Document:

Exhibit 10.1

    

    EXHIBIT
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of October 23, 2006 among Theater Xtreme Entertainment Group, Inc.,
      a
      Florida corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506 promulgated thereunder, the Company desires to issue and sell to each
      Purchaser, and each Purchaser, severally and not jointly, desires to purchase
      from the Company, securities of the Company as more fully described in this
      Agreement.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration, the receipt and adequacy of
      which
      are hereby acknowledged, the Company and each Purchaser agree as
      follows:

     

     

    ARTICLE
      I.

    DEFINITIONS

     

    1.1  Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the respective meanings given to
      such
      terms in the Debentures (as defined herein), and (b) the following terms have
      the respective meanings set forth in this Section 1.1:

     

    “Action”
shall
      have the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate”
means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144 under the Securities
      Act.
      With
      respect to a Purchaser, any investment fund or managed account that is managed
      on a discretionary basis by the same investment manager as such Purchaser will
      be deemed to be an Affiliate of such Purchaser.

     

    “Closing”
means
      the closing of the purchase and sale of the Debentures and Warrants pursuant
      to
      Section 2.1.

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the Debentures and Warrants have been satisfied
      or waived.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Common
      Stock”
means
      the common stock of the Company, par value $0.001 per share, and any other
      class
      of securities into which such securities may hereafter be reclassified or
      changed into.

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including, without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exercisable or exchangeable for, or otherwise
      entitles the holder thereof to receive, Common Stock.

     

    “Company
      Counsel”
means
      Ballard Spahr Andrews and Ingersoll, LLP with offices at 1735 Market Street,
      51st
      Floor,
      Philadephia, Pennsylvania, 19103-7599.

     

    “Debentures”
means,
      the 10% Debentures due, subject to the terms therein, two years from their
      date
      of issuance, issued by the Company to the Purchasers hereunder, in the form
      of
Exhibit
      A
      attached
      hereto.

     

    “Effective
      Date”
means
      the date that the initial Registration Statement filed by the Company pursuant
      to the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Evaluation
      Date”
shall
      have the meaning ascribed to such term in Section 3.1(r). 

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    “FWS”
means
      Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
      Suite 2620, New York, New York 10170-0002.

     

    “GAAP”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    “Indebtedness”
shall
      have the meaning ascribed to such term in Section 3.1(bb).

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

    “Liens”
means
      a
      lien, charge, security interest, encumbrance, right of first refusal, preemptive
      right or other restriction.

     

    “Lock-up
      Agreement”
means
      the irrevocable lock-up agreement between the Company and an officer, director
      or 10% shareholder of the Company, in the form of Exhibit
      E
      attached
      hereto.

     

    
      
        
        

      

      
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    “Material
      Adverse Effect”
shall
      have the meaning assigned to such term in Section 3.1(b).

     

    “Material
      Permits”
shall
      have the meaning ascribed to such term in Section 3.1(m).

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated the date hereof, among the Company
      and
      the Purchasers, in the form of Exhibit
      B
      attached
      hereto.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale of the Warrant Shares by each Purchaser
      as provided for in the Registration Rights Agreement.

     

    “Required
      Approvals”
shall
      have the meaning ascribed to such term in Section 3.1(e).

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “SEC
      Reports”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    “Securities”
means
      the Debentures, the Warrants and the Warrant Shares.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated hereunder.

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but shall not be deemed to include the location and/or reservation of
      borrowable shares of Common Stock). 

     

    
      
        
        

      

      
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    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Debentures and Warrants purchased hereunder as specified below such
      Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount” in United States dollars and in immediately available
      funds.

     

    “Subsidiary”
means
      any subsidiary of the Company. 

     

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded on a Trading Market.

     

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
      the Lock-up Agreement, and any other documents or agreements executed in
      connection with the transactions contemplated hereunder.

     

    “Transfer
      Agent”
means
      Stock
      Trans, Inc,
      with a
      mailing address of 44
      W. Lancaster
      Avenue
      and a
      facsimile number of (610)649-7302,
      and any
      successor transfer agent of the Company.

     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
      from
      9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the
      OTC Bulletin Board is not a Trading Market, the volume weighted average price
      of
      the Common Stock for such date (or the nearest preceding date) on the OTC
      Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
      OTC
      Bulletin Board and if prices for the Common Stock are then reported in the
“Pink
      Sheets” published by Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the last bid price per share
      of the Common Stock so reported on such date (or the nearest preceding date);
      or
      (d) in all other cases, the fair market value of a share of Common Stock as
      determined by an independent appraiser selected in good faith by the Holder
      and
      reasonably acceptable to the Company, the fees and expenses of which shall
      be
      paid by the Company.

     

    “Warrants”
means
      collectively the Common Stock purchase warrants delivered to the Purchasers
      at
      the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
      be
      exercisable immediately and have a term of exercise equal to 5 years, in the
      form of Exhibit C
      attached
      hereto.

     

    
      
        
        

      

      
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    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon exercise of the Warrants.

     

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1  Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and the Purchasers, severally
      and not jointly, agree to purchase, an aggregate of up to $500,000 in principal
      amount of the Debentures. Each Purchaser shall deliver to the Company, via
      wire
      transfer, immediately available funds equal to its Subscription Amount and
      the
      Company shall deliver to each Purchaser its respective Debenture and a Warrant,
      as determined pursuant to Section 2.2(a), and the Company and each Purchaser
      shall deliver the other items set forth in Section 2.2 deliverable at the
      Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and
      2.3,
      the Closing shall occur at the offices of FWS or such other location as the
      parties shall mutually agree.

     

    2.2  Deliveries

     

    (a)  On
      the
      Closing Date, the Company shall deliver or cause to be delivered to each
      Purchaser the following:

     

    (i)     
      this
      Agreement duly executed by the Company;

     

    (ii)  a
      legal
      opinion of Company Counsel, in the form of Exhibit
      D
      attached
      hereto; 

     

    (iii)  a
      Debenture with a principal amount equal to such Purchaser’s Subscription Amount,
      registered in the name of such Purchaser;

     

    (iv)  a
      Warrant
      registered in the name of such Purchaser to purchase up to 80,000 shares of
      Common Stock for each $100,000 of Purchaser’s Subscription Amount (pro-rated for
      lesser amounts), with an exercise price equal to $1.00 per share,
      subject
      to adjustment therein;

     

    (v)  a
      Lock-up
      Agreement duly executed by the Company and each officer, director and 10%
      shareholder of the Company, provided that no Lock-up Agreement shall be
      delivered by (a) Robert Werwinski or (b) the Werwinski Family Limited
      Partnership; and

     

    (vi)  the
      Registration Rights Agreement duly executed by the Company.

     

    (b)  On
      the
      Closing Date, each Purchaser shall deliver or cause to be delivered to the
      Company the following: 

     

    (i)      this
      Agreement duly executed by such Purchaser;

     

    
      
        
        

      

      
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    (ii)  such
      Purchaser’s Subscription Amount by wire transfer to the account as specified in
      writing by the Company; and

     

    (iii)  the
      Registration Rights Agreement duly executed by such Purchaser.

     

    2.3  Closing
      Conditions. 

     

    (a)  The
      obligations of the Company hereunder in connection with the Closing are subject
      to the following conditions being met:

     

    (i)  the
      accuracy in all material respects when made and on the Closing Date of the
      representations and warranties of the Purchasers contained herein;

     

    (ii)  all
      obligations, covenants and agreements of the Purchasers required to be performed
      at or prior to the Closing Date shall have been performed; and

     

    (iii)  the
      delivery by the Purchasers of the items set forth in Section 2.2(b) of this
      Agreement.

     

    (b)  The
      respective obligations of the Purchasers hereunder in connection with the
      Closing are subject to the following conditions being met:

     

    (i)  the
      accuracy in all material respects when made and on the Closing Date of the
      representations and warranties of the Company contained herein;

     

    (ii)  all
      obligations, covenants and agreements of the Company required to be performed
      at
      or prior to the Closing Date shall have been performed; 

     

    (iii)  the
      delivery by the Company of the items set forth in Section 2.2(a) of this
      Agreement; 

     

    (iv)  there
      shall have been no Material Adverse Effect with respect to the Company since
      the
      date hereof; and

     

    (v)  from
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission or the Company’s principal Trading Market (except
      for any suspension of trading of limited duration agreed to by the Company,
      which suspension shall be terminated prior to the Closing), and, at any time
      prior to the Closing Date, trading in securities generally as reported by
      Bloomberg L.P. shall not have been suspended or limited, or minimum prices
      shall
      not have been established on securities whose trades are reported by such
      service, or on any Trading Market, 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 of such magnitude in its 

     

    
      
        
        

      

      
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    effect
      on, or any material adverse change in, any financial market which, in each
      case,
      in the reasonable judgment of each Purchaser, makes it impracticable or
      inadvisable to purchase the Debentures at the Closing.

