as of the date of this Agreement. As used
      in
      this Section 3, the term “Knowledge” shall mean the knowledge of the members of
      the board of directors of the Company and/or the officers or employees of the
      Company after reasonable investigation.

     

    A. Capitalization.

     

    1. The
      authorized capital stock of the Company consists of 150,000,000 shares of Common
      Stock, of which 38,308,542 shares are issued and outstanding as of the date
      hereof and are fully paid and nonassessable. The amount, exercise, conversion
      or
      subscription price and expiration date for each outstanding option and other
      security or agreement to purchase shares of Common Stock is accurately set
      forth
      on Schedule
      III.A.1.

     

    2. The
      Conversion Shares have been duly and validly authorized and reserved for
      issuance by the Company, and, when issued by the Company upon conversion of
      the
      Debenture, will be duly and validly issued, fully paid and nonassessable and
      will not subject the holder thereof to personal liability by reason of being
      such holder.

     

    3. Except
      as
      disclosed on Schedule III.A.3.,
      there
      are no preemptive, subscription, “call,” right of first refusal or other similar
      rights to acquire any capital stock of the Company or other voting securities
      of
      the Company that have been issued or granted to any person and no other
      obligations of the Company to issue, grant, extend or enter into any security,
      option, warrant, “call,” right, commitment, agreement, arrangement or
      undertaking with respect to any of their respective capital stock.

     

    B. Organization;
      Reporting Company Status.

     

    1. The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the state or jurisdiction in which it is incorporated and
      is
      duly qualified as a foreign corporation in all jurisdictions in which the
      failure so to qualify would reasonably be expected to have a material adverse
      effect on the business, properties, prospects, condition (financial or
      otherwise) or results of operations of the Company or on the consummation of
      any
      of the transactions contemplated by this Agreement (a “Material
      Adverse Effect”).

     

    2. The
      Company is subject to the reporting requirements of the Securities Exchange
      Act
      of 1934, as amended (the “Exchange
      Act”).
      The
      Common Stock is traded on the OTC Bulletin Board service of the National
      Association of Securities Dealers, Inc. (“OTCBB”)
      and
      the Company has not received any notice regarding, and to its Knowledge there
      is
      no threat of, the termination or discontinuance of the eligibility of the Common
      Stock for such trading.

    

      
        	
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    C. Authorization.
      The
      Company (i) has duly and validly authorized and reserved for issuance shares
      of
      Common Stock, which is a number sufficient for the conversion of the Debenture
      in full and (ii) at all times from and after the date hereof shall have a
      sufficient number of shares of Common Stock duly and validly authorized and
      reserved for issuance to satisfy the conversion of the Debenture in full. The
      Company understands and acknowledges the potentially dilutive effect on the
      Common Stock of the issuance of the Conversion Shares. The Company further
      acknowledges that its obligation to issue Conversion Shares upon conversion
      of
      the Debenture in accordance with this Agreement is absolute and unconditional
      regardless of the dilutive effect that such issuance may have on the ownership
      interests of other stockholders of the Company and notwithstanding the
      commencement of any case under 11 U.S.C. § 101 et
      seq.
      (the
“Bankruptcy
      Code”).
      In
      the event the Company is a debtor under the Bankruptcy Code, the Company hereby
      waives to the fullest extent permitted any rights to relief it may have under
      11 U.S.C. § 362 in respect of the conversion of the Debenture. The
      Company agrees, without cost or expense to Holder, to take or consent to any
      and
      all action necessary to effectuate relief under 11 U.S.C.
§ 362.

     

    D. Authority;
      Validity and Enforceability.
      The
      Company has the requisite corporate power and authority to enter into the
      Documents (as such term is hereinafter defined) and to perform all of its
      obligations hereunder and thereunder (including the issuance, sale and delivery
      to Holder of the Securities). The execution, delivery and performance by the
      Company of the Documents and the consummation by the Company of the transactions
      contemplated hereby and thereby (including, without limitation, the issuance
      of
      the Debenture and the issuance and reservation for issuance of the Conversion
      Shares) have been duly and validly authorized by all necessary corporate action
      on the part of the Company and no further filing, consent, or authorization
      is
      required by the Company, its board of directors, or its stockholders. Each
      of
      the Documents has been duly and validly executed and delivered by the Company
      and each Document constitutes a valid and binding obligation of the Company
      enforceable against it in accordance with its terms, subject to applicable
      bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
      similar laws affecting creditors’ rights and remedies generally and except as
      rights to indemnity and contribution may be limited by federal or state
      securities laws or the public policy underlying such laws. The Securities have
      been duly and validly authorized for issuance by the Company and, when executed
      and delivered by the Company, will be valid and binding obligations of the
      Company enforceable against it in accordance with their respective terms,
      subject to applicable bankruptcy, insolvency, fraudulent conveyance,
      reorganization, moratorium and similar laws affecting creditors’ rights and
      remedies generally. For purposes of this Agreement, the term “Documents”
means
      (i) this Agreement; (ii) the Debenture; (iii) the Promissory Note; and (iv)
      the
      Stock Pledge Agreement dated as of the date hereof between the Holder and the
      parties listed on the signature pages thereto (the “Stock
      Pledge Agreement”).

     

    E. Validity
      of Issuance of the Securities.
      The
      Debenture and the Conversion Shares upon their issuance in accordance with
      the
      Debenture, will be validly issued and outstanding, fully paid and nonassessable,
      and not subject to any preemptive rights, rights of first refusal, tag-along
      rights, drag-along rights or other similar rights.

    

      
        	
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    F. Non-contravention.
      The
      execution and delivery by the Company of the Documents, the issuance of the
      Securities, and the consummation by the Company of the other transactions
      contemplated hereby and thereby do not, and compliance with the provisions
      of
      this Agreement and other Documents will not, conflict with, or result in any
      violation of, or default (with or without notice or lapse of time, or both)
      under, or give rise to a right of termination, cancellation or acceleration
      of
      any obligation or loss of a material benefit under, or result in the creation
      of
      any Lien (as such term is hereinafter defined) upon any of the properties or
      assets of the Company or any of its Subsidiaries under, or result in the
      termination of, or require that any consent be obtained or any notice be given
      with respect to (i) the Articles or Certificate of Incorporation or By-Laws
      of
      the Company or the comparable charter or organizational documents of any of
      its
      Subsidiaries, in each case as amended to the date of this Agreement, (ii) any
      loan or credit agreement, debenture, bond, mortgage, indenture, lease, contract
      or other agreement, instrument or permit applicable to the Company or any of
      its
      Subsidiaries or their respective properties or assets or (iii) any statute,
      law,
      rule or regulation applicable to, or any judgment, decree or order of any court
      or government body having jurisdiction over, the Company or any of its
      Subsidiaries or any of their respective properties or assets. A “Lien”
means
      any assignment, transfer, pledge, mortgage, security interest or other
      encumbrance of any nature, or an agreement to do so, or the ownership or
      acquisition or agreement to acquire any asset or property of any character
      subject to any of the foregoing encumbrances (including any conditional sale
      contract or other title retention agreement). 

     

    G. Approvals.
      No
      authorization, approval or consent of any court or public or governmental
      authority is required to be obtained by the Company for the issuance and sale
      of
      the Securities to Holder as contemplated by this Agreement, except such
      authorizations, approvals and consents as have been obtained by the Company
      prior to the date hereof.

