Document:

Unassociated Document

    
      
         

      

    

    

    SUBSCRIPTION
      AGREEMENT

    

    THIS
      SUBSCRIPTION AGREEMENT
      (this
“Agreement”),
      dated
      as of November 1, 2005, by and among China Media1 Corp., a Nevada corporation
      (the “Company”),
      and
      the subscribers identified on the signature page hereto (each a “Subscriber”
      and
      collectively “Subscribers”).

    

    WHEREAS,
      the
      Company and the Subscribers are executing and delivering this Agreement in
      reliance upon an exemption from securities registration afforded by the
      provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“Commission”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”).

    

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Subscribers, as provided herein,
      and the Subscribers, in the aggregate, shall purchase up to Two Million Five
      Hundred Thousand Dollars ($2,500,000) (the “Purchase
      Price”)
      of
      principal amount of promissory notes of the Company (“Note”
      or
“Notes”),
      a
      form of which is annexed hereto as Exhibit
      A,
      convertible into shares of the Company’s common stock, $0.00005 per share par
      value (the “Common
      Stock”)
      at a
      per share conversion price set forth in the Note (“Conversion
      Price”);
      and
      share purchase warrants (the “Warrants”),
      in
      the form annexed hereto as Exhibit
      B,
      to
      purchase shares of Common Stock (the “Warrant
      Shares”).
      The
      Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
      the
      Warrants, and the Warrant Shares are collectively referred to herein as the
      “Securities”;
      and

    

    WHEREAS,
      the
      aggregate proceeds of the sale of the Notes and the Warrants contemplated hereby
      shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to
      be
      executed by the parties substantially in the form attached hereto as
Exhibit
      C
      (the
“Escrow
      Agreement”).

    

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

    

    1.    Conditions
      To Closing.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      on
      the Closing Date (as defined in Section 2), each Subscriber shall purchase,
      and
      the Company shall sell to each Subscriber, a Note in the principal amount
      designated on the signature page hereto. The aggregate amount of the Notes
      to be
      purchased by the Subscribers on the Closing Date shall, in the aggregate, be
      equal to the Purchase Price .

    

    2.    Closing
      Date.
      The
“Closing
      Date”
      shall
      be the date that subscriber funds representing the net amount due the Company
      from the Purchase Price of the Offering (as defined in Section 8(c)) is
      transmitted by wire transfer or otherwise to or for the benefit of the Company.
      The consummation of the transactions contemplated herein for all Closings shall
      take place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue,
      Suite 1601, New York, New York 10176, upon the satisfaction of all conditions
      to
      Closing set forth in this Agreement.

     

    3.    Warrants.

    

    (a)    Class
      A Warrants.
      On the
      Closing Date, the Company will issue and deliver Class A warrants (the
“Class
      A Warrants”)
      to the
      Subscribers. One Class A Warrant will be issued for each two Shares which would
      be issued on the Closing Date assuming the complete conversion of the Notes
      issued on such Closing Date at the Conversion Price in effect on the Closing
      Date assuming such Closing Date were a Conversion Date. The per Warrant Share
      exercise price to acquire a Warrant Share upon exercise of a Class A Warrant
      shall be equal to 125% of the average of the closing bid prices for the Common
      Stock as reported by Bloomberg L.P. for the Principal Market [as defined in
      Section 9(b)] for the five trading days preceding the Closing Date. The Class
      A
      Warrants shall be exercisable until five (5) years after the Closing Date.
      The
      Class A Warrant will be exercisable on a cashless basis as described in the
      Class A Warrant.

    
      
        
        

      

      
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    (b)    Class
      B Warrants.
      On the
      Closing Date, the Company will issue and deliver Class B warrants (the
“Class
      B Warrants”)
      to the
      Subscribers. One Class B Warrant will be issued for each two Shares which would
      be issued on the Closing Date assuming the complete conversion of the Notes
      issued on such Closing Date at the Conversion Price in effect on the Closing
      Date assuming such Closing Date were a Conversion Date. The per Warrant Share
      exercise price to acquire a Warrant Share upon exercise of a Class A Warrant
      shall be equal to 160% of the average of the closing bid prices for the Common
      Stock as reported by Bloomberg L.P. for the Principal Market for the five
      trading days preceding the Closing Date. The Class B Warrants shall be
      exercisable until five (5) years after the Closing Date. The Class B Warrant
      will be exercisable on a cashless basis as described in the Class B
      Warrant.

    

    (c)    Collectively,
      the Class A Warrants and Class B Warrants are referred to herein as
“Warrants”.

    

    4.    Subscriber’s
      Representations and Warranties.
      Each
      Subscriber hereby represents and warrants to and agrees with the Company only
      as
      to such Subscriber the following:

    

    (a)    Organization
      and Standing of the Subscribers.
      If the
      Subscriber is an entity, such Subscriber is a corporation, limited liability
      company, partnership, or other entity duly incorporated or organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation or organization.

    

    (b)    Authorization
      and Power.
      Each
      Subscriber has the requisite power and authority to enter into and perform
      this
      Agreement and the Escrow Agreement and to purchase the Notes and Warrants being
      sold to it hereunder. The execution, delivery and performance of this Agreement
      and the Escrow Agreement by such Subscriber and the consummation by it of the
      transactions contemplated hereby and thereby have been duly authorized by all
      necessary corporate or partnership action, and no further consent or
      authorization of such Subscriber or its Board of Directors, stockholders,
      partners, members, as the case may be, is required. This Agreement has been
      duly
      authorized, executed, and delivered by such Subscriber and constitutes, or
      shall
      constitute when executed and delivered, a valid and binding obligation of the
      Subscriber enforceable against the Subscriber in accordance with the terms
      thereof.

     

    (c) No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the consummation
      by
      such Subscriber of the transactions contemplated hereby or relating hereto
      do
      not and will not (i) result in a violation of such Subscriber’s charter
      documents or bylaws or other organizational documents or (ii) conflict with,
      or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of any agreement, indenture or
      instrument or obligation to which such Subscriber is a party or by which its
      properties or assets are bound, or result in a violation of any law, rule,
      or
      regulation, or any order, judgment or decree of any court or governmental agency
      applicable to such Subscriber or its properties (except for such conflicts,
      defaults and violations as would not, individually or in the aggregate, have
      a
      material adverse effect on such Subscriber). Such Subscriber is not required
      to
      obtain any consent, authorization or order of, or make any filing or
      registration with, any court or governmental agency in order for it to execute,
      deliver or perform any of its obligations under this Agreement or to purchase
      the Notes or acquire the Warrants in accordance with the terms hereof, provided
      that for purposes of the representation made in this sentence, such Subscriber
      is assuming and relying upon the accuracy of the relevant representations and
      agreements of the Company herein.

    

    
      
        
        

      

      
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    (d)    Information
      on Company.
      The
      Subscriber has been furnished with or has had access at the EDGAR Website of
      the
      Commission to the Company’s Form 10-KSB for the year ended January 1, 2005 and
      all periodic reports as filed with the Commission subsequent thereto
      (hereinafter referred to as the “Reports”).
      In
      addition, the Subscriber has received in writing from the Company such other
      information concerning its operations, financial condition and other matters
      as
      the Subscriber has requested in writing (such other information is collectively,
      the “Other
      Written Information”),
      and
      considered all factors the Subscriber deems material in deciding on the
      advisability of investing in the Securities.

     

    (e)    Information
      on Subscriber.
      The
      Subscriber is, and will be at the time of the conversion of the Notes and
      exercise of the Warrants, an “accredited investor”, as such term is defined in
      Regulation D promulgated by the Commission under the 1933 Act, is experienced
      in
      investments and business matters, has made investments of a speculative nature
      and has purchased securities of United States publicly-owned companies in
      private placements in the past and, with its representatives, has such knowledge
      and experience in financial, tax and other business matters as to enable the
      Subscriber to utilize the information made available by the Company to evaluate
      the merits and risks of and to make an informed investment decision with respect
      to the proposed purchase, which represents a speculative investment. The
      Subscriber has the authority and is duly and legally qualified to purchase
      and
      own the Securities. The Subscriber is able to bear the risk of such investment
      for an indefinite period and to afford a complete loss thereof. The information
      set forth on the signature page hereto regarding the Subscriber is
      accurate.

    

    (f)    Purchase
      of Notes and Warrants.
      On the
      Closing Date, the Subscriber will purchase the Notes and Warrants as principal
      for its own account for investment only and not with a view toward, or for
      resale in connection with, the public sale or any distribution
      thereof.

    

    (g)    Compliance
      with Securities Act.
      The
      Subscriber understands and agrees that the Securities have not been registered
      under the 1933 Act or any applicable state securities laws, by reason of their
      issuance in a transaction that does not require registration under the 1933
      Act
      (based in part on the accuracy of the representations and warranties of
      Subscriber contained herein), and that such Securities must be held indefinitely
      unless a subsequent disposition is registered under the 1933 Act or any
      applicable state securities laws or is exempt
      from such registration.

    

    (h) Shares
      Legend.
      The
      Shares and the Warrant Shares shall bear the following or similar
      legend:

    

    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
      OR AN
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO [THE COMPANY] THAT SUCH
      REGISTRATION IS NOT REQUIRED.”

    

    (i)    Warrants
      Legend.
      The
      Warrants shall bear the following or
      similar legend:

     

    
      
        
        

      

      
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    “THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
      WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
      THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY
      NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY
      APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
      TO [THE COMPANY] THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

    (j)    Note
      Legend.
      The
      Note shall bear the following legend:

    

    “THIS
      NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
      COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
      FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO [THE COMPANY] THAT SUCH REGISTRATION IS NOT
      REQUIRED.”

    

    (k)    Communication
      of Offer.
      The
      offer to sell the Securities was directly communicated to the Subscriber by
      the
      Company. At no time was the Subscriber presented with or solicited by any
      leaflet, newspaper or magazine article, radio or television advertisement,
      or
      any other form of general advertising or solicited or invited to attend a
      promotional meeting otherwise than in connection and concurrently with such
      communicated offer.

    

    (l)    Authority;
      Enforceability.
      This
      Agreement and other agreements delivered together with this Agreement or in
      connection herewith have been duly authorized, executed and delivered by the
      Subscriber and are valid and binding agreements enforceable in accordance with
      their terms, subject to bankruptcy, insolvency, fraudulent transfer,
      reorganization, moratorium and similar laws of general applicability relating
      to
      or affecting creditors’ rights generally and to general principles of equity;
      and Subscriber has full corporate power and authority necessary to enter into
      this Agreement and such other agreements and to perform its obligations
      hereunder and under all other agreements entered into by the Subscriber relating
      hereto.

    

    (m)    Restricted
      Securities.
      Subscriber understands that the Securities have not been registered under the
      1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
      hypothecate or otherwise transfer any of the Securities unless pursuant to
      an
      effective registration statement under the 1933 Act. Notwithstanding anything
      to
      the contrary contained in this Agreement, such Subscriber may transfer (without
      restriction and without the need for an opinion of counsel) the Securities
      to
      its Affiliates (as defined below) provided that each such Affiliate is an
“accredited investor” under Regulation D and such Affiliate agrees to be bound
      by the terms and conditions of this Agreement. For the purposes of this
      Agreement, an “Affiliate”
      of any
      person or entity means any other person or entity directly or indirectly
      controlling, controlled by or under direct or indirect common control with
      such
      person or entity. Affiliate includes each subsidiary of the Company. For
      purposes of this definition, “control”
      means
      the power to direct the management and policies of such person or firm, directly
      or indirectly, whether through the ownership of voting securities, by contract
      or otherwise.

    
      
        
        

      

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

     

    (o)    Correctness
      of Representations.
      Each
      Subscriber represents as to such Subscriber that the foregoing representations
      and warranties are true and correct as of the date hereof and, unless a
      Subscriber otherwise notifies the Company prior to each Closing Date, shall
      be
      true and correct as of each Closing Date.

    

    (p)    Survival.
      The
      foregoing representations and warranties shall survive the Closing Date until
      two years after the Closing Date.

    

    5.    Company
      Representations and Warranties.
      The
      Company represents and warrants to and agrees with each Subscriber the
      following, except as set forth in the Reports and as otherwise qualified in
      the
      Transaction Documents:

    

    (a)    Due
      Incorporation.
      The
      Company is a corporation duly organized, validly existing, and in good standing
      under the laws of the jurisdiction of its incorporation and has the requisite
      corporate power to own its properties and to carry on its business is disclosed
      in the Reports.
      The
      Company is duly qualified as a foreign corporation to do business and is in
      good
      standing in each jurisdiction where the nature of the business conducted or
      property owned by it makes such qualification necessary, other than those
      jurisdictions in which the failure to so qualify would not have a Material
      Adverse Effect. For purpose of this Agreement, a “Material
      Adverse Effect”
      shall
      mean a material adverse effect on the financial condition, results of
      operations, properties or business of the Company taken as a whole. For purposes
      of this Agreement, “Subsidiary”
      means,
      with respect to any entity at any date, any corporation, limited or general
      partnership, limited liability company, trust, estate, association, joint
      venture or other business entity) of which more than 50% of (i) the
      outstanding capital stock having (in the absence of contingencies) ordinary
      voting power to elect a majority of the board of directors or other managing
      body of such entity, (ii) in the case of a partnership or limited liability
      company, the interest in the capital or profits of such partnership or limited
      liability company or (iii) in the case of a trust, estate, association,
      joint venture or other entity, the beneficial interest in such trust, estate,
      association or other entity business is, at the time of determination, owned
      or
      controlled directly or indirectly through one or more intermediaries, by such
      entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
      5(a)
      hereto.

    

    (b)    Outstanding
      Stock.
      All
      issued and outstanding shares of capital stock of the Company have been duly
      authorized and validly issued and are fully paid and nonassessable.

    

    (c)    Authority;
      Enforceability.
      This
      Agreement, the Note, the Warrants, the Escrow Agreement, and any other
      agreements delivered together with this Agreement or in connection herewith
      (collectively “Transaction
      Documents”)
      have
      been duly authorized, executed and delivered by the Company and are valid and
      binding agreements enforceable in accordance with their terms, subject to
      bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
      similar laws of general applicability relating to or affecting creditors’ rights
      generally and to general principles of equity. The Company has full corporate
      power and authority necessary to enter into and deliver the Transaction
      Documents and to perform its obligations thereunder.

    

    (d)    Additional
      Issuances.
      There
      are no outstanding agreements or preemptive or similar rights affecting the
      Company’s common stock or equity and no outstanding rights, warrants or options
      to acquire, or instruments convertible into or exchangeable for, or agreements
      or understandings with respect to the sale or issuance of any shares of Common
      Stock or equity of the Company or other equity interest in any of the
      Subsidiaries of the Company except as described on Schedule
      5(d).
      The
      Common stock of the Company on a fully diluted basis outstanding as of the
      last
      trading day preceding the Closing Date is set forth on Schedule
      5(d).

    

    
      
        
        

      

      
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    (e)    Consents.
      No
      consent, approval, authorization, or order of any court, governmental agency
      or
      body or arbitrator having jurisdiction over the Company, or any of its
      Affiliates, any Principal Market, or the Company’s stockholders is required for
      the execution by the Company of the Transaction Documents and compliance and
      performance by the Company of its obligations under the Transaction Documents,
      including, without limitation, the issuance and sale of the
      Securities.

