Exhibit 10.10

 

NOTE AND WARRANT PURCHASE

 

AGREEMENT

Dated as of September 30, 2005

by and among

SILVER STAR ENERGY, INC.

and

THE PURCHASERS LISTED ON EXHIBIT A

 

 

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TABLE OF CONTENTS

Page

ARTICLE I

Purchase and Sale of Notes and Warrants

1

Section 1.1

Purchase and Sale of Notes and Warrants.

1

Section 1.2

Purchase Price and Closing

1

Section 1.3

Conversion Shares / Warrant Shares

2

Section 1.4

Additional Investment Right

2

ARTICLE II

Representations and Warranties

3

Section 2.1

Representations and Warranties of the Company

3

Section 2.2

Representations and Warranties of the Purchasers

13

ARTICLE III

Covenants

16

Section 3.1

Securities Compliance

16

Section 3.2

Registration and Listing

16

Section 3.3

Inspection Rights

17

Section 3.4

Compliance with Laws

17

Section 3.5

Keeping of Records and Books of Account

17

Section 3.6

Reporting Requirements

17

Section 3.7

Other Agreements

18

Section 3.8

Use of Proceeds

17

Section 3.9

Reporting Status

17

Section 3.10

Disclosure of Transaction

17

Section 3.11

Disclosure of Material Information

18

Section 3.12

Pledge of Securities

18

Section 3.13

Amendments

18

Section 3.14

Distributions

18

Section 3.15

Reservation of Shares

18

Section 3.16

Transfer Agent Instructions

19

Section 3.17

Disposition of Assets

19

Section 3.18

Form SB-2 Eligibility

19

Section 3.19

Restrictions on Certain Issuances of Securities

20

Section 3.20

Lock-Up Agreement

20

Section 3.21

Subsequent Financings

20

ARTICLE IV

Conditions

22

Section 4.1

Conditions Precedent to the Obligation of the Company to Close and to Sell the
Securities

22

Section 4.2

Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities22

Section 4.3

Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Option Notes

23

ARTICLE V

Certificate Legend

26

Section 5.1

Legend

25

ARTICLE VI

Indemnification

27

Section 6.1

General Indemnity.

27

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TABLE OF CONTENTS

(continued)

Page

Section 6.2

Indemnification Procedure

27

ARTICLE VII

Miscellaneous

28

Section 7.1

Fees and Expenses

28

Section 7.2

Specific Performance; Consent to Jurisdiction; Venue.

29

Section 7.3

Entire Agreement; Amendment

29

Section 7.4

Notices

29

Section 7.5

Waivers

30

Section 7.6

Headings

31

Section 7.7

Successors and Assigns

31

Section 7.8

No Third Party Beneficiaries

31

Section 7.9

Governing Law

31

Section 7.10

Survival

31

Section 7.11

Counterparts

31

Section 7.12

Publicity

31

Section 7.13

Severability

31

Section 7.14

Further Assurances

32

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NOTE AND WARRANT PURCHASE AGREEMENT

This NOTE AND WARRANT PURCHASE AGREEMENT dated as of September 30, 2005 (this
"Agreement") by and among Silver Star Energy, Inc., a Nevada corporation (the
"Company"), and each of the purchasers of the senior secured convertible
promissory notes of the Company whose names are set forth on Exhibit A attached
hereto (each a "Purchaser" and collectively, the "Purchasers").  

The parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF NOTES AND WARRANTS

Section 1.1

Purchase and Sale of Notes and Warrants.  

(a)

Upon the following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase from the Company, senior secured
convertible promissory notes in the aggregate principal amount of up to Ten
Million Dollars ($10,000,000), convertible into shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), in substantially the
form attached hereto as Exhibit B (the "Notes").  The Company and the Purchasers
are executing and delivering this Agreement in accordance with and in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
U.S. Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), including Regulation D
("Regulation D"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.

(b)

Upon the following terms and conditions, the Purchasers shall be issued
Warrants, in substantially the form attached hereto as Exhibit C (the
"Warrants"), to purchase a number of shares of Common Stock equal to one hundred
percent (100%) of the number of Conversion Shares (as defined in Section 1.3
hereof) issuable upon conversion of such Purchaser's Notes purchased pursuant to
this Agreement as set forth opposite such Purchaser's name on Exhibit A attached
hereto.  The Warrants shall expire five (5) years following the Closing Date and
shall have an exercise price per share equal to the Warrant Price (as defined in
the Warrants).

Section 1.2

Purchase Price and Closing.  Subject to the terms and conditions hereof, the
Company agrees to issue and sell to the Purchasers and, in consideration of and
in express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase the Notes and Warrants for an aggregate purchase price of up to Ten
Million Dollars ($10,000,000) (the "Purchase Price").  The closing of the
purchase and sale of the Notes and Warrants to be acquired by the Purchasers
from the Company under this Agreement shall take place at the offices of Kramer
Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York, New York
10036 (the "Closing") at 10:00 a.m., New York time (i) on or before October 21,
2005; provided, that all of

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the conditions set forth in Article IV hereof and applicable to the Closing
shall have been fulfilled or waived in accordance herewith, or (ii) at such
other time and place or on such date as the Purchasers and the Company may agree
upon (the "Closing Date").  Subject to the terms and conditions of this
Agreement, at the Closing the Company shall deliver or cause to be delivered to
each Purchaser (x) its Note for the principal amount set forth opposite the name
of such Purchaser on Exhibit A hereto and (y) a Warrant to purchase such number
of shares of Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A attached hereto.  At the Closing, each Purchaser shall deliver its
Purchase Price by wire transfer to an account designated by the Company.  

Section 1.3

Conversion Shares / Warrant Shares.  The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to one hundred twenty  percent (120%) of
(a) the aggregate number of shares of Common Stock to effect the conversion of
the Notes and any interest accrued and outstanding thereon and exercise of the
Warrants and (b) upon exercise of the Purchaser Option (as defined in Section
1.4 hereof), the aggregate number of shares of Common Stock to effect the
conversion of the Option Notes (as defined in Section 1.4 hereof) and any
interest accrued and outstanding thereon and exercise of the Additional Warrants
(as defined in Section 1.4 hereof).  Any shares of Common Stock issuable upon
conversion of the Notes and the Option Notes and any interest accrued and
outstanding on the Notes and the Option Notes are herein referred to as the
"Conversion Shares".  Any shares of Common Stock issuable upon exercise of the
Warrants (and such shares when issued) are herein referred to as the "Warrant
Shares".  The Notes, the Option Notes, the Warrants, the Additional Warrants (as
defined in Section 1.4 hereof), the Conversion Shares and the Warrant Shares are
sometimes collectively referred to herein as the "Securities".

Section 1.4

Additional Investment Right.  Commencing on the Effective Date (as defined
below) of the Registration Statement (as defined in the Registration Rights
Agreement), each Purchaser shall have the option to purchase from the Company,
and the Company shall issue and sell to each such Purchaser who exercises such
option, a Note for the principal amount of up to such Purchaser's pro rata
portion of the Purchase Price pursuant to the terms hereof (the "Purchaser
Option").  For purposes of this Agreement, "Effective Date" means the date that
the Commission declares the Registration Statement effective.  If any Purchaser
elects not to exercise its Purchase Option, each other Purchaser may exercise
its Purchaser Option on a pro-rata basis so long as such participation in the
aggregate does not exceed the aggregate Purchase Price hereunder.  For purposes
of this Section 1.4, all references to "pro rata" means, for any Purchaser
electing to exercise its Purchaser Option, the percentage obtained by dividing
(x) the principal amount of the Notes purchased by such Purchaser at the Closing
by (y) the total principal amount of all of the Notes purchased by each
Purchaser exercising its Purchaser Option.  Upon the Purchaser Option being
exercised, each Purchaser exercising its Purchase Option shall receive a Warrant
(the "Additional Warrants") to purchase a number of shares of Common Stock equal
to one hundred percent (100%) of the number of Conversion Shares issuable upon
conversion of the Note acquired by such Purchaser pursuant to this Section 1.4.
 Each such Additional Warrant shall expire five (5) years following the date of
issuance thereof and shall have an exercise price per share equal to the Warrant
Price.  The Purchaser Option shall expire six (6) months following the Effective
Date.  The Company may cause each Purchaser to exercise its Purchaser Option or
forfeit its right to exercise such Purchaser Option in

