Document:

exhibit 10.12

 

                         SECURITIES PURCHASE AGREEMENT 

 

SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of November 29, 2005, 

by and among INFE-Human Resources, Inc., a Nevada corporation, with headquarters 

located at 67 Wall Street, 22nd Floor, New York, NY 10005 (the "Company"), and 

each of the purchasers set forth on the signature pages hereto (the "Buyers"). 

 

WHEREAS:  

 

A.

The Company and the Buyers are executing and delivering this Agreement 

in reliance upon the exemption from securities registration afforded by the 

rules and regulations as promulgated by the United States Securities and 

Exchange Commission (the "SEC") under the Securities Act of 1933, as amended 

(the "1933 Act"); 

 

B.

Buyers desire to purchase and the Company desires to issue and sell, 

upon the terms and conditions set forth in this Agreement (i) 8% secured 

convertible notes of the Company, in the form attached hereto as Exhibit "A", in 

the aggregate principal amount of Three Million Dollars ($3,000,000) (together 

with any note(s) issued in replacement thereof or as a dividend thereon or 

otherwise with respect thereto in accordance with the terms thereof, the 

"Notes"), convertible into shares of  common stock, par value $.001 per share, 

of the Company (the "Common Stock"), upon the terms and subject to the 

limitations and conditions set forth in such Notes and (ii) warrants, in the 

form attached hereto as Exhibit "B", to purchase 1,400,000 shares of Common 

Stock (the "Warrants"). 

 

C.

Each Buyer wishes to purchase, upon the terms and conditions stated in 

this Agreement, such principal amount of Notes and number of Warrants as is set 

forth immediately below its name on the signature pages hereto; and 

 

D.

Contemporaneous with the execution and delivery of this Agreement, the 

parties hereto are executing and delivering a Registration Rights Agreement, in

the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"), 

pursuant to which the Company has agreed to provide certain registration rights 

under the 1933 Act and the rules and regulations promulgated thereunder, and 

applicable state securities laws. 

 

                                    -1-

 

NOW THEREFORE, the Company and each of the Buyers severally (and not jointly) 

hereby agree as follows: 

 

1.

PURCHASE AND SALE OF NOTES AND WARRANTS. 

 

a.

Purchase of Notes and Warrants.  On the Closing Date (as defined below), 

the Company shall issue and sell to each Buyer and each Buyer severally agrees 

to purchase from the Company such principal amount of Notes and number of 

Warrants as is set forth immediately below such Buyer's name on the signature 

pages hereto. 

 

b.

Form of Payment.  On the Closing Date (as defined below), (i)each Buyer 

shall pay the purchase price for the Notes and the Warrants to be issued and 

sold to it at the Closing (as defined below) (the "Purchase Price") by wire 

transfer of immediately available funds to the Company, in accordance with the 

Company's written wiring instructions, against delivery of the Notes in the 

principal amount equal to the Purchase Price and the number of Warrants as is 

set forth immediately below such Buyer's name on the signature pages hereto, and 

(ii) the Company shall deliver such Notes and Warrants duly executed on behalf 

of the Company, to such Buyer, against delivery of such Purchase Price. 

 

c.

Closing Date.  Subject to the satisfaction (or written waiver) of the 

conditions thereto set forth in Section 6 and Section 7 below, the date and time 

of the issuance and sale of the Notes and the Warrants pursuant to this 

Agreement (the "Closing Date") shall be 12:00 noon, Eastern Standard Time on 

November 29, 2005, or such other mutually agreed upon time.  The closing of the 

transactions contemplated by this Agreement (the "Closing") shall occur on the 

Closing Date at such location as may be agreed to by the parties. 

 

2.

BUYERS' REPRESENTATIONS AND WARRANTIES.  Each Buyer severally (and not 

jointly) represents and warrants to the Company solely as to such Buyer that: 

 

a.

Investment Purpose.  As of the date hereof, the Buyer is purchasing the 

Notes and the shares of Common Stock issuable upon conversion of or otherwise 

pursuant to the Notes (including, without limitation, such additional shares of 

Common Stock, if any, as are issuable (i) on account of interest on the Notes, 

(ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Notes 

and Section 2(c) of the Registration Rights Agreement or (iii) in payment of the 

Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant 

to this Agreement, such shares of Common Stock being collectively referred to 

herein as the "Conversion Shares") and the Warrants and the shares of Common 

Stock issuable upon exercise thereof (the "Warrant Shares" and, collectively 

with the Notes, Warrants and Conversion Shares, the "Securities") for its own 

account and not with a present view towards the public sale or distribution 

thereof, except pursuant to sales registered or exempted from registration under 

the 1933 Act; provided, however, that by making the representations herein, the 

Buyer does not agree to hold any of the Securities for any minimum or other 

specific term and reserves the right to dispose of the Securities at any time in 

accordance with or pursuant to a registration statement or an exemption under 

the 1933 Act. 

 

                                    -2- 

 

b.

Accredited Investor Status.  The Buyer is an "accredited investor" as 

that term is defined in Rule 501(a) of Regulation D promulgated under the 1933 

Act (an "Accredited Investor"). 

 

c.

Reliance on Exemptions.  The Buyer understands that the Securities are 

being offered and sold to it in reliance upon specific exemptions from the 

registration requirements of United States federal and state securities laws and 

that the Company is relying upon the truth and accuracy of, and the Buyer's

compliance with, the representations, warranties, agreements, acknowledgments 

and understandings of the Buyer set forth herein in order to determine the 

availability of such exemptions and the eligibility of the Buyer to acquire the 

Securities. 

 

d.

Information.  The Buyer and its advisors, if any, have been, and for so 

long as the Notes and Warrants remain outstanding will continue to be, furnished 

with all materials relating to the business, finances and operations of the 

Company and materials relating to the offer and sale of the Securities which 

have been requested by the Buyer or its advisors.  The Buyer and its advisors, 

if any, have been, and for so long as the Notes and Warrants remain outstanding 

will continue to be, afforded the opportunity to ask questions of the Company. 

Notwithstanding the foregoing, the Company has not disclosed to the Buyer any 

material nonpublic information and will not disclose such information unless 

such information is disclosed to the public prior to or promptly following such 

disclosure to the Buyer.  Neither such inquiries nor any other due diligence 

investigation conducted by Buyer or any of its advisors or representatives shall 

modify, amend or affect Buyer's right to rely on the Company's representations 

and warranties contained in Section 3 below.  The Buyer understands that its 

investment in the Securities involves a significant degree of risk. 

 

e.

Governmental Review.  The Buyer understands that no United States 

federal or state agency or any other government or governmental agency has 

passed upon or made any recommendation or endorsement of the Securities. 

 

 

                                    -3- 

 

f.

Transfer or Re-sale.  The Buyer understands that (i) except as provided 

in the Registration Rights Agreement, the sale or re-sale of the Securities has 

not been and is not being registered under the 1933 Act or any applicable state 

securities laws, and the Securities may not be transferred unless (a) the 

Securities are sold pursuant to an effective registration statement under the 

1933 Act, (b) the Buyer shall have delivered to the Company an opinion of 

counsel that shall be in form, substance and scope customary for opinions of 

counsel in comparable transactions to the effect that the Securities to be sold 

or transferred may be sold or transferred pursuant to an exemption from such 

registration, which opinion shall be accepted by the Company, (c) the Securities 

are sold or transferred to an "affiliate" (as defined in Rule 144 promulgated 

under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer who agrees 

to sell or otherwise transfer the Securities only in accordance with this 

Section 2(f) and who is an Accredited Investor, (d) the Securities are sold 

pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S 

under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer shall 

have delivered to the Company an opinion of counsel that shall be in form, 

substance and scope customary for opinions of counsel in corporate transactions, 

which opinion shall be accepted by the Company; (ii) any sale of such Securities 

made in reliance on Rule 144 may be made only in accordance with the terms of 

said Rule and further, if said Rule is not applicable, any re-sale of such 

Securities under circumstances in which the seller (or the person through whom 

the sale is made) may be deemed to be an underwriter (as that term is defined in 

the 1933 Act) may require compliance with some other exemption under the 1933 

Act or the rules and regulations of the SEC thereunder; and (iii) neither the 

Company nor any other person is under any obligation to register such Securities 

under the 1933 Act or any state securities laws or to comply with the terms and 

conditions of any exemption thereunder (in each case, other than pursuant to the 

Registration Rights Agreement).  Notwithstanding the foregoing or anything else 

contained herein to the contrary, the Securities may be pledged as collateral in 

connection with a bona fide margin account or other lending arrangement.  In the 

event that the Company does not accept the opinion of counsel provided by the

Buyer with respect to the transfer of Securities pursuant to an exemption from 

registration, such as Rule 144 or Regulation S, within three (3) business days 

of delivery of the opinion to the Company, the Company shall pay to the Buyer 

liquidated damages of three percent (3%) of the outstanding amount of the Notes 

per month plus accrued and unpaid interest on the Notes, prorated for partial 

months, in cash or shares at the option of the Company ("Standard Liquidated 

Damages Amount").  If the Company elects to be pay the Standard Liquidated 

Damages Amount in shares of Common Stock, such shares shall be issued at the 

Conversion Price at the time of payment. 

 

                                    -4- 

 

g.

Legends.  The Buyer understands that the Notes and the Warrants and, 

until such time as the Conversion Shares and Warrant Shares have been registered 

under the 1933 Act as contemplated by the Registration Rights Agreement or 

otherwise may be sold pursuant to Rule 144 or Regulation S without any 

restriction as to the number of securities as of a particular date that can then 

be immediately sold, the Conversion Shares and Warrant Shares may bear a 

restrictive legend in substantially the following form (and a stop-transfer 

order may be placed against transfer of the certificates for such Securities): 

 

"The securities represented by this certificate have not been registered under 

the Securities Act of 1933, as amended.  The securities may not be sold, 

transferred or assigned in the absence of an effective registration statement 

for the securities under said Act, or an opinion of counsel, in form, substance 

and scope customary for opinions of counsel in comparable transactions, that 

registration is not required under said Act or unless sold pursuant to Rule 144 

or Regulation S under said Act." 

