Document:

Exhibit 10.12

 

SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of February 16, 2006,
by and among Aegis Assessments, Inc., a Delaware corporation (the “Company”), and the subscribers identified
on the signature page hereto (each a “Subscriber”
and collectively “Subscribers”).

 

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

 

WHEREAS, the parties desire that, upon the terms and subject
to the conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to Five Hundred Thousand Dollars ($500,000) (the “Aggregate Principal Amount”) of principal
amount of promissory notes of the Company (“Note”
or “Notes”), a form of which is
annexed hereto as Exhibit A,
convertible into shares of the Company’s common stock, $0.001 par value (the “Common Stock”), at a per share conversion
price set forth in the Note (“Conversion
Price”); and share purchase warrants (the “Warrants”), in the forms annexed hereto as Exhibits B1 and B2, to purchase shares of Common Stock (the “Warrant Shares”).  The Notes, shares of Common Stock issuable
upon conversion of the Notes (the “Shares”),
the Warrants and the Warrant Shares are collectively referred to herein as the “Securities”; and

 

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

 

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

 

1.                                       Closing.  Subject to the satisfaction or waiver of the
terms and conditions of this Agreement, on the Closing Date, each Subscriber
shall purchase and the Company shall sell to each Subscriber a Note in the
principal amount designated on the signature page hereto for the purchase
price set forth on the signature page hereto.  The aggregate principal amount of the Notes
to be purchased by the Subscribers on the Closing Date shall, in the aggregate,
be equal to the Aggregate Principal Amount. 
The consummation of the transactions contemplated herein shall take
place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601,
New York, New York 10176, as soon as practicable following the satisfaction or
waiver of all conditions to closing set forth in this Agreement (the “Closing Date”).

 

2.                                       Warrants.   On the Closing Date, the Company will issue
and deliver Warrants to the Subscribers. 
One Class A Warrant and one Class B Warrant will be issued for
each one Share which would be issued on the Closing Date assuming the
conversion of all of the Notes issued on the Closing Date at the Conversion
Price in effect on the Closing Date.  The
per Warrant Share exercise price to acquire a Warrant Share upon exercise of a Class A
Warrant shall be equal to $0.25.  The per
Warrant Share exercise price to acquire a Warrant Share upon exercise of a Class B
Warrant shall be equal to $0.60.  The Class A
Warrants shall be exercisable for five years after the Closing Date.  The Class B Warrants shall be
exercisable for three years after the Closing Date.

 

3.                                       Security Interest.   The
Subscribers will be granted a security interest in all the assets of the Company
to be memorialized in a “Security Agreement”,
a form of which is annexed hereto

 

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as
Exhibit D.   The Company will execute such other
agreements, documents and financing statements reasonably requested by
Subscribers, which will be filed at the Company’s expense with the
jurisdictions, states and counties designated by the Subscribers.  The Company will also execute all such
documents reasonably necessary in the opinion of Subscriber to memorialize and
further protect the security interest described herein.  The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest
to be granted to the Subscribers.  The
appointment will be pursuant to a “Collateral
Agent Agreement”, a form of which is annexed hereto as Exhibit E.

 

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

 

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

 

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

 

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

 

(d)                                 Information on Company.   The
Subscriber has been furnished with or has had access at the EDGAR Website of
the Commission to the Company’s Form 10-KSB for the year ended July 31,
2005 and all periodic reports filed with the Commission thereafter until five (5) business
days prior to the Closing Date (hereinafter collectively referred to as the “Reports”).  The
Subscriber has had an opportunity to ask questions and receive answers from
representatives of the Company.  In
addition, the Subscriber has received in writing from the Company such other
information concerning its operations, financial condition and other matters as
the Subscriber has requested in writing (such other information is
collectively, the “Other Written Information”),
and considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.

 

(e)                                  Information on Subscriber.  The
Subscriber is, and will be at the time of the conversion of the Notes and
exercise of the Warrants, an “accredited investor”, as such term is defined

 

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

 

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

 

(g)                                 Compliance with Securities Act.  The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933 Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held
indefinitely unless a subsequent disposition is registered under the 1933 Act
or any applicable state securities laws or is exempt from such
registration.  The Subscriber will comply
with regulations relating to “short sale” transactions.  Each Subscriber hereby represents that neither
it nor any of its affiliates have an open short position in the Common Stock of
the Company as of the date of this Agreement.

 

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

 

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

 

(i)                                     Warrants Legend.  The
Warrants shall bear the following

 

or similar legend:

 

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

 

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

 

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

 

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

 

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

 

(m)                               Restricted Securities.  
Subscriber understands that the Securities have not been registered
under the 1933 Act and such Subscriber will not sell, offer to sell, assign,
pledge, hypothecate or otherwise transfer any of the Securities unless pursuant
to an effective registration statement under the 1933 Act.  Notwithstanding anything to the contrary
contained in this Agreement, such Subscriber may transfer (without restriction
and without the need for an opinion of counsel) the Securities to its
Affiliates (as defined below) provided that each such Affiliate is an “accredited
investor” under Regulation D and such Affiliate agrees to be bound by the terms
and conditions of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or entity means
any other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity.  Affiliate when employed in connection with
the Company includes each Subsidiary as defined in Section 5(a) of
the Company, if any.  For purposes of
this definition, “control” means
the power to direct the management and policies of such person or firm,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.

 

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

 

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

 

4

 

(p)                                 Restriction on Sales.  From
the time the Subscriber was made aware of the offering of the Securities by the
Company until such time as such offer and sale is publicly announced, the
Subscriber has not and will not offer to sell, solicit offers to buy, dispose
of, loan, pledge or grant any right with respect to the Common Stock.

 

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

 

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

 

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

 

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

 

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

 

(d)                                 Additional Issuances.  
There are no outstanding agreements or preemptive or similar rights
affecting the Company’s common stock or equity and no outstanding rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, or agreements or understandings with respect to the sale or issuance of
any shares of common stock or equity of the Company except as described on Schedule 5(d).

 

(e)                                  Consents.  No consent, approval,
authorization or order of any court, governmental agency or body or arbitrator
having jurisdiction over the Company, or any of its Affiliates, any Principal
Market (as defined in Section 9(b) of this Agreement), nor the
Company’s shareholders is required for the execution by the Company of the
Transaction Documents and compliance and 

5

 

performance
by the Company of its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities.