     

    (f)    No
      Violation or Conflict.
      Assuming the representations and warranties of the Subscribers in Section 4
      are
      true and correct, neither the issuance and sale of the Securities nor the
      performance of the Company’s obligations under this Agreement and the
      Transaction Documents will:

    

    (i)    violate,
      conflict with, result in a breach of, or constitute a default (or an event
      which
      with the giving of notice or the lapse of time or both would be reasonably
      likely to constitute a default in any material respect) of a material nature
      under (A) the articles or certificate of incorporation, charter or bylaws of
      the
      Company, (B) to the Company’s knowledge, any decree, judgment, order, law,
      treaty, rule, regulation or determination applicable to the Company of any
      court, governmental agency or body, or arbitrator having jurisdiction over
      the
      Company or over the properties or assets of the Company or any of its
      Affiliates, (C) the terms of any bond, debenture, note or any other evidence
      of
      indebtedness, or any agreement, stock option or other similar plan, indenture,
      lease, mortgage, deed of trust or other instrument to which the Company or
      any
      of its Affiliates is a party, by which the Company or any of its Affiliates
      is
      bound, or to which any of the properties of the Company or any of its Affiliates
      is subject, or (D) the terms of any “lock-up” or similar provision of any
      underwriting or similar agreement to which the Company, or any of its Affiliates
      is a party except the violation, conflict, breach, or default of which would
      not
      have a Material Adverse Effect;
      or

    

    (ii)   result
      in
      the creation or imposition of any lien, charge or encumbrance upon the
      Securities or any of the assets of the Company or any of its Affiliates;
      or

    

    (iii)   result
      in
      the activation of any anti-dilution rights or a reset or repricing of any debt
      or security instrument of any other creditor or equity holder of the Company,
      nor result in the acceleration of the due date of any obligation of the Company;
      or

    

    (iv)   result
      in
      the activation of any piggy-back registration rights of any person or entity
      holding securities or debt of the Company or having the right to receive
      securities of the Company.

    

    (g)    The
      Securities.
      The
      Securities upon issuance:

    

    (i)   are,
      or
      will be, free and clear of any security interests, liens, claims or other
      encumbrances, other than restrictions upon transfer under the 1933 Act and
      any
      applicable state securities laws;

    

    (ii)   have
      been, or will be, duly and validly authorized, and on the date of issuance
      of
      the Shares and upon exercise of the Warrants, the Shares and Warrant Shares
      will
      be duly and validly issued, fully paid and nonassessable, and, if (A) registered
      pursuant to the 1933 Act, (B) prospectus delivery requirements have been
      complied with, and (C) resold pursuant to an effective registration statement,
      will be free trading and unrestricted;

    
      
        
        

      

      
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    (iii)   will
      not
      have been issued or sold in violation of any preemptive or other similar rights
      of the holders of any securities of the Company;

    

    (iv)   will
      not
      subject the holders thereof to personal liability by reason of being such
      holders provided Subscriber’s representations herein are true and accurate and
      Subscribers take no actions or fail to take any actions required for their
      purchase of the Securities to be in compliance with all applicable laws and
      regulations; and

    

    (v)    will
      not
      result in a violation of Section 5 under the 1933 Act, provided Subscriber’s
      representations herein are true and accurate and Subscribers take no actions
      or
      fail to take any actions required by Subscriber for Subscriber’s purchase of the
      Securities to be in compliance with all applicable laws and
      regulations.

    

    (h)    Litigation.
      There
      is no pending or, to the best knowledge of the Company, threatened action,
      suit,
      proceeding or investigation before any court, governmental agency or body,
      or
      arbitrator having jurisdiction over the Company, or any of its Affiliates that
      would affect the execution by the Company or the performance by the Company
      of
      its obligations under the Transaction Documents. Except as disclosed in the
      Reports, there is no pending or, to the best knowledge of the Company, basis
      for
      or threatened action, suit, proceeding or investigation before any court,
      governmental agency or body, or arbitrator having jurisdiction over the Company,
      or any of its Affiliates which litigation if adversely determined would have
      a
      Material Adverse Effect.

    

    (i)    Reporting
      Company.
      The
      Company is a publicly-held company subject to reporting obligations pursuant
      to
      Section 13 of the Securities Exchange Act of 1934 (the “1934
      Act”)
      and
      has a
      class of common shares registered pursuant to Section 12(g) of the 1934 Act.
      Except as described on Schedule
      5(i),
      pursuant to the provisions of the 1934 Act, the Company has timely filed all
      reports and other materials required to be filed thereunder with the Commission
      during the preceding twelve months.

    

    (j)    No
      Market Manipulation.
      The
      Company and its Affiliates have not taken, and will not take, directly or
      indirectly, any action designed to, or that might reasonably be expected to,
      cause or result in manipulation of the price of the Common Stock to
      facilitate the sale or resale of the Securities or affect the price at which
      the
      Securities may be issued or resold; provided, however, that this provision
      shall
      not prevent the Company from engaging in investor relations/public relations
      activities consistent with past practices.

    

    (k)    Information
      Concerning Company.
      The
      Reports contain all the information required to be disclosed therein as of
      their
      respective dates. Since the last day of the fiscal year of the most recent
      audited financial statements included in the Reports (“Latest
      Financial Date”),
      and
      except as modified in the Reports or Other Written Information or in the
      Schedules hereto, there has been no Material Adverse Event relating to the
      Company’s business, financial condition or affairs not disclosed in the Reports.
      The Reports do not contain any untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances when
      made.

    

    (l)    Stop
      Transfer.
      The
      Company will not issue any stop transfer order or other order impeding the
      sale,
      resale, or delivery of any of the Securities, except for the legends set forth
      in Sections 4(h)-(j) hereto or as may be required by any applicable federal
      or
      state securities laws and unless contemporaneous notice of such instruction
      is
      given to the Subscriber.

    

    (m)    Defaults.
      The
      Company is not in violation of its articles of incorporation or bylaws. The
      Company is (i) not in default under or in violation of any other material
      agreement or instrument to which it is a party or by which it or any of its
      properties are bound or affected, which default or violation would have a
      Material Adverse Effect,
      (ii)
      not in default with respect to any order of any court, arbitrator or
      governmental body or subject to or party to any order of any court or
      governmental authority arising out of any action, suit or proceeding under
      any
      statute or other law respecting antitrust, monopoly, restraint of trade, unfair
      competition or similar matters, or (iii) to the Company’s knowledge, not in
      violation of any statute, rule or regulation of any governmental authority
      which
      violation would have a Material Adverse Effect.

    

    
      
        
        

      

      
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    (n)    Not
      an
      Integrated Offering.
      Neither
      the Company, nor any of its Affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales of any security
      or
      solicited any offers to buy any security under circumstances that would (i)
      cause the offer of the Securities pursuant to this Agreement to be integrated
      with prior offerings by the Company for purposes of the 1933 Act, or (ii) invoke
      any applicable stockholder approval provisions, including, without limitation,
      under the rules and regulations of any Principal Market which would impair
      the
      exemptions relied upon in this Offering [as defined in Section 8(c)] or the
      Company’s ability to timely comply with its obligations hereunder. Neither the
      Company nor any of its Affiliates will take any action or steps that would
      cause
      the offer or issuance of the Securities to be integrated with other offerings
      which would impair the exemptions relied upon in this Offering or the Company’s
      ability to timely comply with its obligations hereunder. The Company will not
      conduct any offering other than the transactions contemplated hereby that will
      be integrated with the offer or issuance of the Securities or which would impair
      the exemptions relied upon in this Offering or the Company’s ability to timely
      comply with its obligations hereunder.

     

    (o)    No
      General Solicitation.
      Neither
      the Company, nor any of its Affiliates, nor to its knowledge, any person acting
      on its or their behalf, has engaged in any form of general solicitation or
      general advertising (within the meaning of Regulation D under the 1933 Act)
      in
      connection with the offer or sale of the Securities.

    

    (p)    Listing.
      The
      Company’s common stock is quoted on the OTC Bulletin Board (“Bulletin
      Board”).
      The
      Company has not received any oral or written notice either that its common
      stock
      is not eligible nor will become ineligible for quotation on the Bulletin Board
      or that its common stock does not meet all requirements for the continuation
      of
      such quotation. The Company satisfies all the requirements for the continued
      quotation of its common stock on the Bulletin Board. 

    

    (q)    No
      Undisclosed Liabilities.
      The
      Company has no liabilities or obligations which are material, individually
      or in
      the aggregate, which are not disclosed in the Reports and Other Written
      Information, other than those incurred in the ordinary course of the Company’s
      businesses since the Latest Financial Date and which, individually or in the
      aggregate, would reasonably be expected to have a Material Adverse
      Effect,
      except
      as disclosed on Schedule
      5(q).

    

    (r)    No
      Undisclosed Events or Circumstances.
      Since
      the Latest Financial Date, no event or circumstance has occurred or exists
      with
      respect to the Company or its businesses, properties, operations or financial
      condition, that, under applicable law, rule or regulation, requires public
      disclosure or announcement prior to the date hereof by the Company but which
      has
      not been so publicly announced or disclosed in the Reports.

    

    (s)    Capitalization.
      The
      authorized and outstanding capital stock of the Company as of the date of this
      Agreement and the Closing Date (not including the Securities) are set forth
      on
Schedule
      5(d).
      Except
      as set forth on Schedule
      5(d),
      there
      are no options, warrants, or rights to subscribe to, securities, rights or
      obligations convertible into or exchangeable for or giving any right to
      subscribe for any shares of capital stock of the Company or any of its
      Subsidiaries. All of the outstanding shares of Common Stock of the Company
      have
      been duly and validly authorized and issued and are fully paid and
      nonassessable.

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (t)    Dilution.
      The
      Company’s executive officers and directors understand the nature of the
      Securities being sold hereby and recognize that the issuance of the Securities
      will have a potential dilutive effect on the equity holdings of other holders
      of
      the Company’s equity or rights to receive equity of the Company. The board of
      directors of the Company has concluded, in its good faith business judgment,
      that the issuance of the Securities is in the best interests of the Company.
      The
      Company specifically acknowledges that its obligation to issue the Shares upon
      conversion of the Notes, and the Warrant Shares upon exercise of the Warrants
      is
      binding upon the Company and enforceable regardless of the dilution such
      issuance may have on the ownership interests of other stockholders of the
      Company or parties entitled to receive equity of the Company.

    

    (u)    No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company, including but not limited to
      disputes or conflicts over payment owed to such accountants and
      lawyers.

    

    (v)    DTC
      Status.
      The
      Company’s transfer agent is not a participant in and the Common Stock is not
      eligible for transfer pursuant to the Depository Trust Company Automated
      Securities Transfer Program. The name, address, telephone number, fax number,
      contact person and email address of the Company transfer agent is set forth
      on
Schedule
      5(v)
      hereto.

    

    (w)    Investment
      Company.
      Neither
      the Company nor any Affiliate is an “investment company” within the meaning of
      the Investment Company Act of 1940, as amended.

    

    (x)    Subsidiary
      Representations.
      The
      Company makes each of the representations contained in Sections 5(a), (b),
      (d),
      (e), (f), (h), (k), (m), (q), (r), (s), (u), and (w) of this Agreement, as
      same
      relate to each Subsidiary of the Company.

    

    (y)    Company
      Predecessor.
      All
      representations made by or relating to the Company of a historical or
      prospective nature and all undertaking described in Sections 9(g) through 9(l)
      shall relate and refer to the Company, its predecessors, and the
      Subsidiaries.

    

    (z)    Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the Offering (i)
      the
      Company’s fair saleable value of its assets exceeds the amount that will be
      required to be paid on or in respect of the Company’s existing debts and other
      liabilities (including known contingent liabilities) as they mature; (ii) the
      Company’s assets do not constitute unreasonably small capital to carry on its
      business for the current fiscal year as now conducted and as proposed to be
      conducted including its capital needs taking into account the particular capital
      requirements of the business conducted by the Company, and projected capital
      requirements and capital availability thereof; and (iii) the current cash flow
      of the Company, together with the proceeds the Company would receive, were
      it to
      liquidate all of its assets, after taking into account all anticipated uses
      of
      the cash, would be sufficient to pay all amounts on or in respect of its debt
      when such amounts are required to be paid. The Company does not intend to incur
      debts beyond its ability to pay such debts as they mature (taking into account
      the timing and amounts of cash to be payable on or in respect of its
      debt).

    

    (aa)   Correctness
      of Representations.
      The
      Company represents that the foregoing representations and warranties are true
      and correct as of the date hereof in all material respects, and, unless the
      Company otherwise notifies the Subscribers prior to each Closing Date, shall
      be
      true and correct in all material respects as of each Closing Date.

     

    (bb)    Survival.
      The
      foregoing representations and warranties shall survive each Closing Date until
      two years after the latest Closing Date.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    6.    Regulation
      D Offering.
      The
      offer and issuance of the Securities to the Subscribers is being made pursuant
      to the exemption from the registration provisions of the 1933 Act afforded
      by
      Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
      D
      promulgated thereunder. On the Closing Date, the Company will provide an opinion
      reasonably acceptable to Subscriber from the Company’s legal counsel opining on
      the availability of an exemption from registration under the 1933 Act as it
      relates to the offer and issuance of the Securities and other matters reasonably
      requested by Subscribers. A form of the legal opinion is annexed hereto as
      Exhibit
      D.
      The
      Company will provide, at the Company’s expense, such other legal opinions in the
      future as are reasonably necessary for the issuance and resale of the Common
      Stock issuable upon conversion of the Notes and exercise of the Warrants
      pursuant to an effective registration statement. Subscriber agrees that any
      legal opinions required hereunder or under any other Transaction Documents
      may
      be supplied by the Company’s in house general counsel.

     

    7.1.   Conversion
      of Note.

    

    (a)    Upon
      the
      conversion of a Note or part thereof, the Company shall, at its own cost and
      expense, take all necessary action, including obtaining and delivering an
      opinion of counsel to assure that the Company’s transfer agent shall issue stock
      certificates in the name of Subscriber (or its nominee) or such other persons
      as
      designated by Subscriber and in such denominations to be specified at conversion
      representing the number of shares of Common Stock issuable upon such conversion.
      The Company warrants that no instructions other than these instructions have
      been or will be given to the transfer agent of the Company’s Common Stock and
      that, unless waived by the Subscriber or otherwise required by federal and/or
      state securities laws, the Shares will be free-trading, and freely transferable,
      and will not contain a legend restricting the resale or transferability of
      the
      Shares, provided the Shares are being sold pursuant to an effective registration
      statement covering the Shares or are otherwise being sold pursuant to an
      exemption from registration. 

     

    (b)    Subscriber
      will give notice of its decision to exercise its right to convert the Note,
      interest, any sum due to the Subscriber under the Transaction Documents
      including Liquidated Damages (as defined in Section 11.4), or part thereof
      by
      telecopying an executed and completed Notice
      of Conversion
      (a form
      of which is annexed as Exhibit
      A
      to the
      Note) to the Company via confirmed telecopier transmission or otherwise pursuant
      to Section 13(a) of this Agreement. The Subscriber will not be
      required to surrender the Note
      until
      the Note has been fully converted or satisfied. Each date on which a Notice
      of
      Conversion is telecopied to the Company in accordance with the provisions hereof
      shall be deemed a Conversion
      Date.
      The
      Company will itself or cause the Company’s transfer agent to transmit the
      Company’s Common Stock certificates representing the Shares issuable upon
      conversion of the Note to the Subscriber via express courier for receipt by
      such
      Subscriber within three (3) business days after receipt by the Company of the
      Notice of Conversion (such third day being the “Delivery
      Date”).
      In
      the event the Shares are electronically transferable, then delivery of the
      Shares must
      be made
      by electronic transfer provided request for such electronic transfer has been
      made by the Subscriber
      and the Subscriber has complied with all applicable securities laws in
      connection with the sale of the Common Stock, including, without limitation,
      the
      prospectus delivery requirements. A Note representing the balance of the Note
      not so converted will be provided by the Company to the Subscriber if requested
      by Subscriber, provided the Subscriber delivers the
      original Note to the Company. In the event that a Subscriber elects not to
      surrender a Note for reissuance upon partial payment or conversion, the
      Subscriber hereby indemnifies the Company against any and all loss or damage
      attributable to a third-party claim in an amount in excess of the actual amount
      then due under the Note, and the Company is hereby expressly authorized to
      offset any such amounts mutually agreed upon by the Company and the Subscriber
      or pursuant to a judgment in the Company’s favor against amounts then due under
      the Note. “Business
      day”
      and
“trading
      day”
      as
      employed in the Transaction Documents is a day that the New York Stock Exchange
      is open for trading for three or more hours.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (c)    The
      Company understands that a delay in the delivery of the Shares in the form
      required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
      described in Section 7.2 hereof, respectively after the Delivery Date or the
      Mandatory Redemption Payment Date (as hereinafter defined) could result in
      economic loss to the Subscriber. As compensation to the Subscriber for such
      loss, the Company agrees to pay (as liquidated damages and not as a penalty)
      to
      the Subscriber for late issuance of Shares in the form required pursuant to
      Section 7.1 hereof upon conversion of the Note in the amount of $100 per
      business day after the Delivery Date for each $10,000 of Note principal amount
      being converted of the corresponding Shares which are not timely delivered.
      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 Subscriber, in the event that the Company fails
      for any reason to effect delivery of the Shares by the Delivery Date or make
      payment by the Mandatory Redemption Payment Date, the Subscriber may 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 Subscriber shall each be restored to
      their respective positions immediately prior to the delivery of such notice,
      except that the liquidated damages described above shall be payable through
      the
      date notice of revocation or rescission is given to the Company.

