THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE SECURITIES OF THE COMPANY. ANY OFFER OF SECURITIES MADE BY THE COMPANY, OR OTHER PERSON ON BEHALF OF THE COMPANY, MAY BE MADE ONLY PURSUANT TO MATERIALS AND OTHER OFFERING DOCUMENTS PREPARED BY THE COMPANY. ANY OFFER OF COMPANY SECURITIES WILL BE MADE IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM, SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED.

     The Company has issued stock prior to the date of this Information Statement that has triggered preemptive rights of stockholders of the Company for which no notice to those stockholders has been given by the Company. As of the date of this Information Statement, the Company has obtained a waiver from 34 stockholders representing 25,970,111 shares of Company common stock, or 80.2% of the outstanding common stock of the Company on May 10, 2006, which waives any and all preemptive rights held by that stockholder; provided, however, that the waivers obtained from Messrs. Bair and Marin are contingent upon no other stockholders exercising their respective preemptive rights and in the event that a stockholder does exercise his, her or its preemptive right, Messrs. Bair and Marin have an affirmative obligation to exercise their respective preemptive rights to extent necessary to maintain their respective percentage ownership interests in the Company.

     Stockholders who possess preemptive rights with respect to the prior issuances of stock by the Company, and who have not otherwise waived those rights, will continue to possess preemptive rights with respect to those prior issuances despite the amendment to the Articles of Incorporation to remove preemptive rights of stockholders. If you were a stockholder on the date set forth in the table below and remain a stockholder of the Company, the transactions with respect to which you may have preemptive rights are summarized below:

		Price Per Share				Number of
If You Were		at which Shares				Shares Sold				Approximate Holders
a Stockholder		were Issued or				or Issued				of Record on that
as of this Date:		Sold on that Date				on that Date				Date
08/03/03		$	0.12				895,833				190
12/29/03		$	0.50				60,000				200
12/29/03		$	0.28				740,000				200
05/20/04		$	0.15				63,333				250
05/20/04		$	0.15				10,417				250
05/20/05		$	0.30				2,852,867				250

     The Company is continuing to evaluate the manner in which it will notify stockholders of their preemptive rights, and the ability to exercise those rights, in compliance with securities laws. At this time, the Company believes the most probable approach that it will utilize to notify stockholders of their preemptive rights, and provide those stockholders with an opportunity to exercise those rights, will be to file a registration statement under the Securities Act of 1933 covering such rights. The Company has not yet determined any timetable to accomplish this as of the date of this Information Statement. The Company, however, reserves the right to notify stockholders of their preemptive rights, and provide them with an opportunity to exercise those rights, in any manner that complies with the Securities Act of 1933 and the rules and regulations promulgated thereunder.

 

distribute to holders of any of its equity securities any evidence of indebtedness or asset. Except as set forth in Schedule 2.05(a) hereto, the Company has no obligation (contingent or other) to purchase, repurchase, redeem, retire or otherwise acquire any of its equity securities or equity related securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except as set forth in Schedule 2.05(a), no stock plan, stock purchase plan, stock option or other agreement or understanding between the Company and any holder of any equity securities of the Company, or rights to purchase equity securities of the Company, provides for acceleration or other changes in the vesting provisions or other terms of such securities, as the result of any merger, sale of stock or assets, change in control or other similar transaction by the Company. Other than as set forth in this Agreement and except as set forth on Schedule 2.05(a), to the Company’s knowledge, there are no voting trusts or agreements, stockholders’ agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or other similar rights or proxies relating to any of the Company’s securities, or agreements relating to the issuance, sale, redemption, transfer or other disposition of the Company’s securities. All of the outstanding securities of the Company were issued in compliance with all applicable federal and state securities laws.

     (b) The Shares have been duly authorized by the Company. When the Shares are issued and delivered against payment therefor, and in accordance with the terms and conditions of this Agreement, the Shares will be duly and validly issued, fully paid and nonassessable and will be free and clear of all Liens, charges, restrictions, claims and encumbrances, other than restrictions on transfer imposed by the Securities Act and applicable state securities laws. The Preferred Stock Conversion Shares have been duly reserved for issuance upon conversion of the Series A Preferred Stock and, when so issued in accordance therewith, will be duly authorized, validly issued, fully paid and nonassessable shares of Common Stock and will be free and clear of all Liens, charges, restrictions, claims and encumbrances, other than restrictions on transfer imposed by the Securities Act and applicable state securities laws. Neither the issuance, sale or delivery of the Shares, nor the issuance or delivery of the Preferred Stock Conversion Shares is subject to any preemptive right of the Company’s stockholders or to any right of first refusal or other right in favor of any Person. The consummation of the transactions contemplated hereunder will not result in any anti-dilution adjustment or other similar adjustment to any of the Company’s outstanding securities. Any Person with any right (other than the Purchaser) to purchase securities of the Company, which would be triggered as a result of the transactions contemplated under this Agreement, has waived such rights.

     (c) Immediately after the Closing, the voting power of the Shares will represent at least 95% of the total voting power of all outstanding shares of capital stock of the Company, including outstanding Common Stock.

     Section 2.06 Reports and Financial Statements. The Company has furnished or made available to the Purchaser true and complete copies of all reports or registration statements it has filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for all periods subsequent to November 1, 2002, all in the form so filed (collectively the “Company SEC Documents”). As of their respective filing dates, the Company SEC Documents complied in all material respects

with the requirements of the Securities Act or the Exchange Act, as applicable, and, as of its respective filing date, no Company SEC Document filed under the Exchange Act contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed document with the SEC prior to the Closing Date. No Company SEC Document filed under the Securities Act contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading at the time such Company SEC Documents became effective under the Securities Act. The Company’s financial statements, including the notes thereto, included in the Company SEC Documents (the “Financial Statements”) comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles consistently applied (“GAAP”) and present fairly the Company’s consolidated financial position at the dates thereof and of its operations and cash flows for the periods specified (subject, in the case of unaudited statements, to normal audit adjustments). Since the date of the most recent Company SEC Document, the Company has not effected any change in any method of accounting or accounting practice, except for any such change required because of a concurrent change in GAAP. No event since November 1, 2004, has occurred that requires the filing of a Current Report on Form 8-K (an “8-K”) with the SEC for which an 8-K has not been so filed. Since November 1, 2003, the Company has timely filed all material reports, registration statements and other filings required by the SEC.

     Section 2.07 Disclosure Controls and Procedures.

          (a) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Exchange Act) that (i) are designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s Chief Executive Officer and its Chief Financial Officer by others within those entities, particularly during the periods in which the filings made by the Company with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act are being prepared, (ii) have been evaluated for effectiveness as of the end of each of the most recent fiscal year and most recent fiscal quarter of the Company, and (iii) are effective to perform the functions for which they were established.

          (b) The independent registered public accountants and the Audit Committee of the Board of Directors, or, if no Audit Committee of the Board of Directors exists, the Board of Directors (the “Board”) of the Company, have been advised of (i) any significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data, and (ii) any fraud, whether or not material, that involves management or other employees who have a role in the Company’s internal controls; any material weaknesses in internal controls have been identified for the accountants; and since the date of the most recent evaluation of such disclosure controls and procedures, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

          (c) The principal executive officer and principal financial officer of the Company have made all certifications required by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and any related rules and regulations promulgated by the SEC, each in effect on the date thereof, and the statements contained in any such certification were complete and correct as of their respective dates. The Company is otherwise in material compliance with all applicable provisions of the Sarbanes-Oxley Act that are effective.

     Section 2.08 No Undisclosed Liabilities. The Company has no liabilities (whether accrued, absolute, contingent or otherwise, known or unknown, and whether due or to become due or asserted or unasserted), except (a) liabilities provided for in the Financial Statements (other than liabilities which, in accordance with GAAP, need not be disclosed), (b) liabilities (including accounts payable) incurred since September 30, 2005 (the “Balance Sheet Date”) in the ordinary course of business consistent with past practice that are no greater than $10,000 in the aggregate, (c) such other liabilities which are no more than $5,000 individually or $10,000 in the aggregate, or (d) as set forth on Schedule 2.08. Except as set forth on Schedule 2.08, the Company knows of no basis for the assertion against the Company of any liabilities not adequately reflected or reserved against in the Financial Statements. Schedule 2.08 also contains a true, complete and correct listing of all of the indebtedness owed by, and accounts payable and any and all other liabilities (contingent or otherwise) of, the Company or any of its Subsidiaries and the names and amounts owed to each of the respective payees of such obligations (the “Debtholders”). The Company agrees to update such list as of the Closing Date.