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the future upon five (5) business days prior written notice in the event that
(A) the average closing price of the Common Stock exceeds $0.49 for a period of
twenty (20) consecutive Trading Days (as defined in Section 3.10 hereof), (B)
the Common Stock trades at least 500,000 shares for each Trading Day during such
twenty (20) consecutive Trading Day period and (C) the Registration Statement
has been declared effective by the Commission.  Each Purchaser exercising the
Purchaser Option shall deliver to the Company an Exercise Form in the form
attached hereto as Exhibit D.  Within five (5) days of receipt of such Exercise
Form, the Company shall deliver to the Purchaser exercising such Purchaser
Option a Note representing the principal amount purchased pursuant to the
Purchaser Option (the "Option Notes") and the Purchaser's Additional Warrant.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.1

Representations and Warranties of the Company.  The Company hereby represents
and warrants to the Purchasers, as of the date hereof and the Closing Date
(except as set forth on the Schedule of Exceptions attached hereto with each
numbered Schedule corresponding to the section number herein), as follows:

(a)

Organization, Good Standing and Power.  The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Nevada and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
 The Company does not have any Subsidiaries (as defined in Section 2.1(g)) or
own securities of any kind in any other entity except as set forth on Schedule
2.1(g) hereto.  The Company and each such Subsidiary (as defined in Section
2.1(g)) is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect.  For the purposes of this
Agreement, "Material Adverse Effect" means any material adverse effect on the
business, operations, properties, prospects, or financial condition of the
Company and its Subsidiaries and/or any condition, circumstance, or situation
that would prohibit or otherwise materially interfere with the ability of the
Company to perform any of its obligations under this Agreement in any material
respect.

(b)

Authorization; Enforcement.  The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Notes, the Warrants, the
Registration Rights Agreement by and among the Company and the Purchasers, dated
as of the date hereof, substantially in the form of Exhibit E attached hereto
(the "Registration Rights Agreement"), the Security Agreement by and among the
Company and the Purchasers, dated as of the date hereof, substantially in the
form of Exhibit F attached hereto (the "Security Agreement"), the Lock-Up
Agreement (as defined in Section 3.20 hereof) a form of which is attached hereto
as Exhibit G, and the Irrevocable Transfer Agent Instructions (as defined in
Section 3.16 hereof) (collectively, the "Transaction Documents") and to issue
and sell the Securities in accordance with the terms hereof.  The execution,
delivery and performance of the

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Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, its Board of Directors or
stockholders is required.  When executed and delivered by the Company, each of
the Transaction Documents shall constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies or
by other equitable principles of general application.

(c)

Capitalization.  The authorized capital stock and the issued and outstanding
shares of capital stock of the Company as of the Closing Date is set forth on
Schedule 2.1(c) hereto.  All of the outstanding shares of the Common Stock and
any other outstanding security of the Company have been duly and validly
authorized.  Except as set forth in this Agreement, the Commission Documents (as
defined in Section 2.1(f)) or as set forth on Schedule 2.1(c) hereto, no shares
of Common Stock or any other security of the Company are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company.  Furthermore, except as set forth in this Agreement and as
set forth on Schedule 2.1(c) hereto, there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
 Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as provided on Schedule
2.1(c) hereto, the Company is not a party to or bound by any agreement or
understanding granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities.  Except as set forth on
Schedule 2.1(c), the Company is not a party to, and it has no knowledge of, any
agreement or understanding restricting the voting or transfer of any shares of
the capital stock of the Company.  

(d)

Issuance of Securities.  The Notes and the Warrants to be issued at the Closing
have been duly authorized by all necessary corporate action and, when paid for
or issued in accordance with the terms hereof, the Notes shall be validly issued
and outstanding, free and clear of all liens, encumbrances and rights of refusal
of any kind.  When the Conversion Shares and Warrant Shares are issued and paid
for in accordance with the terms of this Agreement and as set forth in the Notes
and Warrants, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, free
and clear of all liens, encumbrances and rights of refusal of any kind and the
holders shall be entitled to all rights accorded to a holder of Common Stock.
 When the Option Notes are issued in accordance with the terms of this
Agreement, such Option Notes will be duly authorized by all necessary corporate
action and validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind.

(e)

No Conflicts.  The execution, delivery and performance of the Transaction
Documents by the Company, the performance by the Company of its obligations
under the Notes and the consummation by the Company of the transactions
contemplated hereby and thereby, and the issuance of the Securities as
contemplated hereby, do not and will not (i) violate or conflict

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with any provision of the Company's Articles of Incorporation (the "Articles")
or Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's
comparable charter documents, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect (other than
violations pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws)).  Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the
Securities in accordance with the terms hereof (other than any filings, consents
and approvals which may be required to be made by the Company under applicable
state and federal securities laws, rules or regulations or any registration
provisions provided in the Registration Rights Agreement).

(f)

Commission Documents, Financial Statements.  The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "Commission Documents").  At the times of their
respective filings, the Form 10-QSB for the fiscal quarters ended June 30, 2005,
March 31, 2005 and September 30, 2004 (collectively, the "Form 10-QSB") and the
Form 10-KSB for the fiscal year ended December 31, 2004 (the "Form 10-KSB")
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and the Form 10-QSB and Form 10-KSB did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  As of their
respective dates, the financial statements of the Company included in the
Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
 Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of operations and cash flows

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for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).

(g)

Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the Company,
showing the jurisdiction of its incorporation or organization and showing the
percentage of each person's ownership of the outstanding stock or other
interests of such Subsidiary.  For the purposes of this Agreement, "Subsidiary"
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries.  All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable.  Except as set forth on Schedule 2.1(g) hereto,
there are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any Subsidiary for
the purchase or acquisition of any shares of capital stock of any Subsidiary or
any other securities convertible into, exchangeable for or evidencing the rights
to subscribe for any shares of such capital stock.  Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule 2.1(g) hereto.
 Neither the Company nor any Subsidiary is party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of any Subsidiary.

(h)

No Material Adverse Change.  Since December 31, 2004, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.

(i)

No Undisclosed Liabilities.  Except as disclosed on Schedule 2.1(i) hereto,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) other than those incurred
in the ordinary course of the Company's or its Subsidiaries respective
businesses or which, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect.

(j)

No Undisclosed Events or Circumstances.  Since December 31, 2004, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

(k)

Indebtedness.  Schedule 2.1(k) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments.  For the purposes of
this Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $100,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others,

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whether or not the same are or should be reflected in the Company's balance
sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (c) the present value of any lease payments in excess of
$25,000 due under leases required to be capitalized in accordance with GAAP.
 Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

(l)

Title to Assets.  Each of the Company and the Subsidiaries has good and valid
title to all of its real and personal property reflected in the Commission
Documents, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated on Schedule 2.1(l)
hereto or such that, individually or in the aggregate, do not cause a Material
Adverse Effect.  Any leases of the Company and each of its Subsidiaries are
valid and subsisting and in full force and effect.

(m)

Actions Pending.  There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary which
questions the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby or any
action taken or to be taken pursuant hereto or thereto.  Except as set forth in
the Commission Documents or on Schedule 2.1(m) hereto, there is no action, suit,
claim, investigation, arbitration, alternate dispute resolution proceeding or
other proceeding pending or, to the knowledge of the Company, threatened against
or involving the Company, any Subsidiary or any of their respective properties
or assets, which individually or in the aggregate, would reasonably be expected,
if adversely determined, to have a Material Adverse Effect.  There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
Subsidiary or any officers or directors of the Company or Subsidiary in their
capacities as such, which individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.

(n)

Compliance with Law.  The business of the Company and the Subsidiaries has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except as
set forth in the Commission  Documents or on Schedule 2.1(n) hereto or such
that, individually or in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect.  The Company and each
of its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

(o)

Taxes.  The Company and each of the Subsidiaries has accurately prepared and
filed all federal, state and other tax returns required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due and
all additional assessments, and adequate provisions have been and are reflected
in the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable.  Except as disclosed on Schedule 2.1(o)
hereto or in the Commission Documents, none of the federal income tax returns of
the Company

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or any Subsidiary have been audited by the Internal Revenue Service.  The
Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.