 

The legend set forth above shall be removed and the Company shall issue a 

certificate without such legend to the holder of any Security upon which it is 

stamped, if, unless otherwise required by applicable state securities laws, (a)

such Security is registered for sale under an effective registration statement 

filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or 

Regulation S without any restriction as to the number of securities as of a 

particular date that can then be immediately sold, or (b) such holder provides 

the Company with an opinion of counsel, in form, substance and scope customary 

for opinions of counsel in comparable transactions, to the effect that a public 

sale or transfer of such Security may be made without registration under the 

1933 Act, which opinion shall be accepted by the Company so that the sale or 

transfer is effected or (c) such holder provides the Company with reasonable 

assurances that such Security can be sold pursuant to Rule 144 or Regulation S. 

The Buyer agrees to sell all Securities, including those represented by a 

certificate(s) from which the legend has been removed, in compliance with 

applicable prospectus delivery requirements, if any. 

 

h.

Authorization; Enforcement. This Agreement and the Registration Rights 

Agreement have been duly and validly authorized.  This Agreement has been duly 

executed and delivered on behalf of the Buyer, and this Agreement constitutes, 

and upon execution and delivery by the Buyer of the Registration Rights 

Agreement, such agreement will constitute, valid and binding agreements of the 

Buyer enforceable in accordance with their terms. 

 

                                    -5- 

 

i.

Residency.  The Buyer is a resident of the jurisdiction set forth 

immediately below such Buyer's name on the signature pages hereto. 

 

3.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company represents 

and warrants to each Buyer that: 

 

a.

Organization and Qualification.  The Company and each of its 

Subsidiaries (as defined below), if any, is a corporation duly organized, 

validly existing and in good standing under the laws of the jurisdiction in 

which it is incorporated, with full power and authority (corporate and other) to 

own, lease, use and operate its properties and to carry on its business as and 

where now owned, leased, used, operated and conducted.  Schedule 3(a) sets forth 

a list of all of the Subsidiaries of the Company and the jurisdiction in which 

each is incorporated.  The Company and each of its Subsidiaries is duly 

qualified as a foreign corporation to do business and is in good standing in 

every jurisdiction in which its ownership or use of property or the nature of 

the business conducted by it makes such qualification necessary except where the 

failure to be so qualified or in good standing would not have a Material Adverse 

Effect.  "Material Adverse Effect" means any of (i) a material and adverse 

effect on the legality, validity or enforceability of any document executed in 

connection with this financing, (ii) a material and adverse effect on the 

results of operations, assets, prospects, business or condition (financial or 

otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an 

adverse impairment to the Company's ability to perform under any of the 

documents executed in connection with this financing.  "Subsidiaries" means any 

corporation or other organization, whether incorporated or unincorporated, in 

which the Company owns, directly or indirectly, any equity or other ownership 

interest. 

 

b.

Authorization; Enforcement.  (i) The Company has all requisite corporate 

power and authority to enter into and perform this Agreement, the Registration 

Rights Agreement, the Notes and the Warrants and to consummate the transactions 

contemplated hereby and thereby and to issue the Securities, in accordance with 

the terms hereof and thereof, (ii) the execution and delivery of this Agreement, 

the Registration Rights Agreement, the Notes and the Warrants by the Company and 

the consummation by it of the transactions contemplated hereby and thereby 

(including without limitation, the issuance of the Notes and the Warrants and 

the issuance and reservation for issuance of the Conversion Shares and Warrant 

Shares issuable upon conversion or exercise thereof) have been duly authorized 

by the Company's Board of Directors and no further consent or authorization of 

the Company, its Board of Directors, or its shareholders is required, (iii) this

Agreement has been duly executed and delivered by the Company by its authorized 

representative, and such authorized representative is the true and official 

representative with authority to sign this Agreement and the other documents 

executed in connection herewith and bind the Company accordingly, and (iv) this 

Agreement constitutes, and upon execution and delivery by the Company of the 

Registration Rights Agreement, the Notes and the Warrants, each of such 

instruments will constitute, a legal, valid and binding obligation of the 

Company enforceable against the Company in accordance with its terms. 

 

                                    -6- 

 

c.

Capitalization.  As of the date hereof, the authorized capital stock of 

the Company consists of (i) 100,000,000 shares of Common Stock, of which { 

} shares are issued and outstanding, {                 } shares are reserved for 

issuance pursuant to the Company's stock option plans, {             } shares 

are reserved for issuance pursuant to securities (other than the Notes and the 

Warrants) exercisable for, or convertible into or exchangeable for shares of 

Common Stock and, 24,476,923 shares are reserved for issuance upon conversion of 

the Notes and exercise of the Warrants (subject to adjustment pursuant to the 

Company's covenant set forth in Section 4(h) below); and (ii) {     }  shares of 

preferred stock of which {        } shares are issued and outstanding.  All of 

such outstanding shares of capital stock are, or upon issuance will be, duly 

authorized, validly issued, fully paid and nonassessable.  No shares of capital 

stock of the Company are subject to preemptive rights or any other similar 

rights of the shareholders of the Company or any liens or encumbrances imposed 

through the actions or failure to act of the Company.  Except as disclosed in 

Schedule 3(c), as of the effective date of this Agreement, (i) there are no 

outstanding options, warrants, scrip, rights to subscribe for, puts, calls, 

rights of first refusal, agreements, understandings, claims or other commitments 

or rights of any character whatsoever relating to, or securities or rights 

convertible into or exchangeable for any shares of capital stock of the Company

or any of its Subsidiaries, or arrangements by which the Company or any of its 

Subsidiaries is or may become bound to issue additional shares of capital stock 

of the Company or any of its Subsidiaries, (ii) there are no agreements or 

arrangements under which the Company or any of its Subsidiaries is obligated to 

register the sale of any of its or their securities under the 1933 Act (except 

the Registration Rights Agreement) and (iii) there are no anti-dilution or price 

adjustment provisions contained in any security issued by the Company (or in any 

agreement providing rights to security holders) that will be triggered by the 

issuance of the Notes, the Warrants, the Conversion Shares or Warrant Shares. 

The Company has furnished to the Buyer true and correct copies of the Company's 

Certificate of Incorporation as in effect on the date hereof ("Certificate of 

Incorporation"), the Company's By-laws, as in effect on the date hereof (the 

"By-laws"), and the terms of all securities convertible into or exercisable for 

Common Stock of the Company and the material rights of the holders thereof in 

respect thereto.  The Company shall provide the Buyer with a written update of 

this representation signed by the Company's Chief Executive or Chief Financial 

Officer on behalf of the Company as of the Closing Date. 

 

                                    -7- 

 

d.

Issuance of Shares.  The Conversion Shares and Warrant Shares are duly 

authorized and reserved for issuance and, upon conversion of the Notes and 

exercise of the Warrants in accordance with their respective terms, will be 

validly issued, fully paid and non-assessable, and free from all taxes, liens, 

claims and encumbrances with respect to the issue thereof and shall not be 

subject to preemptive rights or other similar rights of shareholders of the 

Company and will not impose personal liability upon the holder thereof. 

 

e.

Acknowledgment of Dilution.  The Company understands and acknowledges 

the potentially dilutive effect to the Common Stock upon the issuance of the 

Conversion Shares and Warrant Shares upon conversion of the Note or exercise of

the Warrants.  The Company further acknowledges that its obligation to issue 

Conversion Shares and Warrant Shares upon conversion of the Notes or exercise of 

the Warrants in accordance with this Agreement, the Notes and the Warrants is 

absolute and unconditional regardless of the dilutive effect that such issuance 

may have on the ownership interests of other shareholders of the Company. 

 

f.

No Conflicts.  The execution, delivery and performance of this 

Agreement, the Registration Rights Agreement, the Notes and the Warrants by the 

Company and the consummation by the Company of the transactions contemplated 

hereby and thereby (including, without limitation, the issuance and reservation 

for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict 

with or result in a violation of any provision of the Certificate of 

Incorporation or By-laws or (ii) violate or conflict with, or result in a breach 

of any provision of, or constitute a default (or an event which with notice or 

lapse of time or both could become a default) under, or give to others any 

rights of termination, amendment, acceleration or cancellation of, any 

agreement, indenture, patent, patent license or instrument to which the Company 

or any of its Subsidiaries is a party, or (iii)  result in a violation of any 

law, rule, regulation, order, judgment or decree (including federal and state 

securities laws and regulations and regulations of any self-regulatory 

organizations to which the Company or its securities are subject) applicable to 

the Company or any of its Subsidiaries or by which any property or asset of the 

Company or any of its Subsidiaries is bound or affected (except for such 

conflicts, defaults, terminations, amendments, accelerations, cancellations and 

violations as would not, individually or in the aggregate, have a Material 

Adverse Effect).  Neither the Company nor any of its Subsidiaries is in 

violation of its Certificate of Incorporation, By-laws or other organizational 

documents and neither the Company nor any of its Subsidiaries is in default (and 

no event has occurred which with notice or lapse of time or both could put the 

Company or any of its Subsidiaries in default) under, and neither the Company 

nor any of its Subsidiaries has taken any action or failed to take any action

that would give to others any rights of termination, amendment, acceleration or 

cancellation of, any agreement, indenture or instrument to which the Company or 

any of its Subsidiaries is a party or by which any property or assets of the 

Company or any of its Subsidiaries is bound or affected, except for possible 

defaults as would not, individually or in the aggregate, have a Material Adverse 

Effect. The businesses of the Company and its Subsidiaries, if any, are not 

being conducted, and shall not be conducted so long as a Buyer owns any of the 

 

                                    -8- 

 

Securities, in violation of any law, ordinance or regulation of any governmental 

entity.  Except as specifically contemplated by this Agreement and as required 

under the 1933 Act and any applicable state securities laws, the Company is not 

required to obtain any consent, authorization or order of, or make any filing or 

registration with, any court, governmental agency, regulatory agency, self 

regulatory organization or stock market or any third party in order for it to 

execute, deliver or perform any of its obligations under this Agreement, the 

Registration Rights Agreement, the Notes or the Warrants in accordance with the 

terms hereof or thereof or to issue and sell the Notes and Warrants in 

accordance with the terms hereof and to issue the Conversion Shares upon 

conversion of the Notes and the Warrant Shares upon exercise of the Warrants. 

Except as disclosed in Schedule 3(f), all consents, authorizations, orders, 

filings and registrations which the Company is required to obtain pursuant to 

the preceding sentence have been obtained or effected on or prior to the date 

hereof.  The Company is not in violation of the quotation requirements of the 

Over-the-Counter Bulletin Board (the "OTCBB") and does not reasonably anticipate 

that the Common Stock will be delisted by the OTCBB in the foreseeable future. 

The Company and its Subsidiaries are unaware of any facts or circumstances which 

might give rise to any of the foregoing. 

 

g.

