Document:

a8741_ex99-1

EXHIBIT 4.1

AGREEMENT

      This Agreement
  (the "Agreement"), dated as of December 10, 2004, is by and between Pacific
  Magtron International Corp., a Nevada corporation (the "Company"), and
  the holder of the Company's Series A Redeemable Convertible Preferred Stock
  (the "Holder").

      WHEREAS, the
  Holder owns all of the issued and outstanding shares of the Company's Series
  A Redeemable Convertible Preferred Stock (the "Series A Preferred Stock"),
  which shares of Series A Preferred Stock were issued pursuant to that certain
  Securities Purchase Agreement, dated May 31, 2002, by and between the Company
  and the Holder (the "Purchase Agreement").

      WHEREAS, the
  shares of Series A Preferred Stock are convertible into shares of the Company's
  common stock (the "Conversion Shares" and together with the Series A
  Preferred Stock, the "Securities");

      WHEREAS, the
  Company and the Holder desire to amend and restate the preferences, rights and
  limitations of the Series A Preferred Stock in accordance with the terms of
  the Amended and Restated Certificate of Designation of Preferences, Rights and
  Limitations of Series A Convertible Preferred Stock, attached hereto as Exhibit
  "A" (the "Amended and Restated Certificate of Designation");

      WHEREAS, the
  Holder has owned the shares of Series A Preferred Stock for a period of time
  in excess of two (2) years and therefore, the Conversion Shares may be issued
  free of restrictive legend in reliance on Rule 144(k) promulgated under the
  Securities Act as an exemption from the registration requirements of Section
  5 of the Securities Act;

      WHEREAS, in
  connection with the issuance of the Series A Preferred Stock, the Company issued
  a Stock Purchase Warrant to purchase 300,000 shares of the Company's common
  stock (the "Warrant"); and

      WHEREAS, the
  Company desires, and the Holder agrees, to cancel the Warrant in connection
  with the transaction contemplated hereby.

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

ARTICLE 1

 

  DEFINITIONS

      Section 1.
  Definitions. In addition to the terms defined elsewhere in this Agreement,
  the following terms have the meanings indicated in this Section 1:

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      "Commission"
  means the Securities and Exchange Commission.

      "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.

      "Trading
  Day" means (a) a day on which the Common Stock
  is traded on a Principal Market on which the Common Stock is then listed or
  quoted, as the case may be, or (b) if the Common Stock is not listed on a Principal
  Market, a day on which the Common Stock is traded in the OTC Market, as reported
  by the National Quotation Bureau Incorporated (or any similar organization or
  agency succeeding its functions of reporting prices); provided, however, that
  in the event that the Common Stock is not listed or quoted as set forth in (a)
  and (b) hereof, then Trading Day shall mean any day except Saturday, Sunday
  and any day which shall be a legal holiday or a day on which banking institutions
  in the State of New York are authorized or required by law or other government
  action to close.

      "Securities Act"
  means the Securities Act of 1933, as amended.

 ARTICLE II

  SERIES A PREFERRED STOCK SECURITIES

      Section 2.1.
  Authorization to Amend and Restate the Certificate of Designation. The
  Holder hereby authorizes the Company to amend and restate the Company's Certificate
  of Designation of Preferences, Rights and Limitations of Series A Redeemable
  Convertible Stock, filed with the Secretary of State of the State of Nevada
  in connection with the issuance of the Series A Preferred Stock under the Purchase
  Agreement (the "Original Certificate of Designation"). The Holder hereby
  further consents to the terms of the Amended and Restated Certificate of Designation
  and authorizes the Company to file, on or promptly after the Closing Date (as
  defined below), the Amended and Restated Certificate of Designation, and acknowledges
  that the preferences, rights and limitations set forth therein shall supersede
  the preferences, rights and limitations set forth in the Original Certificate
  of Designation, which shall be of no further force and effect upon such filing.

      Section 2.2.
  Stock Purchase Warrants. On the Closing Date, the Stock Purchase Warrant
  to purchase 300,000 shares of the Company's common stock issued by the Company
  to the Holder in connection with the issuance of the Series A Preferred Stock
  shall be cancelled and be of no further force and effect (the "Warrant").

      Section 2.3
  Condition to Filing Amended and Restated Certificate of Designation.
  The Company's right to file the Amended and Restated Certificate of Designation
  and consummate the transaction contemplated hereby shall be conditioned upon
  the simultaneous closing of the transaction contemplated by that certain Stock
  Purchase Agreement, dated the date hereof, by and among Theodore S. Li and Hui
  Cynthia Lee, stockholders of the Company, and Advanced Communications Technologies,
  Inc. (the "Closing") and nothing contained herein shall obligate the
  Company to file the Amended and Restated Certificate of Designation or

 2

 
 consummate the transaction contemplated hereby
  prior to the Closing. In the event the Closing shall not have occurred on or
  prior to January 10, 2005 (the "Closing
  Date"), either party hereto may terminate this
  Agreement.

 ARTICLE III

  REPRESENTATIONS, WARRANTIES AND COVENANTS

      Section
  3.1. Representations and Warranties of the
  Company. The Company hereby makes the representations and warranties set
  forth below to the Holder that as of the date of its execution of this Agreement
  and as of the Closing Date:

      (a) Authorization,
  etc. The execution, delivery and performance of this Agreement and the consummation
  of the transactions contemplated hereby have been duly authorized by all necessary
  corporate action on the part of the Company, and this Agreement constitutes
  the legal, valid and binding obligation of the Company enforceable against the
  Company in accordance with its terms.

        (b) Compliance
    with Laws, Other Instruments of the Company, etc. None of the execution
    and delivery of this Agreement, or the consummation of the transactions herein
    contemplated or compliance with the terms and provisions hereof will conflict
    with or result in a breach of, or require any consent under, the articles
    of incorporation or any applicable law or regulation, or any order, writ,
    injunction or decree of any court or governmental authority or agency, or
    any agreement or instrument to which the Company is a party or by which it
    is bound or to which it is subject, or constitute a default under any such
    agreement or instrument, or result in the creation or imposition of any lien
    upon any of the revenues or assets of the Company pursuant to the terms of
    any such agreement or instrument.

      (c) Governmental
  Consent. Other than the filing of the Amended and Restated Certificate of
  Designation, neither the nature of the Company or of any of its respective businesses
  or properties, nor any relationship between the Company and any other Person
  is such as to require the consent, approval or authorization of, or filing,
  registration or qualification with, any governmental authority (other than filings
  which will be made by the Company as may be required by applicable federal and
  state securities laws) on the part of the Company or as a condition to the execution
  and delivery of this Agreement or any other document required in connection
  herewith.

      (d) No
  Commission. The Company has not paid, nor has it accepted payment of, directly
  or indirectly, any commission or other remuneration in connection herewith.

      Section
  3.2. Representations and Warranties of the
  Holder. The Holder hereby makes the representations and warranties set forth
  below to the Company that as of the date of its execution of this Agreement
  and as of the Closing Date:

        (a)
    General
    Representations and Covenants. This Agreement
    is made by the Company with such Holder in reliance upon such Holder’s
    representations and covenants

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   made in this Section 3.2, which
    by such Holder’s execution of this Agreement, it hereby confirms.

        (b)
    Ownership
    of Series A Preferred Stock. The Holder is the
    sole legal and beneficial owner of all of the shares of Series A Preferred
    Stock and the Warrant. Such Holder has neither previously sold, assigned,
    conveyed, transferred, pledged or otherwise disposed of, in whole or in part,
    any shares of Series A Preferred Stock or the Warrant, nor has such Holder
    entered into any agreement to sell, assign, convey, transfer, pledge or otherwise
    dispose of, in whole or in part, any shares of Series A Preferred Stock or
    the Warrant.

        (c)
    Due Authorization. The Holder represents and
    warrants that (i) the execution and delivery of this Agreement by it and the
    consummation by it of the transactions contemplated hereby have been duly
    authorized by all necessary action on its behalf and (ii) this Agreement has
    been duly executed and delivered by the Holder and constitutes the valid and
    binding obligation of the Holder, enforceable against it in accordance with
    its terms.

        (d)
    Brokers. Neither the Holder nor any of its agents
    has incurred any obligation or liability, contingent or otherwise, for brokerage
    or finders' fees or agents' commissions or other like payment in connection
    with this Agreement and will indemnify and hold the Company harmless from
    any such payment alleged to be due by or through the Holder or its agents
    as a result of the action of the Holder or its agents.

      3.3
  Covenants.

           (a) Neither the Holder nor the Company shall
  enter into any agreement, arrangement or understanding, whether written or oral,
  which would in any way violate or contravene the terms and conditions contained
  in this Agreement. At no time on or prior to the Closing Date, shall Holder
  sell, assign, convey, hypothecate or pledge, or agree to sell, assign, convey,
  hypothecate or pledge, any shares of Series A Preferred Stock, the Conversion
  Shares, the Warrant or the shares of common stock issuable upon exercise of
  the Warrant.

           (b) Upon conversion of shares of Series A Preferred
  Stock, certificates representing the Conversion Shares shall not contain any
  legend restricting the sale of the Conversion Shares. The Company shall cause
  an opinion to be issued by legal counsel that the certificates representing
  the Conversion Shares may be issued without any restrictive legend.