     

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company The
      Company hereby makes the following representations and warranties to each
      Purchaser:

     

    (a)  Subsidiaries.
      The
      Company has no Subsidiaries and all references to the Subsidiaries or any of
      them in the Transaction Documents shall therefore be disregarded.

     

    (b)  Organization
      and Qualification.
      The
      Company and each of the Subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own and use its properties and assets and
      to
      carry on its business as currently conducted. Neither the Company nor any
      Subsidiary is in violation or default of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. Each of the Company and the Subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business,
      prospects or condition (financial or otherwise) of the Company and the
      Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
      Company’s ability to perform in any material respect on a timely basis its
      obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
      Adverse Effect”)
      and no
      Proceeding has been instituted in any such jurisdiction revoking, limiting
      or
      curtailing or seeking to revoke, limit or curtail such power and authority
      or
      qualification.

     

    (c)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations hereunder and thereunder. The
      execution and delivery of each of the Transaction Documents by the Company
      and
      the consummation by it of the transactions contemplated hereby and thereby
      have
      been duly authorized by all necessary action on the part of the Company and
      no
      further action is required by the Company, its board of directors or its
      stockholders in connection therewith other than actions necessary to satisfy
      the
      Company’s post-closing obligations under the Transaction Documents including, to
      the extent necessary, obtaining the Required Approvals. Each Transaction
      Document has been (or upon delivery will have been) duly executed by the Company
      and, when delivered in accordance with the terms hereof and thereof, will
      constitute the valid and 

     

    
      
        
        

      

      
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    binding
      obligation of the Company enforceable against the Company in accordance with
      its
      terms except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

    (d)  No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the other transactions contemplated
      hereby and thereby do not and will not: (i) conflict with or violate any
      provision of the Company’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or (ii)
      conflict with, or constitute a default (or an event that with notice or lapse
      of
      time or both would become a default) under, result in the creation of any Lien
      upon any of the properties or assets of the Company or any Subsidiary, or give
      to others any rights of termination, amendment, acceleration or cancellation
      (with or without notice, lapse of time or both) of, any agreement, credit
      facility, debt or other instrument (evidencing a Company or Subsidiary debt
      or
      otherwise) or other understanding to which the Company or any Subsidiary is
      a
      party or by which any property or asset of the Company or any Subsidiary is
      bound or affected, or (iii) subject to the Required Approvals, conflict with
      or
      result in a violation of any law, rule, regulation, order, judgment, injunction,
      decree or other restriction of any court or governmental authority to which
      the
      Company or a Subsidiary is subject (including federal and state securities
      laws
      and regulations), or by which any property or asset of the Company or a
      Subsidiary is bound or affected; except in the case of each of clauses (ii)
      and
      (iii), such as could not have or reasonably be expected to result in a Material
      Adverse Effect.

     

    (e)  Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.6,
      (ii) the filing with the Commission of the Registration Statement, and (iii)
      the
      filing of Form D with the Commission and such filings as are required to be
      made
      under applicable state securities laws (collectively, the “Required
      Approvals”).

     

    (f)  Issuance
      of the Securities.
      The
      Debenture and Warrant are duly authorized and, when issued and paid for in
      accordance with the applicable Transaction Documents, will be duly and validly
      issued, fully paid and nonassessable, free and clear of all Liens imposed by
      the
      Company other than restrictions on transfer provided for in the Transaction
      Documents. The Warrant Shares, when issued and paid for in accordance with
      the
      terms of the Transaction Documents, will be validly issued, fully paid and
      nonassessable, free and clear of all Liens imposed by the Company. The Company
      has reserved from its duly authorized capital stock a number of shares of Common
      Stock for issuance of the Warrant Shares at least equal to the Required Minimum
      on the date hereof. 

     

    
      
        
        

      

      
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    (g)  Capitalization.
      The
      capitalization of the Company is as follows: 50,000,000 shares of Common Stock
      par value $.001 per share are authorized, of which 19,820,675
      shares
      are issued and outstanding on the date hereof, and 5,000,000 shares of preferred
      stock, without par value, are authorized, of which no shares are issued or
      outstanding. No Person has any right of first refusal, preemptive right, right
      of participation, or any similar right to participate in the transactions
      contemplated by the Transaction Documents. Except as a result of the purchase
      and sale of the Securities, there are no outstanding options, warrants (except
      for warrants to purchase 40,000 shares of Common Stock), script rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities, rights or obligations convertible into or exercisable or
      exchangeable for, or giving any Person any right to subscribe for or acquire,
      any shares of Common Stock, or contracts, commitments, understandings or
      arrangements by which the Company or any Subsidiary is or may become bound
      to
      issue additional shares of Common Stock or Common Stock Equivalents other than
      pursuant to the exercise of employee stock options under the Company’s stock
      option plans or the issuance of shares of Common Stock to employees pursuant
      to
      the Company’s employee stock purchase plan. The issuance and sale of the
      Securities will not obligate the Company to issue shares of Common Stock or
      other securities to any Person (other than the Purchasers) and will not result
      in a right of any holder of Company securities to adjust the exercise,
      conversion, exchange or reset price under any of such securities. All of the
      outstanding shares of capital stock of the Company are validly issued, fully
      paid and nonassessable, have been issued in compliance with all federal and
      state securities laws, and none of such outstanding shares was issued in
      violation of any preemptive rights or similar rights to subscribe for or
      purchase securities. No further approval or authorization of any stockholder,
      the Board of Directors of the Company or others is required for the issuance
      and
      sale of the Securities. There are no stockholders’ agreements, voting agreements
      or other similar agreements with respect to the Company’s capital stock to which
      the Company is a party or, to the knowledge of the Company, between or among
      any
      of the Company’s stockholders.

     

    (h)  SEC
      Reports; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by the Company under the Securities Act and the Exchange
      Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
      preceding the date hereof (or such shorter period as the Company was required
      by
      law or regulation to file such material) (the foregoing materials, including
      the
      exhibits thereto and documents incorporated by reference therein, being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Securities Act and the Exchange Act, as applicable,
      and
      none of the SEC Reports, when filed, 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 the light of the
      circumstances under which they were made, not misleading. The financial
      statements of the Company included in the SEC Reports comply in all material
      respects with applicable accounting requirements and the rules and regulations
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    thereto
      as in effect at the time of filing. Such financial statements have been prepared
      in accordance with United States generally accepted accounting principles
      applied on a consistent basis during the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP and are subject to routine year-end adjustments
      which
      are not material in the aggregate. The financial statements fairly present
      in
      all material respects the financial position of the Company and its consolidated
      Subsidiaries as of and for 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 as referred to
      above.

     

    (i)  Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report filed
      prior
      to the date hereof, (i) there has been no event, occurrence or development
      that
      has had or that could reasonably be expected to result in a Material Adverse
      Effect, (ii) the Company has not incurred any liabilities (contingent or
      otherwise) other than (A) trade payables new real estate leases, and accrued
      expenses incurred in the ordinary course of business consistent with past
      practice and (B) liabilities not required to be reflected in the Company’s
      financial statements pursuant to GAAP or disclosed in filings made with the
      Commission, (iii) the Company has not altered its method of accounting, (iv)
      the
      Company has not declared or made any dividend or distribution of cash or other
      property to its stockholders or purchased, redeemed or made any agreements
      to
      purchase or redeem any shares of its capital stock and (v) the Company has
      not
      issued any equity securities to any officer, director or Affiliate, except
      pursuant to existing Company stock option plans. The Company does not have
      pending before the Commission any request for confidential treatment of
      information. Except for the issuance of the Securities contemplated by this
      Agreement, no event, liability or development has occurred or exists with
      respect to the Company or its Subsidiaries or their respective business,
      properties, operations or financial condition, that would be required to be
      disclosed by the Company under applicable securities laws at the time this
      representation is made that has not been publicly disclosed at least one Trading
      Day prior to the date that this representation is made.

     

    (j)  Litigation.
      There
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company, any Subsidiary or any of their respective properties before or by
      any
      court, arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Debentures and Warrants or (ii) could,
      if there were an unfavorable decision, have or reasonably be expected to result
      in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
      director or officer thereof, is or has been the subject of any Action involving
      a claim of violation of or liability under federal or state securities laws
      or a
      claim of breach of fiduciary duty. There has not been, and to the knowledge
      of
      the Company, there is not pending or contemplated, any investigation by the
      Commission involving the Company or any current or former director or officer
      of

     

    
      
        
        

      

      
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    the
      Company. The Commission has not issued any stop order or other order suspending
      the effectiveness of any registration statement filed by the Company or any
      Subsidiary under the Exchange Act or the Securities Act. 