     

    (d)    Nothing
      contained herein or in any document referred to herein or delivered in
      connection herewith shall be deemed to establish or require the payment of
      a
      rate of interest or other charges in excess of the maximum permitted by
      applicable law. In the event that the rate of interest or dividends required
      to
      be paid or other charges hereunder exceed the maximum permitted by such law,
      any
      payments in excess of such maximum shall be credited against amounts owed by
      the
      Company to the Subscriber and thus refunded to the Company.

    

    7.2.    Mandatory
      Redemption at Subscriber’s Election.
      In the
      event (i) the Company is prohibited from issuing Shares, (ii) the Company fails
      to timely deliver Shares on a Delivery Date, (iii) upon the occurrence of any
      other Event of Default (as defined in the Note or in this Agreement), (iv)
      of
      the liquidation, dissolution or winding up of the Company, or (v) a Change
      of
      Control (as defined below) any of which that continues for more than fifteen
      days, then at the Subscriber's election, the Company must pay to the Subscriber
      ten (10) business days after request by the Subscriber, at the Subscriber’s
      election, a sum of money determined by (y) multiplying up to the outstanding
      principal amount of the Note designated by the Subscriber by 120%, or (z)
      multiplying the number of Shares otherwise deliverable upon conversion of an
      amount of Note principal and/or interest designated by the Subscriber (with
      the
      date of giving of such designation being a “Deemed
      Conversion Date”)
      at the
      Conversion Price that would be in effect on the Deemed Conversion Date by the
      highest closing price of the Common Stock on the Principal Market for the period
      commencing on the Deemed Conversion Date until the day prior to the receipt
      by
      the Subscriber of the Mandatory Redemption Payment, whichever is greater,
      together with accrued but unpaid interest thereon ("Mandatory
      Redemption Payment").
      The
      Mandatory Redemption Payment must be received by the Subscriber on the same
      date
      as the Company Shares 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 Note principal
      and interest will be deemed paid and no longer outstanding. Liquidated damages
      calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
      for
      the twenty day period prior to the actual receipt of the Mandatory Redemption
      Payment by the Subscriber shall be credited against the Mandatory Redemption
      Payment. For purposes of this Section 7.2, “Change
      in Control”
      shall
      mean (i) the Company no longer having a class of shares publicly traded or
      listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
      entity, (iii) a majority of the board of directors of the Company as of the
      Closing Date no longer serving as directors of the Company except due to natural
      causes, (iv) if the holders of the Company’s Common Stock as of the Closing Date
      beneficially own at any time after the Closing Date less than forty percent
      of
      the Common stock owned by them on the Closing Date, and (v) the sale, lease
      or
      transfer of substantially all the assets of the Company or
      Subsidiaries.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    7.3.    Maximum
      Conversion.
      The
      Subscriber shall not be entitled to convert on a Conversion Date that amount
      of
      the Note in connection with that number of shares of Common Stock which would
      be
      in excess of the sum of (i) the number of shares of common stock beneficially
      owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
      number of shares of Common Stock issuable upon the conversion of the Note with
      respect to which the determination of this provision is being made on a
      Conversion Date, which would result in beneficial ownership by the Subscriber
      and its Affiliates of more than 4.99% of the outstanding shares of common stock
      of the Company on such Conversion Date. Beneficial ownership shall be determined
      in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
      Subscriber shall not be limited to aggregate conversions of only 4.99% and
      aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
      waive the conversion limitation described in this Section 7.3, in whole or
      in
      part, upon and effective after 61 days prior written notice to the Company.
      The
      Subscriber may decide whether to convert a Note or exercise Warrants to achieve
      an actual 4.99% ownership position.

     

    7.4.    Injunction
      Posting of Bond.
      In the
      event a Subscriber shall elect to convert a Note or part thereof or exercise
      the
      Warrant in whole or in part, the Company may not refuse conversion or
      exercise based on any claim that such Subscriber or any one associated or
      affiliated with such Subscriber has been engaged in any violation of law, or
      for
      any other reason, unless, an injunction from a court, on notice, restraining
      and
      or enjoining conversion of all or part of such Note or exercise of all or part
      of such Warrant shall have been sought and obtained by the Company and
      the
      Company has posted a surety bond for the benefit of such Subscriber in the
      amount of 120% of the outstanding principal and interest of the Note, or
      aggregate purchase price of the Warrant Shares which are sought to be subject
      to
      the injunction, which bond shall remain in effect until the completion of
      arbitration/litigation of the dispute and the proceeds of which shall be payable
      to such Subscriber to the extent Subscriber obtains judgment. Notwithstanding
      the foregoing, if the Company receives an order restraining it from converting
      from a court or administration agency of competent jurisdiction, it shall comply
      without a bond requirement.

    

    7.5.    Buy-In.
      In
      addition to any other rights available to the Subscriber, if the Company fails
      to deliver to the Subscriber such shares issuable upon conversion of a Note
      by
      the Delivery Date and if, after seven (7) business days after the Delivery
      Date,
      the Subscriber purchases (in an open market transaction or otherwise) shares
      of
      Common Stock to deliver in satisfaction of a sale by such Subscriber of the
      Common Stock which the Subscriber was entitled to receive upon such conversion
      (a “Buy-In”),
      then
      the Company shall pay in cash to the Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) the
      Subscriber’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 Note 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 Subscriber 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 note principal and/or interest, the Company shall
      be
      required to pay the Subscriber $1,000,
      plus interest. The
      Subscriber shall provide the Company written notice indicating the amounts
      payable to the Subscriber in respect of the Buy-In.

    

    7.6    Adjustments.
      The
      Conversion Price, Warrant exercise price and amount of Shares issuable upon
      conversion of the Notes and exercise of the Warrants shall be adjusted as
      described in this Agreement, the Notes and Warrants.

    

    7.7.   Redemption.
      The
      Note and Warrants shall not be redeemable or mandatorily convertible except
      as
      described herein or in the Note and Warrants. 

    

    8.    Broker/Legal
      Fees.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    (a)  Broker’s
      Commission.
      The
      Company on the one hand, and each Subscriber (for himself only) on the other
      hand, agrees to indemnify the other against and hold the other harmless from
      any
      and all liabilities to any persons claiming brokerage commissions or similar
      fees other than the entity identified on Schedule
      8
      hereto,
      (“Broker”)
      on
      account of services purported to have been rendered on behalf of the
      indemnifying party in connection with this Agreement or the transactions
      contemplated hereby and arising out of such party’s actions. Anything in this
      Agreement to the contrary notwithstanding, each Subscriber is providing
      indemnification only for such Subscriber’s own actions and not for any action of
      any other Subscriber. Each Subscriber’s liability hereunder is several and not
      joint. The Company agrees that it will pay the Broker the fees set forth on
      Schedule
      8
      hereto
      (“Broker’s
      Fees”).
      The
      Company represents that there are no other parties entitled to receive fees,
      commissions, or similar payments in connection with the offering described
      in
      this Agreement except the Broker.

     

    (b)    Reimbursement.
      The
      Subscriber identified on Schedule
      8
      hereto
      as “Lead
      Investor”
      or its
      nominee will be paid on a non-accountable basis, an amount equal to 2% of the
      entire Purchase Price paid on the Closing Date as reimbursement for due
      diligence expenses (“Reimbursement”).

    

    (c)    Legal
      Fees.
      The
      Company shall pay to Grushko & Mittman, P.C., a cash fee of one and one-half
      percent of the Purchase Price paid on the Closing Date, but not less than
      $15,000 in the aggregate, of which $5,000 has already been paid (“Subscriber’s
      Legal Fees”)
      as
      reimbursement for services rendered to the Subscribers in connection with this
      Agreement and the purchase and sale of the Notes and Warrants (the “Offering”).
      The
      Company shall pay to Spectrum Law Group, LLP, the Company’s legal fees and costs
      due and owing to Spectrum Law Group, LLP as of the Closing Date and a deposit
      of
      $10,000 (“Company’s
      Legal Fees”)
      as
      reimbursement for services rendered, and a deposit for future services to be
      rendered, to the Company, including those services rendered in connection with
      this Agreement, the Offering, and those services to be rendered in connection
      with the Registration Statement. The Subscriber’s Legal Fees and the Company’s
      Legal Fees will be payable on the Closing Date out of funds held pursuant to
      the
      Escrow Agreement.

    

    9.    Covenants
      of the Company.
      The
      Company covenants and agrees with the Subscribers as follows:

    

    (a)    Stop
      Orders.
      The
      Company will advise the Subscribers, within two hours after the Company receives
      notice of issuance by the Commission, any state securities commission or any
      other regulatory authority of any stop order or of any order preventing or
      suspending any offering of any securities of the Company, or of the suspension
      of the qualification of the Common Stock of the Company for offering or sale
      in
      any jurisdiction, or the initiation of any proceeding for any such
      purpose.

    

    (b)    Listing.
      The
      Company shall promptly secure the listing of the shares of Common Stock and
      the
      Warrant Shares upon each national securities exchange, or electronic or
      automated quotation system upon which they are or become eligible for listing
      and shall maintain such listing so long as any Notes or Warrants are
      outstanding. The Company will maintain the listing of its Common Stock on the
      American Stock Exchange, Nasdaq SmallCap Market, Nasdaq National Market System,
      Bulletin Board, or New York Stock Exchange (whichever of the foregoing is at
      the
      time the principal trading exchange or market for the Common Stock (the
“Principal
      Market”)),
      and
      will comply in all respects with the Company’s reporting, filing and other
      obligations under the bylaws or rules of the Principal Market, as applicable.
      The Company will provide the Subscribers copies of all notices it receives
      notifying the Company of the threatened and actual delisting of the Common
      Stock
      from any Principal Market. As of the date of this Agreement, the Bulletin Board
      is the Principal Market.

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    (c)    Market
      Regulations.
      The
      Company shall notify the Commission, the Principal Market and applicable state
      authorities, in accordance with their requirements, of the transactions
      contemplated by this Agreement, and shall take all other necessary action and
      proceedings as may be required and permitted by applicable law, rule and
      regulation, for the legal and valid issuance of the Securities to the
      Subscribers and promptly provide copies thereof to Subscriber.

     

    (d)    Filing
      Requirements.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      (A)
      cause its Common Stock to continue to be registered under Section 12(b) or
      12(g)
      of the 1934 Act, (B) comply in all respects with its reporting and filing
      obligations under the 1934 Act, (C) voluntarily comply with all reporting
      requirements that are applicable to an issuer with a class of shares registered
      pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
      reporting requirements, and (D) comply with all requirements related to any
      registration statement filed pursuant to this Agreement. The Company will use
      its best efforts not to take any action or file any document (whether or not
      permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
      or suspend such registration or to terminate or suspend its reporting and filing
      obligations under said acts until two (2) years after the Closing Date. Until
      the earlier of the resale of the Common Stock and the Warrant Shares by each
      Subscriber or two (2) years after the Warrants have been exercised, the Company
      will use its best efforts to continue the listing or quotation of the Common
      Stock on a Principal Market and will comply in all respects with the Company’s
      reporting, filing and other obligations under the bylaws or rules of the
      Principal Market. The Company agrees to timely file a Form D with respect to
      the
      Securities if required under Regulation D and to provide a copy thereof to
      each
      Subscriber promptly after such filing.

    

    (e)    Use
      of
      Proceeds.
      The
      proceeds of the Offering will be employed by the Company for the purposes set
      forth on Schedule
      9(e)
      hereto.
      Except as set forth on Schedule
      9(e),
      the
      Purchase Price may not and will not be used for accrued and unpaid officer
      and
      director salaries, payment of financing related debt, redemption of outstanding
      notes or equity instruments of the Company, litigation related expenses or
      settlements, brokerage fees, nor non-trade obligations outstanding on a Closing
      Date. For so long as any Notes are outstanding, the Company will not prepay
      any
      financing related debt obligations nor redeem any equity instruments of the
      Company. Pending the Company’s use of the net proceeds of the Offering, the
      Company intends to invest the funds in government securities and insured,
      short-term, interest-bearing investments of varying maturities. Schedule
      9(e) represents
      the Company’s best estimate of the allocation of the proceeds from the Offering.
      Future events, including the problems, delays, expenses, and complications
      frequently encountered by development stage companies such as the Company,
      as
      well as changes in economic, regulatory, or competitive conditions, changes
      in
      the Company’s planned business (and its success or failure), and changes in the
      Company’s product development activities, may require that it reallocate funds.
      It is possible that that the estimates in Schedule
      9(e) will
      prove inaccurate, that the Company’s efforts to introduce its products and
      services will require considerable additional expenditures, or that unforeseen
      events will cause the Company to expend more funds than it currently
      expects.

    

    (f)    Reservation.
      Prior
      to the Closing Date, the Company undertakes to reserve, pro rata,
      on
      behalf of the Subscribers from its authorized but unissued common stock, a
      number of common shares equal to 175%
      of
      the amount of Common Stock necessary to allow each Subscriber to be able to
      convert all Notes issuable pursuant to this Agreement and interest thereon
      and
      reserve 100% of the amount of Warrant Shares issuable upon exercise of the
      Warrants. Failure to have sufficient shares reserved pursuant to this Section
      9(f) for five (5) consecutive business days or fifteen (15) days in the
      aggregate shall be a material default of the Company’s obligations under this
      Agreement and an Event of Default under the Note.

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    (g)    Taxes.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      promptly pay and discharge, or cause to be paid and discharged, when due and
      payable, all lawful taxes, assessments and governmental charges or levies
      imposed upon the income, profits, property or business of the Company; provided,
      however, that any such tax, assessment, charge or levy need not be paid if
      the
      validity thereof shall currently be contested in good faith by appropriate
      proceedings and if the Company shall have set aside on its books adequate
      reserves with respect thereto, and provided, further, that the Company will
      pay
      all such taxes, assessments, charges or levies forthwith upon the commencement
      of proceedings to foreclose any lien which may have attached as security
      therefore.

     

    (h)    Insurance.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      keep its assets which are of an insurable character insured by financially
      sound
      and reputable insurers against loss or damage by fire, explosion and other
      risks
      customarily insured against by companies in the Company’s line of business, in
      amounts sufficient to prevent the Company from becoming a co-insurer and not
      in
      any event less than one hundred percent (100%) of the insurable value of the
      property insured; and the Company will maintain, with financially sound and
      reputable insurers, insurance against other hazards and risks and liability
      to
      persons and property to the extent and in the manner customary for companies
      in
      similar businesses similarly situated and to the extent available on
      commercially reasonable terms.

    

    (i)    Books
      and Records.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      keep true records and books of account in which full, true and correct entries
      will be made of all dealings or transactions in relation to its business and
      affairs in accordance with generally accepted accounting principles applied
      on a
      consistent basis.

    

    (j)    Governmental
      Authorities.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company shall
      duly observe and conform in all material respects to all valid requirements
      of
      governmental authorities relating to the conduct of its business or to its
      properties or assets.