 

(f)                                    No Violation or Conflict. 
Assuming the representations and warranties of the Subscribers in Section 4
are true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company will:

 

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

 

(ii)                                  result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company or any of its Affiliates, except as contemplated herein and by the
Transaction Documents; or

 

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

 

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

 

(g)                                 The Securities.  The
Securities upon issuance:

 

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

 

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

 

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

 

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

 

6

 

(v)                                 provided Subscriber’s representations herein
are true and accurate and Subscribers take no actions or fail to take any
actions required for their purchase of the Securities to be in compliance with
all applicable laws and regulations, will have been issued in reliance
upon an exemption from the registration requirements of and will not result in
a violation of Section 5 under the 1933 Act.

 

(h)                                 Litigation.  Except as described on Schedule 5(h), there is no pending or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its Affiliates
that would affect the execution by the Company or the performance by the
Company of its obligations under the Transaction Documents.  Except as disclosed on Schedule 5(h),
there is no pending, or, to the knowledge of the Company, basis for any, action,
suit, proceeding or investigation before any court, governmental agency or
body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect.

 

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

 

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

 

(k)                                  Information Concerning Company.  The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates and all the
information required to be disclosed therein.  
Since the last day of the fiscal year of the most recent audited
financial statements included in the Reports (“Latest
Financial Date”), and except as modified in the Other Written
Information or in Schedule 5(k),
there has been no Material Adverse Event relating to the Company’s business,
financial condition or affairs not disclosed in the Reports.  The Reports do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances when made.

 

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

 

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

 

7

 

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

 

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

 

(p)                                 Listing.  The Common Stock is listed on
the Bulletin Board.  The Company has not
received any oral or written notice that the Common Stock is not eligible nor
will become ineligible for listing on the Bulletin Board nor that the Common
Stock does not meet all requirements for the continuation of such listing.  The Company satisfies all the requirements
for the continued listing of the Common Stock on the Bulletin Board.

 

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

 

(r)                                    No Undisclosed Events or Circumstances.  Since
the Latest Financial Date, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in the Reports, except as
disclosed on Schedule 5(r).

 

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

 

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

 

8

 

the
dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company.

 

(u)                                 No Disagreements with Accountants and
Lawyers.  There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants and lawyers formerly or presently employed by
the Company, including but not limited to disputes or conflicts over payment
owed to such accountants and lawyers, except as set forth on Schedule 5(q).

 

(v)                                 Transfer Agent.   The
name, address, telephone number, fax number, contact person and email address
of the Company transfer agent is set forth on Schedule 5(v) hereto.

 

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

 

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

 

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

 

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

 

6.                                       Regulation D Offering.  The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded by Section 4(2) or
Section 4(6) of the 1933 Act and/or Rule 506 of Regulation D
promulgated thereunder.  On the Closing
Date, the Company will provide an opinion reasonably acceptable to Subscriber
from the Company’s legal counsel opining on the availability of an exemption
from registration under the 1933 Act as it relates to the offer and issuance of
the Securities and other matters reasonably requested by Subscribers.  A form of the legal opinion is annexed hereto
as Exhibit F.  The Company will provide, at the Company’s
expense, such other legal opinions in the future as are reasonably necessary
for the issuance and resale of the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants pursuant to an effective registration
statement and Rule 144 under the 1933 Act. 
Subscriber agrees that any legal opinions required hereunder or under
any other Transaction Documents may be supplied by the Company’s in house
counsel.

 

7.1.                              Conversion of Note.

 

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

 

9

 

(b)                                 Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, any sum due to the Subscriber under the Transaction Documents
including Liquidated Damages, or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which
is annexed as Exhibit A to
the Note) to the Company via confirmed telecopier transmission or otherwise
pursuant to Section 13(a) of this Agreement.  The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied.  Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a Conversion Date.  The Company will itself or cause the Company’s
transfer agent to transmit the Company’s Common Stock certificates representing
the Shares issuable upon conversion of the Note to the Subscriber via express
courier for receipt by such Subscriber as promptly as possible, but in any
event within 5 business days after receipt by the Company of the Notice of
Conversion (such third day being the “Delivery
Date”).  In the event the
Shares are electronically transferable, then delivery of the Shares must
be made by electronic transfer provided request for such electronic transfer
has been made by the Subscriber and the Subscriber has complied with all
applicable securities laws in connection with the sale of the Common Stock,
including, without limitation, the prospectus delivery requirements.   A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the original Note to the
Company. In the event that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, the Subscriber hereby
indemnifies the Company against any and all loss or damage attributable to a
third-party claim in an amount in excess of the actual amount then due under
the Note.  “Business day” and “trading day” as employed in the Transaction Documents is a
day that the New York Stock Exchange is open for trading for three or more
hours.

 

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

 

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

 

7.2.                              Mandatory Redemption at Subscriber’s Election.  In
the event (i) the Company is prohibited from issuing Shares, (ii) the
Company fails to timely deliver Shares on a Delivery Date, (iii) upon the
occurrence of any other Event of Default (as defined in the Note or in this
Agreement), or (iv) of the liquidation, dissolution or winding up of the
Company, any of which that continues for more than ten days, then at the
Subscriber’s election, the Company must pay to the Subscriber ten (10) business
days after

 

10

 

request
by the Subscriber, a sum of money determined by multiplying up to the
outstanding principal amount of the Note designated by the Subscriber, by 120%,
together with accrued but unpaid interest thereon (“Mandatory Redemption Payment”). The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Shares
otherwise deliverable or within ten (10) business days after request,
whichever is sooner (“Mandatory Redemption
Payment Date”). Upon receipt of the Mandatory Redemption Payment,
the corresponding Note principal and interest will be deemed paid and no longer
outstanding.  Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or
accrued for the twenty day period prior to the actual receipt of the Mandatory
Redemption Payment by the Subscriber shall be credited against the Mandatory
Redemption Payment.

 

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

 

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

 

7.5.                              Buy-In.  In addition to any other
rights available to the Subscriber, if the Company fails to deliver to the
Subscriber such shares issuable upon conversion of a Note by the Delivery Date
and if after seven (7) business days after the Delivery Date the
Subscriber purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Subscriber of the
Common Stock which the Subscriber was entitled to receive upon such conversion
(a “Buy-In”), then the Company
shall pay in cash to the Subscriber (in addition to any remedies available to
or elected by the Subscriber) the amount by which (A) the Subscriber’s
total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (B) the aggregate principal and/or
interest amount of the Note for which such conversion was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty).  For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 of note principal and/or interest, the Company shall be
required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the Subscriber
in respect of the Buy-In.