     

    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect. None of the Company’s or its
      Subsidiaries’ employees is a member of a union that relates to such employee’s
      relationship with the Company, and neither the Company or any of its
      Subsidiaries is a party to a collective bargaining agreement, and the Company
      and its Subsidiaries believe that their relationships with their employees
      are
      good. No executive officer, to the knowledge of the Company, is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement or
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company or any of its Subsidiaries to any liability with respect
      to
      any of the foregoing matters. The Company and its Subsidiaries are in compliance
      with all U.S. federal, state, local and foreign laws and regulations relating
      to
      employment and employment practices, terms and conditions of employment and
      wages and hours, except where the failure to be in compliance could not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    (l)  Compliance.
      Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its business
      and all such laws that affect the environment, except in each case as could
      not
      have or reasonably be expected to result in a Material Adverse
      Effect.

     

    (m)  Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits could not have
      or
      reasonably be expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    (n)  Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all 

     

    
      
        
        

      

      
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    personal
      property owned by them that is material to the business of the Company and
      the
      Subsidiaries, in each case free and clear of all Liens, except for purchase
      money security interests, Liens as do not materially affect the value of such
      property and do not materially interfere with the use made and proposed to
      be
      made of such property by the Company and the Subsidiaries and Liens for the
      payment of federal, state or other taxes, the payment of which is neither
      delinquent nor subject to penalties. Any real property and facilities held
      under
      lease by the Company and the Subsidiaries are held by them under valid,
      subsisting and enforceable leases with which the Company and the Subsidiaries
      are in material compliance.

     

    (o)  Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      trade secrets, inventions, copyrights, licenses and other intellectual property
      rights and similar rights necessary or material for use in connection with
      their
      respective businesses as described in the SEC Reports and which the failure
      to
      so have would have a Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a notice (written or
      otherwise) that the Intellectual Property Rights used by the Company or any
      Subsidiary violates or infringes upon the rights of any Person. To the knowledge
      of the Company, all such Intellectual Property Rights are enforceable and there
      is no existing infringement by another Person of any of the Intellectual
      Property Rights. The Company and its Subsidiaries have taken reasonable security
      measures to protect the secrecy, confidentiality and value of all of their
      intellectual properties, except where failure to do so could not, individually
      or in the aggregate, reasonably be expected to have a Material Adverse
      Effect.

     

    (p)  Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are
      management of the Company believes to be prudent. 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.

     

    (q)  Transactions
      With Affiliates and Employees.
      Except
      as set forth in the SEC Reports, none of the officers or directors of the
      Company and, to the knowledge of the Company, none of the employees of the
      Company is presently a party to any transaction with the Company or any
      Subsidiary (other than for services as employees, officers and directors),
      including any contract, agreement or other arrangement providing for the
      furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Company, any entity in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner, in each case in excess of $60,000
      other than (i) for payment of salary or consulting fees for services rendered,
      (ii) reimbursement for expenses incurred on behalf 

     

    
      
        
        

      

      
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    of
      the
      Company and (iii) for other employee benefits, including stock option agreements
      under any stock option plan of the Company.

     

    (r)  Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient 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 action
      is taken with respect to any differences. If applicable to the Company on the
      date hereof, the Company has established disclosure controls and procedures
      (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
      designed such disclosure controls and procedures to ensure that information
      required to be disclosed by the Company in the reports it files or submits
      under
      the Exchange Act is recorded, processed, summarized and reported, within the
      time periods specified in the Commission’s rules and forms. If applicable to the
      Company on the date hereof, the Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no changes in the
      Company’s internal control over financial reporting (as such term is defined in
      the Exchange Act) that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.

     

    (s)  Certain
      Fees.
      Except
      for a fee payable to Carlin Capital, LLC, no brokerage or finder’s fees or
      commissions are or will be payable by the Company to any broker, financial
      advisor or consultant, finder, placement agent, investment banker, bank or
      other
      Person with respect to the transactions contemplated by the Transaction
      Documents. The Purchasers shall have no obligation with respect to any fees
      or
      with respect to any claims made by or on behalf of other Persons for fees of
      a
      type contemplated in this Section that may be due in connection with the
      transactions contemplated by the Transaction Documents. 

     

    (t)  Private
      Placement.
      Assuming the accuracy of the Purchasers’ representations and warranties set
      forth in Section 3.2, no registration under the Securities Act is required
      for
      the offer and sale of the Securities by the Company to the Purchasers as
      contemplated hereby. The issuance and sale of the Securities hereunder does
      not
      contravene the rules and regulations of the Trading Market.

     

    
      
        
        

      

      
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    (u)  Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an Affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act of 1940, as amended.

     

    (v)  Registration
      Rights.
      Other
      than each of the Purchasers, no Person has any right to cause the Company to
      effect the registration under the Securities Act of any securities of the
      Company, except for any such rights which have been satisfied by the Company
      and
      except for the Company’s intention to register 1,643,000 shares of Common Stock
      pursuant to the Securities Act.

     

    (w)  Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to, or which to
      its
      knowledge is likely to have the effect of, terminating the registration of
      the
      Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      The Company has not, in the 12 months preceding the date hereof, received notice
      from any Trading Market on which the Common Stock is or has been listed or
      quoted to the effect that the Company is not in compliance with the listing
      or
      maintenance requirements of such Trading Market. The Company is, and has no
      reason to believe that it will not in the foreseeable future continue to be,
      in
      compliance with all such listing and maintenance requirements.

     

    (x)  Disclosure.
      All
      disclosure furnished by or on behalf of the Company to the Purchasers regarding
      the Company, its business and the transactions contemplated hereby, is true
      and
      correct and does not contain any untrue statement of a material fact or omit
      to
      state any material fact necessary in order to make the statements made therein,
      in light of the circumstances under which they were made, not misleading. The
      press releases disseminated by the Company during the twelve months preceding
      the date of this Agreement did not contain, at the time of their respective
      releases, any untrue statement of a material fact or omit to state a material
      fact required to be stated therein or necessary in order to make the statements,
      in light of the circumstances under which they were made and when made, not
      misleading. The Company acknowledges and agrees that no Purchaser makes or
      has
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in Section 3.2
      hereof.

     

    (y)  No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, 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 this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provision of any Trading Market on which any
      of
      the securities of the Company are listed or designated.

     

    
      
        
        

      

      
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    (z)  Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business as now conducted and as
      proposed to be conducted including its capital needs taking into account the
      particular capital requirements of the business conducted by the Company, and
      projected capital requirements and capital availability thereof; and (iii)
      the
      current cash flow of the Company, together with the proceeds the Company would
      receive, were it to liquidate all of its assets, after taking into account
      all
      anticipated uses of the cash, would be sufficient to pay all amounts on or
      in
      respect of its liabilities when such amounts are required to be paid. The
      Company does not intend to incur debts beyond its ability to pay such debts
      as
      they mature (taking into account the timing and amounts of cash to be payable
      on
      or in respect of its debt). The Company has no knowledge of any facts or
      circumstances which lead it to believe that it will file for reorganization
      or
      liquidation under the bankruptcy or reorganization laws of any jurisdiction
      within one year from the Closing Date. The balance of the Company at June 30,
      2006, contained in the SEC Reports sets forth as of the date thereof all
      outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
      or for which the Company or any Subsidiary has any commitments. Since June
      30,
      2006, the Company has not incurred and Indebtedness (other than amounts owed
      to
      Purchasers) except that on July 1, 2006, the Company repurchased the Theater
      Xtreme franchise for the store located in Leesport, PA from Theaters4U, LLC
      in
      the amount of $193,307, paid partially in cash, partially in Common Stock,
      and
      partially with a note due on December 31, 2006. For the purposes of this
      Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
      (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 $50,000 due under leases required to be capitalized in accordance
      with GAAP. Neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

    (aa)  Tax
      Status.
      Except
      for matters that would not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect, the Company and each
      Subsidiary has filed all necessary federal, state and foreign income and
      franchise tax returns and has paid or accrued all taxes shown as due thereon,
      and the Company has no knowledge of a tax deficiency which has been asserted
      or
      threatened against the Company or any Subsidiary.

     

    (bb)  No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation or general
      advertising. The Company has offered the Securities for sale only 

     

    
      
        
        

      

      
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    to
      the
      Purchasers and certain other “accredited investors” within the meaning of Rule
      501 under the Securities Act.

     

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

     

    (dd)  Accountants.
      The
      Company’s accounting firm is Morison Cogen LLC. To the knowledge and belief of
      the Company, such accounting firm (i) is a registered public accounting firm
      as
      required by the Exchange Act. 

     

    (ee)  Seniority.
      As of
      the Closing Date, no Indebtedness or other claim against the Company is senior
      to the Debentures in right of payment, whether with respect to interest or
      upon
      liquidation or dissolution, or otherwise, other than indebtedness secured by
      purchase money security interests (which is senior only as to underlying assets
      covered thereby) and capital lease obligations (which is senior only as to
      the
      property covered thereby).

     

    (ff)  No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company. At September 30, 2006, the
      Company owed $23,000 and $68,900 to its accountants and lawyers,
      respectively.

