Document:

Exhibit
10.1

NAME OF SUBSCRIBER:                                  

SUBSCRIPTION AMOUNT: $                                  

To:                            Surfect
Technologies, Inc.

12000-G Candelaria NE

Albuquerque, NM 87112 USA

Attn:            Mr. Steve Anderson,

Chief Executive Officer

SUBSCRIPTION
AGREEMENT

This Subscription Agreement (this “Agreement”)
is being delivered to you in connection with your investment the
publicly-traded company identified below (the “Company”) which will
acquire by merger all of the issued and outstanding capital stock and the
business of  Surfect Technologies, Inc. (“Surfect”).   The Company is conducting a private
placement (the “Offering”) of 
Units (the “Units”), at a purchase price of $25,000 per Unit. 
Each Unit shall consist of  25,000
shares of the Company’s Common Stock (the “Common Stock” or the “Shares”)
and a warrant to purchase 12,500  shares
of  Common Stock (a “Warrant”).   Each Warrant shall be exercisable into one
share of Common Stock at a price of $2.00 per share for 48 months after the
Closing.

All funds received in the Offering prior to the
closing of the Offering (the “Initial Closing”) shall be held in escrow
by American National Bank  (the “Escrow
Agent”) and, upon fulfillment of the other conditions precedent set forth
herein, shall be released from escrow and delivered to the Company at which
time the Units subscribed for as further described below shall be delivered,
subject to Section 8 hereof, to you.

1.             Subscription and Purchase Price

(a)           Subscription.  Subject to the conditions set forth in
Section 2 hereof, the undersigned hereby subscribes for and agrees to purchase
the number of Units indicated on page 10 hereof on the terms and conditions
described herein.  The minimum number of
Units that may be purchased is one. 
Subscriptions for lesser amounts may be accepted at the discretion of
the Company.

(b)           Purchase
of Units.  The undersigned
understands and acknowledges that the purchase price to be remitted to the
Company in exchange for the Units shall be $25,000 per Unit, for an aggregate
purchase price as set forth on page 10 hereof (the “Aggregate Purchase Price”).  The undersigned’s delivery of this Agreement
to the Company shall be accompanied by payment for the Units subscribed for
hereunder, payable in United States dollars, by check made payable to the order
of “American National Bank, as Escrow Agent for Surfect Technologies, Inc.,” or
by wire transfer of immediately available funds delivered contemporaneously
with the undersigned’s delivery of this Agreement to Surfect.  The undersigned understands and agrees that,
subject to Section 2 and applicable laws, by executing this Agreement, he, she
or it is entering into a binding agreement.

2.             Acceptance, Offering Term and Closing Procedures

(a)           Acceptance
or Rejection.  The obligation of the
undersigned to purchase the Units shall be irrevocable, and the undersigned
shall be legally bound to purchase the Units subject to the terms set forth in
this Agreement.  The undersigned
understands and agrees that the Company reserves the right to reject this
subscription for the Units in whole or part in any order at any time prior to
the Closing if, in their reasonable judgment, they deem such action to be in
the best interest of the Company, notwithstanding the undersigned’s prior
receipt of notice of acceptance of the undersigned’s subscription.  In the event of rejection of this
subscription by the Company in accordance with this Section 2, or the sale of
the Units is not consummated by the Company for any reason, this Agreement and
any other agreement entered into between the undersigned and the Company
relating to this subscription shall thereafter have no force or effect, and the
Company shall promptly return or cause to be returned to the undersigned the
purchase price remitted to the Escrow Agent, without interest thereon or
deduction therefrom.

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(b)           Offering
Term.  The subscription period for
the Offering will begin as of July 27, 2006, and will terminate upon the
occurrence of the earlier of (a) the October 21, 2006, unless extended by the
Company for up to two successive 30-day periods, or (b) the Company’s
acceptance of subscriptions for 120 Units and the receipt of payment
therefor  (the “Termination Date”).    If the Company elects to extend the
Offering period beyond October 21, 2006 and subscriptions of at least
$2,500,000 of Units are not received and accepted by the Company by such date,
the Company shall provide all prospective subscribers notice of its intention
to so extend the offer and  provide such
subscribers with the opportunity to have all of such subscriber’s funds on
deposit with the Escrow Agent returned, without interest or deduction.

(c)           Closing.  The Closing shall take place at the offices
of the Escrow Agent or such
other place as determined by the Company.

3.             Investor’s Representations and Warranties

The undersigned hereby
acknowledges, agrees with and represents and warrants to the Company, as
follows:

(a)           The
undersigned has full power and authority to enter into this Agreement, the
execution and delivery of which has been duly authorized, if applicable, and
this Agreement constitutes a valid and legally binding obligation of the
undersigned.

(b)           The
undersigned acknowledges his, her or its understanding that the offering and
sale of the Shares and Warrants comprising the Units is intended to be exempt
from registration under the Securities Act of 1933, as amended (the “Securities
Act”), by virtue of Section 4(2) of the Securities Act and the provisions
of Regulation D promulgated thereunder (“Regulation D”).  In furtherance thereof, the undersigned
represents and warrants to the Company as follows:

(i)            The
undersigned realizes that the basis for the exemption from registration may not
be available if, notwithstanding the undersigned’s representations contained
herein, the undersigned is merely acquiring the Shares and the Warrants
comprising the Units for a fixed or determinable period in the future, or for a
market rise, or for sale if the market does not rise.  The undersigned does not have any such
intention.

(ii)           The
undersigned is acquiring the Shares and the Warrants comprising the Units
solely for the undersigned’s own beneficial account, for investment purposes,
and not with view to, or resale in connection with, any distribution of the
Shares or the Warrants.

(iii)          The
undersigned has the financial ability to bear the economic risk of his, her or
its investment, has adequate means for providing for their current needs and
contingencies, and has no need for liquidity with respect to the investment in
the Company.

(iv)          The
undersigned and the undersigned’s attorney, accountant, purchaser
representative and/or tax advisor, if any (collectively, “Advisors”), have
received the Confidential Private Placement Memorandum, dated July  25, 2006, together with all appendices
thereto (as such documents may be amended or supplemented, the “Memorandum”),
relating to the private placement by the Company of the Units, and all other
documents requested by the undersigned or Advisors, if any, have carefully
reviewed them and understand the information contained therein, prior to the
execution of this Agreement.

(v)           The
undersigned (together with his, her or its Advisors, if any) has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of the prospective investment in the Units.  If other than an individual, the undersigned
also represents it has not been organized solely for the purpose of acquiring
the Units.

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(c)           The
information in the Investor Questionnaire completed and executed by the
undersigned (the “Investor Questionnaire”) is true and accurate in all
respects, and the undersigned is an “accredited investor,” as that term is
defined in Rule 501(a) of Regulation D.

(d)           The
undersigned (and his, her or its Advisors, if any) has been furnished with a
copy of the Memorandum.

(e)           The
undersigned is not relying on the Company or its affiliates or sub-agents with
respect to economic considerations involved in this investment.  The undersigned has relied on the advice of,
or has consulted with, only his, her or its Advisors.  Each Advisor, if any, is capable of
evaluating the merits and risks of an investment in the Units as such are
described in the Memorandum, and each Advisor, if any, has disclosed to the
undersigned in writing (a copy of which is annexed to this Agreement) the
specific details of any and all past, present or future relationships, actual
or contemplated, between the Advisor and the Placement Agent, if any, or any
affiliate or sub-agent thereof.

(f)            The undersigned
represents, warrants and agrees that he, she or it will not sell or otherwise
transfer the Shares or the Warrants comprising the Units without registration
under the Securities Act or an exemption therefrom, and fully understands and
agrees that the undersigned must bear the economic risk of his, her or its
purchase because, among other reasons, the Shares or the Warrants comprising
the Units have not been registered under the Securities Act or under the
securities laws of any state and, therefore, cannot be resold, pledged,
assigned or otherwise disposed of unless they are subsequently registered under
the Securities Act and under the applicable securities laws of such states, or
an exemption from such registration is available.  In particular, the undersigned is aware that
the Shares or the Warrants comprising the Units are “restricted securities,” as
such term is defined in Rule 144 promulgated under the Securities Act (“Rule
144”), and they may not be sold pursuant to Rule 144 unless all of the
conditions of Rule 144 are met.  The
undersigned also understands that, except as otherwise provided in Section 5
hereof, the Company is under no obligation to register the Shares or the
Warrants comprising the Units on his, her or its behalf or to assist them in
complying with any exemption from registration under the Securities Act or
applicable state securities laws.  The
undersigned understands that any sales or transfers of the Shares or the
Warrants comprising are further restricted by state securities laws and the
provisions of this Agreement.

(g)           No
representations or warranties have been made to the undersigned by the Company,
or any of their respective officers, employees, agents, sub-agents, affiliates
or subsidiaries, other than any representations of the Company contained herein
and in the Memorandum, and in subscribing for the Units the undersigned is not
relying upon any representations other than those contained herein or in the
Memorandum.

(h)           The
undersigned understands and acknowledges that his, her or its purchase of the
Units is a speculative investment that involves a high degree of risk and the
potential loss of their entire investment and has carefully read and considered
the matters set forth in the Memorandum and in particular the matters under the
caption “Cautionary Language Regarding Forward-Looking Statements and Industry
Data” and “Risk Factors” therein, and, in particular, acknowledges that the
Company has a limited operating history and is engaged in a highly competitive
business.

