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SECURITIES PURCHASE AGREEMEN

Stock Purchase Agreement

SECURITIES PURCHASE AGREEMEN | Document Parties: XINHUA CHINA LTD You are currently viewing:
This Stock Purchase Agreement involves

XINHUA CHINA LTD

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Title: SECURITIES PURCHASE AGREEMEN
Governing Law: New York     Date: 12/16/2005
Law Firm: Devlin Jensen, Barristers Solicitors    

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EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of November 23, 2005, by and among XINHUA CHINA LTD, a Nevada corporation (the “ Company ”), and the Buyers listed on Schedule I attached hereto (individually, a “ Buyer ” or collectively “ Buyers ”).

WITNESSETH:

          WHEREAS , the Company and the Buyer(s) are executing and delivering this Agreement in reliance upon an exemption from securities registration pursuant to Section 4(2) and/or Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the U.S. Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ Securities Act ”);

           WHEREAS , the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer(s), as provided herein, and the Buyer(s) shall purchase (i) up to Four Million Dollars ($4,000,000) of secured convertible debentures (the “ Convertible Debentures ”), which shall be convertible into shares of the Company’s common stock, par value $.00001 (the “ Common Stock ”) (as converted, the “ Conversion Shares ”).  Of such total principal amount, subject to the deduction of any and all fees, One Million Two Hundred Fifty Thousand Dollars ($1,250,000) shall be funded on the fifth (5 th ) business day following the date hereof (the “ First Closing ”); Two Million Dollars ($2,000,000) shall be funded upon the filing of the registration statement (the “ Registration Statement ”) pursuant to the Investor Registration Rights Agreement dated the date hereof with the SEC (the “ Second Closing ”); and Seven Hundred Fifty Thousand Dollars ($750,000) shall be funded upon the effectiveness of the Registration Statement (the “ Third Closing ”) (individually referred to as a “ Closing ” and collectively referred to as the “ Closings ”), and (ii) warrants to purchase 1,035,000 shares of Common Stock (the “ Warrants ”) at the First Closing.  The total purchase price for the Convertible Debentures and the Warrants shall be up to Four Million Dollars ($4,000,000) (the “ Purchase Price ”) which Purchase Price shall be allocated among the Buyer(s) in the respective amounts set forth opposite each Buyer’s name on Schedule I (the “ Subscription Amount ”); and

          WHEREAS , contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit A (the “ Investor Registration Rights Agreement ”) pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated there under, and applicable state securities laws; and

          WHEREAS , the aggregate proceeds of the sale of the Convertible Debentures and the Warrants contemplated hereby shall be held in escrow pursuant to the terms of an escrow agreement substantially in the form of the Escrow Agreement among the Company, the Buyer(s) and the Escrow Agent (as defined below) attached hereto as Exhibit B (the “ Escrow Agreement ”).

          WHEREAS , contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Security Agreement substantially in the form









attached hereto as Exhibit C (the “ Security Agreement ”) pursuant to which the Company has agreed to provide the Buyer a security interest in Pledged Collateral (as this term is defined in the Security Agreement) to secure the Company’s obligations under this Agreement, the Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, as defined below, the Security Agreement, the Escrow Agreement, the Escrow Shares Escrow Agreement, as defined below, or any other obligations of the Company to the Buyer;

          WHEREAS , contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Escrow Shares Escrow Agreement substantially in the form attached hereto as Exhibit D (the “ Escrow Shares Escrow Agreement ”) pursuant to which the Company shall issue and deliver to the Escrow Agent 20,000,000 shares of Common Stock or “security stock” (the “ Escrow Shares ”) and if there is an Event of Default under the Convertible Debentures, the Escrow Agent shall distribute the Escrow Shares to the Buyer(s) upon receipt of a Conversion Notice (as defined herein);

          WHEREAS , contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering Irrevocable Transfer Agent Instructions substantially in the form attached hereto as Exhibit E (the “ Irrevocable Transfer Agent Instructions ”); and

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

           1.        PURCHASE AND SALE OF CONVERTIBLE DEBENTURES .

                     (a)       Purchase of Convertible Debentures .  Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to purchase at Closing (as defined herein below) and the Company agrees to sell and issue to each Buyer, severally and not jointly, at Closing, Convertible Debentures in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto and the Warrants set forth opposite each Buyer’s name on Schedule I hereto.  Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription Amount set forth opposite his name on Schedule I in same-day funds or a check payable to “Gottbetter & Partners, LLP, as Escrow Agent for XHUA”, which Subscription Amount shall be held in escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined) and disbursed in accordance therewith. 

