Document:

Unassociated Document

    
      

    

     

    Exhibit
10.1

     

     

    FORM OF SUBSCRIPTION
AGREEMENT

     

     

    THIS SUBSCRIPTION AGREEMENT
(this “Agreement”),
dated as of December 5, 2007, by and among IDO Security Inc. (formerly known as
The Medical Exchange Inc.), a Nevada corporation (the “Company”), and the subscribers
identified on the signature page hereto (each a “Subscriber” and collectively
“Subscribers”).

     

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

     

    WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Subscribers, as provided herein, and the
Subscribers, in the aggregate, shall purchase up to Seven Million Dollars
($7,000,000) (the "Purchase
Price") of principal amount of promissory notes of the Company (“Note” or “Notes”), a form of which is
annexed hereto as Exhibit
A, convertible into shares of the Company's common stock, $0.001 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 form
annexed hereto as Exhibit
B, to purchase shares of Common Stock (the “Warrant
Shares”).  The Notes, shares of Common Stock issuable upon
conversion of the Notes (the “Shares”), the Warrants and the
Warrant Shares are collectively referred to herein as the "Securities"; and

     

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

     

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

     

    1.           Closing.   The
“Closing Date” shall be
the date that the Purchase Price is transmitted by wire transfer or otherwise
credited to or for the benefit of the Company. 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,
upon the satisfaction or waiver of all conditions to closing set forth in this
Agreement.   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 indicated
thereon, and Warrants as described in Section 2 of this
Agreement.  The foregoing notwithstanding, the Company shall have up
to twenty (20) additional business days after the first Closing Date to close on
the balance of the Closing Purchase Price in one or more
closings.  The Notes and Warrants to be issued on the additional
closing dates will have the same Maturity Dates and exercise periods,
respectively, as the Notes and Warrants issued on the First Closing
Date.  The first such Closing Date shall be the Closing Date for all
amounts representing the Closing Purchase Price.

    

    2.           Warrants.   On
the Closing Date, the Company will issue and deliver Warrants to the
Subscribers.  One Class A and one Class B Warrant will be issued for
each two Shares which would be issued on the Closing Date assuming the complete
conversion of the Notes issued on 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
$2.00.   The per Warrant Share exercise price to acquire a
Warrant Share upon exercise of a Class B Warrant shall be equal to $3.00. The
Class A Warrants and Class B Warrants shall be exercisable until five (5) years
after the Actual Effective Date (as defined in Section 11.1(iv) of this
Agreement).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    3.           Security
Interest.   The Subscribers will be granted a security
interest in the assets of the Company including ownership of the Subsidiaries
(as defined in Section 5(a) of this Agreement), which security interest
will be memorialized in one or more “Security Agreements,” a form of which
is annexed hereto as Exhibit
D.   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 term hereof.

     

     
(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 Securities 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
filed on November 9, 2006 for the fiscal year ended June 30, 2006, the quarterly
reports for each of the three month periods ended March 31, 2007 and June 30,
2007, the Current Reports on Form 8-K filed through November 30, 2007, together
with all subsequent filings made with the Commission available at the EDGAR
website (hereinafter referred to collectively as the "Reports").  In
addition, the Subscriber may have received in writing from the Company such
other information concerning its operations, financial condition and other
matters as the Subscriber has requested in writing, identified thereon as OTHER
WRITTEN INFORMATION (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. Each Subscriber, severally
and  not jointly, hereby represents that, in connection with the
Subscriber’s investment or the Subscriber’s decision to purchase the Securities,
except as herein provided, the Subscriber has not relied on any statement or
representation of any person, including any such statement or representation by
the Company or the placement agent or any of their respective controlling
persons,  officers, directors, partners, agents and employees or any of
their respective attorneys, except as specifically set forth in the Transaction
Documents.

     

    
      
         

      

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

     

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

     

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

     

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

    

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

     

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

    or
similar legend:

     

    
      
         

      

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

     

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

     

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

     

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

     

     
(l)            Authority;
Enforceability.  This Agreement and other agreements delivered
together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity; and Subscriber has full 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, or unless an exemption from registration is
available.  Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity.  Affiliate includes each subsidiary of the
Company.  For purposes of this definition, “control” means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.

     

    
      
         

      

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

     

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

     

     
(p)           Survival.  The
foregoing representations and warranties shall survive the Closing Date for a
period of three years.

     

    5.           Company Representations and
Warranties.  The Company represents and warrants to and agrees
with each Subscriber that as of the date hereof and the Closing Date and unless
the Company notifies the Subscribers prior to the Closing Date, as follows
(except as set forth on the Schedule of Exceptions delivered to the
Subscribers with each numbered Schedule corresponding to the section number
herein or in the Reports):

     

     
(a)           Due
Incorporation.  The Company is a corporation or other entity
duly incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has the
requisite corporate power to own its properties and to carry on its business as
presently conducted.  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 and its
Subsidiaries 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 30% 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’s Subsidiaries as of the Closing Date are set
forth on Schedule
5(a).

     

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

     

     
(c)           Authority;
Enforceability.  This Agreement, the Note, the Warrants, the
Security Agreements, the Escrow Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively “Transaction Documents”) have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements of the Company 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.

     

    
      
         

      

      
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(d)           Additional
Issuances.   There are no outstanding agreements or
preemptive or similar rights affecting the Company's Common Stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of Common Stock or equity of the
Company or Subsidiaries or other equity interest in the Company except as
described in the Reports or on Schedule 5(d).  The
Common Stock of the Company on a fully diluted basis outstanding as of the last
Business Day preceding the Closing Date is set forth 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, the OTC Bulletin Board (the “Bulletin Board”) nor the
Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.  The Transaction Documents and
the Company’s performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors.

     

     
(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) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company's knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or

     

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

     

     
(iii)          except as
described in Schedule
5(d), 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)          will result in
the triggering of any piggy-back registration rights of any person or entity
holding securities 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;

     

    
      
         

      

      
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(ii)           have been,
or will be, duly and validly authorized and on the date of issuance of the
Shares upon conversion of the Notes and the Warrant Shares and upon exercise of
the Warrants, the Shares and Warrant Shares will be duly and validly issued,
fully paid and non-assessable and 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;
and

     

     
(v)           assuming
the representations warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.

     

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

     

     
(i)            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.

     

     
(j)           Information Concerning
Company.  The Reports and Other Written Information contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein.   Since the date of the financial statements
included in the Reports, and except as modified in the Other Written Information
or in the Schedules hereto, there has been no Material Adverse Event relating to
the Company's business, financial condition or affairs not disclosed in the
Reports. The Reports and Other Written Information 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, taken as a whole,
not misleading in light of the circumstances when made.

     

     
(k)           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.

     

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

     

    
      
         

      

      
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(m)          No Integrated
Offering.   Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales 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 Bulletin Board which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder.  Nor will the Company nor 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.

     

     
(n)           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.

     

     
o)            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 businesses since June 30, 2006 and which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or on Schedule 5(o).

     

     
(p)           No Undisclosed Events or
Circumstances.  Since June 30, 2006, 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.

     

     
(q)           Capitalization.  The
authorized and outstanding capital stock of the Company and Subsidiaries as of
the date of this Agreement and the Closing Date (not including the Securities)
are set forth in the Reports or on Schedule
5(d).  Except as set forth on Schedule 5(d), there are no
options, warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company or any of its Subsidiaries.

     

     
(r)            Dilution.   The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company.  The
board of directors of the Company has concluded, in its good faith business
judgment that the issuance of the Securities is in the best interests of the
Company.  The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Notes, and the Warrant Shares upon
exercise of the Warrants, is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company.

     

     
(s)           No Disagreements with
Accountants and Lawyers.  There are no material disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise between the Company and the accountants and lawyers presently employed by
the Company, including but not limited to disputes or conflicts over payment
owed to such accountants and lawyers, nor have there been any such disagreements
during the two years prior to the Closing Date.

     

    
      
         

      

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

     

     
(u)           Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

     
(v)           Reporting
Company.  The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934
Act") and has a class of Common Stock 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.

     

     
(w)           Listing.  The
Company's Common Stock is quoted on the Bulletin Board under the symbol
IDOI.OB.  The Company has not received any oral or written notice that
its Common Stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its Common Stock does not meet all requirements for the
continuation of such quotation.  The Company satisfies all the
requirements for the continued quotation of its Common Stock on the Bulletin
Board.