     

    H. Commission
      Filings.
      The
      Company is subject to the reporting requirements of Section 13 or 15(d) of
      the
      Exchange Act. The Company has properly and timely filed with the Commission
      all
      reports, proxy statements, forms and other documents required to be filed with
      the Commission under the Securities Act and the Exchange Act since becoming
      subject to such Acts (the “Commission
      Filings”),
      including without limitation the timely filing of all required reports under
      Section 13 or 15(d) of the Exchange Act during the 12 months prior to the date
      hereof (or for such shorter period that the Company was required to file such
      reports). As of their respective dates, (i) the Commission Filings complied
      in
      all material respects with the requirements of the Securities Act or the
      Exchange Act, as the case may be, and the rules and regulations of the
      Commission promulgated thereunder applicable to such Commission Filings and
      (ii)
      none of the Commission Filings contained at the time of its filing any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. The financial
      statements of the Company included in the Commission Filings, as of the dates
      of
      such documents, were true and complete in all material respects and complied
      with applicable accounting requirements and the published rules and regulations
      of the Commission with respect thereto, were prepared in accordance with
      generally accepted accounting principles in the United States (“GAAP”)
      (except in the case of unaudited statements permitted by Form 10-QSB under
      the
      Exchange Act) applied on a consistent basis during the periods involved (except
      as may be indicated in the notes thereto) and fairly presented the consolidated
      financial position of the Company and its Subsidiaries as of the dates thereof
      and the consolidated results of their operations and cash flows for the periods
      then ended (subject, in the case of unaudited statements, to normal year-end
      audit adjustments that in the aggregate are not material and to any other
      adjustment described therein).

    

      
        	
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    I. Full
      Disclosure.
      There is
      no fact known to the Company (other than general economic or industry conditions
      known to the public generally) that has not been fully disclosed in the
      Commission Filings that (i) reasonably could be expected to have a Material
      Adverse Effect or (ii) reasonably could be expected to materially and
      adversely affect the ability of the Company to perform its obligations pursuant
      to the Documents.

     

    J. Absence
      of Events of Default.
      No
“Event
      of Default”
(as
      defined in any agreement or instrument to which the Company is a party) and
      no
      event which, with notice, lapse of time or both, would constitute an Event
      of
      Default (as so defined), has occurred and is continuing.

     

    K. Securities
      Law Matters.
      Assuming
      the accuracy of the representations and warranties of Holder set forth in
      Article II, the offer and sale by the Company of the Securities is exempt from
      (i) the registration and prospectus delivery requirements of the Securities
      Act
      and the rules and regulations of the Commission thereunder and (ii) the
      registration and/or qualification provisions of all applicable state and
      provincial securities and “blue sky” laws. The Company shall not directly or
      indirectly take, and shall not permit any of its directors, officers or
      Affiliates directly or indirectly to take, any action (including, without
      limitation, any offering or sale to any person or entity of any security similar
      to the Debenture) which will make unavailable the exemption from Securities
      Act
      registration being relied upon by the Company for the offer and sale to Holder
      of the Debenture and the Conversion Shares, as contemplated by this Agreement.
      No form of general solicitation or advertising has been used or authorized
      by
      the Company or any of its officers, directors or Affiliates in connection with
      the offer or sale of the Debenture (and the Conversion Shares), as contemplated
      by this Agreement or any other agreement to which the Company is a party. As
      used in the Documents, “Affiliate”
      has the
      meaning ascribed to such term in Rule 12b-2 under the Exchange Act.

     

    L. Registration
      Rights.
      Except
      as set forth on Schedule III.L.,
      no
      Person has, and as of the Closing (as such term is hereinafter defined), no
      Person shall have, any demand, “piggy-back” or other rights to cause the Company
      to file any registration statement under the Securities Act relating to any
      of
      its securities or to participate in any such registration
      statement.

     

    M. Interest.
      The
      timely payment of interest on the Debenture is not prohibited by the Articles
      or
      Certificate of Incorporation or By-Laws of the Company, in each case as amended
      to the date of this Agreement, or any agreement, contract, document or other
      undertaking to which the Company is a party.

     

    N. No
      Misrepresentation.
      No
      representation or warranty of the Company contained in this Agreement or any
      of
      the other Documents, any schedule, annex or exhibit hereto or thereto or any
      agreement, instrument or certificate furnished by the Company to Holder pursuant
      to this Agreement contains any untrue statement of a material fact or omits
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading.

     

    O. Finder’s
      Fee.
      There is
      no finder’s fee, brokerage commission or like payment in connection with the
      transactions contemplated by this Agreement for which Holder is liable or
      responsible.

     

    P. Subsidiaries.
      Other
      than the Subsidiaries, the Company does not presently own or control, directly
      or indirectly, any interest in any other corporation, association, or other
      business entity. The Company is not a participant in any joint venture,
      partnership, or similar arrangement.

    

      
        	
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    Q. Litigation.
      Other
      than as disclosed in the Commission Filings, there is no action, suit,
      proceeding or investigation pending or, to the Company’s knowledge, currently
      threatened against the Company or its Subsidiaries that questions the validity
      of this Agreement, the Documents, or the right of the Company to enter into
      such
      agreements, or to consummate the transactions contemplated hereby or thereby,
      or
      that might result, either individually or in the aggregate, in any material
      adverse changes in the business, assets or condition of the Company and its
      Subsidiaries, taken as a whole, financially or otherwise, or any change in
      the
      current equity ownership of the Company or its Subsidiaries. Neither the Company
      nor its Subsidiaries are parties or subject to the provisions of any order,
      writ, injunction, judgment or decree of any court or government agency or
      instrumentality. There is no action, suit, proceeding or investigation by the
      Company or its Subsidiaries currently pending or that the Company or its
      Subsidiaries intends to initiate. 

     

    R. Agreements.
      Except
      for agreements explicitly contemplated hereby, or disclosed in the Commission
      Filings, there are no agreements, understandings or proposed transactions
      between the Company and any of its officers, directors, Affiliates, or any
      affiliate thereof.

     

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

     

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

     

    U. No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales in any security
      or
      solicited any offers to buy any security under circumstances that would require
      registration under the Securities Act of the issuance of the Securities to
      the
      Holder. The issuance of the Securities to the Holder will not be integrated
      with
      any other issuance of the Company's securities (past, current or future) for
      purposes of any shareholder approval provisions applicable to the Company or
      its
      securities. 

    

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

     

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

     

    X. Solvency.
      The
      Company (after giving effect to the transactions contemplated by this Agreement)
      is solvent (i.e., its assets have a fair market value in excess of the amount
      required to pay its probable liabilities on its existing debts as they become
      absolute and matured) and currently the Company has no information that would
      lead it to reasonably conclude that the Company would not, after giving effect
      to the transaction contemplated by this Agreement, have the ability to, nor
      does
      it intend to take any action that would impair its ability to, pay its debts
      from time to time incurred in connection therewith as such debts mature. The
      Company did not receive a qualified opinion from its auditors with respect
      to
      its most recent fiscal year end and, after giving effect to the transactions
      contemplated by this Agreement, does not anticipate or know of any basis upon
      which its auditors might issue a qualified opinion in respect of its current
      fiscal year.

