Document:

cicn_ex42.htm

     

     

    Exhibit
4.2

    AMENDMENT NO.
1

    TO

    SHORT TERM CONVERTIBLE
PROMISSORY NOTE

    

    This Amendment No. 1 to Short Term
Convertible Promissory Note (this “Amendment”) is made
as of March 31, 2010, between Cicero Inc., a Delaware corporation (the “Company”), and
SOAdesk, LLC, a Delaware limited liability company (“Holder”).

    

    W
I T N E S S E T H:

    

    WHEREAS,
pursuant to that certain Asset Purchase Agreement, dated as of January 15, 2010,
between the Company and Holder, the Company delivered to Holder a $700,000
principal amount Short Term Convertible Promissory Note (the “Note”);
and

    

    WHEREAS,
the Company and Holder desire to amend the Note as set forth
herein.

    

    NOW,
THEREFORE, in consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

    

    1.           Capitalized
terms used and not otherwise defined herein shall have the meanings given to
such terms in the Note.

    

    2.           The
“Maturity Date” of the Note is hereby extended to September 30,
2010.

    

    3.           Section
4.2 of the Note (“Mandatory
Prepayment”) is hereby amended by adding the following proviso to the end
of such Section:

    

    “; provided, that no
such proceeds shall be applied to pre-payment of this Note until one hundred
percent (100%) of the aggregate principal amount of, and any accrued interest
on, that certain $525,000 principal amount Short Term Convertible Promissory
Note, dated as of March 31, 2010, between the Company and Holder, shall have
been paid in full.”

    

    4.           Except
as specifically set forth herein, the Note and all of its terms and conditions
remain in full force and effect, and the Note is hereby ratified and confirmed
in all respects, except that on or after the date of this Amendment all
references in the Note to “this Note,” “hereto,” “hereof,” “hereunder,” or words
of like import shall mean the Note as amended by this Amendment.

    

    5.           This
Amendment may be executed in any number of counterparts, each of which shall be
deemed an original and such counterparts together shall constitute one and the
same instrument.

    
      
        
          

                                                                 

        

         

      

      
        1

        
          

        

      

      
         

        
          Exhibit
4.2

        

      

    

    6.           This
Amendment and all actions arising out of or in connection with this Amendment
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to the conflicts of law provisions
thereof.

     

    7.           This
Amendment shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.

     

    

     

    [remainder of page intentionally left
blank; signature page follows]

     

    

     

    
      
        
          

                                                                 

        

         

      

      
        2

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.

     

    
       

      
        
          	 	CICERO INC.	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name:	 
	 	 	 	 
	 	 	Title: 	 
	 	 	 	 

        

      

       

       

      
        	
              	SOADESK, LLC	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:	 
	 	 	 	 
	 	 	Title: 	 
	 

      

       

    

    

    

    

    

    

    

    

    Signature
Page to Amendment to Short Term Convertible Promissory Notegia_ex101.htm

     

    EXHIBIT
10.1

     

    SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE

     

    AGREEMENT

     

     

     

    Dated
as of March 31, 2010

     

     

     

    among

    
 

     

     

    GULFSTREAM
INTERNATIONAL GROUP, INC.

    

     

     

    and

     

     

     

     

    THE
PURCHASERS LISTED ON EXHIBIT A

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    TABLE OF CONTENTS

    

     

    
      
        	 	 	PAGE
	ARTICLE I Purchase
      and Sale of Preferred Stock	 	 
	 	 	 
	 	Section
      1.1	Purchase
      and Sale of Stock 	1
	 	Section
      1.2	Conversion
      Shares 	1
	 	Section
      1.3	Purchase
      Price and Closings 	2
	 	 	 	 
	ARTICLE II
      Representations and Warranties	 	 
	 	 	 	 
	 	Section
      2.1	Representations
      and Warranties of the Company 	2
	 	Section
      2.2	Representations
      and Warranties of the Purchasers 	12
	 	 	 	 
	ARTICLE III
      Covenants	 	 
	 	 	 	 
	 	Section
      3.1	Securities
      Compliance 	14
	 	Section
      3.2	Registration
      and Listing 	14
	 	Section
      3.3	Inspection
      Rights 	14
	 	Section
      3.4	Compliance
      with Laws 	14
	 	Section
      3.5	Keeping
      of Records and Books of Account 	14
	 	Section
      3.6	Reporting
      Requirements 	15
	 	Section
      3.7	Amendments 	15
	 	Section
      3.8	Other
      Agreements. 	15
	 	Section
      3.9	Distributions. 	15
	 	Section
      3.10	Status
      of Dividends 	16
	 	Section
      3.11	Use
      of Proceeds 	16
	 	Section
      3.12	Reservation
      of Shares 	16
	 	Section
      3.13	Disposition
      of Assets 	16
	 	Section
      3.14	Reporting
      Status 	17
	 	Section
      3.15	Disclosure
      of Transaction 	17
	 	Section
      3.16	Disclosure
      of Material Information 	18
	 	Section
      3.17	Pledge
      of Securities 	 
	 	Section
      3.18	Lock-Up
      Agreements 	 
	 	Section
      3.19	Monitoring
      Fee 	 
	 	Section
      3.20	Hiring
      of COO 	 
	 	Section
      3.21	Board
      of Directors 	 
	 	Section
      3.22	Additional
      Affirmative Covenants 	 
	 	Section
      3.23	Additional
      Negative Covenants 	 
	 	 	 	 
	ARTICLE
      IV Conditions	 	 
	 	 	 	 
	 	Section
      4.1	Conditions
      Precedent to the Obligation of the Company to Sell the
      Shares 	18
	 	Section
      4.2	Conditions
      Precedent to the Obligation of the Purchasers to Purchase the
      Shares 	 

      

       

      
        
           

        

        
          i

          
            

          

        

        
           

        

      

       

      
        	ARTICLE V Stock
      Certificate Legend 	 	 
	 	 	 	 
	 	Section
      5.1	Legend 	20
	 	 	 	 
	ARTICLE VI
      Indemnification	 	 
	 	 	 	 
	 	Section
      6.1	Company
      Indemnity 	22
	 	Section
      6.2	Indemnification
      Procedure 	22
	 	 	 	 
	ARTICLE VII
      Miscellaneous	 	 
	 	 	 	 
	 	Section
      7.1	Fees
      and Expenses 	23
	 	Section
      7.2	Specific
      Enforcement, Consent to Jurisdiction. 	23
	 	Section
      7.3	Entire
      Agreement; Amendment 	23
	 	Section
      7.4	Notices 	24
	 	Section
      7.5	Waivers 	24
	 	Section
      7.6	Headings 	24
	 	Section
      7.7	Successors
      and Assigns 	24
	 	Section
      7.8	No
      Third Party Beneficiaries 	24
	 	Section
      7.9	Governing
      Law 	25
	 	Section
      7.10	Survival 	25
	 	Section
      7.11	Counterparts 	25
	 	Section
      7.12	Publicity 	25
	 	Section
      7.13	Severability 	25
	 	Section
      7.14	Further
      Assurances 	25

      

    

    
    

     

    
      
         

      

      
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    SERIES
A CONVERTIBLE

    PREFERRED
STOCK PURCHASE AGREEMENT

     

    THIS SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT (the “Agreement”) is dated
as of March 31, 20010 by and among Gulfstream International Group,
Inc., a Delaware corporation (the “Company”), and each
of the Purchasers of shares of Series A Convertible Preferred Stock of the
Company whose names are set forth on Exhibit A hereto
(individually, a “Purchaser” and
collectively, the “Purchasers”).