 

11

 

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

 

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

 

8.                                       Placement
Agent/Legal Fees.

 

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

 

(b)                                 Legal Fees.   The Company shall pay to
Grushko & Mittman, P.C., a cash fee of $15,000 (“Legal Fees”)
(of which $2,500 has been paid) as reimbursement for services rendered to the
Subscribers in connection with this Agreement and the purchase and sale of the
Notes and Warrants (the “Offering”).  The Legal Fees and reimbursement for
estimated UCC searches and filing fees (less any amounts paid prior to a
Closing Date) will be payable on the Closing Date out of funds held pursuant to
the Escrow Agreement.

 

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

 

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

 

(b)                                 Listing.  The Company shall promptly secure the listing
of the shares of Common Stock and the Warrant Shares upon each national
securities exchange, or electronic or automated quotation system upon which
they are or become eligible for listing and shall use commercially reasonable
efforts to maintain such listing so long as any Notes or Warrants are
outstanding.  The Company will maintain
the listing of its Common Stock on the American Stock Exchange, Nasdaq Capital
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the “Principal
Market”)), and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide the Subscribers
copies of all notices it receives notifying the Company of the threatened and
actual delisting of the Common Stock from any Principal Market.  As of the date of this Agreement, the Bulletin
Board is the Principal Market.  The
Company will use commercially reasonable efforts to maintain the Bulletin Board
as the Principal Market; provided that the Company shall not be required to
consummate a reverse stock split in order to comply with the foregoing
covenant.

 

12

 

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

 

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

 

(e)                                  Use of Proceeds.  The proceeds of the Offering will be employed
by the Company for the purposes set forth on Schedule 9(e) hereto.  Except as set forth on Schedule 9(e), the net amount due the
Company from the Aggregate Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing related
debt, redemption of outstanding notes or equity instruments of the Company,
litigation related expenses or settlements, brokerage fees, nor non-trade
obligations outstanding on a Closing Date. 
For so long as any Notes are outstanding, the Company will not prepay
any financing related debt obligations nor redeem any equity instruments of the
Company.

 

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

 

(g)                                 Taxes.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefore.

 

13

 

(h)                                 Insurance.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, the Company will keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and not in
any event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar businesses similarly situated
and to the extent available on commercially reasonable terms.

 

(i)                                     Books and
Records.  From the
date of this Agreement and until the conversion or satisfaction of the Note, in
its entirety, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.

 

(j)                                     Governmental
Authorities.   From the
date of this Agreement and until the conversion or satisfaction of the Note, in
its entirety, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.

 

(k)                                  Intellectual
Property.  From the
date of this Agreement and until the conversion or satisfaction of the Note, in
its entirety, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for value.

 

(l)                                     Properties.  From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, the Company will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.

 

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

 

(n)                                 Further Registration Statements.  
Except for a registration statement filed on behalf of the Subscribers
pursuant to Section 11 of this Agreement, and as set forth on Schedule 11.1 hereto, the Company will not file any
registration statements or amend any already filed registration statement to
increase the amount of Common Stock registered therein, or reduce the price of
which such Common Stock registered therein, including but not limited to Forms
S-8, with the Commission or with state regulatory authorities without the
consent of the Subscriber until the expiration of the “Exclusion

 

14

 

Period”,
which shall be defined as the sooner of (i) the Registration Statement
having been current and available for use in connection with the resale of all
of the Registrable Securities (as defined in Section 11.1(i) for a
period of 90 days, or (ii) until all the Shares and Warrant Shares have
been resold or transferred by the Subscribers pursuant to the Registration
Statement or Rule 144, without regard to volume limitations.  The Exclusion Period will be tolled during
the pendency of an Event of Default as defined in the Note.

 

(o)                                 Blackout.    The Company undertakes and
covenants that until the end of the Exclusion Period, the Company will not
enter into any acquisition, merger, exchange or sale or other transaction that
could have the effect of delaying the effectiveness of any pending Registration
Statement or causing an already effective Registration Statement to no longer
be effective or current for a period of fifteen (15) or more days in the
aggregate or seven consecutive days during any twelve month period.

 

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

 

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

 

(r)                                    Negative Pledge.  So
long as any Notes are outstanding, the Company shall not, and shall cause each
of its Subsidiaries (if any) not to, create, incur, assume or suffer to exist
any pledge, hypothecation, assignment, deposit arrangement, lien, charge,
claim, security interest, security title, mortgage, security deed or deed of
trust, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security
interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”)
upon any of its property, whether now owned or hereafter acquired other than (i) for
the Excepted Issuances (as defined in Section 12(a) hereof), (ii) (a) Liens
imposed by law for taxes that are not yet due or are being contested in good
faith and for which adequate reserves have been established in accordance with
generally accepted accounting principles; (b) carriers’, warehousemen’s,
mechanics’, material men’s, repairmen’s and other like Liens imposed by law,
arising in the ordinary course of business and securing obligations that are
not overdue by more than 30 days or that are being contested in good faith and
by appropriate proceedings; (c) pledges and deposits made in the ordinary
course of business in compliance with workers’ compensation, unemployment
insurance and other social security laws or regulations; (d) deposits to
secure the performance of bids, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case in the ordinary course of business; (e) Liens created
with respect to the financing of the purchase of new property in the ordinary
course of the Company’s business up to the amount of the purchase price of such
property, (f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected property, or (g) any liens
identified on Schedule 9(r) (each of (a) through (g), a

 

15

 

“Permitted Lien”) and (iii) indebtedness
for borrowed money which is not senior or pari passu in right of payment to the
payment of the Notes, on terms reasonably satisfactory to the Subscriber.

 

(s)                                  Limited Standstill.   The
Company will deliver to the Subscribers on or before the Closing Date and
enforce the provisions of irrevocable lockup agreements (“Limited
Standstill Agreements”) in the forms annexed hereto as Exhibit H, with the parties identified on Schedule 9.1(s) hereto.

 

10.                                 Covenants of the Company and Subscriber
Regarding Indemnification.

 

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

 

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

 

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

 

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

 

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

 

(i)                                     On one
occasion, for a period commencing ninety-one (91) days after the Closing Date,
but not later than two (2) years after the Closing Date, upon a written
request therefor from any record holder or holders of more than 50% of the
Shares issued and issuable upon conversion of the outstanding Notes and
outstanding Warrant Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which
are the subject of such request for unrestricted public resale by the holder
thereof.  For purposes of Sections 11.1(i) and
11.1(ii), Registrable Securities shall not include Securities which are (A) registered
for resale in an effective registration statement, (B) included for
registration in a pending registration statement, or  (C) which have been issued without
further transfer restrictions after a sale or transfer pursuant to Rule 144
under the 1933 Act.  Upon the receipt of
such request, the Company shall promptly give written notice to all other
record holders of the Registrable Securities that such registration statement
is to be filed and shall include in such registration statement Registrable
Securities

 

16

 

for which it has received
written requests within ten (10) days after the Company gives such written
notice.  Such other requesting record
holders shall be deemed to have exercised their demand registration right under
this Section 11.1(i).