(i)            The
undersigned’s overall commitment to investments that are not readily marketable
is not disproportionate to the undersigned’s net worth, and an investment in
the Units will not cause such overall commitment to become excessive.

(j)            The
undersigned understands and agrees that the certificates for the Shares shall
bear substantially the following legend until (i) such Shares shall have been
registered under the Securities Act and effectively disposed of in accordance
with a registration statement that has been declared effective or (ii) in the
opinion of counsel for the Company such Shares may be sold without registration
under the Securities Act, as well as any applicable “blue sky” or state
securities laws:

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE
SECURITIES LAWS.  SUCH SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES AND MAY NOT

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BE OFFERED FOR SALE,
SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FILED BY THE ISSUER WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION COVERING SUCH SECURITIES UNDER THE
SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED.

(k)           Neither
the U.S. Securities and Exchange Commission (the “SEC”) nor any state
securities commission has approved the Shares or the Warrants comprising Units
or passed upon or endorsed the merits of the Offering or confirmed the accuracy
or determined the adequacy of the Memorandum. 
The Memorandum has not been reviewed by any Federal, state or other
regulatory authority.

(l)            The
undersigned and his, her or its Advisors, if any, have had a reasonable
opportunity to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the offering of the Units and the
business, financial condition, results of operations and prospects of the
Company, and all such questions have been answered to the full satisfaction of
the undersigned and his, her or its Advisors, if any.

(m)          The
undersigned is unaware of, is in no way relying on, and did not become aware of
the offering of the Units through or as a result of, any form of general
solicitation or general advertising including, without limitation, any article,
notice, advertisement or other communication published in any newspaper,
magazine or similar media or broadcast over television or radio, or electronic
mail over the Internet, in connection with the offering and sale of the Units
and is not subscribing for Units and did not become aware of the offering of
the Units through or as a result of any seminar or meeting to which the
undersigned was invited by, or any solicitation of a subscription by, a person
not previously known to the undersigned in connection with investments in
securities generally.

(n)           The
undersigned has taken no action which would give rise to any claim by any
person for brokerage commissions, finders’ fees or the like relating to this
Agreement or the transactions contemplated hereby (other than commissions to be
paid by the Company to the Placement Agent, if any, its sub-agents or as
otherwise described in the Memorandum).

(o)           The
undersigned is not relying on the Company, the Placement Agent, if any, or any
of their respective employees, agents or sub-agents with respect to the legal,
tax, economic and related considerations of an investment in the Units, and the
undersigned has relied on the advice of, or has consulted with, only his, her
or its own Advisors.

(p)           The
undersigned acknowledges that any estimates or forward-looking statements or
projections included in the Memorandum were prepared by the future management
of the Company in good faith, but that the attainment of any such projections,
estimates or forward-looking statements cannot be guaranteed by the Company or
its management and should not be relied upon.

(q)           No oral or
written representations have been made, or oral or written information
furnished, to the undersigned or his, her or its Advisors, if any, in
connection with the offering of the Units which are in any way inconsistent
with the information contained in the Memorandum.

(r)            The
undersigned’s substantive relationship with the Placement Agent, if any, or
sub-agents through which the undersigned is subscribing for  Units 
predates the Placement Agent’s or such sub-agents’ contact with the
undersigned regarding an investment in the Units.

(s)           (For ERISA
plans only) The fiduciary of the ERISA plan (the “Plan”) represents that
such fiduciary has been informed of an understands the Company’s investment
objectives, policies and strategies, and that the decision to invest “plan
assets” (as such term is defined in ERISA) in the Company is consistent with
the provisions of ERISA that require diversification of plan assets and impose
other fiduciary responsibilities.  The
Subscriber or Plan fiduciary (a) is responsible for the decision to invest in
the Company; (b) is independent of the Company and any of its affiliates; (c)
is qualified to make such investment decision; and (d) in making such decision,
the Subscriber or Plan fiduciary has not relied primarily on any advice or
recommendation of the Company or any of its affiliates.

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(t)            The foregoing
representations, warranties and agreements shall survive the Closing.

4.             The Company’s Representations and Warranties

The Company hereby acknowledges, agrees with and
represents and warrants to each of the undersigned, as follows:

(a)           The
Company has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.  This Agreement has been duly authorized,
executed and delivered by the Company and is valid, binding and enforceable
against the Company in accordance with its terms.

(b)           The Shares
offered as part of the Units to be issued to the undersigned pursuant to this
Agreement, when issued and delivered in accordance with the terms of this
Agreement,  will be duly and validly
issued and will be fully paid and non-assessable.

(c)           Neither
the execution and delivery nor the performance of this Agreement by the Company
will conflict with the Company’s Certificate of Incorporation or By-laws, as
amended to date, or result in a breach of any terms or provisions of, or
constitute a default under, any material contract, agreement or instrument to
which the Company is a party or by which the Company is bound.

(d)           After
giving effect to the transactions contemplated by this Agreement and
immediately after the Closing, the Company will have the outstanding capital
stock as described in the Memorandum.

(e)           The
information contained in the Memorandum is true and correct in all material
respects as of its date.

5.             Registration Rights; Market Stand-Off Agreement

(a)           The
Company shall prepare and file a registration statement (the “Registration
Statement”) with the SEC covering the resale of the Shares and the shares of
common stock underlying the Warrants (the “Warrant Shares”) by no later than 60
days after the Termination Date.  The
Company shall use its best efforts to have the Registration Statement declared
effective by the SEC as soon as possible after the initial filing, and in any
event no later than 180 days after the Termination Date, and agrees to use its
best efforts to respond promptly to any SEC comments or questions regarding the
Registration Statement.  The Company will
maintain the effectiveness of the Registration Statement from the date of the
effectiveness of the Registration Statement until 24 months after that date; provided,
however, that, if at any time or from time to time after the date of
effectiveness of the Registration Statement, the Company notifies the
undersigned in writing of the existence of a Potential Material Event (as
defined below), the undersigned shall not offer or sell any of the Shares, or
engage in any other transaction involving or relating to the Shares or the
Warrant Shares, from the time of the giving of notice with respect to a
Potential Material Event until the Company notifies the undersigned that such
Potential Material Event either has been disclosed to the public or no longer
constitutes a Potential Material Event; provided, further that,
the Company may not suspend the right of the undersigned pursuant to this
Section 5(a) for more than 60 days in the aggregate.  “Potential Material Event” means the
possession by the Company of material information regarding a potential
transaction not ripe for disclosure in a registration statement, which shall be
evidenced by determinations in good faith by the Board of Directors of the
Company that disclosure of such information in the registration statement would
be detrimental to the business and affairs of the Company.

(b)           If the
Company fails to (i) file the Registration Statement with the SEC on or prior
to 60 days after the Termination Date, (ii) obtain effectiveness of the
Registration Statement by the SEC on or prior to 180 days after the Termination
Date, or (iii) maintain effectiveness of the Registration Statement for 24 months
after the date of effectiveness, the Company shall be obligated to issue to the
undersigned additional Shares computed as follows: on the first day that the
Company has failed to file, or to obtain or maintain the effectiveness of, the
Registration Statement, as the case may be (the “First Determination Date”),
the Company shall determine the number of Shares entitled to the benefit of the
registration rights set forth in this Section 5 that are held by the
undersigned (the “Subject Shares”). 
Within 30 days following the First Determination Date, the Company shall
issue to the undersigned such number of Shares equal to 1% of the number of
Subject Shares (the “Penalty Shares”). 
Penalty Shares shall also be issuable upon the expiration of each week
following the First Determination Date 

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during which the Company has continued to fail to
file, or to obtain or maintain the effectiveness of, the Registration
Statement, as the case may be (the expiration date of each such week being a “Subsequent
Determination Date”).  The number of
Penalty Shares issuable following each Subsequent Determination Date shall be
determined and issued in accordance with this section on the same basis
applicable to the First Determination Date; provided, however,
that Penalty Shares previously issued to the undersigned shall be excluded from
the calculation of Subject Shares. 
Notwithstanding the foregoing, the Company shall not be obligated to
issue to the undersigned pursuant to this paragraph an aggregate number of
Penalty Shares greater than 10% of the number of Subject Shares originally
subscribed for and held by the undersigned.

(c)           The
Company shall notify the undersigned at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. 
At the request of the undersigned, the Company shall also prepare, file
and furnish to the undersigned a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an 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 then existing.  The undersigned agrees not to offer or sell
any shares covered by the Registration Statement after receipt of such
notification until the receipt of such supplement or amendment.

(d)           The
Company may request the undersigned to furnish the Company such information
with respect to the undersigned and the undersigned’s proposed distribution of
the Shares pursuant to the Registration Statement as the Company may from time
to time reasonably request in writing or as shall be required by law or by the
SEC in connection therewith, and the undersigned agrees to furnish the Company
with such information.

(e)           Each of
the Company and the Subscriber shall indemnify the other party hereto and their
respective officers, directors, employees and agents against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) by the
indemnifying party of a material fact contained in any prospectus or other
document (including any related registration statement, notification or the
like) incident to any registration of the type described in this Section 5, or
any omission (or alleged omission) by the indemnifying party to state in any
such document a material fact required to be stated therein or necessary to
make the statements therein not misleading, and shall reimburse such
indemnified party for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action; provided that no party will be eligible for
indemnification hereunder to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished by such party for use in
connection with such registration.