    

    The parties hereto agree as
follows:

     

    ARTICLE
I

     

    Purchase
and Sale of Preferred Stock

     

    Section
1.1 Purchase and Sale of
Securities.  Upon the following terms and conditions, the
Company shall issue and sell to the Purchasers and each of the Purchasers shall
purchase from the Company, in the amounts set forth opposite such Purchaser’s
name on Exhibit
A hereto:

     

    (a)   the number of shares
of the Company’s Series A Convertible Preferred Stock, par value $0.001 per
share, stated value of $10.00 per share, and convertible into Common Stock of
the Company, $0.01 par value per share (the “Common Stock”) at a
conversion price (subject to certain adjustments) of $1.00 per share (the “Series A Preferred
Stock”), and

     

    (b)   number of warrants
expiring March 31, 2013 (the “Warrants”), entitling
the Purchaser or any subsequent holder of the Warrants (the “Warrant Holder”) to
purchase that number shares of Common Stock as shall be equal to fifty percent
(50%) of the aggregate number of “Series A Conversion Shares” (defined below)
issuable to each Purchaser upon conversion of the shares of Series A Preferred
Stock acquired by such Purchaser hereunder (the “Warrant
Shares”).  A copy of the form of Warrant is attached hereto as
Exhibit
B.

     

    An
aggregate of up to 250,000 shares of the Series A Preferred Stock shall be
issued and sold to all Purchasers pursuant to this Agreement.  The
designation of the relative rights, preferences and other terms and provisions
of the Series A Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock attached hereto as Exhibit C (the “Certificate of
Designation”).  The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Rule 506 of 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 “Securities Act”) or
Section 4(2) of the Securities Act.

     

    Section
1.2 Conversion Shares.
The Company has authorized and has reserved and covenants to continue to
reserve, free of preemptive rights and other similar contractual rights of
stockholders, a number of shares of Common Stock equal to one hundred twenty
percent (120%) of the number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Series A Preferred
Stock then outstanding.  Any shares of Common Stock issuable upon
conversion of the Series A Preferred Stock (and such shares when issued) are
herein referred to as the “Series A Conversion
Shares”.

     

    
      
         

      

      
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    Section
1.3  The
Series A Preferred Stock, the Series A Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the “Shares” and the
Shares and the Warrants are sometimes collectively referred to herein as the
“Securities.”

     

    Section
1.4  Purchase Price and
Closings.  Subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Purchasers and, in consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase the Series A Preferred Stock and the Warrants for an aggregate
purchase price of up to Two Million Five Hundred Thousand Dollars ($2,500,000)
(the “Purchase
Price”); provided that, the
total Purchase Price may be increased to up to Four Million Dollars ($4,000,000)
solely at the Company’s discretion.  The sale of the Series A
Preferred Stock and the Warrants shall be sold and funded in separate closings
(each, a “Closing”).  The
initial Closing under this Agreement (the “Initial Closing”)
shall take place on or before April 15, 2010 (the “Initial Closing
Date”.  Each subsequent Closing under this Agreement (each, a
“Subsequent
Closing”) shall take place on a date (each, a “Subsequent Closing
Date”) upon the mutual agreement of the Company and any subsequent
Purchaser, but in no event later than May 31, 2010 (the “Final Closing
Date”).  There
is no minimum number of shares or dollar amount of Series A Preferred Stock and
Warrants that must be sold at the Initial Closing or any Subsequent Closing, nor
is there any minimum number of shares or dollar amount of Series A Preferred
Stock and Warrants that must be sold by the Final Closing
Date.  The Initial Closing, each Subsequent Closing and the
Final Closing are sometimes referred to in this Agreement as the “Closing” and the
Initial Closing Date, each Subsequent Closing Date and the Final Closing Date
are sometimes referred to in this Agreement as the “Closing
Date”.  Each Closing under this Agreement shall take place at
the offices of Hodgson Russ LLP, 1540 Broadway, 24th
floor, New York, New York 10036 at 10:00 a.m., New York time.  Subject
to the terms and conditions of this Agreement, at the Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) a certificate for the
number of Series A Preferred Shares sand Warrants et forth opposite the name of
such Purchaser on Exhibit A hereto, and
(y) any other documents required to be delivered pursuant to Article IV
hereof.  At the Closing, the Purchaser shall deliver its Purchase
Price by wire transfer to an escrow account designated by the escrow agent
pursuant to a certain Escrow Agreement dated as of the date hereof by and among
the Company, the escrow agent and the Placement Agent (the “Escrow
Agreement”).

    

    Section 1.5  Registration Rights
Agreement.  At each closing, the Company and each Purchaser
shall enter into a registration rights agreement in the form of Exhibit D annexed
hereto (the “Registration Rights
Agreement”).

     

    ARTICLE
II

     

    Representations
and Warranties

     

    Section
2.1  Representations and
Warranties of the Company.  The Company hereby represents and
warrants to the Purchasers, as of the date hereof and each Closing Date (except
as set forth on the Schedule of Exceptions attached hereto with each numbered
Schedule corresponding to the section number herein), as follows:

     

    
      
         

      

      
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    (a)  
Organization, Good Standing
and Power.  The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being
conducted.  The Company does not have any subsidiaries except as set
forth in the Company’s Form 10-K for the year ended December 31, 2008, including
the accompanying financial statements (the “Form 10-K”), or in
the Company’s Form 10-Q for the fiscal quarters ended March 31, 2009, June
30,  2009 and September 30, 2009 (the “Form 10-Q” and,
together with the Form 10-K, the Proxy Statement on Schedule 14A for the
Company’s stockholder meeting held October 20, 2009, and any and all Form 8-K
Interim Reports filed by the Company since the date of the Form 10-K,
(collectively the “Recent 34 Act
Filings”), or on Schedule 2.1(g)
hereto.  The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in Section 2.1(c) hereof) on the Company’s financial
condition.

     

    (b)  
Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Certificate of
Designation, the Warrants and the Registration Rights Agreement (collectively,
the “Transaction
Documents”), and to issue and sell the Securities in accordance with the
terms hereof.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required.  This Agreement has been and will be duly executed and
delivered by the Company at each Closing.  The Certificate of
Designation will have been filed with the Secretary of State of the State of
Delaware on or before the Initial Closing.  Each of the Transaction
Documents constitutes, or shall constitute when executed and delivered, a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.