     

    (gg)  Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities. The Company
      further represents to each Purchaser that the Company’s decision to enter into
      this Agreement and the other Transaction Documents has been based solely on
      the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    (hh)  Acknowledgment
      Regarding Purchasers Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Sections 

     

    
      
        
        

      

      
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    3.2(f)
      and 4.16 hereof), it is understood and acknowledged by the Company (i) that
      none
      of the Purchasers have been asked to agree, nor has any Purchaser agreed, to
      desist from purchasing or selling, long and/or short, securities of the Company,
      or “derivative” securities based on securities issued by the Company or to hold
      the Securities for any specified term; (ii) that past or future open market
      or
      other transactions by any Purchaser, including Short Sales, and specifically
      including, without limitation, Short Sales or “derivative” transactions, before
      or after the closing of this or future private placement transactions, may
      negatively impact the market price of the Company’s publicly-traded securities;
      (iii) that any Purchaser, and counter-parties in “derivative” transactions to
      which any such Purchaser is a party, directly or indirectly, presently may
      have
      a “short” position in the Common Stock; and (iv) that each Purchaser shall not
      be deemed to have any affiliation with or control over any arm’s length
      counter-party in any “derivative” transaction. The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Warrant Shares deliverable with respect to Securities
      are
      being determined and (b) such hedging activities (if any) could reduce the
      value
      of the existing stockholders' equity interests in the Company at and after
      the
      time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

    (ii)  Regulation
      M Compliance. 
      The Company has not, and to its knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      securities of the Company or (iii) paid or agreed to pay to any Person any
      compensation for soliciting another to purchase any other securities of the
      Company, other than, in the case of clauses (ii) and (iii), compensation paid
      to
      the Company’s placement agent in connection with the placement of the
      Securities

     

    3.2  Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      as of the date hereof and as of the Closing Date to the Company as
      follows:

     

    (a)  Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with full right,
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations hereunder and thereunder. The execution, delivery and
      performance by such Purchaser of the transactions contemplated by this Agreement
      have been duly authorized by all necessary corporate or similar action on the
      part of such Purchaser. Each Transaction Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general 

     

    
      
        
        

      

      
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    equitable
      principles and applicable bankruptcy, insolvency, reorganization, moratorium
      and
      other laws of general application affecting enforcement of creditors’ rights
      generally, (ii) as limited by laws relating to the availability of specific
      performance, injunctive relief or other equitable remedies and (iii) insofar
      as
      indemnification and contribution provisions may be limited by applicable law.
      The Purchaser’s Federal taxpayer identification number, mailing address for
      notices, and jurisdiction of domicile are accurately set forth on the signature
      page. 

     

    (b)  Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no direct or indirect arrangement or understandings with any other persons
      to
      distribute or regarding the distribution of such Securities (this representation
      and warranty not limiting such Purchaser’s right to sell the Securities pursuant
      to the Registration Statement or otherwise in compliance with applicable federal
      and state securities laws) in violation of the Securities Act or any applicable
      state securities law. Such Purchaser is acquiring the Securities hereunder
      in
      the ordinary course of its business.

     

    (c)  Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it exercises any Warrants it will be either:
      (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
      (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
      buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is
      not required to be registered as a broker-dealer under Section 15 of the
      Exchange Act.

     

    (d)  Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    (e)  General
      Solicitation.
      Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement. Such Purchaser acknowledges that such Purchaser has been given
      access to, and prior to the execution of the Transaction Documents an
      opportunity to ask questions of and receive answers from, the Company concerning
      the terms and conditions of the offering of the Securities and to obtain any
      other information that such Purchaser requested with respect to the Company’s
      operations and such Purchaser’s proposed investment in the Company in order to
      evaluate the investment and verify the accuracy of 

     

    
      
        
        

      

      
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    all
      information furnished to it regarding the Company. Such Purchaser further
      acknowledges that such Purchaser has reviewed all of the SEC
      Reports.

     

    (f)  Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder, such Purchaser has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with such Purchaser, executed any transaction, including Short
      Sales, in the securities of the Company during the period commencing
      from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the representation set forth above shall only apply
      with respect to the portion of assets managed by the portfolio manager that
      made
      the investment decision to purchase the Securities covered by this Agreement.
      Other than to other Persons party to this Agreement, such Purchaser has
      maintained the confidentiality of all disclosures made to it in connection
      with
      this transaction (including the existence and terms of this
      transaction).

     

     

    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

    (a)  The
      Purchasers acknowledge that the Securities may only be disposed of in compliance
      with state and federal securities laws. In connection with any transfer of
      Securities other than pursuant to an effective registration statement or Rule
      144, to the Company or to an Affiliate of a Purchaser or in connection with
      a
      pledge as contemplated in Section 4.1(b), the Company may require the transferor
      thereof to provide to the Company an opinion of counsel selected by the
      transferor and reasonably acceptable to the Company, the form and substance
      of
      which opinion shall be reasonably satisfactory to the Company and the Transfer
      Agent, to the effect that such transfer does not require registration of such
      transferred Securities under the Securities Act. As a condition of transfer,
      any
      such transferee shall agree in writing to be bound by the terms of this
      Agreement and shall have the rights of a Purchaser under this Agreement and
      the
      Registration Rights Agreement.

     

    (b)  The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1,
      of a legend on any of the Securities in the following form:

     

    [NEITHER]
      THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
      HAS
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM 

     

    
      
        
        

      

      
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    REGISTRATION
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
      ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON [EXERCISE] OF THIS
      SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
      LOAN SECURED BY SUCH SECURITIES.

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and the Registration Rights Agreement and, if required under the terms of such
      arrangement, such Purchaser may transfer pledged or secured Securities to the
      pledgees or secured parties. Such a pledge or transfer would not be subject
      to
      approval of the Company and no legal opinion of legal counsel of the pledgee,
      secured party or pledgor shall be required in connection therewith. Further,
      no
      notice shall be required of such pledge. At the appropriate Purchaser’s expense,
      the Company will execute and deliver such reasonable documentation as a pledgee
      or secured party of Securities may reasonably request in connection with a
      pledge or transfer of the Securities, including, if the Securities are subject
      to registration pursuant to the Registration Rights Agreement, the preparation
      and filing of any required prospectus supplement under Rule 424(b)(3) under the
      Securities Act or other applicable provision of the Securities Act to
      appropriately amend the list of Selling Stockholders thereunder.

     

    (c)  Certificates
      evidencing the Warrant Shares shall not contain any legend (including the legend
      set forth in Section 4.1(b) hereof): (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such Warrant
      Shares pursuant to Rule 144, or (iii) if such Warrant Shares are eligible for
      sale under Rule 144(k), or (iii) if such legend is not required under applicable
      requirements of the Securities Act (including judicial interpretations and
      pronouncements issued by the staff 

     

    
      
        
        

      

      
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    of
      the
      Commission). Under any such circumstances the Company shall cause its counsel
      to
      issue a legal opinion to the Transfer Agent promptly after the Effective Date
      if
      required by the Transfer Agent to effect the removal of the legend hereunder.
      If
      all or any portion of a Warrant is exercised at a time when there is an
      effective registration statement to cover the resale of the Warrant Shares,
      or
      if such Warrant Shares may be sold under Rule 144(k) or if such legend is not
      otherwise required under applicable requirements of the Securities Act
      (including judicial interpretations and pronouncements issued by the staff
      of
      the Commission) then such Warrant Shares shall be issued free of all legends.
      The Company agrees that following the Effective Date or at such time as such
      legend is no longer required under this Section 4.1(c), it will, no later than
      three Trading Days following the delivery by a Purchaser to the Company or
      the
      Transfer Agent of a certificate representing Warrant Shares, as applicable,
      issued with a restrictive legend (such third Trading Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Purchaser a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to the Transfer Agent
      that enlarge the restrictions on transfer set forth in this Section. If
      possible, certificates for Warrant Shares subject to legend removal hereunder
      shall be transmitted by the Transfer Agent to the Purchasers by crediting the
      account of the Purchaser’s prime broker with the Depository Trust Company
      System.

    

    (d)  In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $2,000 of Warrant Shares (based on the VWAP of the Common Stock on the
      date
      such Securities are submitted to the Transfer Agent) delivered for removal
      of
      the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
      (increasing to $20 per Trading Day 5 Trading Days after such damages have begun
      to accrue) for each Trading Day after the second Trading Day following the
      Legend Removal Date until such certificate is delivered without a legend.
      Nothing herein shall limit such Purchaser’s right to pursue actual damages for
      the Company’s failure to deliver certificates representing any Securities as
      required by the Transaction Documents, and such Purchaser shall have the right
      to pursue all remedies available to it at law or in equity including, without
      limitation, a decree of specific performance and/or injunctive
      relief.

     

    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein and upon compliance with the prospectus
      delivery requirement.

     

    4.2  Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligations under the Transaction Documents, including without limitation its
      obligation to issue the Warrant Shares pursuant to the Transaction Documents,
      are unconditional and absolute and not subject to any right of set off,
      counterclaim, delay or reduction, regardless of the effect of any such dilution
      or any claim the Company may have against any Purchaser and regardless of the
      dilutive effect that such issuance may have on the ownership of the other
      stockholders of the Company.