     

     
(x)            DTC
Status.   The Company’s transfer agent is a participant in
and the Common Stock is eligible for transfer pursuant to the Depository Trust
Company Automated Securities Transfer Program. The name, address, telephone
number, fax number, contact person and email address of the Company transfer
agent is set forth on Schedule
5(x) hereto.

     

     
(y)           Solvency.   Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the Notes
hereunder, the current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all amounts
on or in respect of its debt when such amounts are required to be
paid.  The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).

     

     
(z)            Company Predecessor and
Subsidiaries.   The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j),
(l), (o), (p), (q), (s), (t), and (u) of this Agreement, as same relate to the
Subsidiary of the Company.  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.

     

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

     

    
      
         

      

      
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(BB)       The Company agrees and
acknowledges that for purposes of Rule 144 (as currently in effect), the holding
period of the Securities issued on the Bridge Fundings of February 28, 2007 and
November 11, 2007, as amended, commence on those dates,
respectively.

     

     
(CC)        Survival.  The
foregoing representations and warranties shall survive the Closing Date for a
period of three years.

     

    6.           Regulation D Offering/Legal
Opinion.  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, Rule 144 under the 1933 Act or
an exemption from registration.

    

    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 permitted 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 the certificates representing such shares shall
contain no legend other than the usual 1933 Act restriction from transfer
legend.  If and when the Subscriber sells the Shares, assuming (i) the
Registration Statement (as defined below) is effective and the prospectus, as
supplemented or amended, contained therein is current and (ii) the Subscriber or
its agent confirms in writing to the transfer agent that the Subscriber has
complied with the prospectus delivery requirements, the Company will reissue the
Shares without restrictive legend and the Shares will be free-trading, and
freely transferable.  In the event that the Shares are sold in a
manner that complies with an exemption from registration, the Company will
promptly instruct its counsel to issue to the transfer agent an opinion
permitting removal of the legend (indefinitely, if pursuant to Rule 144(k) of
the 1933 Act, or for 90 days if pursuant to the other provisions of Rule 144 of
the 1933 Act).

     

     
(b)           Subscriber
will give notice of its decision to exercise its right to convert the Note,
interest, or part thereof by telecopying, or otherwise delivering a 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 by 6 PM (or if received by
the Company after 6 PM then the next business day) shall be deemed a “Conversion
Date.”  The Company will itself or cause the Company’s transfer
agent to transmit the Company's Common Stock certificates representing the
Shares issuable upon conversion of the Note to the Subscriber via express
courier for receipt by such Subscriber within three (3) business days after
receipt by the Company of the Notice of Conversion (such third day being the
"Delivery
Date").  In the event the Shares are electronically
transferable, then delivery of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Subscriber.   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 of a Note, 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.

     

    
      
         

      

      
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(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 later than 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 $100,000 of Note principal amount (and
proportionately for other amounts) 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 within seven (7) business days after the
Delivery Date or make payment within seven (7) business days after the Mandatory
Redemption Payment Date (as defined in Section 7.2 below), the Subscriber will
be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the 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)           The Company
agrees and acknowledges that despite the pendency of a not yet effective
Registration Statement which includes for registration the Registrable
Securities (as defined in Section 11.1(iv)), the Subscriber is permitted to and
the Company will issue to the Subscriber Shares upon conversion of the Note and
Warrant Shares upon exercise of the Warrants.  Such Shares will, if
required by law, bear the legends described in Section 4 above and if the
requirements of Rule 144 under the 1933 Act are satisfied, be resalable
thereunder.

    

    7.2.        Mandatory Redemption at
Subscriber’s Election.  In the event (i) the Company is
prohibited from issuing Shares, (ii) upon the occurrence of any other Event of
Default (as defined in the Note or in this Agreement), that continues for more
than twenty (20) business days, (iii) a Change in Control (as defined below), or
(iv) of the liquidation, dissolution or winding up of the Company, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber (“Calculation Period”), a sum of
money determined by multiplying up to the outstanding principal amount of the
Note designated by the Subscriber by 120% ("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 ten day period prior to the
actual receipt of the Mandatory Redemption Payment by the Subscriber shall be
credited against the Mandatory Redemption Payment.  For purposes of
this Section 7.2, “Change in
Control” shall mean (i) the Company no longer having a class of shares
publicly traded or listed on a Principal Market, (ii) the Company becoming a
Subsidiary of another entity (other than a corporation formed by the Company for
purposes of reincorporation in another U.S. jurisdiction) and (iii) the sale,
lease or transfer of substantially all the assets of the Company or
Subsidiaries.

    

    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.  For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.  Subject to the foregoing, the 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 increase the
permitted beneficial ownership amount up to 9.99% upon and effective after 61
days’ prior written notice to the Company.  The Subscriber may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 4.99% amount described above and which shall
be allocated to the excess above 4.99%.

     

    
      
         

      

      
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    7.4.        Injunction Posting of
Bond.  In the event a Subscriber shall elect to convert a Note
or part thereof, 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 shall have been sought and obtained by
the Company or at the Company’s request or with the Company’s assistance, 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 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 in Subscriber’s
favor.

    

    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 or a broker on the Subscriber’s behalf 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 and evidence indicating the amounts payable to the Subscriber in
respect of the Buy-In.

    

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

     

    7.7.        Redemption.    The
Notes and Warrants shall not be redeemable or callable by the Company except as
described in the Notes, Warrants and Subscription Agreement.

    

    8.           Finder Fee/Due Diligence
Fee/Legal Fees.

     

     
(a)           Finder’s Fee/Due Diligence
Fee.   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
Finder’s Fee/Due Diligence Fee other than the one or more entities identified on
Schedule 8 hereto, (each
a “Finder”) 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 Finder the fees set
forth on Schedule 8
hereto (“Finder/Due Diligence
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 Finder.

     

    
      
         

      

      
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(b)           Legal
Fees.   The Company shall pay to Grushko & Mittman,
P.C., a cash fee of $25,000 (“Legal Fees”) as reimbursement
for services rendered to the Subscribers in connection with this Agreement and
the purchase and sale of the Notes and Warrants (the “Offering”).  Reimbursement
for estimated UCC searches and filing fees (less any amounts paid prior to a
Closing Date), and estimated printing and shipping costs for the closing
statements to be delivered to Subscribers, 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
twenty-four hours after it 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/Quotation.  The
Company shall promptly secure the quotation or listing of the Shares and Warrant
Shares upon each national securities exchange, or automated quotation system
upon which they are or become eligible for quotation or listing (subject to
official notice of issuance) and shall maintain same so long as any Warrants are
outstanding.  The Company will maintain the quotation or listing of
its Common Stock on the American Stock Exchange, Nasdaq Capital Market, Nasdaq
Global Market, Nasdaq Global Select Market, 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.  As of the date of this Agreement and the Closing Date,
the Bulletin Board is and will be the Principal Market.

     

     
(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
last to occur of (i) two (2) years after the Closing Date, (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 or (iii) the Notes are no longer outstanding (the date of
occurrence of the last such event being the “End Date”), the Company will
(A) cause its Common Stock to be registered under Section 12(b) or 12(g) of the
1934 Act, (B) comply in all respects with its reporting and filing obligations
under the 1934 Act, (C) voluntarily comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(g) of the 1934 Act, if Company is not subject to such reporting
requirements, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement.  The Company will use its
best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the End Date.  Until the End Date,
the Company will continue the listing or quotation of the Common Stock on a
Principal Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal
Market.  The Company agrees to timely file a Form D with respect to
the Securities if required under Regulation D and to provide a copy thereof to
each Subscriber promptly after such filing.

     

    
      
         

      

      
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(e)           Use of
Proceeds.  The proceeds of the Offering will be employed by the
Company for working capital and general corporate purposes.   The
Purchase Price may not and will not be used for accrued and unpaid officer and
director salaries, payment of financing related debt, redemption of outstanding
notes or equity instruments of the Company nor non-trade obligations outstanding
on a Closing Date except as described on Schedule
9(e).   Except as disclosed on Schedule 9(e), 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, and at all times thereafter, the Company shall have
reserved, pro rata, on behalf of
each holder of a Note or Warrant, from its authorized but unissued Common Stock,
a number of common shares equal to 125% of the amount of Common Stock necessary
to allow each holder of a Note to be able to convert all such outstanding Notes
and interest and 100% of the Warrant Shares issuable upon exercise of the
Warrants.