(p)

Certain Fees.  Except as set forth on Schedule 2.1(p) hereto, the Company has
not employed any broker or finder or incurred any liability for any brokerage or
investment banking fees, commissions, finders' structuring fees, financial
advisory fees or other similar fees in connection with the Transaction
Documents.

(q)

Disclosure.  Except for the transactions contemplated by this Agreement, the
Company confirms that neither it nor any other person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that constitutes or might constitute material, nonpublic information.  To the
best of the Company's knowledge, neither this Agreement or the Schedules hereto
nor any other documents, certificates or instruments furnished to the Purchasers
by or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by this Agreement contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made herein or therein, not misleading.

(r)

Operation of Business.  Except as set forth on Schedule 2.1(r) hereto, the
Company and each of the Subsidiaries owns or possesses the rights to all
patents, trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.

(s)

Environmental Compliance.  To the best knowledge of the Company, except as set
forth on Schedule 2.1(s) hereto or in the Commission Documents, the Company and
each of its Subsidiaries have obtained all material approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person, that
are required under any  Environmental Laws.  "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature.  To the best of the Company's knowledge, the Company has all
necessary governmental approvals required under all Environmental Laws as
necessary for the Company's business or the business of any of its subsidiaries.
 To the best of the Company's knowledge, the Company and each of its
subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws.  Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or

9

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omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.  

(t)

Books and Records; Internal Accounting Controls.  The records and documents of
the Company and its Subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the Subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary.  The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company's board
of directors, to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences.

(u)

Material Agreements.  Except for the Transaction Documents (with respect to
clause (i) only), as disclosed in the Commission Documents or as set forth on
Schedule 2.1(u) hereto, or as would not be reasonably likely to have a Material
Adverse Effect, (i) the Company and each of its Subsidiaries have performed all
obligations required to be performed by them to date under any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement,
filed or required to be filed with the Commission (the "Material Agreements"),
(ii) neither the Company nor any of its Subsidiaries has received any notice of
default under any Material Agreement and, (iii) to the best of the Company's
knowledge, neither the Company nor any of its Subsidiaries is in default under
any Material Agreement now in effect.  

(v)

Transactions with Affiliates.  Except as set forth on Schedule 2.1(v) hereto and
in the Commission Documents, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
any person owning at least 5% of the outstanding capital stock of the Company or
any Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder which, in each case, is required to be disclosed in the
Commission Documents or in the Company's most recently filed definitive proxy
statement on Schedule 14A, that is not so disclosed in the Commission Documents
or in such proxy statement.

10

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(w)

Securities Act of 1933.  Based in material part upon the representations herein
of the Purchasers, the Company has complied and will comply with all applicable
federal and state securities laws in connection with the offer, issuance and
sale of the Securities hereunder.  Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy any of the Securities or similar securities to, or solicit offers
with respect thereto from, or enter into any negotiations relating thereto with,
any person, or has taken or will take any action so as to bring the issuance and
sale of any of the Securities under the registration provisions of the
Securities Act and applicable state securities laws, and neither the Company nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Securities Act) in connection with the offer or sale
of any of the Securities.

(x)

Employees.  Neither the Company nor any Subsidiary has any collective bargaining
arrangements or agreements covering any of its employees, except as set forth on
Schedule 2.1(x) hereto.  Except as set forth on Schedule 2.1(x) hereto, neither
the Company nor any Subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary required to be disclosed
in the Commission Documents that is not so disclosed.  No officer, consultant or
key employee of the Company or any Subsidiary whose termination, either
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.

(y)

Absence of Certain Developments.  Except as set forth in the Commission
Documents or provided on Schedule 2.1(y) hereto, since December 31, 2004,
neither the Company nor any Subsidiary has:

(i)

issued any stock, bonds or other corporate securities or any right, options or
warrants with respect thereto;

(ii)

borrowed any amount in excess of $300,000 or incurred or become subject to any
other liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as adjusted to
reflect the current nature and volume of the business of the Company and its
Subsidiaries;

(iii)

discharged or satisfied any lien or encumbrance in excess of $250,000 or paid
any obligation or liability (absolute or contingent) in excess of $250,000,
other than current liabilities paid in the ordinary course of business;

(iv)

declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any

11

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agreements so to purchase or redeem, any shares of its capital stock, in each
case in excess of $50,000 individually or $100,000 in the aggregate;

(v)

sold, assigned or transferred any other tangible assets, or canceled any debts
or claims, in each case in excess of $250,000, except in the ordinary course of
business;

(vi)

sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or intellectual property
rights in excess of $250,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;

(vii)

suffered any material losses or waived any rights of material value, whether or
not in the ordinary course of business, or suffered the loss of any material
amount of prospective business;

(viii)

made any changes in employee compensation except in the ordinary course of
business and consistent with past practices;

(ix)

made capital expenditures or commitments therefor that aggregate in excess of
$500,000;

(x)

entered into any material transaction, whether or not in the ordinary course of
business;

(xi)

made charitable contributions or pledges in excess of $25,000;

(xii)

suffered any material damage, destruction or casualty loss, whether or not
covered by insurance;

(xiii)

experienced any material problems with labor or management in connection with
the terms and conditions of their employment; or

(xiv)

entered into an agreement, written or otherwise, to take any of the foregoing
actions.

(z)

Public Utility Holding Company Act and Investment Company Act Status.  The
Company is not a "holding company" or a "public utility company" as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.  The
Company is not, and as a result of and immediately upon the Closing will not be,
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.

(aa)

ERISA.  No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would be materially adverse to the Company and its Subsidiaries.
 The execution and delivery of

12

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this Agreement and the issuance and sale of the Securities will not involve any
transaction which is subject to the prohibitions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or in connection
with which a tax could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended, provided that, if any of the Purchasers, or
any person or entity that owns a beneficial interest in any of the Purchasers,
is an "employee pension benefit plan" (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a "party in interest" (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met.  As used in this Section 2.1(aa), the
term "Plan" shall mean an "employee pension benefit plan" (as defined in Section
3 of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any Subsidiary or by any
trade or business, whether or not incorporated, which, together with the Company
or any Subsidiary, is under common control, as described in Section 414(b) or
(c) of the Code.

(bb)

Independent Nature of Purchasers.  The Company acknowledges that the obligations
of each Purchaser under the Transaction Documents are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under the
Transaction Documents.  The Company acknowledges that the decision of each
Purchaser to purchase Securities pursuant to this Agreement has been made by
such Purchaser independently of any other purchase and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions.  The Company
acknowledges that nothing contained herein, or in any Transaction Document, and
no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby.  The Company acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.  The Company acknowledges that
such procedure with respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.

(cc)

No Integrated Offering

No Integrated Offering" \f C \l "2" .  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the

13

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Securities pursuant to Regulation D and Rule 506 thereof under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.  The Company does not have any registration statement pending
before the Commission or currently under the Commission's review and except as
set forth on Schedule 2.1(cc) hereto, since February 1, 2005, the Company has
not offered or sold any of its equity securities or debt securities convertible
into shares of Common Stock.

(dd)

Sarbanes-Oxley Act

.  The Company is in compliance with the applicable provisions of the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and the rules and
regulations promulgated thereunder, that are effective and intends to comply
with other applicable provisions of the Sarbanes-Oxley Act, and the rules and
regulations promulgated thereunder, upon the effectiveness of such provisions.

(ee)

Dilutive Effect.  The Company understands and acknowledges that the number of
Conversion Shares issuable upon conversion of the Notes and the Warrant Shares
issuable upon exercise of the Warrants will increase in certain circumstances.
 The Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Notes in accordance with this Agreement and the Notes and
its obligations to issue the Warrant Shares upon the exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interest of other stockholders of the Company.

Section 2.2

Representations and Warranties of the Purchasers.  Each of the Purchasers hereby
represents and warrants to the Company with respect solely to itself and not
with respect to any other Purchaser as follows as of the date hereof and as of
the Closing Date:

(a)

Organization and Standing of the Purchasers.  If the Purchaser is an entity,
such Purchaser is a corporation, limited liability company or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

(b)

Authorization and Power.  Each Purchaser has the requisite power and authority
to enter into and perform the Transaction Documents and to purchase the
Securities being sold to it hereunder.  The execution, delivery and performance
of the Transaction Documents by each Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required.  When executed and delivered by the Purchasers, the other
Transaction Documents shall constitute valid and binding obligations of each
Purchaser enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.