     

    Y. No
      Shell Company.
      The
      Company is not, nor at any time during the twelve month period immediately
      preceding the date hereof has the Company been a “shell company,” as such term
      is defined in Rule 405 promulgated under the Securities Act.

     

    Z. No
      Investment Company.
      The
      Company is not, and upon the issuance and sale of the Securities as contemplated
      by this Agreement will not be an "investment company" required to be registered
      under the Investment Company Act of 1940 (an "Investment Company"). The Company
      is not controlled by an Investment Company.

    

      
        	
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              IV.

            	
              CERTAIN
                COVENANTS AND
                ACKNOWLEDGMENTS

            

    

     

    A. Filings.
      The
      Company shall take all actions and make all necessary Commission Filings and
      “blue sky” filings required to be made by the Company in connection with the
      sale of the Securities to Holder as required by all applicable laws, including
      without limitation such action as the Company shall reasonably determine is
      necessary to qualify the Securities, or obtain an exemption for the Securities
      for sale to the Holder at the Closing pursuant to this Agreement under all
      applicable laws, and shall provide a copy thereof to Holder promptly after
      such
      filing.

     

    B. Reporting
      Status.
      With a
      view to making available to the Holder the benefits of Rule 144 promulgated
      under the Securities Act or any similar rule or regulation of the Commission
      that may at any time permit Holder to sell securities of the Company to the
      public without registration (“Rule 144”), and as a material inducement to the
      Holder’s purchase of the Securities, the Company represents, warrants, and
      covenants to the following: 

     

    1. The
      Company's Common Stock is registered under Section 12(g) of the Exchange Act.
      

     

    2. The
      Company is not and for at least the last 12 months prior to the date hereof
      has
      not been a "shell company," as defined in paragraph (i)(1)(i) of Rule 144 or
      Rule 12b-2 of the Exchange Act. 

     

    3. The
      Company is subject to the reporting requirements of section 13 or 15(d) of
      the
      Exchange Act and has filed all required reports under section 13 or 15(d) of
      the
      Exchange Act during the 12 months prior to the date hereof (or for such shorter
      period that the issuer was required to file such reports), other than Form
      8-K
      reports; 

     

    4. from
      the
      date hereof until all the Securities either have been sold by the Holder, or
      may
      permanently be sold by the Holder without any restrictions pursuant to Rule
      144,
      (the "Registration
      Period")
      the
      Company shall file with the SEC in a timely manner all required reports under
      section 13 or 15(d) of the Exchange Act and such reports shall conform to the
      requirements of the Exchange Act and the SEC for filing thereunder;

     

    5. The
      Company shall furnish to the Holder so long as the Holder owns Securities,
      promptly upon request, (i) a written statement by the Company that it has
      complied with the reporting requirements of Rule 144, (ii) a copy of the most
      recent annual or quarterly report of the Company and such other reports and
      documents so filed by the Company, and (iii) such other information as may
      be
      reasonably requested to permit the Holders to sell such securities pursuant
      to
      Rule 144 without registration; and

     

    6. During
      the Registration Period the Company shall not terminate its status as an issuer
      required to file reports under the Exchange Act even if the Exchange Act or
      the
      rules and regulations thereunder would otherwise permit such
      termination.

    

      
        	
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    C. 8-K
      Filing.
      On or
      before the fourth Business Day following the date hereof, the Company shall
      file
      a Current Report on Form 8-K describing the terms of the transactions
      contemplated by the Documents in the form required by the Exchange Act and
      attaching the material Documents (including, without limitation, this Agreement
      and the Debenture) as exhibits to such filing (the “8-K
      Filing”).
      In
      the alternative, the Company may include the information that would have been
      required in the 8-K Filing in the Company’s Form 10-KSB filing (the
“10-KSB
      Filing”),
      if
      such form is filed within four Business Days following the date hereof. In
      the
      event that the Company does not file the 8-K Filing or the 10-KSB Filing within
      four Business Days following the date hereof, the Discount Multiplier (as
      defined in the Debenture) under the Debenture shall decrease by one percentage
      point (1%) for each period of five Business Days that the 8-K Filing or the
      10-KSB Filing is not filed by the Company following the date hereof for all
      conversions of the Debenture thereafter.

     

    D. Listing.
      Except
      to the extent the Company lists its Common Stock on The New York Stock Exchange,
      The American Stock Exchange or The Nasdaq Stock Market, the Company shall use
      its best efforts to maintain its listing of the Common Stock on OTCBB. If the
      Common Stock is delisted from OTCBB, the Company will use its best efforts
      to
      list the Common Stock on the most liquid national securities exchange or
      quotation system that the Common Stock is qualified to be listed
      on.

     

    E. Reserved
      Conversion Common Stock.
      The
      Company at all times from and after the date hereof shall have such number
      of
      shares of Common Stock duly and validly authorized and reserved for issuance
      as
      shall be sufficient for the conversion in full of the Debenture. The Company
      shall take all action reasonably necessary to at all times have authorized,
      and
      reserved for the purpose of issuance, such number of shares of Common Stock
      as
      shall be necessary to effect the full conversion of the Debenture and the
      Additional Debentures outstanding, if any. If at any time the number of
      authorized shares of Common Stock of the Company is insufficient to effect
      the
      full conversion of the Debenture and the Additional Debentures outstanding,
      if
      any, the Company shall call and hold a special meeting of the shareholders
      of
      the Company within thirty (30) days of such occurrence, for the sole purpose
      of
      increasing the number of authorized shares of the Common Stock. The Company's
      management shall recommend to the shareholders to vote in favor of increasing
      the number of shares of authorized Common Stock. Management shall also vote
      all
      of its shares in favor of increasing the number of authorized shares of Common
      Stock.

     

    F. Information.
      Each of
      the parties hereto acknowledges and agrees that Holder shall not be provided
      with, nor be given access to, any material non-public information relating
      to
      the Company.

     

    G. Accounting
      and Reserves.
      The
      Company shall maintain a standard and uniform system of accounting and shall
      keep proper books and records and accounts in which full, true, and correct
      entries shall be made of its transactions, all in accordance with GAAP applied
      on consistent basis through all periods, and shall set aside on such books
      for
      each fiscal year all such reserves for depreciation, obsolescence, amortization,
      bad debts and other purposes in connection with its operations as are required
      by such principles so applied.

    

      
        	
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    H. Transactions
      with Affiliates.
      So long
      as the Debenture is outstanding, neither the Company nor any of its Subsidiaries
      shall, directly or indirectly, enter into any material transaction or agreement
      with any stockholder, officer, director or Affiliate of the Company or family
      member of any officer, director or Affiliate of the Company, unless the
      transaction or agreement is (i) reviewed and approved by a majority of
      Disinterested Directors (as such term is hereinafter defined) and (ii) on
      terms no less favorable to the Company or the applicable Subsidiary than those
      obtainable from a nonaffiliated person. A “Subsidiary”
      means
      any entity of which securities or other ownership interests having ordinary
      voting power to elect a majority of the board of directors or other persons
      performing similar functions are owned directly or indirectly by the Company.
      A
“Disinterested
      Director”
shall
      mean a director of the Company who is not and has not been an officer or
      employee of the Company and who is not a member of the family of, controlled
      by
      or under common control with, any such officer or employee.