(f)            The
Subscriber hereby agrees that it will not, without the prior written consent of
the managing underwriter, during the period commencing on the date  of the final prospectus relating to the
Company’s initial underwritten public offering and ending on the date specified
by the Company and the managing underwriter (such period not to exceed one
hundred eighty (180) calendar days) (i) lend, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any securities of the Company, including
(without limitation) shares of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock (whether now owned or hereafter
acquired) or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
any securities of the Company, including (without limitation) shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether now owned or hereafter acquired), whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of securities, in cash or otherwise. The foregoing covenants shall apply only
to the Company’s initial underwritten public offering of equity securities,
shall not apply to the sale of any shares by an Investor to an underwriter
pursuant to an underwriting agreement and shall only be applicable to the
Investors if all the Company’s executive officers, directors and greater than
ten percent (10%) stockholders enter into similar agreements. Each Subscriber
agrees to execute an agreement(s) reflecting (i) and (ii) above as may be
requested by the managing underwriters at the time of the initial underwritten
public offering, and further agrees that the Company may impose stop transfer
instructions with its transfer agent in order to enforce the 

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covenants in (i) and (ii) above. The underwriters in
connection with the Company’s initial underwritten public offering are intended
third party beneficiaries of the covenants in this Section 5(f) and shall have
the right, power and authority to enforce such covenants as though they were a
party hereto.

6.             Insider Trading Prohibition; Indemnity; Escrow
Release

(a)           Until
the filing by the Company of a current report on Form 8-K with the SEC
describing the Merger (as such term is defined in the Memorandum) and the
Offering, the undersigned hereby agrees to (i) refrain from (A) engaging in any
transactions with respect to the capital stock of the Company or securities
exercisable or convertible into or exchangeable for any shares of capital stock
of the Company, and (B) entering into any transaction which would have the same
effect, or entering into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of ownership of the
capital stock of the Company and (ii) indemnify and hold harmless the Company,
the Placement Agent, if any, and their respective officers and directors,
employees, agents, sub-agents and affiliates and each other person, if any, who
controls any of the foregoing, against any loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any violation of this Section 6 by the undersigned.

(b)           The undersigned agrees to indemnify and hold harmless the Company, the
Placement Agent, if any, the Escrow Agent and their respective officers and
directors, employees, agents, sub-agents and affiliates and each other person,
if any, who controls any of the foregoing, against any loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or warranty
by the undersigned, or the undersigned’s breach of, or failure to comply with,
any covenant or agreement made by the undersigned herein or in any other
document furnished by the undersigned to the Company, the Placement Agent, if
any, the Escrow Agent and their respective officers and directors, employees,
agents, sub-agents and affiliates and each other person, if any, who controls
any of the foregoing in connection with the Offering.

(c)           The
Subscriber acknowledges that the Placement Agent, if any,  may act on behalf of the Subscribers, solely
for the sake of convenience, in connection with confirmation to the Escrow
Agent that the closing has occurred and thereby direct the Escrow Agent to
disburse the Subscribers’ subscription funds held in escrow to the Company at
such time.  In doing so, however, the
Placement Agent makes no representation or warranty to the Subscribers as to
the satisfaction of all conditions precedent to the closing or with respect to
any due diligence investigations concerning the Company, all of which shall be
and remain the Subscriber’s own responsibility.

7.             Conditions
to Acceptance of Subscription

The Company’s right to
accept the subscription of the undersigned is conditioned upon satisfaction of
the following conditions precedent on or before the date the Company accepts
such subscription (any or all of which may be waived by the undersigned in his,
her or its sole discretion):

(a)           On the
Closing Date, no legal action, suit or proceeding shall be pending which seeks
to restrain or prohibit the transactions contemplated by this Agreement.

(b)           The
closing of the Merger (as such term is defined in the Memorandum) shall occur
concurrently with or prior to the acceptance of this subscription.

(c)           The
Company that will acquire by merger the business of Surfect shall have
expressly assumed this Agreement and the other subscription documents in the
Offering and shall have indicated such assumption by executing and delivering a
counterpart of this executed Agreement and the other subscription documents.

(d)           The
representations and warranties of the Company contained in this Agreement shall
have been true and correct on the date of this Agreement and shall be true and
correct on the Closing Date as if made on the Closing Date.

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9.             Notices
to Subscribers

(a)           THE SHARES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY
STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.  THE SHARES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM.  ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.

(b)           THE SHARES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.  SUBSCRIBERS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.

10.                               Miscellaneous
Provisions

(a)           Modification.  Neither this Agreement, nor any provisions
hereof, shall be waived, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver,
modification, discharge or termination is sought.

(b)           Survival.  The undersigned’s representations and
warranties made in this Subscription Agreement shall survive the execution and
delivery of this Agreement and the delivery of the Units.

(c)           Notices.  Any party may send any notice, request,
demand, claim or other communication hereunder to the undersigned at the
address set forth on the signature page of this Agreement or to the Company at
the address set forth above using any means (including personal delivery,
expedited courier, messenger service, fax, ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication will be
deemed to have been duly given unless and until it actually is received by the
intended recipient.  Any party may change
the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties
written notice in the manner herein set forth.

(d)           Binding
Effect.  Except as otherwise provided
herein, this Agreement shall be binding upon, and inure to the benefit of, the
parties to this Agreement and their heirs, executors, administrators,
successors, legal representatives and assigns. 
If the undersigned is more than one person or entity, the obligation of
the undersigned shall be joint and several and the agreements, representations,
warranties and acknowledgments contained herein shall be deemed to be made by,
and be binding upon, each such person or entity and his or its heirs,
executors, administrators, successors, legal representatives and assigns.  This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter
thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.

(e)           Assignability.  This Agreement is not transferable or
assignable by the undersigned.

(f)            Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, without giving effect to conflicts of law principles.

(g)           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 A-8
 

 

ANTI-MONEY
LAUNDERING REQUIREMENTS

The USA
PATRIOT Act

The USA PATRIOT Act is
designed to detect, deter, and punish terrorists in the United States and
abroad.  The Act imposes new anti-money
laundering requirements on brokerage firms and financial institutions.  Since April 24, 2002, all brokerage firms
have been required to have new, comprehensive anti-money laundering programs.

To help you understand
theses efforts, we want to provide you with some information about money
laundering and our steps to implement the USA PATRIOT Act.

What is
money laundering?

Money laundering is the
process of disguising illegally obtained money so that the funds appear to come
from legitimate sources or activities. 
Money laundering occurs in connection with a wide variety of crimes,
including illegal arms sales, drug trafficking, robbery, fraud, racketeering,
and terrorism.

How big
is the problem and why is it important?

The use of the U.S.
financial system by criminals to facilitate terrorism or other crimes could
taint our financial markets.  According
to the U.S. State Department, one recent estimate puts the amount of worldwide
money laundering activity at $1 trillion a year.

What are
we required to do to eliminate money laundering?

Under new rules required
by the USA PATRIOT Act, our anti-money laundering program must designate a special
compliance officer, set up employee training, conduct independent audits, and
establish policies and procedures to detect and report suspicious transactions
and ensure compliance with the new laws.

As part of our required
program, we may ask you to provide various identification documents or other
information.  Until you provide the
information or documents we need, we may not be able to effect any transactions
for you.

 A-9
 

 

ALL SUBSCRIBERS MUST COMPLETE THIS
PAGE

IN WITNESS WHEREOF, the undersigned has executed this
Agreement on the           day of                       
2006.

	
  

  	
   

  	
  x $25,000 for each Unit

  	
   

  	
  = $                                   .

  
	
  Units subscribed
  for

  	
   

  	
   

  	
   

  	
  Aggregate
  Purchase Price

  

 

Manner in which Title is
to be held (Please Check One):

	
  1.

  	
  o

  	
  Individual

  
	
   

  	
   

  	
   

  
	
  2.

  	
  o

  	
  Joint Tenants with Right of Survivorship

  
	
   

  	
   

  	
   

  
	
  3.

  	
  o

  	
  Community Property

  
	
   

  	
   

  	
   

  
	
  4.

  	
  o

  	
  Tenants in Common

  
	
   

  	
   

  	
   

  
	
  5.

  	
  o

  	
  Corporation/Partnership/ Limited Liability Company

  
	
   

  	
   

  	
   

  
	
  6.

  	
  o

  	
  IRA

  
	
   

  	
   

  	
   

  
	
  7.

  	
  o

  	
  Trust/Estate/Pension or Profit sharing Plan

  
	
   

  	
   

  	
  Date Opened:                            

  
	
   

  	
   

  	
   

  
	
  8.

  	
  o

  	
  As a Custodian for

  
	
   

  	
   

  	
  Under the Uniform Gift to Minors Act of the State of

  
	
   

  	
   

  	
   

  
	
  9.

  	
  o

  	
  Married with Separate Property

  
	
   

  	
   

  	
   

  
	
  10.

  	
  o

  	
  Keogh

  
	
   

  	
   

  	
   

  
	
  11.

  	
  o

  	
  Tenants by the Entirety

  

 

IF MORE THAN ONE
SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.

INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 11.

SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 12.