SEC Documents; Financial Statements.  Except as disclosed in Schedule

3(g), the Company has timely filed all reports, schedules, forms, statements and 

other documents required to be filed by it with the SEC pursuant to the 

reporting requirements of the Securities Exchange Act of 1934, as amended (the 

"1934 Act") (all of the foregoing filed prior to the date hereof and all 

exhibits included therein and financial statements and schedules thereto and 

documents (other than exhibits to such documents) incorporated by reference 

therein, being hereinafter referred to herein as the "SEC Documents").  The 

Company has delivered to each Buyer true and complete copies of the SEC 

Documents, except for such exhibits and incorporated documents.  As of their 

respective dates, the SEC Documents complied in all material respects with the 

requirements of the 1934 Act and the rules and regulations of the SEC 

promulgated thereunder applicable to the SEC Documents, and none of the SEC 

Documents, at the time they were filed with the SEC, contained any untrue 

statement of a material fact or omitted to state a material fact required to be 

stated therein or necessary in order to make the statements therein, in light of 

the circumstances under which they were made, not misleading.  None of the 

statements made in any such SEC Documents is, or has been, required to be 

amended or updated under applicable law (except for such statements as have been 

amended or updated in subsequent filings prior the date hereof).  As of their 

respective dates, the financial statements of the Company included in the SEC 

Documents complied as to form in all material respects with applicable 

accounting requirements and the published rules and regulations of the SEC with 

respect thereto.  Such financial statements have been prepared in accordance 

with United States generally accepted accounting principles, consistently 

applied, during the periods involved (except (i) as may be otherwise indicated 

in such financial statements or the notes thereto, or (ii) in the case of 

unaudited interim statements, to the extent they may not include footnotes or 

may be condensed or summary statements) and fairly present in all material 

respects the consolidated financial position of the Company and its consolidated 

 

                                    -9- 

 

Subsidiaries as of the dates thereof and the consolidated results of their 

operations and cash flows for the periods then ended (subject, in the case of 

unaudited statements, to normal year-end audit adjustments).  Except as set 

forth in the financial statements of the Company included in the SEC Documents, 

the Company has no liabilities, contingent or otherwise, other than (i) 

liabilities incurred in the ordinary course of business subsequent to June 30, 

2004 and (ii) obligations under contracts and commitments incurred in the 

ordinary course of business and not required under generally accepted accounting 

principles to be reflected in such financial statements, which, individually or 

in the aggregate, are not material to the financial condition or operating 

results of the Company. 

 

h.

Absence of Certain Changes.  Since June 30, 2005, there has been no 

material adverse change and no material adverse development in the assets, 

liabilities, business, properties, operations, financial condition, results of 

operations or prospects of the Company or any of its Subsidiaries. 

 

i.

Absence of Litigation.  There is no action, suit, claim, proceeding, 

inquiry or investigation before or by any court, public board, government 

agency, self-regulatory organization or body pending or, to the knowledge of the 

Company or any of its Subsidiaries, threatened against or affecting the Company 

or any of its Subsidiaries, or their officers or directors in their capacity as 

such, that could have a Material Adverse Effect.  Schedule 3(i) contains a 

complete list and summary description of any pending or threatened proceeding 

against or affecting the Company or any of its Subsidiaries, without regard to 

whether it would have a Material Adverse Effect.  The Company and its 

Subsidiaries are unaware of any facts or circumstances which might give rise to 

any of the foregoing. 

 

j.

Patents, Copyrights, etc.  The Company and each of its Subsidiaries owns 

or possesses the requisite licenses or rights to use all patents, patent 

applications, patent rights, inventions, know-how, trade secrets, trademarks,

trademark applications, service marks, service names, trade names and copyrights 

("Intellectual Property") necessary to enable it to conduct its business as now 

operated (and, except as set forth in Schedule 3(j) hereof, to the best of the 

Company's knowledge, as presently contemplated to be operated in the future); 

there is no claim or action by any person pertaining to, or proceeding pending, 

or to the Company's knowledge threatened, which challenges the right of the 

Company or of a Subsidiary with respect to any Intellectual Property necessary 

to enable it to conduct its business as now operated (and, except as set forth 

in Schedule 3(j) hereof, to the best of the Company's knowledge, as presently 

contemplated to be operated in the future); to the best of the Company's 

knowledge, the Company's or its Subsidiaries' current and intended products, 

services and processes do not infringe on any Intellectual Property or other 

rights held by any person; and the Company is unaware of any facts or 

circumstances which might give rise to any of the foregoing.  The Company and 

each of its Subsidiaries have taken reasonable security measures to protect the 

secrecy, confidentiality and value of their Intellectual Property. 

 

                                    -10- 

 

k.

No Materially Adverse Contracts, Etc.  Neither the Company nor any of 

its Subsidiaries is subject to any charter, corporate or other legal 

restriction, or any judgment, decree, order, rule or regulation which in the 

judgment of the Company's officers has or is expected in the future to have a 

Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is a 

party to any contract or agreement which in the judgment of the Company's 

officers has or is expected to have a Material Adverse Effect. 

 

l.

Tax Status.  Except as set forth on Schedule 3(l), the Company and each 

of its Subsidiaries has made or filed all federal, state and foreign income and 

all other tax returns, reports and declarations required by any jurisdiction to 

which it is subject (unless and only to the extent that the Company and each of 

its Subsidiaries has set aside on its books provisions reasonably adequate for 

the payment of all unpaid and unreported taxes) and has paid all taxes and other 

governmental assessments and charges that are material in amount, shown or 

determined to be due on such returns, reports and declarations, except those 

being contested in good faith and has set aside on its books provisions 

reasonably adequate for the payment of all taxes for periods subsequent to the 

periods to which such returns, reports or declarations apply.  There are no 

unpaid taxes in any material amount claimed to be due by the taxing authority of 

any jurisdiction, and the officers of the Company know of no basis for any such 

claim.  The Company has not executed a waiver with respect to the statute of 

limitations relating to the assessment or collection of any foreign, federal, 

state or local tax.  Except as set forth on Schedule 3(l), none of the Company's 

tax returns is presently being audited by any taxing authority. 

 

m.

Certain Transactions.  Except as set forth on Schedule 3(m) and except 

for arm's length transactions pursuant to which the Company or any of its 

Subsidiaries makes payments in the ordinary course of business upon terms no 

less favorable than the Company or any of its Subsidiaries could obtain from 

third parties and other than the grant of stock options disclosed on Schedule 

3(c), none of the officers, directors, or employees of the Company is presently 

a party to any transaction with the Company or any of its Subsidiaries (other 

than for services as employees, officers and directors), including any contract, 

agreement or other arrangement providing for the furnishing of services to or 

by, providing for rental of real or personal property to or from, or otherwise 

requiring payments to or from any officer, director or such employee or, to the 

knowledge of the Company, any corporation, partnership, trust or other entity in 

which any officer, director, or any such employee has a substantial interest or 

is an officer, director, trustee or partner. 

 

                                    -11- 

 

n.

Disclosure.  All information relating to or concerning the Company or 

any of its Subsidiaries set forth in this Agreement and provided to the Buyers 

pursuant to Section 2(d) hereof and otherwise in connection with the 

transactions contemplated hereby is true and correct in all material respects 

and the Company has not omitted to state any material fact necessary in order to 

make the statements made herein or therein, in light of the circumstances under 

which they were made, not misleading.  No event or circumstance has occurred or 

exists with respect to the Company or any of its Subsidiaries or its or their 

business, properties, prospects, operations or financial conditions, which, 

under applicable law, rule or regulation, requires public disclosure or 

announcement by the Company but which has not been so publicly announced or 

disclosed (assuming for this purpose that the Company's reports filed under the 

1934 Act are being incorporated into an effective registration statement filed 

by the Company under the 1933 Act). 

 

o.

Acknowledgment Regarding Buyers' Purchase of Securities.  The Company 

acknowledges and agrees that the Buyers are acting solely in the capacity of 

arm's length purchasers with respect to this Agreement and the transactions 

contemplated hereby.  The Company further acknowledges that no Buyer is acting 

as a financial advisor or fiduciary of the Company (or in any similar capacity) 

with respect to this Agreement and the transactions contemplated hereby and any 

statement made by any Buyer or any of their respective representatives or agents 

in connection with this Agreement and the transactions contemplated hereby is 

not advice or a recommendation and is merely incidental to the Buyers' purchase 

of the Securities.  The Company further represents to each Buyer that the 

Company's decision to enter into this Agreement has been based solely on the 

independent evaluation of the Company and its representatives. 

 

p.

No Integrated Offering.  Neither the Company, nor any of its affiliates, 

nor any person acting on its or their behalf, has directly or indirectly made 

any offers or sales in any security or solicited any offers to buy any security 

under circumstances that would require registration under the 1933 Act of the 

issuance of the Securities to the Buyers.  The issuance of the Securities to the 

Buyers will not be integrated with any other issuance of the Company's 

securities (past, current or future) for purposes of any shareholder approval 

provisions applicable to the Company or its securities. 

 

q.

No Brokers.  Except as set forth in Schedule 3(q), the Company has taken 

no action which would give rise to any claim by any person for brokerage 

commissions, transaction fees or similar payments relating to this Agreement or 

the transactions contemplated hereby. 

 

                                    -12- 

 

r.

Permits; Compliance.  The Company and each of its Subsidiaries is in 

possession of all franchises, grants, authorizations, licenses, permits, 

easements, variances, exemptions, consents, certificates, approvals and orders 

necessary to own, lease and operate its properties and to carry on its business 

as it is now being conducted (collectively, the "Company Permits"), and there is 

no action pending or, to the knowledge of the Company, threatened regarding 

suspension or cancellation of any of the Company Permits.  Neither the Company 

nor any of its Subsidiaries is in conflict with, or in default or violation of, 

any of the Company Permits, except for any such conflicts, defaults or 

violations which, individually or in the aggregate, would not reasonably be 

expected to have a Material Adverse Effect.  Since June 30, 2004, neither the 

Company nor any of its Subsidiaries has received any notification with respect 

to possible conflicts, defaults or violations of applicable laws, except for 

notices relating to possible conflicts, defaults or violations, which conflicts, 

defaults or violations would not have a Material Adverse Effect. 

 

s.

Environmental Matters. 