 

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

 

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

 

(iv)                              The Company
shall file with the Commission a Form SB-2 registration statement (the “Registration Statement”) (or such other
form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act within 45 calendar
days after the Closing Date (the “Filing Date”),
and cause to be declared effective not later than ninety (90) calendar days after
the Closing Date, or 120 calendar days in the event the Registration Statement
is reviewed by the SEC (the “Effective Date”).  The Company will register not less than a
number of shares of common stock in the aforedescribed registration statement
that is equal to 175% of the Shares issuable upon conversion of all of the
Notes issuable to the Subscribers, and 100% of the Warrant Shares issuable
pursuant to this Agreement upon exercise of the Warrants and Placement Agent’s
Warrants (as described on Schedule 8
hereto) (collectively the “Registrable
Securities”). The Registrable Securities shall be reserved and set
aside exclusively for the benefit of each Subscriber and Warrant holder, pro
rata, and not issued, employed or reserved for anyone other than each
such Subscriber and Warrant holder.  The
Registration Statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary to register
additional shares of Common Stock to allow the public resale of all Common
Stock included in and issuable by virtue of the Registrable Securities.  Except with the written consent of the
Subscriber, or as described on Schedule 11.1
hereto, no securities of the Company other than the Registrable Securities will
be included in the Registration Statement. 
It shall be deemed a Non-Registration Event if at any time after the
date the Registration Statement is declared effective by the Commission (“Actual Effective Date”) the Company has
registered for unrestricted resale on behalf of the

 

17

 

Subscribers fewer than 125%
of the amount of Common Shares issuable upon full conversion of all sums due
under the Notes and 100% of the Warrant Shares issuable upon exercise of the Warrants.

 

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

 

(a)                                  subject to the
timelines provided in this Agreement, prepare and file with the Commission a
registration statement required by Section 11, with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email
to Counslers@aol.com) on or before 6:00 PM EST on the business after the day
that the Company receives notice that (i) the Commission has no comments
or no further comments on the Registration Statement, and (ii) the
registration statement has been declared effective (failure to timely provide
notice as required by this Section 11.2(a) shall be a material breach
of the Company’s obligation and an Event of Default as defined in the Notes and
a Non-Registration Event as defined in Section 11.4 of this Agreement)

 

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

 

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

 

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

 

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

 

(f)                                    notify the
Subscribers within twenty-four hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Shares; and

 

(g)                                 provided same
would not be in violation of the provision of Regulation FD under the 1934 Act,
make available for inspection by the Sellers, 
and any attorney, accountant or other

 

18

 

agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company’s officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.

 

(h)                                 Notwithstanding
anything in this Agreement to the contrary, after 60 consecutive trading days
of continuous effectiveness of the initial Registration Statement filed and
declared effective pursuant to this Agreement, the Company may, by written
notice to the Sellers, suspend sales under a Registration Statement after the
Actual Effective Date thereto and/or require that the Sellers immediately cease
the sale of shares of Common Stock pursuant thereof and/or defer the filing of
any subsequent Registration Statement if the Company is engaged in a material
merger, acquisition or sale and the Company’s board of directors determines in
good faith, by appropriate resolutions, that, as a result of such activity, (A) it
would be materially detrimental to the Company (other than as relating solely
to the price of the Common Stock) to file a Registration Statement at such time
and (B) it is in the best interests of the Company to defer proceeding
with such registration at such time. 
Upon receipt of such notice, each Seller shall immediately discontinue
any sales of Registrable Securities pursuant to such registration until such
Seller has received copies of a supplemented or amended prospectus or until
such Seller is advised in writing by the Company that the then-current
prospectus may be used and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in such prospectus.  In no event, however,
shall this right be exercised to suspend sales beyond the period during which
(in the good faith determination of the Company’s board of directors) the
failure to require such suspension would be materially detrimental to the
Company.  The Company’s rights under this
subsection 11.2(h) may be exercised for a period of no more than 15
days in any twelve-month period, of which no more than 7 days may be
consecutive.  Immediately after the end
of any suspension period under this subsection 11.2(h), the Company shall
take all necessary actions (including filing any required supplemental
prospectus) to restore the effectiveness of the applicable Registration
Statement and the ability of the Sellers to publicly resell their Registrable
Securities pursuant to such effective Registration Statement.  In no event will the Company’s obligation to
pay Liquidated Damages or other damages be suspended for more than the seven
and fifteen day periods described above.

 

11.3.                        Provision of Documents.  In
connection with each registration described in this Section 11, each
Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.

 

11.4.                        Non-Registration Events.  The
Company and the Subscribers agree that the Sellers will suffer damages if the
Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) is not
filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 11 hereof, and it would
not be feasible to ascertain the extent of such damages with precision.  Accordingly, if (A) the Registration
Statement is not filed on or before the Filing Date, (B) is not declared
effective on or before the Effective Date, (C) due to the action or
inaction of the Company the Registration Statement is not declared effective
within three (3) business days after receipt by the Company or its
attorneys of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall
thereafter cease to be effective without being succeeded within fifteen (15)
business days by an effective replacement or amended registration statement or
for a period of time which shall exceed 30 days in the aggregate per year
(defined as a period of 365 days commencing on the Actual Effective Date (each
such event referred to in clauses A through E of this Section 11.4 is
referred to herein as a “Non-Registration Event”), then the Company shall
deliver to the

 

19

 

holder
of Registrable Securities, as liquidated damages, an amount equal to one
percent (1%) for each thirty (30) days or part thereof of the Aggregate
Principal Amount of the Notes remaining unconverted and purchase price of
Shares issued upon conversion of the Notes and exercise of Warrants owned of
record by such holder which are subject to such Non-Registration Event (“Liquidated Damages”).  The Company must pay the Liquidated Damages
in cash.  The Liquidated Damages must be
paid within ten (10) days after the end of each thirty (30) day period or
shorter part thereof for which Liquidated Damages are payable.  In the event a Registration Statement is
filed by the Filing Date but is withdrawn prior to being declared effective by
the Commission, then such Registration Statement will be deemed to have not
been filed.  All oral or written comments
received from the Commission relating to the Registration Statement must be
satisfactorily responded to within ten (10) business days after receipt of
comments from the Commission.  Failure to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders of
Registrable Securities at the same rate set forth above.  Notwithstanding the foregoing, the Company shall
not be liable to the Subscriber under this Section 11.4 for any events or
delays occurring as a consequence of the acts or omissions of the Subscribers
contrary to the obligations undertaken by Subscribers in this Agreement.  Liquidated Damages will not accrue nor be
payable pursuant to this Section 11.4 nor will a Non-Registration Event be
deemed to have occurred for times during which Registrable Securities are
transferable by the holder of Registrable Securities pursuant to Rule 144(k)
under the 1933 Act.