     Section 2.09 Events Subsequent to the Balance Sheet Date. Except as set forth on Schedule 2.09, since September 30, 2005:

          (a) there has been no Material Adverse Change nor has any event occurred which could reasonably be expected to result in any Material Adverse Change;

          (b) there has not been any payment of, setting of a record date for, or declaration, setting aside or authorizing the payment of, any dividend or other distribution in respect of any shares of capital stock of the Company or any purchase, repurchase, retirement, redemption or other acquisition by the Company, of any of the outstanding shares of capital stock or other securities of, or other ownership interest in, the Company;

          (c) there has not been any transfer, issue, sale or other disposition by the Company of any shares of capital stock or other securities of the Company or any grant of options, warrants, calls or other rights to purchase or otherwise acquire shares of such capital stock or such other securities;

          (d) the Company has not increased the compensation payable or to become payable, or awarded or paid any bonuses to employees, officers, directors, consultants, advisors, agents, stockholders or representatives of the Company nor has the Company either entered into any employment, deferred compensation, severance or similar agreements (nor amended any such agreement) or agreed to increase the compensation payable or to become payable by it to any of the Company’s employees, officers, directors, consultants, independent contractors, advisors, agents, shareholders or representatives or agreed to increase the coverage or benefits available under any severance pay, deferred compensation, bonus or other incentive

7

compensation, pension or other employee benefit plan, payment or arrangement made to, for or with such employees, officers, directors, consultants, independent contractors, advisors, agents, shareholders or representatives;

          (e) the Company has not made any loans, advances, guarantees or capital contributions to, or investments in, any Person, or acquired any assets or securities of any Person involving more than $1,000 individually or $5,000 in the aggregate, other than ordinary advances for expenses incurred in the ordinary course of business;

          (f) there has not been satisfaction or discharge of any Lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that has not resulted in a Material Adverse Change;

          (g) there has not been any termination of, or change to, a material contract or arrangement by which the Company or any of its assets is bound or subject;

          (h) there has not been any resignation or termination of employment of any employees, officers, directors, consultants, advisors, agents or representatives of the Company;

          (i) the Company has not transferred or granted any rights under any contracts, leases, licenses, agreements or Intellectual Property (as defined in Section 2.12 hereof) used by the Company in its business;

          (j) there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property or assets of the Company having a replacement cost of more than $1,000 for any single loss or $5,000 for all such losses in the aggregate;

          (k) the Company has not mortgaged, pledged or subjected to any Lien or encumbrance any of its assets, acquired any assets, or sold, assigned, transferred, conveyed, leased or otherwise disposed of any assets, except for assets acquired or sold, assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary course of business consistent with the Company’s past practice or Liens for taxes not yet due or payable;

          (l) the Company has not canceled or compromised any debt or claim, or amended, canceled, terminated, relinquished, waived or released any contract or right or settled any claim;

          (m) the Company has not made, or entered into any binding commitment to make, any capital expenditures or capital additions or betterments in excess of $5,000 in the aggregate;

          (n) the Company has not incurred any debts, obligations or liabilities, whether due or to become due, except current liabilities incurred in the usual and ordinary course of business, none of which current liabilities (individually or in the aggregate) has resulted in, or could reasonably be expected to result in, a Material Adverse Change;

          (o) the Company has not entered into any material transaction except for this Agreement and the other Transaction Documents;

          (p) the Company has not encountered, or to its knowledge, been threatened with, any labor disputes, strikes, slowdowns, work stoppages or labor union organizing activities;

          (q) the Company has not made any change in the Company’s accounting principles, methods or practices or depreciation or amortization policies or rates theretofore adopted;

          (r) the Company has not disclosed to any Person any trade secrets or confidential information, except for disclosures made to Persons subject to valid and enforceable confidentiality agreements or as required by applicable law;

          (s) the Company has not suffered or experienced any change in the relationship or course of dealings between the Company and any of its suppliers or customers which supply goods or services to the Company or purchase goods or services from the Company;

          (t) the Company has not made any payment to, or received any payment from, or made or received any investment in, or entered into any transaction or series of related transactions (including, without limitation, the purchase, sale, exchange or lease of assets, property or services, or the making of a loan or guarantee) with any Affiliate or any members of their immediate families or any legal entity controlled by either one of them; and

          (u) the Company has not entered into any agreement or commitment (contingent or otherwise) to do any of the foregoing.

     Section 2.10 Litigation; Compliance with Law.

          (a) Except as set forth on Schedule 2.10, there is no (i) action, suit, claim, proceeding or investigation pending or, to the best of the Company’s knowledge, threatened, against or affecting the Company or its properties or assets, at law or in equity, or before or by any federal, state, municipal or other governmental body, department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding pending or, to the best of the Company’s knowledge, threatened, against or affecting the Company or its properties or assets, or (iii) governmental inquiry pending or, to the best of the Company’s knowledge, threatened, against or affecting the Company or its properties or assets (including, without limitation, any inquiry as to the Company’s qualification to hold or receive any license or permit), and to the best of the Company’s knowledge, there is no basis for any of the foregoing. The Company is not in default with respect to any order, writ, judgment, injunction or decree known to or served upon the Company of any court or of any federal, state, municipal or other governmental body, department, commission, board, bureau, agency or instrumentality, domestic or foreign. Except as set forth on Schedule 2.10, there is no action, suit, proceeding or investigation by the Company pending, threatened or contemplated against others.

          (b) The Company has not received any opinion or memorandum or legal advice from legal counsel to the effect that it is exposed, from a legal standpoint, to any liability or disadvantage that may be material to its business, prospects, financial condition, operations, property or affairs. The Company has complied, in all material respects, with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, the Company has all material permits, licenses and other authorizations required to conduct its business as presently conducted and the Company has been operating its business pursuant to and in compliance with the terms of all such permits, licenses and other authorizations. There is no existing law, rule, regulation or order, and the Company is not aware of any proposed law, rule, regulation or order, whether federal, state, county or local, which would prohibit or restrict the Company from, or otherwise adversely affect the Company in, conducting its business in any jurisdiction in which it is now conducting business.

     Section 2.11 Proprietary Information.

          (a) No third party has claimed or, to the best of the Company’s knowledge, has reason to claim, that any Person employed or retained by, or affiliated with, the Company has (i) violated, or may be violating, any of the terms or conditions of an employment, non-competition or non-disclosure agreement with such third party, (ii) disclosed, or may be disclosing, or utilized, or may be utilizing, any trade secret or proprietary information or documentation of such third party, or (iii) interfered, or may be interfering, in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company that suggests that such a claim might be contemplated. To the Company’s knowledge, no Person employed by the Company or an Affiliate of the Company has employed, or proposes to employ, any trade secret or any information or documentation proprietary to any former employer, and, to the Company’s knowledge, no Person employed by the Company or an Affiliate of the Company has violated any confidential relationship that such Person may have had with any third party in connection with the development, manufacture or sale of any product or proposed product of the Company or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such employment or violation. Neither the execution or delivery of this Agreement or any of the other Transaction Documents, nor the conduct or proposed conduct of the Company’s business, nor the participation of any of the Company’s officers, directors or employees in the conduct of the Company’s business, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any such Person is obligated to a third party.

          (b) Each employee, officer, consultant, advisor, agent and representative of the Company has entered into and executed a Employee Non-Disclosure, Non-Solicitation and Proprietary Information and Inventions Agreement or Non-Employee Non-Disclosure, Non-Solicitation and Proprietary Information and Inventions Agreement, as the case may be, substantially in the forms which have been delivered to the Purchaser (collectively, the “Non-Disclosure and Proprietary Information and Inventions Agreement”), or an employment or consulting agreement containing substantially similar terms, and such agreements are in full force and effect. The Company is not aware that any of its employees, officers, consultants, advisors, agents and representatives is in violation of such agreements, and the Company will use

its best efforts to prevent any such violation. In addition, to the best of the Company’s knowledge, no current or former employee, officer, director, consultant, advisor, agent, or representative has excluded works or inventions made prior to his or her employment or consulting relationship with the Company from his or her assignment of inventions pursuant to their Non-Disclosure and Proprietary Information and Inventions Agreement.

     Section 2.12 Intellectual Property.

          (a) Except as set forth in Schedule 2.12(a), the Company has all right, title and interest in and to all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how, concepts and all pending applications for and registrations of patents, trademarks, service marks and copyrights (together, “Intellectual Property”) necessary for its business as now conducted and as proposed to be conducted, without any conflict with or infringement upon the rights of others. Except as set forth in Schedule 2.12(a), all registrations on behalf of the Company with and applications to governmental or regulatory authorities in respect of all Intellectual Property of the Company are valid and in full force and effect and are not subject to (i) any suits or other judicial or administrative proceedings challenging their validity or enforceability, or (ii) any other actions by the Company to maintain their validity or effectiveness, except for the routine payment of governmental fees and the submission of oaths or other evidence required by statute. Except as set forth in Schedule 2.12(a) and Schedule 2.12(c) hereto, there are no outstanding options, licenses, security interests, or other interests or agreements of any kind relating to the Intellectual Property of the Company. Except as set forth in Schedule 2.12(a) hereto, no other Person (other than licensors of software that is generally commercially available, licensors of Intellectual Property under the agreements disclosed pursuant to paragraph (d) below and non-exclusive licensees of the Company’s Intellectual Property in the ordinary course of the Company’s business) has any rights to any of the Intellectual Property owned or used by the Company, and, to the Company’s knowledge, no other Person is infringing upon, violating or misappropriating any of the Company’s Intellectual Property.

          (b) The Company has not, nor has it received any communications alleging that the Company has violated, or, by conducting its business as now conducted or as proposed to be conducted, would violate any of the Intellectual Property of any other Person. The Company is not aware that any employee of the Company is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the business of the Company as now conducted or as proposed to be conducted. To the Company’s knowledge, neither the execution and delivery of this Agreement or any of the other Transaction Documents, nor the carrying on of the business of the Company by the Company’s employees, nor the conduct of the business of the Company as now conducted or as proposed to

11

be conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company is not aware of any instances where its employees, agents, advisors, consultants, independent contractors or representatives, have transferred Intellectual Property of the Company or its Subsidiaries without the Company’s consent. To the Company’s knowledge, the Company is not required to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company.

          (c) Schedule 2.12(c) hereto sets forth each (i) patent that has been issued or assigned to the Company with respect to any of its Intellectual Property, (ii) pending patent application that the Company has made with respect to any of its Intellectual Property, (iii) any copyright or trademark registration or application with respect to the Company’s Intellectual Property, and (iv) license or other agreements pursuant to which the Company has granted any rights to any third party with respect to any of its Intellectual Property.