    

   (i)

Except as set forth in Schedule 3(s), there are, to the Company's 

   knowledge, with respect to the Company or any of its Subsidiaries or any 

   predecessor of the Company, no past or present violations of Environmental 

   Laws (as defined below), releases of any material into the environment, 

   actions, activities, circumstances, conditions, events, incidents, or 

   contractual obligations which may give rise to any common law environmental

   liability or any liability under the Comprehensive Environmental Response, 

   Compensation and Liability Act of 1980 or similar federal, state, local or 

   foreign laws and neither the Company nor any of its Subsidiaries has received 

   any notice with respect to any of the foregoing, nor is any action pending 

   or, to the Company's knowledge, threatened in connection with any of the 

   foregoing.  The term "Environmental Laws" means all federal, state, local or 

   foreign laws relating to pollution or protection of human health or the 

   environment (including, without limitation, ambient air, surface water, 

   groundwater, land surface or subsurface strata), including, without 

   limitation, laws relating to emissions, discharges, releases or threatened 

   releases of chemicals, pollutants contaminants, or toxic or hazardous 

   substances or wastes (collectively, "Hazardous Materials") into the 

   environment, or otherwise relating to the manufacture, processing, 

   distribution, use, treatment, storage, disposal, transport or handling of 

   Hazardous Materials, as well as all authorizations, codes, decrees, demands 

   or demand letters, injunctions, judgments, licenses, notices or notice 

   letters, orders, permits, plans or regulations issued, entered, promulgated 

   or approved thereunder. 

 

                                    -13- 

 

  (ii)

Other than those that are or were stored, used or disposed of in 

  compliance with applicable law, no Hazardous Materials are contained on or 

  about any real property currently owned, leased or used by the Company or any 

  of its Subsidiaries, and no Hazardous Materials were released on or about any 

  real property previously owned, leased or used by the Company or any of its 

  Subsidiaries during the period the property was owned, leased or used by the 

  Company or any of its Subsidiaries, except in the normal course of the 

  Company's or any of its Subsidiaries' business. 

  

 (iii)

Except as set forth in Schedule 3(s), there are no underground storage 

 tanks on or under any real property owned, leased or used by the Company or any 

 of its Subsidiaries that are not in compliance with applicable law.

t.

Title to Property.  The Company and its Subsidiaries have good and 

marketable title in fee simple to all real property and good and marketable 

title to all personal property owned by them which is material to the business 

of the Company and its Subsidiaries, in each case free and clear of all liens, 

encumbrances and defects except such as are described in Schedule 3(t) or such 

as would not have a Material Adverse Effect.  Any real property and facilities 

held under lease by the Company and its Subsidiaries are held by them under 

valid, subsisting and enforceable leases with such exceptions as would not have 

a Material Adverse Effect. 

 

u.

Insurance.  The Company and each of its Subsidiaries are insured by 

insurers of recognized financial responsibility against such losses and risks 

and in such amounts as management of the Company believes to be prudent and 

customary in the businesses in which the Company and its Subsidiaries are 

engaged.  Neither the Company nor any such Subsidiary has any reason to believe 

that it will not be able to renew its existing insurance coverage as and when 

such coverage expires or to obtain similar coverage from similar insurers as may 

be necessary to continue its business at a cost that would not have a Material 

Adverse Effect.  The Company has provided to Buyer true and correct copies of 

all policies relating to directors' and officers' liability coverage, errors and 

omissions coverage, and commercial general liability coverage. 

 

v.

Internal Accounting Controls.  The Company and each of its Subsidiaries 

maintain a system of internal accounting controls sufficient, in the judgment of 

the Company's board of directors, to provide reasonable assurance that (i) 

transactions are executed in accordance with management's general or specific 

authorizations, (ii) transactions are recorded as necessary to permit 

preparation of financial statements in conformity with generally accepted 

accounting principles and to maintain asset accountability, (iii) access to 

assets is permitted only in accordance with management's general or specific 

authorization and (iv) the recorded accountability for assets is compared with

the existing assets at reasonable intervals and appropriate action is taken with 

respect to any differences. 

 

                                    -14- 

 

w.

Foreign Corrupt Practices.  Neither the Company, nor any of its 

Subsidiaries, nor any director, officer, agent, employee or other person acting 

on behalf of the Company or any Subsidiary has, in the course of his actions 

for, or on behalf of, the Company, used any corporate funds for any unlawful 

contribution, gift, entertainment or other unlawful expenses relating to 

political activity; made any direct or indirect unlawful payment to any foreign 

or domestic government official or employee from corporate funds; violated or is 

in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, 

as amended, or made any bribe, rebate, payoff, influence payment, kickback or 

other unlawful payment to any foreign or domestic government official or 

employee. 

 

x.

Solvency.  The Company (after giving effect to the transactions 

contemplated by this Agreement) is solvent (i.e., its assets have a fair market 

value in excess of the amount required to pay its probable liabilities on its 

existing debts as they become absolute and matured) and currently the Company 

has no information that would lead it to reasonably conclude that the Company 

would not, after giving effect to the transaction contemplated by this 

Agreement, have the ability to, nor does it intend to take any action that would 

impair its ability to, pay its debts from time to time incurred in connection 

therewith as such debts mature.  The Company did not {YES IT DID!!!!!-SEE 10k 

FOR NOVEMBER 30, 2004 FILED FEBRUARY 28, 2005} receive a qualified opinion from 

its auditors with respect to its most recent fiscal year end and, after giving 

effect to the transactions contemplated by this Agreement, does not anticipate 

or know of any basis upon which its auditors might issue a qualified opinion in 

respect of its current fiscal year. 

 

y.

No Investment Company.  The Company is not, and upon the issuance and 

sale of the Securities as contemplated by this Agreement will not be an

"investment company" required to be registered under the Investment Company Act 

of 1940 (an "Investment Company").  The Company is not controlled by an 

Investment Company. 

 

z.

Breach of Representations and Warranties by the Company.  If the Company 

breaches any of the representations or warranties set forth in this Section 3, 

and in addition to any other remedies available to the Buyers pursuant to this 

Agreement, the Company shall pay to the Buyer the Standard Liquidated Damages 

Amount in cash or in shares of Common Stock at the option of the Company, until 

such breach is cured.  If the Company elects to pay the Standard Liquidated 

Damages Amounts in shares of Common Stock, such shares shall be issued at the 

Conversion Price at the time of payment. 

 

                                    -15- 

 

4.

COVENANTS. 

 

a.

Best Efforts.  The parties shall use their best efforts to satisfy 

timely each of the conditions described in Section 6 and 7 of this Agreement. 

 

b.

Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect 

to the Securities as required under Regulation D and to provide a copy thereof 

to each Buyer promptly after such filing.  The Company shall, on or before the 

Closing Date, take such action as the Company shall reasonably determine is 

necessary to qualify the Securities for sale to the Buyers at the applicable 

closing pursuant to this Agreement under applicable securities or "blue sky" 

laws of the states of the United States (or to obtain an exemption from such 

qualification), and shall provide evidence of any such action so taken to each 

Buyer on or prior to the Closing Date. 

 

c.

Reporting Status; Eligibility to Use Form S-3, SB-2 or Form  

 

S-1.  The Company's Common Stock is registered under Section 12(g) of the 1934 

Act. The Company represents and warrants that it meets the requirements for the 

use of Form S-3 (or if the Company is not eligible for the use of Form S-3 as of 

the Filing Date (as defined in the Registration Rights Agreement), the Company 

may use the form of registration for which it is eligible at that time) for 

registration of the sale by the Buyer of the Registrable Securities (as defined 

in the Registration Rights Agreement).  So long as the Buyer beneficially owns 

any of the Securities, the Company shall timely file all reports required to be 

filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate 

its status as an issuer required to file reports under the 1934 Act even if the 

1934 Act or the rules and regulations thereunder would permit such termination. 

The Company further agrees to file all reports required to be filed by the 

Company with the SEC in a timely manner so as to become eligible, and thereafter 

to maintain its eligibility, for the use of Form S-3.  The Company shall issue a 

press release describing the material terms of the transaction contemplated 

hereby as soon as practicable following the Closing Date but in no event more 

than two (2) business days of the Closing Date, which press release shall be 

subject to prior review by the Buyers.  The Company agrees that such press 

release shall not disclose the name of the Buyers unless expressly consented to 

in writing by the Buyers or unless required by applicable law or regulation, and 

then only to the extent of such requirement. 

 

d.

Use of Proceeds.  The Company shall use the net proceeds from the sale 

of the Notes and the Warrants in the manner set forth in Schedule 4(d) attached 

hereto and made a part hereof and shall not, directly or indirectly, use such 

proceeds for (i) any loan to or investment in any other corporation, 

partnership, enterprise or other person (except in connection with its currently 

existing direct or indirect Subsidiaries); (ii) the satisfaction of any portion 

of the Company's debt (other than payment of trade payables and accrued expenses 

in the ordinary course of the Company's business and consistent with prior past 

practices), or (iii) the redemption of any Common Stock (other than the 

Securities). 

 

                                    -16-

e.

Future Offerings.  Subject to the exceptions described below, the 

Company will not, without the prior written consent of a majority-in-interest of 

the Buyers, negotiate or contract with any party to obtain additional equity 

financing (including debt financing with an equity component) that involves (A) 

the issuance of Common Stock at a discount to the market price of the Common 

Stock on the date of issuance (taking into account the value of any warrants or 

options to acquire Common Stock issued in connection therewith) or (B) the 

issuance of convertible securities that are convertible into an indeterminate 

number of shares of Common Stock or (C) the issuance of warrants during the 

period (the "Lock-up Period") beginning on the Closing Date and ending on the 

later of (i) two hundred seventy (270) days from the Closing Date and (ii) one 

hundred eighty (180) days from the date the Registration Statement (as defined 

in the Registration Rights Agreement) is declared effective (plus any days in 

which sales cannot be made thereunder).  In addition, subject to the exceptions 

described below, the Company will not conduct any equity financing (including 

debt with an equity component) ("Future Offerings") during the period beginning 

on the Closing Date and ending two (2) years after the end of the Lock-up Period 

unless it shall have first delivered to each Buyer, at least twenty (20) 