 ARTICLE IV
OTHER AGREEMENTS OF THE
  PARTIES

      4.1
  Transfer Restrictions.

           (a) 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, to the Company, to an Affiliate of the Holder, to an
  entity

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 managed by the Holder 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,
  the form and substance of which opinion shall be reasonably satisfactory to
  the Company, 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.

           (b) The Holder
  agrees to the imprinting, so long as is required by this Section 4.1(b), of
  the following legend on any certificate evidencing Securities:

      NEITHER THESE
  SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE
  BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
  COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM 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. THESE SECURITIES AND THE
  SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION
  WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. THE
  COMPANY SHALL ISSUE STOP TRANSFER INSTRUCTIONS IN CONNECTION HEREWITH.

      The Company
  acknowledges and agrees that the Holder may from time to time pledge pursuant
  to a bona fide margin agreement or grant a security interest in some or all
  of the Securities and, if required under the terms of such arrangement, the
  Holder 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 the pledgee, secured party or pledgor shall be required
  in connection therewith. Further, no notice shall be required of such pledge.
  At the Holder '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.

           (c) Certificates
  evidencing Securities shall not contain any legend (including the legend set
  forth in Section 4.1(b)): (i) while a registration statement covering the resale
  of such security is effective under the Securities Act, provided the Holder
  represents to the Company that it has sold or will promptly sell such security,
  or (ii) following any sale of such Securities pursuant to Rule 144, or (iii)
  if such Securities are eligible for sale under Rule 144(k), or (iv) if such
  legend is not required under applicable requirements of the Securities Act (including
  judicial interpretations and pronouncements issued by the Staff of the

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 Commission) as determined by the Company in good
  faith. In the event that any certificate does not bear the legend set forth
  in Section 4.1(b), and, to the knowledge of the Holder, none of the above-referenced
  conditions exist, then the Holder shall submit the certificate to the Company
  for application of such legend to the certificate. If all or any shares of Preferred
  Stock are converted (as applicable) at a time when there is a effective registration
  statement to cover the resale of the Conversion Shares, or if such Conversion
  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
  thereof) then such Conversion Shares shall be issued free of all legends. The
  Company agrees that following the Filing 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 the Holder to the Company or the Company's
  transfer agent of a certificate representing Securities issued with a restrictive
  legend, deliver or cause to be delivered to the Holder a certificate representing
  such Securities that is free from all restrictive and other legends. The Company
  may not make any notation on its records or give instructions to any transfer
  agent of the Company that enlarge the restrictions on transfer set forth in
  this Section.

      4.2 Furnishing
  of Information. As long as the Holder 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. Upon the request of the Holder,
  the Company shall deliver to the Holder a written certification of a duly authorized
  officer as to whether it has complied with the preceding sentence. Until such
  time as all Securities are eligible for sale under Rule 144(k), if the Company
  is not required to file reports pursuant to such laws, it will prepare and furnish
  to the Holder and make publicly available in accordance with Rule 144(c) such
  information as is required for the Holder to sell the Securities under Rule
  144.

      4.3
  Reservation and Listing of Securities.

           (a) The Company
  shall maintain a reserve shares of Common Stock for issuance pursuant to in
  such amount as may be required to fulfill its obligations hereunder and under
  the Amended and Restated Certificate of Designation.

           (b) If, on
  any date, the number of authorized but unissued (and otherwise unreserved) shares
  of Common Stock is less than 125% of (i) the maximum number of shares issuable
  upon conversion of the Series A Preferred Stock on such date, minus (ii) the
  number of shares of Common Stock previously issued pursuant to the Amended and
  Restated Certificate of Designation, then the Board of Directors of the Company
  shall use its best efforts to amend the Company's certificate or articles of
  incorporation to increase the number of authorized but unissued shares of Common
  Stock to at least the maximum number of shares issuable upon conversion of the
  Series A Preferred Stock at such time (minus the number of shares of Common
  Stock previously issued pursuant to the Amended and Restated certificate of
  Designation), as soon as possible and in any event not later than the 60th day
  after such date; provided that the Company will not be required at any time
  to authorize a number of shares of Common Stock greater than the maximum remaining
  number of shares of Common

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 Stock that could possibly be issued after such
  time pursuant to the Amended and Restated Certificate of Designation.

           (c) The Company
  shall: (i) in the time and manner required by each Principal Market, if applicable,
  prepare and file with such Principal Market an additional shares listing application
  covering a number of shares of Common Stock at least equal to the greater of
  (A) the maximum number of shares issuable upon conversion of the Series A Preferred
  Stock on the Closing Date and (B) the maximum number of shares issuable upon
  conversion of the Series A Preferred Stock on the date of such application,
  (ii) take all steps necessary to cause such shares of Common Stock to be approved
  for listing on each Principal Market as soon as possible thereafter, (iii) provide
  to the Holder evidence of such listing, and (iv) maintain the listing of such
  Common Stock on each such Principal Market or on the OTC Market.

           (d) If, on
  any date, the number of shares of Common Stock previously listed on a Principal
  Market is less than 125% of the maximum number of shares issuable upon conversion
  of the Series A Preferred Stock on such date, then the Company shall take the
  necessary actions to list on such Principal Market, as soon as reasonably possible,
  a number of shares of Common Stock at least equal to the maximum number of shares
  issuable upon conversion of the Series A Preferred Stock on such date; provided
  that the Company will not be required at any time to list a number of shares
  of Common Stock greater than the maximum number of shares of Common Stock that
  could possibly be issued pursuant to the under the Amended and Restated Certificate
  of Designation. 

      4.4 Conversion
  and Exercise Procedures. The form of Conversion Notice included in the Preferred
  Stock set forth the totality of the procedures required in order to convert
  the Preferred Stock. No additional legal opinion or other information or instructions
  shall be necessary to enable the Holder to convert their Preferred Stock. The
  Company shall honor Amended and Restated Certificate of Designation conversions
  of the Preferred Stock and shall deliver Conversion Shares in accordance with
  the terms, conditions and time periods set forth in the Amended and Restated
  Certificate of Designation.

      4.5
   Securities Laws Disclosure; Publicity. The Company shall, within four
  business days after the Closing Date, issue a press release or file a Current
  Report on Form 8-K reasonably acceptable to the Holder disclosing all material
  terms of the transactions contemplated hereby. The Company and the Holder shall
  consult with each other in issuing any press releases with respect to the transactions
  contemplated hereby. The Company shall not publicly disclose the name of the
  Holder, or include the name of the Holder in any filing with the Commission
  or any regulatory agency or Principal Market, without the prior written consent
  of the Holder, except to the extent such disclosure is required by law or Principal
  Market regulations, in which case the Company shall provide the Holder with
  prior notice of such disclosure.

      4.6 Non-Public
  Information. The Company covenants and agrees that neither it nor any other
  Person acting on its behalf will provide the Holder or its agents or counsel
  with any information that the Company believes constitutes material non-public
  information, unless

 7

 
 prior thereto the Holder shall have executed a
  written agreement regarding the confidentiality and use of such information.
  The Company understands and confirms that the Holder shall be relying on the
  foregoing representations in effecting transactions in securities of the Company.

      4.7 Indemnification
  of the Holder. The Company will indemnify and hold the Holder and their
  directors, officers, shareholders, partners, employees and agents (each, a "Holder
  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 Holder Party may suffer or incur as a result of
  or relating to: (a) any misrepresentation, breach or inaccuracy, or any allegation
  by a third party that, if true, would constitute a breach or inaccuracy, of
  any of the representations, warranties, covenants or agreements made by the
  Company in this Agreement; or (b) any cause of action, suit or claim brought
  or made against such Holder Party and arising solely out of or solely resulting
  from the execution, delivery, performance or enforcement of this Agreement or
  any of the Amended and Restated Certificate of Designation; provided such cause
  of action, suit or claim is not due to or the result of any activity, obligation,
  condition or liability of the Holder other than as contemplated by this Agreement.
  resulting from the execution, delivery, performance or enforcement of this Agreement.
  The Company will reimburse the Holder for its reasonable legal and other expenses
  (including the cost of any investigation, preparation and travel in connection
  therewith) incurred in connection therewith, as such expenses are incurred.

      4.8 Compliance
  with Law. The Holder agrees that it will comply with the prospectus delivery
  requirements under the Securities Act.

 ARTICLE V

  GENERAL RELEASE

      5.1
  Complete and General Release, Covenant
  Not to Sue

           (a) The Holder,
  on behalf of itself and each of its heirs, executors, parents, subsidiaries,
  affiliates, predecessors, successors, members, partners, officers, directors,
  employees, assigns, agents, insurers, insured and attorneys (collectively, the
  "Holder Related Persons"), hereby releases, waives, acquits and forever
  discharges the Company and each of its current and former parents, subsidiaries,
  affiliates, officers, shareholders, directors, members, predecessors, successors,
  employees, agents, attorneys, assigns, heirs, executors, receivers, trustees,
  personal representatives and administrators (collectively, the "Company Released
  Persons") from any and all manner of actions and causes of action, lawsuits,
  charges, complaints, liabilities, promises, covenants, agreements, judgments,
  damages, expenses, suits, debts, claims and demands whatsoever in law or in
  equity, whether known or unknown, direct or indirect, absolute or contingent
  (including, but not limited to, claims for attorneys' fees and expenses whatsoever),
  which either the Holder and/or the Holder Related Persons has ever had, now
  has, or hereafter may have against the Company and/or the Company Released Persons
  arising out of, due to, or in any way related to (i) the Purchase Agreement,
  the Registration Rights Agreement, dated May 31, 2002, by and between the Company
  and the Holder (the "Registration Rights Agreement"), the Warrant or
  any other document entered into in connection therewith or (ii) the

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 preferences, rights and limitations
  contained in the Original Certificate of Designation, including, without limitation,
  any accrued and unpaid dividends on the Series A Preferred Stock (the "Holder
  Release").