 

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

 

11.6.                        Indemnification and Contribution.

 

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

 

20

 

alleged untrue statement or
such omission or alleged omission, or (iii) to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished by any such Seller, or any such
controlling person in writing specifically for use in such registration
statement or prospectus.

 

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

 

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

 

(d)                                 In order to
provide for just and equitable contribution in the event of joint liability under
the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section 11.6
but it is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or

 

21

 

the denial of the last right
of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may
be required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section 11.6;
then, and in each such case, the Company and the Seller will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be required to contribute any amount in excess of the public offering price of
all such securities sold by it pursuant to such registration statement; and (z)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.

 

11.7.                        Delivery of Unlegended Shares.

 

(a)                                  Within 5
business days (such fifth business day being the “Unlegended Shares Delivery Date”) after the business day on
which the Company has received (i) a notice that Shares or Warrant Shares
or any other Common Stock held by a Subscriber have been sold pursuant to the
Registration Statement or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements
of Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense,
(y) shall deliver, and shall cause legal counsel selected by the Company to
deliver to its transfer agent (with copies to Subscriber) an appropriate
instruction and opinion of such counsel, directing the delivery of shares of
Common Stock without any legends including the legend set forth in Section 4(h) above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144
under the 1933 Act (the “Unlegended Shares”);
and (z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted share certificates, if any, to the Subscriber at the address
specified in the notice of sale, via express courier, by electronic transfer or
otherwise on or before the Unlegended Shares Delivery Date.

 

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

 

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

 

22

 

aforedescribed
liquidated damages that have accrued or been paid for the twenty day period
prior to the receipt by the Subscriber of the Unlegended Redemption Amount
shall be credited against the Unlegended Redemption Amount.  The Company shall pay any payments incurred
under this Section in immediately available funds upon demand.

 

(d)                                 In addition to any other
rights available to a Subscriber, if the Company fails to deliver to a
Subscriber Unlegended Shares as required pursuant to this Agreement, within
seven (7) business days after the Unlegended Shares Delivery Date and the
Subscriber purchases (in an open market transaction or otherwise) shares of
common stock to deliver in satisfaction of a sale by such Subscriber of the
shares of Common Stock which the Subscriber was entitled to receive from the
Company (a “Buy-In”), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber’s total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares  together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). 
For example, if a Subscriber purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of
purchase price of shares of Common Stock delivered to the Company for reissuance
as Unlegended Shares, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

 

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

 

11.8                           Dispositions.  Each
Seller agrees that it will comply with the prospectus delivery requirements of
the Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to the Registration Statement.  Each Seller further agrees that, upon receipt
of a notice from the Company of the occurrence of (i) the issuance of a
stop order by the SEC suspending the effectiveness of any Registration
Statement or initiating any proceedings for that purpose; (ii) the Company’s
receipt of any notice of suspension  of
the qualification or exemption from qualification of any Registrable Securities
for sale in any jurisdiction, or the initiation or threat of any proceeding for
such purpose; or (iii) the financial statements included or incorporated
by reference in any Registration Statement become ineligible for inclusion or
incorporation therein or any statement made in any Registration Statement or
prospectus or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or any revision to a Registration
Statement, prospectus or other document is required so that it will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, such
Seller will discontinue disposition of such Registrable Securities under the Registration
Statement until such Seller’s receipt of the copies of the supplemented
prospectus and/or amended Registration Statement or until it is advised in
writing by the Company that the use of the applicable prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such prospectus or Registration Statement, provided simultaneous
notice of the stop order is provided to Subscribers contemporaneously.  Nothing in this Section shall relieve
the Company of

 

23

 

its
obligations to pay Liquidated Damages or any other damages in the event of the
occurrence of any of the foregoing.

 

12.                                 (a)                                  Right
of First Refusal.   Until three
hundred and sixty-five (365) days after the Actual Effective Date, the
Subscribers shall be given not less than the later of ten (10) business
days prior written notice of any proposed sale by the Company of its common
stock or other securities or debt obligations, except in connection with (i) full
or partial consideration in connection with a strategic merger, acquisition,
consolidation or purchase of substantially all of the securities or assets of
corporation or other entity which holders of such securities or debt are not at
any time granted registration rights, except for an S-4 registration statement,
(ii) the Company’s issuance of
securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital and which holders of such securities or debt are not at any time
granted registration rights, (iii) the Company’s issuance of Common Stock
or the issuances or grants of options to purchase Common Stock pursuant to the
Company’s 2002 Stock Option Plan and any options or warrants outstanding as of
the date of this Agreement, (iv) as a result of the exercise of Warrants
or conversion of Notes which are granted or issued pursuant to this Agreement,
and (v) the payment of any interest on the Notes and liquidated damages or
other damages pursuant to the Transaction Documents (collectively the
foregoing are “Excepted Issuances”).  The Subscribers who exercise their rights
pursuant to this Section 12(a) shall have the right during the ten (10) business
days following receipt of the notice to purchase such offered common stock,
debt or other securities in accordance with the terms and conditions set forth
in the notice of sale in the same proportion to each other as their purchase of
Notes in the Offering for up to 100% of the amount of securities or debt issued
in such other offering.  In the event
such terms and conditions are modified during the notice period, the
Subscribers shall be given prompt notice of such modification and shall have
the right during the ten (10) business days following the notice of
modification to exercise such right; provided, however, that the action of the
pricing mechanism shall not be deemed a modification of such terms or
conditions.

 

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

 

24

 

exercise price in effect
upon such issuance.  The aforedescribed
rights set forth in this Section 12 shall also apply in connection with
any securities issued or to be issued by the Company in connection with the
treasury bill equity swap transaction of November 15, 2004 with Cogent
Capital Corp. disclosed on Form 10-QSB filed with the Securities and
Exchange Commission on March 22, 2005. 
The rights of the Subscriber set forth in this Section 12 are in
addition to any other rights the Subscriber has pursuant to this Agreement, the
Note, any Transaction Document, and any other agreement referred to or entered
into in connection herewith.