business days prior to the closing of such Future Offering, written notice 

describing the proposed Future Offering, including the terms and conditions 

thereof and proposed definitive documentation to be entered into in connection 

therewith, and providing each Buyer an option during the fifteen (15) day period 

following delivery of such notice to purchase its pro rata share (based on the 

ratio that the aggregate principal amount of Notes purchased by it hereunder 

bears to the aggregate principal amount of Notes purchased hereunder) of the 

securities being offered in the Future Offering on the same terms as 

contemplated by such Future Offering (the limitations referred to in this 

sentence and the preceding sentence are collectively referred to as the "Capital 

Raising Limitations").  In the event the terms and conditions of a proposed

Future Offering are amended in any respect after delivery of the notice to the 

Buyers concerning the proposed Future Offering, the Company shall deliver a new 

notice to each Buyer describing the amended terms and conditions of the proposed 

Future Offering and each Buyer thereafter shall have an option during the 

fifteen (15) day period following delivery of such new notice to purchase its 

pro rata share of the securities being offered on the same terms as contemplated 

by such proposed Future Offering, as amended.  The foregoing sentence shall 

apply to successive amendments to the terms and conditions of any proposed 

Future Offering.  The Capital Raising Limitations shall not apply to any 

transaction involving (i) issuances of securities in a firm commitment 

underwritten public offering (excluding a continuous offering pursuant to Rule 

415 under the 1933 Act, an equity line of credit or similar financing 

arrangement) resulting in net proceeds to the Company of in excess of 

$15,000,000, or (ii) issuances of securities as consideration for a merger, 

consolidation or purchase of assets, or in connection with any strategic 

partnership or joint venture (the primary purpose of which is not to raise 

equity capital), or in connection with the disposition or acquisition of a 

business, product or license by the Company.  The Capital Raising Limitations 

also shall not apply to the issuance of securities upon exercise or conversion 

of the Company's options, warrants or other convertible securities outstanding 

as of the date hereof or to the grant of additional options or warrants, or the 

issuance of additional securities, under any Company stock option or restricted 

stock plan approved by the shareholders of the Company.  Notwithstanding 

anything in  this section 4(e) to the contrary, in the event the Company's Board 

of Directors decides, in good faith, to enter into a transaction or relationship 

in which the Company issues shares of Common Stock or other securities of the 

Company to a person or any entity which is, itself or through its subsidiaries, 

an operating company in a business synergistic with the business of the Company 

and in which the Company received benefits in addition to the investment of 

funds, but shall not include a transaction in which the Company is issuing

securities primarily for the purpose of raising capital or to an entity whose 

business is investing in securities, the Company shall be permitted to do so. 

 

                                    -17- 

 

 

f.

Expenses.  At the Closing, the Company shall reimburse Buyers for all 

reasonable expenses incurred by them in connection with the negotiation, 

preparation, execution, delivery and performance of this Agreement and the other 

agreements to be executed in connection herewith ("Documents"), including, 

without limitation, attorneys' and consultants' fees and expenses, transfer 

agent fees, fees for stock quotation services, fees relating to any amendments 

or modifications of the Documents or any consents or waivers of provisions in 

the Documents, fees for the preparation of opinions of counsel, escrow fees, and 

costs of restructuring the transactions contemplated by the Documents.  When 

possible, the Company must pay these fees directly, otherwise the Company must 

make immediate payment for reimbursement to the Buyers for all reasonable fees 

and expenses within ___ days upon written notice by the Buyer and the submission 

of a detailed, line-item invoice by the Buyer  If the Company fails to reimburse 

the Buyer in full within ten (10) business days of submission of said written 

notice and invoice by the Buyer, the Company shall pay interest on the total 

amount of fees to be reimbursed at a rate of 15% per annum.  {PLACE LIMIT ON 

$$$$ AMOUNT OF REIMBURSEMENT} 

 

g.

Financial Information.  The Company agrees to send the following reports 

to each Buyer until such Buyer transfers, assigns, or sells all of the 

Securities: (i) within ten (10) days after the filing with the SEC, a copy of 

its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB and any 

Current Reports on Form 8-K; (ii) within one (1) day after release, copies of 

all press releases issued by the Company or any of its Subsidiaries; and (iii) 

contemporaneously with the making available or giving to the shareholders of the 

Company, copies of any notices or other information the Company makes available

or gives to such shareholders. 

 

h.

Authorization and Reservation of Shares.  Subject to Stockholder 

Approval, the Company shall at all times have authorized, and reserved for the 

purpose of issuance, a sufficient number of shares of Common Stock to provide 

for the full conversion or exercise of the outstanding Notes and Warrants and 

issuance of the Conversion Shares and Warrant Shares in connection therewith 

(based on the Conversion Price of the Notes or Exercise Price of the Warrants in 

effect from time to time) and as otherwise required by the Notes.  The Company 

shall not reduce the number of shares of Common Stock reserved for issuance upon 

conversion of Notes and exercise of the Warrants without the consent of each 

Buyer.  The Company shall at all times maintain the number of shares of Common 

Stock so reserved for issuance at an amount ("Reserved Amount") equal to no less 

than two (2) times the number that is then actually issuable upon full 

conversion of the Notes and Additional Notes and upon exercise of the Warrants 

and the Additional Warrants (based on the Conversion Price of the Notes or the 

Exercise Price of the Warrants in effect from time to time).  If at any time the 

number of shares of Common Stock authorized and reserved for issuance 

("Authorized and Reserved Shares") is below the Reserved Amount, the Company 

will promptly take all corporate action necessary to authorize and reserve a 

sufficient number of shares, including, without limitation, calling a special 

meeting of shareholders to authorize additional shares to meet the Company's 

obligations under this Section 4(h), in the case of an insufficient number of 

authorized shares, obtain shareholder approval of an increase in such authorized 

number of shares, and voting the management shares of the Company in favor of an 

increase in the authorized shares of the Company to ensure that the number of 

authorized shares is sufficient to meet the Reserved Amount.  If the Company 

fails to obtain such shareholder approval within thirty (30) days following the 

date on which the number of Reserved Amount exceeds the Authorized and Reserved 

Shares, the Company shall pay to the Borrower the Standard Liquidated Damages 

Amount, in cash or in shares of Common Stock at the option of the Buyer.  If the 

Buyer elects to be paid the Standard Liquidated Damages Amount in shares of 

 

                                    -18- 

 

Common Stock, such shares shall be issued at the Conversion Price at the time of 

payment.  In order to ensure that the Company has authorized a sufficient amount 

of shares to meet the Reserved Amount at all times, the Company must deliver to 

the Buyer at the end of every month a list detailing (1) the current amount of 

shares authorized by the Company and reserved for the Buyer; and (2) amount of 

shares issuable upon conversion of the Notes and upon exercise of the Warrants 

and as payment of interest accrued on the Notes for one year.  If the Company 

fails to provide such list within five (5) business days of the end of each 

month, the Company shall pay the Standard Liquidated Damages Amount, in cash or 

in shares of Common Stock at the option of the Buyer, until the list is 

delivered.  If the Buyer elects to be paid the Standard Liquidated Damages 

Amount in shares of Common Stock, such shares shall be issued at the Conversion 

Price at the time of payment. 

 

i.

Listing.  The Company shall promptly secure the listing or quotation 

{HOW CAN COMPANY MAKE THIS REPRESENTATION FOR RESTRICTED STOCK???}, as the case 

may be, of the Conversion Shares and Warrant Shares upon each national 

securities exchange or automated quotation system, if any, upon which shares of 

Common Stock are then listed or quoted, as the case may be, (subject to official 

notice of issuance) and, so long as any Buyer owns any of the Securities, shall 

maintain, so long as any other shares of Common Stock shall be so listed or 

quoted, as the case may be, such listing or quotation, as the case may be, of 

all Conversion Shares and Warrant Shares from time to time issuable upon 

conversion of the Notes or exercise of the Warrants.  The Company will obtain 

and, so long as any Buyer owns any of the Securities, maintain the listing or 

quotation, as the case may be, and trading of its Common Stock on the OTCBB or 

any equivalent replacement exchange, the Nasdaq National Market ("Nasdaq"), the 

Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange 

("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all 

respects with the Company's reporting, filing and other obligations under the 

bylaws or rules of the National Association of Securities Dealers ("NASD") and 

such exchanges, as applicable.  The Company shall promptly provide to each Buyer 

copies of any notices it receives from the OTCBB and any other exchanges or 

quotation systems on which the Common Stock is then listed or quoted, as the 

case may be, regarding the continued eligibility of the Common Stock for listing 

or quotation, as the case may be, on such exchanges and quotation systems. 

 

                                    -19- 

 

j.

Corporate Existence.  So long as a Buyer beneficially owns any Notes or 

Warrants, the Company shall maintain its corporate existence and shall not sell 

{THIS IS A SUBSTANTIAL VETO RIGHT GIVEN TO BUYERS} all or substantially all of 

the Company's assets, except in the event of a merger or consolidation or sale 

of all or substantially all of the Company's assets, where the surviving or 

successor entity in such transaction (i) assumes the Company's obligations 

hereunder and under the agreements and instruments entered into in connection 

herewith and (ii) is a publicly traded corporation whose Common Stock is listed 

for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX. 

 

k.

No Integration.  The Company shall not make any offers or sales of any 

security (other than the Securities) under circumstances that would require 

registration of the Securities being offered or sold hereunder under the 1933 

Act or cause the offering of the Securities to be integrated with any other 

offering of securities by the Company for the purpose of any stockholder 

approval provision applicable to the Company or its securities. 

 

l.

Subsequent Investment.  The Company and the Buyers agree that, upon the 

filing by the Company of the Registration Statement to be filed pursuant to the 

Registration Rights Agreement (the "Filing Date"), the Buyers shall purchase 

additional Notes (the "Filing Notes") in the aggregate principal amount of Seven 

Hundred and Fifty Thousand Dollars ($750,000) and additional warrants (the 

"Filing Warrants") to purchase an aggregate of 350,000 shares of Common Stock, 

for an aggregate purchase price of Seven Hundred and Fifty Thousand Dollars 

($750,000), with the closing of such purchase to occur within five (5) days of 

the Filing Date; provided, however, that the obligation of each Buyer to 

purchase the Filing Notes and the Filing Warrants is subject to the 

satisfaction, at or before the closing of such purchase and sale, of the 

conditions set forth in Section 7.  The Company and the Buyers further agree 

that, upon the declaration of effectiveness of the Registration Statement to be 

filed pursuant to the Registration Rights Agreement (the "Effective Date"), the 

Buyers shall purchase additional notes  (the "Effectiveness Notes" and, 

collectively with the Filing Notes, the "Additional Notes") in the aggregate 

principal amount of One Million Dollars ($1,000,000) and additional warrants 

(the "Effectiveness Warrants" and, collectively with the Filing Warrants, the 

"Additional Warrants") to purchase an aggregate of 466,620 shares of Common 

Stock, for an aggregate purchase price of One Million Dollars ($1,000,000), with 

the closing of such purchase to occur within five (5) days of the Effective 

Date; provided, however, that the obligation of each Buyer to purchase the 

Additional Notes and the Additional Warrants is subject to the satisfaction, at 

or before the closing of such purchase and sale, of the conditions set forth in 

Section 7; and, provided, further, that there shall not have been a Material 

Adverse Effect as of such effective date.  The terms of the Additional Notes and 

the Additional Warrants shall be identical to the terms of the Notes and 

Warrants, as the case may be, to be issued on the Closing Date.  The Common 

Stock underlying the Additional Notes and the Additional Warrants shall be 

Registrable Securities (as defined in the Registration Rights Agreement) and 

shall be included in the Registration Statement to be filed pursuant to the 

Registration Rights Agreement. 