                     (b)      Closing Date .  The First Closing of the purchase and sale of the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on or before the fifth (5 th ) business day following the date hereof, subject to notification of satisfaction of the conditions to the First Closing set forth herein and in Sections 7 and 8 below (or such later date as is mutually agreed to by the Company and the Buyer(s)) (the “ First Closing Date ”), the Second Closing of the purchase and sale of the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time two (2) business days prior to the date the Registration Statement is filed with the SEC, subject to notification of satisfaction of the conditions to the Second Closing set forth herein and in Sections 7 and 8 below (or such later date as is mutually agreed to by the Company and the Buyer(s)) (the “ Second Closing Date ”) and the Third Closing of the purchase and sale of the Convertible Debenture shall take place at 10:00 a.m. Eastern Standard Time within two (2)




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business days after the Registration Statement is declared effective, subject to notification of satisfaction of the conditions to the Third Closing set forth herein and in Sections 7 and 8 below (or such later date as is mutually agreed to by the Company and the Buyer(s)) (collectively referred to a the “ Closing Dates ”).  The Closing shall occur on the respective Closing Dates at the offices of Gottbetter & Partners, LLP, 488 Madison Avenue, New York, New York 10022 (or such other place as is mutually agreed to by the Company and the Buyer(s)).

                     (c)       Escrow Arrangements; Form of Payment .  Upon execution hereof by Buyer(s) and pending the Closings, $1,250,000 shall be deposited in a non-interest bearing escrow account with Gottbetter & Partners, LLP as escrow agent (the “ Escrow Agent ”), pursuant to the terms of the Escrow Agreement.  If the conditions in Sections 7 and 8 and as set forth herein for the Second Closing are satisfied, an additional $2,000,000 shall be deposited in a non-interest bearing account with the Escrow Agent one business day prior to the Second Closing Date.  If the conditions in Sections 7 and 8 and as set forth herein for the Third Closing are satisfied, an additional $750,000 shall be deposited in a non-interest bearing account with the Escrow Agent one business day prior to the Third Closing Date.  Subject to the satisfaction of the terms and conditions of this Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver to the Company in accordance with the terms of the Escrow Agreement such aggregate proceeds for the Convertible Debentures and Warrants to be issued and sold to such Buyer(s) minus the unpaid origination fee owed to the Buyer(s), and (ii) the Company shall deliver to each Buyer, Convertible Debentures which such Buyer(s) is purchasing in amounts indicated opposite such Buyer’s name on Schedule I, duly executed on behalf of the Company and the Warrants which such Buyer(s) is purchasing in numbers indicated opposite such Buyer’s name on Schedule I.

           2.        BUYER’S REPRESENTATIONS AND WARRANTIES .

           Each Buyer represents and warrants, severally and not jointly, that:

                     (a)       Investment Purpose .  Each Buyer is acquiring the Convertible Debentures, the Warrants and, upon conversion of Convertible Debentures and/or the exercise of the Warrants, the Buyer will acquire the Conversion Shares and/or Warrant Shares, as defined below, then issuable, and if there is an Event of Default under the Convertible Debentures the Buyer may also receive the Escrow Shares, for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Conversion Shares, the Warrants, the Warrant Shares and the Escrow Shares, if applicable, at any time in accordance with or pursuant to an effective registration statement covering such Conversion Shares, the Warrants, the Warrant Shares and the Escrow Shares or an available exemption under the Securities Act.

                     (b)      Accredited Investor Status .  Each Buyer is an “ Accredited Investor ” as that term is defined in Rule 501(a)(3) of Regulation D.

                     (c)       Reliance on Exemptions .  Each Buyer understands that the Convertible Debentures and the Warrants are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the

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Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such securities.

                     (d)      Information .  Each Buyer and its advisors (and his or, its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the Convertible Debentures, the Warrants, the Warrant Shares, the Conversion Shares and the Escrow Shares if there is an Event of Default under the Convertible Debentures, which have been requested by such Buyer.  Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management.  Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.  Each Buyer understands that its investment in the Convertible Debentures, the Warrants, the Warrant Shares, the Conversion Shares and the Escrow Shares, if applicable, involves a high degree of risk.  Each Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment.  Each Buyer has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Convertible Debentures, the Warrants, the Warrant Shares, the Conversion Shares and the Escrow Shares, if applicable.