     

    I. Certain
      Restrictions.
      So long
      as the Debenture is outstanding, no dividends shall be declared or paid or
      set
      apart for payment nor shall any other distribution be declared or made upon
      any
      capital stock of the Company, nor shall any capital stock of the Company be
      redeemed, purchased or otherwise acquired (other than a redemption, purchase
      or
      other acquisition of shares of Common Stock made for purposes of an employee
      incentive or benefit plan (including a stock option plan) of the Company or
      pursuant to any of the security agreements listed on Schedule
      IV.I)
      for any
      consideration by the Company, directly or indirectly, nor shall any moneys
      be
      paid to or made available for a sinking fund for the redemption of any Common
      Stock. 

     

    J. Short
      Selling.
      So long
      as the Debenture is outstanding, Holder agrees and covenants on its behalf
      and
      on behalf of its affiliates that neither Holder nor its affiliates shall at
      any
      time engage in any short sales with respect to the Company’s Common Stock, or
      sell put options or similar instruments with respect to the Company’s Common
      Stock. The parties acknowledge that Holder shall be entitled to sell the Common
      Stock from each Debenture conversion immediately upon submission of the
      applicable Debenture Conversion Notice, and payment of the purchase price,
      to
      the Company for such Common Stock.

     

    K. Right
      of First Refusal on Other Financing.
      In the
      event that the Company obtains a commitment for any other third-party financing
      (either debt, equity, or a combination thereof) in the aggregate amount in
      cash
      of greater than $1,000,000 (with such amounts to be invested within a single
      period of no more than 30 days) which is to close (i) during the period
      commencing on the date hereof and terminating on the date that is 18 months
      from
      the date hereof; and (ii) after the date upon which the Holder has purchased
      the
      Second Debenture, if any, the Holder shall be entitled to a right of first
      refusal to enable it to, at Holder’s option, match the terms of the other
      financing, including all terms and conditions of such financing, as well as
      the
      timing of such other financing. The Company shall deliver to Holder, at least
      10
      days prior to the proposed closing date of such transaction, written notice
      describing the proposed transaction, including the terms and conditions thereof,
      and providing Holder an option during the 10-day period following delivery
      of
      such notice to provide the financing being offered in such transaction on the
      same terms as contemplated by such transaction. Notwithstanding the foregoing,
      if the Company seeks to consummate such financing on terms less favorable to
      the
      Company than those terms that were provided to Holder, such financing shall
      be
      subject to Holder’s right of first refusal set forth in this Section
      IV.K.

    

      
        	
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    L. Use
      of Proceeds.
      The
      Company shall not use any portion of the cash portion of the Purchase Price
      received by the Company on the date hereof to satisfy or otherwise deliver
      any
      payment in connection with any outstanding or accrued compensation obligations
      or liabilities of the Company that exist as of the date hereof, provided however
      that the Company may use up to $50,000 of such cash portion of the Purchase
      Price to satisfy outstanding obligations incurred in connection with legal
      services. 

     

    
      	 	
              V.

            	
              ISSUANCE
                OF COMMON STOCK 

            

    

     

    A. The
      Company undertakes and agrees that no instruction other than the instructions
      referred to in this Article V shall be given to its transfer agent for the
      Conversion Shares and that the Conversion Shares shall otherwise be freely
      transferable on the books and records of the Company as and to the extent
      provided in this Agreement and applicable law. Nothing contained in this Section
      V.A. shall affect in any way Holder’s obligations and agreement to comply with
      all applicable securities laws upon resale of such Common Stock. 

     

    B. Holder
      shall have the right to convert the Debenture by telecopying an executed and
      completed Conversion Notice (as such term is defined in the Debenture) to the
      Company. Each date on which a Conversion Notice is telecopied to and received
      by
      the Company in accordance with the provisions hereof shall be deemed a
      Conversion Date (as such term is defined in the Debenture). The Company shall
      cause the transfer agent to transmit the certificates evidencing the Common
      Stock issuable upon conversion of the Debenture (together with a new debenture,
      if any, representing the principal amount of the Debenture not being so
      converted) to Holder via express courier, or if a Registration Statement
      covering the Common Stock has been declared effective by the SEC by electronic
      transfer, within three (3) business days after receipt by the Company of the
      Conversion Notice, as applicable (the “Delivery
      Date”).

     

    C. Upon
      the
      conversion of the Debenture or respective part thereof, the Company shall,
      at
      its own cost and expense, take all necessary action (including the issuance
      of
      an opinion of counsel) to assure that the Company's transfer agent shall issue
      stock certificates in the name of Holder (or its nominee) or such other persons
      as designated by Holder and in such denominations to be specified at conversion
      or exercise representing the number of shares of common stock issuable upon
      such
      conversion or exercise. The Company warrants that the Conversion Shares will
      be
      unlegended, free-trading, and freely transferable, and will not contain a legend
      restricting the resale or transferability of the Company Common Stock provided
      the Conversion Shares, as applicable, are being sold pursuant to an effective
      registration statement covering the Common Stock to be sold or is otherwise
      exempt from registration when sold, including without limitation pursuant to
      the
      exemption provided by Rule 144, without regard to its volume, holding period,
      manner of sale, public information requirements, or other restrictions.

    

      
        	
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    D. The
      Company understands that a delay in the delivery of the Common Stock in the
      form
      required pursuant to this section, or the Mandatory Redemption Amount described
      in Section E hereof, beyond the Delivery Date or Mandatory Redemption Payment
      Date (as hereinafter defined) could result in economic loss to the Holder.
      As
      compensation to the Holder for such loss, the Company agrees to pay late
      payments to the Holder for late issuance of Common Stock in the form required
      pursuant to Section E hereof upon Conversion of the Debenture or late payment
      of
      the Mandatory Redemption Amount, in the amount of $100 per business day after
      the Delivery Date or Mandatory Redemption Payment Date, as the case may be,
      for
      each $10,000 of Debenture principal amount being converted or redeemed. The
      Company shall pay any payments incurred under this Section in immediately
      available funds upon demand. Furthermore, in addition to any other remedies
      which may be available to the Holder, in the event that the Company fails for
      any reason to effect delivery of the Common Stock by the Delivery Date or make
      payment by the Mandatory Redemption Payment Date, the Holder will be entitled
      to
      revoke all or part of the relevant Notice of Conversion or rescind all or part
      of the notice of Mandatory Redemption by delivery of a notice to such effect
      to
      the Company whereupon the Company and the Holder shall each be restored to
      their
      respective positions immediately prior to the delivery of such notice, except
      that late payment charges described above shall be payable through the date
      notice of revocation or rescission is given to the Company. 

     

    E. Mandatory
      Redemption.
      In the
      event the Company is prohibited from issuing Common Stock, or fails to timely
      deliver Common Stock on a Delivery Date, or upon the occurrence of an Event
      of
      Default (as defined in the Debenture) or for any reason other than pursuant
      to
      the limitations set forth herein, then at the Holder's election, the Company
      must pay to the Holder ten (10) business days after request by the Holder or
      on
      the Delivery Date (if requested by the Holder) a sum of money determined by
      multiplying up to the outstanding Principal Amount (as defined in the Debenture)
      of the Debenture designated by the Holder by 150%, together with accrued but
      unpaid interest thereon ("Mandatory
      Redemption Payment").
      The
      Mandatory Redemption Payment must be received by the Holder on the same date
      as
      the Company Common Stock otherwise deliverable or within ten (10) business
      days
      after request, whichever is sooner ("Mandatory
      Redemption Payment Date").
      Upon
      receipt of the Mandatory Redemption Payment, the corresponding Debenture
      principal and interest will be deemed paid and no longer outstanding.