           (b) The Company,
  on behalf of itself and each of its heirs, executors, parents, subsidiaries,
  affiliates, predecessors, successors, members, partners, officers, directors,
  employees, assigns, agents, insurers, insured and attorneys (collectively, the
  "Company Related Persons"), hereby releases, waives, acquits and forever
  discharges the Holder and each of its current and former parents, subsidiaries,
  affiliates, officers, shareholders, directors, members, predecessors, successors,
  employees, agents, attorneys, assigns, heirs, executors, receivers, trustees,
  personal representatives and administrators (collectively, the "Holder Released
  Persons") from any and all manner of actions and causes of action, lawsuits,
  charges, complaints, liabilities, promises, covenants, agreements, judgments,
  damages, expenses, suits, debts, claims and demands whatsoever in law or in
  equity, whether known or unknown, direct or indirect, absolute or contingent
  (including, but not limited to, claims for attorneys' fees and expenses whatsoever),
  which either the Company and/or the Company Related Persons has ever had, now
  has, or hereafter may have against the Holder and/or the Holder Released Persons
  arising out of, due to, or in any way related to (i) the Purchase Agreement,
  the Registration Rights Agreement, the Warrant or any other document entered
  into in connection therewith or (ii) the preferences, rights and limitations
  contained in the Original Certificate of Designation (the "Company Release"
  and together with the Holder Release, each a "Release" and together
  the "Releases").

      5.2. Unknown
  Facts. It is expressly understood and agreed by each of the Holder and the
  Company that each Release is intended to and does cover any and all losses,
  injuries, damages and claims of every kind and nature whatsoever, whether direct
  or indirect, known or unknown, and suspected or unsuspected. Each of the Holder
  and the Company acknowledges that it may hereafter discover facts different
  from, or in addition to, those which it now knows to be or believes to be true,
  and each of the Holder and the Company agrees that each Release shall be and
  remain effective in all respects, notwithstanding such different or additional
  facts and the subsequent discovery thereof.

      5.3. Scope
  of Release. Each Release is intended to be as broad as can possibly be created
  by the Holder and the Company, as the case may be, and includes, but is not
  limited to, any liability whatsoever which arises directly or indirectly from
  the actions or representations of the Holder Released Persons or the Company
  Released Persons, as the case may be, or which arises directly or indirectly
  out of or is in any manner related to any of the matters, occurrences or transactions
  which could have been asserted, including, without limitation, any and all claims
  for relief and damages.

      5.4.
  Covenant Not to Sue.

           (a) The Holder, on behalf of itself and each
  of the Holder Related Persons, hereby covenants that neither it nor any of the
  Holder Related Persons will sue any of the Company or the Company Released Persons
  due to, or in any way related to, the matters contained in the Holder Release.

 9

 
            (b) The Company, on behalf of itself and each
  of the Company Related Persons hereby covenants that neither it nor any of the
  Company Related Persons will sue any of the Holder or the Holder Released Persons
  due to, or in any way related to, the matters contained in the Company Release.

 ARTICLE VI. MISCELLANEOUS

      6.1
  Termination. This Agreement may be terminated by the Company or any Purchaser,
  by written notice to the other parties, if the Closing has not been consummated
  by January 10, 2005; provided that no such termination will affect the right
  of any party to sue for any breach by the other party (or parties) .

      6.2 Fees
  And Expenses. 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 issuance
  of any Securities.

      6.3 Entire
  Agreement. This Agreement, together with the Amended and Restated Certificate
  of Designation, 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. At or after the
  Closing, and without further consideration, the Company and the Holder will
  execute and deliver to each other such further documents as may be reasonably
  requested in order to give practical effect to the intention of the parties
  under this Agreement and Amended and Restated Certificate of Designation.

      6.4 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 specified in this Section
  prior to 5:00 p.m. (New York City time) on a Trading Day and confirmation of
  receipt is received, (b) the next Trading Day after the date of transmission
  and confirmation of receipt, if such notice or communication is delivered via
  facsimile at the facsimile number specified in this Section on a day that is
  not a Trading Day or later than 5:00 p.m. (New York City time) on any Trading
  Day, (c) the 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 addresses for such notices
  and communications are those set forth on the signature pages hereof, or such
  other address as may be designated in writing hereafter, in the same manner,
  by such Person.

      6.5 Amendments;
  Waivers. No provision of this Agreement may be waived or amended except
  in a written instrument signed, in the case of an amendment, by the Company
  and the Holder or, in the case of a waiver, by the party against whom enforcement
  of any such waiver 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

 10

 
 hereof, nor shall any delay or omission of either
  party to exercise any right hereunder in any manner impair the exercise of any
  such right.

      6.6 Construction.
  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.
  The language used in this Agreement will be deemed to be the language chosen
  by the parties to express their mutual intent, and no rules of strict construction
  will be applied against any party.

      6.7 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 the Holder. The Holder may assign its rights under this Agreement
  to any Person to whom the Holder assigns or transfers any Securities.

      6.8 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.

      6.9 Governing
  Law; Venue; Waiver of Jury Trial. All questions concerning the construction,
  validity, enforcement and interpretation of this Agreement 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 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, 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 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 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 this Agreement,
  then the prevailing party in such action or proceeding shall be reimbursed by
  the other party for its attorneys' fees and other costs and expenses incurred
  with the investigation, preparation and prosecution of such action or proceeding.

      6.10 Survival.
  The representations, warranties, agreements and covenants contained herein shall
  survive the Closing and the delivery, exercise and/or conversion of the Securities,
  as applicable.

      6.11 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

 11

 
 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, 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 signature page were an original
  thereof.

      6.12 Severability.
  If any provision of this Agreement is held to be invalid or unenforceable in
  any respect, the validity and enforceability of the remaining terms and provisions
  of this Agreement shall not in any way be affected or impaired thereby and the
  parties will attempt to agree upon a valid and enforceable provision that is
  a reasonable substitute therefor, and upon so agreeing, shall incorporate such
  substitute provision in this Agreement.

      6.13 Rescission
  and Withdrawal Right. Notwithstanding anything to the contrary contained
  herein or in (and without limiting any similar provisions of) the Amended and
  Restated Certificate of Designation, whenever the Holder exercises a right,
  election, demand or option hereunder or under the Amended and Restated Certificate
  of Designation and the Company does not timely perform its related obligations
  within the periods therein provided, then the Holder 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.

      6.14 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, 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 customary and reasonable indemnity, if requested. The
  applicants for a new certificate or instrument under such circumstances shall
  also pay any reasonable third-party costs associated with the issuance of such
  replacement Securities.

      6.15 Remedies.
  In addition to being entitled to exercise all rights provided herein or granted
  by law, including recovery of damages, the Holder and the Company will be entitled
  to specific performance hereunder or under the Amended and Restated Certificate
  of Designation. The parties agree that monetary damages may not be adequate
  compensation for any loss incurred by reason of any breach of obligations described
  in the foregoing sentence and hereby agrees to waive in any action for specific
  performance of any such obligation the defense that a remedy at law would be
  adequate.

      6.16 Payment
  Set Aside. To the extent that the Company makes a payment or payments to
  the Holder pursuant to this Agreement or the Amended and Restated Certificate
  of Designation or the Holder 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

 12

 
 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.

 ***********************

 

 

 

 

 

 

 

 

13

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

 PACIFIC MAGTRON INTERNATIONAL CORP.

 By: /s/ Theodore S. Li

         Theodore S. Li, President

 STONESTREET L.P.

 By: /s/ Stonestreet L.P. , its general partner

 By: /s/ M. Finkelstein

         Name: M. Finkelstein

         Title: President

 
 EXHIBIT A

 PACIFIC MAGTRON INTERNATIONAL
  CORP.

 AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION
  OF PREFERENCES,

  RIGHTS AND LIMITATIONS
OF
SERIES A REDEEMABLE CONVERTIBLE
  PREFERRED STOCK

 PURSUANT TO SECTION 78.1955 OF
  THE GENERAL

  CORPORATION LAW OF THE STATE OF NEVADA

      The undersigned,
  Theodore S. Li, and Hui Cynthia Lee, do hereby certify that:

           1. They are
  the President and Secretary, respectively, of PACIFIC MAGTRON INTERNATIONAL
  CORP., a Nevada corporation (the "Corporation").

           2. A Certificate
  of Designation of Preferences, Rights and Limitations of Series A Redeemable
  Convertible Preferred Stock was filed with the Secretary of State of the State
  of Nevada on May 31, 2002.

           3. The holder of the Series A Redeemable Convertible
  Preferred Stock has duly adopted a resolution authorizing the adoption of this
  Amended and Restated Certificate of Designation of Preferences, Rights and Limitations
  of Series A Redeemable Convertible Preferred Stock and the filing hereof with
  the Secretary of State of the State of Nevada.