     

    (c)  
Capitalization.  The
authorized capital stock of the Company and the shares thereof currently issued
and outstanding as of the date hereof are set forth in the Recent 34 Act Filings
or as updated on Schedule 2.1(c)
hereto.  All of the outstanding shares of the Common Stock and the
Series A Preferred Stock have been duly and validly
authorized.  Except as set forth in the Recent 34 Act Filings or on
Schedule 2.1(c)
hereto: (i) no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company; (ii) there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company; (iii) the Company is
not a party to any agreement granting registration or anti-dilution rights to
any person with respect to any of its equity or debt securities; and (iv) the
Company is not a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the capital stock of the
Company.  The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Closing complied with all applicable Federal and state securities laws, and no
stockholder has a right of rescission or claim for damages with respect thereto
which would have a Material Adverse Effect (as defined below).  The
Company has furnished or made available to the Purchasers true and correct
copies of the Company’s Certificate of Incorporation as in effect on the date
hereof (the “Articles”), and the
Company’s Bylaws as in effect on the date hereof (the “Bylaws”).  For
the purposes of this Agreement, “Material Adverse
Effect” means (i) any event or condition which would have a material
adverse effect on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries, when taken as a consolidated
whole, and/or (ii) any condition, circumstance, or situation that would prohibit
or otherwise materially interfere with the ability of the Company to perform any
of its obligations under this Agreement in any material respect.

     

    
      
         

      

      
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    (d)  
Issuance of
Shares.  The Series A Preferred Stock to be issued at the
Closing will have been duly authorized by all necessary corporate action and the
Series A Preferred Stock, when paid for or issued in accordance with the terms
hereof, shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designation.  When the Series A Conversion Shares are issued in
accordance with the terms of the Certificate of Designation, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.

     

    (e)  
No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not and will not
(i) violate any provision of the Company’s Articles or Bylaws, (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, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect.  The business of the
Company and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect.  The Company is not required under Federal,
state or local law, rule or regulation 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 the Transaction Documents, or issue and sell the Series A Preferred Stock
and the Series A Conversion Shares in accordance with the terms hereof or
thereof (other than any filings which may be required to be made by the Company
with the Commission or state securities administrators subsequent to the Closing
and the Certificate of Designation); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchasers herein.

     

    (f)  
Commission Documents,
Financial Statements.  The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the “Commission
Documents”).  The Company has delivered or made available to
each of the Purchasers true and complete copies of the Commission
Documents.  The Company has not provided to the Purchasers any
material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed publicly
by the Company but which has not been so disclosed, other than with respect to
the transactions contemplated by this Agreement.  At the times of
their respective filings, the Form 10-K and the Form 10-Qs complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such documents, and, as of
their respective dates, none of the Recent 34 Act Filings contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the Commission Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission or other applicable rules
and regulations with respect thereto.  Such financial statements have
been prepared in accordance with United States generally accepted accounting
principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).

     

    
      
         

      

      
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    (g)  
Subsidiaries.  The
Commission Documents or Schedule 2.1(g)
hereto sets forth each subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of each person’s
ownership.  For the purposes of this Agreement, “subsidiary” shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries.  All of the outstanding shares
of capital stock of each subsidiary have been duly authorized and validly
issued, and are fully paid and nonassessable.  There is not
outstanding any preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock.  Neither the Company
nor any subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of the capital stock of any
subsidiary or any convertible securities, rights, warrants or options of the
type described in the preceding sentence.  Neither the Company nor any
subsidiary is party to, nor has any knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of any
subsidiary.

     

    (h)  
No Material Adverse
Change.  Since December 31, 2008, the Company has not
experienced or suffered any Material Adverse Effect.

     

    (i)  
No Undisclosed
Liabilities.  Neither the Company nor any of its subsidiaries
has any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of the Company’s or its
subsidiaries respective businesses since December 31, 2008 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.

     

    (j)  
No Undisclosed Events or
Circumstances.  No event or circumstance has occurred or exists
with respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or
disclosed.

     

    (k)  
Indebtedness.  The
Recent 34 Act Filings or Schedule 2.1(k)
hereto sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments.  For the purposes of this Agreement,
“Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess of
$250,000 (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $100,000 due under leases required to
be capitalized in accordance with GAAP.  Except as set forth on Schedule 2.1(k)
hereto, neither the Company nor any subsidiary is in default with respect to any
Indebtedness.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (l)  
Title to
Assets.  Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the Form
10-K, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those disclosed in the Form 10-K or
such that, individually or in the aggregate, do not cause a Material Adverse
Effect.  All leases that are material to the business of the Company
and its subsidiaries are valid and subsisting and in full force and
effect.

     

    (m)  
Actions
Pending.  There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto.  Except
as set forth in the Recent 34 Act Filings or on Schedule 2.1(m)
hereto: (i) there is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding pending or, to
the knowledge of the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets, and (ii) there are
no outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
subsidiary or any officers or directors of the Company or subsidiary in their
capacities as such.

     

    (n)  
Compliance with
Law.  The business of the Company and the subsidiaries has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except for
such noncompliance that, individually or in the aggregate, would not cause a
Material Adverse Effect.  The Company and each of its subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

     

    (o)  
Taxes.  Except
as set forth in the Recent 34 Act Filings or on Schedule 2.1(o)
hereto, the Company and each of the subsidiaries has accurately prepared and
filed all federal, state and other tax returns required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been and are reflected
in the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable.  None of the federal income
tax returns of the Company or any subsidiary have been audited by the Internal
Revenue Service.  The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (p)  
Certain
Fees.  Except for the payment to the Placement Agent of (a)
commissions in the amount of 9% of the total Purchase Price received by the
Company from the Offering from the sale of all securities sold by the Placement
Agent, (b) a non-accountable expense allowance equal to 2% of the total Purchase
Price received by the Company from the Offering from the sale of all securities
sold by the Placement Agent, (c) 5-year warrants (the “Placement Agent Warrants”)
entitling the holder to receive Common Stock equal to 11% of the aggregate
number of securities sold in the Offering by the Placement Agent, (d) shares of
Common Stock in an amount equal to 5.5% of the total Purchase Price received by
the Company from the Offering from the sale of all securities sold by the
Company or other third parties  at a per share equal to the closing
price of the Common Stock as reported on the NYSE Amex on the Closing Date, and
(e) commissions in the amount of 9% of the total proceeds which the Company
receives from the exercise of any Warrants issued to Purchasers introduced to
the Company by the Placement Agent that participate in the Offering
(collectively, the “Placement
Agent Compensation”), no commissions, brokers' fees or finder's fee will
be payable by the Company in connection with the transactions contemplated by
this Agreement, nor will any such fee be incurred as a result of any actions of
the Company.

     

    (q)  
Disclosure.  Neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.

     

    (r)  
Operation of
Business.  The Company and each of the subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Recent 34 Act
Filings, and all rights with respect to the foregoing, which are necessary for
the conduct of its business as now conducted without any conflict with the
rights of others.