          (d) Schedule 2.12(d) hereto sets forth each agreement with a third party pursuant to which the Company obtains rights to Intellectual Property material to the business of the Company (other than software that is generally commercially available) that is owned by a party other than the Company. Other than license fees for software that is generally commercially available and except as disclosed on Schedule 2.12(d) hereto, the Company is not obligated to pay any royalties or other compensation to any third party in respect of their ownership, use or license of any of such third party’s Intellectual Property.

          (e) The Company has taken reasonable precautions (i) to protect its rights in its Intellectual Property and (ii) to maintain the confidentiality of its trade secrets, know-how and other confidential Intellectual Property, and to the Company’s knowledge, there have been no acts or omissions by the officers, directors, shareholders or employees of the Company, the result of which would be to compromise the rights of any aspects of the Company to apply for or enforce appropriate legal protection of any aspects of the Company’s Intellectual Property that are material to the Company’s business as conducted or as proposed to be conducted at the time of such acts or omissions.

          (f) The products, processes, proprietary technology and other proprietary know-how owned or used by the Company were developed by the Company’s present or former employees or independent contractors or consultants. The concepts, inventions and original works of authorship owned or used by the Company were developed or conceived by employees, independent contractors or consultants within the scope of their employment or retention by the Company and are connected with the Company’s underlying products, services, processes and proprietary technology. With respect to any independent contractors or consultants who were used or employed by the Company in the development of the products, processes, proprietary technology and other proprietary know-how owned or used by the Company, each has executed valid “work for hire” agreements and/or assignments of all rights to such products, processes, proprietary technology and other proprietary know-how. No portion of the Company’s Intellectual Property was jointly developed with any third party other than those who have assigned their entire right, title and interest therein to the Company.

          (g) Except as disclosed in Schedule 2.12(g) hereto, neither the Company nor any Subsidiary has granted or assigned to any other Person the right to manufacture any products or develop or conduct research on any Intellectual Property or other services of the Company.

          (h) The Company is unaware that any of its officers, employees or consultants has disclosed, or may be disclosing, or has utilized, or may be utilizing, any trade secret or proprietary information of any third party; or has unlawfully interfered, or may be unlawfully interfering, in the employment relationship with any third party and any of its present or former employees.

          Section 2.13 Real Property.

          (a) The Company does not own any real property.

          (b) Schedule 2.13(b) hereto sets forth a complete list of all leases of real property by, or interests in real property of, the Company (each a “Real Property Lease,” and collectively, the “Real Property Leases”) as lessee or lessor. Each of the Real Property Leases identified in Schedule 2.13(b) is a valid and subsisting agreement, duly authorized and entered into and enforceable in accordance with its terms, and there is no default under any Real Property Lease by the Company, or to the Company’s knowledge, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder. As a result of each of the Real Property Leases, the Company holds a valid leasehold interest free and clear of any Liens, charge, restrictions, claims or encumbrances of any nature whatsoever. The Company has delivered or otherwise made available to the Purchaser and its counsel, true, correct and complete copies of the Real Property Leases, together with all amendments, modifications, supplements or side letters effecting the obligations of any party thereunder. The real property premises leased by the Company under the Real Property Leases are in good operating condition, normal wear and tear accepted, are reasonably fit and useable for the purpose for which they are being used, are adequate and sufficient for the Company’s business, and conform to all material respects to all applicable laws.

          Section 2.14 Assets. Except as set forth in Schedule 2.14 hereto, the Company has good, legal and marketable title to all of its personal property and assets, in each case free and clear of all Liens, charges, restrictions, claims or encumbrances of any nature whatsoever. With respect to the material personal property and material assets that the Company leases (each a “Personal Property Lease,” and collectively, the “Personal Property Leases”) (a) the Company is in compliance with such Personal Property Leases, and (b) the Company holds a valid leasehold interest free and clear of any Liens, charges, restrictions, claims or encumbrances of any nature whatsoever. Each of the Personal Property Leases is a valid and subsisting agreement, duly authorized and entered into and enforceable in accordance with its terms, and there is no default under any Personal Property Lease by the Company or, to the Company’s knowledge, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder. The Company has delivered or otherwise made available to the Purchaser and its counsel true, correct and complete copies of the Personal Property Leases, together with all amendments, modifications, supplements or side letters affecting the obligations of any party thereunder. All material items of personal property

13

and assets owned or leased by the Company are in good operating condition, normal wear and tear excepted, are reasonably fit and usable for the purposes for which they are being used, are adequate and sufficient for the Company’s business, and conform in all material respects with all applicable laws. The carrying value of the Company’s assets on the Financial Statements is not overstated in any material respect.

     Section 2.15 Insurance. There is in full force and effect one or more policies of insurance issued by insurers of recognized responsibility insuring the Company and its properties, business and projects against such losses and risks, and in such amounts, on both a per occurrence and an aggregate basis, as are customary in the case of corporations engaged in the same or similar business and similarity situated. The Company has not received any notice or communication, either oral or written (a) regarding the actual or possible cancellation or invalidation of any of such policies or regarding any actual or possible adjustment in the amount of premiums payable with respect to any of said policies, (b) regarding any actual or possible refusal of coverage under, or any actual or possible rejection of any claim under, any of such policies, (c) that the Company will be unable to renew its existing insurance coverage as and when the same shall expire, or (d) that the issuer of any such policies may be unwilling or unable to perform any of its obligations thereunder. There is no pending claim under any of the Company’s insurance policies, and no event has occurred or condition or circumstance exists that might (with or without notice or lapse of time), directly or indirectly, give rise to, or serve as a basis for, any such claim. The Company is not in default with respect to any provision contained in any insurance policy, and the Company has not failed to give any notice or present any presently existing claims under any insurance policy in due and timely fashion. Schedule 2.15 hereto sets forth a list of each insurance policy maintained by the Company relating to its properties, assets, business or personnel.

     Section 2.16 Taxes. Except as set forth on Schedule 2.16, the Company has accurately and timely filed all federal, state, county and local tax returns and reports required to be filed by it within the applicable period, and the Company has paid all taxes shown to be due by such returns as well as all other taxes, assessments and governmental charges which have become due or payable. Such returns and reports are true and correct in all material respects. The Company has established adequate reserves on the Financial Statements for all taxes accrued but not yet payable. The Company’s federal income tax returns have never been audited by the Internal Revenue Service. No claim or deficiency assessment with respect to, or proposed adjustment of, the Company’s federal, state, county or local taxes is currently assessed or pending or, to the best of the Company’s knowledge, threatened, and, to the Company’s knowledge, there is no basis for any such claim, assessment or adjustment. There is no tax Lien (other than for current taxes not yet due and payable), whether imposed by any federal, state, county or local taxing authority, outstanding against the Company’s assets, properties or business. The Company has not executed any waiver of the statute of limitations on the assessment or collection of any tax or governmental charge. The Company is not a party to any agreement relating to the sharing, allocation or indemnification of taxes. Neither the Company nor any of its present or former shareholders has ever made an election pursuant to Section 1362 or Section 341(f) of the Internal Revenue Code of 1986, as amended (the “Code”), that the Company be taxed as a Subchapter S corporation or a collapsible corporation or any other election pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would

result in a Material Adverse Change. Except as set forth in Schedule 2.16 hereto, the Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. The Company has properly charged, collected and paid all applicable sales, use and other similar taxes. Except as set forth in Schedule 2.16 hereto, the Company has withheld or collected from each payment made to each non-employee the amount of all taxes required to be withheld or collected therefrom and has paid the same to the proper tax receiving officers or authorized depositories ,or filed or provided appropriate forms under the Code with respect thereto.

     Section 2.17 Agreements.

          (a) The Company is not a party to or otherwise bound by any written or oral agreement, instrument, commitment or restriction, which, assuming due performance by the parties thereto, individually or in the aggregate could reasonably be expected to result in a Material Adverse Change. Except as set forth in Schedule 2.17 hereto (the items listed on such Schedule 2.17 shall be referred to as the “Contracts”), the Company is not a party to, nor is it or any of its assets or properties bound by, any written or oral:

          (i) distributor, dealer, marketing, manufacturer’s representative or sales agency agreement which is not terminable on less than ninety (90) days notice without cost or other liability to the Company;

          (ii) agreement with any labor union or collective bargaining agreement;

          (iii) agreement with any supplier containing any provision permitting any party other than the Company to renegotiate the price or other terms, or containing any pay-back or other similar provision, upon the occurrence of a failure by the Company to meet its obligations under the agreement when due or the occurrence of any other event;

          (iv) agreement for the future purchase of fixed assets or for the future purchase of materials, supplies, services or equipment in excess of its normal operating requirements or at an excessive price, or any agreement that will result in a loss to the Company upon completion of performance;

          (v) agreement for the employment of any officer, employee or other Person (whether of a legally binding nature or in the nature of informal understandings) on a full-time, part-time or consulting basis which is not terminable on notice without cost or other liability to the Company;

          (vi) bonus, pension, profit-sharing, retirement, hospitalization, insurance, stock purchase, stock option or other plan, agreement or understanding pursuant to which benefits are provided to any employees, officers, directors, consultants, advisors, agents, stockholders or representatives of the Company;

          (vii) loan agreement, credit agreement, promissory note, indenture, subordination agreement, letter of credit or other agreement relating to the borrowing of money or to the mortgaging or pledging of, or otherwise placing a Lien or security interest on, any asset of the Company;

          (viii) guaranty of any obligation for borrowed money or otherwise;

          (ix) voting trust or agreement, stockholders’ agreement, pledge agreement, buy-sell agreement, first refusal or preemptive rights agreement relating to any of the Company’s securities;