     

     
(g)           DTC
Program.  At all times that Notes or Warrants are outstanding,
the Company will employ as the transfer agent for the Common Stock, Shares and
Warrant Shares a participant in the Depository Trust Company Automated
Securities Transfer Program.

     

     
(h)           Taxes.  From
the date of this Agreement and until the End Date, 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.

     

     
(i)            Insurance.  From
the date of this Agreement and until the End Date, 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.

     

     
(j)            Books and
Records.  From the date of this Agreement and until the End
Date, 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.

     

     
(k)           Governmental
Authorities.   From the date of this Agreement and until
the End Date, 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.

     

    
      
         

      

      
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(l)            Intellectual
Property.  From the date of this Agreement and until the End
Date, 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.

     

     
(m)          Properties.  From
the date of this Agreement and until the End Date, 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.

     

     
(n)           Confidentiality/Public
Announcement.  From the date of this Agreement and until the
End Date, the Company agrees that except in connection with a Form 8-K and the
registration statement or statements regarding the Subscribers’ securities or in
correspondence with the SEC regarding same, it will not disclose publicly or
privately the identity of the Subscribers unless expressly agreed to in writing
by a Subscriber or 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 undertakes to file a Form 8-K or make a public
announcement describing the Offering not later than the fourth business day
after the Closing Date.  Prior to filing or announcement, such Form
8-K or public announcement will be provided to Subscribers for their review and
approval.  In the Form 8-K or public announcement, the Company will
specifically disclose the amount of Common Stock outstanding immediately after
the Closing.  Upon  delivery by the Company to Subscriber
after the Closing Date of any notice or information, in writing, electronically
or otherwise, and while a Note, Shares, Warrants, or Warrant Shares are held by
Subscriber, unless the  Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or
Subsidiaries, the Company  shall within one business day after
any such delivery publicly disclose such  material,  nonpublic 
information on a Report on Form 8-K or otherwise. 
In the event that
the Company believes that a notice or communication to
Subscriber contains material, nonpublic information, relating to the Company or
Subsidiaries, the Company shall so indicate to the Subscriber contemporaneously
with delivery of such notice or information.  In the absence of any
such indication, the Subscriber shall be allowed to presume that all
matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or
Subsidiaries.

     

     
(o)           Non-Public
Information.  The Company covenants and agrees that except for
the Reports, Other Written Information and schedules and exhibits to this
Agreement, which information the Company undertakes to will publicly disclose
not later than the sooner of the required or actual filing date of the Form 8-K
described in Section 9(n) above, neither it nor any other person acting on its
behalf will at any time 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 keep such information in confidence.  The Company understands and
confirms that each Subscriber shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

     

     
(p)           Negative
Covenants.   So long as a Note is outstanding, without the
consent of the Subscriber, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

     

    
      
         

      

      
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(i)            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 except for:  (A) the
Excepted Issuances (as defined in Section 12 hereof), (B) (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; and (g) up to $1,000,000 line of credit with a recognized
banking institution or up to $1,000,000 of inventory factoring for the Closing
Date’s ordinary course of business by a recognized factor which typically
conducts such factoring arrangements (each of (a) through (g), a “Permitted Lien”), (C)
indebtedness for borrowed money which is not senior or pari passu in right of
payment to the payment of the Notes or distribution of the Company’s assets and
(D) indebtedness which shall be used to repay the Notes;

     

     
(ii)           amend its
certificate of incorporation, bylaws or its charter documents so as to
materially and adversely affect any rights of the Subscriber;

     

     
(iii)          repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents.

     

     
(iv)          engage in any
transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company, and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company; or

     

     
(v)           prepay or
redeem any financing related debt or past due obligations outstanding as of the
Closing Date except as described on Schedule 9(e).

     

     
(q)           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, without the consent of the Subscribers, file with
the Commission or with state regulatory authorities 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
is registered therein, (except for Forms S-8 for shares of the Company’s Common
Stock or Common Stock equivalents issued pursuant to contractual obligations
prior to August 1, 2007 and up to an additional 250,000 Shares of the Company’s
Common Stock to attract key employees or directors) until the expiration of the
“Exclusion 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 one
hundred and eighty (180) 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 or reinstated, as the case may be, during the
pendency of an Event of Default as defined in the Note.

     

    
      
         

      

      
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(r)           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 or fail to take any action 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 sixty or more days in the aggregate during any three hundred and
sixty-five day period.

     

     
(s)           Offering
Restrictions.    Until the expiration of the
Exclusion Period and/or during the pendency of an Event of Default, except for
the Excepted Issuances, the Company will not enter into an agreement to issue
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 Subscribers
holding 66.67% of the outstanding principal amounts of the Notes, which consent
may be withheld for any reason.  For so long as the
Notes are outstanding, the Company will not enter into any Equity Line of Credit
or similar agreement, nor issue nor agree to issue any floating or Variable
Priced Equity Linked Instruments nor any of the foregoing or equity with price
reset rights (collectively, the “Variable Rate
Restrictions”).   For purposes hereof, “Equity Line of Credit” shall
include any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at
an agreed price or price formula, and “Variable Priced Equity Linked
Instruments” shall include: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock either (1) at any conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the initial issuance
of such debt or equity security, or (2) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date at any time
after the initial issuance of such debt or equity security due to a change in
the market price of the Company’s Common Stock since date of initial issuance,
and (B) any amortizing convertible security which amortizes prior to its
maturity date, where the Company is required or has the option to (or the
investor in such transaction has the option to require the Company to) make such
amortization payments in shares of Common Stock which are valued at a price that
is based upon and/or varies with the trading prices of or quotations for Common
Stock at any time after the initial issuance of such debt or equity security
(whether or not such payments in stock are subject to certain equity
conditions).  The only officer, director, employee and consultant
stock option or stock incentive plan currently in effect or contemplated by the
Company is described on Schedule 5(d).

     

     
(t)            Limited
Standstill.   The Company will deliver to the Subscribers
on or before the Closing Date and enforce the provisions of an irrevocable lock
up agreement (“Lock Up
Agreement”) in the form annexed hereto as Exhibit G, with the parties
identified on Schedule
9(t) hereto.

     

     
(u)           Seniority.   Except
for Permitted Liens and as otherwise provided for herein, until the Notes are
fully satisfied or converted, the Company shall not grant nor allow any security
interest to be taken in the assets of the Company or any Subsidiary; nor issue
any debt, equity or other instrument which would give the holder thereof
directly or indirectly, a right in any assets of the Company or any Subsidiary,
equal or superior to any right of the holder of a Note in or to such
assets.

     

     
(v)           Notices.   For
so long as the Subscribers hold any Securities, the Company will maintain as
United States address and United States fax number for notices purposes under
the Transaction Documents.

     

    
      
         

      

      
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(w)          Blackout
Policy.   On or before December 31, 2007, the Company will
adopt and institute an "Insider
Trading Policy" regarding the purchase and sale of the Company's
securities in the open market or through a broker unless pre-approved, covering
all members of the Board of Directors, executive officers, all employees
reporting directly to the Chief Financial Officer, certain employees involved
with preparation of financial statements, any person who possess material
non-public information about the Company, investor relations professionals, and
family members living in the same household as anyone covered by the Policy, and
which must include a provision that officers and directors of the Company may
not sell on any trading day more than 5% of the average daily trading volume
reported by Bloomberg L.P. for the Principal Market for the immediately
preceding five trading days, The Insider Trading Policy
will be not less restrictive to the shareholders subject thereto than the terms
of the Lockup Agreement annexed hereto as Exhibit G.

     

    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 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 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 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 one hundred and twenty-one (121) days after
the Closing Date, but not later than two (2) years after the Closing Date, upon
a written request therefor from any record holder or holders of more than 50% of
the Shares issued and issuable upon conversion of the outstanding Notes and
outstanding Warrant Shares, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder
thereof.  For purposes of Sections 11.1(i) and 11.1(ii), Registrable
Securities shall not include Securities which are (A) registered for resale in
an effective registration statement, (B) included for registration in a pending
registration statement, or  (C) which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act.  Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice.  Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section
11.1(i).

     

    
      
         

      

      
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(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 sixty (60) calendar days after the Closing Date (the “Filing Date”), and use
commercially reasonable best efforts to cause the Registration Statement to be
declared effective not later than one hundred and twenty (120) calendar days
after the Closing Date (or, in the case of review, one hundred fifty (150) days
thereafter); (the “Actual 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 125% of the Shares issuable upon conversion of all of the Notes
issuable to the Subscribers (collectively the “Registrable Securities”). The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber, pro rata, and not issued,
employed or reserved for anyone other than each such Subscriber.  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, no
securities of the Company other than the Registrable Securities will be included
in the Registration Statement.