     

    F. Buy-In.
      In
      addition to any other rights available to the Holder, if the Company fails
      to
      deliver to the Holder such Common Stock issuable upon conversion of a Debenture
      by the Delivery Date and if ten (10) days after the Delivery Date the Holder
      purchases (in an open market transaction or otherwise) shares of Common Stock
      to
      deliver in satisfaction of a sale by the Holder of the Common Stock which the
      Holder anticipated receiving upon such conversion (a "Buy-In"),
      then
      the Company shall pay in cash to the Holder (in addition to any remedies
      available to or elected by the Holder) the amount by which (A) the Holder's
      total purchase price (including brokerage commissions, if any) for the shares
      of
      Common Stock so purchased exceeds (B) the aggregate principal and/or interest
      amount of the Debenture for which such conversion was not timely honored,
      together with interest thereon at a rate of 15% per annum, accruing until such
      amount and any accrued interest thereon is paid in full (which amount shall
      be
      paid as liquidated damages and not as a penalty). For example, if the Holder
      purchases shares of Common Stock having a total purchase price of $11,000 to
      cover a Buy-In with respect to an attempted conversion of $10,000 of Debenture
      principal, the Company shall be required to pay the Holder $1,000, plus
      interest. The Holder shall provide the Company written notice indicating the
      amounts payable to the Holder in respect of the Buy-In. 

     

    G. The
      Securities shall be deemed delivered by the Company to the Holder upon the
      Holder’s delivery of the Purchase Price (including the Promissory Note) at the
      Closing.

    

      
        	
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    H. Notwithstanding
      anything to the contrary herein, any requirement or right on the part of the
      Company to redeem or prepay the Debenture, whether arising under the Debenture
      or pursuant to the terms of this Agreement, shall first be satisfied by and
      offset against any amounts due to the Company under the Promissory Note and
      that
      such amounts of the Promissory Note so applied against the amounts of the
      Debenture that the Company is required or permitted to redeem or prepay shall
      reduce the amount outstanding under the Promissory Note by a like amount. If,
      after the application of the amount owed under the Promissory Note, if any,
      to
      any amounts of the Debenture that the Company is required or permitted to redeem
      or prepay, the Company shall immediately pay in cash to the Holder any remaining
      amount owed by the Company to the Holder in connection with such acceleration
      of
      the maturity or other redemption or prepayment of the Debenture.

     

    
      	 	
              VI.

            	
              CLOSING
                DATE

            

    

     

    The
      “Closing”
shall
      occur by the delivery: (i) to the Holder of the documents evidencing the
      Debenture and all other Documents, and (ii) to the Company the Purchase Price,
      including the Promissory Note, and the date on which the Closing occurs shall
      be
      referred to herein as the “Closing
      Date”.
      

     

    
      	 	
              VII.

            	
              CONDITIONS
                TO THE COMPANY’S
                OBLIGATIONS

            

    

     

    Holder
      understands that the Company’s obligation to sell the Debenture on the Closing
      Date to Holder pursuant to this Agreement is conditioned upon:

     

    A. Delivery
      by Holder to the Company of the Purchase Price, including the Promissory Note
      evidencing such applicable portion of the Purchase Price;

     

    B. The
      accuracy on the Closing Date of the representations and warranties of Holder
      contained in this Agreement as if made on the Closing Date (except for
      representations and warranties which, by their express terms, speak as of and
      relate to a specified date, in which case such accuracy shall be measured as
      of
      such specified date) and the performance by Holder in all material respects
      on
      or before the Closing Date of all covenants and agreements of Holder required
      to
      be performed by it pursuant to this Agreement on or before the Closing Date;
      and

     

    C. There
      shall not be in effect any law or order, ruling, judgment or writ of any court
      or public or governmental authority restraining, enjoining or otherwise
      prohibiting any of the transactions contemplated by this Agreement.

     

    
      	 	
              VIII.

            	
              CONDITIONS
                TO HOLDER’S OBLIGATIONS

            

    

     

    The
      Company understands that Holder’s obligation to purchase the Securities on the
      Closing Date pursuant to this Agreement is conditioned upon:

     

    A. Delivery
      by the Company of the Debenture (I/N/O Holder or I/N/O Holder’s nominee) to
      Holder;

    

      
        	
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    B. The
      accuracy on the Closing Date of the representations and warranties of the
      Company contained in this Agreement as if made on the Closing Date (except
      for
      representations and warranties which, by their express terms, speak as of and
      relate to a specified date, in which case such accuracy shall be measured as
      of
      such specified date) and the performance by the Company in all respects on
      or
      before the Closing Date of all covenants and agreements of the Company required
      to be performed by it pursuant to this Agreement on or before the Closing Date,
      all of which shall be confirmed to Holder by delivery of the certificate of
      the
      chief executive officer of the Company to that effect;

     

    C. The
      Company shall have delivered to the Holder a certificate of the Company executed
      by an officer of the Company, dated as of the Closing, certifying
      the resolutions adopted by the Company’s board of directors authorizing the
      execution of the Documents, the issuance of the Securities, and the transactions
      contemplated hereby, and copies of any required third party consents, approvals
      and filings required in connection with the consummation of the transactions
      contemplated by this Agreement;

     

    D. There
      not
      having occurred (i) any general suspension of trading in, or limitation on
      prices listed for, the Common Stock on the OTCBB/Pink Sheet, (ii) the
      declaration of a banking moratorium or any suspension of payments in respect
      of
      banks in the United States, (iii) the commencement of a war, armed hostilities
      or other international or national calamity directly or indirectly involving
      the
      United States or any of its territories, protectorates or possessions or
      (iv) in the case of the foregoing existing at the date of this Agreement, a
      material acceleration or worsening thereof;

     

    E. There
      not
      having occurred any event or development, and there being in existence no
      condition, having or which reasonably and foreseeably could have a Material
      Adverse Effect;

     

    F. There
      shall not be in effect any law, order, ruling, judgment or writ of any court
      or
      public or governmental authority restraining, enjoining or otherwise prohibiting
      any of the transactions contemplated by this Agreement;

     

    G. The
      Company shall have obtained all consents, approvals or waivers from governmental
      authorities and third persons necessary for the execution, delivery and
      performance of the Documents and the transactions contemplated thereby, all
      without material cost to the Company;

     

    H. Holder
      shall have received such additional documents, certificates, payment,
      assignments, transfers and other deliveries as it or its legal counsel may
      reasonably request and as are customary to effect a closing of the matters
      herein contemplated;

     

    I. Delivery
      by the Company of an enforceability opinion with respect to this Agreement
      and
      the transactions contemplated hereunder from its outside counsel in form and
      substance satisfactory to Holder;

     

    J. Delivery
      to the Holder of the fully executed Stock Pledge Agreement and the delivery
      of
      the Pledged Shares (as defined in the Stock Pledge Agreement) to the Holder
      in
      connection therewith; and

    

      
        	
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    K. Delivery
      by the Company of a valid waiver of any preemptive rights held by the
      individuals and/or parties listed on Schedule III.A.3 hereto in form and
      substance satisfactory to Holder.