(c)

No Conflict.  The execution, delivery and performance of the Transaction
Documents by the Purchaser and the consummation by the Purchaser of the
transactions

14

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contemplated thereby and hereby do not and will not (i) violate any provision of
the Purchaser's charter or organizational documents, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Purchaser is a party or by which the Purchaser's respective
properties or assets are bound, or (iii) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Purchaser or by which any property or asset of the Purchaser are bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, materially and
adversely affect the Purchaser's ability to perform its obligations under the
Transaction Documents.  

(d)

Acquisition for Investment.  Each Purchaser is purchasing the Securities solely
for its own account and not with a view to or for sale in connection with
distribution.  Each Purchaser does not have a present intention to sell any of
the Securities, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of any of the Securities to or through any
person or entity; provided, however, that by making the representations herein,
such Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with Federal and state securities laws applicable to such
disposition.  Each Purchaser acknowledges that it (i) has such knowledge and
experience in financial and business matters such that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company, (ii)
is able to bear the financial risks associated with an investment in the
Securities and (iii) has been given full access to such records of the Company
and the Subsidiaries and to the officers of the Company and the Subsidiaries as
it has deemed necessary or appropriate to conduct its due diligence
investigation.

(e)

Rule 144.  Each Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or
an exemption from registration is available.  Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances.  Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.

(f)

General.  Each Purchaser understands that the Securities are being offered and
sold in reliance on a transactional exemption from the registration requirements
of federal and state securities laws and the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of such Purchaser to
acquire the Securities.  Each Purchaser understands that no United States
federal or state agency or any government or governmental agency has passed upon
or made any

15

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recommendation or endorsement of the Securities.  Commencing on the date that
the Purchasers were initially contacted regarding an investment in the
Securities, none of the Purchasers has engaged in any short sale of the Common
Stock and will not engage in any short sale of the Common Stock prior to the
consummation of the transactions contemplated by this Agreement.

(g)

No General Solicitation.  Each Purchaser acknowledges that the Securities were
not offered to such Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of communications.  Each
Purchaser, in making the decision to purchase the Securities, has relied upon
independent investigation made by it and has not relied on any information or
representations made by third parties.

(h)

Accredited Investor.  Each Purchaser is an "accredited investor" (as defined in
Rule 501 of Regulation D), and such Purchaser has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Securities.  Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer.  Each Purchaser acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
 

(i)

Certain Fees.  The Purchasers have not employed any broker or finder or incurred
any liability for any brokerage or investment banking fees, commissions,
finders' structuring fees, financial advisory fees or other similar fees in
connection with the Transaction Documents.

(j)

Independent Investment.  No Purchaser has agreed to act with any other Purchaser
for the purpose of acquiring, holding, voting or disposing of the Securities
purchased hereunder for purposes of Section 13(d) under the Exchange Act, and
each Purchaser is acting independently with respect to its investment in the
Securities.

(k)

Short Sales and Confidentiality.  Each Purchaser covenants that neither it nor
any affiliates acting on its behalf or pursuant to any understanding with it
will execute any Short Sales (as defined below) during the period after the date
that such Purchaser first received a term sheet from the Company or any other
person or entity setting forth the material terms of the transactions
contemplated hereunder until the date that the transactions contemplated by this
Agreement are first publicly announced as described in Section 3.10.  Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 3.10, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).  Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date is a violation of Section 5 of the Securities Act, as set forth
in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance.  Notwithstanding the foregoing, no
Purchaser makes any representation,

16

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warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 3.10.
 Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.  Each Purchaser covenants and agrees that it will (i) comply
with Regulation M under the Exchange Act, (ii) comply with all prospectus
delivery requirements and (iii) will not knowingly violate Regulation SHO under
the Exchange Act.  The Company further understands and acknowledges that (a)
each Purchaser may engage in hedging activities at various times while the
Securities are outstanding, including, without limitation, during any
amortization pricing periods under the Notes in which the value of the
Conversion Shares issuable upon conversion of the Notes is being determined and
(b) such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the
hedging activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of this Agreement
or the other Transaction Documents.  For purposes hereof, "Short Sales" shall
include all "short sales" as defined in Rule 200 of Regulation SHO under the
Exchange Act.

ARTICLE III

COVENANTS

The Company covenants with each Purchaser as follows, which covenants are for
the benefit of each Purchaser and their respective permitted assignees.

Section 3.1

Securities Compliance.  The Company shall notify the Commission in accordance
with its rules and regulations, of the transactions contemplated by any of the
Transaction Documents and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Securities to the Purchasers, or their
respective subsequent holders.

Section 3.2

Registration and Listing.  The Company shall cause its Common Stock to continue
to be registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in
all respects with its reporting and filing obligations under the Exchange Act,
to comply with all requirements related to any registration statement filed
pursuant to this Agreement, and to not take any action or file any document
(whether or not permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act or Securities Act,
except as permitted herein.  The Company will take all action necessary to
continue the listing or trading of its Common Stock on the OTC Bulletin Board or
other exchange or market on which the Common Stock is trading.  If required, the
Company will promptly file the "Listing Application" for, or in connection with,
the issuance and delivery of the Shares and the Warrant Shares.   Subject to the
terms of the Transaction Documents, the Company further covenants that it will
take such further

17

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action as the Purchasers may reasonably request, all to the extent required from
time to time to enable the Purchasers to sell the Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act.  Upon the request of
the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied with
such requirements.

Section 3.3

Inspection Rights.  Provided same would not be in violation of Regulation FD,
the Company shall permit, during normal business hours and upon reasonable
request and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Notes or shall beneficially own any Conversion Shares or Warrant
Shares, for purposes reasonably related to such Purchaser's interests as a
stockholder, to examine the publicly available, non-confidential records and
books of account of, and visit and inspect the properties, assets, operations
and business of the Company and any Subsidiary, and to discuss the publicly
available, non-confidential affairs, finances and accounts of the Company and
any Subsidiary with any of its officers, consultants, directors, and key
employees.

Section 3.4

Compliance with Laws.  The Company shall comply, and cause each Subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which would be reasonably likely to have a Material Adverse Effect.

Section 3.5

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 its Subsidiaries, 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 3.6

Reporting Requirements.  If the Company ceases to file its periodic reports with
the Commission, or if the Commission ceases making these periodic reports
available via the Internet without charge, then the Company shall furnish the
following to each Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Securities or shall beneficially own Securities:

(a)

Quarterly Reports filed with the Commission on Form 10-QSB as soon as practical
after the document is filed with the Commission, and in any event within five
(5) days after the document is filed with the Commission;

(b)

Annual Reports filed with the Commission on Form 10-KSB as soon as practical
after the document is filed with the Commission, and in any event within five
(5) days after the document is filed with the Commission; and

(c)

Copies of all notices, information and proxy statements in connection with any
meetings, that are, in each case, provided to holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such
holders of Common Stock.

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Section 3.7

Other Agreements.  The Company shall not enter into any agreement in which the
terms of such agreement would restrict or impair the right or ability to perform
of the Company or any Subsidiary under any Transaction Document.

Section 3.8

Use of Proceeds.  The net proceeds from the sale of the Securities hereunder
shall be used by the Company to repay $900,000 of an outstanding promissory note
issued by the Company and the balance shall be used for working capital and
general corporate purposes and not to redeem any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock or to settle any
outstanding litigation.

Section 3.9

Reporting Status.  So long as a Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the Commission pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.  

Section 3.10

Disclosure of Transaction.  The Company shall issue a press release describing
the material terms of the transactions contemplated hereby (the "Press Release")
on the day of the Closing but in no event later than one hour after the Closing;
provided, however, that if Closing occurs after 4:00 P.M. Eastern Time on any
Trading Day, the Company shall issue the Press Release no later than 9:00 A.M.
Eastern Time on the first Trading Day following the Closing Date.  The Company
shall also file with the Commission a Current Report on Form 8-K (the "Form
8-K") describing the material terms of the transactions contemplated hereby (and
attaching as exhibits thereto this Agreement, the form of Note, the Registration
Rights Agreement, the Security Agreement, the Lock-Up Agreement, the form of
Warrant and the Press Release) as soon as practicable following the Closing Date
but in no event more than two (2) Trading Days following the Closing Date, which
Press Release and Form 8-K shall be subject to prior review and comment by the
Purchasers.  "Trading Day" means any day during which the principal exchange on
which the Common Stock is traded shall be open for trading.  