 A-10
 

 

EXECUTION
BY NATURAL PERSONS

	
  

  
	
  Exact Name in
  Which Title is to be Held

  
	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name (Please Print)

  	
   

  	
  Name of Additional Purchaser

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Residence: Number and Street

  	
   

  	
  Address of Additional Purchaser

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  City, State and Zip Code

  	
   

  	
  City, State and Zip Code

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Social Security Number

  	
   

  	
  Social Security Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Telephone Number

  	
   

  	
  Telephone Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Fax Number (if available)

  	
   

  	
  Fax Number (if available)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  E-Mail (if available)

  	
   

  	
  E-Mail (if available)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  (Signature of Additional Purchaser)

  	
   

  

 

ACCEPTED this       
day of                 
2006, on behalf of the Company.

	
  

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 A-11
 

 

EXECUTION BY SUBSCRIBER
WHICH IS AN ENTITY

(Corporation,
Partnership, LLC, Trust, Etc.)

	
  

  
	
  Name of Entity (Please Print)

  
	
   

  
	
  Date of
  Incorporation or Organization:

  	
   

  	
   

  
	
   

  
	
  State of
  Principal Office:

  	
   

  	
   

  
	
   

  
	
  Federal Taxpayer
  Identification Number:

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
  Office Address

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  City, State and
  Zip Code

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Telephone Number

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Fax Number (if
  available)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  E-Mail (if
  available)

  	
   

  
							

 

	
  

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
  [seal]   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (If Entity is a
  Corporation)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address

  
								

 

ACCEPTED this          
day of                  
2006, on behalf of the Company.

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					

 A-12
 

 

INVESTOR QUESTIONNAIRE

Instructions: 
Check all boxes below which correctly describe you.

o                           You
are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of
1933, as amended (the “Securities Act”), (ii) a savings and loan
association or other institution, as defined in Section 3(a)(5)(A) of the
Securities Act, whether acting in an individual or fiduciary capacity, (iii)
a broker or dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), (iv) an insurance
company as defined in Section 2(13) of the Securities Act, (v) an
investment company registered under the Investment Company Act of 1940, as
amended (the “Investment Company Act”), (vi) a business development
company as defined in Section 2(a)(48) of the Investment Company Act, (vii)
a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301 (c) or (d) of the Small Business Investment
Act of 1958, as amended, (viii) a plan established and maintained by a
state, its political subdivisions, or an agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees and you have
total assets in excess of $5,000,000, or (ix) an employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”) and (1) the decision that you shall subscribe
for and purchase Units of the Company 
(each Unit comprised of 
25,000  shares of the Company’s
Common Stock (the “Common Stock” or the “Shares”) and a Warrant
to purchase 12,500 shares of Common Stock, 
the “Units”), is made by a plan fiduciary, as defined in Section 3(21)
of ERISA, which is either a bank, savings and loan association, insurance company,
or registered investment adviser, (2) you have total assets in excess of
$5,000,000 and the decision that you shall subscribe for and purchase the Units
is made solely by persons or entities that are accredited investors, as defined
in Rule 501 of Regulation D promulgated under the Securities Act (“Regulation
D”) or (3) you are a self-directed plan and the decision that you
shall subscribe for and purchase the Units is made solely by persons or
entities that are accredited investors.

o                           You
are a private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940, as amended.

o                           You
are an organization described in Section 501(c)(3) of the Internal Revenue Code
of 1986, as amended (the “Code”), a corporation, Massachusetts or
similar business trust or a partnership, in each case not formed for the
specific purpose of making an investment in the Units and with total assets in
excess of $5,000,000.

o                           You
are a director or executive officer of the Company.

o                           You are a natural person whose individual net
worth, or joint net worth with your spouse, exceeds $1,000,000 at the time of
your subscription for and purchase of the Units.

 A-13

 

o                           You are a natural person who had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with your spouse in excess of $300,000 in each of the two most
recent years, and who has a reasonable expectation of reaching the same income
level in the current year.

o                           You are a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring the Units,
whose subscription for and purchase of the Units is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of Regulation D.

o                           You are an entity in which all of the equity
owners are persons or entities described in one of the preceding paragraphs.

 A-14
 

 

The undersigned hereby
represents and warrants that all of its answers to this Investor Questionnaire
are true as of the date of its execution of the Subscription Agreement pursuant
to which it purchased Units of the Company.

	
  

  	
   

  	
   

  	
   

  
	
  Name of Purchaser [please print]

  	
   

  	
  Name of Co-Purchaser [please print]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature of Purchaser (Entities please 

  provide signature of Purchaser’s duly 

  authorized signatory.)

  	
   

  	
  Signature of Co-Purchaser

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name of Signatory (Entities only)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title of Signatory (Entities only)

  	
   

  	
   

  	
   

  

 

 A-15

 

EXHIBIT
B 

SUBSCRIPTION
RECONFIRMATION AGREEMENT

This Subscription Reconfirmation Agreement (this “Agreement”)
is being delivered by the undersigned subscriber (the “Subscriber”) to the
publicly-traded company identified below (the “Company”) in connection
with the Company’s private placement (the “Offering”) of  Units (the “Units”) at a purchase price of
$25,000 per Unit.

The Subscriber hereby acknowledges and agrees that:

1.  It has
delivered a signed copy of the Subscription
Agreement and Investor
Questionnaire to the Company in the forms included in the
subscription package provided by the Company to the Subscriber.

2.   It has paid
the purchase price for the Units by wire transfer to American National
Bank,  the Company’s escrow agent for the
Offering, in accordance with the instructions included in the Subscription Documents and Instructions  provided to the Subscriber by the
Company.

3. 
It has received and reviewed  the Draft 8-K
included in the Supplement provided by the Company to the Subscriber.

4.  By execution
hereof, the Subscriber re-affirms its desire and intent to subscribe for Units
in this Offering on the terms set forth on the Subscription Agreement.

SUBSCRIBER:

ACCEPTED this       
day of               
2006, on behalf of the Company.

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 B-1

 

EXHIBIT
C

FORM
OF WARRANT

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
SURFECT HOLDINGS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Surfect Holdings, Inc., a  Delaware corporation (the “Company”), grants to                    (the “Warrantholder”), the right to subscribe for and purchase from the Company 12,500 validly issued, fully paid and nonassessable shares (the “Warrant Shares”) of the Company’s Common Stock, $          par value (the “Common Stock”), at the purchase price per share of $2.00 (the “Exercise Price”), exercisable at any time and from time to time during the period (the “Exercise Period”) commencing on the date hereof and ending on the fourth anniversary of the date hereof, all subject to the terms, conditions and adjustments herein set forth.
1.   DURATION AND EXERCISE OF WARRANT; CALL OF WARRANT; PAYMENT OF TAXES;    INFORMATION.
1.1  DURATION AND EXERCISE OF WARRANT.
(a)  EXERCISE.  This Warrant may be exercised in whole or in part by the Warrantholder by (i) the surrender of this Warrant to the Company, with a duly executed Exercise Form attached hereto as Exhibit A specifying the number of Warrant Shares to be purchased, during normal business hours on any Business Day during the Exercise Period and (ii) the delivery of payment to the Company, for the account of the Company, by wire transfer to a bank account specified by the Company of the Exercise Price for the number of Warrant Shares specified in the Exercise Form.
(b)  PROCEDURAL ISSUES.  All Warrant Shares issued pursuant to this Section 1.1 shall be deemed to be issued to the Warrantholder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares.  A stock certificate or certificates for the Warrant Shares specified in the Exercise Form shall be delivered to the Warrantholder as promptly as practicable, and in any event within three Business Days, thereafter.  If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant.  No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Warrantholder shall be deemed to be the record holder of such Warrant Shares.
1.2  CALL OF WARRANT BY COMPANY.
(a) CALL OPTION.  If at any time prior to the exercise of this Warrant in full and provided that the Warrant Shares shall have been registered under the Securities Act of 1933 (the “Securities Act”), the fair 

 C-1
 

 

market value (as defined below) of one share of the Company’s Common Stock remains equal to or greater than $3.00 over any consecutive 20 day period (the “Threshold Period”), the Company shall have the option to purchase this Warrant from Warrantholder for $0.05 per Warrant Share.  To exercise this call option, the Company shall, within 30 days following termination of the Threshold Period, and at least 30 days prior to exercise of the option, provide the Warrantholder with written notice specifying the date the option will be exercised.  The Warrantholder then shall have 10 days after receipt of such notice to exercise its rights under this Warrant.
If the Company fails to exercise this call option in the manner and within the time periods specified in this Section 1.2, the Company shall be deemed to have waived its right to invoke such option and Warrantholder shall retain all rights granted to it under this Warrant as though the Threshold Period had never occurred; PROVIDED, HOWEVER, that the Company’s call option shall be revived should the Company’s Common Stock again trade at or above $3.00 for an additional Threshold Period following any previous waiver by the Company of such option.
(b)  FAIR MARKET VALUE.  For purposes of Section 1.2, fair market value of one share of the Company’s Common Stock shall mean:
(i) the closing price per share of the Company’s Common Stock on the principal securities exchange on which the Common Stock is listed  or admitted to trading or,
(ii) if not listed or traded on any securities exchange, the average of the bid and asked price per share as reported in the Nasdaq Bulletin Board or in the “pink sheets” published by the National Quotation Bureau, Inc.
1.3  PAYMENT OF TAXES.  The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any stock transfer or other issuance tax in respect thereto; PROVIDED, HOWEVER, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Warrantholder as reflected upon the books of the Company.
1.4  INFORMATION.  Upon receipt of a written request from a Warrantholder,  the Company agrees to deliver promptly to such Warrantholder a copy of its current publicly available financial statements and to provide such other publicly available information concerning the business and operations of the Company as such Warrantholder may reasonably request in order to assist the Warrantholder in evaluating the merits and risks of exercising the Warrant and to make an informed investment decision in connection with such exercise.
2.   RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
2.1  RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES LAWS.  This Warrant or the Warrant Shares issued upon the exercise of this Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company).  The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are being acquired solely for the Warrantholder’s own account and not as a nominee for any other party, and for investment, and that the Warrantholder will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act or any state securities laws.