     

    
      	 	
              IX.

            	
              SURVIVAL;
                INDEMNIFICATION

            

    

     

    A. The
      representations, warranties and covenants made by each of the Company and Holder
      in this Agreement, the annexes, schedules and exhibits hereto and in each
      instrument, agreement and certificate entered into and delivered by them
      pursuant to this Agreement shall survive the Closing and the consummation of
      the
      transactions contemplated hereby. In the event of a breach or violation of
      any
      of such representations, warranties or covenants, the party to whom such
      representations, warranties or covenants have been made shall have all rights
      and remedies for such breach or violation available to it under the provisions
      of this Agreement or otherwise, whether at law or in equity, irrespective of
      any
      investigation made by or on behalf of such party on or prior to the Closing
      Date.

     

    B. The
      Company hereby agrees to indemnify and hold harmless Holder, its affiliates
      and
      their respective officers, directors, employees, consultants, partners, members
      and attorneys (collectively, the “Holder
      Indemnitees”)
      from
      and against any and all losses, claims, damages, judgments, penalties,
      liabilities and deficiencies (collectively, “Losses”)
      and
      agrees to reimburse Holder Indemnitees for all reasonable out-of-pocket expenses
      (including the reasonable fees and expenses of legal counsel), in each case
      promptly as incurred by Holder Indemnitees and to the extent arising out of
      or
      in connection with:

     

    1. any
      misrepresentation, omission of fact or breach of any of the Company’s
      representations or warranties contained in this Agreement or the other
      Documents, or the annexes, schedules or exhibits hereto or thereto or any
      instrument, agreement or certificate entered into or delivered by the Company
      pursuant to this Agreement or the other Documents;

     

    2. any
      failure by the Company to perform any of its covenants, agreements, undertakings
      or obligations set forth in this Agreement or the other Documents or any
      instrument, certificate or agreement entered into or delivered by the Company
      pursuant to this Agreement or the other Documents; and

     

    3. any
      claims by third parties in connection with the purchase of the Debenture, the
      conversion of the Debenture, the payment of interest on the Debenture, the
      consummation of the transactions contemplated by this Agreement and the other
      Documents, the use of any of the proceeds of the Purchase Price by the Company,
      the purchase or ownership of any or all of the Securities, the performance
      by
      the parties hereto of their respective obligations hereunder and under the
      Documents or any claim, litigation, investigation, proceedings or governmental
      action relating to any of the foregoing, whether or not Holder is a party
      thereto.

    

      
        	
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    C. Promptly
      after receipt by a party seeking indemnification pursuant to this
      Article VIII (an “Indemnified
      Party”)
      of
      written notice of any investigation, claim, proceeding or other action in
      respect of which indemnification is being sought (each, a “Claim”),
      the
      Indemnified Party promptly shall notify the Company against whom indemnification
      pursuant to this Article VIII is being sought (the “Indemnifying
      Party”)
      of the
      commencement thereof, but the omission so to notify the Indemnifying Party
      shall
      not relieve it from any liability that it otherwise may have to the Indemnified
      Party except to the extent that the Indemnifying Party is materially prejudiced
      and forfeits substantive rights or defenses by reason of such failure. In
      connection with any Claim as to which both the Indemnifying Party and the
      Indemnified Party are parties, the Indemnifying Party shall be entitled to
      assume the defense thereof. Notwithstanding the assumption of the defense of
      any
      Claim by the Indemnifying Party, the Indemnified Party shall have the right
      to
      employ separate legal counsel and to participate in the defense of such Claim,
      and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
      and expenses of such separate legal counsel to the Indemnified Party if (and
      only if): (x) the Indemnifying Party shall have agreed to pay such fees,
      out-of-pocket costs and expenses, (y) the Indemnified Party and the
      Indemnifying Party reasonably shall have concluded that representation of the
      Indemnified Party and the Indemnifying Party by the same legal counsel would
      not
      be appropriate due to actual or, as reasonably determined by legal counsel
      to
      the Indemnified Party, potentially differing interests between such parties
      in
      the conduct of the defense of such Claim, or if there may be legal defenses
      available to the Indemnified Party that are in addition to or disparate from
      those available to the Indemnifying Party or (z) the Indemnifying Party
      shall have failed to employ legal counsel reasonably satisfactory to the
      Indemnified Party within a reasonable period of time after notice of the
      commencement of such Claim. If the Indemnified Party employs separate legal
      counsel in circumstances other than as described in clauses (x), (y) or (z)
      above, the fees, costs and expenses of such legal counsel shall be borne
      exclusively by the Indemnified Party. Except as provided above, the Indemnifying
      Party shall not, in connection with any Claim in the same jurisdiction, be
      liable for the fees and expenses of more than one firm of legal counsel for
      the
      Indemnified Party (together with appropriate local counsel). The Indemnifying
      Party shall not, without the prior written consent of the Indemnified Party
      (which consent shall not unreasonably be withheld), settle or compromise any
      Claim or consent to the entry of any judgment that does not include an
      unconditional release of the Indemnified Party from all liabilities with respect
      to such Claim or judgment.

     

    D. In
      the
      event one party hereunder should have a claim for indemnification that does
      not
      involve a claim or demand being asserted by a third party, the Indemnified
      Party
      promptly shall deliver notice of such claim to the Indemnifying Party. If the
      Indemnified Party disputes the claim, such dispute shall be resolved by mutual
      agreement of the Indemnified Party and the Indemnifying Party or by binding
      arbitration conducted in accordance with the procedures and rules of the
      American Arbitration Association. Judgment upon any award rendered by any
      arbitrators may be entered in any court having competent jurisdiction
      thereof.

     

    
      	 	
              X.

            	
              GOVERNING
                LAW

            

    

     

    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of California, without regard to the conflicts of law principles
      of
      such state.

    

      
        	
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              XI.

            	
              SUBMISSION
                TO JURISDICTION

            

    

     

    Each
      of
      the parties hereto consents to the exclusive jurisdiction of the federal courts
      whose districts encompass any part of the City of San Diego or the state courts
      of the State of California sitting in the City of San Diego in connection with
      any dispute arising under this Agreement and the other Documents. Each party
      hereto hereby irrevocably and unconditionally waives, to the fullest extent
      it
      may effectively do so, any defense of an inconvenient forum or improper venue
      to
      the maintenance of such action or proceeding in any such court and any right
      of
      jurisdiction on account of its place of residence or domicile. Each party hereto
      irrevocably and unconditionally consents to the service of any and all process
      in any such action or proceeding in such courts by the mailing of copies of
      such
      process by registered or certified mail (return receipt requested), postage
      prepaid, at its address specified in Article XVII. Each party hereto agrees
      that
      a final judgment in any such action or proceeding shall be conclusive and may
      be
      enforced in other jurisdictions by suit on the judgment or in any other manner
      provided by law.

     

    
      	 	
              XII.

            	
              WAIVER
                OF JURY TRIAL

            

    

     

    TO
      THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY
      KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A
      JURY
      TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
      AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
      SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
      CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
      HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE
      EVENT
      OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES
      THAT
      IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
      MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.

     

    
      	 	
              XIII.