 

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

 

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

 

13.                                 Miscellaneous.

 

(a)                                  Notices.  All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand
delivery, telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice.  Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur.  The addresses for such communications
shall be: (i) if to the Company, to: Aegis Assessments, Inc., 7975 N.
Hayden Road, Suite D363, Scottsdale, Arizona 85258, Attn: Eric D. Johnson,
CEO, telecopier: (480) 778-1310, with a copy by telecopier only to: Rogers &
Theobald LLP, The Camelback Esplanade, 2425 East Camelback Road, Suite 850,
Phoenix, Arizona 85016, Attn: Daniel M. Mahoney, Esq., telecopier: (602)
852-5570, and (ii) if to the Subscriber, to: the one or more addresses and
telecopier numbers indicated on the signature pages hereto, with an
additional copy by telecopier only to: Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575, and (iii) if to the Placement Agent, to: the address and
telecopier number set forth on Schedule 8
hereto.

 

 (b)                              Entire Agreement; Assignment.  This Agreement and other documents delivered
in connection herewith represent the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by both parties.  Neither
the Company nor the Subscribers have relied on any representations not
contained or referred to in this

 

25

 

Agreement and the documents
delivered herewith.   No right or
obligation of the Company shall be assigned without prior notice to and the
written consent of the Subscribers.

 

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

 

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

 

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

 

(f)                                    Independent
Nature of Subscribers.     The Company acknowledges
that the obligations of each Subscriber under the Transaction Documents are
several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.  The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii) review
by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to such

 

26

 

obligations or the
transactions contemplated by the Transaction Documents.  The Company
acknowledges that each Subscriber shall be entitled to independently protect
and enforce its rights, including without limitation, the rights arising out
of the Transaction Documents, and it shall not be necessary for any
other Subscriber to be joined as an additional party in any proceeding for such
purpose.  The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of the Company and not because Company was required or requested to do so by
the Subscribers.  The Company acknowledges that such procedure with
respect to the Transaction Documents in no way creates a presumption that the
Subscribers are in any way acting in concert or as a group with respect to the
Transaction Documents or the transactions contemplated thereby.

 

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

 

(g)                                 As used in the
Agreement, “consent of the Subscribers” or similar language means the consent
of holders of not less than 75% of the total of the Shares issued and issuable
upon conversion of outstanding Notes owned by Subscribers on the date consent
is requested.

 

(h)                                 No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of the Transaction Documents unless the
same consideration is also offered and paid to all the parties to the
Transaction Documents.

 

[THIS SPACE INTENTIONALLY
LEFT BLANK]

 

27

 

SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (A)

 

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

 

	
   

  	
  AEGIS
  ASSESSMENTS, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Richard Reincke

  	
   

  
	
   

  	
   

  	
  Name: Richard Reincke

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated: February 16, 2006

  

 

 

	
  SUBSCRIBER

  	
   

  	
  PURCHASE PRICE

  	
   

  	
  CLASS A

  WARRANTS

  	
   

  	
  CLASS B

  WARRANTS

  	
   

  
	
  ALPHA CAPITAL

  AKTIENGESELLSCHAFT

  Pradafant 7

  9490 Furstentums

  Vaduz, Lichtenstein

  Fax: 011-42-32323196

  	
   

  	
  $

  	
  250,000.00

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   /s/ Konrad Ackerman

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Signature) 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By: Konrad Ackerman

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

 

SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)

 

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

 

	
   

  	
  AEGIS
  ASSESSMENTS, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Richard Reincke

  	
   

  
	
   

  	
   

  	
  Name: Richard Reincke

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated: February 16, 2006

  

 

 

	
  SUBSCRIBER

  	
   

  	
  PURCHASE PRICE

  	
   

  	
  CLASS A

  WARRANTS

  	
   

  	
  CLASS B

  WARRANTS

  	
   

  
	
  HARBORVIEW MASTER FUND
  LP

  850- Third Avenue Suite 1801

  New York, NY 10022

  Fax: (646) 218-1401

  	
   

  	
  $

  	
  125,000.00

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   /s/ Harborview Master Fund LP

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Signature) 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By: Harborview Master
  Fund LP

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

 

SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (C)

 

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

 

	
   

  	
  AEGIS
  ASSESSMENTS, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Richard Reincke

  	
   

  
	
   

  	
   

  	
  Name: Richard Reincke

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated: February 16, 2006

  

 

 

	
  SUBSCRIBER

  	
   

  	
  PURCHASE PRICE

  	
   

  	
  CLASS A

  WARRANTS

  	
   

  	
  CLASS B

  WARRANTS

  	
   

  
	
  DKR
  SOUNDSHORE OASIS HOLDING FUND LTD.

  C/o DKR Capital Partners, L.P.

  1281 East Main Street

  Stamford, CT 06902

  Fax: (203) 674-4737

  	
   

  	
  $

  	
  125,000.00

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   /s/ DKR Soundshore Oasis Holding Fund Ltd.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Signature) 

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By: DKR Soundshore
  Oasis Holding Fund Ltd.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

 

LIST OF EXHIBITS AND SCHEDULES

 

	
  Exhibit A

  	
  Form of Note

  
	
   

  	
   

  
	
  Exhibit B1

  	
  Form of Class A Warrant

  
	
   

  	
   

  
	
  Exhibit B2

  	
  Form of Class B Warrant

  
	
   

  	
   

  
	
  Exhibit C

  	
  Escrow Agreement

  
	
   

  	
   

  
	
  Exhibit D

  	
  Form of Security Agreement

  
	
   

  	
   

  
	
  Exhibit E

  	
  Form of Collateral Agent Agreement

  
	
   

  	
   

  
	
  Exhibit F

  	
  Form of Legal Opinion

  
	
   

  	
   

  
	
  Exhibit G

  	
  Form of Form 8-K or Public Announcement

  
	
   

  	
   

  
	
  Exhibit H

  	
  Form of Limited Standstill Agreement

  
	
   

  	
   

  
	
  Schedule 5(d)

  	
  Additional Issuances

  
	
   

  	
   

  
	
  Schedule 5(h)

  	
  Litigation

  
	
   

  	
   

  
	
  Schedule 5(k)

  	
  Information Concerning Company

  
	
   

  	
   

  
	
  Schedule 5(q)

  	
  No Undisclosed Liabilities

  
	
   

  	
   

  
	
  Schedule 5(r)

  	
  No Events or Circumstances

  
	
   

  	
   

  
	
  Schedule 5(s)

  	
  Capitalization

  
	
   

  	
   

  
	
  Schedule 5(u)

  	
  Disagreements with Accountants and Lawyers

  
	
   

  	
   

  
	
  Schedule 5(v)

  	
  Transfer Agent

  
	
   

  	
   

  
	
  Schedule 8

  	
  Placement Agent

  
	
   

  	
   

  
	
  Schedule 9(e)

  	
  Use of Proceeds

  
	
   

  	
   

  
	
  Schedule 9(r)

  	
  Liens

  
	
   

  	
   

  
	
  Schedule 9(s)

  	
  Limited Standstill Providers

  
	
   

  	
   

  
	
  Schedule 11.1

  	
  Other Registrable Securities

  

 

 

EXHIBIT H

 

LIMITED STANDSTILL AGREEMENT

 

This
AGREEMENT (the “Agreement”) is made as of the       
day of February, 2006, by the signatories hereto (each a “Holder”), in
connection with his ownership of shares of Aegis Assessments, Inc., a
Delaware corporation (the “Company”).