                     (e)       No Governmental Review .  Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Convertible Debentures, the Warrants, the Escrow Shares, the Warrant Shares or the Conversion Shares, or the fairness or suitability of the investment in the Convertible Debentures, the Warrants, the Warrant Shares, the Conversion Shares, or the Escrow Shares, if applicable, nor have such authorities passed upon or endorsed the merits of the offering of the Convertible Debentures, the Warrants, the Escrow Shares, the Warrant Shares or the Conversion Shares.

                     (f)        Transfer or Resale .  Each Buyer understands that except as provided in the Investor Registration Rights Agreement: (i) the Convertible Debentures and the Warrants have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144 under the Securities Act (or a successor rule thereto) (“ Rule 144 ”) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale 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 Securities Act) may require compliance with some other exemption under the Securities 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


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such securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

                     (g)       Legends .  Each Buyer understands that the certificates or other instruments representing the Convertible Debentures, the Warrants, the Escrow Shares, the Warrant Shares and/or the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

The legend set forth above shall be removed and the Company within two (2) business days shall issue a certificate without such legend to the holder of the Escrow Shares, Warrants, the Warrant Shares and Conversion Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale transaction, provided the Escrow Shares, Warrants, Warrant Shares and Conversion Shares are registered under the Securities Act or (ii) in connection with a sale transaction, after such holder provides the Company with an opinion of counsel, which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Escrow Shares, Warrants, Warrant Shares and Conversion Shares may be made without registration under the Securities Act.

                     (h)       Authorization, Enforcement .  This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.








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                     (i)         Receipt of Documents .  Each Buyer and his or its counsel has received and read in their entirety:  (i) this Agreement and each representation, warranty and covenant set forth herein, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Agreement, and the Escrow Shares Escrow Agreement; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company’s Form 10-KSB for the fiscal year ended June 30, 2004; (iv) the Company’s Form 10-QSB for the fiscal quarter ended March 31, 2005 and (v) it has received answers to all questions each Buyer submitted to the Company regarding an investment in the Company; and each Buyer has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.

                     (j)        Due Formation of Corporate and Other Buyers .  If the Buyer(s) is a corporation, trust, partnership or other entity that is not an individual person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Convertible Debentures and Warrants is not prohibited from doing so.

                     (k)      No Legal Advice From the Company .  Each Buyer acknowledges, that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors.  Each Buyer is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction. 

                     (l)         No Group Participation .    Each Buyer and its affiliates is not a member of any group, nor is any Buyer acting in concert with any other person, including any other Buyer, with respect to its acquisition of the Convertible Debentures, Warrants, Warrant Shares, Conversion Shares, or Escrow Shares if there is an Event of Default under the Convertible Debentures.

                     (m)     Company Registration Statement .  No Buyer makes any representation or warranty regarding the Company’s ability to successfully become a public company or to have any registration statement filed by the Company pursuant to the Investor Registration Rights Agreement or otherwise declared effective by the SEC.  The Company has the sole obligation to make any and all such filings as may be necessary to become a public company and to have any registration statement declared effective by the SEC.

          3.        REPRESENTATIONS AND WARRANTIES OF THE COMPANY .

The Company represents and warrants to each of the Buyers that, except as set forth in the SEC Documents (as defined herein):

                    (a)       Organization and Qualification .  The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted.  Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in

 

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every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect, as defined below, on the Company and its subsidiaries taken as a whole.

                    (b)      Authorization, Enforcement, Compliance with Other Instruments .  (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, the Escrow Agreement, the Escrow Shares Escrow Agreement, and any related agreements (collectively the “ Transaction Documents ”) and to issue the Convertible Debentures, the Escrow Shares, the Warrants, the Warrant Shares and the Conversion Shares in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Convertible Debentures, the Escrow Shares, the Warrants, the Warrant Shares and the Conversion Shares  and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company, (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.  The authorized officer of the Company executing the Transaction Documents knows of no reason why the Company cannot file the registration statement as required under the Investor Registration Rights Agreement or perform any of the Company’s other obligations under such documents.

                    (c)       Capitalization .  As of the date hereof, and prior to the issuance of any shares in connection with this Agreement, the authorized capital stock of the Company consists of 500,000,000 Common Shares, $.00001 par value per share.  As of the Closing Date hereof, the Company has 61,779,765 common shares issued and outstanding.  All of such outstanding shares have been validly issued and are fully paid and nonassessable.  Except as disclosed in the SEC Documents (as defined in Section 3(f)), no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company.  Except as disclosed in the SEC Documents, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings 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 or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding registration statements and there are no outstanding