     

    
      
         

      

      
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(v)           The amount
of Registrable Securities required to be included in the Registration Statement
as described in Section 11.1(iv) (“Initial Registrable
Securities”) shall be limited to not less than 100% of the maximum amount
(“Rule 415 Amount”) of
Common Stock which may be included in a single Registration Statement without
exceeding registration limitations imposed by the Commission pursuant to Rule
415 of the 1933 Act but in any event not less than 6,000,000 shares of Common
Stock.  In the event that less than all of the Initial Registrable
Securities are included in the Registration Statement as a result of the
limitation described in this Section 11.1(v), then the Company will file
additional Registration Statements each registering the Rule 415 Amount (each
such Registration Statement a “Subsequent Registration
Statement”), seriatim, until all
of the Initial Registrable Securities have been registered.  The
Filing Date and Actual Effective Date of each such additional Registration
Statement shall be, respectively, thirty (30) and sixty (60) days after the
first day such Subsequent Registration Statement may be filed without objection
by the Commission based on Rule 415 of the 1933 Act.  The Subscribers
agree and acknowledge that notwithstanding anything contained herein to the
contrary, the Registration Statement will include for registration on behalf of
the Subscribers not fewer than 6,000,000 shares of Common Stock for the Shares
issuable upon conversion of the Notes and thereafter may include, at the
Company’s discretion, up to 6,000,000 shares of Common Stock on behalf of the
holders thereof (“Other
Holders”) described on Schedule 11.1.  In
the event for any reason the amount of Common Stock to be registered must be
reduced, then such reduction must come entirely from the Common Stock being
registered on behalf of the Other Holders and not the Subscribers.

     

     
(vi)          Unless otherwise
instructed in writing by a holder of Registrable Securities and only if the
initial Registration Statement does not include all of the Registrable
Securities, the Registrable Securities will be registered on behalf of each such
holder in the Registration Statements based in the following order and
priority:

     

     
(A)          Shares.

     

     
(B)           Conversion
Shares issued and issuable upon conversion of the Notes (based on the multiple
set forth above).

     

     
(C)          Warrants Shares
issued and issuable to the Subscribers with lower exercise priced Warrant Shares
being registered first and then the higher exercise priced Warrant
Shares.  In the case of Warrants with the same exercise prices but
different Issue Dates, the Warrants issuable upon later issued Warrants will be
registered first.

     

     
(vii)         The foregoing
notwithstanding, Registrable Securities shall be allocated and registered pro
rata among the Subscribers based upon their initial investments in the Offering.
 

     

    11.2.      Registration
Procedures. If and whenever the Company is required by the provisions of
Section 11.1(i), 11.1(ii) or 11.1(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 same business 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);

     

    
      
         

      

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

     

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

     

     
(h)          provide to the Sellers
copies of the Registration Statement and amendments thereto five business days
prior to the filing thereof with the Commission.

     

    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.

     

    
      
         

      

      
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    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 Actual 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 Actual 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 twenty (20) business days by an
effective replacement or amended registration statement or for a period of time
which shall exceed forty-five (45) 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 holder of Registrable
Securities, as Liquidated Damages, an amount equal to two percent (2%) 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 the Warrants owned of record by such holder which are
subject to such Non-Registration Event.  The Company must pay the
Liquidated Damages in cash, or at the Company’s election, with Qualified Shares
(as hereinafter defined) of the Common Stock valued at the Fixed Conversion
Price, pari passu to each Subscriber.  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 responded to within fifteenth (15) 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. As
used herein the term “Qualified Shares” shall mean (i) registered shares, (ii)
shares that can be resold under Rule 144 of the Securities Act without volume
restriction or (iii) shares which can be resold under Rule 144, subject to the
volume limitations specified in subsection (e) thereof.  Qualified
Shares delivered pursuant to sections (ii) and (iii) of the preceding sentence
must be immediately resellable and transferable by the Subscriber without any
additional holding period.  Such Qualified Shares, when delivered to
the Subscriber, must be accompanied by an opinion of Company’s counsel
reasonably acceptable to Subscriber and the Company’s transfer agent that all
such Qualified Shares are immediately resellable or transferable pursuant to
Rule 144 of the 1933 Act, by each Subscriber who receives such Qualified
Shares.

     

    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.

     

    
      
         

      

      
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    11.6.      Indemnification and
Contribution.

     

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

     

     
(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.

     

    
      
         

      

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

     

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

     

    11.7.      Delivery of Unlegended
Shares.

     

     
(a)          Within three (3)
business days (such third business day being the “Unlegended Shares Delivery
Date”) after the business day on which the Company has received (i) a
notice that Shares or Warrant Shares or any other Common Stock held by a
Subscriber have been sold pursuant to the Registration Statement or Rule 144
under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable and if required,
have been satisfied, and (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(i) above (the “Unlegended Shares”); and (z)
cause the transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the submitted
Shares certificate, if any, to the Subscriber at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on or
before the Unlegended Shares Delivery Date.  

     

    
      
         

      

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

     

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

     

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

     

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

     

    
      
         

      

      
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    12.         (a)           Right of First
Refusal.   Until one year after the Closing Date, the
Subscribers shall be given not less than 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, (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 primary
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 director stock option plans and
employee stock purchase plans described on Schedule 12(a)) hereto at prices equal to or higher than the closing
price of the Common Stock on the issue date of any of the foregoing, except as
provided in Schedule 12(a)(iv) as a result
of the exercise of Warrants or conversion of Notes which are granted or issued
pursuant to this Agreement or that have been issued prior to the Closing Date on
the same terms and conditions as disclosed in a Report filed not less than five
(5) days prior to the Closing Date without amendment thereto, and (v) the
payment of any interest on the Notes and Liquidated 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.  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.

     

     
(b)          Favored Nations
Provision.   Other than in connection with the Excepted
Issuances, if at any time the Notes or Warrants are outstanding, the Company
shall offer, issue or agree to issue (the “Lower Price Issuance”) any Common
Stock or securities convertible into or exercisable for shares of Common Stock
(or modify any of the foregoing which may be outstanding) to any person or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion Price in respect of the Shares , or if less
than the Warrant exercise price in respect of the Warrant Shares, without the
consent of Subscribers holding 66.67% of the outstanding principal amount of
Notes, then the Company shall issue, for each such occasion, additional shares
of Common Stock to each Subscriber respecting those Notes, Warrants and Shares
that remain outstanding at the time of the Lower Price Issuance so that the
average per share purchase price of the shares of Common Stock issued to the
Subscriber (of only the Common Stock or Warrant Shares still owned by the
Subscriber) is equal to such other lower price per share and the Conversion
Price and Warrant exercise price shall automatically be reduced to such other
lower price.  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 of the
Notes 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.  For purposes of the issuance and
adjustment described in this paragraph, the issuance of any security of the
Company carrying the right to convert such security into shares of Common Stock
or of any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the sooner of the
agreement to or actual issuance of such convertible security, warrant, right or
option and again at any time upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is at
a price lower than the Conversion Price or Warrant exercise price in effect upon
such issuance.  The rights of the Subscriber set forth in this Section
12 are in addition to any other rights the Subscriber has pursuant to this
Agreement, the Note, any Transaction Document, and any other agreement referred
to or entered into in connection herewith or to which the Subscriber and Company
are parties.  The Subscriber is also given the right to elect to
substitute any term or terms of any other offering in connection with which the
Subscriber has rights as described in Section 12(a), for any term or terms of
the Offering in connection with Securities owned by Subscriber as of the date
the notice described in Section 12(a) is required to be given to
Subscriber.

     

    
      
         

      

      
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(c)           Maximum Exercise of
Rights.   In the event the exercise of the rights
described in Sections 12(a) and 12(b) 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: IDO
Security Inc., 17 State Street, New York, NY 10004, Fax: (646) 285-0026, with a
copy by telecopier only to: Aboudi & Brounstein, 3 Gavish St., Kfar Saba,
Israel, Fax: 972-9-764-4834, 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, Fax: (212) 697-3575, and (iii) if
to the Finder, 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
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.

     

    
      
         

      

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

     

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

     

    
      
         

      

      
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(h)           Consent.   As
used in the Agreement, “consent of the Subscribers” or similar language means
the consent of holders of not less than 66.67% of the total of the Shares issued
and issuable upon conversion of outstanding Notes owned by Subscribers on the
date consent is requested.