          (x) acquisition, sale or lease agreement outside of the Company’s ordinary course of business;

          (xi) partnership or joint venture agreement;

          (xii) agreement (A) which prohibits or requires consent for (1) a Change of Control (as defined in Section 7.19 hereof) or merger of the Company, (2) the sale of all or substantially all of the Company’s assets, (3) the transfer or issuance of any securities of the Company, (4) the sale or issuance of any shares of capital stock in the Company, or (5) the assignment, subletting or other transfer of the rights under such agreement, or (B) which terminates, is subject to termination, is materially and adversely affected, or is subject to being materially and adversely affected, as a result of the occurrence of any event described in subsection (A) hereof;

          (xiii) agreement, or group of related agreements with the same party or any group of affiliated parties, under which the Company has advanced or agreed to advance money or has agreed to lease any property as lessee or lessor;

          (xiv) agreement or obligation (contingent or otherwise) to issue, sell, transfer, assign or otherwise distribute or dispose of, repurchase, redeem or otherwise acquire, or retire any shares of its capital stock or any of its other equity securities;

          (xv) assignment, license or other agreement with respect to any form of intangible property;

          (xvi) agreement under which it has granted any Person an exclusive right to market or distribute any of the Company’s products or services;

          (xvii) agreement under which it has granted any Person any registration rights;

          (xviii) agreement under which it has limited or restricted its right to operate or to compete with any Person in any respect;

          (xix) agreement, or group of related agreements with the same party, involving more than $10,000 or continuing over a period of more than three (3) months from the date or dates thereof (including renewals or extensions optional with another party), which agreement or group of agreements is not terminable by the Company without penalty upon notice of thirty (30) days or less, or any agreement not made in the ordinary course of business;

          (xx) agreement with any federal, state, municipal or other governmental body, department, commission, board, bureau, agency or instrumentality, domestic or foreign;

          (xxi) confidentiality agreement or standstill agreement, other than those made in the ordinary course of business; or

          (xxii) binding commitment or agreement to enter into any of the foregoing.

          (b) The Company and, to the best of the Company’s knowledge, each other party thereto: (i) has performed all the obligations required to be performed by them to date (or each non-performing party has received a valid, enforceable and irrevocable written waiver with respect to its non-performance), and (ii) has received no notice of default and are not in default (or, with due notice or lapse of time or both, would be in default) under any agreement, contract, license, understanding, evidence of indebtedness, note, indenture, instrument, commitment, plan or arrangement to which the Company is a party or by which it or its property or assets may be bound. The Company has no present expectation or intention of terminating or not fully performing any of its obligations under any agreement, contract, license, understanding, evidence of indebtedness, note, indenture, instrument, commitment, plan or arrangement, and the Company has no knowledge of any breach or anticipated breach by the other party to any agreement, contract, license, understanding, evidence of indebtedness, note, indenture, instrument, commitment, plan or arrangement to which the Company is a party. The Company is in full compliance with all of the terms and provisions of its Charter and Bylaws.

          (c) No previous or current party to any agreement or contract listed in Schedule 2.17 hereto has given written notice to the Company of, or made any claim with respect to, a desire or intention to exercise any optional termination, cancellation or acceleration right thereunder, and the Company has no knowledge of any notice of, or claim with respect to, any such desire or intention. The Company has delivered or otherwise made available to the Purchaser true, correct and complete copies of each of the agreements listed in Schedule 2.17 hereto, together with all amendments, modifications, supplements or side letters affecting the obligations of any party thereunder. Each of these agreements is valid and enforceable against the Company in accordance with its terms.

     Section 2.18 Loans and Advances. The Company does not have any outstanding loans or advances to any Person and is not obligated to make any such loans or advances, except, in each case, for ordinary course advances to employees of the Company in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for the Company.

     Section 2.19 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons. The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable for any indebtedness of any other Person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in such Person, or to otherwise assure any creditor of such Person against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business.

     Section 2.20 Significant Customers and Suppliers. No customer or supplier which was significant to the Company during the period covered by the Financial Statements or which has been significant to the Company thereafter, has terminated or breached, materially reduced or threatened to terminate, breach or materially reduce its purchases from or provision of products or services to the Company, as the case may be.

     Section 2.21 Offerings. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Article III hereof, the Company has complied with the Securities Act and all applicable state securities laws in connection with (i) the offer, issuance and sale of all previously issued securities of the Company, (ii) the offer, issuance and sale of the Shares, and (iii) upon conversion of the Shares, the issuance and delivery of the Preferred Stock Conversion Shares, and all of the foregoing issuances are exempt from the registration requirements of the Securities Act and any applicable state securities laws, and neither the Company nor any authorized agent acting on its behalf has taken any action that could cause the loss of such exemptions. Neither the Company nor any Person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Shares, the Preferred Stock Conversion Shares or any security of the Company similar to the foregoing has offered the Shares, the Preferred Stock Conversion Shares or any such similar security for sale to, or solicited any offer to buy the Shares, the Preferred Stock Conversion Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any Person or Persons other than Persons who are “accredited investors” as defined in Regulation D of the Securities Act. Neither the Company nor any Person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with the Shares or the Preferred Stock Conversion Shares under the Securities Act or the rules and regulations of the SEC promulgated thereunder), in either case so as to subject the offering, issuance or sale of the Shares and the Preferred Stock Conversion Shares to the registration provisions of the Securities Act. Neither the Company nor any Person acting on its behalf has offered the Shares or the Preferred Stock Conversion Shares to any Person by means of general or public solicitation or general or public advertising, such as by newspaper or magazine advertisements, by broadcast media, or at any seminar or meeting whose attendees were solicited by such means.

     Section 2.22 Brokers; Financial Advisors. No agent, broker, investment banker, finder, financial advisor or other Person is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee from the Company, directly or indirectly, in connection with the transactions contemplated by this Agreement and the other Transaction Documents, and no Person is entitled to any fee or commission or like payment from the Company in respect thereof

based in any way on agreements, arrangements or understandings made by or on the Company’s behalf.

     Section 2.23 Transactions With Affiliates. Except as set forth on Schedule 2.23 hereto, no employee, officer, director or Affiliate of the Company, or member of the family of any such Person, or any corporation, limited liability company, partnership, trust or other entity in which any such Person, or any member of the family of any such Person, is an officer, director, trustee, partner or holder of more than five percent (5%) of the outstanding equity interests thereof (collectively, the “Related Parties”), is a party to, or during the past 24 months has been a party to, any transaction with the Company, including any issuance of securities or capital stock or any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from or otherwise requiring payments to any such Person, other than employment-at-will arrangements in the ordinary course of business. None of the Persons described in this Section 2.23 has any, direct or indirect, ownership interest in any Person that the Company is an Affiliate of or with which the Company has a business relationship, or any Person that competes with the Company. Schedule 2.23 hereto lists all of the borrowings by the Company from any of the Related Parties, the issuances of any promissory notes, shares of Common Stock or other securities of the Company to any of the Related Parties, the respective dates of such events, the consideration received by the Company for any such items, and the respective dates of any action by the Board of Directors to approve any such items. The terms of each of the borrowings or issuances listed on Schedule 2.23 is no less favorable to the Company than the terms that would be available for similar transactions with unrelated third parties. Any issuances of shares of Common Stock of the Company to any Related Party have been in exchange for consideration equal to or exceeding the fair market value of such shares.

     Section 2.24 Employees.

          (a) To the Company’s knowledge, no key employee or independent contractor and no group of the Company’s key employees or independent contractors has any plans to terminate his, her or its employment or relationship as an employee or independent contractor with the Company, nor does the Company have any present intention to terminate the employment of any key employee or independent contractor, or group of employees or independent contractors.

          (b) Schedule 2.24(b) hereto sets forth a true and complete list of (i) the names of the Company’s employees, together with the title or job classification of each such Person and the total compensation anticipated to be paid to each such Person by the Company during calendar year 2005 and anticipated to be paid in 2006, (ii) the name and amount of annual compensation of each employee of the Company, together with such employee’s job title and amounts and forms of compensation and fringe and severance benefits, and (iii) the name and amount of annual compensation of each consultant, contractor or subcontractor equivalent of the Company during calendar year 2005 or 2006 and for which a Form 1099 has been, or will be required to be, filed. Except as set forth on Schedule 2.24(e), none of these individuals has an employment agreement or understanding with the Company, whether oral or written, which is not terminable on notice by the Company without cost or other liability to the Company.

          (c) To the Company’s knowledge, no employee of the Company is a party to or is otherwise bound by any agreement or arrangement (including, without limitation, confidentiality agreements, noncompetition agreements, licenses, covenants or commitments of any nature) or subject to any judgment, decree, or order of any court or governmental body, (i) that would conflict with such employee’s ability to perform his or her duties that have been assigned to him or her or (ii) that would conflict with the Company’s business as now conducted or as proposed to be conducted.

          (d) The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed through the date hereof or amounts required to be reimbursed to them through the date hereof. The Company is in compliance with all applicable federal, state and local laws, rules and regulations respecting employment, employment practices, labor, terms and conditions of employment and wages and hours. The Company is neither bound by nor subject to (and none of its assets or properties is bound by or subject to) any written or oral commitment or arrangement with any labor union, and no labor union has, to the best of the Company’s knowledge, sought to represent any of the Company’s employees, representatives or agents. There is no labor strike, dispute, slowdown or stoppage pending or, to the best of the Company’s knowledge, threatened against or involving the Company.

          (e) Schedule 2.24(e) hereto sets forth a list of all written employment agreements to which the Company is a party, each of which is a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. No key employee of or key consultant to the Company is in violation of any term of any employment contract or any other contract or agreement relating to the relationship of any such employee or consultant with the Company.