            	
              COUNTERPARTS;
                EXECUTION

            

    

     

    This
      Agreement may be executed in counterparts, each of which when so executed and
      delivered shall be an original, but both of which counterparts shall together
      constitute one and the same instrument. A facsimile transmission of this signed
      Agreement shall be legal and binding on both parties hereto.

     

    
      	 	
              XIV.

            	
              HEADINGS

            

    

     

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

    

      
        	
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              XV.

            	
              SEVERABILITY

            

    

     

    In
      the
      event any one or more of the provisions contained in this Agreement or in the
      other Documents should be held invalid, illegal or unenforceable in any respect,
      the validity, legality and enforceability of the remaining provisions contained
      herein or therein shall not in any way be affected or impaired thereby. The
      parties shall endeavor in good-faith negotiations to replace the invalid,
      illegal or unenforceable provisions with valid provisions, the economic effect
      of which comes as close as possible to that of the invalid, illegal or
      unenforceable provisions.

     

    
      	 	
              XVI.

            	
              ENTIRE
                AGREEMENT; REMEDIES, AMENDMENTS AND
                WAIVERS

            

    

     

    This
      Agreement and the Documents constitute the entire agreement between the parties
      hereto pertaining to the subject matter hereof and supersede all prior
      agreements, understandings, negotiations and discussions, whether oral or
      written, of such parties. No supplement, modification or waiver of this
      Agreement shall be binding unless executed in writing by both parties. No waiver
      of any of the provisions of this Agreement shall be deemed or shall constitute
      a
      waiver of any other provision hereof (whether or not similar), nor shall such
      waiver constitute a continuing waiver unless otherwise expressly
      provided.

     

    
      	 	
              XVII.

            	
              NOTICES

            

    

     

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

     

    
      	
            	A.	
              If
                to the Company, to:

            

    

    

    TraceGuard
      Technologies, Inc.

    330
      Madison Avenue, 9th
      Floor

    New
      York,
      New York 10017

    Telephone: 866-401-5969

    Facsimile: 011-972-57-797-5364

     

    
      	
            	B.	
              With
                a copy to:

            

    

     

    
      Moses
        & Singer LLP.

    

    405
      Lexington Avenue, 12th
      Floor

    New
      York,
      New York 10474-1299

    Attention:
      Allan Grauberd

    Telephone:   212-554-7883

    Facsimile:    917-206-4381

     

    
      	
            	C.	
              If
                to Holder, to:

            

    

     

    Golden
      Gate Investors, Inc.

    1150
      Silverado Street, Suite 220

    La
      Jolla,
      California 92037

    Telephone:   858-551-8789

    Facsimile:    858-551-8779

    

      
        	
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    The
      Company or Holder may change the foregoing address by notice given pursuant
      to
      this Article XVII.

     

    
      	 	
              XVIII.

            	
              CONFIDENTIALITY

            

    

     

    Each
      of
      the Company and Holder agrees to keep confidential and not to disclose to or
      use
      for the benefit of any third party the terms of this Agreement or any other
      information which at any time is communicated by the other party as being
      confidential without the prior written approval of the other party; provided,
      however, that this provision shall not apply to information which, at the time
      of disclosure, is already part of the public domain (except by breach of this
      Agreement) and information which is required to be disclosed by law (including,
      without limitation, pursuant to Item 601(b)(10) of Regulation S-K under the
      Securities Act and the Exchange Act).

     

    
      	 	
              XIX.

            	
              MAXIMUM
                INTEREST RATE

            

    

     

    Notwithstanding
      anything herein to the contrary, if at any time the applicable interest rate
      as
      provided for herein shall exceed the maximum lawful rate which may be contracted
      for, charged, taken or received by the Holder in accordance with any applicable
      law (the “Maximum
      Rate”),
      the
      rate of interest applicable to this Agreement shall be limited to the Maximum
      Rate. To the greatest extent permitted under applicable law, the Company hereby
      waives and agrees not to allege or claim that any provisions of this Agreement
      could give rise to or result in any actual or potential violation of any
      applicable usury laws.

     

    
      	 	
              XX.

            	
              ASSIGNMENT

            

    

     

    This
      Agreement shall not be assignable by the Company without the prior written
      consent of the Holder. The Holder may assign this Agreement upon 10 days prior
      written notice to the Company.

     

    IN
      WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be
      executed and delivered on the date first above written.

    

      
        	
                TraceGuard
                  Technologies, Inc.

              	 	
                Golden
                  Gate Investors, Inc.

              
	 	 	 
	
                By:
                  

              	 	 	
                By:
                  

              	 
	 	 	 	 	 
	
                Name:
                  

              	 	 	
                Name:
                  

              	 
	 	 	 	 	 
	
                Title:
                  

              	 	 	
                Title:
                  

              	 

      

    

     

    
      
        	
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    SCHEDULE
      III.A.1

    

    (a) The
      Company’s former Chief Executive Officer, Ehud Ganani, holds 412,500 Restricted
      Stock Units (“RSUs”) and 290,000 options to purchase Common Stock with an
      exercise price of $0.35 and an expiration date of July 29, 2014.

     

    (b) Pursuant
      to a term sheet between the Company and the Company’s former Chief Executive
      Officer, Ehud Ganani, which term sheet contemplates the execution of a
      definitive agreement for services between the Company and Ganani, the Company
      may issue options and RSUs that will vest on the achievement of performance
      milestones (rather than vesting on a time schedule) as follows: (i) 137,500
      RSUs; (ii) 1,707,500 options with an exercise price of $0.63; and (iii)
      1,160,000 options with an exercise price of $0.35.

     

    (c) The
      Company’s current Chief Executive Officer, Avi Kostelitz, holds 80,000 options
      to purchase Common Stock with an exercise price of $0.70 and an expiration
      date
      of July 12, 2010. These options are directly owned by Akis Ltd. and, as the
      sole
      owner of Akis Ltd., indirectly by Mr. Kostelitz.

     

    (d) Pursuant
      to the terms of a grant by the Company, and contingent on the Company’s
      achievement of certain performance milestones and the occurrence of certain
      Company-related events, as more fully described in the Commission Filings,
      Dr.
      Fredy Ornath is entitled to receive options to purchase up to 3,900,000 shares
      of Common Stock. Of such 3,900,000 options, (i) 1,200,000 have an exercise
      price
      of $1.00 and expire 3 years after such options are earned, (ii) 1,200,000 have
      an exercise price of $1.50 and expire 3 years after such options are earned
      and
      (iii) 1,500,000 have an exercise price of $1.75 and expire 3 years after such
      options are earned. In addition, pursuant to an award on July 6, 2006 that
      calls
      for vesting of such options on a quarterly basis over a three year period
      commencing February 15, 2006, Dr. Ornath holds 720,000 options with an exercise
      price of $0.70 and an expiration date of 5 years following the vesting date
      and
      has 360,000 options that will vest on May 15, 2008 (90,000 options), August
      15,
      2008 (90,000 options), November 15, 2008 (90,000 options), and February 15,
      2009
      (90,000 options) with an exercise price of $0.70 and an expiration date of
      5
      years following the vesting date.

     

    (e) Director
      Efi Oshaya holds 72,000 warrants to purchase Common Stock with an exercise
      price
      of $2.50 and an expiration date of March 26, 2010. 