 C-2
 

 

2.2 RESTRICTIVE LEGENDS.  This Warrant shall (and each Warrant issued in substitution for this Warrant issued pursuant to Section 4 shall) be stamped or otherwise imprinted with a legend in substantially the following form:
“THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS  AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN  EXEMPTION FROM REGISTRATION UNDER SUCH ACT.”
Except as otherwise permitted by this Section 2, each stock certificate for Warrant Shares issued upon the exercise of any Warrant and each stock certificate issued upon the direct or indirect transfer of any such Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form:
“THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN  EXEMPTION FROM REGISTRATION UNDER SUCH ACT.”
Notwithstanding the foregoing, the Warrantholder may require the Company to issue a stock certificate for Warrant Shares without a legend if (i) such Warrant Shares, as the case may be, have been registered for resale under the Securities Act or sold pursuant to Rule 144 under the Securities Act (or a successor rule thereto) or (ii) the Warrantholder has provided an opinion of counsel addressed to the Company and  reasonably satisfactory to the Company that such registration is not required with respect to such Warrant Shares.
3.   RESERVATION OF SHARES, ETC.
The Company covenants and agrees that all Warrant Shares which are issued upon the exercise of this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens, security interests, charges and other encumbrances with respect to the issue thereof, other than taxes in respect of any transfer occurring contemporaneously with such issue. The Company further covenants and agrees that, during the Exercise Period, the Company will at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.
4.   EXCHANGE, LOSS OR DESTRUCTION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of such bond or indemnification as the Company reasonably may require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor.  The term “Warrant” as used in this agreement shall be deemed to include any Warrants issued in substitution or exchange for this Warrant.

 C-3
 

 

5.   OWNERSHIP OF WARRANT.
The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary.
6.   CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment as follows:
(a)  STOCK DIVIDENDS.  If at any time prior to the exercise of this Warrant in full (i) the Company shall fix a record date for the issuance of any stock dividend payable in shares of Common Stock or (ii) the number of shares of Common Stock shall have been increased by a subdivision or split-up of shares of Common Stock, then, on the record date fixed for the determination of holders of Common Stock entitled to receive such dividend or immediately after the effective date of subdivision or split-up, as the case may be, the number of shares of Common Stock to be delivered upon exercise of this Warrant will be increased so that the Warrantholder will be entitled to receive the number of shares of Common Stock that such Warrantholder would have owned immediately following such action had this Warrant been exercised immediately prior thereto, and the Exercise Price will be adjusted as provided below in paragraph (e).
(b)  COMBINATION OF STOCK.  If at any time prior to the exercise of this Warrant in full the number of shares of Common Stock outstanding shall have been decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the number of shares of Common Stock to be delivered upon exercise of this Warrant will be decreased so that the Warrantholder thereafter will be entitled to receive the number of shares of Common Stock that such Warrantholder would have owned immediately following such action had this Warrant been exercised immediately prior thereto, and the Exercise Price will be adjusted as provided below in paragraph (e).
(c)  REORGANIZATION, ETC.  If at any time prior to the exercise of this Warrant in full any capital reorganization of the Company, or any reclassification of the Common Stock, or any consolidation of the Company with or merger of the Company with or into any other person or any sale, lease or other transfer of all or substantially all of the assets of the Company to any other person, shall be effected in such a way that the holders of Common Stock shall be entitled to receive stock, other securities or assets, including cash (whether such stock, other securities or assets are issued or distributed by the Company or another person) with respect to or in exchange for Common Stock, then, upon exercise of this Warrant the Warrantholder shall have the right to receive the kind and amount of stock, other securities or assets receivable upon such reorganization, reclassification, consolidation, merger or sale, lease or other transfer by a holder of the number of shares of Common Stock that such Warrantholder would have been entitled to receive upon exercise of this Warrant had this Warrant been exercised immediately before such reorganization, reclassification, consolidation, merger or sale, lease or other transfer, subject to adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6.
(d)  FRACTIONAL SHARES.  No fractional shares of Common Stock or scrip shall be issued to any Warrantholder in connection with the exercise of this Warrant.  Instead of any fractional shares of Common Stock that would otherwise be issuable to such Warrantholder, the Company will pay to such Warrantholder a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the then current fair market value per share of Common Stock.

 C-4
 

 

(e)  EXERCISE PRICE ADJUSTMENT.  Whenever the number of Warrant Shares purchasable upon the exercise of the Warrant is adjusted, as herein provided, the Exercise Price payable upon the exercise of this Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares purchasable immediately thereafter.
(f)  NO DUPLICATE ADJUSTMENTS.  Notwithstanding anything else to the contrary contained herein, in no event will an adjustment be made under the provisions of this Section 6 to the number of Warrant Shares issuable upon exercise of this Warrant or the Exercise Price for any event if an adjustment having substantially the same effect to the Warrantholder as any adjustment that otherwise would be made under the provisions of this Section 6 is made by the Company for any such event to the number of shares of Common Stock (or other securities) issuable upon exercise of this Warrant.
6.2  NO ADJUSTMENT FOR DIVIDENDS.  Except as provided in Section 6.1, no adjustment in respect of any dividends shall be made during the term of the Warrant or upon the exercise of this Warrant.
6.3  NOTICE OF ADJUSTMENT.  Whenever the number of Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as herein provided, the Company shall promptly mail by first class, postage prepaid, to the Warrantholder, notice of such adjustment or adjustments and a certificate of the chief financial officer of the Company setting forth the number of Warrant Shares and the Exercise Price of such Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.
7.   NOTICES OF CORPORATE ACTION.
In the event of
(a)  any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or
(b)  any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any Change of Control, or
(c)  any voluntary or involuntary dissolution, liquidation or winding-up of the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of any such dividend, distribution or right, (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, Change of Control, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, Change of Control, dissolution, liquidation or winding-up and (iii) that in the event of a Change of Control, the Warrants are exercisable immediately prior to the consummation of such Change of Control.  Such notice shall be mailed at least 10 days prior to the date therein specified, in the case of any date referred to in the foregoing subdivision (i), and at least 10 days prior to the date therein specified, in the case of the date referred to in the foregoing subdivision (ii).

 C-5
 

 

8.   DEFINITIONS.
As used herein, unless the context otherwise requires, the following terms have the following respective meanings:
BUSINESS DAY:  any day other than a Saturday, Sunday or a day on which national banks are authorized by law to close in the City of New York, State of New York.
CHANGE OF CONTROL:  shall mean (i) the consolidation of the Company with or merger of the Company with or into any other person in which the Company is not the surviving corporation, (ii) the sale of all or substantially all of the assets of the Company to any other person or (iii) any sale or transfer by the Company of any capital stock of the Company after the date of this agreement, following which more than 50% of the combined voting power of the Company becomes beneficially owned by one person or group acting together.  For purposes of this definition, “group” shall have the meaning as such term is used in Section 13(d)(1) under the Exchange Act.
EXCHANGE ACT:  the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.  Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include a reference to a comparable section, if any, of any successor federal statute.
EXERCISE FORM:  an Exercise Form in the form annexed hereto as Exhibit A.
EXERCISE PRICE:  the meaning specified on the cover of this Warrant, as such price may be adjusted pursuant to Section 6 hereof.
SEC:  the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose.
SECURITIES ACT:  the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.  Reference to a particular section of the Securities Act of 1933, as amended, shall include a reference to the comparable section, if any, of any successor federal statute.
9.  MISCELLANEOUS.
9.1 ENTIRE AGREEMENT.  This Warrant constitutes the entire agreement between the Company and the Warrantholder with respect to this Warrant and supersede all prior agreements and understandings, both written and oral, with regard to the subject matter hereof.
9.2 BINDING EFFECTS; BENEFITS.  This Warrant shall inure to the benefit of and shall be binding upon the Company and the Warrantholder and their respective successors.  Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Company and the Warrantholder, or their respective successors, any rights, remedies, obligations or liabilities under or by reason of this Warrant.
9.3 AMENDMENTS AND WAIVERS.  This Warrant may not be modified or amended except by an instrument or instruments in writing signed by the Company and the Warrantholder.  Either the Company or the Warrantholder may, by an instrument in writing, waive compliance by the other party with any term or provision of this Warrant on the part of such other party hereto to be performed or complied with.