Section 3.11

Disclosure of Material Information.  The Company covenants and agrees that
neither it nor any other person acting on its behalf has provided or will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

Section 3.12

Pledge of Securities.  The Company acknowledges and agrees that the Securities
may be pledged by a Purchaser in connection with a bona fide margin agreement or
other loan or financing arrangement that is secured by the Securities.  The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Purchaser effecting a pledge of the Securities
shall be required to provide the Company with any notice thereof or otherwise
make any delivery to the Company pursuant to this Agreement or any other
Transaction Document; provided that a Purchaser and its pledgee shall be
required to comply with the provisions of Article V hereof in order to effect a
sale, transfer or assignment of

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Securities to such pledgee. At the Purchasers' expense, the Company hereby
agrees to execute and deliver such documentation as a pledgee of the Securities
may reasonably request in connection with a pledge of the Securities to such
pledgee by a Purchaser.

Section 3.13

Amendments.  The Company shall not amend or waive any provision of the Articles
or Bylaws of the Company in any way that would adversely affect exercise rights,
voting rights, conversion rights, prepayment rights or redemption rights of the
holder of the Notes.

Section 3.14

Distributions.  So long as any Notes or Warrants remain outstanding, the Company
agrees that it shall not (i) declare or pay any dividends or make any
distributions to any holder(s) of Common Stock or (ii) purchase or otherwise
acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.

Section 3.15

Reservation of Shares.  So long as any of the Notes or Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized and reserved for the purpose of issuance, one hundred twenty percent
(120%) of the aggregate number of shares of Common Stock needed to provide for
the issuance of the Conversion Shares and the Warrant Shares.

Section 3.16

Transfer Agent Instructions.  The Company shall issue irrevocable instructions
to its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Purchaser to the Company upon conversion of the Notes or
exercise of the Warrants in the form of Exhibit H attached hereto (the
"Irrevocable Transfer Agent Instructions").  Prior to registration of the
Conversion Shares and the Warrant Shares under the Securities Act, all such
certificates shall bear the restrictive legend specified in Section 5.1 of this
Agreement.  The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 3.16 will be given by
the Company to its transfer agent and that the Conversion Shares and Warrant
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Registration
Rights Agreement.  Nothing in this Section 3.16 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Conversion Shares and the Warrant Shares.  If a Purchaser provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Conversion Shares or Warrant Shares
may be made without registration under the Securities Act or the Purchaser
provides the Company with reasonable assurances that the Conversion Shares or
Warrant Shares can be sold pursuant to Rule 144 without any restriction as to
the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Purchaser and without any restrictive legend.  The Company
acknowledges that a breach by it of its obligations under this Section 3.16 will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby.  Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 3.16 will

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be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.16, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

Section 3.17

Disposition of Assets.  So long as the Notes remain outstanding, neither the
Company nor any subsidiary shall sell, transfer or otherwise dispose of any of
its properties, assets and rights including, without limitation, its software
and intellectual property, to any person except for sales of obsolete assets and
sales to customers in the ordinary course of business or with the prior written
consent of the holders of a majority of the Notes then outstanding.

Section 3.18

Form SB-2 Eligibility.  The Company currently meets, and will take all necessary
action to continue to meet, the "registrant eligibility" and transaction
requirements set forth in the general instructions to Form SB-2 applicable to
"resale" registrations on Form SB-2 during the Effectiveness Period (as defined
in the Registration Rights Agreement) and the Company shall file all reports
required to be filed by the Company with the Commission in a timely manner so as
to maintain such eligibility for the use of Form SB-2.

Section 3.19

Restrictions on Certain Issuances of Securities.  So long as at least
thirty-five percent (35%) of the principal amount of the Notes remain
outstanding, the Company shall not issue any securities that rank pari passu or
senior to the Notes without the prior written consent of at least seventy-five
percent (75%) of the principal amount of the Notes outstanding at such time.

Section 3.20

Lock-Up Agreement.  The persons listed on Schedule 3.20 attached hereto shall be
subject to the terms and provisions of a lock-up agreement in substantially the
form as Exhibit G hereto (the "Lock-Up Agreement"), which shall provide the
manner in which such persons will sell, transfer or dispose of their shares of
Common Stock.

Section 3.21

Subsequent Financings.  

(a)  For a period of one (1) year following the Closing Date, the Company
covenants and agrees to promptly notify (in no event later than five (5) days
after making or receiving an applicable offer) in writing (a "Rights Notice")
the Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party  (a "Subsequent
Financing"), of Common Stock or any securities convertible, exercisable or
exchangeable into Common Stock, including convertible debt securities
(collectively, the "Financing Securities").  The Rights Notice shall describe,
in reasonable detail, the proposed Subsequent Financing, the names and
investment amounts of all investors participating in the Subsequent Financing,
the proposed closing date of the Subsequent Financing, which shall be within
twenty (20) calendar days from the date of the Rights Notice, and all of the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith.  The Rights Notice shall provide each Purchaser an
option (the "Rights Option") during the ten (10) Trading Days following delivery
of the Rights Notice (the "Option Period") to inform the Company whether such
Purchaser will purchase up to its pro rata

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portion of the securities being offered in such Subsequent Financing on the
same, absolute terms and conditions as contemplated by such Subsequent
Financing.  If any Purchaser elects not to participate in such Subsequent
Financing, the other Purchasers may participate on a pro-rata basis so long as
such participation in the aggregate does not exceed the total Purchase Price
hereunder.  For purposes of this Section, all references to "pro rata" means,
for any Purchaser electing to participate in such Subsequent Financing, the
percentage obtained by dividing (x) the principal amount of the Notes purchased
by such Purchaser at the Closing by (y) the total principal amount of all of the
Notes purchased by all of the participating Purchasers at the Closing.  Delivery
of any Rights Notice constitutes a representation and warranty by the Company
that there are no other material terms and conditions, arrangements, agreements
or otherwise except for those disclosed in the Rights Notice, to provide
additional compensation to any party participating in any proposed Subsequent
Financing, including, but not limited to, additional compensation based on
changes in the Purchase Price or any type of reset or adjustment of a purchase
or conversion price or to issue additional securities at any time after the
closing date of a Subsequent Financing.  If the Company does not receive notice
of exercise of the Rights Option from the Purchasers within the Option Period,
the Company shall have the right to close the Subsequent Financing on the
scheduled closing date with a third party; provided that all of the material
terms and conditions of the closing are the same as those provided to the
Purchasers in the Rights Notice.  If the closing of the proposed Subsequent
Financing does not occur on that date, any closing of the contemplated
Subsequent Financing or any other Subsequent Financing shall be subject to all
of the provisions of this Section 3.21(a), including, without limitation, the
delivery of a new Rights Notice.  The provisions of this Section 3.21(a) shall
not apply to issuances of securities in a Permitted Financing.

(b)  For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing.  A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to this Agreement and the Notes, (iv) the Warrant Shares, (v)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company's stock option plans as they now exist
and employee stock purchase plans as they now exist, (vii) Common Stock issued
or options to purchase Common Stock granted or issued to employees, officers and
directors of the Company pursuant to any stock option plan duly adopted by a
majority of the non-employee members of the Company's board of directors or a
majority of the members of a committee of non-employee directors established for
such purpose so long as such issuances in the aggregate do not exceed ten
percent (10%) of the issued and outstanding shares of Common Stock as of the
Closing Date, (viii) any warrants issued to the placement agent and its
designees for the transactions contemplated by this Agreement, and (ix) the
payment of any principal and accrued interest in shares of Common Stock pursuant
to the Notes.