     

    (f) Director
      David Cohen holds 180,000 options to purchase Common Stock with an exercise
      price of $0.70 and an expiration date of November 15, 2013, of which 75,000
      are
      vested as of February 15, 2008 and, going forward, 15,000 options will vest
      per
      quarter, and holds 36,000 warrants to purchase Common Stock with an exercise
      price of $2.50 and an expiration date of January 23, 2009. 

     

    (g) Director
      Jack Hornstein holds 180,000 options to purchase Common Stock with an exercise
      price of $0.70 and an expiration date of September 1, 2011, of which 150,000
      are
      vested as of March 1, 2008 and, going forward, the remainder of the options
      will
      vest on June 1, 2008 (15,000 options) and September 1, 2008 (15,000
      options).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (h) Pursuant
      to the terms of employment agreements, and contingent on the Company’s
      achievement of certain performance milestones and the occurrence of certain
      Company-related events, David Ben-Yair is entitled to receive up to 170,000
      RSUs, of which 127,500 RSUs are fully vested as of the date hereof and the
      remainder of which will vest on May 10, 2008 (14,167 RSUs), August 10, 2008
      (14,167 RSUs) and November 10, 2008 (14,167 RSUs). In addition, in July 2007
      Mr.
      Ben-Yair was granted 180,000 RSUs that vest on June 1, 2008 and that can be
      settled in stock only.

     

    (i) Gil
      Perlberg is entitled to receive up to 170,000 RSUs of which 127,500 RSUs are
      fully vested as of the date hereof and the remainder of which will vest on
      June
      1, 2008 (14,167 RSUs), September 1, 2008 (14,167 RSUs) and December 1, 2008
      (14,167 RSUs). In addition, pursuant to a grant on July 29, 2008 and contingent
      on the achievement of certain performance milestones, Mr. Perlberg holds 50,000
      RSUs. In addition, in July 2007, Mr. Perlberg was granted 180,000 RSUs that
      vest
      on June 1, 2008 and that can be settled in stock only.

     

    (j) Pursuant
      to the terms of various agreements, and contingent on the Company’s achievement
      of certain performance milestones and the occurrence of certain Company-related
      events, several consultants and advisors of Subsidiary are entitled to receive
      options to purchase up to an aggregate of 672,500 shares of Common Stock with
      an
      exercise price of $0.70 and an expiration date that is 3 years following the
      date that such options are earned.

     

    (k) Pursuant
      to an agreement between the Company and a United Kingdom investment bank, which
      agreement involves the investment bank’s search for strategic partners for the
      Company, the Company may be obligated to issue to the investment bank a Common
      Stock purchase warrant equal to 2% of the Company’s outstanding shares of Common
      Stock, if the investment bank introduces the Company to a party which makes
      a
      strategic investment in the Company that results in a funding of $5,000,000
      or
      more.

     

    (l) There
      are
      359,000 options to purchase Common Stock with an exercise price of $0.70 and
      an
      expiration date of August 8, 2011 that were issued to Meir Zucker, a former
      Chief Executive Officer of the Company.

     

    The
      following warrants were issued pursuant to various private
      placements:

     

    (m) There
      are
      776,571 warrants to purchase Common Stock with an exercise price of $1.50 and
      an
      expiration date of May 29, 2008. 

     

    (n) There
      are
      214,286 warrants to purchase Common Stock with an exercise price of $2.50 and
      an
      expiration date of November 5, 2008.

     

    (o) There
      are
      428,571 warrants to purchase Common Stock with an exercise price of $2.50 and
      an
      expiration date of December 5, 2008

     

    (p) There
      are
      1,607,836 warrants to purchase Common Stock with an exercise price of $2.50
      and
      an expiration date of January 19, 2009.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (q) There
      are
      2,108,662 warrants to purchase Common Stock with an exercise price of $2.50
      and
      an expiration date of May 7, 2009. 

     

    (r) There
      are
      1,993,278 warrants to purchase Common Stock with an exercise price of $2.50
      and
      an expiration date of August 31, 2009. 

     

    (s) There
      are
      1,428,571 warrants to purchase Common Stock with an exercise price of $2.50
      and
      an expiration date of December 11, 2009.

     

    (t) There
      are
      5,257,400 warrants to purchase Common Stock with an exercise price of $2.50
      and
      an expiration date of March 26, 2010.

     

    (u) There
      are
      776,571 warrants to purchase Common Stock with an exercise price of $2.50 and
      an
      expiration date of May 29, 2010.

     

    (v) Pursuant
      to a subscription agreement dated as of December 16, 2007, the Company is
      obligated to issue 1,275,000 warrants to purchase Common Stock with an exercise
      price of $0.70 and an expiration date of December 16, 2010.

     

    (w) The
      Company is in the process of finalizing documentation for the following private
      placements pursuant to Reg S in March 2008: (i) the sale of 255,000 units for
      an
      aggregate purchase price of $102,000, each unit comprised of one share of common
      stock at a per share purchase price of $0.40 and one warrant with an exercise
      price of $0.80 and a term of exercise of three years; (ii) the sale of 166,667
      shares of common stock for an aggregate purchase price of $50,000 or a per
      share
      purchase price of $0.30, which also includes the issuance of 190,501 shares
      of
      common stock as an anti-dilution adjustment in connection with the purchaser’s
      March 2007 investment of $100,013; and (iii) the sale of 166,667 shares of
      common stock for an aggregate purchase price of $50,000 or a per share purchase
      price of $0.30, which also includes the issuance of 571,429 shares of common
      stock as an anti-dilution adjustment in connection with the purchaser’s May 2007
      investment of $300,000.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      III.A.3

     

    PREEMPTIVE
      RIGHTS

    

    As
      reported on the Company’s Form 8-K that was filed with the SEC on December 17,
      2007, in connection with the sale of Common Stock and warrants to purchase
      Common Stock in a private placement pursuant to Regulation S on December 16,
      2007, the Company granted weighted average anti-dilution rights through December
      16, 2008. These rights have been waived in connection with this
      transaction.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      III.H.

     

    COMMISSION
      FILINGS

     

    In
      connection with the Company’s Form 10-KSB for the fiscal year ended December 31,
      2007, the Company has filed a Form 12b-25 with the Commission which extends
      the
      deadline for the filing of such Form 10-KSB until April 15, 2008.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      III.L.

     

    REGISTRATION
      RIGHTS

     

    In
      August
      2006, in connection with the grant of options to the members of advisory board
      of the Company’s subsidiary, TraceGuard Technology Ltd., the Company has granted
      piggyback registration rights for the shares underlying the granted options
      in
      favor of such persons pursuant to Section 8 of the Grant Letter. In connection
      with such grant of options, the Company has no obligation to file a registration
      statement and has no plans to file a registration statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      III.R.

     

    AGREEMENTS

     

    As
      described in Note 12 (Subsequent Events) to the Financial Statements and
      Supplementary Date included in the Form 10-KSB for the fiscal year ended
      December 31, 2007, the Company entered into a term sheet in contemplation of
      a
      new definitive agreement on compensation for services with Ehud Ganani, the
      former Chief Executive Officer and the current Chairman of the Board of
      Directors of the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      IV.I.

     

    SECURITY
      AGREEMENTS

     

    None.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    SECURED
      PROMISSORY NOTE

    

      
        	
                ____________

              	
                ____________

              
	
                Initials

              	
                Initials

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