    

    (k)    Intellectual
      Property.
      From
      the date of this Agreement and until the sooner of (i) two (2) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company shall
      maintain in full force and effect its corporate existence, rights and franchises
      and all licenses and other rights to use intellectual property owned or
      possessed by it and reasonably deemed to be necessary to the conduct of its
      business, unless it is sold for value.

    

    (l)    Properties.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      (as
      defined in Section 11.1(iv) hereof) or pursuant to Rule 144, without regard
      to
      volume limitations, the Company will keep its properties in good repair, working
      order and condition, reasonable wear and tear excepted, and from time to time
      make all necessary and proper repairs, renewals, replacements, additions and
      improvements thereto; and the Company will at all times comply with each
      provision of all leases to which it is a party or under which it occupies
      property if the breach of such provision could reasonably be expected to have
      a
      Material Adverse Effect.

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    (m)    Confidentiality/Public
      Announcement.
      From the
      date of this Agreement and until the sooner of (i) two (2) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company agrees
      that, except in connection with a Form 8-K or the Registration Statement or
      as
      otherwise required in any other Commission filing, it will not disclose publicly
      or privately the identity of the Subscribers unless expressly agreed to in
      writing by a Subscriber, only to the extent required by law and then only upon
      five days prior notice to Subscriber. In any event and subject to the foregoing,
      the Company shall file
      a
      Form 8-K or make a public announcement describing the Offering not later than
      the first business day after each Closing Date. In the Form 8-K or public
      announcement, the Company will specifically disclose the amount of common stock
      outstanding immediately after the Closing. A form of the proposed Form 8-K
      or
      public announcement to be employed in connection with the Closing is annexed
      hereto as Exhibit
      E.

     

    (n)    Further
      Registration Statements.
      Except
      for a registration statement filed on behalf of the Subscribers pursuant to
      Section 11 of this Agreement and as set forth on Schedule
      11.1
      hereto,
      the Company will not file any registration statements or amend any already
      filed
      registration statement, including but not limited to Forms S-8, with the
      Commission or with state regulatory authorities without the consent of the
      Subscriber until the sooner of (i) the Registration Statement shall have been
      current and available for use in connection with the resale of the Registrable
      Securities (as defined in Section 11.1(i) for a period of 365 days, or (ii)
      until all the Shares and Warrant Shares have been resold or transferred by
      the
      Subscribers pursuant to the Registration Statement or Rule 144, without regard
      to volume limitations (“Exclusion
      Period”).
      The
      Exclusion Period will be tolled during the pendency of an Event of Default
      as
      defined in the Note.

    

    (o)    Blackout.
      The
      Company undertakes and covenants that until the end of the Exclusion Period,
      the
      Company will not enter into any acquisition, merger, exchange or sale or other
      transaction that could have the effect of delaying the effectiveness of any
      pending registration statement or causing an already effective registration
      statement to no longer be effective or current for a period ten (10) or more
      consecutive days
      nor
      more than twenty (20) days during any consecutive three hundred and sixty-five
      (365) day period.

    

    (p)    Non-Public
      Information.
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf will provide any Subscriber or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto such Subscriber shall have agreed in writing to receive such
      information. The Company understands and confirms that each Subscriber shall
      be
      relying on the foregoing representations in effecting transactions in securities
      of the Company. 

    

    (q)    Limited
      Standstill.
      The
      Company will deliver to the Subscribers on or before the Closing Date and
      enforce the provisions of irrevocable standstill agreements (“Limited
      Standstill Agreements”)
      in the
      form annexed hereto as Exhibit
      F,
      with
      the parties identified on Schedule
      9(q)
      hereto.

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

    (r)    Board
      Observer.
       The
      Company agrees until such time as 90% of the initial principal amount
      outstanding on the Notes shall have been fully paid or converted that the Lead
      Investor identified on Schedule
      8
      hereto
      shall have the right,
      but
      not
      the obligation,
      from
      time to time to designate in writing a nominee to designate an observer (the
      “Observer”),
      who
      shall be entitled to attend and participate (but not vote) in all meetings
      of
      the Board of Directors of the Company and to receive all notices, reports,
      information, correspondence and communications sent by the Company to members
      of
      the Board of Directors,
      provided
      that the
      Board of Directors, using reasonable judgment, acting in good faith and in
      the
      best interests of the Company, may (1) exclude any such Observer from any
      meeting or portion thereof if such attendance could be adverse to the interests
      of the Company, and (2) exclude from delivery to the Observer any information
      that could be adverse to the interests of the Company. By way of illustration,
      but not limitation, the following may be considered when excluding the Observer
      if attendance at such a meeting would (a) affect the attorney-client privilege
      between the Company and its counsel in a manner that it adverse to the Company,
      (b) cause the Board of Directors to breach its fiduciary duties, (c) result
      in a
      conflict of interest between the Company and the Subscriber, (d) result in
      the
      disclosure of or access to highly sensitive competitive information and the
      Company reasonably believes that the protection afforded pursuant to a
      confidentiality agreement to be signed by the Observer described below would
      not
      be sufficient or (e) result in the disclosure of or access to information that
      the Company believes constitutes material non-public information (unless, prior
      thereto, each Subscriber shall have agreed in writing to have the Observer
      receive such information). All reasonable costs and expenses incurred in
      connection therewith by any such designated observer or by the Lead Investor
      on
      behalf of such observer shall be reimbursed by the Company to the extent that
      the Company reimburses such expenses incurred by any directors of the
      Company. It
      is
      provided and agreed that the actions and advice of any person while serving
      pursuant to this section as an observer at meetings of the Board of Directors
      shall be construed to be the actions and advice of that person alone and not
      be
      construed as actions of any Subscriber as to any notice, requirements or rights
      of any Subscriber under the Transaction Documents, nor as action of any
      Subscriber to approve modifications, consents, amendments or waivers thereof;
      and all such actions or notices shall be deemed actions or notices to the
      Subscribers only when duly provided in writing and given in accordance with
      the
      provisions of the Transaction Documents. 
      The
      relationship between the Company and the Subscribers is, and shall at all times
      remain, solely that of the Company with a purchaser of its securities. The
      Subscribers neither undertake nor assume any responsibility or duty to the
      Company to review, inspect, supervise, pass judgment upon, or inform the Company
      of any matter in connection with any phase of the Company’s business,
      operations, or condition, financial or otherwise. The Company shall rely
      entirely upon its own judgment with respect to such matters, and any review,
      inspection, supervision, exercise of judgment, or information supplied to the
      Company by the Subscribers, or any representative or agent of the Subscribers,
      in connection with any such matter is for the protection of the Subscribers,
      and
      neither the Company nor any third party is entitled to rely thereon. It shall
      be
      deemed a default of a material obligation under the Notes if Company does not
      comply with the requirements of this section.

     

    10.    Covenants
      of the Company and Subscriber Regarding Indemnification.

    

    (a)    The
      Company agrees to indemnify, hold harmless, reimburse and defend the
      Subscribers, the Subscribers’ officers, directors, agents, Affiliates, control
      persons, and principal stockholders, against any claim, cost, expense,
      liability, obligation, loss or damage (including reasonable legal fees) of
      any
      nature, incurred by or imposed upon the Subscriber or any such person which
      results, arises out of or is based upon (i) any material misrepresentation
      by
      Company or material breach of any warranty by Company in this Agreement or
      in
      any Exhibits or Schedules attached hereto, or other agreement delivered pursuant
      hereto; or (ii) after any applicable notice and/or cure periods, any material
      breach or default in performance by the Company of any covenant or undertaking
      to be performed by the Company hereunder, or any other agreement entered into
      by
      the Company and Subscriber relating hereto.

    

    (b)    Each
      Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
      and each of the Company’s officers, directors, agents, Affiliates, control
      persons against any claim, cost, expense, liability, obligation, loss or damage
      (including reasonable legal fees) of any nature, incurred by or imposed upon
      the
      Company or any such person which results, arises out of or is based upon (i)
      any
      material misrepresentation by such Subscriber in this Agreement or in any
      Exhibits or Schedules attached hereto, or other agreement delivered pursuant
      hereto; or (ii) after any applicable notice and/or cure periods, any material
      breach or default in performance by such Subscriber of any covenant or
      undertaking to be performed by such Subscriber hereunder, or any other agreement
      entered into by the Company and Subscribers, relating hereto.

    

    
      
        
        

      

      
        17

        
          

        

      

       

       

      (c)    In
        no
        event shall the liability of any Subscriber or permitted successor hereunder
        or
        under any Transaction Document or other agreement delivered in connection
        herewith be greater in amount than the dollar amount of the net proceeds
        actually received by such Subscriber upon the sale of Registrable Securities
        (as
        defined herein).

       

      (d)    The
        procedures set forth in Section 11.6 shall apply to the indemnification set
        forth in Sections 10(a) and 10(b) above.

    

    

    11.1.  Registration
      Rights.
      The
      Company hereby grants the following registration rights to holders of the
      Securities.

    

    (i)    On
      one
      occasion, for a period commencing one hundred and fifty-one (151) days after
      the
      Closing Date, but not later than two (2) years after the Closing Date, upon
      a
      written request therefor from any record holder or holders of more than 50%
      of
      the Shares issued and issuable upon conversion of the outstanding Notes and
      outstanding Warrant Shares, the Company shall prepare and file with the
      Commission a registration statement under the 1933 Act registering the
      Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
      subject of such request for unrestricted public resale by the holder thereof.
      For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
      not
      include Securities which are (A) registered for resale in an effective
      registration statement, (B) included for registration in a pending registration
      statement, or (C) which have been issued without further transfer restrictions
      after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
      receipt of such request, the Company shall promptly give written notice to
      all
      other record holders of the Registrable Securities that such registration
      statement is to be filed and shall include in such registration statement
      Registrable Securities for which it has received written requests within ten
      (10) days after the Company gives such written notice. Such other requesting
      record holders shall be deemed to have exercised their demand registration
      right
      under this Section 11.1(i).

    

    (ii)    If
      the
      Company at any time proposes to register any of its securities under the 1933
      Act for sale to the public, whether for its own account or for the account
      of
      other security holders or both, except with respect to registration statements
      on Forms S-4, S-8 or another form not available for registering the Registrable
      Securities for sale to the public, provided the Registrable Securities are
      not
      otherwise registered for resale by the Subscribers or Holder pursuant to an
      effective registration statement, each such time it will give at least fifteen
      (15) days’ prior written notice to the record holder of the Registrable
      Securities of its intention so to do. Upon the written request of the holder,
      received by the Company within ten (10) days after the giving of any such notice
      by the Company, to register any of the Registrable Securities not previously
      registered, the Company will cause such Registrable Securities as to which
      registration shall have been so requested to be included with the securities
      to
      be covered by the registration statement proposed to be filed by the Company,
      all to the extent required to permit the sale or other disposition of the
      Registrable Securities so registered by the holder of such Registrable
      Securities (the “Seller”
      or
“Sellers”).
      In
      the event that any registration pursuant to this Section 11.1(ii) shall be,
      in
      whole or in part, an underwritten public offering of common stock of the
      Company, the number of shares of Registrable Securities to be included in such
      an underwriting may be reduced by the managing underwriter if and to the extent
      that the Company and the underwriter shall reasonably be of the opinion that
      such inclusion would adversely affect the marketing of the securities to be
      sold
      by the Company therein; provided, however, that the Company shall notify the
      Seller in writing of any such reduction. Notwithstanding the foregoing
      provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
      a delay of any registration statement referred to in this Section 11.1(ii)
      without thereby incurring any liability to the Seller.

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (iii)    If,
      at
      the time any written request for registration is received by the Company
      pursuant to Section 11.1(i), the Company has determined to proceed with the
      actual preparation and filing of a registration statement under the 1933 Act
      in
      connection with the proposed offer and sale for cash of any of its securities
      for the Company’s own account and the Company actually does file such other
      registration statement, such written request shall be deemed to have been given
      pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
      the
      holders of Registrable Securities covered by such written request shall be
      governed by Section 11.1(ii).

     

    (iv)    The
      Company shall file with the Commission a Form SB-2 registration statement (the
      “Registration
      Statement”)
      (or
      such other form that it is eligible to use) in order to register the Registrable
      Securities for resale and distribution under the 1933 Act within forty-five
      (45)
      calendar days after the Closing Date (the
      “Filing
      Date”),
      and
      use its best efforts to cause to be declared effective not
      later
      than one hundred and fifty (150) calendar days after the Closing Date
(the
      “Effective
      Date”).
      The
      Company will register not less than a number of shares of common stock in the
      aforedescribed registration statement that is equal to 175%
      of
      the Shares issuable upon conversion of all of the Notes issuable to the
      Subscribers, and 100% of the Warrant Shares issuable pursuant to this Agreement
      upon exercise of the Warrants (collectively the “Registrable
      Securities”).
      The
      Registrable Securities shall be reserved and set aside exclusively for the
      benefit of each Subscriber and Warrant holder, pro rata,
      and not
      issued, employed or reserved for anyone other than each such Subscriber and
      Warrant holder. The Registration Statement will immediately be amended or
      additional registration statements will be immediately filed by the Company
      as
      necessary to register additional shares of Common Stock to allow the public
      resale of all Common Stock included in and issuable by virtue of the Registrable
      Securities. Except with the written consent of the Subscriber, or as described
      on Schedule 11.1 hereto, no securities of the Company other than the Registrable
      Securities will be included in the Registration Statement. It shall be deemed
      a
      Non-Registration Event [as defined in Section 11.4] if, at any time after the
      date the Registration Statement is declared effective by the Commission
      (“Actual
      Effective Date”),
      the
      Company has registered for unrestricted resale on behalf of the Sellers fewer
      than 125%
      of
      the amount of Common Shares issuable upon full conversion of all sums due under
      the Notes and 100% of the Warrant Shares issuable upon exercise of the
      Warrants.

    

    11.2.  Registration
      Procedures.
      If and
      whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
      or (iv) to effect the registration of any Registrable Securities under the
      1933
      Act, the Company will, as expeditiously as possible: 

    

    (a)    subject
      to the timelines provided in this Agreement, prepare and file with the
      Commission a registration statement required by Section 11, with respect to
      such
      securities and use its commercially reasonable best efforts to cause such
      registration statement to become and remain effective for the period of the
      distribution contemplated thereby (determined as herein provided); promptly
      provide to the holders of the Registrable Securities copies of all filings
      and
      Commission letters of comment; notify Subscribers (by telecopier and/or by
      e-mail addresses provided by Subscribers) and Grushko & Mittman, P.C. (by
      telecopier and/or by email to Counslers@aol.com)
      on or
      before 6:00 PM EST on the first business day after the day that the Company
      receives notice that the Commission has no comments or no further comments
      on
      the Registration Statement; and notify the Subscribers and their counsel in
      the
      same manner not later than the first Business Day after the Business Day a
      Registration Statement has been declared effective (or sooner than the first
      Business Day upon disclosure of this information to any person who is not an
      officer or director or legal counsel of the Company). Failure to timely provide
      notice as required by this Section 11.2(a) shall be a material breach of the
      Company’s obligation and an Event of Default as defined in the Notes
      and
      a Non-Registration Event as defined in Section 11.4 of this Agreement;

    

    (b)    prepare
      and file with the Commission such amendments and supplements to such
      registration statement and the prospectus used in connection therewith as may
      be
      necessary to keep such registration statement effective until such registration
      statement has been effective for a period of two (2) years, and comply with
      the
      provisions of the 1933 Act with respect to the disposition of all of the
      Registrable Securities covered by such registration statement in accordance
      with
      the Sellers’ intended method of disposition set forth in such registration
      statement for such period;

    

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (c)    furnish
      to the Sellers, at the Company’s expense, such number of copies of the
      registration statement and the prospectus included therein (including each
      preliminary prospectus) as such persons reasonably may request in order to
      facilitate the public sale or their disposition of the securities covered by
      such registration statement or make them electronically available;

    

    (d)    use
      its
commercially
      reasonable efforts
      to register or qualify the Registrable Securities covered by such registration
      statement under the securities or “blue sky” laws of New York and such
      jurisdictions as the Sellers shall request in writing; provided, however, that
      the Company shall not for any such purpose be required to qualify generally
      to
      transact business as a foreign corporation in any jurisdiction where it is
      not
      so qualified or to consent to general service of process in any such
      jurisdiction; 

    

    (e)    if
      applicable, list the Registrable Securities covered by such registration
      statement with any securities exchange on which the Common Stock of the Company
      is then listed; 

    

    (f)    notify
      the Subscribers within two hours of the Company’s becoming aware that a
      prospectus relating thereto is required to be delivered under the 1933 Act,
      of
      the happening of any event of which the Company has knowledge as a result of
      which the prospectus contained in such registration statement, as then in
      effect, includes an 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 in light of the circumstances then existing or which
      becomes subject to a Commission, state or other governmental order suspending
      the effectiveness of the registration statement covering any of the Shares;
      and

    

    (g)    provided
      same would not be in violation of the provision of Regulation FD under the
      1934
      Act, make available for inspection by the Sellers, and any attorney, accountant
      or other agent retained by the Seller or underwriter, all publicly available,
      non-confidential financial and other records, pertinent corporate documents
      and
      properties of the Company, and cause the Company’s officers, directors and
      employees to supply all publicly available, non-confidential information
      reasonably requested by the seller, attorney, accountant or agent in connection
      with such registration statement. 