     Section 2.25 Environmental and Safety Laws. The Company is not in violation of any applicable laws relating to the environment or occupational health and safety which is likely to result in a Material Adverse Change and no material expenditures are or will be required in order to comply with any such existing laws.

     Section 2.26 Employee Benefits. Except as set forth in Schedule 2.26 hereto, the Company does not have in effect any employment agreements, consulting agreements with individuals, deferred compensation, incentive compensation, stock option or other equity-based stock awards, pension or retirement agreements, whether or not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or arrangements, bonus, incentive or profit-sharing plans or arrangements, or labor or collective bargaining agreements, written or oral, other than oral at-will employment agreements (“Benefit Plans”). All Benefit Plans covering employees (the “Plans”), to the extent subject to ERISA, are in compliance with ERISA, the Code and all other applicable laws. Each Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “Pension Plan”) and which is intended to be qualified under Section 401(a) of the Code, has received a favorable determination letter from the Internal Revenue Service and the Company is not aware of any circumstances likely to result in revocation of any such favorable determination letter. There is no pending or, to the best of the Company’s knowledge, threatened litigation relating to the

Plans. Neither the Company nor any of its Affiliates has engaged in a transaction with respect to any Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company or any Affiliate to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material. No Pension Plan of the Company or any ERISA Affiliate (as defined below) is, nor has any Pension Plan of the Company or any ERISA Affiliate ever been, subject to Title IV of ERISA or Section 412 of the Code. Neither the Company, any of its Affiliates nor an entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an “ERISA Affiliate”) has contributed to a “multi-employer plan,” within the meaning of Section 3(37) of ERISA. All contributions required to be made under the terms of any Benefit Plan have been timely made or have been reflected on the Financial Statements. No ERISA Affiliate maintains or has ever maintained any “employee benefit plan” as that term is defined in Section 3(3) of ERISA or any other employee benefit policy, arrangement or the like which could result in any liability of the Company.

     Section 2.27 Foreign Corrupt Practices Act. Neither the Company, nor to the best of the Company’s knowledge, any employees, officers, directors, consultants, advisors, agents, shareholders or representatives of the Company or other Person acting on behalf of the Company, has taken any action that would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), or any rules and regulations thereunder. Each of the Company’s internal management and accounting practices and controls are adequate to ensure compliance with the FCPA. There is not now, and there has never been, any employment by the Company of any governmental or political official in any country in the world.

     Section 2.28 Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor, to the best of the Company’s knowledge, any of the Company’s employees, officers, directors, consultants, advisors, agents, shareholders or representatives has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, in contravention of applicable law: (a) as a kickback or bribe to any Person or (b) to any political organization, or the holder of or any aspirant to any elective or appointive public office, except for personal political contributions not involving the direct or indirect use of the Company’s funds.

     Section 2.29 Pending Changes. There is no pending or, to the Company’s knowledge, threatened change in any law, rule, regulation or order applicable to its business, operations, properties, assets, products and services which is likely to result in a Material Adverse Change.

     Section 2.30 Investment Company Act. The Company is not, nor is it directly or to its knowledge, indirectly Controlled by or acting on behalf of, any Person that is, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     Section 2.31 Product Liability. The Company has no liabilities (and, to the Company’s knowledge, there is no basis for any present or future action against the Company giving rise to any liability) arising out of any injury to individuals or property as a result of ownership,

possession or use of any product designed, manufactured, sold, leased or delivered by or any services performed or delivered by the Company.

     Section 2.32 Registration Rights. Except as set forth on Schedule 2.32, no Person has demand or other rights to cause the Company to file any registration statement under the Securities Act relating to any securities of the Company or any right to participate in any such registration statement, including, without limitation, piggyback registration rights.

     Section 2.33 Books and Records. The Company’s books of account, ledgers, order books, records and documents accurately and completely reflect in accordance with usual and customary prudent business practices all material information relating to the Company’s business, the location and collection of the Company’s assets and the nature of all transactions giving rise to the Company’s obligations and accounts receivable. The Company has previously delivered or made available to the Purchaser and its counsel complete and correct copies of and all minutes and consents reflecting meetings and actions taken by the Company’s Board of Directors and its shareholders.

     Section 2.34 Disclosure. The Company has disclosed to the Purchaser all facts material to the Company’s business, operations, assets, liabilities, prospects, properties, condition (financial or otherwise) and results of operations. Neither this Agreement, nor any Schedule or Exhibit to this Agreement, nor any other statements, documents or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein and therein not misleading in light of the circumstances under which such statements were made. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances under which such statements were made. There is no fact which the Company has not disclosed to the Purchaser and its counsel in writing and of which the Company is aware which has resulted in, or could result in, a Material Adverse Change. As of the date hereof, no facts have come to the Company’s attention that would, in its opinion, require the Company to revise or amplify the assumptions underlying such projections and other estimates or the conclusions derived therefrom.

ARTICLE III.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER

     Section 3.01 Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company that:

          (a) it is an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act;

          (b) it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to

evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof, including a total loss of its investment;

          (c) it has had an opportunity to ask questions and receive answers from the Company regarding the Company and the terms and conditions of the offering of the Shares. The foregoing, however, does not in any way limit or modify the representations and warranties made by the Company and the Controlling Shareholders in Article II;

          (d) the Shares and the Preferred Stock Conversion Shares being purchased by it are being acquired for its own account for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act;

          (e) it understands that (i) the Shares and the Preferred Stock Conversion Shares have not been registered under the Securities Act or any state securities laws by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act and such laws, (ii) the Shares and, upon conversion thereof, the Preferred Stock Conversion Shares must be held indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, and (iii) the Preferred Stock Conversion Shares will bear the legend to such effect set forth in Section 3.02 hereof;

          (f) this Agreement and the other Transaction Documents to which it is a party constitutes the Purchaser’s valid and legally binding obligation, enforceable in accordance with its terms. The Purchaser represents that it has full power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party; and

          (g) this Agreement and each of the other Transaction Documents to which the Purchaser is a party have been duly executed and delivered by the Purchaser.

     Section 3.02 Legend. The Purchaser acknowledges that the certificates evidencing the Shares and the Preferred Stock Conversion Shares will bear the legend set forth below or substantially similar legend:

The securities represented hereby have not been registered under the Securities Act of 1933, as amended (the “Act”), or under the securities laws of certain states. these securities are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Act and the applicable state securities laws, pursuant to registration or exemption therefrom. The issuer of these securities may require an opinion of counsel (which may be counsel for the Company) in form and substance satisfactory to the issuer to the effect that any proposed transfer or resale is in compliance with the Act and any applicable state securities laws.

The legend set forth above shall be removed by the Company from any certificate evidencing Shares or Preferred Stock Conversion Shares, and the Company shall issue a certificate without such legend to the holder thereof, if requested, upon delivery to the Company of an opinion by counsel (which may be counsel for the Company) that such security can be freely transferred in a

public sale without a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Shares or Preferred Stock Conversion Shares; provided, however, that no opinion from counsel shall be required for any dispositions pursuant to Rule 144(k) under the Securities Act.

ARTICLE IV.

CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND THE COMPANY

     Section 4.01 Conditions to the Purchaser’s Obligations at the Closing. The Purchaser’s obligation to purchase and pay for the Series A Shares being purchased by it on the Closing Date is subject to the satisfaction of the following conditions, any of which may be waived in whole or in part by the Purchaser and which conditions the Company and the Controlling Shareholders, jointly and severally, agree to cause to be satisfied:

          (a) Representations and Warranties to be True and Correct. The representations and warranties of the Company and the Controlling Shareholders under this Agreement shall be true, complete and correct at and as of the Closing Date, except that representations and warranties that are applicable to a particular date by their terms shall be true, complete and correct as of such applicable date.

          (b) Performance. The Company shall have performed and complied with all agreements and covenants contained herein required to be performed or complied with by it prior to or at such Closing Date.

          (c) All Proceedings to be Satisfactory. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser and its counsel, and the Purchaser and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they reasonably may request.

          (d) Approvals. The Company shall have obtained any and all consents, waivers, registrations, approvals or authorizations, with or by any governmental body and all consents, waivers, approvals or authorizations of any other Person required for the valid execution of this Agreement and each of the other Transaction Documents and for the consummation of the transactions contemplated hereby and thereby, including without limitation the requisite shareholder approvals of the Restated Articles and the Reverse Split.

          (e) No Injunction. No governmental body or any other Person shall have issued an order, injunction, judgment, decree, ruling or assessment which shall then be in effect restraining or prohibiting the completion of the transactions contemplated hereby or under any of the other Transaction Documents, nor shall any such order, injunction, judgment, decree, ruling or assessment be pending or, to the Company’s knowledge, threatened.

          (f) Restated Articles. The Restated Articles shall have been duly adopted by the requisite number of shareholders of the Company and duly filed with the Secretary of State

24

of the State of Nevada or such other appropriate authority or agency of the State of Nevada, and the Purchaser has received a certified copy of the filed Restated Articles.

          (g) Reverse Split. The Reverse Split shall have been fully effected, and the Company’s transfer agent shall have provided to the Purchaser a certification as to the number of outstanding shares of Common Stock, after taking into account the Reverse Split.

          (h) Certificate of Designation. The Certificate of Designation shall have been adopted by the Company’s Board of Directors and, following the filing of the Restated Articles and consummation of the Reverse Split, duly filed with the Secretary of State of the State of Nevada or such other appropriate authority or agency of the State of Nevada, and the Purchaser shall have received a certified copy of the filed Certificate of Designation.