     

    (s)  
Environmental
Compliance.  The Company and each of its subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under
any  Environmental Laws.  The Recent 34 Act Filings describe
all material permits, licenses and other authorizations issued under any
Environmental Laws to the Company or its subsidiaries.  “Environmental Laws”
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature.  The
Company has all necessary governmental approvals required under all
Environmental Laws and used in its business or in the business of any of its
subsidiaries.  The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws.  Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous
substance.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    (t)  
Books and Record Internal
Accounting Controls.  The books and records of the Company and
its subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any
subsidiary.  The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.

     

    (u)  
Material
Agreements.  Except as set forth in the Recent 34 Act Filings
or on Schedule
2.1(u) hereto (which Schedule may cross-reference other Commission
Documents), neither the Company nor any subsidiary is a party to any written or
oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or applicable form
(collectively, “Material Agreements”)
if the Company or any subsidiary were registering securities under the
Securities Act.  The Company and each of its subsidiaries has in all
material respects performed all the obligations required to be performed by them
to date under the foregoing agreements, have received no notice of default and
are not in default under any Material Agreement now in effect, the result of
which could cause a Material Adverse Effect.  Except as set forth in
the Recent 34 Act Filings or on Schedule 2.1(u)
annexed hereto, no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Series A Preferred Stock, other
preferred stock, if any, or its Common Stock.

     

    (v)  
Transactions with
Affiliates.  Except as set forth in the Commission Documents,
there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company or any subsidiary on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.

     

    (w)  
Securities Act of
1933.  Based in material part upon the representations herein
of the Purchasers, the Company has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance and
sale of the Shares hereunder.  Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Shares or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Shares under the
registration provisions of the Securities Act and applicable state securities
laws, and neither the Company nor any of its affiliates, nor 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 Securities
Act) in connection with the offer or sale of any of the Shares.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (x)  
Governmental
Approvals.  Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D and the filing of the Certificate of
Designation with the Secretary of State for the State of Nevada, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Series A Preferred Stock, or
for the performance by the Company of its obligations under the Transaction
Documents.

     

    (y)  
Employees.  Neither
the Company nor any subsidiary has any collective bargaining arrangements or
agreements covering any of its employees.  Neither the Company nor any
subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary.  No officer,
consultant or key employee of the Company or any subsidiary whose termination,
either individually or in the aggregate, could have a Material Adverse Effect,
has terminated or, to the knowledge of the Company, has any present intention of
terminating his or her employment or engagement with the Company or any
subsidiary.

     

    (z)  
Absence of Certain
Developments.  Except as set forth in the Recent 34 Act Filings
or on Schedule
2.1(c) hereto, since December 31, 2008, neither the Company nor any
subsidiary has:

     

     

    (i) 
issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;

     

    (ii) 
borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and volume of the
Company’s or such subsidiary’s business;

     

    (iii) 
discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;

     

    (iv) 
declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock;

     

    (v) 
sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;

     

    (vi) 
sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (vii)  
suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;

     

    (viii)  made any
changes in employee compensation except in the ordinary course of business and
consistent with past practices;

     

    (ix)    
made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;

     

    (x)     entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;

     

    (xi)    
made
charitable contributions or pledges in excess of $25,000;

     

    (xii)   
suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;

     

    (xiii)  
experienced
any material problems with labor or management in connection with the terms and
conditions of their employment;

     

    (xiv)  effected
any two or more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or

     

    (xv)  
entered
into an agreement, written or otherwise, to take any of the foregoing
actions.

     

    (aa)  
Public Utility Holding
Company Act and Investment Company Act Status.  The Company is
not a “holding company” or a “public utility company” as such terms are defined
in the Public Utility Holding Company Act of 1935, as amended.  The
Company is not, and as a result of and immediately upon the Closing will not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.

     

    (bb)  
ERISA.  No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan (as defined below) by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its
subsidiaries.  The execution and delivery of this Agreement and the
issuance and sale of the Series A Preferred Stock will not involve any
transaction which is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended, provided that, if any of the
Purchasers, or any person or entity that owns a beneficial interest in any of
the Purchasers, is an “employee pension benefit plan” (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a “party in
interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.  As
used in this Section 2.1(ac), the term “Plan” shall mean an
“employee pension benefit plan” (as defined in Section 3 of ERISA) which is or
has been established or maintained, or to which contributions are or have been
made, by the Company or any subsidiary or by any trade or business, whether or
not incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (cc)  
Dilutive
Effect.  The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Series A Preferred
Stock in accordance with this Agreement and the Certificate of Designation is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interest of other stockholders of the
Company.

     

    (dd)  
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 offering of the Shares pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Shares
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings.  The
Company does not have any registration statement pending before the Commission
or currently under the Commission’s review and since December 1, 2007, the
Company has not offered or sold any of its equity securities or debt securities
convertible into shares of Common Stock.

     

    (ee)  
Sarbanes-Oxley
Act.  The Company is in compliance with the applicable
provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),
and the rules and regulations promulgated thereunder, that are effective, and
intends to comply with other applicable provisions of the Sarbanes-Oxley Act,
and the rules and regulations promulgated thereunder, upon the effectiveness of
such provisions.

     

    (ff)  
Independent Nature of
Purchasers.  The Company acknowledges that the obligations of
each Purchaser under the Transaction Documents are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under the
Transaction Documents.  The Company acknowledges that the decision of
each Purchaser to purchase securities pursuant to this Agreement has been made
by such Purchaser independently of any other purchase 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 or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions.  The
Company acknowledges that nothing contained herein, or in any Transaction
Document, and no action taken by any Purchaser pursuant hereto or thereto, shall
be deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Purchasers
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 Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose.  The Company acknowledges that for
reasons of administrative convenience only, the Transaction Documents have been
prepared by counsel for one of the Purchasers and such counsel does not
represent all of the Purchasers but only such Purchaser and the other Purchasers
have retained their own individual counsel with respect to the transactions
contemplated hereby.  The Company acknowledges that it has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do so
by the Purchasers.  The Company acknowledges that such procedure with
respect to the Transaction Documents in no way creates a presumption that the
Purchasers are in any way acting in concert or as a group with respect to the
Transaction Documents or the transactions contemplated hereby or
thereby.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (gg)  
DTC
Status.  The Company’s current 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’s transfer agent is set forth on Schedule 2.1(gg)
hereto.

     

    (hh)  
Insurance.  The
Company and its subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage of at least $5.0 million.  To the best of Company’s
knowledge, such insurance contracts and policies are accurate and
complete.  Neither the Company nor any subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.

     

    Section
2.2  Representations and
Warranties of the Purchasers.  Each of the Purchasers hereby
makes the following representations and warranties to the Company with respect
solely to itself and not with respect to any other Purchaser:

     

    (a)  
Organization and Standing of
the Purchasers.  If the Purchaser is an entity, such Purchaser
is a corporation or partnership 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 Purchaser has the requisite power and authority to
enter into and perform this Agreement and to purchase the Series A Preferred
Stock being sold to it hereunder.  The execution, delivery and
performance of this Agreement by such Purchaser 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 Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required.  This Agreement has been
duly authorized, executed and delivered by such Purchaser and constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with the terms
hereof.