           4. There is no class or series of stock of the
  Corporation that has rights senior to the Series A Redeemable Convertible Preferred
  Stock.

           5. The following
  resolutions were duly adopted by the Board of Directors of the Corporation:

      WHEREAS, the
  Certificate of Incorporation of the Corporation provides for a class of its
  authorized stock known as preferred stock, comprised of 5,000,000 shares, $0.001
  par value, issuable from time to time in one or more series;

      WHEREAS, the
  Board of Directors of the Corporation is authorized to fix the dividend rights,
  dividend rate, voting rights, conversion rights, rights and terms of redemption
  and liquidation preferences of any wholly unissued series of preferred stock
  and the number of shares constituting any series and the designation thereof,
  of any of them; and

 
      WHEREAS,
  a Certificate of Designation of Preferences, Rights and Limitations of Series
  A Redeemable Convertible Preferred Stock was filed with the Secretary of State
  of the State of Nevada on May 31, 2002 (the "Original Certificate of Designation").

      WHEREAS, it
  is the desire of the Board of Directors of the Corporation, pursuant to its
  authority as aforesaid, to amend and restate the preferences, rights and limitations
  of the Series A Redeemable Convertible Preferred Stock contained in the Original
  Certificate of Designation as follows:

      NOW, THEREFORE,
  BE IT RESOLVED, that the Board of Directors does hereby amend and the restate
  the rights, preferences, restrictions and other matters relating to the Series
  A of Preferred Stock as follows:

 TERMS OF PREFERRED STOCK

      Section 1.
  Designation, Amount and Par Value. The series of preferred stock shall
  be designated as its 4% Series A Convertible Preferred Stock (the "Preferred
  Stock") and the number of shares so designated shall be 600 (which shall not
  be subject to increase without the consent of the holders of the Preferred Stock
  (each, a "Holder" and collectively, the "Holders")). Each share of Preferred
  Stock shall have a par value of $0.001 per share and a stated value equal to
  the sum of $666.67 plus all accrued and unpaid dividends to the date of determination
  to the extent not previously paid in cash in accordance with the terms hereof
  (the "Stated Value").

      Section 2.Dividends.

      (a) Holders
  shall be entitled to receive, out of funds legally available therefor, and the
  Corporation shall pay, cumulative dividends at the rate per share (as a percentage
  of the Stated Value per share) of 4% per annum, payable in arrears on each Conversion
  Date (as defined in Section 5(a)(i)) and/or such other date as the Corporation
  may determine from time to time for each such share, in cash or by accretion
  of the Stated Value. Subject to the terms and conditions herein, the decision
  whether to accrete dividends hereunder to the Stated Value or to pay for dividends
  in cash shall be at the discretion of the Corporation. The Corporation shall
  provide the Holders written notice of its intention to accrete dividends hereunder
  to the Stated Value or pay dividends in cash not more than ninety days after
  the end of each fiscal year of the Corporation or within five Trading Days after
  a Conversion Date, as the case may be, for so long as shares of Preferred Stock
  are outstanding (the Corporation may indicate in such notice that the election
  contained in such notice shall continue for later periods until revised). Failure
  to timely provide such written notice shall be deemed (if permitted hereunder)
  an election by the Corporation to accrete dividends hereunder to the Stated
  Value. Dividends on the Preferred Stock shall be calculated on the basis of
  a 360-day year, shall accrue annually commencing on the date this Certificate
  of

 2

 

 Designation is filed with the Secretary of State
  of the State of Nevada (the"Filing
  Date"), and shall be deemed to accrue from such date whether or not earned or
  declared and whether or not there are profits, surplus or other funds of the
  Corporation legally available for the payment of dividends. Except as otherwise
  provided herein, if at any time the Corporation pays less than the total amount
  of dividends then accrued on account of the Preferred Stock, such payment shall
  be distributed ratably among the Holders based upon the number of shares of
  Preferred Stock held by each Holder. Any dividends to be paid in cash hereunder
  that are not paid within three Trading Days (as defined in Section 7) following
  a Conversion Date shall continue to accrue and shall entail a late fee, which
  must be paid in cash, at the rate of 12% per annum or the lesser rate permitted
  by applicable law (such fees to accrue daily, from the date such dividend is
  due hereunder through and including the date of payment).

      (b) Notwithstanding
  anything to the contrary contained herein, the Corporation must pay dividends
  in cash if:

            (i) the number
  of shares of Common Stock (as defined in Section 7) at the time authorized,
  unissued and unreserved for all purposes is insufficient to accrete such dividends
  to the Stated Value and permit conversion in full of all outstanding Stated
  Value; or

             
    (ii) the Common Stock is not then listed or quoted on the Nasdaq Small-Cap
    Market or on the New York Stock Exchange, American Stock Exchange or Nasdaq
    National Market (each, a "Principal Market") or the over-the-counter
    market (the "OTC Market").

      (c) So long
  as any Preferred Stock shall remain outstanding, neither the Corporation nor
  any subsidiary thereof shall redeem, purchase or otherwise acquire directly
  or indirectly any Junior Securities (as defined in Section 7), nor shall the
  Corporation directly or indirectly pay or declare any dividend or make any distribution
  (other than a dividend or distribution described in Section 5 or dividends due
  and paid in the ordinary course on preferred stock of the Corporation at such
  times when the Corporation is in compliance with its payment and other obligations
  hereunder) upon, nor shall any distribution be made in respect of, any Junior
  Securities, nor shall any monies be set aside for or applied to the purchase
  or redemption (through a sinking fund or otherwise) of any Junior Securities
  or shares pari passu with the Preferred Stock.

      Section 3.
  Voting Rights. Except as otherwise provided herein and as otherwise required
  by law, the Preferred Stock shall have no voting rights. However, so long as
  any shares of Preferred Stock are outstanding, the Corporation shall not, without
  the affirmative vote of the Holders of a majority of the shares of the Preferred
  Stock then outstanding, (a) alter or change adversely the powers, preferences
  or rights given to the Preferred Stock or alter or amend this Certificate of
  Designation, (b) authorize or create any class of stock ranking as to dividends
  or distribution of assets upon a Liquidation (as

 3

 
 defined in Section 4) senior to or otherwise pari
  passu with the Preferred Stock, (c) amend its certificate or articles of incorporation
  or other charter documents so as to affect adversely any rights of the Holders,
  or (d) enter into any agreement with respect to the foregoing.

      Section
  4. Liquidation. Upon any liquidation, dissolution or winding-up of the
  Corporation, whether voluntary or involuntary (a "Liquidation"), the
  Holders shall be entitled to receive out of the assets of the Corporation, whether
  such assets are capital or surplus, for each share of Preferred Stock an amount
  equal to the Stated Value per share before any distribution or payment shall
  be made to the holders of any Junior Securities, and if the assets of the Corporation
  shall be insufficient to pay in full such amounts, then the entire assets to
  be distributed to the Holders shall be distributed among the Holders ratably
  in accordance with the respective amounts that would be payable on such shares
  if all amounts payable thereon were paid in full. A sale, conveyance or disposition
  of 50% or more of the assets of the Corporation or the effectuation by the Corporation
  of a transaction or series of related transactions in which more than 33% of
  the voting power of the Corporation is disposed of, or a consolidation or merger
  of the Corporation with or into any other company or companies into one or more
  companies not wholly-owned by the Corporation shall not be treated as a Liquidation,
  but instead shall be subject to the provisions of Section 5. The Corporation
  shall mail written notice of any such Liquidation, not less than 45 days prior
  to the payment date stated therein, to each record Holder.

      Section 5.Conversion.

   (a) (i)Conversions
    at Option of Holder. Each share of Preferred
    Stock shall be convertible into shares of Common Stock (subject to the limitations
    set forth in Section 5(a)(ii)) at the Conversion Ratio (as defined in Section
    7), at the option of the Holder, at any time and from time to time on or after
    the 181st day following the Filing Date; provided, however, that
    in the event the Corporation exercises its redemption right under Section
    6 prior to such date, the Holder shall be permitted to convert up to that
    number of shares of Series A Preferred Stock for which a redemption has been
    exercised at any time prior to the date the Redemption Price for such shares
    is paid in full. Holders shall effect conversions by providing the Corporation
    with the form of conversion notice attached hereto as Annex A (a "Conversion
    Notice"). Each Conversion Notice shall specify the number of shares of
    Preferred Stock to be converted, the number of shares of Preferred Stock owned
    prior to the conversion at issue, the number of shares of Preferred Stock
    owned subsequent to the conversion at issue and the date on which such conversion
    is to be effected, which date may not be prior to the date the Holder delivers
    such Conversion Notice by facsimile (the "Conversion Date").
    If no Conversion Date is specified in a Conversion Notice, the Conversion
    Date shall be the date that such Conversion Notice is deemed delivered hereunder.
    To effect conversions of shares of Preferred Stock, a

 4

 

 Holder shall not be required to surrender the
  certificate(s) representing such shares of Preferred Stock to the Corporation
  unless all of the shares of Preferred Stock represented thereby are so converted,
  in which case the Holder shall deliver the certificate representing such share
  of Preferred Stock promptly following the Conversion Date at issue. The calculations
  and entries set forth in the Conversion Notice shall control in the absence
  of manifest or mathematical error.