          (i) Investor’s Rights Agreement. Each of the Company and the Controlling Shareholders shall have executed and delivered the Investor’s Rights Agreement, substantially in the form attached hereto as Exhibit D (the “Investor’s Rights Agreement”).

          (j) Escrow Agreement. The Company shall have executed and delivered the Escrow Agreement, substantially in the form attached hereto as Exhibit E (the “Escrow Agreement”).

          (k) Employment Agreements. Each of the Controlling Shareholders shall have executed and delivered an Employment Agreement, substantially in the form attached hereto as Exhibit F (the “Employment Agreement”).

          (l) Non-Disclosure and Proprietary Information and Inventions Agreements. Each employee and independent contractor of and consultant to the Company or its Subsidiaries will have entered into a Non-Disclosure and Proprietary Information and Inventions Agreement in a form acceptable to the Purchaser.

          (m) Non-Competition Agreements. Each key employee or consultant of the Company or its Subsidiaries will have entered into a non-competition agreement in a form acceptable to the Purchaser.

          (n) Officers and Board of Directors. The number of directors constituting the entire Board shall have been fixed at no more than three. Each of the existing officers and directors of the Company and the existing officers and directors of its Subsidiaries shall have executed and delivered a Resignation (as defined herein) to the Company.

          (o) Waiver of Preemptive Rights. Holders of at least 80% of the outstanding shares of Common Stock shall have executed and delivered Waivers (as defined herein) to the Company, and the Company shall have provided true, correct and complete copies of such Waivers to the Purchaser. The Waivers shall be valid and binding on the Closing Date and with respect to the terms of the Transaction Documents.

          (p) Satisfaction Agreements. The Company shall have entered into a Satisfaction Agreement (as defined herein) with each of its Debtholders and provided true,

25

correct and complete copies of all of the Satisfaction Agreements to the Purchaser. The Satisfaction Agreements shall be valid and binding on the Closing Date and with respect to the terms of the Transaction Documents.

          (q) Cancellation Agreements. The Company shall have entered into a Cancellation Agreement (as defined herein) with each of its Other Securityholders, other than those Other Securityholders listed on Schedule 5.06, and provided true, correct and complete copies of all of the Cancellation Agreements to the Purchaser. The Cancellation Agreements shall be valid and binding on the Closing Date and with respect to the terms of the Transaction Documents.

          (r) Opinion of Company’s Counsel. The Purchaser shall have received from Vial, Hamilton, Koch & Knox, LLP, counsel for the Company, an opinion dated such Closing Date, in form and scope reasonably satisfactory to the Purchaser and its counsel, which includes matters as to Nevada law.

          (s) Material Adverse Change. As of the Closing, there shall not have occurred a Material Adverse Change.

          (t) Supporting Documents. The Purchaser and its counsel shall have received copies of the following documents:

     (i) (A) the Restated Articles, certified as of a recent date by the Secretary of State of the State of Nevada, (B) the articles of incorporation (or similar organizational document) for each Subsidiary, certified as of a recent date by the Secretary of State of the jurisdiction where it was formed, and (B) certificates of appropriate governmental officials dated as of a recent date as to the due incorporation or formation, existence and good standing and the payment of all franchise taxes by the Company and each of the Subsidiaries, and listing all documents of the Company and its Subsidiaries on file with said governmental officials;

     (ii) a certificate of the Secretary of the Company and each Subsidiary dated the Closing Date, certifying: (A) that attached thereto is a true, correct and complete copy of the Bylaws and the Restated Articles, as amended by the Certificate of Designation, each as amended and in effect on the date of such certification, and that no other amendments or modifications to such Bylaws or Restated Articles have been authorized; (B) that attached thereto is a true, correct and complete copy of all resolutions adopted by the Company’s Board of Directors authorizing the execution, delivery and performance of each of the Transaction Documents, the approval of the Restated Articles, the approval of the Reverse Split, the approval of the Certificate of Designation, the issuance, sale and delivery of the Shares, and the reservation of the Preferred Stock Conversion Shares, and that all such resolutions are in full force and effect, have not been amended, modified or rescinded and are the only resolutions adopted in connection with the transactions contemplated by the Transaction Documents; (C) that attached thereto is a true, correct and complete copy of all resolutions

adopted by the shareholders of the Company approving the Restated Articles, the Reverse Split and the execution, delivery and performance of each of the Transaction Documents; (D) that attached thereto is a true, correct and complete copy of the bylaws and articles of incorporation (or similar organizational documents) for each Subsidiary, each as amended and in effect on the date of such certification, and that no other amendments or modifications thereto have been authorized; and (E) to the incumbency and specimen signature of each officer(s) of the Company and its Subsidiaries executing any of the Transaction Documents, and any certificate or instrument furnished pursuant hereto, and a certification by another authorized officer(s) of the Company and its Subsidiaries as to the incumbency and signature of the officer signing the certificate referred to in this clause (ii);

     (iii) a certificate, executed by the Chief Executive Officer and Chief Operating Officer of the Company, dated the applicable Closing Date, certifying to the fulfillment of the specific conditions set forth in Sections 4.01(a), 4.01(b) hereto and to the fulfillment of all of the conditions in this Article IV in general; and

     (iv) such additional supporting documents and other information with respect to the Company’s operations and affairs as the Purchaser or its counsel reasonably may request. All such documents shall be satisfactory in form and substance to the Purchaser and its counsel.

     Section 4.02 Conditions to the Company’s Obligations at the Closing. The Company’s obligation to sell and issue the Shares on the Closing Date is subject to the satisfaction, on or before such Closing Date, of the following conditions, any of which may be waived in whole or in part by the Company:

          (a) Representations and Warranties to be True and Correct. The representations and warranties of the Purchaser contained in Article III shall be true, complete and correct at and as of the Closing, with the same effect as though such representations and warranties had been made on and as of such date.

          (b) Approvals. The Purchaser shall have obtained any and all consents, waivers, approvals or authorizations, with or by any governmental body and all consents, waivers, approvals or authorizations of any other Person required for the valid execution of this Agreement and each of the other Transaction Documents and for the consummation of the transactions contemplated hereby and thereby.

          (c) No Injunction. No governmental body or any other Person shall have issued an order, injunction, judgment, decree, ruling or assessment which shall then be in effect restraining or prohibiting the completion of the transactions contemplated hereby, nor, to the Company’s knowledge, shall any such order, injunction, judgment, decree, ruling or assessment be threatened or pending.

          (d) Investor’s Rights Agreement. The Purchaser shall have executed and delivered the Investor’s Rights Agreement.

          (e) Escrow Agreement. The Purchaser shall have executed and delivered the Escrow Agreement.

ARTICLE V.

COVENANTS OF THE COMPANY

     The Company covenants and agrees with the Purchaser that:

     Section 5.01 Preparation and Mailing of Information Statement. The Company shall promptly prepare and file with the Securities and Exchange Commission (the “SEC”) an Information Statement on Schedule 14C (the “Information Statement”) in accordance with and under the Exchange Act and rules and regulations promulgated thereunder, containing the information specified in Schedule 14C with respect to the Restated Articles, the Reverse Split, this Agreement and the other Transaction Documents and the transactions contemplated herein and therein. The Purchaser and its counsel shall have a right to review, comment and approve the preliminary and definitive forms of the Information Statement. At the earliest time permitted under SEC rules, the Company will cause the definitive Information Statement to be mailed to its shareholders. The Company will notify the Purchaser and its counsel promptly of the receipt of any comments from the staff of the SEC and of any request by the staff of the SEC for amendments or supplements to the Information Statement or for additional information, and will supply the Purchaser and its counsel with copies of all correspondence between the Company or any of its representatives and the SEC with respect to the Information Statement and shall permit the Purchaser and its counsel to review, comment on and approve such correspondence and any other responses or communications to or with the SEC. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Information Statement, the Company shall promptly inform the Purchaser and its counsel of such occurrences and prepare and file with the SEC and mail to its shareholders such amendment or supplement to the Information Statement, after first obtaining the review, comment and approval of the Purchaser and its counsel. The Company agrees that the information contained in the Information Statement shall be true and correct in all material respects without omission of any material fact which is required to make such information not false or misleading.

     Section 5.02 Filing of Restated Articles; Effecting Reverse Split. On the 21^st day after the mailing of the Information Statement to the Company’s shareholders, or such later date as may be required by rules promulgated by the SEC if an amendment or supplement to the Information Statement is required to be sent to the Company’s shareholders, the Company shall cause to be executed and filed with the Nevada Secretary of State the Restated Articles and shall take all actions necessary or advisable to effect the Reverse Split in such a manner so that no stockholders of the Company have any dissenters’ rights. The Company shall promptly provide a copy to the Purchaser of the filed Restated Articles. Prior to the Closing, the Company shall cause the Transfer Agent to provide a certification as to the number of outstanding shares of the Common Stock, which must reflect the impact of the Reverse Split.

     Section 5.03 Authorization of Series A Preferred Stock. Promptly following the effectiveness of the filing of the Restated Articles, the Company shall (A) first, cause its Board of Directors to approve the Certificate of Designation for the Series A Preferred Stock, and (B) second, execute and file the Certificate of Designation with the Nevada Secretary of State. The Company shall also cause its Board of Directors to ratify, authorize and approve the issuance, sale and delivery of the Shares to the Purchaser pursuant to this Agreement and the establishment of the reserve for issuance of the Preferred Stock Conversion Shares.

     Section 5.04 Current Report on Form 8-K. The Company shall prepare and file with the SEC a Current Report on Form 8-K, within the filing deadlines of the instructions of such form, which shall contain all information required by Form 8-K in respect of this Agreement. The Purchaser and its counsel shall have the right to review, comment on and approve the contents of such Form 8-K. The Company agrees that the information contained in the Form 8-K shall be true and correct in all material respects without any omission of any material fact which is required to make such information not false or misleading.