     

    (c)  
No
Conflicts.  The execution, delivery and performance of this
Agreement and the consummation by such Purchaser of the transactions
contemplated hereby and thereby or relating hereto do not and will not (i)
result in a violation of such Purchaser’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 Purchaser 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 Purchaser 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
Purchaser).  Such Purchaser 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 Series A Preferred Stock in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (d)  
Acquisition for
Investment.  Each Purchaser is acquiring the Series A Preferred
Stock solely for its own account for the purpose of investment and not with a
view to or for sale in connection with distribution.  Each Purchaser
does not have a present intention to sell the Series A Preferred Stock, nor a
present arrangement (whether or not legally binding) or intention to effect any
distribution of the Series A Preferred Stock to or through any person or entity;
provided, however, that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares for any minimum or other specific
term and reserves the right to dispose of the Shares at any time in accordance
with Federal and state securities laws applicable to such
disposition.  Each Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Series A Preferred Stock
and that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company’s stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company.

     

    (e)  
Status of
Purchasers.  Such Purchaser is an “accredited investor” as
defined in Regulation D promulgated under the Securities Act.  Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer.

     

    (f)  
Opportunities for Additional
Information.  Each Purchaser acknowledges that such Purchaser
has had the opportunity to ask questions of and receive answers from, or obtain
additional information from, the executive officers of the Company concerning
the financial and other affairs of the Company, and to the extent deemed
necessary in light of such Purchaser’s personal knowledge of the Company’s
affairs, such Purchaser has asked such questions and received answers to the
full satisfaction of such Purchaser, and such Purchaser desires to invest in the
Company.

     

    (g)  
No General
Solicitation.  Each Purchaser acknowledges that the Series A
Preferred Stock were not offered to such Purchaser by means of any form of
general or public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.

     

    (h)  
Rule
144.  Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available.  Such Purchaser acknowledges
that such Purchaser is familiar with Rule 144 of the rules and regulations of
the Commission, as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that
such person has been advised that Rule 144 permits resales only under certain
circumstances.  Such Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Shares
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.

     

    (i)  
General.  Such
Purchaser understands that the Shares are being offered and sold in reliance on
a transactional exemption from the registration requirement of Federal and state
securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchaser set forth herein in order to determine the applicability of such
exemptions and the suitability of such Purchaser to acquire the
Shares.

     

    (j)  
Independent
Investment.  Except as may be disclosed in any filings with the
Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange
Act, no Purchaser has agreed to act with any other Purchaser for the purpose of
acquiring, holding, voting or disposing of the Shares purchased hereunder for
purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting
independently with respect to its investment in the Shares.

     

     

    
      
         

      

      
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    ARTICLE
III

     

    Covenants

     

    The
Company covenants with each of the Purchasers as follows, which covenants are
for the benefit of the Purchasers and their permitted assignees (as defined
herein).

     

    Section
3.1  Securities
Compliance.  The Company shall notify the Commission in
accordance with their rules and regulations, of the transactions contemplated by
any of the Transaction Documents, including filing a Form D with respect to the
Series A Preferred Stock and Conversion Shares as required under Regulation D,
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 Series A Preferred Stock and the Series A Conversion Shares to
the Purchasers or subsequent holders.

     

    Section
3.2  Registration and
Listing.  The Company shall cause its Common Stock to continue
to be registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in
all respects with its reporting and filing obligations under the Exchange Act
and to not take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted
herein.  The Company will take all action necessary to continue the
listing or trading of its Common Stock on the OTC Bulletin Board or other
exchange or market on which the Common Stock is trading.  Subject to
the terms of the Transaction Documents, the Company further covenants that it
will take such further action as the Purchasers may reasonably request, all to
the extent required from time to time to enable the Purchasers to sell the
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities
Act.  Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with such requirements.

     

    Section
3.3  Inspection
Rights.  The Company shall permit, during normal business hours
and upon reasonable request and reasonable notice, each Purchaser or any
employees, agents or representatives thereof, so long as such Purchaser shall be
obligated hereunder to purchase the Series A Preferred Stock or shall
beneficially own any Series A Preferred Stock, or shall own Conversion Shares
which, in the aggregate, represent more than 2% of the total combined voting
power of all voting securities then outstanding, for purposes reasonably related
to such Purchaser’s interests as a stockholder to examine and make reasonable
copies of and extracts from the records and books of account of, and visit and
inspect the properties, assets, operations and business of the Company and any
subsidiary, and to discuss the affairs, finances and accounts of the Company and
any subsidiary with any of its officers, consultants, directors, and key
employees.

     

    Section
3.4  Compliance with
Laws.  The Company shall comply, and cause each subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could have a Material Adverse Effect.

     

    Section
3.5  Keeping of Records and Books
of Account.  The Company shall keep and cause each subsidiary
to keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company and its subsidiaries, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.

     

    
      
         

      

      
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    Section
3.6  Reporting
Requirements.  If the Commission ceases making periodic reports
filed under the Exchange Act available via the Internet, then at a Purchaser’s
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Series A Preferred
Stock or shall beneficially own any Shares:

     

    (a)  
Quarterly
Reports filed with the Commission on Form 10-Q as soon as practical after the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission;

     

    (b)  
Annual
Reports filed with the Commission on Form 10-K as soon as practical after the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission; and

     

    (c)  
Copies of
all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.

     

    Section
3.7  Amendments.  The
Company shall not amend or waive any provision of the Articles or Bylaws of the
Company in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
Series A Preferred Stock; provided, however, that any
creation and issuance of another series of Senior Securities, Junior Securities
(as defined in the Certificate of Designation) or any other class or series of
equity securities which by its terms shall rank on parity with the Series A
Preferred Stock shall not be deemed to materially and adversely affect such
rights, preferences or privileges.

     

    Section
3.8  Other
Agreements.  The Company shall not enter into any agreement in
which the terms of such agreement would restrict or impair the right or ability
to perform of the Company or any subsidiary under any Transaction
Document.

     

    Section
3.9  Status of
Dividends.  The Company covenants and agrees that (i) no
Federal income tax return or claim for refund of Federal income tax or other
submission to the Internal Revenue Service (the “Service”) will
adversely affect the Series A Preferred Stock, any other series of its Preferred
Stock, or the Common Stock, and no deduction shall operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report to
shareholders or to any governmental body having jurisdiction over the Company or
otherwise will it treat the Series A Preferred Stock other than as equity
capital or the dividends paid thereon other than as dividends paid on equity
capital unless required to do so by a governmental body having jurisdiction over
the accounts of the Company or by a change in generally accepted accounting
principles required as a result of action by an authoritative accounting
standards setting body, and (iii) it will take no action which would result in
the dividends paid by the Company on the Series A Preferred Stock out of the
Company’s current or accumulated earnings and profits being ineligible for the
dividends received deduction provided by Section 243(a)(1) of the
Code.  The preceding sentence shall not be deemed to prevent the
Company from designating the Preferred Stock as “Convertible Preferred Stock” in
its annual and quarterly financial statements in accordance with its prior
practice concerning other series of preferred stock of the
Company.  In the event that the Purchasers have reasonable cause to
believe that dividends paid by the Company on the Series A Preferred Stock out
of the Company’s current or accumulated earnings and profits will not be treated
as eligible for the dividends received deduction provided by Section 243(a)(1)
of the Code, or any successor provision, the Company will, at the reasonable
request of the Purchasers of 51% of the outstanding Series A Preferred Stock,
join with the Purchasers in the submission to the Service of a request for a
ruling that dividends paid on the Shares will be so eligible for Federal income
tax purposes, at the Purchasers expense.  