(c)

For a period of two (2) years following the Closing Date, if the Company enters
into any Subsequent Financing on terms more favorable than the terms governing
the Notes, then the Purchasers in their sole discretion may exchange the Notes,
valued at their stated

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value, together with accrued but unpaid interest (which interest payments shall
be payable, at the sole option of the Purchasers, in cash or in the form of the
new securities to be issued in the Subsequent Financing), for the securities
issued or to be issued in the Subsequent Financing.  The Company covenants and
agrees to promptly notify in writing the Purchasers of the terms and conditions
of any such proposed Subsequent Financing.  

ARTICLE IV

CONDITIONS

Section 4.1

Conditions Precedent to the Obligation of the Company to Close and to Sell the
Securities.  The obligation hereunder of the Company to close and issue and sell
the Securities to the Purchasers at the Closing is subject to the satisfaction
or waiver, at or before the Closing of the conditions set forth below.  These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.

(a)

Accuracy of the Purchasers' Representations and Warranties.  The representations
and warranties of each Purchaser shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made at
that time, except for representations and warranties that are expressly made as
of a particular date, which shall be true and correct in all material respects
as of such date.

(b)

Performance by the Purchasers.  Each Purchaser shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.

(c)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(d)

Delivery of Purchase Price.  The Purchase Price for the Securities shall have
been delivered to the Company on the Closing Date.

(e)

Delivery of Transaction Documents.  The Transaction Documents shall have been
duly executed and delivered by the Purchasers to the Company.

Section 4.2

Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities.  The obligation hereunder of the Purchasers to purchase
the Securities and consummate the transactions contemplated by this Agreement is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below.  These conditions are for the Purchasers' sole
benefit and may be waived by the Purchasers at any time in their sole
discretion.

(a)

Accuracy of the Company's Representations and Warranties.  Each of the
representations and warranties of the Company in this Agreement and the other
Transaction Documents shall be true and correct in all material respects as of
the Closing Date, except for

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representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date.

(b)

Performance by the Company.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.

(c)

No Suspension, Etc.  Trading in the Common Stock shall not have been suspended
by the Commission or the OTC Bulletin Board (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on,
or any material adverse change in any financial market which, in each case, in
the judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Securities.

(d)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(e)

No Proceedings or Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

(f)

Opinion of Counsel.  The Purchasers shall have received an opinion of counsel to
the Company, dated the date of such Closing, substantially in the form of
Exhibit I hereto, with such exceptions and limitations as shall be reasonably
acceptable to counsel to the Purchasers.

(g)

Notes and Warrants.  At or prior to the Closing, the Company shall have
delivered to the Purchasers the Notes (in such denominations as each Purchaser
may request) and the Warrants (in such denominations as each Purchaser may
request).

(h)

Secretary's Certificate.  The Company shall have delivered to the Purchasers a
secretary's certificate, dated as of the Closing Date, as to (i) the resolutions
adopted by the Board of Directors approving the transactions contemplated
hereby, (ii) the Articles, (iii) the Bylaws, each as in effect at the Closing,
and (iv) the authority and incumbency of the officers

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of the Company executing the Transaction Documents and any other documents
required to be executed or delivered in connection therewith.

(i)

Officer's Certificate.  On the Closing Date, the Company shall have delivered to
the Purchasers a certificate signed by an executive officer on behalf of the
Company, dated as of the Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of the Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in
paragraphs (b)-(e) and (l) of this Section 4.2 as of the Closing Date (provided
that, with respect to the matters in paragraphs (d) and (e) of this Section 4.2,
such confirmation shall be based on the knowledge of the executive officer after
due inquiry).

(j)

Registration Rights Agreement.  As of the Closing Date, the Company shall have
executed and delivered the Registration Rights Agreement to each Purchaser.

(k)

Material Adverse Effect.  No Material Adverse Effect shall have occurred at or
before the Closing Date.

(l)

Transfer Agent Instructions.  The Irrevocable Transfer Agent Instructions, in
the form of Exhibit H attached hereto, shall have been delivered to the
Company's transfer agent.

(m)

Security Agreement.  At the Closing, the Company shall have executed and
delivered the Security Agreement to each Purchaser.

(n)

UCC Financing Statements.  The Company shall have filed all UCC financing
statements in form and substance satisfactory to the Purchasers at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreement).

(o)

Lock-Up Agreement.  As of the Closing Date, the persons listed on Schedule 3.20
hereto shall have delivered to the Purchasers a fully executed Lock-Up Agreement
in the form of Exhibit G attached hereto.

Section 4.3

Conditions Precedent to the Obligation of the Purchasers to Purchase the Option
Notes.  The obligation hereunder of each Purchaser to acquire and pay for the
Option Notes is subject to the satisfaction or waiver, at or before the closing
and sale of such Option Notes (the "Subsequent Closing Date"), of each of the
conditions set forth below.  These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole discretion.

(a)

Accuracy of the Company's Representations and Warranties.  Each of the
representations and warranties of the Company in this Agreement and the other
Transaction Documents shall be true and correct in all material respects as of
the Closing Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material respects as of
such date.

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(b)

Performance by the Company.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.

(c)

No Suspension, Etc.  Trading in the Common Stock shall not have been suspended
by the Commission or the OTC Bulletin Board (except for any suspension of
trading of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Subsequent
Closing Date, trading in securities generally as reported by Bloomberg Financial
Markets ("Bloomberg") shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities,
nor shall a banking moratorium have been declared either by the United States or
New York State authorities, nor shall there have occurred any material outbreak
or escalation of hostilities or other national or international calamity or
crisis of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Option Notes.

(d)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(e)

No Proceedings or Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

(f)

Opinion of Counsel, Etc.  At the Subsequent Closing Date, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of the
Subsequent Closing Date, in the form of Exhibit I hereto, and such other
certificates and documents as the Purchasers or its counsel shall reasonably
require incident to the Subsequent Closing.

(g)

Option Notes and Warrants.  At or prior to the Subsequent Closing Date, the
Company shall have delivered to the Purchasers the Option Notes (in such
denominations as each Purchaser may request) and the Warrants, in each case,
being acquired by the Purchasers at the Subsequent Closing Date.

(h)

Officer's Certificate.  The Company shall have delivered to the Purchasers a
certificate of an executive officer of the Company, dated as of the Closing
Date, confirming the accuracy of the Company's representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.3 as of the Subsequent
Closing Date.

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(i)

Material Adverse Effect.  No Material Adverse Effect shall have occurred at or
before the Subsequent Closing Date.

(j)

Effective Registration Statement.  The Registration Statement shall have been
declared effective by the Commission.

ARTICLE V

CERTIFICATE LEGEND

Section 5.1

Legend.  Each certificate representing the Securities shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR SILVER STAR ENERGY, INC. SHALL HAVE RECEIVED AN OPINION
OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

The Company agrees to issue or reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request.  Such proposed transfer and removal will not be effected
until: (a) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that the registration of the
Conversion Shares or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the Securities Act, (iii) the
Company has received other evidence reasonably satisfactory to the Company that
such registration and qualification under the Securities Act and state
securities laws are not required, or (iv) the holder provides the Company with
reasonable assurances that such security can be sold pursuant to Rule 144 under
the Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, (ii) compliance with
applicable state securities or "blue sky" laws has been effected, or (iii) the
holder provides the Company with reasonable assurances that a valid exemption
exists with respect thereto.  The Company will respond to any such notice from a
holder within three (3) business days.  In the case of any

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proposed transfer under this Section 5.1, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, (y) to take any action that would subject it to
tax or to the general service of process in any state where it is not then
subject, or (z) to comply with state securities or "blue sky" laws of any state
for which registration by coordination is unavailable to the Company.  The
restrictions on transfer contained in this Section 5.1 shall be in addition to,
and not by way of limitation of, any other restrictions on transfer contained in
any other section of this Agreement.  Whenever a certificate representing the
Conversion Shares or Warrant Shares is required to be issued to a Purchaser
without a legend, in lieu of delivering physical certificates representing the
Conversion Shares or Warrant Shares, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, the Company shall use its reasonable best efforts to cause its
transfer agent to electronically transmit the Conversion Shares or Warrant
Shares to a Purchaser by crediting the account of such Purchaser's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system (to the
extent not inconsistent with any provisions of this Agreement).