      (ii) Beneficial
  Ownership Conversion Restriction. A Holder may not convert shares of Preferred
  Stock or receive shares of Common Stock as payment of dividends hereunder to
  the extent such conversion or receipt of such dividend payment would result
  in the Holder, together with any affiliate thereof, beneficially owning (as
  determined in accordance with Section 13(d) of the Exchange Act (as defined
  in Section 8) and the rules promulgated thereunder) in excess of 4.999% of the
  then issued and outstanding shares of Common Stock, including shares issuable
  upon conversion of, and payment of dividends on, the shares of Preferred Stock
  held by such Holder after application of this Section. Since the Holder will
  not be obligated to report to the Corporation the number of shares of Common
  Stock it may hold at the time of a conversion hereunder, unless the conversion
  at issue would result in the issuance of shares of Common Stock in excess of
  4.999% of the then outstanding shares of Common Stock without regard to any
  other shares which may be beneficially owned by the Holder or an affiliate thereof,
  the Holder shall have the authority and obligation to determine whether the
  restriction contained in this Section will limit any particular conversion hereunder
  and to the extent that the Holder determines that the limitation contained in
  this Section applies, the determination of which portion of the shares of Preferred
  Stock are convertible shall be the responsibility and obligation of the Holder.
  If the Holder has delivered a Conversion Notice for shares of Preferred Stock
  that, without regard to any other shares that the Holder or its affiliates may
  beneficially own, would result in the issuance in excess of the permitted amount
  hereunder, the Corporation shall notify the Holder of this fact and shall honor
  the conversion for the maximum number of shares of Preferred Stock permitted
  to be converted on such Conversion Date in accordance with the periods described
  in Section 5(b) and, at the option of the Holder, either retain shares of Preferred
  Stock tendered for conversion in excess of the permitted amount hereunder for
  future conversions or return such excess shares of Preferred Stock permitted
  to the Holder. The provisions of this Section may be waived by a Holder (but
  only as to itself and not to any other Holder) upon not less than 61 days prior
  notice to the Corporation. Other Holders shall be unaffected by any such waiver.

 (b) (i) Not later than five Trading Days after
  each Conversion Date, the Corporation will deliver to the Holder (A) a certificate
  or certificates

 5

 

 which, after the Conversion Date, shall be free
  of restrictive legends and trading restrictions representing the number of shares
  of Common Stock being acquired upon the conversion of shares of Preferred Stock,
  and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation
  has elected or is required to pay accrued dividends in cash). The Corporation
  shall, upon request of the Holder, if available, use commercially reasonable
  efforts to deliver any certificate or certificates required to be delivered
  by the Corporation under this Section electronically through the Depository
  Trust Corporation or another established clearing corporation performing similar
  functions. If in the case of any Conversion Notice such certificate or certificates
  are not delivered to or as directed by the applicable Holder by the fifth Trading
  Day after the Conversion Date, the Holder shall be entitled to elect by written
  notice to the Corporation at any time on or before its receipt of such certificate
  or certificates thereafter, to rescind such conversion, in which event the Corporation
  shall immediately return the certificates representing the shares of Preferred
  Stock tendered for conversion.

      (ii) If the
  Corporation fails to deliver to the Holder such certificate or certificates
  pursuant to Section 5(b)(i) by the fifth Trading Day after the Conversion Date,
  the Corporation shall pay to such Holder, in cash, as liquidated damages and
  not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted,
  $50 per Trading Day (increasing to $100 per Trading Day after 5 Trading Days
  and increasing to $200 per Trading Day 6 Trading Days after such damages begin
  to accrue) for each Trading Day after such fifth Trading Day until such certificates
  are delivered. Nothing herein shall limit a Holder's right to pursue actual
  damages for the Company's failure to deliver certificates representing shares
  of Common Stock upon conversion within the period specified herein and such
  Holder shall have the right to pursue all remedies available to it hereunder,
  at law or in equity including, without limitation, a decree of specific performance
  and/or injunctive relief.

        (iii)
    In addition to any other rights available to the Holder, if the Corporation
    fails to deliver to the Holder such certificate or certificates pursuant to
    Section 5(b)(i), by the fifth Trading Day after the Conversion Date, and if
    after such fifth Trading Day the Holder purchases (in an open market transaction
    or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder
    of the Underlying Shares which the Holder was entitled to receive upon such
    conversion (a "Buy-In"), then the Corporation shall (A) pay in cash
    to the Holder the amount by which (x) the Holder's total purchase price (including
    brokerage commissions, if any) for the Common Stock so purchased exceeds (y)
    the product of (1) the aggregate number of shares of Common Stock that such
    Holder was entitled to receive from the conversion at issue multiplied by
    (2) the market price of the Common Stock at the time of the sale giving rise
    to

 6

 

 such purchase obligation on the Conversion Date
  and (B) at the option of the Holder, either return the shares of Preferred Stock
  for which such conversion was not honored or deliver to such Holder the number
  of shares of Common Stock that would have been issued had the Corporation timely
  complied with its conversion and delivery obligations under Section 5(b)(i).
  For example, if the Holder purchases Common Stock having a total purchase price
  of $11,000 to cover a Buy-In with respect to an attempted conversion of shares
  of Preferred Stock with respect to which the market price of the Underlying
  Shares on the Conversion Date totaled $10,000, under clause (A) of the immediately
  preceding sentence the Corporation shall be required to pay the Holder $1,000.
  The Holder shall provide the Corporation written notice indicating the amounts
  payable to the Holder in respect of the Buy-In. Nothing herein shall limit a
  Holder's right to pursue any other remedies available to it hereunder, at law
  or in equity including, without limitation, a decree of specific performance
  and/or injunctive relief with respect to the Corporation's failure to timely
  deliver certificates representing shares of Common Stock upon conversion of
  the shares of Preferred Stock as required pursuant to the terms hereof.

      (iv) Acknowledgement
  of Holder Damages The Corporation acknowledges and agrees that, due to the
  fact that the Preferred Stock is convertible, a breach of the Corporation’s
  obligations hereunder could result in damages greater than the aggregate Stated
  Value. Without limitation, the Company agrees and acknowledges that a material
  benefit of the bargain to the Holders is the underlying conversion benefit which
  is the number of shares of Common Stock issuable to the Holder multiplied by
  the then market price of the Common Stock.

   (c) (i) The conversion price
    for each share of Preferred Stock (the "Conversion
    Price") shall equal $0.50, subject to adjustment
    as provided herein.

      (ii) If the
  Corporation, at any time while any shares of Preferred Stock are outstanding,
  shall (a) pay a stock dividend or otherwise make a distribution or distributions
  on shares of its Junior Securities or securities pari passu with the Preferred
  Stock in shares of Common Stock, (b) subdivide outstanding shares of Common
  Stock into a larger number of shares, (c) combine (including by way of reverse
  stock split) outstanding shares of Common Stock into a smaller number of shares,
  or (d) issue by reclassification and exchange of the Common Stock any shares
  of capital stock of the Corporation, then the Conversion Price shall be multiplied
  by a fraction of which the numerator shall be the number of shares of Common
  Stock (excluding treasury shares, if any) outstanding before such event and
  of which the denominator shall be the number of shares of Common Stock outstanding
  after such event. Any adjustment made

 7

 

 pursuant to this Section 5(c)(ii) shall become
  effective immediately after the record date for the determination of stockholders
  entitled to receive such dividend or distribution and shall become effective
  immediately after the effective date in the case of a subdivision, combination
  or reclassification.

      (iii) If at
  any time while shares of Preferred Stock are outstanding the Company or any
  Subsidiary (with respect to Common Stock Equivalents) shall offer, sell, grant
  any option to purchase, or otherwise dispose of (or announce any offer, sale,
  grant or any option to purchase or other disposition) any of shares of Common
  Stock or Common Stock Equivalents at a price that is, at the issuance thereof,
  or at any later time due to adjustment, reset, additional issuances or otherwise,
  less than the Conversion Price, then, at the option of the Holder for such conversions
  as such Holder shall indicate in its Conversion Notices (including on conversion
  pursuant to section 5(a)(ii) and (iii)), the Conversion Price shall be adjusted
  to mirror the conversion, exchange or purchase price for such Common Stock or
  Common Stock Equivalents (including any reset provisions thereof) at issue.
  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents
  are issued. If the holder of the Common Stock or Common Stock Equivalent so
  issued shall at any time, whether by operation of purchase price adjustments,
  reset provisions, floating conversion, exercise or exchange prices or otherwise,
  or due to warrants, options or rights issued in connection with such issuance,
  be entitled to receive shares of Common Stock at a price less than the Conversion
  Price, such issuance shall be deemed to have occurred for less than the Conversion
  Price. A "Common Stock Equivalent" means any equity or equity equivalent
  securities (including debt or any other instrument that is at any time over
  the life thereof convertible into or exchangeable for Common Stock) issued by
  the Company or a subsidiary thereof that provide the holder thereof to receive
  shares of Common Stock. The Company shall notify the Holder in writing, no later
  than the Trading Day following the issuance of any Common Stock or Common Stock
  Equivalent subject to this section, indicating therein the applicable issuance
  price, or of applicable reset price, exchange price, conversion price and other
  pricing terms.