 

                                    -20- 

 

m.

Key Man Insurance.  The Company shall use its best efforts to obtain, on 

or before five (5) business days from the date hereof, key man life insurance on 

all key executive employees. 

 

n.

Restriction on Short Sales. The Buyers agree that, so long as any of the 

Notes remain outstanding, but in no event less than two (2) years from the date 

hereof, the Buyers will not enter into or effect any "short sales" (as such term 

is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or hedging 

transaction which establishes a net short position with respect to the Common 

Stock. 

 

o.

Breach of Covenants.  If the Company breaches any of the covenants set 

forth in this Section 4, and in addition to any other remedies available to the 

Buyers pursuant to this Agreement, the Company shall pay to the Buyers the 

Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the 

option of the Company, until such breach is cured.  If the Company elects to pay 

the Standard Liquidated Damages Amount in shares, such shares shall be issued at 

the Conversion Price at the time of payment. 

 

5.

TRANSFER AGENT INSTRUCTIONS.  The Company shall issue irrevocable 

instructions to its transfer agent to issue certificates, registered in the name 

of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in 

such amounts as specified from time to time by each Buyer to the Company upon 

conversion of the Notes or exercise of the Warrants in accordance with the terms 

thereof (the "Irrevocable Transfer Agent Instructions").  Prior to registration 

of the Conversion Shares and Warrant Shares under the 1933 Act or the date on 

which the Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 

without any restriction as to the number of Securities as of a particular date 

that can then be immediately sold, all such certificates shall bear the 

restrictive legend specified in Section 2(g) of this Agreement.  The Company 

warrants that no instruction other than the Irrevocable Transfer Agent 

Instructions referred to in this Section 5, and stop transfer instructions to

give effect to Section 2(f) hereof (in the case of the Conversion Shares and 

Warrant Shares, prior to registration of the Conversion Shares and Warrant 

Shares under the 1933 Act or the date on which the Conversion Shares and Warrant 

Shares may be sold pursuant to Rule 144 without any restriction as to the number 

of Securities as of a particular date that can then be immediately sold), will 

be given by the Company to its transfer agent and that the Securities shall 

otherwise be freely transferable on the books and records of the Company as and 

to the extent provided in this Agreement and the Registration Rights Agreement. 

Nothing in this Section shall affect in any way the Buyer's obligations and 

agreement set forth in Section 2(g) hereof to comply with all applicable 

prospectus delivery requirements, if any, upon re-sale of the Securities.  If a 

Buyer provides the Company with (i) an opinion of counsel in form, substance and 

scope customary for opinions in comparable transactions, to the effect that a 

public sale or transfer of such Securities may be made without registration 

under the 1933 Act and such sale or transfer is effected or (ii) the Buyer 

provides reasonable assurances that the Securities can be sold pursuant to Rule 

 

                                    -21- 

 

144, the Company shall permit the transfer, and, in the case of the Conversion 

Shares and Warrant Shares, promptly instruct its transfer agent to issue one or 

more certificates, free from restrictive legend, in such name and in such 

denominations as specified by such Buyer.  The Company acknowledges that a 

breach by it of its obligations hereunder will cause irreparable harm to the 

Buyers, by vitiating the intent and purpose of the transactions contemplated 

hereby.  Accordingly, the Company acknowledges that the remedy at law for a 

breach of its obligations under this Section 5 may be inadequate and agrees, in 

the event of a breach or threatened breach by the Company of the provisions of 

this Section, that the Buyers shall be entitled, in addition to all other 

available remedies, to an injunction restraining any breach and requiring 

immediate transfer, without the necessity of showing economic loss and without 

any bond or other security being required. 

 

6.

CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.  The obligation of the 

Company hereunder to issue and sell the Notes and Warrants to a Buyer at the 

Closing is subject to the satisfaction, at or before the Closing Date of each of 

the following conditions thereto, provided that these conditions are for the 

Company's sole benefit and may be waived by the Company at any time in its sole 

discretion: 

 

a.

The applicable Buyer shall have executed this Agreement and the 

Registration Rights Agreement, and delivered the same to the Company. 

 

b.

The applicable Buyer shall have delivered the Purchase Price in 

accordance with Section 1(b) above. 

 

c.

The representations and warranties of the applicable Buyer shall be true 

and correct in all material respects as of the date when made and as of the 

Closing Date as though made at that time (except for representations and 

warranties that speak as of a specific date), and the applicable Buyer shall 

have performed, satisfied and complied in all material respects with the 

covenants, agreements and conditions required by this Agreement to be performed, 

satisfied or complied with by the applicable Buyer at or prior to the Closing 

Date. 

 

d.

No litigation, statute, rule, regulation, executive order, decree, 

ruling or injunction shall have been enacted, entered, promulgated or endorsed 

by or in any court or governmental authority of competent jurisdiction or any 

self-regulatory organization having authority over the matters contemplated 

hereby which prohibits the consummation of any of the transactions contemplated 

by this Agreement. 

 

                                    -22- 

 

7.

CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.  The obligation of 

each Buyer hereunder to purchase the Notes and Warrants at the Closing is

subject to the satisfaction, at or before the Closing Date of each of the 

following conditions, provided that these conditions are for such Buyer's sole 

benefit and may be waived by such Buyer at any time in its sole discretion: 

 

a.

The Company shall have executed this Agreement and the Registration 

Rights Agreement, and delivered the same to the Buyer. 

 

b.

The Company shall have delivered to such Buyer duly executed Notes (in 

such denominations as the Buyer shall request) and Warrants in accordance with 

Section 1(b) above. 

 

c.

The Irrevocable Transfer Agent Instructions, in form and substance 

satisfactory to a majority-in-interest of the Buyers, shall have been delivered 

to and acknowledged in writing by the Company's Transfer Agent. 

 

d.

The representations and warranties of the Company shall be true and 

correct in all material respects as of the date when made and as of the Closing 

Date as though made at such time (except for representations and warranties that 

speak as of a specific date) and the Company shall have performed, satisfied and 

complied in all material respects with the covenants, agreements and conditions 

required by this Agreement to be performed, satisfied or complied with by the 

Company at or prior to the Closing Date.  The Buyer shall have received a 

certificate or certificates, executed by the chief executive officer of the 

Company, dated as of the Closing Date, to the foregoing effect and as to such 

other matters as may be reasonably requested by such Buyer including, but not 

limited to certificates with respect to the Company's Certificate of 

Incorporation, By-laws and Board of Directors' resolutions relating to the 

transactions contemplated hereby. 

 

e.

No litigation, statute, rule, regulation, executive order, decree, 

ruling or injunction shall have been enacted, entered, promulgated or endorsed 

by or in any court or governmental authority of competent jurisdiction or any 

self-regulatory organization having authority over the matters contemplated

hereby which prohibits the consummation of any of the transactions contemplated 

by this Agreement. 

 

f.

No event shall have occurred which could reasonably be expected to have 

a Material Adverse Effect on the Company. 

 

g.

The Conversion Shares and Warrant Shares shall have been authorized for 

quotation on the OTCBB and trading in the Common Stock on the OTCBB  shall not 

have been suspended by the SEC or the OTCBB. {THEY HAVE BEEN AUTHORIZED FOR 

QUOTATION AND TRADING SEE i ABOVE} 

 

                                    -23-

h.

The Buyer shall have received an opinion of the Company's counsel, dated 

as of the Closing Date, in form, scope and substance reasonably satisfactory to 

the Buyer and in substantially the same form as Exhibit "D" attached hereto. 

 

i.

The Buyer shall have received an officer's certificate described in 

Section 3(c) above, dated as of the Closing Date. 

 

8.

GOVERNING LAW; MISCELLANEOUS.   

 

a.

Governing Law.  THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND 

CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO 

AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD 

TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE 

EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, 

NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE 

AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED 

HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT 

FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE 

THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED 

IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR 

PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS 

IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT A FINAL NON- 

APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY 

BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER 

LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER 

THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING 

ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH 

DISPUTE. 

 

b.

Counterparts; Signatures by Facsimile.  This Agreement may be executed 

in one or more counterparts, each of which shall be deemed an original but all 

of which shall constitute one and the same agreement and shall become effective 

when counterparts have been signed by each party and delivered to the other 

party.  This Agreement, once executed by a party, may be delivered to the other 

party hereto by facsimile transmission of a copy of this Agreement bearing the 

signature of the party so delivering this Agreement. 

 

c.

Headings.  The headings of this Agreement are for convenience of 

reference only and shall not form part of, or affect the interpretation of, this 

Agreement. 

 

d.

Severability.  In the event that any provision of this Agreement is 

invalid or unenforceable under any applicable statute or rule of law, then such 

provision shall be deemed inoperative to the extent that it may conflict 

therewith and shall be deemed modified to conform with such statute or rule of 

law.  Any provision hereof which may prove invalid or unenforceable under any 

law shall not affect the validity or enforceability of any other provision 

hereof. 

 

e.

Entire Agreement; Amendments.  This Agreement and the instruments 

referenced herein contain the entire understanding of the parties with respect 

to the matters covered herein and therein and, except as specifically set forth 

herein or therein, neither the Company nor the Buyer makes any representation, 

warranty, covenant or undertaking with respect to such matters.  No provision of 

this Agreement may be waived or amended other than by an instrument in writing

signed by the party to be charged with enforcement. 

 

                                    -24- 

 

f.

Notices.  Any notices required or permitted to be given under the terms 

of this Agreement shall be sent by certified or registered mail (return receipt 

requested) or delivered personally or by courier (including a recognized 

overnight delivery service) or by facsimile and shall be effective five days 

after being placed in the mail, if mailed by regular United States mail, or upon 

receipt, if delivered personally or by courier (including a recognized overnight 

delivery service) or by facsimile, in each case addressed to a party.  The 

addresses for such communications shall be: 

 

If to the Company: 

 

INFE- Human Resources, Inc. 