     

    
      
        
        

      

      
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    4.3  Furnishing
      of Information.
      As long
      as any Purchaser owns Securities, the Company covenants to timely file (or
      obtain extensions in respect thereof and file within the applicable grace
      period) all reports required to be filed by the Company after the date hereof
      pursuant to the Exchange Act. As long as any Purchaser owns Securities, if
      the
      Company is not required to file reports pursuant to the Exchange Act, it will
      prepare and furnish to the Purchasers and make publicly available in accordance
      with Rule 144(c) such information as is required for the Purchasers to sell
      the
      Securities under Rule 144. The Company further covenants that it will take
      such
      further action as any holder of Securities may reasonably request, to the extent
      required from time to time to enable such Person to sell such Securities without
      registration under the Securities Act within the requirements of the exemption
      provided by Rule 144.

     

    4.4  Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers.

     

    4.5  Exercise
      Procedures.
      The
      form of Notice of Exercise included in the Warrants sets forth the totality
      of
      the procedures required of the Purchasers in order to exercise the Warrants.
      No
      additional legal opinion or other information or instructions shall be required
      of the Purchasers to exercise their Warrants. The Company shall honor exercises
      of the Warrants and shall deliver Warrant Shares in accordance with the terms,
      conditions and time periods set forth in the Transaction Documents.

     

    4.6  Securities
      Laws Disclosure; Publicity.
      The
      Company shall, by 8:30 a.m. New York City time on the second Trading Day
      following the date hereof, issue a Current Report on Form 8-K disclosing the
      material terms of the transactions contemplated hereby and attaching the
      Transaction Documents thereto. The Company and each Purchaser shall consult
      with
      each other in issuing any other press releases with respect to the transactions
      contemplated hereby, and neither the Company nor any Purchaser shall issue
      any
      such press release or otherwise make any such public statement without the
      prior
      consent of the Company, with respect to any press release of any Purchaser,
      or
      without the prior consent of each Purchaser, with respect to any press release
      of the Company, which consent shall not unreasonably be withheld or delayed,
      except if such disclosure is required by law, in which case the disclosing
      party
      shall promptly provide the other party with prior notice of such public
      statement or communication. Notwithstanding the foregoing, the Company shall
      not
      publicly disclose the name of any Purchaser, or include the name of any
      Purchaser in any filing with the Commission or any regulatory agency or Trading
      Market, without the prior written consent of such Purchaser, except (i) as
      required by federal securities law in connection with (A) any registration
      statement contemplated by the Registration Rights Agreement and (B) the filing
      of final Transaction Documents (including signature pages thereto) with the
      Commission and (ii) to the extent such disclosure is required by law or Trading
      Market regulations, in which case the Company shall provide the Purchasers
      with
      prior notice of such disclosure permitted under this subclause
      (ii).

     

    4.7  Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, with the consent of the
      Company, any other Person, that any Purchaser is an “Acquiring Person”

     

    
      
        
        

      

      
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    under
      any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or similar anti-takeover plan or
      arrangement in effect or hereafter adopted by the Company, or that any Purchaser
      could be deemed to trigger the provisions of any such plan or arrangement,
      by
      virtue of receiving Securities under the Transaction Documents or under any
      other agreement between the Company and the Purchasers.

     

    4.8  Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      on and after the date hereof neither it nor any other Person acting on its
      behalf 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.

     

    4.9  Use
      of
      Proceeds.
      The
      Company shall use the net proceeds from the sale of the Securities for working
      capital purposes and shall not use such proceeds for the satisfaction of any
      portion of the Company’s debt (other than payment of trade payables in the
      ordinary course of the Company’s business and prior practices), or to redeem any
      Common Stock or Common Stock Equivalents or to settle any outstanding
      litigation.

     

    4.10  [RESERVED].

     

    4.11  Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.11, the Company will indemnify and hold
      each
      Purchaser and its directors, officers, shareholders, members, partners,
      employees and agents (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title), each Person who controls such Purchaser (within the meaning of
      Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
      directors, officers, shareholders, agents, members, partners or employees (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles notwithstanding a lack of such title or any other title) of such
      controlling person (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the 

     

    
      
        
        

      

      
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    right
      to
      assume the defense thereof with counsel of its own choosing reasonably
      acceptable to the Purchaser Party. Any Purchaser Party shall have the right
      to
      employ separate counsel in any such action and participate in the defense
      thereof, but the fees and expenses of such counsel shall be at the expense
      of
      such Purchaser Party except to the extent that (i) the employment thereof has
      been specifically authorized by the Company in writing, (ii) the Company has
      failed after a reasonable period of time to assume such defense and to employ
      counsel or (iii) in such action there is, in the reasonable opinion of such
      separate counsel, a material conflict on any material issue between the position
      of the Company and the position of such Purchaser Party, in which case the
      Company shall be responsible for the reasonable fees and expenses of no more
      than one such separate counsel for all Purchaser Parties. The Company will
      not
      be liable to any Purchaser Party under this Agreement (i) for any settlement
      by
      a Purchaser Party effected without the Company’s prior written consent, which
      shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
      to the extent that a loss, claim, damage or liability is attributable to any
      Purchaser Party’s breach of any of the representations, warranties, covenants or
      agreements made by such Purchaser Party in this Agreement or in the other
      Transaction Documents.

     

    4.12  [Intentionally
      Deleted]

     

    4.13  [Intentionally
      Deleted] 

     

    4.14  Equal
      Treatment of Purchasers.
      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. Further, the Company shall not make any payment of
      principal or interest on the Debentures in amounts which are disproportionate
      to
      the respective principal amounts outstanding on the Debentures at any applicable
      time. For clarification purposes, this provision constitutes a separate right
      granted to each Purchaser by the Company and negotiated separately by each
      Purchaser, and is intended for the Company to treat the Purchasers as a class
      and shall not in any way be construed as the Purchasers acting in concert or
      as
      a group with respect to the purchase, disposition or voting of Securities or
      otherwise.

     

    4.15  Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section 4.6.
      Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.6, such Purchaser will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser understands and acknowledges, severally and not jointly with any
      other
      Purchaser, that the Commission currently takes the position that coverage of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Securities is a violation
      of Section 5 of the Securities Act, as set forth in Item 65, Section A, of
      the
      Manual of Publicly Available Telephone Interpretations, dated July 1997,
      compiled by the Office of Chief Counsel, Division of Corporation Finance.
      Notwithstanding the 

     

    
      
        
        

      

      
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    foregoing,
      no Purchaser makes any representation, warranty or covenant hereby that it
      will
      not engage in Short Sales in
      the
      securities of the Company after the time that the transactions contemplated
      by
      this Agreement are first publicly announced as described in Section 4.6.
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the covenant set forth
      above
      shall only apply with respect to the portion of assets managed by the portfolio
      manager that made the investment decision to purchase the Securities covered
      by
      this Agreement.

     

    4.16  Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with the Commission with respect to
      the
      Securities and to provide a copy thereof, promptly upon request of any
      Purchaser. The Company shall take such action as the Company shall reasonably
      determine is necessary in order to obtain an exemption for, or to qualify the
      Securities for, sale to the Purchasers at the Closing under applicable
      securities or “Blue Sky” laws of the states of the United States, and shall
      provide evidence of such actions promptly upon request of any
      Purchaser.

     

     

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before October 31, 2006;
      provided,
      however,
      that
      such termination will not affect the right of any party to sue for any breach
      by
      the other party (or parties).

     

    5.2  Fees
      and Expenses.
      At the
      Closing, the Company has agreed to reimburse Bushido Capital Master Fund, LP
      (“Bushido”)
      the
      non-accountable sum of $10,000, for its legal fees and expenses. Accordingly,
      in
      lieu of the foregoing payments, the aggregate amount that Bushido is to pay
      for
      the Securities at the Closing shall be reduced by $10,000 in lieu thereof.
      The
      Company shall deliver to each Purchaser, prior to the Closing, a completed
      and
      executed copy of the Closing Statement attached hereto as Annex
      A.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, 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.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities to the
      Purchasers.

     

    5.3  Entire
      Agreement.
      The
      Transaction Documents, together with the exhibits and schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents, exhibits and schedules.

     

    
      
        
        

      

      
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    5.4  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
      Day,
      (b) the next Trading Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Trading Day or later
      than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
      Trading
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.5  Amendments;
      Waivers.
      No
      provision of this Agreement may be waived, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and each Purchaser or, in the case of a waiver, by the party against
      whom enforcement of any such waived provision is sought. No waiver 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 subsequent default or a waiver of any other provision, 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.