 

NOW,
THEREFORE, for good and valuable consideration, the sufficiency and receipt of
which consideration are hereby acknowledged, Holder agrees as follows:

 

1.                                       Background.

 

a.                                       Holder is the actual and/or beneficial
owner of the amount of shares of the Common Stock, $0.001 par value, of the
Company (“Common Stock”) and rights to purchase Common Stock designated on the
signature page hereto, some or all of which are owned by virtue of Holder’s
ownership of a note convertible into Common Stock.

 

b.                                      Holder acknowledges that the Company has
entered into or will enter into an agreement with each subscriber (“Subscription
Agreement”) to the Company’s secured convertible promissory notes and warrants
(the “Subscribers”), for the sale to the Subscribers of an aggregate of up to
$500,000 of principal amount of secured convertible promissory notes and
warrants (the “Offering”).  Holder
understands that, as a condition to proceeding with the Offering, the
Subscribers have required, and the Company has agreed to obtain an agreement
from the Holder to refrain from selling any securities of the Company from the
date of the Subscription Agreement until the sooner of (i) the end of the
Exclusion Period as defined in the Subscription Agreement, or (ii) until
less than one-third of the initial issued principal amount of the Notes issued
pursuant to the Subscription Agreement is outstanding (the “Restriction Period”).

 

2.                                       Share Restriction.

 

a.                                       Holder hereby agrees that during the Restriction
Period, the Holder will not sell or otherwise dispose of any shares of Common
Stock or any options, warrants or other rights to purchase shares of Common
Stock or any other security of the Company which Holder owns or has a right to
acquire as of the date hereof or acquires hereafter during the Restriction
Period, other than in connection with an offer made to all shareholders of the
Company in connection with any merger, consolidation or similar transaction
involving the Company.  Holder further
agrees that the Company is authorized to and the Company agrees to place “stop
orders” on its books to prevent any transfer of shares of Common Stock or other
securities of the Company held by Holder in violation of this Agreement.

 

b.                                      Any subsequent issuance to and/or acquisition
of shares or the right to acquire shares by Holder will be subject to the
provisions of this Agreement.

 

c.                                       Notwithstanding the foregoing restrictions on
transfer, the Holder may, at any time and from time to time during the Restriction
Period, transfer Common Stock (i) registered for public resale in a Form SB-2
registration statement effective as of the date of this agreement, (ii) at
a net per share price greater than the Conversion Price (as defined in the
Note) in effect on the date of sale in private-non-broker “off the tape”
transactions limited to no more than the amount of shares which could be sold
employing Rule 144(d) limitations, (iii) as bona fide gifts or
transfers by will or intestacy, (iv) to any trust for the direct or
indirect benefit of the undersigned or the immediate family of the Holder,
provided that any such transfer shall not involve a disposition for value, (v) to
a partnership which is the general partner of a partnership of which the Holder
is a general partner, provided, that, in the case of any gift or transfer
described in clauses (ii), (iii), (iv) or (v), each donee or transferee
agrees in writing to be bound by the terms and conditions contained herein in
the same manner as such terms and conditions apply to the undersigned. For
purposes hereof, “immediate family” means any relationship

 

 

by
blood, marriage or adoption, not more remote than first cousin.

 

3.                                       Miscellaneous.

 

a.                                       At any time, and from time to time, after the
signing of this Agreement Holder will execute such additional instruments and
take such action as may be reasonably requested by the Subscribers to carry out
the intent and purposes of this Agreement.

 

b.                                      This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of New York without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction, except to the extent that the
securities laws of the state in which Holder resides and federal securities
laws may apply.  Any proceeding brought
to enforce this Agreement may be brought exclusively in courts sitting in New
York County, New York.

 

c.                                       This Agreement contains the entire agreement
of the Holder with respect to the subject matter hereof.

 

d.                                      This Agreement shall be binding upon Holder,
its legal representatives, successors and assigns.

 

e.                                       This Agreement may be signed and delivered by
facsimile and such facsimile signed and delivered shall be enforceable.

 

f.                                         The Company agrees not to take any action or
allow any act to be taken which would be inconsistent with this Agreement nor
to amend or terminate this Agreement without the consent of the Subscribers.

 

g.                                      The Subscribers are third party beneficiaries
of this Agreement, with right of enforcement.

 

IN
WITNESS WHEREOF, and intending to be legally bound hereby, Holder has executed
this Agreement as of the day and year first above written.

 

	
   

  	
  HOLDER:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature of Holder)

  
	
   

  	
   

  	
   

  
	
   

  	
  (Print Name of Holder)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Number
  of Shares of Common Stock

  
	
   

  	
  Beneficially
  Owned

  
	
   

  	
   

  	
   

  
	
   

  	
  Note
  Principal Owned on the date of

  
	
   

  	
  This
  Agreement

  
	
   

  	
   

  
	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  AEGIS
  ASSESSMENTS, INC.

  
	
   

  	
  By:Exhibit 10.13

 

AMENDMENT TO TRANSACTION
DOCUMENTS AGREEMENT

 

Agreement made this 16th day of March, 2006 (“Amendment”)
among Aegis Assessments, Inc., a Delaware corporation (the “Company”), and
the signators hereto who are Subscribers under a certain Subscription Agreement
with the Company dated February 16, 2006 (“Subscribers”).

 

For good and valuable mutual consideration, receipt
of which is hereby acknowledged, the parties hereto agree as follows:

 

1.                                       All capitalized terms herein shall have the
meanings ascribed to them in the Transaction Documents (as defined in the
Subscription Agreement).

 

2.                                       The Company and the Subscribers hereby agree
to amend the Transaction Documents to reflect the additional Purchase Price (“Additional
Purchase Price”) as set forth on Schedule A hereto.  Purchase Price shall mean the aggregate of
the Purchase Price in connection with the February 16, 2006 Closing Date
and the Additional Purchase Price.