67 Wall Street, 22nd Floor 

New York, NY 10005 

Attention: Chief Executive Officer  

Telephone:

(212) 859-3466 

Facsimile: 

 

With a copy to: 

Laura Anthony, Esq. 

330 Clemants Street, #217 

West Palm Beach, FL 33401 

Attention:  Laura Anthony, Esq. 

Telephone:  (561) 514-0936 

Facsimile:   (561) 514-0832 

 

If to a Buyer:  To the address set forth immediately below such Buyer's name on 

the signature pages hereto. 

 

With copy to: 

 

Ballard Spahr Andrews & Ingersoll, LLP 

1735 Market Street 

51st Floor 

Philadelphia, Pennsylvania  19103 

Attention:  Gerald J. Guarcini, Esq. 

Telephone:  215-864-8625 

Facsimile:  215-864-8999 

 

Each party shall provide notice to the other party of any change in address. 

 

                                    -25- 

 

g.

Successors and Assigns.  This Agreement shall be binding upon and inure 

to the benefit of the parties and their successors and assigns.  Neither the 

Company nor any Buyer shall assign this Agreement or any rights or obligations 

hereunder without the prior written consent of the other.  Notwithstanding the 

foregoing, subject to Section 2(f), any Buyer may assign its rights hereunder to 

any person that purchases Securities in a private transaction from a Buyer or to 

any of its "affiliates," as that term is defined under the 1934 Act, without the 

consent of the Company. 

 

h.

Third Party Beneficiaries.  This Agreement is intended for the benefit 

of the parties hereto and their respective permitted successors and assigns, and 

is not for the benefit of, nor may any provision hereof be enforced by, any 

other person. 

 

i.

Survival.  The representations and warranties of the Company and the 

agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the 

closing hereunder notwithstanding any due diligence investigation conducted by 

or on behalf of the Buyers.  The Company agrees to indemnify and hold harmless 

each of the Buyers and all their officers, directors, employees and agents for 

loss or damage arising as a result of or related to any breach or alleged breach 

by the Company of any of its representations, warranties and covenants set forth 

in Sections 3 and 4 hereof or any of its covenants and obligations under this 

Agreement or the Registration Rights Agreement, including advancement of 

expenses as they are incurred. 

 

j.

Publicity.  The Company and each of the Buyers shall have the right to 

review a reasonable period of time before issuance of any press releases, SEC, 

OTCBB or NASD filings, or any other public statements with respect to the 

transactions contemplated hereby; provided, however, that the Company shall be 

entitled, without the prior approval of each of the Buyers, to make any press 

release or SEC, OTCBB (or other applicable trading market) or NASD filings with

respect to such transactions as is required by applicable law and regulations 

(although each of the Buyers shall be consulted by the Company in connection 

with any such press release prior to its release and shall be provided with a 

copy thereof and be given an opportunity to comment thereon). 

 

k.

Further Assurances.  Each party shall do and perform, or cause to be 

done and performed, all such further acts and things, and shall execute and 

deliver all such other agreements, certificates, instruments and documents, as 

the other party may reasonably request in order to carry out the intent and 

accomplish the purposes of this Agreement and the consummation of the 

transactions contemplated hereby. 

 

l.

No Strict Construction.  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.

  

 

                                    -26- 

 

m.

Remedies.  The Company acknowledges that a breach by it of its 

obligations hereunder will cause irreparable harm to the Buyers by vitiating the 

intent and purpose of the transaction contemplated hereby.  Accordingly, the 

Company acknowledges that the remedy at law for a breach of its obligations 

under this Agreement will be inadequate and agrees, in the event of a breach or 

threatened breach by the Company of the provisions of this Agreement, that the 

Buyers shall be entitled, in addition to all other available remedies at law or 

in equity, and in addition to the penalties assessable herein, to an injunction 

or injunctions restraining, preventing or curing any breach of this Agreement 

and to enforce specifically the terms and provisions hereof, without the 

necessity of showing economic loss and without any bond or other security being 

required. 

  

IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this 

Agreement to be duly executed as of the date first above written. 

 

 

INFE-HUMAN RESOURCES, INC. 

 

________________________________ 

Arthur Viola 

Chief Executive Officer  

 

 

AJW PARTNERS, LLC 

By:  SMS Group, LLC 

 

 

______________________________________ 

Corey S. Ribotsky 

Manager 

 

 

RESIDENCE:  Delaware 

 

ADDRESS:

1044 Northern Boulevard 

Suite 302 

Roslyn, New York 11576 

Facsimile:  (516) 739-7115 

Telephone:  (516) 739-7110 

 

AGGREGATE SUBSCRIPTION AMOUNT: 

 

Aggregate Principal Amount of Notes:

$________ 

Number of Warrants:

                 ________ 

Aggregate Purchase Price:

        $________ 

  

 

                                    -27- 

 

AJW OFFSHORE, LTD. 

By:  First Street Manager II, LLC 

 

 

______________________________________ 

Corey S. Ribotsky  

Manager 

 

 

RESIDENCE:   Cayman Islands 

 

ADDRESS:AJW Offshore, Ltd. 

P.O. Box 32021 SMB 

Grand Cayman, Cayman Island, B.W.I.  

 

AGGREGATE SUBSCRIPTION AMOUNT: 

 

Aggregate Principal Amount of Notes:

$_______ 

Number of Warrants:

_______ 

Aggregate Purchase Price:

$_______ 

  

 

AJW QUALIFIED PARTNERS, LLC 

By:  AJW Manager, LLC 

____________________________________ 

Corey S. Ribotsky  

Manager 

 

 

RESIDENCE:

    New York 

 

ADDRESS:

1044 Northern Boulevard 

Suite 302 

Roslyn, New York 11576 

Facsimile:

(516) 739-7115 

Telephone:

(516) 739-7110 

 

 

AGGREGATE SUBSCRIPTION AMOUNT: 

 

Aggregate Principal Amount of Notes:

        $________ 

Number of Warrants:

________ 

Aggregate Purchase Price:

       $________ 

 

                                    -28- 

  

 

NEW MILLENNIUM CAPITAL PARTNERS II, LLC  

By:  First Street Manager II, LLP 

____________________________________ 

Corey S. Ribotsky  

Manager 

 

 

RESIDENCE:

    New York 

 

ADDRESS:

1044 Northern Boulevard 

Suite 302 

Roslyn, New York 11576 

Facsimile:

(516) 739-7115 

Telephone:

(516) 739-7110 

 

 

AGGREGATE SUBSCRIPTION AMOUNT: 

 

Aggregate Principal Amount of Notes:

$______ 

Number of Warrants:

  

 ______ 

Aggregate Purchase Price:

$______ 

 

 

 

 

                                    -29-z3ex10-1.htm

 

Exhibit 10.1

 

Agreement for Acquisition

 

Tuesday, March 29, 2011

 

Tim Hassett

HPEV, Inc.

27420 Breakers Drive

Wesley Chapel, FL 33544

Re:  Share Exchange Agreement with HPEV, Inc

 

Gentlemen:

 

This letter sets forth the terms of the binding letter of agreement of Z3 Enterprises, Inc (“Z3”), a Nevada corporation, a publicly traded company of the OTCQB to acquire from you Tim Hassett, B. Mark Hodowanec, C. Quentin Ponder  and D. Darren Zellers and HPEV, Inc. (“HPEV”) 100% of the shares of common and preferred stock in HPEV, Inc.  (“HPEV”)  a Delaware corporation for (a) 12,000,000 newly issued ordinary common shares of stock of Z3 and (b) One Hundred thousand (100,000) newly issued Series B convertible, exchangeable preferred stock of Z3, each share of which shall be convertible or exchangeable at HPEV’s option into one hundred (100) new issued ordinary shares for a total of 22,000,000 shares (upon conversion) of common stock of Z3 (“Exchange Shares”)  (c) Z3 agrees to make an additional capital investment in HPEV as follows (contingent upon financing and less cost of capital): Phase 1: $550,000 for development of a working prototype model in accordance with the objective in Exhibit B.. Phase 2: $5,000,000 upon demonstration of the completion of the working prototype model in accordance with the objective in Exhibit B; Phase 3: $50,000,000 upon completion of a registered public offering or private placement.

 

This transaction shall occur in the form of an agreement for the exchange of stock of the entities by the shareholders of HPEV and the Board of Directors of Z3. Once this agreement is consummated and all approvals obtained, the $550,000 to cover Phase 1 will be placed in escrow with Bank of America for transfer to HPEV, Inc. prior to an actual transfer of stock to either party. (This is expected to be funded over a period of 15-30 days).

 

1.           Share Exchange Agreement with HPEV Inc.  Z3 shall acquire 100% of all shares of stock of HPEV, Inc. (“HPEV Shares”) for the Exchange Shares pursuant to a long form Share Exchange Agreement in a form and content acceptable to each of Z3 and HPEV, which shall include the terms, representation and warranties customary in agreements of this type, including without limitation:

 

                      (a)  Warranty by Z3 that the financial condition and liabilities of Z3 are fully and fairly presented in Z3 filings with the Securities and Exchange Commission.

 

                      (b)  Warranty by HPEV that the assets and liabilities of HPEV are fully and fairly presented in the attached summary balance sheet of HPEV which shall include the patents identified in Exhibit A.  (The patents shall remain assets of HPEV under this Share Exchange Agreement. The patents may be assigned or licensed to any newly formed subsidiary of Z3.

 

                      (c)  The Approvals set forth in Paragraph 2 below shall all be given to the satisfaction of Z3’s and HPEV’s counsel, as their interest shall appear, on or before completion of the Share Exchange Agreement.

 

                      (d)  The Management Appointments for Z3 set forth in Paragraph 3 below shall be confirmed by appropriate corporate resolutions on or before completion of the Share Exchange Agreement.

 

                      (e)  The transfer of the HPEV Shares and the issuance of the Exchange Shares shall be completed and confirmed by opinion of Z3’s and HPEV’s counsel, as the case may be, prior to completion of the Share Exchange Agreement.  The Exchange Shares shall be unregistered and subject to resale and distribution restriction pursuant to Rule 144, provided that Z3 will undertake to register its ordinary shares to be issued to HPEV’s shareholders on completion and/or conversion or exchange of Series A convertible exchangeable preferred stock.