     

    5.6  Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    5.7  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of each Purchaser (other than by merger). Any Purchaser may assign
      any
      or all of its rights under this Agreement to any Person to whom such Purchaser
      assigns or transfers any Securities, provided that (i) such transferee agrees
      in
      writing to be bound, with respect to the transferred Securities, by the
      provisions of the Transaction Documents that apply to the “Purchasers,” (ii)
      such transferee is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a)
      under the Securities Act or (iii) such transfer does not violate any
      representation or warranty made in this Agreement by the
      Purchasers.

     

    5.8  No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.11.

     

    5.9  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of the Transaction Documents shall be governed by and construed and enforced
      in
      accordance with the internal laws of the State of New York, without regard
      to
      the principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
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    any
      other
      Transaction Documents (whether brought against a party hereto or its respective
      affiliates, directors, officers, shareholders, employees or agents) shall be
      commenced exclusively in the state and federal courts sitting in the City of
      New
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in the City of New York, borough of Manhattan
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein (including with respect
      to the enforcement of any of the Transaction Documents), and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is improper or is an inconvenient venue for
      such
      proceeding. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof via registered or certified mail or overnight delivery
      (with evidence of delivery) 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 contained herein
      shall be deemed to limit in any way any right to serve process in any other
      manner permitted by law. The parties hereby waive all rights to a trial by
      jury.
      If either party shall commence an action or proceeding to enforce any provisions
      of the Transaction Documents, then the prevailing party in such action or
      proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
      and prosecution of such action or proceeding.

     

    5.10  Survival.
      The
      representations and warranties shall survive the Closing and the delivery of
      the
      Securities for the applicable statue of limitations.

     

    5.11  Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile or “.pdf” signature page were an original thereof.

     

    5.12  Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    5.13  Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) any of the other Transaction Documents, whenever any
      Purchaser exercises a right, election, demand or option under a 

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    Transaction
      Document and the Company does not timely perform its related obligations within
      the periods therein provided, then such Purchaser may rescind or withdraw,
      in
      its sole discretion from time to time upon written notice to the Company, any
      relevant notice, demand or election in whole or in part without prejudice to
      its
      future actions and rights; provided,
      however,
      in the
      case of a rescission of an exercise of a Warrant, the Purchaser shall be
      required to return any shares of Common Stock delivered in connection with
      any
      such rescinded exercise notice.

     

    5.14  Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof (in the case of mutilation),
      or
      in lieu of and substitution therefor, a new certificate or instrument, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction and upon provision of an indemnity reasonably acceptable
      to
      the Company and the Transfer Agent. The applicant for a new certificate or
      instrument under such circumstances shall also pay any reasonable third-party
      costs (including customary indemnity) associated with the issuance of such
      replacement Securities.

     

    5.15  Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations contained in the Transaction
      Documents and hereby agrees to waive and not to assert in any action for
      specific performance of any such obligation the defense that a remedy at law
      would be adequate. 

     

    5.16  Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

     

    5.17  Usury.
      To the
      extent it may lawfully do so, the Company hereby agrees not to insist upon
      or
      plead or in any manner whatsoever claim, and will resist any and all efforts
      to
      be compelled to take the benefit or advantage of, usury laws wherever enacted,
      now or at any time hereafter in force, in connection with any claim, action
      or
      proceeding that may be brought by any Purchaser in order to enforce any right
      or
      remedy under any Transaction Document. Notwithstanding any provision to the
      contrary contained in any Transaction Document, it is expressly agreed and
      provided that the total liability of the Company under the Transaction Documents
      for payments in the nature of interest shall not exceed the maximum lawful
      rate
      authorized under applicable law (the “Maximum
      Rate”),
      and,
      without limiting the foregoing, in no event shall any rate of interest or
      default interest, or both of them, when aggregated with any 

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    other
      sums in the nature of interest that the Company may be obligated to pay under
      the Transaction Documents exceed such Maximum Rate. It is agreed that if the
      maximum contract rate of interest allowed by law and applicable to the
      Transaction Documents is increased or decreased by statute or any official
      governmental action subsequent to the date hereof, the new maximum contract
      rate
      of interest allowed by law will be the Maximum Rate applicable to the
      Transaction Documents from the effective date forward, unless such application
      is precluded by applicable law. If under any circumstances whatsoever, interest
      in excess of the Maximum Rate is paid by the Company to any Purchaser with
      respect to indebtedness evidenced by the Transaction Documents, such excess
      shall be applied by such Purchaser to the unpaid principal balance of any such
      indebtedness or be refunded to the Company, the manner of handling such excess
      to be at such Purchaser’s election.

     

    5.18  Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other Transaction Document, and no action taken by any Purchaser
      pursuant 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. 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. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. For reasons of administrative convenience only, Purchasers and their
      respective counsel have chosen to communicate with the Company through FWS.
      FWS
      does not represent all of the Purchasers but only Bushido. The Company 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.

     

    5.19  Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Transaction Documents is a continuing obligation of the Company
      and shall not terminate until all unpaid partial liquidated damages and other
      amounts have been paid notwithstanding the fact that the instrument or security
      pursuant to which such partial liquidated damages or other amounts are due
      and
      payable shall have been canceled.

     

    5.20  Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Transaction Documents and, therefore, the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

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

     

    
      	
              THEATER
                XTREME ENTERTAINMENT GROUP, INC.

               

            	
              Address
                for Notice:

            
	
              By: 
                /s/ Scott R. Oglum

              Name:
                Scott R. Oglum

              Title:
                Chairman and CEO

            	
              250
                Corporate Boulevard

              Suites
                E & F

              Newark,
                Delaware 19702

              Attention:
                President

            
	
              With
                a copy to (which shall not constitute notice):

              Ballard
                Spahr Andrews & Ingersoll, LLP

              1735
                Market Street, 51st
                Floor

              Philadelphia,
                Pennsylvania 19103-7599

              Attention:
                Steven King

               

            	 

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    

      [PURCHASER
        SIGNATURE PAGES TO TXEG SECURITIES PURCHASE AGREEMENT]

      

      IN
        WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
        to be duly executed by their respective authorized signatories as of the
        date
        first indicated above. 

      

      Name
        of
        Purchaser: Bushido Capital Master Fund, LP 

      

      Signature
        of Authorized Signatory of Purchaser: /s/
        Louis Rabman  

      

      Name
        of
        Authorized Signatory: Louis Rabman 

      

      Title
        of
        Authorized Signatory: President, Bushido Capital Partners, Ltd,. as sole
        GP

      

      Email
        Address of Purchaser: rabman@bushidocapital.com 

      

      Facsimile
        Number of Purchaser: 646-486-6885 

      

      

      Address
        for Notice of Purchaser. 

      c/o
        Bushido Capital Partners, Ltd. 

      275
        Seventh Avenue, Suite 2000 

      New
        York,
        NY 10001 

      

      Address
        for Delivery of Securities for Purchaser (if not same as above): 

      Same
        

      

      Jurisdiction
        of Domicile: Cayman Islands 

      

      Subscription
        Amount: $250,000 

      

      Warrant
        Shares: 200,000 Warrant Shares @ $1.00 strike 

      

      

      

      

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]
        

      

      

      

      [SIGNATURE
        PAGES CONTINUE]

      

    

    
      

      

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

    

      [PURCHASER
        SIGNATURE PAGES TO TXEG SECURITIES PURCHASE AGREEMENT]

      

      IN
        WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
        to be duly executed by their respective authorized signatories as of the
        date
        first indicated above. 

      

      Name
        of
        Purchaser: Pierce Diversified Strategy Master Fund, LLC - Series BUS

      

      Signature
        of Authorized Signatory of Purchaser: /s/
        Christopher Rossman  

      

      Name
        of
        Authorized Signatory: Christopher Rossman 

      

      Title
        of
        Authorized Signatory: Attorney-in-Fact

      

      Email
        Address of Purchaser: rossman@bushidocapital.com 

      

      Facsimile
        Number of Purchaser: 646-486-6885 

      

      

      Address
        for Notice of Purchaser. 

      c/o
        Bushido Capital Partners, Ltd. 

      275
        Seventh Avenue, Suite 2000 

      New
        York,
        NY 10001 

      

      Address
        for Delivery of Securities for Purchaser (if not same as above): 

      Same
        

      

      Jurisdiction
        of Domicile: Delaware

      

      Subscription
        Amount: $250,000 

      

      Warrant
        Shares: 200,000 Warrant Shares @ $1.00 strike 

      

      

      

      

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]
        

      

      

      

      [SIGNATURE
        PAGES CONTINUE]

      

      

      

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    Annex
      A 

    

    CLOSING
      STATEMENT

    

    Pursuant
      to the attached Securities Purchase Agreement, dated as of the date hereto,
      the
      purchasers shall purchase up to $500,000 of Debentures and Warrants from Theater
      Xtreme Entertainment Group, Inc., a Florida corporation (the “Company”).
      All
      funds will be disbursed in accordance with this Closing Statement. 