      (iv) If the
  Company, at any time while shares of Preferred Stock are outstanding, shall
  distribute to all holders of Common Stock (and not to Holders) evidences of
  its indebtedness or assets or rights or warrants to subscribe for or purchase
  any security (excluding those referred to in Sections 5(c)(ii)-(iii) above),
  then in each such case the Conversion Price at which each share of Preferred
  Stock shall thereafter be convertible shall be determined by multiplying the
  Conversion Price in effect immediately prior to the record date fixed for determination
  of stockholders entitled to receive such distribution by a fraction of which
  the denominator shall be

 8

 

 the Per Share Market Value determined as of the
  record date mentioned above, and of which the numerator shall be such Per Share
  Market Value on such record date less the then fair market value at such record
  date of the portion of such assets or evidence of indebtedness so distributed
  applicable to one outstanding share of Common Stock as determined by the Board
  of Directors in good faith. In either case the adjustments shall be described
  in a statement provided to the Holders of the portion of assets or evidences
  of indebtedness so distributed or such subscription rights applicable to one
  share of Common Stock. Such adjustment shall be made whenever any such distribution
  is made and shall become effective immediately after the record date mentioned
  above.

      (v) All calculations
  under this Section 5 shall be made to the nearest cent or the nearest 1/100th
  of a share, as the case may be. The number of shares of Common Stock outstanding
  at any given time shall not include shares owned or held by or for the account
  of the Corporation, and the disposition of any such shares shall be considered
  an issue or sale of Common Stock.

      (iv) Whenever
  the Conversion Price is adjusted pursuant to Section 5(c)(ii), (iii) or (iv),
  the Corporation shall promptly mail to each Holder, a notice setting forth the
  Conversion Price after such adjustment and setting forth a brief statement of
  the facts requiring such adjustment.

      (v) In case
  of any reclassification of the Common Stock, or any compulsory share exchange
  pursuant to which the Common Stock is converted into other securities, cash
  or property, the Holders of the Preferred Stock then outstanding shall have
  the right thereafter to convert such shares only into the shares of stock and
  other securities, cash and property receivable upon or deemed to be held by
  holders of Common Stock following such reclassification or share exchange, and
  the Holders of the Preferred Stock shall be entitled upon such event to receive
  such amount of securities, cash or property as a holder of the number of shares
  of Common Stock of the Corporation into which such shares of Preferred Stock
  could have been converted immediately prior to such reclassification or share
  exchange would have been entitled. This provision shall similarly apply to successive
  reclassifications or share exchanges.

      (vi) In case
  of any merger or consolidation of the Corporation with or into another Person,
  or sale by the Corporation of more than one-half of the assets of the Corporation
  (on an as valued basis) in one or a series of related transactions to any Person
  other than an affiliate (as defined in Rule 13e-3 of the Exchange Act) of the
  Corporation, a Holder shall have the right thereafter to (A) convert its shares
  of Preferred Stock into the shares of stock and other securities, cash and property
  receivable upon or

 9

 

 deemed to be held by holders of Common Stock following
  such merger, consolidation or sale, and such Holder shall be entitled upon such
  event or series of related events to receive such amount of securities, cash
  and property as the shares of Common Stock into which such shares of Preferred
  Stock could have been converted immediately prior to such merger, consolidation
  or sales would have been entitled or (B) in the case of a merger or consolidation,
  (x) require the surviving entity to issue shares of convertible preferred stock
  or convertible debentures with such aggregate stated value or in such face amount,
  as the case may be, equal to the Stated Value of the shares of Preferred Stock
  then held by such Holder, plus all accrued and unpaid dividends and other amounts
  owing thereon, which newly issued shares of preferred stock or debentures shall
  have terms identical (including with respect to conversion) to the terms of
  the Preferred Stock (except, in the case of debentures, as may be required to
  reflect the differences between debt and equity) and shall be entitled to all
  of the rights and privileges of a Holder of Preferred Stock set forth herein
  and the agreements pursuant to which the Preferred Stock was issued (including,
  without limitation, as such rights relate to the acquisition, transferability,
  registration and listing of such shares of stock other securities issuable upon
  conversion thereof), and (y) simultaneously with the issuance of such convertible
  preferred stock or convertible debentures, shall have the right to convert such
  instrument only into shares of stock and other securities, cash and property
  receivable upon or deemed to be held by holders of Common Stock following such
  merger, consolidation or sale. In the case of clause (B), the conversion price
  applicable for the newly issued shares of convertible preferred stock or convertible
  debentures shall be based upon the amount of securities, cash and property that
  each share of Common Stock would receive in such transaction, the Conversion
  Ratio immediately prior to the effectiveness or closing date for such transaction
  and the Conversion Price stated herein. The terms of any such merger, sale or
  consolidation shall include such terms so as continue to give the Holders the
  right to receive the securities, cash and property set forth in this Section
  upon any conversion or redemption following such event. This provision shall
  similarly apply to successive such events.

      (vii) If (a)
  the Corporation shall declare a dividend (or any other distribution) on the
  Common Stock, (b) the Corporation shall declare a special nonrecurring cash
  dividend on or a redemption of the Common Stock, (c) the Corporation shall authorize
  the granting to all holders of Common Stock rights or warrants to subscribe
  for or purchase any shares of capital stock of any class or of any rights, (d)
  the approval of any stockholders of the Corporation shall be required in connection
  with any reclassification of the Common Stock, any consolidation or merger to
  which the Corporation is a party, any sale or transfer of all or substantially
  all of the assets of the Corporation, or any compulsory share of exchange

 10 

 

 whereby the Common Stock is converted into other
  securities, cash or property, or (e) the Corporation shall authorize the voluntary
  or involuntary dissolution, liquidation or winding up of the affairs of the
  Corporation; then the Corporation shall notify the Holders at their last addresses
  as they shall appear upon the stock books of the Corporation, at least 20 calendar
  days prior to the applicable record or effective date hereinafter specified,
  a notice stating (x) the date on which a record is to be taken for the purpose
  of such dividend, distribution, redemption, rights or warrants, or if a record
  is not to be taken, the date as of which the holders of Common Stock of record
  to be entitled to such dividend, distributions, redemption, rights or warrants
  are to be determined or (y) the date on which such reclassification, consolidation,
  merger, sale, transfer or share exchange is expected to become effective or
  close, and the date as of which it is expected that holders of Common Stock
  of record shall be entitled to exchange their Common Stock for securities, cash
  or other property deliverable upon such reclassification, consolidation, merger,
  sale, transfer or share exchange. Holders are entitled to convert shares of
  Preferred Stock during the 20-day period commencing the date of such notice
  to the effective date of the event triggering such notice.

      (viii) Exceptions
  to Adjustment of Conversion Price. No adjustment to the Conversion Price
  will be made (i) upon the conversion of any other Preferred Stock of this series
  or of any other securities issued by the Company in connection with the offer
  and sale of this Company's securities pursuant to the Purchase Agreement; (ii)
  upon the exercise of or conversion of any convertible securities, options or
  warrants issued and outstanding on the Filing Date; (iii) upon the grant or
  exercise of any options which may hereafter be granted or exercised under any
  employee benefit plan of the Company now existing or to be implemented in the
  future, so long as the issuance of such options is approved by a majority of
  the non-employee members of the Board of Directors of the Company or a majority
  of the members of a committee of non-employee directors established for such
  purpose; (iv) upon the issuance of Common Stock or convertible securities in
  any transaction of the nature contemplated by Rule 145, promulgated under the
  Securities Act; or (v) in connection with any strategic partnership or joint
  venture or acquisition (including the issuance of Common Stock or convertible
  securities in connection with any financing transaction, the primary purpose
  of which is to finance the strategic partnership or joint venture or acquisition)
  or key consulting agreements (the primary purpose of which is not to raise equity
  capital for the Company).

      (d) The Corporation
  covenants that it will at all times reserve and keep available out of its authorized
  and unissued shares of Common Stock solely for the purpose of issuance upon
  conversion of Preferred Stock, each as herein provided, free from preemptive
  rights or any other actual contingent purchase

 11 

 

 rights of persons other than the Holders, not
  less than such number of shares of Common Stock as shall be issuable (taking
  into account the provisions of Section 5(a) and Section 5(c)) upon the conversion
  of all outstanding shares of Preferred Stock. The Corporation covenants that
  all shares of Common Stock that shall be so issuable shall, upon issue, be duly
  and validly authorized, issued and fully paid and nonassessable.

      (e) Upon a
  conversion hereunder the Corporation shall not be required to issue stock certificates
  representing fractions of shares of Common Stock, but may if otherwise permitted,
  make a cash payment in respect of any final fraction of a share based on the
  Per Share Market Value at such time. If any fraction of an Underlying Share
  would, except for the provisions of this Section, be issuable upon a conversion
  hereunder, the Corporation shall pay an amount in cash equal to the Conversion
  Ratio multiplied by such fraction.

      (f) The issuance
  of certificates for Common Stock on conversion of Preferred Stock shall be made
  without charge to the Holders thereof for any documentary stamp or similar taxes
  that may be payable in respect of the issue or delivery of such certificate,
  provided that the Corporation shall not be required to pay any tax that may
  be payable in respect of any transfer involved in the issuance and delivery
  of any such certificate upon conversion in a name other than that of the Holder
  of such shares of Preferred Stock so converted.