    

    11.3.  Provision
      of Documents.
      In
      connection with each registration described in this Section 11, each Seller
      will
      furnish to the Company in writing such information and representation letters
      with respect to itself and the proposed distribution by it as reasonably shall
      be necessary in order to assure compliance with federal and applicable state
      securities laws, including, but not limited to, a written confirmation that
      the
      Seller may be deemed to be an “underwriter” under the federal securities laws
      for purposes of such Seller’s resale and distribution of such Seller’s
      Registrable Securities. 

    

    11.4.  Non-Registration
      Events.
      The
      Company and the Subscribers agree that the Sellers will suffer damages if the
      Registration Statement is not filed by the Filing Date and not declared
      effective by the Commission by the Effective Date, and any registration
      statement required under Section 11.1(i) or 11.1(ii) is not filed within 60
      days
      after written request and declared effective by the Commission within 180 days
      after such request, and maintained in the manner and within the time periods
      contemplated by Section 11 hereof, and it would not be feasible to ascertain
      the
      extent of such damages with precision. Accordingly, if (A) the Registration
      Statement is not filed on or before the Filing Date, (B) is not declared
      effective on or before the Effective Date, (C) due to the action or inaction
      of
      the Company, the Registration Statement is not declared effective within 3
      business days after receipt by the Company or its attorneys of a written or
      oral
      communication from the Commission that the Registration Statement will not
      be
      reviewed or that the Commission has no further comments, (D) if the registration
      statement described in Sections 11.1(i) or 11.1(ii) is not filed within 60
      days
      after such written request, or is not declared effective within 120 days after
      such written request, or (E) any registration statement described in Sections
      11.1(i), 11.1(ii) or 11.1(iv) is filed and declared effective but shall
      thereafter cease to be effective without being succeeded within 15 business
      days
      by an effective replacement or amended registration statement or for a period
      of
      time which shall exceed 30 days in the aggregate per year (defined as a period
      of 365 days commencing on the Actual Effective Date (each such event referred
      to
      in clauses (A) through (D) of this Section 11.4 is referred to herein as a
      “Non-Registration
      Event”),
      then
      the Company shall deliver to the holder of Registrable Securities, as liquidated
      damages (“Liquidated
      Damages”),
      an
      amount equal to one and one-half (1.5%) for each 30 days or part thereof of
      the
      Purchase Price of the Notes remaining unconverted and purchase price of Shares
      issued upon conversion of the Notes owned of record by such holder which are
      subject to such Non-Registration Event. Liquidated Damages payable in connection
      with a Non-Registration Event described in clause (B) above shall accrue from
      the 90th
      calendar
      day after the Closing Date. The Company must pay the Liquidated Damages in
      cash,
      except that the Subscriber may elect that such Liquidated Damages to be paid
      with shares of Common Stock with such shares valued at sixty percent (60%)
      of
      the Conversion Price in effect on each thirtieth day or sooner date upon which
      Liquidated Damages have accrued. The Liquidated Damages must be paid within
      10
      days after the end of each thirty (30) day period or shorter part thereof for
      which Liquidated Damages are payable. In the event a Registration Statement
      is
      filed by the Filing Date but is withdrawn prior to being declared effective
      by
      the Commission, then such Registration Statement will be deemed to have not
      been
      filed. All
      oral
      or written comments received from the Commission relating to the Registration
      Statement must be adequately responded to within
      30
      days in connection with the initial filing of the Registration Statement and
      within 10 business days in connection with amendments to the Registration
      Statement after receipt of such comments from the Commission.
      Failure
      to
      timely respond to Commission comments is a Non-Registration Event for which
      Liquidated Damages shall accrue and be payable by the Company to the holders
      of
      Registrable Securities at the same rate set forth above. Notwithstanding the
      foregoing, the Company shall not be liable to the Subscriber under this Section
      11.4 for any events or delays occurring as a consequence of the acts or
      omissions of the Subscribers contrary to the obligations undertaken by
      Subscribers in this Agreement. Liquidated Damages will neither accrue nor be
      payable pursuant to this Section 11.4 nor will a Non-Registration Event be
      deemed to have occurred for times during which Registrable Securities are
      transferable by the holder of Registrable Securities pursuant to Rule 144(k)
      under the 1933 Act.

    
      
        
        

      

      
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    11.5.  Expenses.
      All
      expenses incurred by the Company in complying with Section 11, including,
      without limitation, all registration and filing fees, printing expenses (if
      required), fees and disbursements of counsel and independent public accountants
      for the Company, fees and expenses (including reasonable counsel fees) incurred
      in connection with complying with state securities or “blue sky” laws, fees of
      the National Association of Securities Dealers, Inc., transfer taxes, and fees
      of transfer agents and registrars, are called “Registration
      Expenses.”
      All
      underwriting discounts and selling commissions applicable to the sale of
      Registrable Securities are called “Selling
      Expenses.”
      The
      Company will pay all Registration Expenses in connection with the registration
      statement under Section 11. Selling Expenses in connection with each
      registration statement under Section 11 shall be borne by the Seller and may
      be
      apportioned among the Sellers in proportion to the number of shares sold by
      the
      Seller relative to the number of shares sold under such registration statement
      or as all Sellers thereunder may agree.

    

    11.6.  Indemnification
      and Contribution.

    

    (a)    In
      the
      event of a registration of any Registrable Securities under the 1933 Act
      pursuant to Section 11, the Company will, to the extent permitted by law,
      indemnify and hold harmless the Seller, each officer of the Seller, each
      director of the Seller, each underwriter of such Registrable Securities
      thereunder and each other person, if any, who controls such Seller or
      underwriter within the meaning of the 1933 Act, against any losses, claims,
      damages or liabilities, joint or several, to which the Seller, or such
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in any registration statement
      under which such Registrable Securities was registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading
      in light of the circumstances when made, and will, subject to the provisions
      of
      Section 11.6(c), reimburse the Seller, each such underwriter and each such
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action; provided, however, that the Company shall not be liable
      to
      the Seller to the extent that any such damages arise out of or are based upon
      an
      untrue statement or omission made in any preliminary prospectus if (i) the
      Seller failed to send or deliver a copy of the final prospectus delivered by
      the
      Company to the Seller with or prior to the delivery of written confirmation
      of
      the sale by the Seller to the person asserting the claim from which such damages
      arise, (ii) the final prospectus would have corrected such untrue statement
      or
      alleged untrue statement or such omission or alleged omission, or (iii) to
      the
      extent that any such loss, claim, damage or liability arises out of or is based
      upon an untrue statement or alleged untrue statement or omission or alleged
      omission so made in conformity with information furnished by any such Seller,
      or
      any such controlling person in writing specifically for use in such registration
      statement or prospectus.

    

    
      
        
        

      

      
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    (b)    In
      the
      event of a registration of any of the Registrable Securities under the 1933
      Act
      pursuant to Section 11, each Seller severally but not jointly will, to the
      extent permitted by law, indemnify and hold harmless the Company, and each
      person, if any, who controls the Company within the meaning of the 1933 Act,
      each officer of the Company who signs the registration statement, each director
      of the Company, each underwriter and each person who controls any underwriter
      within the meaning of the 1933 Act, against all losses, claims, damages or
      liabilities, joint or several, to which the Company or such officer, director,
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in the registration statement
      under which such Registrable Securities were registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading,
      and will reimburse the Company and each such officer, director, underwriter
      and
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action, provided, however, that the Seller will be liable hereunder
      in any such case if and only to the extent that any such loss, claim, damage
      or
      liability arises out of or is based upon an untrue statement or alleged untrue
      statement or omission or alleged omission made in reliance upon and in
      conformity with information pertaining to such Seller, as such, furnished in
      writing to the Company by such Seller specifically for use in such registration
      statement or prospectus, and provided, further, however, that the liability
      of
      the Seller hereunder shall be limited to the net proceeds actually received
      by
      the Seller from the sale of Registrable Securities covered by such registration
      statement.

    
 

    (c)    Promptly
      after receipt by an indemnified party hereunder of notice of the commencement
      of
      any action, such indemnified party shall, if a claim in respect thereof is
      to be
      made against the indemnifying party hereunder, notify the indemnifying party
      in
      writing thereof, but the omission so to notify the indemnifying party shall
      not
      relieve it from any liability which it may have to such indemnified party other
      than under this Section 11.6(c) and shall only relieve it from any liability
      which it may have to such indemnified party under this Section 11.6(c), except
      and only if and to the extent the indemnifying party is prejudiced by such
      omission. In case any such action shall be brought against any indemnified
      party
      and it shall notify the indemnifying party of the commencement thereof, the
      indemnifying party shall be entitled to participate in and, to the extent it
      shall wish, to assume and undertake the defense thereof with counsel
      satisfactory to such indemnified party, and, after notice from the indemnifying
      party to such indemnified party of its election so to assume and undertake
      the
      defense thereof, the indemnifying party shall not be liable to such indemnified
      party under this Section 11.6(c) for any legal expenses subsequently incurred
      by
      such indemnified party in connection with the defense thereof other than
      reasonable costs of investigation and of liaison with counsel so selected,
      provided, however, that, if the defendants in any such action include both
      the
      indemnified party and the indemnifying party and the indemnified party shall
      have reasonably concluded that there may be reasonable defenses available to
      it
      which are different from or additional to those available to the indemnifying
      party or if the interests of the indemnified party reasonably may be deemed
      to
      conflict with the interests of the indemnifying party, the indemnified parties,
      as a group, shall have the right to select one separate counsel and to assume
      such legal defenses and otherwise to participate in the defense of such action,
      with the reasonable expenses and fees of such separate counsel and other
      expenses related to such participation to be reimbursed by the indemnifying
      party as incurred.

    
      
        
        

      

      
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    (d)    In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the 1933 Act in any case in which either (i) a Seller, or any controlling
      person of a Seller, makes a claim for indemnification pursuant to this Section
      11.6 but it is judicially determined (by the entry of a final judgment or decree
      by a court of competent jurisdiction and the expiration of time to appeal or
      the
      denial of the last right of appeal) that such indemnification may not be
      enforced in such case notwithstanding the fact that this Section 11.6 provides
      for indemnification in such case, or (ii) contribution under the 1933 Act may
      be
      required on the part of the Seller or controlling person of the Seller in
      circumstances for which indemnification is not provided under this Section
      11.6;
      then, and in each such case, the Company and the Seller will contribute to
      the
      aggregate losses, claims, damages or liabilities to which they may be subject
      (after contribution from others) in such proportion so that the Seller is
      responsible only for the portion represented by the percentage that the public
      offering price of its securities offered by the registration statement bears
      to
      the public offering price of all securities offered by such registration
      statement, provided, however, that, in any such case, (y) the Seller will not
      be
      required to contribute any amount in excess of the public offering price of
      all
      such securities sold by it pursuant to such registration statement; and (z)
      no
      person or entity guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the 1933 Act) will be entitled to contribution from any person
      or entity who was not guilty of such fraudulent misrepresentation.

     

    11.7.   Delivery
      of Unlegended Shares.

    

    (a)    Within
      three (3) business days (such third business day being the “Unlegended
      Shares Delivery Date”)
      after
      the business day on which the Company has received (i) a notice that Shares
      or
      Warrant Shares or any other Common Stock held by a Subscriber have been sold
      pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii)
      a
      representation that the prospectus delivery requirements, or the requirements
      of
      Rule 144, as applicable and if required, have been satisfied (and,
      if
      requested by the Transfer Agent, the Company, or the Company’s legal counsel,
      provide reasonably satisfactory evidence of the same),
      (iii)
      the original share certificates representing the shares of Common Stock that
      have been sold, and (iv) in the case of sales under Rule 144, customary
      representation letters of the Subscriber and/or Subscriber’s broker regarding
      compliance with the requirements of Rule 144, the Company at its expense, (y)
      shall deliver, and shall cause legal counsel selected by the Company to deliver
      to its transfer agent (with copies to Subscriber) an appropriate instruction
      and
      opinion of such counsel, directing the delivery of shares of Common Stock
      without any legends including the legend set forth in Section 4(h)
      above,
      reissuable pursuant to any effective and current Registration Statement
      described in Section 11 of this Agreement or pursuant to Rule 144 under the
      1933
      Act (the “Unlegended
      Shares”);
      and
      (z) cause the transmission of the certificates representing the Unlegended
      Shares together with a legended certificate representing the balance of the
      submitted Shares certificate, if any, to the Subscriber at the address specified
      in the notice of sale, via express courier, by electronic transfer or otherwise
      on or before the Unlegended Shares Delivery Date. 

    

    
      
        
        

      

      
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    (b)    In
      lieu
      of delivering physical certificates representing the Unlegended Shares, if
      the
      Company’s transfer agent is participating in the Depository Trust Company
      (“DTC”)
      Fast
      Automated Securities Transfer program, upon request of a Subscriber, so long
      as
      the certificates therefor do not bear a legend and the Subscriber is not
      obligated to return such certificate for the placement of a legend thereon,
      the
      Company shall cause its transfer agent to electronically transmit the Unlegended
      Shares by crediting the account of Subscriber’s prime Broker with DTC through
      its Deposit Withdrawal Agent Commission system. Such delivery must be made
      on or
      before the Unlegended Shares Delivery Date.

     

    (c)    The
      Company understands that a delay in the delivery of the Unlegended Shares
      pursuant to Section 11 hereof later than two business days after the Unlegended
      Shares Delivery Date could result in economic loss to a Subscriber. As
      compensation to a Subscriber for such loss, the Company agrees to pay late
      payment fees (as liquidated damages and not as a penalty) to the Subscriber
      for
      late delivery of Unlegended Shares in the amount of $100 per business day after
      the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
      subject to the delivery default. If during any 360 day period, the Company
      fails
      to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
      of thirty (30) days, then each Subscriber or assignee holding Securities subject
      to such default may, at its option, require the Company to redeem all or any
      portion of the Shares and Warrant Shares subject to such default at a price
      per
      share equal to 120% of the Purchase Price of such Common Stock and Warrant
      Shares (“Unlegended
      Redemption Amount”).
      The
      amount of the aforedescribed liquidated damages that have accrued or been paid
      for the twenty day period prior to the receipt by the Subscriber of the
      Unlegended Redemption Amount shall be credited against the Unlegended Redemption
      Amount. The Company shall pay any payments incurred under this Section in
      immediately available funds upon demand.