 

3.                                       The Company and Subscribers hereby agree to
waive any disproportionality between the Purchase Price of the February 16,
2006 Closing Date and the Additional Purchase Price of the Second Closing.

 

4.                                       An additional Closing (the “Second Closing”)
shall take place on or before March 31, 2006 (the “Second Closing Date”)
in connection with the Additional Purchase Price and the Notes and Warrants
issuable in connection therewith, upon satisfaction of all conditions to
Closing set forth in the Transaction Documents and in this Amendment.  The amount of the Additional Purchase Price
and all documents to be delivered hereunder will be deposited and held with the
Escrow Agent and released pursuant to the Escrow Agreement.  The Notes and Warrants to be delivered on the
Second Closing Date are included in the definition of “Securities” in the Subscription
Agreement.

 

5.                                       All the representations, warranties and
undertakings made by the Company in the Transaction Documents as of the Closing
Date are hereby made by the Company as of the Second Closing Date, as if such
representations, warranties and undertakings were also made and given on the
Second Closing Date.

 

6.                                       All the representations, warranties and
undertakings made by the Subscribers contained in the Transaction Documents as
of the Closing Date are hereby made by the Subscribers as of the Second Closing
Date, as if such representations, warranties and undertakings were also made
and given on the Second Closing Date.

 

7.                                       All of the covenants and conditions set forth
in the Subscription Agreement are hereby adopted and renewed by the Company as
of and for the Second Closing Date.

 

8.                                       All of the covenants and conditions set forth
in the Subscription Agreement are hereby adopted and renewed by the Subscribers
as of and for the Second Closing Date.

 

9.                                       On or before the Second Closing Date, the
Company will deliver to the Subscribers, Notes, and Warrants issued as of the
Second Closing Date in the amounts set forth on Schedule A hereto in
connection with the Additional Purchase Price which the Subscribers will
deposit with the Escrow Agent on or before the Second Closing Date.

 

10.                                 The Filing Date and Effective Date for all
Registrable Securities, including all Registrable Securities relating to the
Additional Purchase Price, Notes and Warrants to be issued on the Second
Closing Date shall be as described in Section 11.1(iv) of the
Subscription Agreement.

 

1

 

11.                                 The Maturity Date of the Notes to be issued
on the Second Closing Date will be the same as the Maturity Date of the Notes
issued on the Closing Date.

 

12.                                 The Warrants to be issued on the Second
Closing Date will be identical to the Warrants issued on the Closing Date.

 

13.                                 On or before the Second Closing Date, the
Company will deliver to the Subscribers the legal opinion described in Section 6
of the Subscription Agreement in relation to the Second Closing, Additional
Purchase Price, Notes, and Warrants to be delivered on the Second Closing Date,
which opinion will be substantively identical to the legal opinion delivered in
connection with the Closing.

 

14.                                 In connection with the Additional Purchase
Price, the Placement Agent will receive cash Placement Agent’s Fees and
Placement Agent’s Warrants in the same proportion as received in connection
with the February 16, 2006 Closing.

 

15.                                 The attorney for the Subscribers will receive
additional Legal Fees from the Company of $3,000 which will be payable on the
Second Closing Date out of the Escrowed Payment (as defined in the Escrow
Agreement).

 

16.                                 The signators hereto acknowledge and agree
that the Security Agreement and Collateral Agent Agreement executed by the
Company, Subsidiaries, Subscribers and Collateral Agent relate to the
Additional Purchase Price as if such Additional Purchase Price had been paid
and released to the Company on the February 16, 2006 Closing Date.  The Collateral Agent is authorized to make
additional security interest filings at the discretion of the Collateral Agent.

 

17.                                 The parties hereto agree to expeditiously
proceed with the Second Closing.

 

18.                                 The Company undertakes to use the proceeds of the Additional Purchase
Price solely for the fulfillments of orders.

 

19.                                 All other terms of the Transaction Documents
shall remain in full force and effect and govern this Agreement.

 

[THIS SPACE INTENTIONALLY LEFT
BLANK]

 

2

 

IN WITNESS WHEREOF, the undersigned have executed
and delivered this Amendment as of the date first written above.

 

	
  “COMPANY”

  	
  “THE COLLATERAL
  AGENT”

  
	
  AEGIS ASSESSMENTS INC.

  	
  BARBARA R. MITTMAN

  
	
  a Delaware corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ Richard Reincke

  	
   

  	
   /s/ Barbara Mittman

  	
   

  
	
  Its:

  	
  President

  	
   

  	
   

  
	
   

  	
   

  
	
  “SUBSCRIBERS”:

  
	
   

  	
   

  
	
   

  	
   

  
	
   /s/
  Konrad Ackerman

  	
   

  	
   /s/
  Harborview Master Fund LP

  	
   

  
	
  ALPHA CAPITAL AKTIENGESELLSCHAFT

  	
  HARBORVIEW MASTER FUND LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   /s/ DKR
  Soundshore Oasis Holding Fund Ltd.

  	
   

  	
   

  
	
  DKR SOUNDSHORE OASIS HOLDING FUND LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   /s/ Barbara Mittman

  	
   

  	
   

  
	
  GRUSHKO & MITTMAN, P.C

  	
   

  
	
  ESCROW AGENT

  	
   

  

 

3

 

SCHEDULE A TO AMENDMENT

 

	
  SUBSCRIBER

  	
   

  	
  ADDITIONAL

  PURCHASE PRICE

  	
   

  	
  PURCHASE

  PRICE OF

  FEBRUARY 16,

  2006

  	
   

  
	
  ALPHA CAPITAL AKTIENGESELLSCHAFT

  Pradafant 7

  9490 Furstentums

  Vaduz, Lichtenstein

  Fax: 011-42-32323196

  	
   

  	
  $

  	
  100,000.00

  	
   

  	
  $

  	
  250,000.00

  	
   

  
	
  HARBORVIEW MASTER FUND LP

  850- Third Avenue Suite 1801

  New York, NY 10022

  Fax: (646) 218-1401

  	
   

  	
  $

  	
  100,000.00

  	
   

  	
  $

  	
  125,000.00

  	
   

  
	
  DKR SOUNDSHORE OASIS HOLDING FUND LTD.

  C/o DKR Capital Partners, L.P.

  1281 East Main Street

  Stamford, CT 06902

  Fax: (203) 674-4737

  	
   

  	
  $

  	
  100,000.00

  	
   

  	
  $

  	
  125,000.00

  	
   

  
	
  TOTAL

  	
   

  	
  $

  	
  300,000.00

  	
   

  	
  $

  	
  500,000.00

  	
   

  

 

4

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