 C-6
 

 

The waiver by any such party of a breach of any term or provision of this Warrant shall not be construed as a waiver of any subsequent breach.
9.4 SECTION AND OTHER HEADINGS.  The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant.
9.5 FURTHER ASSURANCES.  Each of the Company and the Warrantholder shall do and perform all such further acts and things and execute and deliver all such other certificates, instruments and documents as the Company or the Warrantholder may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this agreement.
9.6 NOTICES.  All notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States mail, postage prepaid, to the parties hereto at the following addresses or to such other address as any party hereto shall hereafter specify by notice to the other party hereto:
(a)  if to the Company, addressed to:
12000-G Candelaria NE
Albuquerque, NM 87112
(b)  if to the Warrantholder, addressed to the Warrantholder’s address in the Company’s records.
Except as otherwise provided herein, all such notices and communications shall be deemed to have been received on the date of delivery thereof, if delivered personally, or on the third Business Day after the mailing thereof.
9.7 SEVERABILITY.  Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the terms and provisions of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction.
9.8 GOVERNING LAW.  This Warrant shall be governed by and interpreted in accordance with the laws of the State of Delaware, except as they may be preempted by federal law.  In any action brought or arising out of this Warrant, the Warrantholder and the Company hereby consent to the jurisdiction of any federal or state court having proper venue within the State of New Mexico and also consent to the service of process by any means authorized by New Mexico or federal law.
9.9 TERMINATION.  This Warrant shall expire at 5:00 P.M., Pacific standard time, on the fourth anniversary hereof.
9.10 NO RIGHTS OR LIABILITIES AS STOCKHOLDER.  Nothing contained in this Warrant shall be determined as conferring upon the Warrantholder any rights as a stockholder of the Company until the Warrantholder exercises this Warrant in whole or in part, or as imposing any liabilities on the Warrantholder to purchase any securities whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise.

 C-7
 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer.
Dated:                    , 2006.

	
   

  	
  SURFECT HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
						

 C-8

 

 

Surfect Holdings,
Inc.
  Schedule of Buyers

 

	
  Investor Name

  	
   

  	
  Amount of

  Investment

  	
   

  	
  No. of

  Units

  Purchased

  	
   

  
	
  Charlene Khaghan

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Brad and Allison
  Feinberg

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Alan Horowitz

  	
   

  	
  $

  	
  100,000

  	
   

  	
  4

  	
   

  
	
  David J. Adelman

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Jonathan Alpert

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Brian Carp

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  David Rounick

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Greg Wallace

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  David Goldstein

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Jeff and Amy Cohan

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Elinor Ganz IRA

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Harold Gelber Rev.
  Trust

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Aharon Ungar &
  Jennifer Ungar

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Chocolate Chip
  Investments

  	
   

  	
  $

  	
  100,000

  	
   

  	
  4

  	
   

  
	
  DiMarino-Kroop-Prieto
  Gastroin

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Aaron McKie

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Ira M. Lubert

  	
   

  	
  $

  	
  250,000

  	
   

  	
  10

  	
   

  
	
  Natalie Rounick

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Lester E. Lipschutz

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Peddle Partners

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Elinor Ganz as Trustee
  for Amy Ganz

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Ira Saligman

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Serpentine Group Inc.,
  Defined Benefit Pension Plan

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Alfred Gladstone 401K

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Sidney Ulreich 401k

  	
   

  	
  $

  	
  37,500

  	
   

  	
  1.5

  	
   

  
	
  Frank & Suzanne
  Pearl

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Beverly Pinnas

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Jeffrey and Robin
  Feinberg

  	
   

  	
  $

  	
  50,000

  	
   

  	
  2

  	
   

  
	
  Elinor Ganz as Trustee
  for Susan Ganz

  	
   

  	
  $

  	
  25,000

  	
   

  	
  1

  	
   

  
	
  Sandor Capital Master
  Fund I, L.P. (Funds delivered through UBS Account)

  	
   

  	
  $

  	
  250,000

  	
   

  	
  10

  	
   

  
	
  John Fries

  	
   

  	
  $

  	
  250,000

  	
   

  	
  10

  	
   

  
	
  Frank Trimboli

  	
   

  	
  $

  	
  100,000

  	
   

  	
  4

  	
   

  
	
  Mark Nicosia

  	
   

  	
  150,000

  	
   

  	
  6

  	
   

  
	
  Phyllis Ulreich

  	
   

  	
  37,500

  	
   

  	
  1.5

  	
   

  
	
  Joseph Papa

  	
   

  	
  250,000

  	
   

  	
  10

  	
   

  
	
  Gemini Master Fund

  	
   

  	
  200,000

  	
   

  	
  8

  	
   

  
	
  Schreiber Living Trust

  	
   

  	
  200,000

  	
   

  	
  8

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  2,800,000

  	
   

  	
  112Exhibit
10.2

SURFECT HOLDINGS,
INC.

2006 STOCK PLAN

1.             Purpose of the Plan

(a)           The
purpose of the 2006 Stock Plan (the “Plan”) of Surfect Holdings, Inc.
(the “Company”) is to:

(i)            promote
the interests of the Company and its stockholders by strengthening the Company’s
ability to attract, motivate and retain employees, officers, consultants and
members of the Board of Directors;

(ii)           furnish
incentives to individuals chosen to receive Awards because they are considered
capable of responding by improving operations and increasing profits or
otherwise add value to the Company; and

(iii)          provide
a means to encourage stock ownership and proprietary interest in the Company to
valued employees, members of the Board of Directors and consultants upon whose
judgment, initiative, and efforts the continued financial success and growth of
the business of the Company largely depend.

The issuance of Common Stock pursuant to the Plan is intended to
qualify for the exemption from registration under the Securities Act of 1933,
as amended, provided by Rule 701.

2.             Definitions

(a)           “Award” means an Option or Stock
Award granted under the Plan.

(b)           “Award Agreement” means any written
agreement, contract, or other instrument or document between the Company and a
Participant evidencing an Award, including an Option Agreement.

(c)           “Board” means the Board of
Directors of the Company.

(d)           “Cause” means (i) a Participant’s
willful and repeated failure to comply with the lawful directives of the Board
or such Participant’s supervisory personnel, (ii) any criminal act or act of
dishonesty, disloyalty, misconduct or moral turpitude by a Participant that is
injurious in any significant respect to the property, operations, business or
reputation of the Company after, in the case of non-criminal conduct, notice
and an opportunity to cure if such conduct is capable of cure within a
reasonable period of time, or (iii) material breach by a Participant of his or
her employment agreement (if any) with the Company; provided that to the extent
this definition is inconsistent with the definition of “cause” in any
employment or consulting agreement of a Participant, the definition in such
employment agreement shall control.

(e)           “Code” means the Internal Revenue
Code of 1986, as amended.

 

(f)            “Committee” means the committee of
two or more persons established by the Board to administer the Plan; provided,
that at any time such a committee does not exist, “Committee” means the Board.

(g)           “Common Stock” means the 0.0001 par
value Common Stock of the Company.

(h)           “Consultant” means any person,
including an advisor, who is engaged by the Company or any Parent or Subsidiary
to render services to the Company as an independent contractor.

(i)            “Director” means any member of the
Board.

(j)            “Disability” means a disability
that would qualify as such under the Company’s then current long term
disability plan.  In the event no such
long-term disability plan exists, disability shall mean that the Committee
determines in good faith, based on medical evidence acceptable to it, that the
Participant has become physically or mentally disabled or incapacitated for a
continuous period of 90 days to such an extent that he or she is unable to
perform his or her duties.

(k)           “Eligible Person” means any
Employee or Director of the Company or any Parent or Subsidiary of the Company,
or any Consultant.

(l)            “Employee” means any person,
including officers, employed by the Company or any Parent or Subsidiary of the
Company, with the status of employment determined based upon such minimum number
of hours or periods worked as shall be determined by the Committee at its
discretion, subject to any requirements of the Code.  The payment by the Company of a director
shall not be sufficient to constitute “employment” of such director by the
Company.

(m)          “Exchange Act” means the Securities
Exchange Act of 1934, as amended from time to time, and as now or hereafter
construed, interpreted and applied by regulations, rulings and cases.

(n)           “Fair Market Value” of the Common
Stock as of any date means:

(i)  If the Company is listed on
a national securities exchange, the average of the reported high and low sales
prices of the Common Stock on the stock exchange composite tape for the ten
trading days preceding the date of determination.  If the Common Stock is traded
over-the-counter at the time a determination of its Fair Market Value is
required to be made hereunder, its Fair Market Value shall be deemed to be
equal to the average between the reported high and low or closing bid and asked
prices of the Common Stock for the ten trading days preceding the date of
determination.

(ii)  In the event that the
Common Stock is not listed on a national securities exchange, the Committee
shall determine the Common Stock’s Fair Market Value by the reasonable
application of a reasonable methodology, as it deems appropriate, taking into
account all available information material to the value of the Company.

 2
 

 

the fair market value of the Common Stock (expressed on a per-share
basis) as of such date, as determined in good faith by the Committee based on
the consolidated results of operations, financial condition and future
prospects of the Company and such other factors as the Committee may deem
appropriate or, in the event that the Common Stock is listed on a national
securities exchange or traded in the Nasdaq National Market System, the average
of the closing sales prices of the Common Stock for the ten trading days
preceding the date of determination. 
Fair Market Value shall be determined without regard to any restriction on
transferability of the Common Stock other than any such restriction which by
its terms will never lapse.

(o)           “ISO” means an Option that meets
the requirements of Section 422 of the Code, or any successor provision, and
that is designated by the Committee as an Incentive Stock Option.  An ISO may be granted only to Employees.

(p)           “NQO” means an Option other than an
ISO.