     

     
(i)            Equal
Treatment.   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.

     

     
(j)           Maximum
Payments.   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.

     

     
(k)           Calendar Days/Time
Periods.   All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated.  The terms
“business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours.  Time periods
shall be determined as if the relevant action, calculation or time period were
occurring in New York City.

     

    

     

    

     

    [THIS
SPACE INTENTIONALLY LEFT BLANK]

     

    
      
         

      

      
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    SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT

     

    

    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.

     

     

    
      	 	 	IDO SECURITY
      INC.	 
	 	 	a Nevada
      corporation	 
	 	 	 	 	 	 
	 	 	By:	_________________________________
	 	 	
            	 	Name: Michael
      Goldberg	 
	 	 	 	 	Title:  CEO	 
	 	 	 	 	 	 
	 	 	 	 	Dated:
      _______________ _____, 2007

    

     

     

    
 

    
      	
              SUBSCRIBER

            	
              NOTE

              PRINCIPAL

              AMOUNT

            	
              CLASS
      A

              WARRANTS

            	
              CLASS
      B

              WARRANTS

            
	
               

              Name
      of Subscriber: ________________________

              _________________________________________

               

              Address:
      _________________________________

               

              _________________________________________

               

              Fax
      No.: _________________________________

               

               

               

               

              ________________________________________

              (Signature)

              By:Unassociated Document

    
      

    

    EXHIBIT
10.2

    

    SECURITY
AGREEMENT

    

    1.           Identification.

     

     
This Security Agreement (the "Agreement"), dated as of December 5, 2007, is
entered into by and between Ido Security Inc., a Nevada corporation
("Debtor"), and Barbara R. Mittman, as collateral agent acting in the
manner and to the extent described in the Collateral Agent Agreement defined
below (the "Collateral Agent"), for the benefit of the parties identified on
Schedule A hereto (collectively, the "Lenders").

    

    2.           Recitals.

     

     
2.1           The Lenders
have made, are making and will be making loans to Debtor (the
"Loans").  It is beneficial to Debtor that the Loans were made and are
being made.

     

     
2.2           The Loans
are and will be evidenced by certain promissory notes (each a
“Note”) issued by Debtor on or about the date of and after the date of this
Agreement pursuant to subscription agreements (each a “Subscription Agreement”)
to which Debtor and Lenders are parties.  The Notes are further
identified on Schedule A hereto and were and will be executed by Debtor as
“Borrower” or “Debtor” for the benefit of each Lender as the “Holder” or
“Lender” thereof.

     

     
2.3           In
consideration of the Loans made and to be made by Lenders to Debtor and for
other good and valuable consideration, and as security for the performance by
Debtor of its obligations under the Notes and as security for the repayment
of the Loans and all other sums due from Debtor to Lenders arising under the
Transaction Documents (as defined in the Subscription Agreement), and any other
agreement between or among them (collectively, the "Obligations"), Debtor, for
good and valuable consideration, receipt of which is acknowledged, has agreed to
grant to the Collateral Agent, for the benefit of the Lenders, a security
interest in the Collateral (as such term is hereinafter defined), on the terms
and conditions hereinafter set forth.  Obligations include all future
advances by Lenders to Debtor made pursuant to the Subscription
Agreement.

     

     
2.4           The Lenders
have appointed the Collateral Agent pursuant to that certain Collateral
Agent Agreement dated at or about the date of this Agreement (“Collateral Agent
Agreement”), among the Lenders and Collateral Agent.

     

     
2.5           The
following defined terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined:  Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.  Other capitalized
terms employed herein shall have the meanings attributed to them in the
Subscription Agreement.

    

    3.           Grant of General Security
Interest in Collateral.

     

     
3.1           As security
for the Obligations of Debtor, Debtor hereby grants the Collateral Agent, for
the benefit of the Lenders, a security interest in the Collateral.

     

     
3.2           “Collateral”
shall mean all of the following property of Debtor:

     

     
(A)     All now owned and hereafter acquired right,
title and interest of Debtor in, to and in respect of all Accounts, Goods, real
or personal property, all present and future books and records relating to the
foregoing and all products and Proceeds of the foregoing, and as set forth
below:

     

    
      
        
        

      

      
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(i)           All now
owned and hereafter acquired right, title and interest of Debtor in, to and in
respect of all: Accounts, interests in goods represented by Accounts, returned,
reclaimed or repossessed goods with respect thereto and rights as an unpaid
vendor; contract rights; Chattel Paper; investment property; General Intangibles
(including but not limited to, tax and duty claims and refunds, registered and
unregistered patents (including but not limited to the patents, patents pending
and applications set forth on Schedule B hereto), trademarks, service marks,
certificates, copyrights trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, chooses in action and other claims, and
existing and future leasehold interests in equipment, real estate and fixtures);
Documents; Instruments; letters of credit, bankers’ acceptances or guaranties;
cash moneys, deposits; securities, bank accounts, deposit accounts, credits and
other property now or hereafter owned or held in any capacity by Debtor, as well
as agreements or property securing or relating to any of the items referred to
above;

     

     
(ii)           Goods:  All
now owned and hereafter acquired right, title and interest of Debtor in, to and
in respect of goods, including, but not limited to:

     

     
(a)          All Inventory,
wherever located, whether now owned or hereafter acquired, of whatever kind,
nature or description, including all raw materials, work-in-process, finished
goods, and materials to be used or consumed in Debtor’ business; finished goods,
timber cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or to be
extracted, and all names or marks affixed to or to be affixed thereto for
purposes of selling same by the seller, manufacturer, lessor or licensor thereof
and all Inventory which may be returned to any Debtor by its customers or
repossessed by Debtor and all of Debtor’s right, title and interest in and to
the foregoing (including all of a Debtor’s rights as a seller of
goods);

     

     
(b)          All Equipment and
fixtures, wherever located, whether now owned or hereafter acquired, including,
without limitation, all machinery, furniture and fixtures, and any and all
additions, substitutions, replacements (including spare parts), and accessions
thereof and thereto (including, but not limited to Debtor’s rights to acquire
any of the foregoing, whether by exercise of a purchase option or
otherwise);

     

     
(iii)          Property:  All
now owned and hereafter acquired right, title and interests of Debtor in, to and
in respect of any other personal property in or upon which a Debtor has or may
hereafter have a security interest, lien or right of setoff;

     

         
(iv)          Books and Records:  All
present and future books and records relating to any of the above including,
without limitation, all computer programs, printed output and computer readable
data in the possession or control of the Debtor, any computer service bureau or
other third party; and

     

     
(v)           Products and
Proceeds:  All products and Proceeds of the foregoing in
whatever form and wherever located, including, without limitation, all insurance
proceeds and all claims against third parties for loss or destruction of or
damage to any of the foregoing.

     

     
(B)      All now owned and hereafter acquired
right, title and interest of Debtor in, to and in respect of the
following:

     

     
(i)          
 Debtor will deliver to the Collateral Agent, the shares of stock,
partnership interests, member interests or other equity interests at any time
and from time to time acquired by Debtor of any and all entities now or
hereafter existing, (such entities, being hereinafter referred to collectively
as the "Pledged Issuers" and individually as a "Pledged Issuer"), including but
not limited to 100% of the equity ownership of each Guarantor, the certificates
representing such shares, partnership interests, member interests or other
interests all options and other rights, contractual or otherwise, in respect
thereof and all dividends, distributions, cash, instruments, investment property
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares,
partnership interests, member interests or other interests;

     

    
      
        
        

      

      
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(ii)           all
additional shares of stock, partnership interests, member interests or other
equity interests from time to time acquired by Debtor, of any Pledged Issuer,
the certificates representing such additional shares, all options and other
rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares, interests or equity;
and

    

     

     
(iii)          all security
entitlements of Debtor in, and all Proceeds of any and all of the foregoing in
each case, whether now owned or hereafter acquired by a Debtor and howsoever its
interest therein may arise or appear (whether by ownership, security interest,
lien, claim or otherwise).

     

     
3.3           The Collateral
Agent is hereby specifically authorized, after the Maturity Date (defined in the
Notes) accelerated or otherwise, or after the occurrence of an Event of Default
(as defined herein) and the expiration of any applicable cure period, to
transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.