     Section 5.05 Waiver of Preemptive Rights Violations. Prior to the Closing, the Company shall obtain the execution and delivery by the holders of at least 80% of the outstanding shares of Common Stock of the Company of a waiver of preemptive rights and a release of any and all claims, whether past or present, that such holder may have against the Company or its Subsidiaries, substantially in the form attached hereto as Exhibit G (the “Waiver”). The Purchaser shall have a right to review and approve any changes to any Waiver that are proposed by any holders of the Common Stock.

     Section 5.06 Agreements With Debtholders and Other Securityholders. Prior to the Closing, the Company shall cause to be executed and delivered between the Company and separately with each of its Debtholders an agreement regarding the satisfaction and release of all obligations of the Company or any Subsidiary to the Debtholders and any Liens securing such indebtedness and a release of any and all claims, whether past or present, that such Debtholder may have against the Company or its Subsidiaries, substantially in the form of Exhibit H attached hereto (the “Satisfaction Agreements”). Prior to the Closing, the Company shall cause to be executed and delivered by and between the Company and separately with each of the Other Securityholders, other than those Other Securityholders set forth on Schedule 5.06 (which describes the Other Securities of such Other Securityholders), an agreement relating to the cancellation and release of the Other Securities and a release of any and all claims, whether past or present, that such Other Securityholder may have against the Company or its Subsidiaries, substantially in the form of Exhibit I attached hereto (the “Cancellation Agreements”).

     Section 5.07 Reserve for Preferred Stock Conversion Shares. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of issuing the Preferred Stock Conversion Shares upon conversion of the Series A Preferred Stock and otherwise complying with the terms of this Agreement such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Series A Preferred Stock or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Series A Preferred Stock or otherwise to comply with the terms of this

Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will use its best efforts to obtain any authorization, consent, approval or other action by or make any filing with any court or governmental or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Series A Preferred Stock.

     Section 5.08 Corporate Existence. The Company shall preserve and maintain, and cause each Subsidiary to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership or lease of its properties.

     Section 5.09 Preservation of Property and Assets. The Company shall use its best efforts to secure, preserve and maintain, and cause any Subsidiary to use its best efforts to secure, preserve and maintain, all licenses and other rights to use the patents, processes, licenses, permits, trademarks, trade names, inventions, copyrights or other Intellectual Property rights owned or possessed by it and deemed by the Company to be material to the conduct of its business or the business of any Subsidiary. The Company shall also use its best efforts to maintain and preserve, and cause each Subsidiary to use its best efforts to maintain and preserve, all of its other properties and assets necessary for the proper conduct of its business, in good repair, working order and condition, ordinary wear and tear excepted, and, from time to time, make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and the Company and its Subsidiaries will at all times comply with each material provision of all leases to which any of them is a party or under which any of them occupies property.

     Section 5.10 Insurance. The Company shall obtain and maintain, and cause each of its Subsidiaries to maintain, as to its respective properties and business, with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is customary for companies similarly situated.

     Section 5.11 Inspection, Consultation and Advice. The Company shall permit, and cause each any of its Subsidiaries to permit, the Purchaser and such persons as it may designate, at Purchaser’s expense, to visit and inspect any of the properties of the Company and any Subsidiary, examine their books and take copies and extracts therefrom, discuss the affairs, finances and accounts of the Company and any Subsidiary with their officers, employees and public accountants (and the Company hereby authorizes said accountants to discuss with such holder and such designees such affairs, finances and accounts), and consult with and advise the management of the Company and any Subsidiary as to the Company’s affairs, finances and accounts, all at reasonable times and upon reasonable notice, provided that the Purchaser shall cause the persons they so designate to maintain any and all information relating to the Company confidential. In the event of the Company’s breach of any of the covenants contained in this

Article V, the Company shall be responsible for the fees and expenses incurred by Purchaser in enforcing its rights under this Article V.

     Section 5.12 Restrictive Agreements Prohibited. Neither the Company nor any Subsidiary shall become a party to any agreement that by its terms restricts the Company’s performance of this Agreement, any of the other Transaction Documents, the Restated Articles or the Bylaws.

     Section 5.13 Transactions with Affiliates. Except for transactions contemplated by this Agreement, neither the Company nor any Subsidiary shall enter into any transaction with any director, officer, employee or holder of more than five percent (5%) of the outstanding capital stock of any class or series of capital stock of the Company or any Subsidiary (other than the Purchaser and its Affiliates), member of the family of any such Person, or any corporation, partnership, trust or other entity in which any such Person, or member of the family of any such Person, is a director, officer, trustee, partner or holder of more than five percent (5%) of the outstanding capital stock thereof.

     Section 5.14 Use of Proceeds. The Company shall apply $230,000 of the Total Purchase Price, which will be paid to the Company at the Closing in accordance with Section 1.02, to pay in full all accounts payable and other obligations listed in Schedule 5.14 hereto, which schedule shall be subject to approval by the Purchaser prior to the Closing. The remaining portion of the Total Purchase Price shall be deposited with the escrow agent under the Escrow Agreement and disbursed solely in accordance with the terms thereof and subject to the conditions therein.

     Section 5.15 Non-Disclosure, Non-Solicitation and Proprietary Information and Inventions Agreement. Prior to the Closing, the Company shall cause each officer, director, employee, consultant and independent contractor now or hereafter employed by it, or its Subsidiaries, to enter into the Non-Disclosure, Non-Solicitation and Proprietary Information and Inventions Agreement, in form acceptable to the Purchaser.

     Section 5.16 Payment of Taxes; Trade Debt. The Company shall pay and discharge, and cause each Subsidiary to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income, profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Company or any Subsidiary; provided, however, that neither the Company, nor any Subsidiary, shall be required to pay any such tax, assessment, charge, levy or claim which is being contested or extended in good faith and by appropriate proceedings if the Company or any Subsidiary shall have set aside on its books sufficient reserves, if any, with respect thereto. The Company shall pay and cause any Subsidiary to pay, when due, or in conformity with customary trade terms, all lease obligations, all trade debt, and all other indebtedness incident to the operations of the Company or any Subsidiary, except such as are being contested in good faith and by proper proceedings if the Company or Subsidiary concerned shall have set aside on its books sufficient reserves, if any, with respect thereto.

     Section 5.17 Internal Accounting Controls. The Company shall devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with Company management’s general or specific authorization, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP or any other criteria applicable to such statements, and to maintain accountability for assets, (c) access to assets is permitted only in accordance with Company management’s general or specific authorization, and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

     Section 5.18 Other Items. The Company shall have completed or resolved, and shall cause its Subsidiaries to have completed and resolved, all of the actions and items listed in Schedule 5.18 hereto to the Purchaser’s reasonable satisfaction on or prior to the 45^th day following the Closing Date. In connection therewith, the Purchaser and its counsel shall have a right to review, comment and approve all materials filed with any federal, state, municipal or other governmental body, department, commission, board, bureau, agency or instrumentality, domestic or foreign and all agreements entered into. In the event that such actions and items are not completed in the Purchaser’s reasonable satisfaction, it shall constitute an Event of Default (as defined in the Certificate of Designation), pursuant to which the holders of a Majority-in-Interest (as defined in the Certificate of Designation) of the Series A Preferred Stock may elect to require that the Company redeem all of the Series A Preferred Stock outstanding, as set forth in the Certificate of Designation. Purchaser hereby covenants and agrees not to unreasonably interfere with, or hinder, the Company’s performance of this Section 5.18.

     Section 5.19 Indemnity.

          (a) The Company and each of the Controlling Stockholders, jointly and severally, agree to indemnify, defend and hold harmless the Purchaser (and its partners (and each officer and director thereof), directors, managers, officers, members, stockholders, employees, Affiliates, agents and permitted assigns) (collectively, “Purchaser Indemnified Parties”) from and against any and all losses, claims, liabilities, damages, deficiencies, costs or expenses (including, without limitation, interest, penalties, reasonable attorneys’ fees, disbursements and related charges and any costs or expenses that a Purchaser Indemnified Party incurs to enforce its right to indemnification) (collectively, “Losses”) based upon, arising out of or otherwise in respect of (i) any material inaccuracy in or material breach of any representations, warranties, covenants or agreements of the Company or a Controlling Stockholder contained in this Agreement or any of the other Transaction Documents or (ii) any taxes of the Company and its affiliates relating to periods prior to the Closing.

          (b) The Purchaser agrees to indemnify, defend and hold harmless the Company and its directors, officers, employees, Affiliates, agents and control persons (collectively, the “Company Indemnified Parties”) from and against any and all Losses based upon, arising out of or otherwise in respect of any material inaccuracy in or material breach of any representations, warranties, covenants or agreements of the Purchaser contained in this Agreement or any of the other Transaction Documents.

          (c) The provisions of this Section 5.19 shall not limit or impair any right or remedy arising from breach of this Agreement or any of the other Transaction Documents. In addition to any other remedy provided by law, injunctive relief may be obtained to enjoin the breach, or threatened breach, of any provision of this Agreement and each party shall be entitled to specific performance by the others of their obligations hereunder and thereunder. All remedies, either under this Agreement, by law or as may otherwise be afforded to the Purchaser or the Company, as the case may be, shall be cumulative.

     Section 5.20 Compliance with Laws. The Company shall comply, and cause each Subsidiary to comply, with all applicable laws, rules, regulations and orders.