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comment letters from the SEC or any other regulatory agency.  There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Convertible Debentures and Warrants as described in this Agreement.  The Convertible Debentures, Warrants, Warrant Shares, Conversion Shares and Escrow Shares when issued, will be free and clear of all pledges, liens, encumbrances and other restrictions (other than those arising under federal or state securities laws as a result of the private placement of the Debentures and Warrants).  No co-sale right, right of first refusal or other similar right exists with respect to the Debentures, Warrants, Warrant Shares, Escrow Shares and the Conversion Shares or the issuance and sale thereof.  The issue and sale of the Debentures, Warrants, Warrant Shares, Escrow Shares and the Conversion Shares will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities.  The Company has furnished to the Buyer true and correct copies of the Company’s Articles of Incorporation, as amended and as in effect on the date hereof (the “ Articles of Incorporation ”), and 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 and the material rights of the holders thereof in respect thereto other than stock options issued to employees and consultants.

                    (d)      Issuance of Securities .  The Convertible Debentures are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully paid and non-assessable, are free from all taxes, liens and charges with respect to the issue thereof.  The Conversion Shares, the Warrant Shares and the Escrow Shares have been duly authorized and reserved for issuance.  Upon conversion or exercise in accordance with the Transaction Documents, the Conversion Shares and the Warrant Shares will be duly issued, fully paid and nonassessable.  In addition, if there is an Event of Default under the Convertible Debentures and the Buyer(s) deliver a Conversion Notice to the Escrow Agent to deliver the Escrow Shares to the Buyer(s), then at the time of release of the Escrow Shares such Escrow Shares will be considered fully-paid and non-assessable.

                    (e)       No Conflicts .  Except as disclosed in the SEC Documents, the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, or the By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The National Association of Securities Dealers Inc.’s OTC Bulletin Board on which the Common Stock is quoted) 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 as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries.  The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity.  Except as specifically

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contemplated by this Agreement and as required under the Securities 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 or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof.  Except as disclosed in the SEC Documents, 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 and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.

                    (f)        SEC Documents: Financial Statements .  Since January 1, 2002, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “ SEC Documents ”).  The Company has delivered to the Buyers or their representatives, or made available through the SEC’s website at http://www.sec.gov., true and complete copies of the SEC Documents.  As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the “ Financial Statements ”) 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 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 exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Buyer which is not included in the SEC Documents, including, without limitation, information referred to in this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

                    (g)       10(b)-5 .  The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

                    (h)       Absence of Litigation .  Except as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a

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material adverse effect on the business, operations, properties, financial condition or results of  operations of the Company and its subsidiaries taken as a whole.

                    (i)         Acknowledgment Regarding Buyer’s Purchase of the Convertible Debentures .  The Company acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that each Buyer is not 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 advice given by such Buyer or any of such Buyer’s respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer’s purchase of the Convertible Debentures, the Warrants, the Warrant Shares, the Conversion Shares, or the Escrow Shares if there is an Event of Default under the Convertible Debentures and the Buyer(s) deliver a Conversion Notice to the Escrow Agent to deliver the Escrow Shares to the Buyer(s).  The Company further represents to the Buyers that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives.

                    (j)        No General Solicitation .  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Convertible Debentures, the Warrants, the Warrant Shares, the Conversion Shares, or the Escrow Shares, if applicable.

                    (k)      No Integrated Offering .  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Convertible Debentures, the Escrow Shares, the Warrants, the Warrant Shares or the Conversion Shares under the Securities Act or cause this offering of the Convertible Debentures, the Escrow Shares, the Warrants, the Warrant Shares or the Conversion Shares to be integrated with prior offerings by the Company for purposes of the Securities Act.

                    (l)         Employee Relations .  Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.  None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

                    (m)     Intellectual Property Rights .  The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.  The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company there is no claim, action or proceeding being made or brought against, or to the

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Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

                    (n)       Environmental Laws .  The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“ Environmental Laws ”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

                    (o)      Title .  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 are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

                    (p)      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 been refused any insurance coverage sought or applied for and 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 materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.

                    (q)      Regulatory Permits .  The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

                    (r)        Internal Accounting Controls .  The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, and (iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

                    (s)       No Material Adverse Breaches, etc .  Except as set forth in the SEC Documents, 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

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judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect.

                    (t)        Tax Status .  Except as set forth in the SEC Documents, the Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (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) 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 provision 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.

                    (u)       Certain Transactions .  Except as set forth in the SEC Documents, and except for arm’s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (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.

                    (v)       Fees and Rights of First Refusal .  The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

                    (w)     Reliance .  The Company acknowledges that the Buyers are relying on the representations and warranties made by the Co


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