     

    
      
         

      

      
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    In
addition, the Company will reasonably cooperate with the Purchasers (at
Purchasers’ expense) in any litigation, appeal or other proceeding challenging
or contesting any ruling, technical advice, finding or determination that
earnings and profits are not eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision to the
extent that the position to be taken in any such litigation, appeal, or other
proceeding is not contrary to any provision of the
Code.  Notwithstanding the foregoing, nothing herein contained shall
be deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Series A Preferred Stock or Conversion Shares should not be treated as dividends
for Federal income tax purposes or that a deduction with respect to all or a
portion of the dividends on the Shares is allowable for Federal income tax
purposes, or (ii) in the absence of such an amendment, issuance or modification
and after a submission of a request for ruling or technical advice, the Service
shall issue a published ruling or advise that dividends on the Shares should not
be treated as dividends for Federal income tax purposes.  If the
Service specifically determines that the Series A Preferred Stock or Conversion
Shares constitute debt, the Company may file protective claims for
refund.

     

    Section
3.10  Use of
Proceeds.  The net proceeds from the sale of the Shares
hereunder shall be used by the Company for working capital purposes only, and
not to redeem any Common Stock or securities convertible, exercisable or
exchangeable into Common Stock or to settle any outstanding
litigation.

     

    Section
3.11  Reservation of
Shares.  So long as any of the Series A Preferred Stock remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than one hundred
twenty percent (120%) the aggregate number of shares of Common Stock needed to
provide for the issuance of the Series A Conversion Shares.

     

    Section
3.12  Reporting
Status. So
long as a Purchaser beneficially owns any of the Shares, the Company shall
timely file all reports required to be filed with the Commission pursuant to the
Exchange Act, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would permit such termination.

     

    Section
3.13  Disclosure of
Transaction.  The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press
Release”) as soon as practicable after the Initial Closing but in no
event later than 9:00 A.M. Eastern Time on the first Trading Day following the
Closing Date.  The Company shall also file with the Commission a
Current Report on Form 8-K (the “Form 8-K”) describing
the material terms of the transactions contemplated hereby (and attaching as
exhibits thereto this Agreement, the Certificate of Designation, the Lock-Up
Agreements (as defined in Section 3.18 below) and the Press Release) on the
Initial Closing Date, which Press Release and Form 8-K shall be subject to prior
review and comment by the Purchasers.  "Trading Day" means
any day during which the OTC Bulletin Board (or other principal exchange on
which the Common Stock is traded) shall be open for trading.

     

    
      
         

      

      
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    Section
3.14  Disclosure of Material
Information.  The Company covenants and agrees that neither it
nor any other person acting on its behalf has provided or will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information.  The Company understands and confirms that
each Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

    

    Section
3.15  Additional Affirmative
Covenants.  The Company hereby covenants and agrees, so long as
any Series A Preferred Stock remain outstanding, as follows:

     

    (a)  
Maintenance of Corporate
Existence.  The Company shall and shall cause its subsidiaries
to, maintain in full force and effect its corporate existence, rights and
franchises and all material terms of licenses and other rights to use licenses,
trademarks, trade names, service marks, copyrights, patents or processes owned
or possessed by it and necessary to the conduct of its business.

     

    (b) 
Maintenance of
Properties.  The Company shall and shall cause its subsidiaries
to, keep each of its properties necessary to the conduct of its business in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company shall and shall its
subsidiaries to at all times comply with each material provision of all leases
to which it is a party or under which it occupies property.

     

    (c)  
Payment of
Taxes.  The Company shall and shall cause its subsidiaries to,
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, assets, property or business of the Company
and its subsidiaries; provided, however, that any such tax, assessment, charge
or levy need not be paid if the validity thereof shall be contested timely and
in good faith by appropriate proceedings, if the Company or its subsidiaries
shall have set aside on its books adequate reserves with respect thereto, and
the failure to pay shall not be prejudicial in any material respect to the
holders of the Shares, and provided, further, that the Company or its
subsidiaries will pay or cause to be paid any such tax, assessment, charge or
levy forthwith upon the commencement of proceedings to foreclose any lien which
may have attached as security therefor

     

    (d)  
Maintenance of
Insurance.  The Company shall and shall cause its subsidiaries
to, keep its assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by theft, fire, explosion
and other risks customarily insured against by companies in the line of business
of the Company or its subsidiaries, in amounts sufficient to prevent the Company
and its subsidiaries from becoming a co-insurer of the property insured; and the
Company shall and shall cause its subsidiaries to 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 or as may be required by law,
including, without limitation, general liability, fire and business interruption
insurance, and product liability insurance as may be required pursuant to any
license agreement to which the Company or its subsidiaries is a party or by
which it is bound.  In addition, the Company and its subsidiaries
shall maintain directors and officers insurance coverage of at least $5.0
million by insurers of recognized financial responsibility.

     

    (e)  
Further
Assurances.  From time to time the Company shall execute and
deliver to the Purchasers and the Purchasers shall execute and deliver to the
Company such other instruments, certificates, agreements and documents and take
such other action and do all other things as may be reasonably requested by the
other party in order to implement or effectuate the terms and provisions of this
Agreement and any of the Securities.

     

    
      
         

      

      
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    Section
3.16.  Restrictions on Common Stock
Ownership.

    

    Notwithstanding anything to the
contrary set forth in this Agreement, at no time may the Purchaser own of record
or beneficially, whether upon conversion of the Series A Preferred Stock or upon
exercise of the Warrant, in whole or in part, that number of shares of Common
Stock that would cause such Purchaser or his or its Affiliate to own
beneficially at such time, when aggregated with all other shares of Common Stock
beneficially owned by the Purchaser and his or its affiliates at such time (as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules thereunder), in excess of 9.99% of the then
issued and outstanding shares of Common Stock outstanding at such time; provided, however, that upon
the Purchaser or his or its Affiliates providing the Corporation with sixty-one
(61) days notice (the "Waiver Notice") that
the Purchaser or his or its Affiliate would like to waive the provisions of this
Section 3.16 regard to any or all shares of Common Stock, this Section 3.16
shall be of no force or effect with regard to those shares referenced in the
Waiver Notice.