    

    4.           Perfection of Security
Interest.

     

     
4.1           Debtor shall prepare, execute and
deliver to the Collateral Agent UCC-1 Financing Statements.  The
Collateral Agent is instructed to prepare and file at Debtor’s cost and expense,
financing statements in such jurisdictions deemed advisable to the Collateral
Agent, including but not limited to the State of Nevada.  The
Financing Statements are deemed to have been filed for the benefit of the
Collateral Agent and Lenders identified on Schedule A hereto.

     

     
4.2           Upon the
execution of this Agreement, Debtor shall deliver to Collateral Agent stock
certificates representing all of the shares of outstanding capital stock of the
Guarantors (the "Securities").  All such certificates shall be held by
or on behalf of Collateral Agent pursuant hereto and shall be delivered in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance satisfactory to Collateral Agent.

     

     
4.3           All other
certificates and instruments constituting Collateral from time to time required
to be pledged to Collateral Agent pursuant to the terms hereof (the "Additional
Collateral") shall be delivered to Collateral Agent promptly upon receipt
thereof by or on behalf of Debtor.  All such certificates and
instruments shall be held by or on behalf of Collateral Agent pursuant hereto
and shall be delivered in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment or undated
stock powers executed in blank, all in form and substance satisfactory to
Collateral Agent.  If any Collateral consists of uncertificated
securities, unless the immediately following sentence is applicable thereto,
Debtor shall cause Collateral Agent (or its custodian, nominee or other
designee) to become the registered holder thereof, or cause each issuer of such
securities to agree that it will comply with instructions originated by
Collateral Agent with respect to such securities without further consent by
Debtor.  If any Collateral consists of security entitlements, Debtor
shall transfer such security entitlements to Collateral Agent (or its custodian,
nominee or other designee) or cause the applicable securities intermediary to
agree that it will comply with entitlement orders by Collateral Agent without
further consent by Debtor.

     

    
      
        
        

      

      
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4.4           Within five (5) days after the receipt
by a Debtor of any Additional Collateral, a Pledge Amendment, duly executed by
such Debtor, in substantially the form of Annex I hereto (a "Pledge Amendment"),
shall be delivered to Collateral Agent in respect of the Additional Collateral
to be pledged pursuant to this Agreement. Debtor hereby authorizes Collateral
Agent to attach each Pledge Amendment to this Agreement and agrees that all
certificates or instruments listed on any Pledge Amendment delivered to
Collateral Agent shall for all purposes hereunder constitute
Collateral.

     

      4.5          
If Debtor shall receive, by virtue of Debtor being or having been an owner of
any Collateral, any (i) stock certificate (including, without limitation, any
certificate representing a stock dividend or distribution in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off or split-off),
promissory note or other instrument, (ii) option or right, whether as an
addition to, substitution for, or in exchange for, any Collateral, or otherwise,
(iii) dividends payable in cash (except such dividends permitted to be retained
by Debtor pursuant to Section 5.2 hereof) or in securities or other property or
(iv) dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, Debtor shall receive such stock certificate,
promissory note, instrument, option, right, payment or distribution in trust for
the benefit of Collateral Agent, shall segregate it from Debtor's other property
and shall deliver it forthwith to Collateral Agent, in the exact form received,
with any necessary endorsement and/or appropriate stock powers duly executed in
blank, to be held by Collateral Agent as Collateral and as further collateral
security for the Obligations.

    

    5.           Distribution.

     

     
5.1       So long as an Event of Default
does not exist, Debtor shall be entitled to exercise all voting power
pertaining to any of the Collateral, provided such exercise is not contrary to
the interests of the Lenders and does not impair the Collateral.

     

     
5.2.          At any time an Event
of Default exists or has occurred, all rights of Debtor, upon notice given by
Collateral Agent, to exercise the voting power and receive payments, which it
would otherwise be entitled to pursuant to Section 5.1, shall cease and all such
rights shall thereupon become vested in Collateral Agent, which shall thereupon
have the sole right to exercise such voting power and receive such
payments.

     

     
5.3           All dividends,
distributions, interest and other payments which are received by Debtor contrary
to the provisions of Section 5.2 shall be received in trust for the benefit of
Collateral Agent as security and Collateral for payment of the Obligations shall
be segregated from other funds of Debtor, and shall be forthwith paid over to
Collateral Agent as Collateral in the exact form received with any necessary
endorsement and/or appropriate stock powers duly executed in blank, to be held
by Collateral Agent as Collateral and as further collateral security for the
Obligations.

    

    6.           Further Action By
Debtor; Covenants and
Warranties.

     

     
6.1           Except for
Permitted Liens, Collateral Agent at all times shall have a perfected security
interest in the Collateral.  Debtor represents that it has and
will continue to have full title to the Collateral free from any liens, leases,
encumbrances, judgments or other claims.  The Collateral Agent's
security interest in the Collateral constitutes and will continue to constitute
a first, prior and indefeasible security interest in favor of Collateral
Agent.  Debtor will do all acts and things, and will execute and file
all instruments (including, but not limited to, security agreements, financing
statements, continuation statements, etc.) reasonably requested by Collateral
Agent to establish, maintain and continue the perfected security interest of
Collateral Agent in the perfected Collateral, and will promptly on demand, pay
all costs and expenses of filing and recording, including the costs of any
searches reasonably deemed necessary by Collateral Agent from time to time to
establish and determine the validity and the continuing priority of the security
interest of Collateral Agent, and also pay all other claims and charges that, in
the opinion of Collateral Agent, exercised in good faith, are reasonably likely
to materially prejudice, imperil or otherwise affect the Collateral or
Collateral Agent’s or Lenders’ security interests therein.

     

    
      
        
        

      

      
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6.2           Except in
connection with sales of Collateral, subject to Permitted Liens or other than in
the ordinary course of business, for fair value and in cash, and except for
Collateral which is substituted by assets of identical or greater value (with
the consent of the Collateral Agent) or which is inconsequential in value,
Debtor will not sell, transfer, assign or pledge those items of Collateral (or
allow any such items to be sold, transferred, assigned or pledged), without the
prior written consent of Collateral Agent other than a transfer of the
Collateral to a wholly-owned United States formed and located subsidiary or to
another Debtor on prior notice to Collateral Agent, and provided the Collateral
remains subject to the security interest herein described.  Although
Proceeds of Collateral are covered by this Agreement, this shall not be
construed to mean that Collateral Agent consents to any sale of the Collateral,
except as provided herein.  Sales of Collateral in the ordinary course
of business shall be free of the security interest of Lenders and Collateral
Agent and Lenders and Collateral Agent shall promptly execute such
documents (including without limitation releases and termination statements) as
may be required by Debtor to evidence or effectuate the same.

     

     
6.3           Debtor will, at
all reasonable times during regular business hours and upon reasonable notice,
allow Collateral Agent or its representatives free and complete access to the
Collateral and all of such Debtor's records which in any way relate to the
Collateral, for such inspection and examination as Collateral Agent reasonably
deems necessary.

     

     
6.4       Debtor, at its sole cost and expense,
will protect and defend this Security Agreement, all of the rights of Collateral
Agent and Lenders hereunder, and the Collateral against the claims and demands
of all other persons.

     

     
6.5           Debtor will promptly notify Collateral
Agent of any levy, distraint or other seizure by legal process or otherwise of
any part of the Collateral, and of any threatened or filed claims or proceedings
that are reasonably likely to affect or impair any of the rights of Collateral
Agent under this Security Agreement in any material respect.

     

     
6.6           Debtor, at its
own expense, will obtain and maintain in force insurance policies covering
losses or damage to those items of Collateral which constitute physical personal
property, which insurance shall be of the types customarily insured against by
companies in the same or similar business, similarly situated, in such amounts
(with such deductible amounts) as is customary for such companies under the same
or similar circumstances, similarly situated.  Debtor shall make the
Collateral Agent a loss payee thereon to the extent of its interest in the
Collateral. Collateral Agent is hereby irrevocably (until the Obligations are
paid in full) appointed Debtor’s attorney-in-fact to endorse any check or draft
that may be payable to such Debtor so that Collateral Agent may collect the
proceeds payable for any loss under such insurance.  The proceeds of
such insurance, less any costs and expenses incurred or paid by Collateral Agent
in the collection thereof, shall be applied either toward the cost of the repair
or replacement of the items damaged or destroyed, or on account of any sums
secured hereby, whether or not then due or payable.