      (g) Shares
  of Preferred Stock converted into Common Stock or redeemed in accordance with
  the terms hereof shall be canceled and may not be reissued.

      (h)
  Any and all notices or other communications or deliveries to be provided by
  the Holders of the Preferred Stock hereunder, including, without limitation,
  any Conversion Notice, shall be in writing and delivered personally, by facsimile
  or sent by a nationally recognized overnight courier service, addressed to the
  attention of the Chief Executive Officer of the Corporation addressed to 1600
  California Circle, Milpitas, California 950356, fax: (408) 956-___, or to
  such other address or facsimile number as shall be specified in writing by the
  Corporation for such purpose. Any and all notices or other communications or
  deliveries to be provided by the Corporation hereunder shall be in writing and
  delivered personally, by facsimile or sent by a nationally recognized overnight
  courier service, addressed to each Holder at the facsimile telephone number
  or address of such Holder appearing on the books of the Corporation, or if no
  such facsimile telephone number or address appears, at the principal place of
  business of the Holder. Any notice or other communication or deliveries hereunder
  shall be deemed given and effective on the earliest of (i) the date of transmission,
  if such notice or communication is delivered via facsimile at the facsimile
  telephone number specified in this Section prior to 5:00 p.m. (New York City
  time) (with confirmation of transmission), (ii) the date after the date of transmission,
  if such notice or communication is delivered via facsimile at the facsimile
  telephone number specified in this Section later than 5:00 p.m. (New York City
  time) on any

 12 

 

 date and earlier than 11:59 p.m. (New York City
  time) on such date (with confirmation of transmission), (iii) upon receipt,
  if sent by a nationally recognized overnight courier service, or (iv) upon actual
  receipt by the party to whom such notice is required to be given.

      Section 6.Redemption.

        (a)
 Optional Redemption by Corporation.
    At anytime and from time to time after the Filing Date, the Corporation shall
    have the right, upon at least 10 Trading Days’ notice to the Holders
    (a "Redemption Notice" and the date such notice is received by the
    Holder, the "Redemption Notice Date"), to redeem for cash all or a
    portion of the outstanding Preferred Stock (a "Redemption") at a price
    per share of Preferred Stock equal to 100% of the Stated Value (the "Redemption
    Price"). Nothing in this Section 6 shall be deemed to restrict or otherwise
    limit the Holder’s right to convert any of the shares of Preferred Stock
    pursuant to Section 5(a)(i) at any time prior to the date the Redemption Price
    is paid in full.

        (b)
    Redemption Procedure. The payment of cash pursuant
    to any redemption hereunder shall be made on the date set forth in the applicable
    Redemption Notice, which shall be at least 10 Trading Days after the applicable
    Redemption Notice Date. If any portion of the cash payment for a Redemption
    shall not be paid by the Corporation by such date, interest shall accrue thereon
    at the rate of 12% per annum (or the maximum rate permitted by applicable
    law, whichever is less) until the cash payment for such Redemption Price is
    paid in full. In addition, if any portion of a Redemption Price remains unpaid
    after such date, the Holders subject to such redemption may elect, by written
    notice to the Corporation given at any time thereafter, to invalidate ab
    initio such redemption, notwithstanding anything herein contained to the
    contrary. If a Holder elects to invalidate such redemption the Corporation
    shall promptly, and, in any event, not later than 5 Trading Days from receipt
    of such Holder’s notice of such election, return to such Holder all of
    the Preferred Stock for which the redemption price shall not have been paid
    in full and the Corporation shall have no further right to redeem the Preferred
    Stock hereunder. For purposes of this Section, a share of Preferred Stock
    is outstanding until such date as the Holder shall have received Underlying
    Shares upon a conversion (or attempted conversion) thereof that meets the
    requirements hereof.

      Section 7.
  Definitions. For the purposes hereof, the following terms shall have
  the following meanings:

      "Common
  Stock" means the Corporation's common stock, par
  value $.001 per share, and stock of any other class into which such shares may
  hereafter have been reclassified or changed.

 13 

 

        "Conversion
    Ratio" means, at any time, a fraction, the numerator of which is Stated
    Value (or Excess Stated Value, as the case may be) and the denominator of
    which is the Conversion Price at such time.

      "Exchange
    Act" means the Securities Exchange Act of 1934, as amended.

      "Junior
    Securities" means the Common Stock and all
    other series of Preferred Stock (other than the Preferred Stock) of the Corporation
    other than those securities which are explicitly senior in rights or liquidation
    preference to the Preferred Stock.

      "OTC
    Market" shall be as defined in Section 2(b)(ii).

      "Per
    Share Market Value" means on any particular date (a) the lowest sale price
    for a share of the Common Stock (other than a sale by the Holder) on such
    date on the Principal Market on which the Common Stock is then listed or quoted,
    or if there is no such price on such date, then the lowest sale price of the
    Common Stock (other than a sale by the Holder) on the Principal Market on
    the date nearest preceding such date, or (b) if the Common Stock is not then
    listed or quoted on a Principal Market, the lowest sale price of the Common
    Stock (other than a sale by the Holder) in the OTC Market, as reported by
    the National Quotation Bureau Incorporated (or similar organization or agency
    succeeding to its functions of reporting prices) at the close of business
    on such date, or (c) if the Common Stock is not then reported by the National
    Quotation Bureau Incorporated (or similar organization or agency succeeding
    to its functions of reporting prices), then the lowest "Pink Sheet" quotes
    for the relevant conversion period, as determined in good faith by the Holder,
    or (d) if the Common Stock are not then publicly traded the fair market value
    of a share of Common Stock as determined by an independent appraiser selected
    in good faith by the Board of Directors of the Corporation.

      "Person
 " means a corporation, an association, a partnership,
    an organization, a business, an individual, a government or political subdivision
    thereof or a governmental agency.
        "Principal
    Market" shall be as defined in Section 2(b)(ii).

      "Trading
    Day" means (a) a day on which the Common Stock
    is traded on a Principal Market on which the Common Stock is then listed or
    quoted, as the case may be, or (b) if the Common Stock is not listed on a
    Principal Market, a day on which the Common Stock is traded in the OTC Market,
    as reported by the National Quotation Bureau Incorporated (or any similar
    organization or agency succeeding its functions of reporting prices); provided,
    however, that in the event that the Common Stock is not listed or quoted as
    set forth in (a) and (b) hereof, then Trading Day shall mean any day except
    Saturday, Sunday and any day which

 14 

 

   shall be a legal holiday or a
    day on which banking institutions in the State of New York are authorized
    or required by law or other government action to close.

      "Underlying
    Shares" means, collectively, the shares of
    Common Stock into which the shares of Preferred Stock are convertible in accordance
    with the terms hereof.

      RESOLVED,
  FURTHER, that the President and the Secretary of the Corporation be and they
  hereby are authorized and directed to prepare and file a Certificate of Designation
  of Preferences, Rights and Limitations in accordance with the foregoing resolution
  and the provisions of Nevada law.

      IN
  WITNESS WHEREOF, the undersigned have executed this Certificate of Designation
  this ___ day of January, 2005.

	 	 	 
	
	 	

	Theodore S. Li, President	 	Hui Cynthia Lee, Secretary

 

 

 

 

 

15

 
 ANNEX A

 NOTICE OF CONVERSION

 (To be Executed by the Registered
  Holder in order to Convert shares of Preferred Stock)

 The undersigned hereby elects
  to convert the number of shares of 4% Series A Convertible Preferred Stock indicated
  below, into shares of common stock, par value $.001 per share (the "Common
  Stock"), of Pacific Magtron International Corp.,
  a Nevada corporation (the "Corporation"), according to the conditions
  hereof, as of the date written below. If shares are to be issued in the name
  of a person other than undersigned, the undersigned will pay all transfer taxes
  payable with respect thereto and is delivering herewith such certificates and
  opinions as reasonably requested by the Corporation in accordance therewith.
  No fee will be charged to the Holder for any conversion, except for such transfer
  taxes, if any.

 The undersigned represents
  to the Corporation that it has sold or will promptly sell upon receipt, such
  shares of Common Stock. [REQUIRED TO RECEIVE UNLEGENDED SHARES IMMEDIATELY PURSUANT
  TO THE REGISTRATION STATEMENT]

 Conversion calculations:

 Date to Effect Conversion

  -----------------------------------------

 Number of shares of Preferred Stock owned prior
  to Conversion

 -----------------------------------------

 Number of shares of Preferred Stock to be Converted

 -----------------------------------------

 Stated Value of shares of Preferred Stock to be
  Converted

 -----------------------------------------

 Number of shares of Common Stock to be Issued

 -----------------------------------------

 

  Applicable Conversion Price

  -----------------------------------------

 Number of shares of Preferred Stock subsequent
  to Conversion

 -----------------------------------------

 

[HOLDER]

 By: _______________________

         Name:

         Title:

 16EXHIBIT 10.1

 

SHAREHOLDER AGREEMENT

 

SHAREHOLDER AGREEMENT (the “Agreement”), dated as of December
8, 2004, by and between _______________________________, a shareholder (“Shareholder”)
of Northeast Pennsylvania Financial Corp. (the “Company”), a Delaware corporation,
and KNBT Bancorp, Inc. (“Parent”), a Pennsylvania corporation.  All capitalized terms used herein and not
defined herein shall have the meanings assigned thereto in the Merger Agreement
(defined below).