     

    ARTICLE IV

     

    CONDITIONS

    

    Section
4.1   Conditions Precedent to the
Obligation of the Company to Sell the Shares.  The obligation
hereunder of the Company to issue and sell the Series A Preferred Stock to the
Purchasers is subject to the satisfaction or waiver, at or before each Closing,
of each of the conditions set forth below.  These conditions are for
the Company’s sole benefit and may be waived by the Company at any time in its
sole discretion.

     

    (a)  
Accuracy of Each Purchaser’s
Representations and Warranties.  The representations and
warranties of each Purchaser shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of such Closing Date, as though made
at that time, except for representations and warranties that are expressly made
as of a particular date, which shall be true and correct in all material
respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of such date.

     

    (b)  
Performance by the
Purchasers.  Each Purchaser shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to each Closing.

     

    (c)  
No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

     

    (d)  
Delivery of Purchase
Price.  The Purchase Price for the Series A Preferred Stock has
been delivered to the Company at such Closing Date.

     

    
      
         

      

      
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    (e)  
Delivery of Transaction
Documents.  The Transaction Documents shall have been duly
executed and delivered by the Purchasers to the Company, and with respect to the
Escrow Agreement, to the escrow agent and the Company, with a copy to the
Placement Agent.

     

    Section
4.2  Conditions Precedent to the
Obligation of the Purchasers to Purchase the Shares.  The
obligation hereunder of each Purchaser to acquire and pay for the Series A
Preferred Stock is subject to the satisfaction or waiver, at or before each
Closing, of each of the conditions set forth below.  These conditions
are for each Purchaser’s sole benefit and may be waived by such Purchaser at any
time in its sole discretion.

     

    (a)  
Accuracy of the Company’s
Representations and Warranties.  Each of the representations
and warranties of the Company in this Agreement and the other Transaction
Documents shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which shall be true and correct in all respects) as of the date
when made and as of such Closing Date as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which shall be true and correct in all respects) as of such
date.

     

    (b)  
Performance by the
Company.  The Company shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by the Company at
or prior to each Closing.

     

    (c)  
No Suspension,
Etc.  Trading in the Company’s Common Stock shall not have been
suspended by the Commission or the NYSE Amex (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the applicable Closing), and, at any time prior to the
Closing Date, trading in securities generally as reported by Bloomberg Financial
Markets (“Bloomberg”) shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Series A Preferred Stock.

     

    (d)  
No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

     

    (e)  
No Proceedings or
Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

    (f)  
Certificate of Designation
of Rights and Preferences.  Prior to the Initial Closing, the
Certificate of Designation in the form of Exhibit B attached
hereto shall have been filed with the Secretary of State of
Delaware.

     

    (g)  
Opinion of Counsel,
Etc. At each Closing, the Purchasers shall have received an opinion of
counsel to the Company, dated the date of such Closing, in the form of Exhibit C hereto, and
such other certificates and documents as the Purchasers or its counsel shall
reasonably require incident to such Closing.

     

    
      
         

      

      
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    (h)  
Certificates.  The
Company shall have executed and delivered to the Purchasers the certificates for
the Series A Preferred Stock being acquired by such Purchaser at such Closing
(in such denominations as such Purchaser shall request).

     

    (i)  
Resolutions.  The
Board of Directors of the Company shall have adopted resolutions consistent with
Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser (the
"Resolutions").

     

    (j)  
Reservation of
Shares.  As of each Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Series A Preferred Stock, a number of shares
of Common Stock equal to one hundred twenty percent (120%) of the aggregate
number of Conversion Shares issuable upon conversion of the Series A Preferred
Stock outstanding on such Closing Date.

     

    (k) 
Secretary’s
Certificate.  The Company shall have delivered to such
Purchaser a secretary’s certificate, dated as of each Closing Date, as to (i)
the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at such Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.

     

    (l)  
Officer’s
Certificate.  The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of
such Closing Date, confirming the accuracy of the Company’s representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.

     

    (m)  
Material Adverse
Effect.  No Material Adverse Effect shall have occurred at or
before each Closing Date.

     

     

    ARTICLE
V

     

    Stock
Certificate Legend

     

    Section
5.1   Legend.  Each
certificate representing the Series A Preferred Stock, and, if appropriate,
securities issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or “blue sky” laws):

     

    THESE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR EDGEWATER FOODS INTERNATIONAL, INC. SHALL HAVE RECEIVED
AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.

     

    
      
         

      

      
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    The
Company agrees to reissue certificates representing any of the Series A
Conversion Shares without the legend set forth above if at such time, prior to
making any transfer of any such securities, such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request.  Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Series A Conversion Shares under the
Securities Act is not required in connection with such proposed transfer, (ii) a
registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act;
and (b) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that registration or qualification
under the securities or "blue sky" laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or "blue sky" laws has been effected or a valid exemption
exists with respect thereto.  The Company will respond to any such
notice from a holder within five (5) business days.  In the case of
any proposed transfer under this Section 5.1, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, (y) to take any action that would subject it to
tax or to the general service of process in any state where it is not then
subject, or (z) to comply with state securities or “blue sky” laws of any state
for which registration by coordination is unavailable to the
Company.  The restrictions on transfer contained in this Section 5.1
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this
Agreement.  Whenever a certificate representing the Series A
Conversion Shares is required to be issued to a Purchaser without a legend, in
lieu of delivering physical certificates representing the Series A Conversion
Shares (provided that a registration statement under the Securities Act
providing for the resale of the Series A Conversion Shares is then in effect or
such security can be sold pursuant to Rule 144 under the Securities Act), the
Company shall cause its transfer agent to electronically transmit the Series A
Conversion Shares to a Purchaser by crediting the account of such Purchaser's
Prime Broker with the Depository Trust Company (“DTC”) through its
Deposit Withdrawal Agent Commission (“DWAC”) system (to the
extent not inconsistent with any provisions of this Agreement) provided that the
Company and the Company’s transfer agent are participating in DTC through the
DWAC system.

     

    

    
      
         

      

      
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    ARTICLE
VI

     

    Indemnification

     

    Section
6.1  Company
Indemnity.  The Company agrees to indemnify and hold harmless
the Purchasers (and their respective directors, officers, managers, partners,
members, shareholders, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein.

     

    Section
6.2  Indemnification
Procedure.  Any party entitled to indemnification under this
Article VI (an “indemnified party”) will give written notice to the indemnifying
party of any matters giving rise to a claim for indemnification; provided, that
the failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice.  In case any
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnified party a conflict of interest between it and the indemnifying party
may exist with respect of such action, proceeding or claim, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified
party.  In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim.  In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense of
any such claim, proceeding or action, the indemnified party’s costs and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification
hereunder.  The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim.  The indemnifying party shall keep
the indemnified party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto.  If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense.  The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent.  Notwithstanding anything
in this Article VI to the contrary, the indemnifying party shall not, without
the indemnified party’s prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such
claim.  The indemnification required by this Article VI shall be made
by periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification.  The indemnity
agreements contained herein shall be in addition to (a) any cause of action or
similar rights of the indemnified party against the indemnifying party or
others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    ARTICLE
VII

     

    Miscellaneous

     

    Section
7.1  Fees and
Expenses.  Except as otherwise set forth in this Agreement and
the other Transaction Documents, each party shall pay the fees and expenses of
its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement

     

    Section
7.2  Specific Enforcement,
Consent to Jurisdiction.