ARTICLE VI

INDEMNIFICATION

Section 6.1

General Indemnity.  The Company agrees to indemnify and hold harmless the
Purchasers (and their respective directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by the
Purchasers as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein.  Each Purchaser severally
but not jointly agrees to indemnify and hold harmless the Company and its
directors, officers, affiliates, agents, successors and assigns from and against
any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Company as result of any inaccuracy in or breach
of the representations, warranties or covenants made by such Purchaser herein.
 The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.

Section 6.2

Indemnification Procedure.  Any party entitled to indemnification under this
Article VI (an "indemnified party") will give written notice to the indemnifying
party of any matter giving rise to a claim for indemnification; provided, that
the failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice.  In case any such action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the indemnifying party
a conflict of interest between it and the indemnified party exists with respect
to such action, proceeding or claim (in which case the indemnifying party shall
be responsible for the reasonable fees and expenses of one separate

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counsel for the indemnified parties), to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party.  In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim.  In any event,
unless and until the indemnifying party elects in writing to assume and does so
assume the defense of any such claim, proceeding or action, the indemnified
party's costs and expenses arising out of the defense, settlement or compromise
of any such action, claim or proceeding shall be losses subject to
indemnification hereunder.  The indemnified party shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim.  The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto.  If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense.  The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
 Notwithstanding anything in this Article VI to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim.  The indemnification obligations to defend the indemnified party
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party shall refund such moneys if it is ultimately determined by a
court of competent jurisdiction that such party was not entitled to
indemnification.  The indemnity agreements contained herein shall be in
 addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.  No indemnifying party
will be liable to the indemnified party under this Agreement to the extent, but
only to the extent that a loss, claim, damage or liability is attributable to
the indemnified party's breach of any of the representations, warranties or
covenants made by such party in this Agreement or in the other Transaction
Documents.

ARTICLE VII

MISCELLANEOUS

Section 7.1

Fees and Expenses.  Each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses, incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement; provided, however, that the Company shall pay all
actual attorneys' fees and expenses (including disbursements and out-of-pocket
expenses) incurred by the Purchasers in

29

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connection with (i) the preparation, negotiation, execution and delivery of the
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $27,500 (plus
disbursements and out-of-pocket expenses), of which $7,500 has been paid prior
to the Closing Date, and (ii) any amendments, modifications or waivers of this
Agreement or any of the other Transaction Documents.  In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchasers in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses.    

Section 7.2

Specific Performance; Consent to Jurisdiction; Venue.  

(a)

The Company and the Purchasers acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached.  It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.

(b)

The parties agree that venue for any dispute arising under this Agreement will
lie exclusively in the state or federal courts located in New York County, New
York, and the parties irrevocably waive any right to raise forum non conveniens
or any other argument that New York is not the proper venue.  The parties
irrevocably consent to personal jurisdiction in the state and federal courts of
the state of New York.  The Company and each Purchaser consent to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing in this Section 7.2 shall affect or limit any right to
serve process in any other manner permitted by law.  The Company and the
Purchasers hereby agree that the prevailing party in any suit, action or
proceeding arising out of or relating to the Securities, this Agreement or the
other Transaction Documents, shall be entitled to reimbursement for reasonable
legal fees from the non-prevailing party.  The parties hereby waive all rights
to a trial by jury.

Section 7.3

Entire Agreement; Amendment.  This Agreement and the Transaction Documents
contain the entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth herein or in
the other Transaction Documents, neither the Company nor any Purchaser make any
representation, warranty, covenant or undertaking with respect to such matters,
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein.  No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the Purchasers holding at least a majority of the principal amount
of the Notes then held by the Purchasers.  Any amendment or waiver effected in
accordance with this Section 7.3 shall be binding upon each Purchaser (and their
permitted assigns) and the Company.  

Section 7.4

Notices.  Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be

30

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effective (a) upon hand delivery by telecopy or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur.  The addresses for such communications shall be:

If to the Company:

Silver Star Energy, Inc.

11300 W. Olympic Boulevard, Suite 800

Los Angeles, California 90064

Attention: Chief Executive Officer

Tel. No.: (310) 477-2211

Fax No.: (310) ___-____

with copies (which copies

shall not constitute notice

to the Company) to:

______________________

______________________

______________________

Attention: ______________

Tel. No.: (___) ___-____

Fax No.: (___) ___-____

If to any Purchaser:

At the address of such Purchaser set forth on Exhibit A to this Agreement, with
copies to Purchaser's counsel as set forth on Exhibit A or as specified in
writing by such Purchaser with copies to:

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Attention: Christopher S. Auguste

Tel. No.: (212) 715-9100

Fax No.: (212) 715-8000

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

Section 7.5

Waivers.  No waiver by either party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any  such right accruing to
it thereafter.  No consideration shall be offered or paid to any Purchaser to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents.  This provision constitutes a separate
right granted to each Purchaser by

31

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the Company and shall not in any way be construed as the Purchasers acting in
concert or as a group with respect to the purchase, disposition or voting of
Securities or otherwise.

Section 7.6

Headings.  The article, section and subsection headings in this Agreement are
for convenience only and shall not constitute a part of this Agreement for any
other purpose and shall not be deemed to limit or affect any of the provisions
hereof.

Section 7.7

Successors and Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns.  After the Closing, the
assignment by a party to this Agreement of any rights hereunder shall not affect
the obligations of such party under this Agreement.  Subject to Section 5.1
hereof, the Purchasers may assign the Securities and its rights under this
Agreement and the other Transaction Documents and any other rights hereto and
thereto without the consent of the Company.

Section 7.8

No Third Party Beneficiaries.  This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person.

Section 7.9

Governing Law.  This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York, without giving effect to any of
the conflicts of law principles which would result in the application of the
substantive law of another jurisdiction.  This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.

Section 7.10

Survival.  The representations and warranties of the Company and the Purchasers
shall survive the execution and delivery hereof and the Closing until the second
anniversary of the Closing Date, except the agreements and covenants set forth
in Articles I, III, V, VI and VII of this Agreement shall survive the execution
and delivery hereof and the Closing hereunder.

Section 7.11

Counterparts.  This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument and shall
become effective when counterparts have been signed by each party and delivered
to the other parties hereto, it being understood that all parties need not sign
the same counterpart.  

Section 7.12

Publicity.  The Company agrees that it will not disclose, and will not include
in any public announcement, the names of the Purchasers without the consent of
the Purchasers, which consent shall not be unreasonably withheld or delayed, or
unless and until such disclosure is required by law, rule or applicable
regulation, including without limitation any disclosure pursuant to the
Registration Statement, and then only to the extent of such requirement.

Section 7.13

Severability.  The provisions of this Agreement are severable and, in the event
that any court of competent jurisdiction shall determine that any one or more of
the provisions or part of the provisions contained in this Agreement shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement and this Agreement shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of

32

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such provision, had never been contained herein, so that such provisions would
be valid, legal and enforceable to the maximum extent possible.

Section 7.14

Further Assurances.  From and after the date of this Agreement, upon the request
of the Purchasers or the Company, the Company and each Purchaser shall execute
and deliver such instruments, documents and other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the other Transaction Documents.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Note and Warrant
Purchase Agreement to be duly executed by their respective authorized officers
as of the date first above written.

SILVER STAR ENERGY, INC.

By:_____________________________________

             Name:

      Title:   

PURCHASER:

By:_____________________________________

              Name:  

       Title:

 

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

EXHIBIT A

LIST OF PURCHASERS

Names and Addresses

     

Investment Amount and Number of

     

of Purchasers

Warrants Purchased   

      

i

 

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

EXHIBIT B

FORM OF NOTE

ii

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

EXHIBIT C

FORM OF WARRANT

iii

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EXHIBIT D

PURCHASER OPTION EXERCISE FORM

To:  Silver Star Energy, Inc.

The undersigned hereby exercises its Purchaser Option to purchase $______ of
senior secured convertible promissory notes of Silver Star Energy, Inc.,
pursuant to and subject to the terms of that certain Note and Warrant Purchase
Agreement by and among the Company and the purchasers named therein dated as of
September 30, 2005, the terms of which are incorporated herein by reference.