     

     
6.7           Collateral Agent
may, at its option, and without any obligation to do so, pay, perform and
discharge any and all amounts, costs, expenses and liabilities herein agreed to
be paid or performed by Debtor upon Debtor’s failure to do so.  All amounts
expended by Collateral Agent in so doing shall become part of the Obligations
secured hereby, and shall be immediately due and payable by Debtor to Collateral
Agent upon demand and shall bear interest at the lesser of 15% per annum or the
highest legal amount from the dates of such expenditures until
paid.

     

    
      
        
        

      

      
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6.8           Upon the request
of Collateral Agent, Debtor will furnish to Collateral Agent within five (5)
business days thereafter, or to any proposed assignee of this Security
Agreement, a written statement in form reasonably satisfactory to Collateral
Agent, duly acknowledged, certifying the amount of the principal and interest
and any other sum then owing under the Obligations, whether to its knowledge any
claims, offsets or defenses exist against the Obligations or against this
Security Agreement, or any of the terms and provisions of any other agreement of
Debtor securing the Obligations.  In connection with any assignment by
Collateral Agent of this Security Agreement, Debtor hereby agrees to cause the
insurance policies required hereby to be carried by such Debtor, if any, to be
endorsed in form satisfactory to Collateral Agent or to such assignee, with loss
payable clauses in favor of such assignee, and to cause such endorsements to be
delivered to Collateral Agent within ten (10) calendar days after request
therefor by Collateral Agent.

     

     
6.9           Debtor
will, at its own expense, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other reasonable
assurances or instruments and take further steps relating to the Collateral and
other property or rights covered by the security interest hereby granted, as the
Collateral Agent may reasonably require to perfect its security interest
hereunder.

     

     
6.10         Debtor represent and
warrant that they are the true and lawful exclusive owners of the Collateral,
free and clear of any liens and encumbrances.

     

     
6.11         Debtor hereby agrees
not to divest itself of any right under the Collateral except as permitted
herein absent prior written approval of the Collateral Agent, except to a
subsidiary organized and located in the United States on prior notice to
Collateral Agent provided the Collateral remains subject to the security
interest herein described.

     

     
6.12         Debtor shall cause
each Subsidiary of such Debtor in existence on the date hereof and each
Subsidiary not in existence on the date hereof to execute and deliver to
Collateral Agent promptly and in any event within 10 days after the formation,
acquisition or change in status thereof (A) a guaranty guaranteeing the
Obligations and (B) if requested by Collateral Agent, a security and pledge
agreement substantially in the form of this Agreement together with (x)
certificates evidencing all of the capital stock of each Subsidiary of and any
entity owned by such Subsidiary, (y) undated stock powers executed in blank with
signatures guaranteed, and (z) such opinion of counsel and such approving
certificate of such Subsidiary as Collateral Agent may reasonably request in
respect of complying with any legend on any such certificate or any other matter
relating to such shares and (C) such other agreements, instruments, approvals,
legal opinions or other documents reasonably requested by Collateral Agent in
order to create, perfect, establish the first priority of or otherwise protect
any lien purported to be covered by any such pledge and security agreement or
otherwise to effect the intent that all property and assets of such Subsidiary
shall become Collateral for the Obligations.  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 25% of (A) 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, (B) 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 (C) 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. As of the date of
this Agreement, the
Debtor does not have any Subsidiaries.

     

    
      
        
        

      

      
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    7.           Power of
Attorney.

     

      At
any time an Event of Default has occurred and is continuing, Debtor hereby
irrevocably constitutes and appoints the Collateral Agent as the true and lawful
attorney of such Debtor, with full power of substitution, in the place and stead
of such Debtor and in the name of such Debtor or otherwise, at any time or
times, in the discretion of the Collateral Agent, to take any action and to
execute any instrument or document which the Collateral Agent may deem necessary
or advisable to accomplish the purposes of this Agreement.  This power
of attorney is coupled with an interest and is irrevocable until the Obligations
are satisfied.

    

    8.           Performance By The
Collateral Agent.

     

      If
a Debtor fails to perform any material covenant, agreement, duty or obligation
of such Debtor under this Agreement, the Collateral Agent may, after any
applicable cure period, at any time or times in its discretion, take action to
effect performance of such obligation.  All reasonable expenses of the
Collateral Agent incurred in connection with the foregoing authorization shall
be payable by Debtor as provided in Paragraph 12.1 hereof.  No
discretionary right, remedy or power granted to the Collateral Agent under any
part of this Agreement shall be deemed to impose any obligation whatsoever on
the Collateral Agent with respect thereto, such rights, remedies and powers
being solely for the protection of the Collateral Agent.

    

    9.           Event of
Default.

     

      An
event of default ("Event of Default") shall be deemed to have occurred hereunder
upon the occurrence of any event of default as defined and described in this
Agreement, in the Notes, the Subscription Agreement, and any other agreement to
which Debtor and a Lender are parties.   Upon and after any Event
of Default, after the applicable cure period, if any, any or all of the
Obligations shall become immediately due and payable at the option of the
Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may
dispose of Collateral as provided below.  A default by Debtor of any
of its material obligations pursuant to this Agreement and any of the
Transaction Documents (as defined in the Subscription Agreement) shall be an
Event of Default hereunder and an “Event of Default” as defined in the Notes,
and Subscription Agreement.

    

    10.         Disposition of
Collateral.

     

     
Upon and after any Event of Default which is then continuing,

     

     
10.1         The Collateral Agent may
exercise its rights with respect to each and every component of the Collateral,
without regard to the existence of any other security or source of payment for
the Obligations.  In addition to other rights and remedies provided
for herein or otherwise available to it, the Collateral Agent shall have all of
the rights and remedies of a lender on default under the Uniform Commercial Code
then in effect in the State of New York.

     

     
10.2         If any notice to
Debtor of the sale or other disposition of Collateral is required by then
applicable law, five business (5) days prior written notice (which Debtor agree
is reasonable notice within the meaning of Section 9.612(a) of the Uniform
Commercial Code) shall be given to Debtor of the time and place of any sale of
Collateral which Debtor hereby agree may be by private sale.  The
rights granted in this Section are in addition to any and all rights available
to Collateral Agent under the Uniform Commercial Code.

     

     
10.3         The Collateral Agent
is authorized, at any such sale, if the Collateral Agent deems it advisable to
do so, in order to comply with any applicable securities laws, to restrict the
prospective bidders or purchasers to persons who will represent and agree, among
other things, that they are purchasing the Collateral for their own account for
investment, and not with a view to the distribution or resale thereof, or
otherwise to restrict such sale in such other manner as the Collateral Agent
deems advisable to ensure such compliance.  Sales made subject to such
restrictions shall be deemed to have been made in a commercially reasonable
manner.

     

    
      
        
        

      

      
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10.4         All proceeds received
by the Collateral Agent for the benefit of the Lenders in respect of any sale,
collection or other enforcement or disposition of Collateral, shall be applied
(after deduction of any amounts payable to the Collateral Agent pursuant to
Paragraph 12.1 hereof) against the Obligations pro rata among the Lenders in
proportion to their interests in the Obligations.   Upon payment
in full of all Obligations, Debtor shall be entitled to the return of all
Collateral, including cash, which has not been used or applied toward the
payment of Obligations or used or applied to any and all costs or expenses of
the Collateral Agent incurred in connection with the liquidation of the
Collateral (unless another person is legally
entitled thereto).  Any assignment of Collateral by the
Collateral Agent to Debtor shall be without representation or warranty of any
nature whatsoever and wholly without recourse.  To the extent allowed
by law, each Lender may purchase the Collateral and pay for such purchase by
offsetting up to such Lender’s pro rata portion of the purchase price with sums
owed to such Lender by Debtor arising under the Obligations or any other
source.

    

    11.         Waiver of Automatic
Stay.   Debtor acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Debtor, or if any of the Collateral should become the subject of any bankruptcy
or insolvency proceeding, then the Collateral Agent should be entitled to, among
other relief to which the Collateral Agent or Lenders may be entitled under the
Note, Subscription Agreement and any other agreement to which the Debtor,
Lenders or Collateral Agent are parties, (collectively "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent
to exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law.  Debtor EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC
STAY IMPOSED BY 11 U.S.C. SECTION 362.  FURTHERMORE, Debtor EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.  Debtor
hereby consents to any motion for relief from stay which may be filed by the
Collateral Agent in any bankruptcy or insolvency proceeding initiated by or
against Debtor, and further agrees not to file any opposition to any motion for
relief from stay filed by the Collateral Agent.  Debtor represents,
acknowledges and agrees that this provision is a specific and material aspect of
this Agreement, and that the Collateral Agent would not agree to the terms of
this Agreement if this waiver were not a part of this
Agreement.  Debtor further represents, acknowledges and agrees that
this waiver is knowingly, intelligently and voluntarily made, that neither the
Collateral Agent nor any person acting on behalf of the Collateral Agent has
made any representations to induce this waiver, that Debtor has been represented
(or has had the opportunity to be represented) in the signing of this Agreement
and in the making of this waiver by independent legal counsel selected by Debtor
and that Debtor has had the opportunity to discuss this waiver with
counsel.   Debtor further agrees that any bankruptcy or
insolvency proceeding initiated by Debtor will only be brought in the Federal
Court within the Southern District of New York.