 

                      (f)  Both Z3 and HPEV shall have completed all due diligence and investigation of the affairs of the other party as each may determine necessary, appropriate or desirable.

 

 

 

  

  

  

 

 

2.           Approvals.  The completion of the transaction contemplated by the Share Exchange Agreement shall be subject to the following conditions and approvals (“Approvals”):

 

                      (a)  The approval by a majority vote of the Board of Directors and shareholders of Z3.  Promptly after execution of the Share Exchange Agreement, and as soon as feasible, Z3 shall obtain consent of the majority of its directors and shareholders for approval of the Share Exchange Agreement and Management Appointments, which management of Z3 will both recommend the Share Exchange Agreement and Management Appointments for approval by the shareholders of Z3 and vote as directors and as shareholders or proxy holder to approve the Share Exchange Agreement and Management Appointments.  Z3 may, at its discretion, obtain a fairness opinion for the Share Exchange Agreement from an investment bank or other financial advisor with experience in such transaction to be delivered to the Board of Directors and shareholders prior to approval of the Share Exchange Agreement.

 

                      (b)  The approval of the Share Exchange Agreement by HPEV’s Board of Directors and all Shareholders of HPEV.

 

                      (c)  Approval by FINRA of the change of control of Z3 and the continuation of Z3’s current FINRA listing, which may require approval of a reverse split of Z3’s ordinary shares to be approved at the Special Meeting.

 

3.           Management Appointments.  The Board of Directors of Z3 shall approve the appointment of the new Board of Directors and principal officers of Z3 (“Management Appointments”).  The Management Appointments shall include the following:

 

                      (a)  Z3 shall designate [five] new directors and HPEV shall designate [four] directors which may be existing directors of Z3.  [Three] of Z3’s designated directors shall be independent as defined by NASDAQ “(Independent”) and [two] of HPEV’s designated directors shall be Independent so that a majority of Z3’s directors shall be Independent.  Z3 shall appoint two of the three members of the Audit Committee and HPEV shall appoint one such member, all of whom shall be Independent and one of whom will be a “financial expert” as defined by NASDAQ.

 

                      (b)  Z3 shall appoint the Chairman of the Board, Chief Executive Officer and Chief Financial Officer of Z3.  HPEV shall appoint the, the President, and the chief technology officer of Z3. In addition, HPEV shall appoint all officers of HPEV.  The Board of Directors of HPEV shall consist of three individuals and Z3 shall appoint one of the board members of HPEV.

 

                      (c)  The current management team of HPEV shall remain in place as will certain individuals management and otherwise for Z3.  Ross Giles, Judson Bibb, Zig Ziegler, Brian Duffy, Tim Hassett, B. Mark Hodowanec, and C. Quentin Ponder shall each receive new five (5) year employment agreements or independent contractor agreements on terms mutually agreed upon by Z3 and HPEV and the parties; any or each may or may not be officers of either Z3 or HPEV, as Z3 shall approve.

 

  4.           General Terms.

 

(a)  Professional Costs.  Each party shall pay the costs and expenses of its own advisers, if any, incidental to the negotiation, preparation and execution, of the Share Exchange Agreement.

 

           (b)  Entire Agreement.  This letter of intent contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters.  This letter of intent is not intended to be a partnership under any applicable and neither party shall have or owe any fiduciary or similar duties to the other, except as specifically set forth herein.

 

           (c)  Notices.  Any notice or other communication required given hereunder shall be in writing and shall be deemed to have been properly given upon facsimile transmission (with written transmission confirmation report) at the number designated below (if delivered on a business day during normal business hours), or the first business day following such delivery (if delivered other than on a business day during normal business hours) whichever shall first occur.  The addresses for such communications shall be as set forth on the first page of this letter:

 

                      (d)  Amendments; Waivers.  No provision of this letter may be waived or amended except in a written instrument signed, in the case of an amendment, by both parties, or, in the case of a waiver, by the party against whom enforce­ment of any such waiver is sought.  No waiver shall be deemed to be a continuing waiver in the future or a waiver of any other provision nor shall any delay or omission of either party to exercise any right hereunder in any manner limit that party’s ability to exercise any such right thereafter.

 

           (e)  Headings.  The headings herein are for convenience only and shall not be deemed to limit or affect any of the provisions hereof.

 

                      (f)  Successors and Assigns.  The assignment by a party of this letter or any rights hereunder shall not affect the obligations of such party under this letter.

 

 

 

  

  

  

 

           (g)  Choice of Law. This Agreement shall be governed and construed in all respects in accordance with the laws of Nevada.  The Parties agree that any claim or dispute between them or against any agent, employee, successor, or assign of the other, whether related to this agreement or otherwise, and any claim or dispute related to this agreement or the relationship or duties contemplated under this contract, including the validity of this arbitration clause, shall be resolved by binding arbitration by the American Arbitration Association, under the Arbitration Rules then in effect.

 

                      (h)  Publicity.  Each party shall consult with each other prior to the issue of any press releases or other public statements with respect to the transactions contemplated herein and neither party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other.

 

                      (i)  Due Diligence. Each party agrees to cooperate with the other party’s due diligence investigation and to provide the other and each party’s authorized representatives, access to key employees and to books, records, contracts and other information pertaining to the business (the “Due Diligence Information”).

 

	 	 	
(j)  Confidentiality.  Non-competition. Each party will use Due Diligence information solely for the purpose of its due diligence investigation and unless and until the closing of the proposed transaction, each party, their affiliates, directors, officers, employees, advisors, and agents (the “Representatives”) will keep the Due Diligence Information strictly confidential.  Each party will disclose the Due Diligence Information only to those Representatives of the Purchaser who need to know such information for the purpose of consummating the proposed transaction. Each party shall be liable to the other for any breach of this paragraph.  In the event that the parties cannot agree on the terms and conditions of the letter, each party will return to the other materials containing Due Diligence Information, or will certify in writing that all such materials or copies of such materials have been destroyed.  Neither party will use any Due Diligence Information to compete with the other in the event that the parties are unable to close the proposed transaction.  The provisions of this paragraph will survive the termination of this letter agreement.

 

	
5. Execution of Contract in Counterparts; Facsimile Copies Acceptable. This Agreement shall be bound and sealed, each and every page shall be initialed, and the signatures of the Parties' duly authorized representatives shall be affixed as indicated below. The Parties stipulate and agree that this Agreement may be signed in counterparts, duly initialed and executed by each Party as set forth above. When each counterpart, duly initialed and executed, and delivery thereof has been made to each Party respectively, this Agreement shall then be considered to be an original, binding agreement between The Parties, whether received in hand, delivered by mail or courier, or transmitted via electronic facsimile transmission. The Parties further stipulate and agree that duly executed electronic facsimile transmission copies shall be acceptable and shall be considered to be as valid, legal and binding upon The Parties as the originals thereof.

 

Please confirm your agreement to the foregoing by signing below where indicated.

 

Very truly yours,

 

Z3 Enterprises, Inc.

 

                                                                                                                /s/  Ross Giles

By: Ross Giles

                                                                                                                Its: President

 

AGREED AND ACCEPTED on this 29th day of March 2011

 

HPEV, Inc.                                                                           

 

/s/Tim Hassett

By:  Tim Hassett                                                                     /s/ Tim Hassett    

Its: Chairman                                                                                 Individually

 

/s/ C. Quentin Ponder                                                                           

Individually

 

/s/ B. Mark Hodowanec

Individually

/s/ D. Darren Zellers

 

 

  

  

  

 

Exhibit A

 

HPEV, INC.    PATENTS

 

 

Title Dkt #-----Filing Date-----Status Serial/Patent No.

 

 

1. Motor w/ Heat Pipes (US App) HAST 9608U1--------6/19/2007-------Issued 8/4/097,569,955

 

 

2. Motor w/ Heat Pipes (Cont App) - Hermetic HAST 9608C1------6/31/2009---- Patent Pending: 12/533,236

 

 

3. Motor w/ Heat Pipes (CIP App) - new submersible HAST 9608C2-------7/31/2009-------Patent Pending: 12/533,245

 

 

4. Composite Heat Pipes (US App) HAST D099U1-------1/12/2009--------- Patent Pending: 12/352,3013

 

 

5. Bearing Cooler (US App) HAST D151U1---------4/3/2009----- Patent Pending: 12/418,162

 

 

6. Tot Encl'd Air-HP-Air Cooled (US App) HAST D261U1-------8/6/2009------ Patent Pending: 12/536,921

 

 

7. PHEV System (US App) HAST D428US----------7/2/2010------ Patent Pending:  12/829,603

 

 

 

 

  

  

  

 

 

 

 

EXHIBIT B

 

PHEV Proof-of-Commercialization for Conversion of Large SUVs (Suburban size SUVs) & Full Size Pickup Trucks:

 

USE OF FUNDS

 

 Objective:

 

Modify & commercialize truck/SUV platform to demonstrate 50/60+ miles on battery power

 

 Vehicle to Modify:

 

Full Size 3⁄4 or 1-Ton Pickup Truck/SUV:

 

 

	
§  

	
2500 Dodge Ram or Ford F350 or Hummer H2/H1

 

 

	
§  

	
4x4

 

Components & Costs:

 

Donor Vehicle                                                                                                   $40,000

67 kW induction motor (Built by TSM w/ TMI technology)                    $15,000

            Labor – induction motor design                                                        $45,000

67 kW IGBT drive (cooled by TMI technology, modified by TSM)        $15,000

            Labor – induction motor drive design                                              $45,000

Controller Development                                                                                  $40,000

22 Type 31 batteries                                                                                         $20,000

Battery Box, Cables, etc. (cooled via TMI technology)                             $15,000

            Labor – battery box, cables, etc. design                                           $45,000

11.5 AAM Axle (rear axle that is used in this truck)                                     $3,000

Custom built 11.5 AAM Rear Axle (axle that will be used in this truck)  $20,000

            Labor – Custom built 11.5 AAM Rear Axle design                        $45,000

Gear Set                                                                                                              $25,000

Miscellaneous (development, hardware, etc.)                                             $75,000 

 

Total                                                                                                              $448,000           

 

 

NOTE: The above are budgetary ROMs for component costs.  HPEV will refine cost estimates by obtaining quotes products similar to above components.  HPEV may also optimize the production with new or advanced technologies which may be identified by the company and may reduce this cost or accelerate the production of the working prototype prior to completion.

 

 

 

Timing:  Deliver fully commercialized vehicle- 6-8 months maximum.

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