     

    (d)    In
      addition to any other rights available to a Subscriber, if the Company fails
      to
      deliver to a Subscriber Unlegended Shares as required pursuant to this
      Agreement, within seven (7) business days after the Unlegended Shares Delivery
      Date and the Subscriber purchases (in an open market transaction or otherwise)
      shares of common stock to deliver in satisfaction of a sale by such Subscriber
      of the shares of Common Stock which the Subscriber was entitled to receive
      from
      the Company (a “Buy-In”),
      then
      the Company shall pay in cash to the Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) the
      Subscriber’s total purchase price (including brokerage commissions, if any) for
      the shares of common stock so purchased exceeds (B) the aggregate purchase
      price
      of the shares of Common Stock delivered to the Company for reissuance as
      Unlegended Shares  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 a Subscriber purchases shares of Common Stock having a total
      purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
      price of shares of Common Stock delivered to the Company for reissuance as
      Unlegended Shares, the Company shall be required to pay the Subscriber
      $1,000,
      plus interest. The
      Subscriber shall provide the Company written notice indicating the amounts
      payable to the Subscriber in respect of the Buy-In.

     

    (e)    In
      the
      event a Subscriber shall request delivery of Unlegended Shares as described
      in
      Section 11.7 and the Company is required to deliver such Unlegended Shares
      pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
      Shares based on any claim that such Subscriber or any one associated or
      affiliated with such Subscriber has been engaged in any violation of law, or
      for
      any other reason, unless, an injunction or temporary restraining order from
      a
      court, on notice, restraining and or enjoining delivery of such Unlegended
      Shares or exercise of all or part of said Warrant shall have been sought and
      obtained
      and the
      Company has posted a surety bond for the benefit of such Subscriber in the
      amount of 120% of the amount of the aggregate purchase price of the Common
      Stock
      and Warrant Shares which are subject to the injunction or temporary restraining
      order, which bond shall remain in effect until the completion of
      arbitration/litigation of the dispute and the proceeds of which shall be payable
      to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
      favor.

    

    
      
        
        

      

      
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    12.    (a)    Right
      of First Refusal.
      Until
      the end of the Exclusion Period, the Subscribers shall be given not less than
      seven (7) business days prior written notice of any proposed sale by the Company
      of its common stock or other securities or debt obligations, except in
      connection with (i) full or partial consideration in connection with a strategic
      merger, acquisition, consolidation or purchase of substantially all of the
      securities or assets of a corporation or other entity which holders of such
      securities or debt are not at any time granted registration rights, (ii)
      the
      Company’s issuance of securities in connection with strategic license
      agreements, the entering into or acquiring of material contracts in connection
      with the Company’s business as currently being conducted, and other partnering
      arrangements so long as such issuances are not for the purpose of raising
      capital
      and are
      not issued for services,
      which
      holders of such securities or debt are not at any time granted registration
      rights,
      (iii)
      the Company’s issuance of Common Stock or the issuances or grants of options to
      purchase Common Stock pursuant to stock option plans and employee stock purchase
      plans described on Schedule
      5(d)
      hereto,
      (iv) as a result of the exercise of Warrants or conversion of Notes which are
      granted or issued pursuant to this Agreement, (v) the payment of any interest
      on
      the Notes and liquidated damages, or damages pursuant to the Transaction
      Documents, and (vi) as
      has
      been described in the Reports or Other Written Information filed with the
      Commission or delivered to the Subscribers prior to the Closing Date
      (collectively the foregoing are “Excepted
      Issuances”).
      The
      Subscribers who exercise their rights pursuant to this Section 12(a) shall
      have
      the right during the seven (7) business days following receipt of the notice
      to
      purchase such offered common stock, debt or other securities in accordance
      with
      the terms and conditions set forth in the notice of sale in the same proportion
      to each other as their purchase of Notes in the Offering. In the event such
      terms and conditions are modified during the notice period, the Subscribers
      shall be given prompt notice of such modification and shall have the right
      during the seven (7) business days following the notice of modification to
      exercise such right.

     

    (b)    Favored
      Nations Provision.
      Other
      than in connection with the Excepted Issuances, if at any time Notes or Warrants
      are outstanding the Company shall offer, issue or agree to issue any common
      stock or securities convertible into or exercisable for shares of common stock
      (or modify any of the foregoing which may be outstanding) to any person or
      entity at a price per share or conversion or exercise price per share which
      shall be less than the Conversion Price in respect of the Shares, or if less
      than the Warrant exercise price in respect of the Warrant Shares, without the
      consent of each Subscriber holding Notes, Shares, Warrants, or Warrant Shares,
      then the Company shall issue, for each such occasion, additional shares of
      Common Stock to each Subscriber so that the average per share purchase price
      of
      the shares of Common Stock issued to the Subscriber (of only the Common Stock
      or
      Warrant Shares still owned by the Subscriber) is equal to such other lower
      price
      per share and the Conversion Price and Warrant exercise price shall
      automatically be adjusted as provided in the Notes and the Warrants. The average
      Purchase Price of the Shares and average exercise price in relation to the
      Warrant Shares shall be calculated separately for the Shares and Warrant Shares.
      The foregoing calculation and issuance shall be made separately for Shares
      received upon conversion and separately for Warrant Shares. The delivery to
      the
      Subscriber of the additional shares of Common Stock shall be not later than
      the
      closing date of the transaction giving rise to the requirement to issue
      additional shares of Common Stock. The Subscriber is granted the registration
      rights described in Section 11 hereof in relation to such additional shares
      of
      Common Stock except that the Filing Date and Effective Date vis-à-vis such
      additional common shares shall be, respectively, the thirtieth (30th)
      and
      sixtieth (60th)
      date
      after the closing date giving rise to the requirement to issue the additional
      shares of Common Stock. For purposes of the issuance and adjustment described
      in
      this paragraph, the issuance of any security of the Company carrying the right
      to convert such security into shares of Common Stock or of any warrant, right
      or
      option to purchase Common Stock shall result in the issuance of the additional
      shares of Common Stock upon the sooner of the agreement to or actual issuance
      of
      such convertible security, warrant, right or option and again at any time upon
      any subsequent issuances of shares of Common Stock upon exercise of such
      conversion or purchase rights if such issuance is at a price lower than the
      Conversion Price or Warrant exercise price in effect upon such issuance. The
      rights of the Subscriber set forth in this Section 12 are in addition to any
      other rights the Subscriber has pursuant to this Agreement, the Note, any
      Transaction Document, and any other agreement referred to or entered into in
      connection herewith.

    
      
        
        

      

      
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    (c)    Paid
      In Kind.
      The
      Subscriber may demand that some or all of the sums payable to the Subscriber
      pursuant to Sections 7.1(c),
      7.2, 7.5, 11.4, 11.7(c), 11.7(d) and 11.7(e)
      that are
      not paid within ten business days after the required payment date be paid in
      shares of Common Stock valued at the Conversion Price in effect at the time
      Subscriber makes such demand or, at the Subscriber’s election, at such other
      valuation described in the Transaction Documents. In addition to any other
      rights granted to the Subscriber herein, the Subscriber is also granted the
      registration rights set forth in Section 11.1(ii) hereof in relation to the
      aforedescribed shares of Common Stock.

     

    (d)    Maximum
      Exercise of Rights.
      In the
      event the exercise of the rights described in Sections 12(a), 12(b) and 12(c)
      would
      result in the issuance of an amount of common stock of the Company that would
      exceed the maximum amount that may be issued to a Subscriber calculated in
      the
      manner described in Section 7.3 of this Agreement, then the issuance of such
      additional shares of common stock of the Company to such Subscriber will be
      deferred in whole or in part until such time as such Subscriber is able to
      beneficially own such common stock without exceeding the maximum amount set
      forth calculated in the manner described in Section 7.3 of this Agreement.
      The
      determination of when such common stock may be issued shall be made by each
      Subscriber as to only such Subscriber.

    

    (e)    Offering
      Restrictions.
      Until
      six months after the Closing Date and during the pendency of an Event of
      Default, except for the Excepted Issuances, the Company will not enter into
      an
      agreement to nor issue any equity, convertible debt or other securities
      convertible into common stock or equity of the Company nor modify any of the
      foregoing which may be outstanding at anytime, without the prior written consent
      of the Subscriber, which consent may be withheld for any reason. For so long
      as
      the Notes are outstanding, the Company will not enter into any equity line
      of
      credit or similar agreement, nor issue nor agree to issue any floating or
      variable priced equity linked instruments nor any of the foregoing or equity
      with price reset rights.

    

    13.    Miscellaneous.

    

    (a)    Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (a) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (if delivered on a business
      day during normal business hours where such notice is to be received), or the
      first business day following such delivery (if delivered other than on a
      business day during normal business hours where such notice is to be received)
      or (b) on the second business day following the date of mailing by express
      courier service, fully prepaid, addressed to such address, or upon actual
      receipt of such mailing, whichever shall first occur. The addresses for such
      communications shall be: (i) if to the Company, to: China
      Media1 Corp., 2020 Main Street, Suite 500, Irvine, CA 92614, Attn: Han Xiong
      Cai, President, telecopier:
      (949) 428-7401, with a copy by telecopier only to: Spectrum Law Group, 1900
      Main
      Street, Suite 125, Irvine, CA 92614-7321, Attn: Marc Indeglia, Esq., telecopier:
      (949) 851-5940, and (ii) if to the Subscriber, to: the one or more addresses
      and
      telecopier numbers indicated on the signature pages hereto, with an additional
      copy by telecopier only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
      1601, New York, New York 10176, telecopier number: (212) 697-3575, and (iii)
      if
      to the Broker, to: the address and telecopier number set forth on Schedule
      8
      hereto.

    

    
      
        
        

      

      
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    (b)    Entire
      Agreement; Assignment.
      This
      Agreement and other documents delivered in connection herewith represent the
      entire agreement between the parties hereto with respect to the subject matter
      hereof and may be amended only by a writing executed by both parties. Neither
      the Company nor the Subscribers have relied on any representations not contained
      or referred to in this Agreement and the documents delivered herewith. No right
      or obligation of the Company shall be assigned without prior notice to and
      the
      written consent of the Subscribers.

     

    (c)    Counterparts/Execution.
      This
      Agreement may be executed in any number of counterparts and by the different
      signatories hereto on separate counterparts, each of which, when so executed,
      shall be deemed an original, but all such counterparts shall constitute but
      one
      and the same instrument. This Agreement may be executed by facsimile signature
      and delivered by facsimile transmission.

    

    (d)    Law
      Governing this Agreement.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without regard to conflicts
      of laws principles
      that would result in the application of the substantive laws of another
      jurisdiction. Any action brought by either party against the other concerning
      the transactions contemplated by this Agreement shall be brought only in the
      civil or state courts of New York or in the federal courts located in New York
      County. The
      parties and the individuals executing this Agreement and other agreements
      referred to herein or delivered in connection herewith on behalf of the Company
      agree to submit to the jurisdiction of such courts and waive trial by
      jury.
      The
      prevailing party shall be entitled to recover from the other party its
      reasonable attorney’s fees and costs. In the event that any provision of this
      Agreement or any other agreement delivered in connection herewith is invalid
      or
      unenforceable under any applicable statute or rule of law, then such provision
      shall be deemed inoperative to the extent that it may conflict therewith and
      shall be deemed modified to conform with such statute or rule of law. Any such
      provision which may prove invalid or unenforceable under any law shall not
      affect the validity or enforceability of any other provision of any
      agreement.

    

    (e)    Specific
      Enforcement, Consent to Jurisdiction.
      The
      Company and Subscriber acknowledge and agree that irreparable damage would
      occur
      in the event that any of the provisions of this Agreement were not performed
      in
      accordance with their specific terms or were otherwise breached. It is
      accordingly agreed that the parties shall be entitled to one or more preliminary
      and final injunctions to prevent or cure breaches of the provisions of this
      Agreement and to enforce specifically the terms and provisions hereof, this
      being in addition to any other remedy to which any of them may be entitled
      by
      law or equity. Subject to Section 13(d) hereof, each of the Company, Subscriber
      and any signator hereto in his personal capacity hereby waives, and agrees
      not
      to assert in any such suit, action or proceeding, any claim that it is not
      personally subject to the jurisdiction in New York of such court, that the
      suit,
      action or proceeding is brought in an inconvenient forum or that the venue
      of
      the suit, action or proceeding is improper. Nothing in this Section shall affect
      or limit any right to serve process in any other manner permitted by
      law.

    

    (f)    Damages.
      In the
      event the Subscriber is entitled to receive any liquidated damages pursuant
      to
      the Transactions, the Subscriber may elect to receive the greater of actual
      damages or such liquidated damages.

    

    (g)    Independent
      Nature of Subscribers.  
        The
      Company acknowledges that the obligations of each Subscriber under the
      Transaction Documents are several and not joint with the obligations of any
      other Subscriber, and no Subscriber shall be responsible in any way for the
      performance of the obligations of any other Subscriber under the Transaction
      Documents. The
      Company acknowledges that each Subscriber has represented that the decision
      of
      each Subscriber to purchase Securities has been made by such Subscriber
      independently of any other Subscriber and independently of any information,
      materials, statements or opinions as to the business, affairs, operations,
      assets, properties, liabilities, results of operations, condition (financial
      or
      otherwise) or prospects of the Company which may have been made or given by
      any
      other Subscriber or by any agent or employee of any other Subscriber, and no
      Subscriber or any of its agents or employees shall have any liability to any
      Subscriber (or any other person) relating to or arising from any such
      information, materials, statements or opinions.  The
      Company acknowledges that nothing contained in any Transaction Document, and
      no
      action taken by any Subscriber pursuant hereto or thereto (including, but not
      limited to, the (i) inclusion of a Subscriber in the Registration Statement
      and
      (ii) review by, and consent to, such Registration Statement by a Subscriber)
      shall be deemed to constitute the Subscribers as a partnership, an association,
      a joint venture or any other kind of entity, or create a presumption that the
      Subscribers are in any way acting in concert or as a group with respect to
      such
      obligations or the transactions contemplated by the Transaction Documents. 
      The Company acknowledges that each Subscriber shall be entitled to independently
      protect and enforce its rights, including without limitation, the rights arising
      out of the Transaction Documents, and it shall not be necessary
      for
      any other Subscriber to be joined as an additional party in any proceeding
      for
      such purpose.  The Company acknowledges that it has elected to provide
      all
      Subscribers with the same terms and Transaction Documents for the convenience
      of
      the Company and not because Company was required or requested to do so by the
      Subscribers.  The Company acknowledges that such procedure with respect
      to
      the Transaction Documents in no way creates a presumption that the Subscribers
      are in any way acting in concert or as a group with respect to the Transaction
      Documents or the transactions contemplated thereby.

    

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    

    (h)    As
      used
      in the Agreement, “consent of the Subscribers” or similar language means the
      consent of holders of not less than 80% of the total of the Shares issued and
      issuable upon conversion of outstanding Notes owned by Subscribers on the date
      consent is requested.

     

     

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

    

    

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (A)

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

     

    
      	 	 	 
	 	
              CHINA
                MEDIA1 CORP.

              a Nevada corporation

            
	 
 	 
 	 
 
	Date: November
              1, 2005	By:  	/s/ Ernest
              Cheung
	 	
              
Name:
              Ernest Cheung
	 	Title:
              Secretary

    

     

    
 

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            
	
               

               

              ______________________________________

              (Signature)

              By:Unassociated Document

    

      THIS
        NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
        BEEN
        REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
        COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
        FOR
        SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
        STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
        SATISFACTORY TO CHINA MEDIA1 CORP. THAT SUCH REGISTRATION IS NOT
        REQUIRED.

       

                                                                                

      

      
        	 Principal Amount: $__________	
                   Issue
                  Date: November 1, 2005

              

      

      

      CONVERTIBLE
        PROMISSORY NOTE

      

      FOR
        VALUE
        RECEIVED, CHINA MEDIA1 CORP., a Nevada corporation (hereinafter called
“Borrower”), hereby promises to pay to _________________, ________________-,
        _____________, Fax: _________________, (the “Holder”) or its registered assigns
        or successors in interest or order, without demand, the sum of
        [__________________________________] Dollars ($___________) (“Principal
        Amount”), with simple and unpaid interest thereon, on May 1, 2007 (the “Maturity
        Date”), if not sooner paid.