    

    12.         Miscellaneous.

     

     
12.1         Expenses.  Debtor
shall pay to the Collateral Agent, on demand, the amount of any and all
reasonable expenses, including, without limitation, attorneys' fees, legal
expenses and brokers' fees, which the Collateral Agent may incur in connection
with (a) sale, collection or other enforcement or disposition of Collateral; (b)
exercise or enforcement of any the rights, remedies or powers of the Collateral
Agent hereunder or with respect to any or all of the Obligations upon breach or
threatened breach; or (c) failure by Debtor to perform and observe any
agreements of Debtor contained herein which are performed by the Collateral
Agent.

     

    
      
        
        

      

      
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12.2         Waivers, Amendment and
Remedies.  No course of dealing by the Collateral Agent and no
failure by the Collateral Agent to exercise, or delay by the Collateral Agent in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, and no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right, remedy or power of
the Collateral Agent.  No amendment, modification or waiver of any
provision of this Agreement and no consent to any departure by Debtor therefrom,
shall, in any event, be effective unless contained in a writing signed by the
Collateral Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.  The
rights, remedies and powers of the Collateral Agent, not only hereunder, but
also under any instruments and agreements evidencing or securing the Obligations
and under applicable law are cumulative, and may be exercised by the Collateral
Agent from time to time in such order as the Collateral Agent may
elect.

     

     
12.3         Notices.  All
notices or other communications given or made hereunder shall be in writing and
shall be personally delivered or deemed delivered the first business day after
being faxed (provided that a copy is delivered by first class mail) to the party
to receive the same at its address set forth below or to such other address as
either party shall hereafter give to the other by notice duly made under this
Section:

    

    
      	 
      	
              To
      Debtor:

            	
              Ido
      Security Inc.

            
	 
      	 
      	
              17
      State Street

            
	 
      	 
      	
              New
      York, NY 10004

            
	 
      	 
      	
              Fax:
      (646) 285-0026

            
	 
      	 
      	 
      
	 
      	
              With
      a copy by telecopier only to:

            
	 
      	 
      	 
      
	 
      	 
      	
              Aboudi
      & Brounstein

            
	 
      	 
      	
              3
      Gavish St.

            
	 
      	 
      	
              Kfar
      Saba, Israel

            
	 
      	 
      	
              Fax:
      972-9-764-4834

            
	 
      	 
      	 
      
	 
      	
              To
      Lenders:

            	
              To
      the addresses and telecopier numbers set forth

            
	 
      	 
      	
              on
      Schedule A

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              To
      the Collateral Agent:

            	
              Barbara
      R. Mittman, Esq.

            
	 
      	 
      	
              551
      Fifth Avenue, Suite 1601

            
	 
      	 
      	
              New
      York, New York 10176

            
	 
      	 
      	
              Fax:
      (212) 697-3575

            
	 
      	 
      	 
      
	 
      	
              If
      to Debtor, Lender or Collateral Agent,

            
	 
      	
              with
      a copy by telecopier only to:

            
	 
      	 
      	 
      
	 
      	 
      	
              Grushko
      & Mittman, P.C.

            
	 
      	 
      	
              551
      Fifth Avenue, Suite 1601

            
	 
      	 
      	
              New
      York, New York 10176

            
	 
      	 
      	
              Fax:
      (212) 697-3575

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Any party
may change its address by written notice in accordance with this
paragraph.

     

     
12.4         Term; Binding
Effect.  This Agreement shall (a) remain in full force and
effect until payment and satisfaction in full of all of the Obligations; (b) be
binding upon Debtor, and its successors and permitted assigns; and (c) inure to
the benefit of the Collateral Agent, for the benefit of the Lenders and their
respective successors and assigns.

     

     
12.5         Captions.  The
captions of Paragraphs, Articles and Sections in this Agreement have been
included for convenience of reference only, and shall not define or limit the
provisions hereof and have no legal or other significance
whatsoever.

     

     
12.6         Governing Law; Venue;
Severability.  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, except to the extent that the perfection of
the security interest granted hereby in respect of any item of Collateral may be
governed by the law of another jurisdiction.  Any legal action or
proceeding against a Debtor with respect to this Agreement may be brought in the
courts in the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, Debtor
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts.  Debtor
hereby irrevocably waives any objection which they may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Agreement brought in the aforesaid courts and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.  If any provision of this Agreement,
or the application thereof to any person or circumstance, is held invalid, such
invalidity shall not affect any other provisions which can be given effect
without the invalid provision or application, and to this end the provisions
hereof shall be severable and the remaining, valid provisions shall remain of
full force and effect.

     

     
12.7         Entire
Agreement.  This Agreement contains the entire agreement of the
parties and supersedes all other agreements and understandings, oral or written,
with respect to the matters contained herein.

     

     
12.8         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.

    

    13.         Intercreditor
Terms.   As between the Lenders, any distribution under
paragraph 10.4 shall be made proportionately based upon the remaining principal
amount (plus accrued and unpaid interest) to each as to the total amount then
owed to the Lenders as a whole.  The rights of each Lender hereunder
are pari passu
to the rights of the other Lenders hereunder.  Any recovery hereunder
shall be shared ratably among the Lenders according to the then remaining
principal amount owed to each (plus accrued and unpaid interest) as to the total
amount then owed to the Lenders as a whole.

    

    14.         Termination;
Release.  When the Obligations have been indefeasibly paid and
performed in full or all outstanding Convertible Notes have been converted to
common stock pursuant to the terms of the Convertible Notes and the Subscription
Agreements, this Agreement shall terminated, and the Collateral Agent, at the
request and sole expense of the Debtor, will execute and deliver to the Debtor
the proper instruments (including UCC termination statements) acknowledging the
termination of the Security Agreement, and duly assign, transfer and deliver to
the Debtor, without recourse, representation or warranty of any kind whatsoever,
such of the Collateral, including, without limitation, Securities and any
Additional Collateral, as may be in the possession of the Collateral
Agent.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
15.         Collateral
Agent.

     

     
15.1         Collateral Agent
Powers.  The powers conferred on the Collateral Agent hereunder
are solely to protect its interest (on behalf of the Lenders) in the Collateral
and shall not impose any duty on it to exercise any such powers.

     

     
15.2         Reasonable
Care.  The Collateral Agent is required to exercise reasonable
care in the custody and preservation of any Collateral in its possession;
provided, however, that the Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral if it
takes such action for that purposes as any owner thereof reasonably requests in
writing at times other than upon the occurrence and during the continuance of
any Event of Default, but failure of the Collateral Agent, to comply with any
such request at any time shall not in itself be deemed a failure to exercise
reasonable care.

    

    

    [THIS
SPACE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
 

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

    

    
      	
              "DEBTOR"

            	 
      	
              "THE
      COLLATERAL AGENT"

            
	
              IDO
      SECURITY INC.

            	 
      	
              BARBARA
      R. MITTMAN

            
	
              a
       Nevada corporation

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              By:
      _____________________________________

            	 
      	
              _____________________________________

            
	 
      	 
      	 
      
	
              Its:
      _____________________________________

            	 
      	 
      

    

    

    

    APPROVED BY “LENDERS”:

    

    

    
      	
              Name
      of Lender (Print):

            	 
      	
              Name
      of Lender (Print):

            
	 
      	 
      	 
      
	
              ________________________________________

            	 
      	
              ______________________________________

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              By:____________________________________

            	 
      	
              By:____________________________________

            
	 
      	 
      	 
      
	
              Print
      Name of Signator:_____________________

            	 
      	
              Print
      Name of
Signator:____________________

            

    

    

     

    

    

    This
Security Agreement may be signed by facsimile signature and

    delivered
by confirmed facsimile transmission.

     

     

    12

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