    

    Disbursement
      Date: October
      __, 2006

     

      
        

      

    

    

    
      	
              I. 
                PURCHASE
                PRICE

            	 
	
              Gross
                Proceeds to be Received in Trust

            	
              $

            
	 	 
	
              II. DISBURSEMENTS

            	 
	
               

            	
              $

            
	
               

            	
              $

            
	 	
              $

            
	 	
              $

            
	 	
              $

            
	 	 
	
              Total
                Amount Disbursed:

            	
              $

            
	 	 
	 	 
	 	 
	
              WIRE
                INSTRUCTIONS:

               

            	 
	
              To:
                _____________________________________

               

               

               

               

            	 
	
              To:
                _____________________________________

               

               

               

               

            	 

    

     

    33EXHIBIT
      10.2

    

    FORM
      OF NON-CONVERTIBLE

    10%
      DEBENTURE

    

    

    
      	
              $___________

            	
              October
                __, 2006

            

    

    

    

    FOR
      VALUE
      RECEIVED, Theater Xtreme Entertainment Group, Inc., a Florida corporation (the
      “Maker”),
      with
      its primary offices located at 250 Corporate Boulevard, Suites E & F,
      Newark, Delaware 19702, promises to pay to the order of ________________, or
      its
      registered assigns (the “Payee”),
      upon
      the terms set forth below, the principal sum of ______________ ($____________)
      plus interest on the unpaid principal sum outstanding at the rate of 10% per
      annum (this “Debenture”).
      Capitalized
      terms used and not otherwise defined herein that are defined in the Securities
      Purchase Agreement, dated October __, 2006 (the “Purchase
      Agreement”)
      shall have the respective meanings given such terms in the Purchase
      Agreement.

    

    1.  Payments.

    

    (a)
       The
      full
      amount of principal and accrued interest under this Debenture shall be due
      on
      the earlier of (i) November 13, 2007 and (ii) the date that the Maker shall
      have
      received net proceeds, in the aggregate since the issue date of this Debenture
      and in one or more transactions during such period, from debt and/or equity
      financings, of at least $2,000,000 (the “Maturity
      Date”),
      unless due earlier in accordance with the terms of this Debenture.

    

    (b)
       The
      Maker
      shall pay interest to the Payee on the aggregate then outstanding principal
      amount of this Debenture at the rate of 10% per annum, payable quarterly on
      January 1, April 1, July 1 and October 1, beginning on April 1, 2007, and on
      the
      Maturity Date which interest shall accrue as of October 13, 2006.

    

    (c)
       All
      overdue accrued and unpaid principal and interest to be paid hereunder shall
      entail a late fee at the rate of 22% per annum (or such lower maximum amount
      of
      interest permitted to be charged under applicable law) which will accrue daily,
      from the date such principal and/or interest is due hereunder through and
      including the date of payment.

    

    (d) The
      Maker
      shall have the right to prepay this Debenture prior to the Maturity Date without
      penalty or premium.

    

    2.
       [INTENTIONALLY
      DELETED]

    

    3.
       Events
      of Default.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a) “Event
      of Default”,
      wherever used herein, means any one of the following events (whatever the reason
      and whether it shall be voluntary or involuntary or effected by operation of
      law
      or pursuant to any judgment, decree or order of any court, or any order, rule
      or
      regulation of any administrative or governmental body):

    

    (i)
       any
      default in the payment of the principal of, or the interest on, this Debenture,
      as and when the same shall become due and payable or with a grace period of
      three Trading Days thereafter in the case of interest payments;

    

    (ii)
       Maker
      shall fail to observe or perform any obligation or shall breach any term or
      provision of this Debenture and such failure or breach shall not have been
      remedied within ten days after the date on which notice of such failure or
      breach shall have been delivered;

    

    (iii)
       Maker
      shall fail to observe or perform any of its obligations owed to Payee or any
      other covenant, agreement, representation or warranty contained in, or otherwise
      commit any breach hereunder or under any other agreement executed in connection
      herewith;

    

    (iv)
       Maker
      shall commence, or there shall be commenced against Maker a case under any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or Maker commences any other proceeding under any
      reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
      insolvency or liquidation or similar law of any jurisdiction whether now or
      hereafter in effect relating to Maker, or there is commenced against Maker
      any
      such bankruptcy, insolvency or other proceeding which remains undismissed for
      a
      period of 60 days; or Maker is adjudicated insolvent or bankrupt; or any order
      of relief or other order approving any such case or proceeding is entered;
      or
      Maker suffers any appointment of any custodian or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of 60 days; or Maker makes a general assignment for the benefit of
      creditors; or Maker shall fail to pay, or shall state that it is unable to
      pay,
      or shall be unable to pay, its debts generally as they become due; or Maker
      shall call a meeting of its creditors with a view to arranging a composition,
      adjustment or restructuring of its debts; or Maker shall by any act or failure
      to act expressly indicate its consent to, approval of or acquiescence in any
      of
      the foregoing; or any corporate or other action is taken by Maker for the
      purpose of effecting any of the foregoing;

    

    (v)
       Maker
      or
      shall default in any of its respective obligations under any other Debenture
      or
      any mortgage, credit agreement or other facility, indenture agreement, factoring
      agreement or other instrument under which 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    there
      may
      be issued, or by which there may be or evidenced any indebtedness for borrowed
      money or money due under any long term leasing or factoring arrangement of
      Maker, whether such indebtedness now exists or shall hereafter be created and
      such default shall result in such indebtedness becoming or being declared due
      and payable prior to the date on which it would otherwise become due and
      payable; or

    

    (vi)
       Maker
      shall (a) be a party to any Change of Control Transaction (as defined below),
      (b) agree to sell or dispose of more than of 50% of its assets in one or more
      transactions (whether or not such sale would constitute a Change of Control
      Transaction), (c) make any distribution or declare or pay any dividends (in
      cash
      or other property, other than common stock) on, or purchase, acquire, redeem,
      (not counting any such shares deemed to have been redeemed in a cashless
      exercise of employee stock options issued pursuant to the Maker’s Stock Option
      Plan) or retire any of Maker's capital stock, of any class, whether now or
      hereafter outstanding. “Change
      of Control Transaction”
means
      the occurrence of any of: (i) an acquisition after the date hereof by an
      individual or legal entity or “group” (as described in Rule 13d-5(b)(1)
      promulgated under the Securities Exchange Act of 1934, as amended) of effective
      control (whether through legal or beneficial ownership of capital stock of
      Maker, by contract or otherwise) of in excess of 50% of the voting securities
      of
      Maker, (ii) a replacement at one time or over time of more than one-half of
      the
      members of Maker's board of directors which is not approved by a majority of
      those individuals who are members of the board of directors on the date hereof
      (or by those individuals who are serving as members of the board of directors
      on
      any date whose nomination to the board of directors was approved by a majority
      of the members of the board of directors who are members on the date hereof),
      (iii) the merger of Maker with or into another entity that is not wholly-owned
      by Maker, or (iv) the execution by Maker of an agreement to which Maker is
      a
      party or by which it is bound, providing for any of the events set forth above
      in (i), (ii) or (iii).

    

    (b) If
      any
      Event of Default occurs, the full principal amount of this Debenture, together
      with all accrued interest thereon, shall become, at the Payee's election,
      immediately due and payable in cash. Commencing 5 days after the occurrence
      of
      any Event of Default that results in the acceleration of this Debenture, the
      interest rate on this Debenture shall accrue at the rate of 18% per annum,
      or
      such lower maximum amount of interest permitted to be charged under applicable
      law. The Payee need not provide and Maker hereby waives any presentment, demand,
      protest or other notice of any kind, and the Payee may immediately and without
      expiration of any grace period enforce any and all of its rights and remedies
      hereunder and all other remedies available to it under applicable law. Such
      declaration may be rescinded and annulled by Payee at any time prior to payment
      

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    hereunder.
      No such rescission or annulment shall affect any subsequent Event of Default
      or
      impair any right consequent thereon.

    

    4.
       Negative
      Covenants.
       So
      long
      as any portion of this Debenture is outstanding, the Maker will not and will
      not
      permit any of its Subsidiaries to directly or indirectly:

    

    a)  other
      than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
      suffer to exist any indebtedness for borrowed money of any kind, including
      but
      not limited to, a guarantee, on or with respect to any of its property or assets
      now owned or hereafter acquired or any interest therein or any income or profits
      therefrom;

     

    b)  other
      than Permitted Liens, enter into, create, incur, assume or suffer to exist
      any
      liens of any kind, on or with respect to any of its property or assets now
      owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom;

    

    c)  amend
      its
      certificate of incorporation, bylaws or other charter documents so as to
      adversely affect any rights of the Payee;

    

    d)  except
      as
      contractually required by the Maker as of the date of issuance of this
      Debenture, repay, repurchase or offer to repay, repurchase or otherwise acquire
      more than a de minimis number of securities;

    

    e)  enter
      into any agreement with respect to any of the foregoing;
      or

    

    f)  pay
      cash
      dividends or distributions on any equity securities of the Maker.