     Section 5.21 Keeping of Records and Books of Account. The Company shall keep, and cause each Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and any Subsidiary, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

     Section 5.22 Publicity. Except as may be required by law, the Company shall not issue or cause the publication of any press release, advertisement or other public communication relating to (a) the Purchaser (or any Affiliate of the Purchaser) or (b) this Agreement or any of the other Transaction Documents, without the Purchaser’s prior written consent.

     Section 5.23 Operations. From the date of this Agreement until the Closing Date, the Company will use its best efforts, and cause its Subsidiaries to use their best efforts, to:

          (a) carry on their respective businesses in substantially the same manner as the Company and the Subsidiaries have heretofore conducted their respective businesses and not make any material change in personnel, leases, operations, finance, accounting policies or real or personal property;

          (b) maintain the assets of the Company and the Subsidiaries and all parts thereof in as good working order and condition as at present, ordinary wear and tear accepted; and

          (c) perform all of the obligations of the Company and the Subsidiaries under the Real Estate Leases, the Personal Property Leases, and the Contracts.

     Section 5.24 Negative Covenants. From the date hereof to the Closing Date, the Company shall not, and shall cause its Subsidiaries not to, without the prior written consent of the Purchaser:

          (a) amend or terminate any of the Real Property Leases, the Personal Property Leases, or the Contracts, enter into any contract or commitment, or incur or agree to incur any liability, except in the ordinary course of business and in no event greater than $1,000 per item or which is not terminable without cause or penalty within sixty (60) days following the Closing;

          (b) amend any of the Benefit Plans, increase the compensation payable or to become payable or make a bonus payment to or otherwise enter into one or more bonus agreements with any employee or agent;

          (c) create, assume or permit to exist any new indebtedness or borrowing, new guaranty of any indebtedness or obligation, or new mortgage, pledge or other Lien upon any of the assets of the Company and the Subsidiaries, whether now owned or hereafter acquired;

          (d) sell, assign or otherwise transfer, dispose of any property, plant or equipment (other than supplies);

          (e) issue, sell or grant any shares of Common Stock or Preferred Stock or any Other Securities; or

          (f) take any action outside the ordinary course of business.

     Section 5.25 Board; Resignations of Directors and Officers. Prior to Closing, the Board shall cause the number of directors constituting the entire Board to be fixed at no more than three. Prior to the Closing, the Company shall obtain from each of the existing officers and directors of the Company and the existing officers, other than the Controlling Stockholders in their positions, as the case may be, as Chief Executive Officer and Chief Operating Officer of DiscLive, and directors of its Subsidiaries the execution and delivery of a written irrevocable resignation (“Resignation”) from all offices, boards and committees thereof and other positions held by such Person with the Company and its Subsidiaries, as the case may be, subject to the Employment Agreement (as defined herein), if applicable. Each Resignation shall only be effective upon its acceptance by the Company, provided, however, each Resignation shall be accepted by the Company as and when so directed by the Purchaser.

ARTICLE VI.

TERMINATION

     Section 6.01 Termination. This Agreement and the transactions contemplated herein may be terminated and abandoned at any time on or prior to the Closing Date:

          (a) by mutual consent of the Company and the Purchaser;

          (b) by the Purchaser if:

     (i) the Purchaser is not in material breach of its obligations hereunder and any representation or warranty made herein for the benefit of the Purchaser is untrue, the Purchaser has not waived such breach and such breach is not cured within ten (10) days after written notice to the Company;

     (ii) the Purchaser is not in material breach of its obligations hereunder, and the Company or the Controlling Stockholders shall have defaulted in any respect in performance of any material obligation under this Agreement and such

breach is not cured within ten (10) days of the breaching party’s receipt of a notice from the Purchaser that such breach exists or has occurred or the Purchaser has not waived the breach; or

     (iii) consummation of the transactions contemplated by this Agreement would violate any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction;

          (c) by the Company if:

     (i) neither the Company nor any Controlling Stockholder is in material breach of its or his obligations hereunder, and any representation or warranty made herein for the benefit of the Company or the Controlling Stockholder is untrue, the Company and the Controlling Stockholders have not waived such breach and such breach is not cured within ten (10) days after written notice to the Company;

     (ii) neither the Company nor any Controlling Stockholder is in material breach of its or his obligations hereunder, and the Company shall have defaulted in any respect in performance of any material obligation under this Agreement, and such breach is not cured within ten (10) days of the Purchaser’s receipt of a notice from the Company or any Controlling Stockholder that such breach exists or has occurred or the Company and the Controlling Stockholders have not waived the breach; or

     (iii) consummation of the transactions contemplated by this Agreement would violate any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction; or

          (d) by either the Purchaser or the Company if the Closing Date does not occur on or before February 28, 2006 (the “Final Closing Date”) (or such later date as may be mutually agreed upon by the parties hereto), so long as such party has complied with the provisions of this Agreement; provided, however, that if the Closing Date has not occurred because of a party’s breach of this Agreement, then such Final Closing Date shall be extended for 10 days to the extent such breach can be cured and such breaching party is using commercially reasonable efforts to effect such cure.

     Section 6.02 Manner of Exercise. In the event of termination and abandonment by the Purchaser or the Company, or both, authorized by Section 6.01, written notice thereof shall forthwith be given to the other parties and this Agreement shall terminate.

     Section 6.03 Effect of Termination. If this Agreement is terminated pursuant to Section 6.01, all further obligations of the parties under this Agreement will terminate and become void and of no force and effect, except that the obligations in this Section and Sections 5.19 and 5.22 will survive; provided that any termination of this Agreement pursuant to Section 6.01 of this Agreement shall not relieve any party from any liability for any material breach of any representation, warranty or covenant contained in this Agreement.

ARTICLE VII.

MISCELLANEOUS

     Section 7.01 Survival of Agreements. Except as otherwise provided herein or therein, all covenants, agreements, representations and warranties made in any of the Transaction Documents or any certificate or instrument delivered to the Purchaser or the Company pursuant to or in connection with any of the Transaction Documents shall survive the execution and delivery of all of the Transaction Documents, the issuance, sale and delivery of the Shares, and the issuance and delivery of the Preferred Stock Conversion Shares for a period of one year following the Closing Date; provided, however, that the representations and warranties of the Company and the Controlling Stockholders in Section 2.16 hereof shall continue thereafter and shall survive until the expiration of the applicable statute of limitations. All statements contained in any certificate or other instrument delivered by the Company or the Purchaser hereunder or thereunder or in connection herewith or therewith shall be deemed to constitute representations and warranties made by the Company or the Purchaser, as the case may be.

     Section 7.02 Entire Agreement. This Agreement, together with the Schedules hereto and any certificates, documents, instruments and writings that are delivered pursuant hereto and thereto, constitute the entire agreement and understanding of the parties in respect of the subject matter hereof and supersede all prior understandings, agreements or representations by or among the parties, written or oral, to the extent they relate in any way to the subject matter hereof.

     Section 7.03 Assignment; Binding Effect. No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other parties; provided, however, that without the consent of any other party hereto the rights of the Purchaser hereunder are assignable to an Affiliate of the Purchaser. All of the terms, agreements, covenants, representations, warranties and conditions of this Agreement are binding upon, and inure to the benefit of and are enforceable by, the parties and their respective successors and permitted assigns, whether so expressed or not. Without limiting the generality of the foregoing, all representations, covenants and agreements benefiting the Purchaser shall inure to the benefit of any and all subsequent holders from time to time of the Shares or the Preferred Stock Conversion Shares, as the case may be. Nothing in this Agreement shall create or be deemed to create any third-party beneficiary rights in any Person not a party to this Agreement except as provided below. Whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the Purchaser as a purchaser or holder of the Shares (or any securities pursuant to which the Shares may be converted or exercised into) are also for the benefit of and enforceable by any subsequent holder of such Shares or other securities to the same extent they would have been enforceable by the Purchaser. Upon any permitted assignment, the references in this Agreement to the Purchaser shall also apply to any such assignee unless the context otherwise requires.

     Section 7.04 Notices. All notices, requests and other communications provided for or permitted to be given under this Agreement must be in writing and shall be given by personal delivery, by certified or registered United States mail (postage prepaid, return receipt requested), by a nationally recognized overnight delivery service for next day delivery, or by facsimile

transmission, as follows (or to such other address as any party may give in a notice given in accordance with the provisions hereof):

If to the Purchaser:

Radical Holdings LP
c/o Radical Management LLC
5424 Deloache Avenue
Dallas, Texas 75220
Fax: (214) 696-6310
Attn: President

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

Robert S. Hart
5424 Deloache Avenue
Dallas, Texas 75220
Fax: (214) 696-3380

and

Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3700
Dallas, Texas 75202
Phone: (214) 855-4500
Fax: (214) 855-4300
Attn: Robert W. Dockery, Esq.

If to the Company:

Immediatek, Inc.
2435 North Central Expressway, Suite 1610
Richardson, Texas 75080
Phone: (972) 852-2876
Fax: (972) 722-0818
Attn: Zach Bair, President

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

Vial, Hamilton, Koch & Knox, LLP
1700 Pacific Avenue, Suite 2800
Dallas, Texas 75201
Phone: (214) 712-4441
Fax: (214) 712-4402
Attn: Craig G. Ongley, Esq.

If to the Controlling Stockholders:

Zach Bair
2435 North Central Expressway, Suite 1200
Richardson, Texas 75080
Fax: (972) 722-0818

Paul Marin
2435 North Central Expressway, Suite 1200
Richardson, Texas 75080
Fax: (972) 722-0818

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

Vial, Hamilton, Koch & Knox, LLP
1700 Pacific Avenue, Suite 2800
Dallas, Texas 75201
Phone: (214) 712-4441
Fax: (214) 712-4402
Attn: Craig G. Ongley, Esq.