(q)           “Option” means any stock Option
granted pursuant to the Plan.

(r)            “Option
Agreement” means the written agreement by and between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions of the grant, including any amendments to that agreement.

(s)           “Optionee” means an Eligible Person
who receives an Option.

(t)            “Parent” means a “parent corporation,”
whether now or hereafter existing, as defined in Section 424(e) of the Code, or
any successor provision.

(u)           “Participant” means any Eligible
Person selected to participate in an Award pursuant to Section 5.

(v)           “Reporting Person” means an officer,
director or greater than 10% shareholder of the Company within the meaning of
Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to
Rule 16a-3 under the Exchange Act.

(w)          “Rule 16b-3” means Rule 16b-3
promulgated under the Exchange Act, as the same may be amended form time to
time, or any successor provision.

(x)            “Stock Award” means a right to the
grant or purchase, at a price determined by the Committee, of Common Stock,
which is nontransferable and subject to substantial risk of forfeiture until
specific conditions are met.  Conditions
may be based on continuing employment or achievement of pre-established
financial objectives or both.

(y)           “Subsidiary” means a “subsidiary
corporation,” whether now or hereafter existing, as defined in Section 424(f)
of the Code, or any successor provision.

 3
 

 

3.             Shares of Common Stock Subject to the Plan

(a)           Subject
to the provisions of Section 3(c) and Section 12, the aggregate number of
shares of Common Stock that may be issued or transferred or exercised pursuant
to Awards under the Plan will not exceed 1,500,000 shares of Common Stock.

(b)           The
shares of Common Stock to be delivered under the Plan will be made available,
at the discretion of the Board or the Committee, either from authorized but unissued
Common Stock or from previously issued Common Stock reacquired by the Company,
including shares of Common Stock purchased on the open market.

(c)           To
the extent any Option or Award expires unexercised or is canceled, terminated
or forfeited in any manner without the issuance of Common Stock thereunder,
such shares shall again be available for issuance under the Plan.  In addition, upon the repurchase by the
Company of shares of Common Stock issued pursuant to the exercise of Options,
such shares shall again be available under the Plan.

4.             Administration of the Plan

The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan.  The
Committee has authority in its discretion to determine the Eligible Persons to
whom, and the time or times at which, Awards may be granted and the number of
shares subject to each Award.  The
Committee also has authority to interpret the Plan, and to determine the terms
and provisions of the respective Award Agreements and to make all other
determinations necessary or advisable for Plan administration.  The Committee has authority to prescribe,
amend, and rescind rules and regulations relating to the Plan.  All interpretations, determinations, and
actions by the Committee will be final, conclusive, and binding upon all
parties.  No member of the Board or the
Committee will be liable for any action or determination made in good faith by
the Board or the Committee with respect to the Plan or any Award under it.

5.             Eligibility

Awards may be granted to Employees, Directors and Consultants of the
Company or any of its Subsidiaries in the sole discretion of the
Committee.  In determining the persons to
whom Awards shall be granted and the type of Award, the Committee shall take
into account such factors as the Committee shall deem relevant in connection
with accomplishing the purposes of the Plan. Each Award will be evidenced by an
agreement and may include any other terms and conditions consistent with the
Plan as the Committee may determine.

6.             Written Agreement; Effect

Each Award shall be evidenced by an Award Agreement, in a form
satisfactory to the Committee, executed by the Company and by the person to
whom such Award is granted.  If
applicable, the Award Agreement shall specify whether each Option it evidences
is a NQO or an ISO.  Failure of the
grantee to execute an Award Agreement shall not void or invalidate the grant of
an Award; provided, however, that an Option may not be exercised until the
Award Agreement evidencing such Option is executed.

 4
 

 

7.             Annual $100,000 Limitation in ISOs

To the extent required by Section 422(d) of the Code, the aggregate
Fair Market Value of shares of the Common Stock with respect to which ISOs are
exercisable for the first time by any individual during any calendar year shall
not exceed $100,000.  For this purpose,
Fair Market Value shall be the fair market value of the shares covered by the
ISOs when the ISOs were granted.

8.             Advance Approvals

The Committee may approve the grant of Awards to persons who are
expected to become Eligible Persons, but are not Eligible Persons at the date
of approval.  In such cases, the Award
shall be deemed granted, without further approval, on the date the grantee
becomes an Eligible Person, and must satisfy all requirements of this Plan for
Awards granted on that date.

9.             Stock Options

(a)           Option
Agreement.  The Committee may from
time to time grant Options pursuant to an Option Agreement.  Each Option Agreement shall state the number
of shares of Common Stock to which the Option relates.

(b)           Type
of Option.  Each Option shall be
designated as an ISO or a NQO and shall be subject to the terms and conditions
set forth in this Section 9. ISOs shall also be subject to the terms and
conditions set forth in Section 10.

(c)           Grant
Date.  Each Option Agreement shall
specify the date as of which it shall be effective, which date shall be the
Grant Date (determined pursuant to Section 8 in the case of advance approvals).

(d)           Exercise
Price.  Except as provided in Section
10, the purchase price of Common Stock under each Option will be determined by
the Committee.

(e)           Term
and Exercisability.  The term of each
Option shall be determined by the Committee but shall not exceed 10 years.  Unless otherwise specified in an Option
Agreement, Options shall vest and become exercisable on the following schedule:

1/3
on the first annual anniversary of the Grant Date,

1/3
on the second anniversary of the Grand Date and

1/3
on the third anniversary of the Grant Date.

(f)            Method
of Payment. Options shall be exercisable by written notice to the Company
(to the attention of the Company’s Chief Financial Officer) accompanied by
payment in full of the applicable exercise price.  Payment of the exercise price may be made (i)
in cash, (ii) at the discretion of the Committee, by delivery of a full
recourse promissory note bearing

 5
 

 

interest at a rate
not less than the applicable federal rate determined pursuant to Section 1274
of the Code as of the date of purchase or exercise, (iii) by delivery of
Options valued at the excess of the Fair Market Value of the shares of Common
Stock subject thereto less the exercise price of such Options (i.e., a “cashless
exercise”) or (iv) by a combination of any of the above.  The Committee may, in its discretion and upon
request of the holder, issue shares upon exercise of an Option directly to a
brokerage firm or firms to be selected by the Committee, or selected by the
exercising Optionee and approved by the Company’s Chief Financial Officer),
without payment of the purchase price by the holder but upon delivery of an
irrevocable guarantee by such brokerage firm or firms of the payment or such
purchase price.

(g)           Fractional
Shares.  No fractional shares will be
issued pursuant to the exercise of an Option nor will any cash payment be made
in lieu of fractional shares.  If an
Option exercise results in a fractional share, the number of shares issued to
the Participant shall be rounded up to the next whole share.

(h)           Other
Provisions.  Each Option Agreement
may contain such other terms, provisions, and conditions not inconsistent with
this Plan, including rights of repurchase, as may be determined by the
Committee, and each ISO granted under this Plan shall include such provisions
and conditions as are necessary to qualify such option as an “incentive stock
option” within the meaning of Section 422 of the Code.

(i)            Withholding
of Taxes. The Company may, if necessary or desirable, withhold from any
amounts due and payable by the Company to any Participant (or secure payment
from such Participant in lieu of withholding) the amount of any withholding or
other tax due from the Company with respect to any issuance or exercise of
Options granted under the Plan to such Participant, and the Company may defer
such issuance or exercise unless indemnified to its satisfaction against the
payment of any such amount.

(j)            Termination
of Employment.  Unless otherwise
provided in an Option Agreement, in the event that a Participant ceases to be
employed by (or, in the case of a non employee, ceases to perform services for)
the Company or any Parent or Subsidiary (in each case, a “Termination of Employment”), all
outstanding Options held by such Participant shall be treated as follows:

(i)            Cause.  If the Participant is terminated from his or
her employment with the Company or a Parent or Subsidiary for Cause, all the
Options (whether vested or unvested) shall automatically terminate and be
cancelled (without any action on the part of the Company) on the date of
Termination of Employment.

(ii)           Disability.  If the Participant is terminated from his or
her employment with the Company or a Parent or Subsidiary by reason of
Disability, all unvested Options shall automatically terminate and be cancelled
(without any action on the part of the Company) on the date of Termination of
Employment.  All Options that have vested
prior to such date shall remain exercisable for a period of 120 days following
such date.

 6
 

 

(iii)          Death.  If the Participant dies while employed by the
Company or a Parent or Subsidiary, all unvested Options shall automatically
terminate and be cancelled (without any action on the part of the Company) on
the date of death.  Following the
Participant’s death, his or her executors, administrators, legatees or
distributees may exercise the Options that have vested prior to the date of death
for a period of 120 days following the date of death.

(iv)          Other
Terminations of Employment.  If the
Participant’s employment is terminated for any other reason, all unvested
Options shall automatically terminate and be cancelled (without any action on
the part of the Company) on the date of Termination of Employment.  All Options that have vested prior to such
date shall remain exercisable for a period of 30 days following such date.

(k)           Rule
16b-3.  Options granted to Reporting
Persons shall comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption for Plan transactions.