     

    (a)  
The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific terms
or were otherwise breached.  It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement and the Transaction Documents and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or
equity.

     

    (b)  
Each of
the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) 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 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.  Each of the Company and the
Purchasers consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing in
this Section 7.2 shall affect or limit any right to serve process in any other
manner permitted by law.

     

    Section
7.3  Entire Agreement;
Amendment.  This Agreement and the Transaction Documents
contains the entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth herein or in
the Transaction Documents, neither the Company nor any of the Purchasers makes
any representations, warranty, covenant or undertaking with respect to such
matters and they supersede all prior understandings and agreements with respect
to said subject matter, all of which are merged herein.  No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the Company and the holders of at least a majority of the Series A
Preferred Stock then outstanding, and no provision hereof may be waived other
than by an a written instrument signed by the party against whom enforcement of
any such amendment or waiver is sought.  No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Series A Preferred Stock then outstanding.  No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents or holders of
Series A Preferred Stock, as the case may be.

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    Section
7.4  Notices.  Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery by telex (with correct answer back received), telecopy, e-mail or
facsimile 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:

     

    
      	
              If
      to the Company:

            	
              Gulfstream
      International Group, Inc.

              3201
      Griffin Road

              Ft.
      Lauderdale, Florida

              Attention:
      David Hackett, President

              Tel.
      No.: (954) 985-1500

              Fax
      No.:  (954) 985 5245

            
	 
      	 
      
	
              with
      copies to:

            	
              Hodgson
      Russ LLP

              1540
      Broadway, 24th
      Floor

              New
      York, New York 10036-4039

              Attention:  Stephen
      A. Weiss, Esq.

              Tel.
      No.:  (646) 218-7606

              Fax
      No.:  (212) 751-0928

            
	 
      	 
      
	
              If
      to any Purchaser:

            	
              At
      the address of such Purchaser set forth on Exhibit A to this Agreement, with copies to
      Purchaser’s counsel as set forth on Exhibit
      A or as specified in writing by such Purchaser with copies
      to:

               

              _____________________

            

    

     

    Any party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.

     

    Section
7.5  Waivers.  No
waiver by either party of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provisions, condition or requirement hereof,
nor shall any delay or omission of any party to exercise any right hereunder in
any manner impair the exercise of any such right accruing to it
thereafter.

     

    Section
7.6  Headings.  The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose and
shall not be deemed to limit or affect any of the provisions
hereof.

     

    Section
7.7  Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. 

     

    Section
7.8  No Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    Section
7.9  Governing
Law.  This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction.  This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted.

     

    Section
7.10  Survival.  The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and each Closing until the second anniversary
of the final Closing Date, except the agreements and covenants set forth in
Articles I, III, V, VI and VII of this Agreement shall survive the execution and
delivery hereof and the Closings hereunder.

     

    Section
7.11  Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the original
thereof.

     

    Section
7.12  Publicity.  The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.

     

    Section
7.13  Severability.  The
provisions of this Agreement and the Transaction Documents are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of the provisions contained in this Agreement
or the Transaction Documents shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement or the Transaction Documents and such provision shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent
possible.

     

    Section
7.14  Further
Assurances.  From and after the date of this Agreement, upon
the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Series A
Preferred Stock, the Series A Conversion Shares and the Certificate of
Designation.

    

    [REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    Signature
Page to Series A Preferred Stock Purchase Agreement

     

    IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officer as of the date first above
written.

     

    
      	 
      	
              GULFSTREAM
      INTERNATIONAL GROUP, INC.

            	 
	 
      	 
      	 
	 
      	 
      	 
	 
      	
              By:                                                                   

            	 
	 
      	
                    Name:
      David F. Hackett

                    Title:   President

               

            	 

    

    

    

    
      	 
      	
              PURCHASER

            	 
	 
      	 
      	 
	 
      	 
      	 
	 
      	By:  	 
	 	
              Name:

              Title:

            	 
	 
      	
               

               

            	 
	 
      	 
      	 
	 
      	
              Address
      of Purchaser

            	 
	 
      	 
      	 
	 
      	
              _____________________________________

              _____________________________________

              Email:
      ______________________

              Telephone:
      ___________________

               

               

            	 
	 
      	
              Number
      of Shares of Series A Preferred Stock
      Purchased:   _______________  Shares

            	 
	 
      	 
      	 
	 
      	
              Purchase
      Price:  (No. of Shares multiplied by $10.00 per
      share):

               

              $______________________

            	 
	 
      	 
      	 
	 
      	
              Number
      of Warrants (50% of the number of Series A Conversion Shares, based on a
      $1.00 per share conversion price):

               

                _____________
      Warrants

            	 
	 
      	 
      	 
	 
      	 
      	 

    

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    EXHIBIT
A to the

    SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

    GULFSTREAM
INTERNATIONAL GROUP, INC.

    

     

    
      	
              Names and
      Addresses

              of
      Purchasers

               

            	
              Number of Series
      A 

              Preferred
      Shares 

              Purchased     

            	No. of
      Warrants	
              Dollar Amount
      of 

              Investment

            
	 	 	 	 
	
              ______________________

              ______________________
      

              _____________________

              Fax:
      ___-___-________

              Attn:
      ______________

              E-mail:

            	_________         shares 	_________ 	$___________
	 	 	 	 
	______________________          
      

              _______________________

              _____________________

              Fax:
      ___-___-________

              Attn:
      ______________

              E-mail:

            	 _________        shares 	_________	$___________
	 	 	 	 
	______________________   
      

              ______________________

              _____________________

              Fax:
      ___-___-________

              Attn:
      ______________

              E-mail:

            	_________         shares 	__________  	$___________
	 	 	 	 
	______________________   
      

              ______________________

              _____________________

              Fax:
      ___-___-________

              Attn:
      ______________

              E-mail:

            	________           shares	_________	$___________
	 	 	 	 
	________________________ 
      

              ________________________

              _____________________

              Fax:
      ___-___-________

              Attn:
      ______________

              E-mail

            	_________       shares  	__________  	$___________

    

     

    
    

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

     

     

    EXHIBIT
B to the

    SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

    GULFSTREAM
INTERNATIONAL GROUP, INC.

    FORM
OF WARRANT

     

    
 

    

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    
 

    EXHIBIT
C to the

    SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

    GULFSTREAM
INTERNATIONAL GROUP, INC.

    CERTIFICATE
OF DESIGNATION

     

    
 

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

     

     

     EXHIBIT
D to the

    SERIES
A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

    GULFSTREAM
INTERNATIONAL GROUP, INC.

    FORM
OF REGISTRATION RIGHTS AGREEMENT

     

     

     

    
      
         

      

      
        30

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