 

WHEREAS, Parent and the
Company are simultaneously entering into an Agreement and Plan of Merger, dated
as of the date hereof (as may be amended from time to time pursuant to its
terms, the “Merger Agreement”), pursuant to which the Company will merge with
and into Parent on the terms and conditions set forth therein (the “Merger”)
and, in connection therewith, each outstanding share of Company Common Stock
will be converted into the right to receive the Per Share Stock Consideration
or the Per Share Cash Consideration, subject to the terms, limitations and
conditions of the Merger Agreement; and

 

WHEREAS, Shareholder owns the shares of Company Common
Stock identified on Annex I hereto (such shares, together with all shares of
Company Common Stock subsequently acquired by Shareholder during the term of
this Agreement, being referred to as the “Shares”); and

 

WHEREAS, in order to induce Parent to enter into the
Merger Agreement, Shareholder, solely in such Shareholder’s capacity as a
shareholder of the Company and not in any other capacity, has agreed to enter
into and perform this Agreement;

 

NOW, THEREFORE, for good and valuable consideration,
the receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

 

1.  Agreement to Vote Shares.  Shareholder agrees that at any meeting of the
shareholders of the Company, or in connection with any written consent of the
shareholders of the Company at which a proposal of the type set forth in clause
(ii) below is presented for consideration by the shareholders of the Company,
Shareholder shall:

 

(i)            appear at each such meeting or
otherwise cause the Shares to be counted as present thereat for purposes of
calculating a quorum; and

 

(ii)           vote (or cause to be voted), in
person or by proxy, all the Shares (whether acquired heretofore or hereafter)
that are beneficially owned by Shareholder or as to which Shareholder has,
directly or indirectly, the right to vote or direct the voting, (x) in favor of
adoption and approval of the Merger Agreement and the Merger; (y) against any
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
contained in the Merger Agreement or of Shareholder contained in this
Agreement; and (z) against any Acquisition Proposal or any other action,
agreement or transaction that is intended, or could reasonably be expected, to
materially impede, interfere or be inconsistent with, delay, postpone,
discourage or materially and adversely affect consummation of the Merger or
this Agreement.

 

 

 

2.  No Transfers.  After the date hereof and prior to the
special meeting of the Company shareholders held to consider and vote upon
approval of the Merger Agreement, Shareholder agrees not to, directly or
indirectly, sell, transfer, pledge, assign or otherwise dispose of, or enter
into any contract, option, commitment or other arrangement or understanding
with respect to the sale, transfer, pledge, assignment or other disposition of,
any of the Shares if such sale, transfer, pledge, assignment or disposition
could occur prior to such meeting, except the following transfers shall be
permitted: (i) transfers by will or operation of law, in which case this
Agreement shall bind the transferee, subject to applicable law, (ii) transfers
pursuant to any pledge agreement, subject to the pledgee agreeing in writing to
be bound by the terms of this Agreement, (iii) transfers in connection with
estate and tax planning purposes, including transfers to relatives, trusts and
charitable organizations, subject to the transferee agreeing in writing to be
bound by the terms of this Agreement, (iv) transfers to any other shareholder
of the Company who has executed a copy of this Agreement on the date hereof
with respect to some or all of the Shares held by such shareholder,  (v)  
transfers or dispositions to the Company for the surrender or delivery
of Shares for the payment of the exercise price of outstanding stock options,
the payment or withholding of applicable taxes in connection with the exercise
of outstanding stock options or any other surrender or deemed surrender of
Shares in connection with the exercise of outstanding stock options to purchase
shares of Company Common Stock and (vi) such transfers as Parent may otherwise
permit in its sole discretion.  Any
transfer or other disposition in violation of the terms of this Section 2 shall
be null and void.

 

3.  Representations and Warranties of
Shareholder.  Shareholder represents
and warrants to and agrees with Parent as follows:

 

A.  Capacity.  Shareholder has all requisite capacity and
authority to enter into and perform his, her or its obligations under this
Agreement.

 

B.  Binding Agreement.  This Agreement constitutes the valid and
legally binding obligation of Shareholder, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles.

 

C.  Non-Contravention.  The execution and delivery of this Agreement
by Shareholder does not, and the performance by Shareholder of his, her or its
obligations hereunder and the consummation by Shareholder of the transactions
contemplated  hereby will not, violate or
conflict with, or constitute a default under, any agreement, instrument,
contract or other obligation or any order, arbitration award, judgment or
decree to which Shareholder is a party or by which Shareholder is bound, or any
statute, rule or regulation to which Shareholder is subject or, in the event
that Shareholder is a corporation, partnership, trust or other entity, any
charter, bylaw or other organizational document of Shareholder.

 

D.  Ownership of Shares.  Shareholder has good title to all of the
Shares as of the date hereof, and, except as set forth on Annex I hereto, the
Shares are so owned free and clear of any liens, security interests, charges or
other encumbrances.

 

 

2

 

 

4.  Specific Performance and Remedies.  Shareholder acknowledges that it will be
impossible to measure in money the damage to Parent if Shareholder fails to
comply with the obligations imposed by this Agreement and that, in the event of
any such failure, Parent will not have an adequate remedy at law or in equity.  Accordingly, Shareholder agrees that
injunctive relief or other equitable remedy, in addition to remedies at law or
in damages, is the appropriate remedy for any such failure and will not oppose
the granting of such relief on the basis that Parent has an adequate remedy at
law.  Shareholder agrees that Shareholder
will not seek, and agrees to waive any requirement for, the securing or posting
of a bond in connection with Parent’s seeking or obtaining such equitable
relief.  In addition, after discussing
the matter with Shareholder, Parent shall have the right to inform any third
party that Parent reasonably believes to be, or to be contemplating,
participating with Shareholder or receiving from Shareholder assistance in
violation of this Agreement, of the terms of this Agreement and of the rights
of Parent hereunder, and that participation by any such persons with
Shareholder in activities in violation of Shareholder’s agreement with Parent
set forth in this Agreement may give rise to claims by Parent against such
third party.

 

5.  Term of
Agreement; Termination.

 

A.  The term of this Agreement shall commence on
the date hereof.

 

B.  This Agreement shall terminate at the
Effective Time of the Merger or the earlier of (i) at any time prior to
consummation of the Merger by the written consent of the parties hereto and
(ii) termination of the Merger Agreement in accordance with its terms.  Upon such termination, no party shall have
any further obligations or liabilities hereunder; provided, however, such
termination shall not relieve any party from liability for any willful breach
of this Agreement prior to such termination.

 

6.  Entire Agreement.  This Agreement supersedes all prior
agreements, written or oral, among the parties hereto with respect to the
subject matter hereof and contains the entire agreement among the parties with
respect to the subject matter hereof. 
This Agreement may not be amended, supplemented or modified, and no
provisions hereof may be modified or waived, except by an instrument in writing
signed by each party hereto.  No waiver
of any provisions hereof by either party shall be deemed a waiver of any other
provisions hereof by any such party, nor shall any such waiver be deemed a
continuing waiver of any provision hereof by such party.  No party hereto may assign any rights or
obligations hereunder to any other person, except as required by Section 2 or
upon the prior written consent of each other party.  Nothing in this Agreement, expressed or
implied, is intended to or shall confer upon any other person or entity, other
than the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.

 

7.  Notices.  Notices may be provided to Parent and
Shareholder in the manner specified in the Merger Agreement, with all notices
to Shareholder being provided to him or her at the address set forth in Annex I
hereto.

 

3

 

8.  Miscellaneous.

 

A.  Severability.  If any provision of this Agreement or the application
of such provision to any person or circumstances shall be held invalid or
unenforceable by a court of competent jurisdiction, such provision or
application shall be unenforceable only to the extent of such invalidity or
unenforceability, and the remainder of the provision held invalid or
unenforceable and the application of such provision to persons or
circumstances, other than the party as to which it is held invalid, and the
remainder of this Agreement, shall not be affected.

 

B.  Capacity.  The covenants contained herein shall apply to
Shareholder solely in his or her capacity as a shareholder of the Company, and
no covenant contained herein shall apply to Shareholder in his or her capacity
as a director, officer or employee of the Company or in any other fiduciary
capacity.  Nothing contained in this
Agreement shall be deemed to apply to, or limit in any manner, the obligations
of Shareholder to comply with his or her fiduciary duties as a director of the
Company.

 

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

 

D.  Headings.  All Section headings herein are for
convenience of reference only and are not part of this Agreement, and no
construction or reference shall be derived therefrom.

 

E.  Choice of Law.  This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the
laws of the Commonwealth of Pennsylvania, without reference to its conflicts of
law principles.

 

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

 

	
   

  	
   

  	
  KNBT BANCORP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Scott
  V. Fainor

  
	
   

  	
   

  	
   

  	
  Title: President and Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SHAREHOLDER:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature)

  

 

 

4

 

 

ANNEX I

SHAREHOLDER AGREEMENT

 

 

	
  Name and Address of

  Shareholder

  	
   

  	
  Shares of Company

  Common Stock

  Beneficially Owned

  (exclusive of unexercised

  stock options)

  	
   

  	
  Options on Company

  Common Stock

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