      

      This
        Note
        has been entered into pursuant to the terms of a subscription agreement between
        the Borrower, the Holder and certain other holders (the “Other Holders”) of
        convertible promissory notes (the “Other Notes”), dated of even date herewith
        (the “Subscription Agreement”), and shall be governed by the terms of such
        Subscription Agreement. Unless otherwise separately defined herein, all
        capitalized terms used in this Note shall have the same meaning as is set
        forth
        in the Subscription Agreement. The following terms shall apply to this
        Note:

      

      ARTICLE
        I

      

      INTEREST;
        AMORTIZATION

      

      1.1.    Interest
        Rate.
        Subject
        to Section 5.7 hereof, interest payable on this Note shall accrue at a rate
        per
        annum (the “Interest Rate”) equal to the “prime rate” published in The Wall
        Street Journal from time to time, plus four percent (4%). The interest rate
        shall be increased or decreased as the case may be for each increase or decrease
        in the prime rate in an amount equal to such increase or decrease in the
        prime
        rate; each change to be effective as of the day of the change in such rate.
        The
        Interest Rate shall not be less than eight percent (8%). Interest shall be
        calculated on the basis of a 360-day year. Interest on the Principal Amount
        shall accrue from the date of this Note and be payable quarterly, in arrears,
        commencing on January 1, 2006 and on the first business day of each consecutive
        calendar quarter thereafter (each, a “Repayment Date”) and on the Maturity Date,
        whether by acceleration or otherwise.

      

      1.2.    Minimum
        Monthly Principal Payments.
        Amortizing payments of the outstanding Principal Amount of this Note shall
        commence on the seven month anniversary date of this Note and on the same
        day of
        each month thereafter (each a “Repayment Date”) until the Principal Amount and
        interest have been repaid in full, whether by the payment of cash or by the
        conversion of such Principal Amount and interest into Common Stock pursuant
        to
        the terms hereof. Subject to Section 2.1 and Article 3 below, on each Repayment
        Date, the Borrower shall make payments to the Holder in an amount equal to
        one-twelfth of the initial Principal Amount, and any other amounts (other
        than
        regular interest) which are then owing under this Note that have not been
        paid
        (collectively, the “Monthly Amount”). Amounts of conversions of Principal Amount
        and interest made by the Holder or Borrower pursuant to Section 2.1 or Article
        III, amounts redeemed pursuant to Section
        2.3 of this Note shall
        be
        applied first against outstanding fees and damages, then against accrued
        interest on the Principal Amount and then to Monthly Amounts commencing with
        the
        Monthly Amount first payable and then Monthly Amounts thereafter in
        chronological order. Any Principal Amount, interest and any other sum arising
        under this Note and the Subscription Agreement that remains outstanding on
        the
        Maturity Date shall be due and payable on the Maturity Date.

      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      1.3.    Default
        Interest Rate.
        Following the occurrence and during the continuance of an Event of Default
        (as
        defined in Article IV), which, if susceptible to cure is not cured within
        twenty
        (20) days, otherwise then from the first date of such occurrence, the annual
        interest rate on this Note shall (subject to Section 5.7) automatically be
        increased to fifteen percent (15%). 

      

      ARTICLE
        II

      

      CONVERSION
        REPAYMENT

      

      2.1.    Payment
        of Monthly Amount in Cash or Common Stock.
        Subject
        to Section 3.2 hereof, if the Market Price (as defined below) is less than
        200%
        of the Fixed Conversion Price (as defined in Section 3.1), the Borrower,
        at the
        Borrower’s election, shall pay the Monthly Amount (i) in cash in an amount equal
        to 110% of the Principal Amount component of the Monthly Amount and 100%
        of all
        other components of the Monthly Amount, within three (3) business days after
        the
        applicable Repayment Date, or (ii) in registered Common Stock at an applied
        conversion rate equal to the lesser of (A) the Fixed Conversion Price (as
        defined in section 3.1 hereof), or (B) eighty percent (80%) of the average
        of
        the five lowest closing bid prices of the common stock as reported by Bloomberg
        L.P. for the Principal Market for the twenty trading days preceding such
        Repayment Date. Unless waived by the Holder, the Borrower may not elect to
        pay a
        Monthly Amount due on a Repayment Date in Common Stock in an amount of shares
        of
        Common Stock which would exceed in the aggregate for all Holders of Notes
        similar to this Note, thirty-five percent (35%) of the aggregate daily trading
        volume for the twenty trading days preceding the Repayment Date as reported
        by
        Bloomberg L.P. for the Principal Market multiplied by the VWAP (as defined
        below) for such twenty day period. Amounts paid with shares of Common Stock
        must
        be delivered to the Holder not later than three (3) business days after the
        applicable Repayment Date. The Borrower must send notice to the Holder by
        confirmed telecopier not later than 6:00 PM, New York City time on the tenth
        (10th)
        business day preceding a Repayment Date notifying Holder of Borrower’s election
        to pay the Monthly Redemption Amount in cash or Common Stock. Elections by
        the
        Borrower must be made to all Other Holders in proportion to the relative
        Note
        principal held by the Holder and the Other Holders. If such notice is not
        timely
        sent or if the Monthly Amount is not timely delivered, then Holder shall
        have
        the right, instead of the Company, to elect within five trading days after
        the
        applicable Repayment Date whether to be paid in cash or Common Stock. Such
        Holder’s election shall not be construed to be a waiver of any default by
        Borrower relating to non-timely compliance by Borrower with any of its
        obligations under this Note. Subject to Section 3.2 hereof, if the Market
        Price
        is equal to or greater than 200% of the Fixed Conversion Price, then the
        Monthly
        Amount must be paid with Common Stock valued at the Fixed Conversion Price.
        “Market Price” shall mean the average of the closing bid prices of the Common
        Stock as reported by Bloomberg L.P. for the Principal Market for the five
        trading days preceding the relevant Repayment Date. “VWAP” shall mean the sum of
        the dollars traded for every purchase and sale of the Common Stock on the
        Principal Market (determined as the price per share of Common Stock at which
        such purchase and sale occurred multiplied by the number of shares of Common
        Stock so purchased and sold) divided by the total shares of Common Stock
        traded
        during the period.

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      2.2.    No
        Effective Registration.
        Notwithstanding anything to the contrary herein, no amount payable hereunder
        may
        be
        paid in
        shares
        of Common
        Stock by
        the Borrower without the Holder’s consent unless (a) either (i) an effective
        current Registration Statement covering the shares of Common Stock to be
        issued
        in satisfaction of such obligations exists, or (ii) an exemption from
        registration of the resale of shares of Common Stock to be issued in
        satisfaction of such obligations is available pursuant to Rule 144(k) of
        the
        1933 Act exists, and (b) no Event of Default hereunder (or an event that
        with
        the passage of time or the giving of notice could become an Event of Default),
        exists and is continuing, unless such event or Event of Default is cured
        within
        any applicable cure period or is otherwise waived in writing by the Holder
        in
        whole or in part at the Holder’s option.

      

      2.3.    Optional
        Redemption of Principal Amount.
        Provided an Event of Default or an event which with the passage of time or
        the
        giving of notice could become an Event of Default has not occurred, whether
        or
        not such Event of Default has been cured, the Borrower will have the option
        of
        prepaying the outstanding Principal Amount of this Note (“Optional Redemption”),
        in whole or in part, by paying to the Holder a sum of money equal to one
        hundred
        and twenty percent (120%) of the Principal amount to be redeemed, together
        with
        accrued but unpaid interest thereon and any and all other sums due, accrued
        or
        payable to the Holder arising under this Note or any Transaction Document
        through the Redemption Payment Date as defined below (the “Redemption Amount”).
        Borrower’s election to exercise its right to prepay must be by notice in writing
        (“Notice of Redemption”). The Notice of Redemption shall specify the date for
        such Optional Redemption (the “Redemption Payment Date”), which date shall be
        twenty (20) days after the date of the Notice of Redemption (the “Redemption
        Period”). A Notice of Redemption shall not be effective with respect to any
        portion of the Principal Amount for which the Holder has a pending election
        to
        convert, or for conversions initiated or made by the Holder during the
        Redemption Period. On the Redemption Payment Date, the Redemption Amount,
        less
        any portion of the Redemption Amount against which the Holder has exercised
        its
        conversion rights, shall be paid in good funds to the Holder. In the event
        the
        Borrower fails to pay the Redemption Amount on the Redemption Payment Date
        as
        set forth herein, then such Notice of Redemption will be null and void, (ii)
        Borrower will have no right to deliver another Notice of Redemption, and
        (iii)
        Borrower’s failure may be deemed by Holder to be a non-curable Event of Default.
        A Notice of Redemption may not be given, nor may the Borrower effectuate
        a
        Redemption, without the consent of the Holder if, at any time during the
        Redemption Period, an Event of Default or an Event which with the passage
        of
        time or giving of notice could become an Event of Default (whether or not
        such
        Event of Default has been cured) has occurred or the Registration Statement
        registering the Registrable Securities is not effective each day during the
        Redemption Period.

      

      ARTICLE
        III

      

      CONVERSION
        RIGHTS

      

      3.1.    Holder’s
        Conversion Rights.
        Subject
        to Section 3.2, the Holder shall have the right, but not the obligation,
        to
        convert all or any portion of the then aggregate outstanding Principal Amount
        of
        this Note, together with interest and fees due hereon, and any sum arising
        under
        the Subscription Agreement, and the Transaction Documents, including but
        not
        limited to Liquidated Damages, into shares of Common Stock, subject to the
        terms
        and conditions set forth in this Article III, at the rate of $0.35 per share
        of
        Common Stock (“Fixed Conversion Price”), as the same may be adjusted pursuant to
        this Note and the Subscription Agreement. The Holder may exercise such right
        by
        delivery to the Borrower of a written Notice of Conversion pursuant to Section
        3.3. After the
        occurrence of an Event of Default, the
        Fixed
        Conversion Price shall be 80% of the VWAP for the five trading days prior
        to a
        Conversion Date.

      

      3.2.    Conversion
        Limitation.
        The
        Holder shall not be entitled to convert on a Conversion Date that amount
        of the
        Note in connection with that number of shares of Common Stock which would
        be in
        excess of the sum of (i) the number of shares of Common Stock beneficially
        owned
        by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock
        issuable in connection with the unconverted portion of the Note, and (iii)
        the
        number of shares of Common Stock issuable upon the conversion of the Note
        with
        respect to which the determination of this provision is being made on a
        Conversion Date, which would result in beneficial ownership by the Holder
        and
        its affiliates of more than 4.99% of the outstanding shares of Common Stock
        of
        the Borrower on such Conversion Date. For the purposes of the provision to
        the
        immediately preceding sentence, beneficial ownership shall be determined
        in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
        shall not be limited to aggregate conversions of only 4.99% and aggregate
        conversion by the Holder may exceed 4.99%. The Holder shall have the authority
        and obligation to determine whether the restriction contained in this Section
        3.2 will limit any conversion hereunder and to the extent that the Holder
        determines that the limitation contained in this Section applies, the
        determination of which portion of the Notes are convertible shall be the
        responsibility and obligation of the Holder. The Holder may waive the conversion
        limitation described in this Section 3.2, in whole or in part, upon and
        effective after 61 days prior written notice to the Borrower. The Holder
        may
        allocate decide whether to convert a Note or exercise Warrants to achieve
        an
        actual 4.99% ownership position.

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      3.3.    Mechanics
        of Holder’s Conversion.
        

      

      (a)    In
        the
        event that the Holder elects to convert any amounts outstanding under this
        Note
        into Common Stock, the Holder shall give notice of such election by delivering
        an executed and completed notice of conversion (a “Notice of Conversion”) to the
        Borrower, which Notice of Conversion shall provide a breakdown in reasonable
        detail of the Principal Amount, accrued interest and amounts being converted.
        The original Note is not
        required
        to be surrendered to the Borrower
        until
        all sums due under the Note have been paid. On each Conversion Date (as
        hereinafter defined) and in accordance with its Notice of Conversion, the
        Holder
        shall make the appropriate reduction to the Principal Amount, accrued interest
        and fees as entered in its records.
        Each
        date
        on which a Notice of Conversion is delivered or telecopied to the Borrower
        in
        accordance with the provisions hereof shall be deemed a “Conversion Date.” A
        form of Notice of Conversion
        to be employed by the Holder is annexed hereto as Exhibit A.

      

      (b)    Pursuant
        to the terms of a Notice of Conversion, the Borrower will issue instructions
        to
        the transfer agent accompanied by an opinion of counsel (if so required by
        the
        Borrower’s transfer agent), and shall cause the transfer agent to transmit the
        certificates representing the Conversion Shares to the Holder by crediting
        the
        account of the Holder’s designated broker with the Depository Trust Corporation
        (“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system within
        three (3) business days after receipt by the Borrower of the Notice of
        Conversion (the “Delivery Date”). In the case of the exercise of the conversion
        rights set forth herein, the conversion privilege shall be deemed to have
        been
        exercised and the Conversion Shares issuable upon such conversion shall be
        deemed to have been issued upon the date of receipt by the Borrower of the
        Notice of Conversion. The Holder shall be treated for all purposes as the
        beneficial holder of such shares of Common Stock, or, in the case that Borrower
        delivers physical certificates as set forth below, the record holder of such
        shares of Common Stock, unless the Holder provides the Borrower written
        instructions to the contrary.  Notwithstanding
        the foregoing to the contrary, the Borrower or its transfer agent shall only
        be
        obligated to issue and deliver the shares to the DTC on the Holder’s behalf via
        DWAC (or certificates free of restrictive legends) if the registration statement
        providing for the resale of the shares of Common Stock issuable upon the
        conversion of this Note is effective and the Holder has complied with all
        applicable securities laws in connection with the sale of the Common Stock,
        including, without limitation, the prospectus delivery requirements, and
        has
        provided representations accordingly. In the event that Conversion Shares
        cannot
        be delivered to the Holder via DWAC, the Borrower shall deliver physical
        certificates representing the Conversion Shares by the Delivery Date to an
        address designated by Holder in the United States.

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      3.4.    Conversion
        Mechanics.

      

      (a)    The
        number of shares of Common Stock to be issued upon each conversion of this
        Note
        pursuant to this Article III shall be determined by dividing that portion
        of the
        Principal Amount and interest and fees to be converted, if any, by the then
        applicable Fixed Conversion Price.

      

      (b)    The
        Fixed
        Conversion Price and number and kind of shares or other securities to be
        issued
        upon conversion shall be subject to adjustment from time to time upon the
        happening of certain events while this conversion right remains outstanding,
        as
        follows:

      

      A.    Merger,
        Sale of Assets, etc.
        If the
        Borrower at any time shall consolidate with or merge into or sell or convey
        all
        or substantially all its assets to any other corporation, this Note, as to
        the
        unpaid principal portion thereof and accrued interest thereon, shall thereafter
        be deemed to evidence the right to convert into such number and kind of shares
        or other securities and property as would have been issuable or distributable
        on
        account of such consolidation, merger, sale or conveyance, upon or with respect
        to the securities subject to the conversion right immediately prior to such
        consolidation, merger, sale, or conveyance. The foregoing provision shall
        similarly apply to successive transactions of a similar nature by any such
        successor or purchaser. Without limiting the generality of the foregoing,
        the
        anti-dilution provisions of this Section shall apply to such securities of
        such
        successor or purchaser after any such consolidation, merger, sale, or
        conveyance.

      

      B.    Reclassification,
        etc.
        If the
        Borrower at any time shall, by reclassification or otherwise, change the
        Common
        Stock into the same or a different number of securities of any class or classes,
        this Note, as to the unpaid principal portion thereof and accrued interest
        thereon, shall thereafter be deemed to evidence the right to convert into
        an
        adjusted number of such securities and kind of securities as would have been
        issuable as the result of such change with respect to the Common Stock
        immediately prior to such reclassification or other change.