The undersigned is paying the option exercise price as follows:

_______________________________

Dated: _________________

Signature

_____________________

Address

_____________________

_____________________

iv

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

EXHIBIT E

FORM OF REGISTRATION RIGHTS AGREEMENT

v

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

EXHIBIT F

FORM OF SECURITY AGREEMENT

vi

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

EXHIBIT G

FORM OF LOCK-UP AGREEMENT

vii

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EXHIBIT H

FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

SILVER STAR ENERGY, INC.

as of September 30, 2005

[Name and address of Transfer Agent]

Attn:  _____________

Ladies and Gentlemen:

Reference is made to that certain Note and Warrant Purchase Agreement (the
"Purchase Agreement"), dated as of September 30, 2005, by and among Silver Star
Energy, Inc., a Nevada corporation (the "Company"), and the purchasers named
therein (collectively, the "Purchasers") pursuant to which the Company is
issuing to the Purchasers senior secured convertible promissory notes (the
"Notes") and warrants (the "Warrants") to purchase shares of the Company's
common stock, par value $0.001 per share (the "Common Stock").  This letter
shall serve as our irrevocable authorization and direction to you (provided that
you are the transfer agent of the Company at such time) to issue shares of
Common Stock upon conversion of the Notes (the "Conversion Shares") and exercise
of the Warrants (the "Warrant Shares") to or upon the order of a Purchaser from
time to time upon (i) surrender to you of a properly completed and duly executed
Conversion Notice or Exercise Notice, as the case may be, in the form attached
hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the
conversion of Notes, a copy of the Note (with the original delivered to the
Company) representing the Notes being converted or, in the case of Warrants
being exercised, a copy of the Warrants (with  the original Warrants delivered
to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such Notes or the Warrants in the case of their
loss, theft or destruction), and (iii) delivery of a treasury order or other
appropriate order duly executed by a duly authorized officer of the Company.  So
long as you have previously received (x) written confirmation from counsel to
the Company that a registration statement covering resales of the Conversion
Shares or Warrant Shares, as applicable, has been declared effective by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act"), and no subsequent notice by the Company or its
counsel of the suspension or termination of its effectiveness and (y) a copy of
such registration statement, and if the Purchaser represents in writing that the
prospectus delivery requirements have been or will be met, the Conversion Shares
or the Warrant Shares, as the case may be, were sold pursuant to the
Registration Statement, then certificates representing the Conversion Shares and
the Warrant Shares, as the case may be, shall not bear any legend restricting
transfer of the Conversion Shares and the Warrant Shares, as the case may be,
thereby and should not be subject to any stop-transfer restriction.  Provided,
however, that if you have not previously received (i) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the SEC under the 1933 Act, and (ii) a copy of such registration statement,
then the certificates for the Conversion Shares and the Warrant Shares shall
bear the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS,

viii

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OR SILVER STAR ENERGY, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."

and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.

A form of written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares and the Warrant Shares has
been declared effective by the SEC under the 1933 Act is attached hereto as
Exhibit III.

Please be advised that the Purchasers are relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, each Purchaser
is a third party beneficiary to these instructions.

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions.  Should you have any questions
concerning this matter, please contact me at ___________.

Very truly yours,

SILVER STAR ENERGY, INC.

By:

Name:

Title:  

ACKNOWLEDGED AND AGREED:

[TRANSFER AGENT]

By:

Name:

Title:

Date:

ix

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

EXHIBIT I

SILVER STAR ENERGY, INC.

CONVERSION NOTICE

(To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of SILVER
STAR ENERGY, INC. (the "Maker") according to the conditions hereof, as of the
date written below.

Date of Conversion _________________________________________________________

Applicable Conversion Price __________________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________

Signature___________________________________________________________________

[Name]

Address:__________________________________________________________________

_______________________________________________________________________

x

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

EXHIBIT II

FORM OF EXERCISE NOTICE

EXERCISE FORM

SILVER STAR ENERGY, INC.

The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Silver Star
Energy, Inc. covered by the within Warrant.

Dated: _________________

Signature

___________________________

Address

_____________________

_____________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________

ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

Dated: _________________

Signature

___________________________

Address

_____________________

_____________________

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.

Dated: _________________

Signature

___________________________

Address

_____________________

_____________________

FOR USE BY THE ISSUER ONLY:

This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.

xi

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EXHIBIT III

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and address of Transfer Agent]

Attn:  _____________

Re:

Silver Star Energy, Inc.

Ladies and Gentlemen:

We are counsel to Silver Star Energy, Inc., a Nevada corporation (the
"Company"), and have represented the Company in connection with that certain
Note and Warrant Purchase Agreement (the "Purchase Agreement"), dated as of
September 30, 2005, by and among the Company and the purchasers named therein
(collectively, the "Purchasers") pursuant to which the Company issued to the
Purchasers senior secured convertible promissory notes (the "Notes") and
warrants (the "Warrants") to purchase shares of the Company's common stock, par
value $0.001 per share (the "Common Stock").  Pursuant to the Purchase
Agreement, the Company has also entered into a Registration Rights Agreement
with the Purchasers (the "Registration Rights Agreement"), dated as of September
30, 2005, pursuant to which the Company agreed, among other things, to register
the Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act").  In connection with the Company's obligations under the
Registration Rights Agreement, on ________________, 2005, the Company filed a
Registration Statement on Form SB-2 (File No. 333-________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the resale of the Registrable Securities which names each of the present
Purchasers as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC's staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

Very truly yours,

[COMPANY COUNSEL]

By:

 

cc:

[LIST NAMES OF PURCHASERS]

xii

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EXHIBIT I

FORM OF OPINION

1.

The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on its
business as presently conducted.  The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to so qualify would have a Material Adverse Effect.

2.

The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the Notes,
the Warrants and the Common Stock issuable upon conversion of the Notes and
exercise of the Warrants.  The execution, delivery and performance of each of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required.  Each of the
Transaction Documents have been duly executed and delivered, and the Notes and
the Warrants have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms.  The Common Stock issuable upon conversion of the Notes and
exercise of the Warrants are not subject to any preemptive rights under the
Articles of Incorporation or the Bylaws.

3.

The Notes and the Warrants have been duly authorized and, when delivered against
payment in full as provided in the Purchase Agreement, will be validly issued,
fully paid and nonassessable.  The shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants have been duly authorized
and reserved for issuance, and when delivered upon conversion or against payment
in full as provided in the Notes and the Warrants, as applicable, will be
validly issued, fully paid and nonassessable.

4.

The execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Notes, the Warrants and the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants do not
(a) violate any provision of the Articles of Incorporation or Bylaws, (b)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party and which is set forth
on Schedule I, (c) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment which is set forth
on Schedule I to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (d) result
in a violation of any Federal, state, local or foreign statute, rule,
regulation, order, judgment, injunction or decree (including Federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (a) and (d) above, for such conflicts,
default, terminations, amendments, acceleration, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect.

xiii

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5.

No consent, approval or authorization of or designation, declaration or filing
with any governmental authority on the part of the Company is required under
Federal, state or local law, rule or regulation in connection with the valid
execution, delivery and performance of the Transaction Documents, or the offer,
sale or issuance of the Notes, the Warrants and the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants other than filings as may
be required by applicable Federal and state securities laws and regulations and
any applicable stock exchange rules and regulations.

6.

To our knowledge, there is no action, suit, claim, investigation or proceeding
pending or threatened against the Company which questions the validity of the
Purchase Agreement or the transactions contemplated thereby or any action taken
or to be taken pursuant thereto.  There is no action, suit, claim, investigation
or proceeding pending, or to our knowledge, threatened, against or involving the
Company or any of its properties or assets and which, if adversely determined,
is reasonably likely to result in a Material Adverse Effect.  To our knowledge,
there are no outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against the Company or
any officers or directors of the Company in their capacities as such.

7.

Assuming that all of the Purchasers' representations and warranties in the
Purchase Agreement are complete and accurate, the offer, issuance and sale of
the Notes and the Warrants and the offer, issuance and sale of the Common Stock
issuable upon conversion of the Notes and exercise of the Warrants are exempt
from the registration requirements of the Securities Act of 1933, as amended.

8.

The Company is not, and as a result of and immediately upon Closing will not be,
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.

9.

The Security Agreement will create a valid security interest in favor of the
Purchasers in such assets of the Company that is subject to such Security
Agreement.  

xiv