10.           Terms
and Conditions to Which Only ISOs Are Subject

Options which are designated as ISOs shall be subject to the following
terms and conditions:

(a)           Exercise
Price.  The exercise price of an ISO
shall be determined in accordance with the applicable provisions of the Code
and shall in no event be less than the Fair Market Value of the stock covered
by the ISO at the Grant Date; provided, however, that the exercise price of an
ISO granted to any person who owns, directly or indirectly (or is treated as
owning by reason of attribution rules, currently set forth in Code Section
424), stock of the Company constituting more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or of any
affiliate of the Company, shall in no event be less than 110% of such Fair
Market Value.

(b)           Option
Term.  Unless an earlier expiration
date is specified by the Committee at the Grant Date in the Option Agreement,
each ISO shall expire 10 years from its Grant Date; except that an ISO granted
to any person who owns, directly or indirectly (or is treated as owning by
reason of applicable attribution rules currently set forth in Section 424 of
the Code) stock of the Company constituting more than 10% of the total combined
voting power of the Company’s outstanding stock, or the stock of any affiliate
of the Company, shall expire five years from its Grant Date.

(c)           Disqualifying
Dispositions.  If Common Stock
acquired by exercise of an ISO is disposed of within two years from the Grant
Date or within one year after the transfer of the Common Stock to the Optionee,
the holder of the Common Stock immediately prior to the disposition shall
promptly notify the Company in writing of the date and terms of the disposition
and shall provide such other information regarding the disposition as the
Company may reasonably require.  Such
holder shall pay to the Company any withholding and employment taxes which the
Company in its sole discretion deems applicable.  The Company may instruct its stock transfer
agent by appropriate means, including placement of legends on stock
certificates, 

 7
 

 

not to transfer
stock acquired by exercise of an ISO unless it has been advised by the Company
that the requirements of this Section have been satisfied.

11.           Stock
Awards

(a)           Terms
and Conditions. All shares of Stock Awards granted or sold pursuant to the
Plan will be subject to the following conditions:

(i)            The
shares may not be sold, transferred or otherwise alienated or hypothecated
until the restrictions are removed or expire.

(ii)           The
Committee may require the Participant to enter into an agreement providing that
the certificates representing Stock Awards granted or sold pursuant to the Plan
will remain in the physical custody of the Company until all restrictions are
removed or expire.

(iii)          Each
Certificate representing Stock Awards granted pursuant to the Plan will bear a
legend making appropriate reference to the restrictions imposed.

(iv)          The
Committee may impose other conditions on any shares granted or sold pursuant to
the Plan as it may deem advisable, including, without limitations, restrictions
under the Exchange Act, under the requirements of any stock exchange upon which
such shares or shares of the same class are then listed and under and blue sky
or other securities laws applicable to such shares.

(b)           Lapse
of Terms and Conditions.  The
restrictions imposed under Section 11(a) upon Stock Awards will lapse in
accordance with a schedule or other conditions as determined by the Committee.

(c)           Stockholder
Rights.  Subject to the provisions of
Section 11(a) and Section 11(b), the holder will have all rights of a
stockholder with respect to the Stock Awards granted or sold, including the
right to vote the shares and receive all dividends and other distributions paid
or made with respect thereto.

(d)           Method
of Payment.  Except as set forth
below, the purchase price (if any) for shares acquired pursuant to Stock Awards
will be payable in full in cash or by check. 
The Committee may, in its discretion and upon request of the holder,
issue shares of the Stock Awards directly to a brokerage firm or firms to be
selected by the Committee, without payment of the purchase price by the holder
but upon delivery of an irrevocable guarantee by such brokerage firm or firms
of the payment or such purchase price. No payment by the guarantee of a
brokerage firm or firms as described above will be allowed unless such payments
are allowed under applicable requirements of Federal and state tax, securities
and other laws, rules and regulations and by any regulatory authority having
jurisdiction.

12.           Adjustment
Provisions

(a)           Subject to Section 12(b), if the outstanding
shares of Common Stock of the Company are increased, decreased, or exchanged
for a different number or kind of shares or

 8
 

 

other securities,
or if additional shares or new or different shares or other securities are
distributed with respect to such shares of Common Stock or other securities,
through merger, consolidation, sale of all or substantially all of the property
of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other distribution with respect
to such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment may be made in (i) the maximum number and kind of
shares provided in Section 3, (ii) the number and kind of shares or other
securities subject to the then outstanding Awards, and (iii) the price for each
share or other unit of any other securities subject to then outstanding Awards
without change in the aggregate purchase price or value as to which such Awards
remain exercisable or subject to restrictions.

(b)           Notwithstanding
the provisions of Section 12(a), upon dissolution or liquidation of the Company
or upon a reorganization, merger, or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
Corporation, or upon the sale of all or substantially all of the property of
the Company, all Awards then outstanding under the Plan will be fully vested
and exercisable and all restrictions will immediately cease, unless provisions
are made in connection with such transaction for the continuance of the Plan
and assumption or the substitution for such Awards or issuance of new Awards
covering the stock of a successor employer corporation, or a Parent or
Subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices.

(c)           Adjustments
under Sections 12(a) and 12(b) will be made by the Committee, whose
determinations to what adjustments will be made and the extent thereof will be
final, binding, and conclusive.  No
fractional interest will be issued under the Plan on account of any such
adjustments.

13.           General
Provisions

(a)           No
Right To Continued Employment. 
Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Participant any right to continue as an Employee or
Consultant or member of the Board of the Company or any of its Subsidiaries or
affect the right of the Company to terminate the employment, consulting
relationship or membership on the Board of any Participant at any time with or
without cause.

(b)           Compliance
with Legal Requirements.  No shares
of Common Stock will be issued or transferred pursuant to an Award unless and
until all then-applicable requirements imposed by Federal and state securities
and their laws, rules and regulations and by any regulatory agencies having
jurisdiction, and by any stock exchanges upon which the Common Stock may be
listed have been fully met.  As a
condition precedent to the issuance of shares pursuant to the grant or exercise
of an Award, the Company may require the Participant to make any reasonable
action to meet such requirements.

(c)           Participant
Rights.  No Participant and no
beneficiary or other person claiming under or through such Participant will
have any right, title or interest in or to any shares of Common Stock allocated
or reserved under the Plan or subject to any Award except as to such shares of
Common Stock, if any, that have been issued or transferred to such Participant.

 9
 

 

(d)           Withholding
Taxes.  The Company may make such
provisions as it deems appropriate to withhold any taxes the Company determines
it is required to withhold in connection with any Award.

(e)           Nontransferability.  No Award and no right under the Plan,
contingent or otherwise, will be transferable, assignable or subject to any
encumbrance, pledge or charge of any nature except that, under such rules and
regulations as the Company may establish pursuant to the terms of the Plan, a
beneficiary may be designated with respect to an Award in the event of death of
a Participant.  If such beneficiary is
the executor or administrator of the estate of the Participant, any rights with
respect to such Award may be transferred to the person or persons or entity
(including a trust) entitled thereto under the will of the holder of such
Award.

(f)            Amendment
and Termination of Option.  The
Committee may cancel, with the consent of the Participant, all or a portion of
any Option granted under the Plan to be conditioned upon the granting to the
Participant a new Option for the same or a different number of shares as the
Option surrendered, or may require such voluntary surrender as a condition to a
grant of a new Option to such Participant. 
Such Option shall be exercisable at the price, during the period, and in
accordance with any other terms or conditions specified by the Committee at the
time the new Option is granted, all determined in accordance with the
provisions of the Plan without regard to the price, period of exercise, or any
other terms or conditions of the Option surrendered.

(g)           [Reserved].

(h)           Amendment
and Termination of Plan.  The
Committee will have the power, in its discretion, to amend, suspend or
terminate the Plan at any time.  No such
amendment will, without approval of the stockholders of the Company, except as
provided in Section 12 of the Plan:

(i)            Change
the class of persons eligible to receive Awards under the Plan;

(ii)           Materially
increase the benefits accruing to Eligible Persons under the Plan; or

(iii)          Increase
the number of shares of Common Stock subject to the Plan.

The Committee may, with the consent of a Participant, make such
modifications in the terms and conditions of an Award agreement as it deems
advisable.

No amendment, suspension or termination of the Plan will, without the
consent of the Participant, alter, terminate impair or adversely affect any
right or obligation under any Award previously granted under the Plan.

(i)            Governing
Law.  The Plan and all determinations
made and actions taken pursuant hereto shall be governed by the laws of the
State of Delaware without giving effect to the conflict of laws principles
thereof.

 10
 

 

(j)            Effective
Date and Duration of Plan.  This Plan
will become effective upon adoption by the Board and the holders of a majority
of the outstanding shares at a meeting of stockholders of the Company (the “Effective Date”).  In the absence of such approval, all Awards
shall be null and void.  Unless
previously terminated, the Plan will terminate 10 years after the Effective
Date.

(k)           Indemnification.
In addition to such other rights of indemnification as they may have as members
of the Board or the Committee, the members of the Committee shall be
indemnified by the Company against all costs and expenses reasonably incurred
by them in connection with any action, suit or proceeding to which they or any
of them may be party by reason of any action taken or failure to act under or
in connection with the Plan or any Option granted under the Plan, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding; provided,
however, that any such Committee or Board member shall be entitled to the
indemnification rights set forth in this Section only if such member has acted
in good faith and in a manner that such member reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any
such action, suit or proceeding a Committee or Board member shall give the
Company written notice thereof and an opportunity to handle and defend the same
before such Committee or Board member undertakes to handle and defend it on his
or her own behalf.

 11

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