      

      C.    Stock
        Splits, Combinations and Dividends.
        If the
        shares of Common Stock are subdivided or combined into a greater or smaller
        number of shares of Common Stock, or if a dividend is paid on the Common
        Stock
        in shares of Common Stock, the Conversion Price shall be proportionately
        reduced
        in case of subdivision of shares or stock dividend or proportionately increased
        in the case of combination of shares, in each such case by the ratio which
        the
        total number of shares of Common Stock outstanding immediately after such
        event
        bears to the total number of shares of Common Stock outstanding immediately
        prior to such event.

      

      D.    Share
        Issuance.
        So long
        as this Note is outstanding, if the Borrower shall issue any Common Stock
        except
        for the Excepted Issuances (as defined in the Subscription Agreement), prior
        to
        the complete conversion or payment of this Note, for a consideration less
        than
        the Fixed Conversion Price that would be in effect at the time of such issue,
        then, and thereafter successively upon each such issuance, the Fixed Conversion
        Price shall be reduced to such other lower issue price. For purposes of this
        adjustment, the issuance of any security or debt instrument of the Borrower
        carrying the right to convert such security or debt instrument into Common
        Stock
        or of any warrant, right or option to purchase Common Stock shall result
        in an
        adjustment to the Fixed Conversion Price upon the issuance of the
        above-described security, debt instrument, warrant, right, or option and
        again
        upon the issuance of shares of Common Stock upon exercise of such conversion
        or
        purchase rights if such issuance is at a price lower than the then applicable
        Conversion Price. The reduction of the Fixed Conversion Price described in
        this
        paragraph is in addition to the other rights of the Holder described in the
        Subscription Agreement.

      

      (c)    Whenever
        the Conversion Price is adjusted pursuant to Section 3.4(b) above, the Borrower
        shall promptly mail to the Holder a notice setting forth the Conversion Price
        after such adjustment and setting forth a statement of the facts requiring
        such
        adjustment.

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      3.5    Reservation.
        During
        the period the conversion right exists, Borrower will reserve from its
        authorized and unissued Common Stock not less than
        one
        hundred
        seventy-five
        percent
        (175%)
        of the
        number of shares to provide for the issuance of Common Stock upon the full
        conversion of this Note.
        Borrower represents that upon issuance, such shares will be duly and validly
        issued, fully
        paid and
        non-assessable. Borrower agrees that its issuance of this Note shall constitute
        full authority to its officers, agents, and transfer agents who are charged
        with
        the duty of executing and issuing stock certificates to execute and issue
        the
        necessary certificates for shares of Common Stock upon the conversion of
        this
        Note.

      

      3.6    Issuance
        of Replacement Note.
        Upon
        any partial conversion of this Note, a replacement Note containing the same
        date
        and provisions of this Note shall,
        at the
        written request of the Holder, be
        issued
        by the Borrower to the Holder for the outstanding Principal Amount of this
        Note
        and accrued interest which shall not have been converted or paid, provided
        Holder has surrendered an original Note to the Borrower. In the event that
        the
        Holder elects not to surrender a Note for reissuance upon partial payment
        or
        conversion, the Holder hereby indemnifies the Borrower against any and all
        loss
        or damage attributable to a third-party claim in an amount in excess of the
        actual amount then due under the Note, and the
        Borrower is hereby expressly authorized to offset any such amounts mutually
        agreed upon by Borrower and Holder or pursuant to a judgment in Borrower’s favor
        against amounts then due under the Note.

      

      ARTICLE
        IV

      

      EVENTS
        OF DEFAULT

      

      The
        occurrence of any of the following events of default (“Event of Default”) shall,
        at the option of the Holder hereof, make all sums of principal and interest
        then
        remaining unpaid hereon and all other amounts payable hereunder immediately
        due
        and payable, upon demand, without presentment, or grace period, all of which
        hereby are expressly waived, except as set forth below:

      

      4.1    Failure
        to Pay Principal or Interest.
        The
        Borrower fails to pay any installment of Principal Amount, interest or other
        sum
        due under this Note or any Transaction Document when due and such failure
        continues for a period of 5 business days after the due date.

      

      4.2    Breach
        of Covenant.
        The
        Borrower breaches any material covenant or other term or condition of the
        Subscription Agreement, this Note or Transaction Document in any material
        respect and such breach, if subject to cure, continues for a period of 15
        business days after written notice to the Borrower from the Holder.

      

      4.3    Breach
        of Representations and Warranties.
        Any
        material representation or warranty of the Borrower made herein, in the
        Subscription Agreement, Transaction Document or in any agreement, statement
        or
        certificate given in writing pursuant hereto or in connection herewith or
        therewith shall be false or misleading in any material respect as of the
        date
        made and the Closing Date.

      

      4.4    Receiver
        or Trustee.
        The
        Borrower or any Subsidiary of Borrower shall make an assignment for the benefit
        of creditors, or apply for or consent to the appointment of a receiver or
        trustee for them or for a substantial part of their property or business;
        or
        such a receiver or trustee shall otherwise be appointed.

      

      4.5    Judgments.
        Any
        money judgment, writ or similar final process shall be entered or filed against
        Borrower or any subsidiary of Borrower or any of their property or other
        assets
        for more than $100,000,
        and
        shall remain unvacated, unbonded, unappealed, unsatisfied, or unstayed for
        a
        period of 45 days.

      

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      4.6    Non-Payment.
        The
        Borrower shall have received a notice of default, which remains uncured for
        a
        period of more than 30 business days beyond any applicable grace period,
        on the
        payment of any one or more debts or obligations aggregating in excess of
        $100,000;

      

      4.7    Bankruptcy.
        Bankruptcy, insolvency, reorganization, or liquidation proceedings or other
        proceedings or relief under any bankruptcy law or any law, or the issuance
        of
        any notice in relation to such event, for the relief of debtors shall be
        instituted by or against the Borrower or any Subsidiary of Borrower and if
        instituted against them are not dismissed within 45 days
        of
        initiation.

      

      4.8    Delisting.
        Failure
        of the Common Stock to be quoted or listed on the OTC Bulletin Board (“Bulletin
        Board”) or other Principal Market for a period of seven consecutive trading
        days.

      

      4.9    Stop
        Trade.
        An SEC
        or judicial stop trade order or Principal Market trading suspension with
        respect
        to Borrower’s Common Stock that lasts for five or more consecutive trading
        days.

       

      4.10  
Failure
        to Deliver Common Stock or Replacement Note.
        Borrower’s failure to timely deliver Common Stock to the Holder pursuant to and
        in the form required by this Note or the Subscription Agreement, and, if
        requested by Borrower, a replacement Note,
        and
        such failure continues for a period of 20 business days after the due
        date.

      

      4.11    Non-Registration
        Event.
        The
        occurrence of a Non-Registration Event as described in the Subscription
        Agreement.

      

      4.12    Reverse
        Splits.
        The
        Borrower effectuates a reverse split of its Common Stock without twenty days
        prior written notice to the Holder.

      

      4.13    Default
        under Amended and Restated Operating Agreement.
        Either
        the Borrower shall have received a notice of default, which remains uncured
        for
        a period of more than 30 business days beyond any applicable grace period,
        or
        the Borrower has delivered a notice of default, which remains uncured for
        a
        period of more than 30 business days beyond any applicable grace period,
        under
        an Amended and Restated Operating Agreement by and among the Borrower,
Chuangrun
        Media Company Limited, and Guangzhou Chuangrun Advertising Co. Ltd., amended
        and
        restated
        on
        October 10, 2005 and retroactively effective as of January 1, 2005.

      

      4.14    Revenues/Deferred
        Revenues.
        The
        Borrower fails to obtain “Gross Receipts” (as defined below) according to the
        following schedule:

      

      
        	 	
                a.

              	
                U.S.
                  $4,000,000 for the fiscal year ended December 31, 2005 (as disclosed
                  on
                  the Borrower’s annual report on Form 10-KSB for the year then
                  ended);

              

      

      

      
        	 	
                b.

              	
                U.S.
                  $10,000,000 for the 15 months ended March 31, 2006 (as disclosed
                  on the
                  Borrower’s quarterly report on Form 10-QSB for the quarter then
                  ended);

              

      

      

      
        	 	
                c.

              	
                U.S.
                  $16,000,000 for the 18 months ended June 30, 2006 (as disclosed
                  on the
                  Borrower’s quarterly report on Form 10-QSB for the quarter then
                  ended);

              

      

      

      
        	 	
                d.

              	
                U.S.
                  $22,000,000 for the 21 months ended September 30, 2006 (as disclosed
                  on
                  the Borrower’s quarterly report on Form 10-QSB for the quarter then
                  ended); and 

              

      

      

      
        	 	 	
                e.

              	
                U.S.
                  $28,000,000 for the 24 months ended December 31, 2006 (as disclosed
                  on the
                  Borrower’s annual report on Form 10-KSB for the year then
                  ended).

              

      

      

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      “Gross
        Receipts” means the sum of (a) any revenues recorded by the Borrower pursuant to
        its revenue recognition policies in accordance with U.S. generally accepted
        accounting principles, and (b) any prepayments actually received by the Borrower
        that are deferred as a liability and recognized over a service period pursuant
        to its revenue recognition policies in accordance with U.S. generally accepted
        accounting principles.

      

      4.15    Cross
        Default.
        A
        default by the Borrower of a material term, covenant, warranty or undertaking
        of
        any Transaction Document or other agreement to which the Borrower and Holder
        are
        parties, or the occurrence of a material event of default under any such
        other
        agreement which is not cured after any required notice and/or cure
        period.

      

      ARTICLE
        V

      

      MISCELLANEOUS

      

      5.1    Failure
        or Indulgence Not Waiver.
        No
        failure or delay on the part of Holder hereof in the exercise of any power,
        right or privilege hereunder shall operate as a waiver thereof, nor shall
        any
        single or partial exercise of any such power, right or privilege preclude
        other
        or further exercise thereof or of any other right, power or privilege. All
        rights and remedies existing hereunder are cumulative to, and not exclusive
        of,
        any rights or remedies otherwise available.

      

      5.2    Notices.
        All
        notices, demands, requests, consents, approvals, and other communications
        required or permitted hereunder shall be in writing and, unless otherwise
        specified herein, shall be (i) personally served, (ii) deposited in the mail,
        registered or certified, return receipt requested, postage prepaid, (iii)
        delivered by reputable air courier service with charges prepaid, or (iv)
        transmitted by hand delivery, telegram, or facsimile, addressed as set forth
        below or to such other address as such party shall have specified most recently
        by written noticeAny notice or other communication required or permitted
        to be
        given hereunder shall be deemed effective (a) upon hand delivery or delivery
        by
        facsimile, with accurate confirmation generated by the transmitting facsimile
        machine, at the address or number designated below (if delivered on a business
        day during normal business hours where such notice is to be received), or
        the
        first business day following such delivery (if delivered other than on a
        business day during normal business hours where such notice is to be received)
        or (b) on the second business day following the date of mailing by express
        courier service, fully prepaid, addressed to such address, or upon actual
        receipt of such mailing, whichever shall first occur. The addresses for such
        communications shall be: (i) if to the Borrower to: China Media1 Corp., 2020
        Main Street, Suite 500, Irvine, CA 92614, Attn: Ernest Cheung, Secretary,
        telecopier:
        (949) 428-7401, with a copy by telecopier only to Spectrum Law Group, LLP,
        1900
        Main Street, Suite 125, Irvine, CA 92614-7321, Attn: Marc Indeglia, Esq.,
        telecopier number: (949) 851-5940, and (ii) if to the Holder, to the name,
        address and telecopy number set forth on the front page of this Note, with
        a
        copy by telecopier
        only to
        Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York
        10176, telecopier number: (212) 697-3575.

       

      5.3    Amendment
        Provision.
        The
        term “Note” and all reference thereto, as used throughout this instrument, shall
        mean this instrument as originally executed, or if later amended or
        supplemented, then as so amended or supplemented.

      

      5.4    Assignability.
        This
        Note shall be binding upon the Borrower and its successors and assigns, and
        shall inure to the benefit of the Holder and its successors and
        assigns.

      

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      5.5    Cost
        of Collection.
        If
        default is made in the payment of this Note, Borrower shall pay the Holder
        hereof reasonable costs of collection, including reasonable attorneys’
        fees.

      

      5.6    Governing
        Law.
        This
        Note
        shall be governed by and construed in accordance with the laws of the State
        of
        New York, without regard to conflicts
        of laws
        principles that would result in the application of the substantive laws of
        another jurisdiction. Any
        action brought by either party against the other concerning the transactions
        contemplated by this Agreement shall be brought only in the state courts
        of New
        York or in the federal courts located in the state of New York. Both parties
        and
        the individual signing this Note on behalf of the Borrower agree to
        submit
        to the
        jurisdiction of such courts. The prevailing party shall be entitled to recover
        from the other party its reasonable attorney’s fees and costs. In the event that
        any provision of this Note is invalid or unenforceable under any applicable
        statute or rule of law, then such provision shall be deemed inoperative to
        the
        extent that it may conflict therewith and shall be deemed modified to conform
        with such statute or rule of law. Any such provision which may prove invalid
        or
        unenforceable under any law shall not affect the validity or unenforceability
        of
        any other provision of this Note. Nothing contained herein shall be deemed
        or
        operate to preclude the Holder from bringing suit or taking other legal action
        against the Borrower in any other jurisdiction to collect on the Borrower’s
        obligations to Holder, to realize on any collateral or any other security
        for
        such obligations, or to enforce a judgment or other court in favor of the
        Holder.

      

      5.7    Maximum
        Payments.
        Nothing
        contained herein shall be deemed to establish or require the payment of a
        rate
        of interest or other charges in excess of the maximum permitted by applicable
        law. In the event that the rate of interest required to be paid or other
        charges
        hereunder exceed the maximum permitted by such law, any payments in excess
        of
        such maximum shall be credited against amounts owed by the Borrower to the
        Holder and thus refunded to the Borrower.

      

      5.8.    Construction.
        Each
        party acknowledges that its legal counsel participated in the preparation
        of
        this Note and, therefore, stipulates that the rule of construction that
        ambiguities are to be resolved against the drafting party shall not be applied
        in the interpretation of this Note to favor any party

      against
        the other.

      

      5.9    Redemption.
        This
        Note may not be redeemed or called without the consent of the Holder except
        as
        described in this Note.

      

      5.10    Stockholder
        Status.
        The
        Holder shall not have rights as a stockholder of the Borrower with respect
        to
        unconverted portions of this Note. However, the Holder will have the rights
        of a
        stockholder of the Borrower with respect to the Shares of Common Stock to
        be
        received after delivery by the Holder of a Conversion Notice to the
        Borrower.

      

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF,
        Borrower has caused this Note to be signed in its name by an authorized officer
        as of the 1st
        day of
        November, 2005.

      
         

      

      
        	 	 	 
	 	CHINA
                MEDIA1 CORP.
	 
 	 
 	 
 
	 	By:  	/s/ Ernest
                Cheung
	 	
                
Name:
                Ernest Cheung
	 	Title: 
                Secretary

      

      WITNESS:

      

      

      

      ______________________________________

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      NOTICE
        OF CONVERSION

      
        
 

      

      (To
        be
        executed by the Registered Holder in order to convert the Note)

      

      

      The
        undersigned hereby elects to convert $_________ of the principal and $_________
        of the interest due on the Note issued by China Media1 Corp. on November
        1, 2005
        into Shares of Common Stock of China Media1 Corp. (the “Borrower”) according to
        the conditions set forth in such Note, as of the date written
        below.

      

      

      

      Date
        of
        Conversion:____________________________________________________________________

      

      

      Conversion
        Price:______________________________________________________________________

      

      

      Number
        of
        Shares of Common Stock Beneficially Owned on the Conversion Date:
        Less
        than 5% of the outstanding Common Stock of China Media1 Corp.

      

      

      Shares
        To
        Be
        Delivered:_________________________________________________________________

      

      

      Signature:____________________________________________________________________________

      

      

      Print
        Name:__________________________________________________________________________

      

      

      Address:_____________________________________________________________________________

      

      ____________________________________________________________________________

      

      
        
          
          

        

        
          11

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