    

    “Permitted
      Indebtedness”
      shall
      mean (a)
      the
      indebtedness of the Maker existing on the date of issuance of this Debenture,
      (b) indebtedness
      incurred by the Maker that does not mature or require payments of principal
      prior to the Maturity Date of this Debenture and is made expressly subordinate
      in right of payment to the indebtedness evidenced by this Debenture, as
      reflected in a written agreement acceptable to the Payee and approved by the
      Payee in writing and (c) up to $300,000, in the aggregate, of additional
      unsecured indebtedness incurred after the date of issuance of this
      Debenture.

    

    “Permitted
      Lien”
shall
      mean the individual and collective reference to the following: (a) liens for
      taxes, assessments and other governmental charges or levies not yet due or
      liens
      for taxes, assessments and other governmental charges or levies being contested
      in good faith and by appropriate proceedings for which adequate reserves (in
      the
      good faith judgment of the management of the Maker) have been established in
      accordance with generally accepted accounting procedures and (b) liens imposed
      by law which were incurred in the ordinary 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    course
      of
      business, such as carriers’, warehousemen’s and mechanics’ liens, statutory
      landlords’ liens, and other similar liens arising in the ordinary course of
      business, and (x) which do not individually or in the aggregate materially
      detract from the value of such property or assets or materially impair the
      use
      thereof in the operation of the business of the Maker and its consolidated
      subsidiaries or (y) which are being contested in good faith by appropriate
      proceedings, which proceedings have the effect of preventing the forfeiture
      or
      sale of the property or asset subject to such lien.

    

    6. No
      Waiver of Payee's Rights.
      All
      payments of principal and interest shall be made without setoff, deduction
      or
      counterclaim. No delay or failure on the part of the Payee in exercising any
      of
      its options, powers or rights, nor any partial or single exercise of its
      options, powers or rights shall constitute a waiver thereof or of any other
      option, power or right, and no waiver on the part of the Payee of any of its
      options, powers or rights shall constitute a waiver of any other option, power
      or right. Maker hereby waives presentment of payment, protest, and all notices
      or demands in connection with the delivery, acceptance, performance, default
      or
      endorsement of this Debenture. Acceptance by the Payee of less than the full
      amount due and payable hereunder shall in no way limit the right of the Payee
      to
      require full payment of all sums due and payable hereunder in accordance with
      the terms hereof.

    

    7.
       Modifications.
      No term
      or provision contained herein may be modified, amended or waived except by
      written agreement or consent signed by the party to be bound
      thereby.

    

    8.
       Cumulative
      Rights and Remedies; Usury.
      The
      rights and remedies of Payee expressed herein are cumulative and not exclusive
      of any rights and remedies otherwise available under this Debenture, the
      Security Agreements, or applicable law (including at equity). The election
      of
      Payee to avail itself of any one or more remedies shall not be a bar to any
      other available remedies, which Maker agrees Payee may take from time to time.
      If it shall be found that any interest due hereunder shall violate applicable
      laws governing usury, the applicable rate of interest due hereunder shall be
      reduced to the maximum permitted rate of interest under such law.

    

    9.
       Use
      of
      Proceeds.
      Maker
      shall use the proceeds from this Debenture hereunder for working capital
      purposes and not for the satisfaction of any portion of Maker’s debt (other than
      payment of trade payables in the ordinary course of Maker's business and prior
      practices or that repayment of that certain note payable to Theaters 4U, LLC
      in
      the approximate amount of $137,000), to redeem any of Maker’s or subsidiary’s
      equity or equity-equivalent securities or to settle any outstanding
      litigation.

    

    10.
       Collection
      Expenses.
      If
      Payee shall commence and prevail in an action or proceeding to enforce this
      Debenture, then Maker shall reimburse Payee for its costs of collection and
      reasonable attorneys fees incurred with the investigation, preparation and
      prosecution of such action or proceeding.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    11.
       Severability.
      If any
      provision of this Debenture is declared by a court of competent jurisdiction
      to
      be in any way invalid, illegal or unenforceable, the balance of this Debenture
      shall remain in effect, and if any provision is inapplicable to any person
      or
      circumstance, it shall nevertheless remain applicable to all other persons
      and
      circumstances. If it shall be found that any interest or other amount deemed
      interest due hereunder shall violate applicable laws governing usury, the
      applicable rate of interest due hereunder shall automatically be lowered to
      equal the maximum permitted rate of interest.

    

    12.
       Successors
      and Assigns.
      This
      Debenture shall be binding upon Maker and its successors and shall inure to
      the
      benefit of the Payee and its successors and assigns. The term "Payee" as used
      herein, shall also include any endorsee, assignee or other holder of this
      Debenture.

    

    13.
       Lost
      or Stolen Debenture.
      If this
      Debenture is lost, stolen, mutilated or otherwise destroyed, Maker shall execute
      and deliver to the Payee a new Debenture containing the same terms, and in
      the
      same form, as this Debenture. In such event, Maker may require the Payee to
      deliver to Maker an affidavit of lost instrument and customary indemnity in
      respect thereof as a condition to the delivery of any such new
      Debenture.

    

    14.
       Due
      Authorization.
      This
      Debenture has been duly authorized, executed and delivered by Maker and is
      the
      legal obligation of Maker, enforceable against Maker in accordance with its
      terms. No consent of any other party and no consent, license, approval or
      authorization of, or registration or declaration with, any governmental
      authority, bureau or agency is required in connection with the execution,
      delivery or performance by the Maker, or the validity or enforceability of
      this
      Debenture other than such as have been met or obtained. The execution, delivery
      and performance of this Debenture and all other agreements and instruments
      executed and delivered or to be executed and delivered pursuant hereto or
      thereto of this will not violate any provision of any existing law or regulation
      or any order or decree of any court, regulatory body or administrative agency
      or
      the certificate of incorporation or by-laws of the Maker or any mortgage,
      indenture, contract or other agreement to which the Maker is a party or by
      which
      the Maker or any property or assets of the Maker may be bound.

    

    15.
       Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Debenture shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each of Maker and Payee agree that
      all
      legal proceedings concerning the interpretations, enforcement and defense of
      this Debenture shall be commenced in the state and federal courts sitting in
      the
      City of New York, Borough of Manhattan (the "New York Courts"). Each of Maker
      and Payee hereby irrevocably submit to the exclusive jurisdiction of the New
      York Courts for the adjudication of any dispute hereunder (including with
      respect to the enforcement of this Debenture), and hereby irrevocably waives,
      and agrees not to assert in any suit, action or proceeding, any claim that
      it is
      not personally subject to the jurisdiction of any such court, that such suit,
      action or proceeding is improper. Each of Maker and Payee hereby 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    irrevocably
      waive personal service of process and consents to process being served in any
      such suit, action or proceeding by mailing a copy thereof via registered or
      certified mail or overnight delivery (with evidence of delivery) to the other
      at
      the address in effect for notices to it under this Debenture and agrees that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. Each of Maker and Payee hereby
      irrevocably waive, to the fullest extent permitted by applicable law, any and
      all right to trial by jury in any legal proceeding arising out of or relating
      to
      this Debenture or the transactions contemplated hereby.

    

      16.     
        Notice. 
        Any and
        all notices or other communications or deliveries to be provided by the Payee
        hereunder, shall be in writing and delivered personally, by facsimile, sent
        by a
        nationally recognized overnight courier service or sent by certified or
        registered mail, postage prepaid, addressed to the Maker, Theater Xtreme
        Entertainment Group, Inc., or such other address or facsimile number as the
        Maker may specify for such purposes by notice to the Payee delivered in
        accordance with this paragraph. Any and all notices or other communications
        or
        deliveries to be provided by the Maker hereunder shall be in writing and
        delivered personally, by facsimile, sent by a nationally recognized overnight
        courier service or sent by certified or registered mail, postage prepaid,
        addressed to the Payee at the address of the Payee appearing on the books
        of the
        Maker, or if no such address appears, at the principal place of business
        of the
        Payee. Any notice or other communication or deliveries hereunder shall be
        deemed
        given and effective on the earliest of (i) the date of transmission if delivered
        by hand or by telecopy that has been confirmed as received by 5:00 P.M. on
        a
        business day, (ii) one business day after being sent by nationally recognized
        overnight courier or received by telecopy after 5:00 P.M. on any day, or
        (iii)
        five business days after being sent by certified or registered mail, postage
        and
        charges prepaid, return receipt requested.

    

     

    17.  Required
      Notice to Payee.The
      Payee
      is to be immediately notified by the Maker, in accordance with Section 16,
      of
      the existence or occurrence, of any Event of Default.

    

    The
      undersigned signs this Debenture as a maker and not as a surety or guarantor
      or
      in any other capacity.

    

    THEATER
      XTREME ENTERTAINMENT GROUP, INC.

    

    By:
      _____________________

    Name:

    Title:

     

    7

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