EX-10.1

SUBSCRIPTION AGREEMENT

          THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of March 12,
2007, by and among Conolog Corporation, a Delaware corporation (the “Company”),
and the subscribers identified on the signature page hereto (each a “Subscriber”
and collectively “Subscribers”).

          WHEREAS, the Company and the Subscribers are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
(“Regulation D”) as promulgated by the United States Securities and Exchange
Commission (the “Commission”) under the Securities Act of 1933, as amended (the
“1933 Act”).

          WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to Five Million Dollars ($5,000,000) (the "Purchase Price") of
principal amount of promissory notes of the Company (“Note” or “Notes”), a form
of which is annexed hereto as Exhibit A, convertible into shares of the
Company's common stock, $0.01 par value (the "Common Stock") at a per share
conversion price set forth in the Note (“Conversion Price”); and share purchase
warrants (the “Warrants”), in the form annexed hereto as Exhibit B, to purchase
shares of Common Stock (the “Warrant Shares”). The Notes, shares of Common Stock
issuable upon conversion of the Notes (the “Shares”), the Warrants and the
Warrant Shares are collectively referred to herein as the "Securities"; and

          WHEREAS, the aggregate proceeds of the sale of the Notes and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit C (the "Escrow Agreement").

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

                    1.      Conditions To Closing.  Subject to the satisfaction
or waiver of the terms and conditions of this Agreement, on the Closing Date,
each Subscriber shall purchase and the Company shall sell to each Subscriber a
Note in the principal amount designated on the signature page hereto. The
aggregate amount of the Notes to be purchased by the Subscribers on the Closing
Date shall, in the aggregate, be equal to the Closing Purchase Price.

                    2.      Closing Date.  The “Closing Date” shall be the date
that subscriber funds representing the net amount due the Company from the
Closing Purchase Price of the Offering is transmitted by wire transfer or
otherwise to or for the benefit of the Company. The consummation of the
transactions contemplated herein for all Closings shall take place at the
offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New
York 10176, upon the satisfaction of all conditions to Closing set forth in this
Agreement.

                    3.      Class B Warrants.  On the Closing Date, the Company
will issue and deliver Class B Warrants to the Subscribers (the “Warrants”). One
Class B Warrant will be issued for each one Share which would be issued on the
Closing Date assuming the complete conversion of the Notes issued on such
Closing Date at the Conversion Price in effect on the Closing Date assuming such
Closing Date were a Conversion Date. The per Warrant Share exercise price to
acquire a Warrant Share upon exercise of a Warrant shall be equal to the lessor
of (i) $3.00, or 105% of the closing price of the Company’s common stock on the
Principal Market for the trading day preceding, the Closing Date, as reported by
Bloomberg L.P. The Class B Warrants shall be exercisable until five (5) years
after the Closing Date. The Warrants will be exercisable on a cashless basis as
described in the Warrants.

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                     4.      Subscriber's Representations and Warranties.  Each
Subscriber hereby represents and warrants to and agrees with the Company only as
to such Subscriber that:

                             (a)      Organization and Standing of the
Subscribers.  If the Subscriber is an entity, such Subscriber is a corporation,
partnership or other entity 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 Subscriber
has the requisite power and authority to enter into and perform this Agreement
and to purchase the Notes and Warrants being sold to it hereunder. The
execution, delivery and performance of this Agreement by such Subscriber and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate or partnership action, and no further
consent or authorization of such Subscriber or its Board of Directors,
stockholders, partners, members, as the case may be, is required. This Agreement
has been duly authorized, executed and delivered by such Subscriber and
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Subscriber enforceable against the Subscriber in
accordance with the terms thereof.

                             (c)      No Conflicts.  The execution, delivery and
performance of this Agreement and the consummation by such Subscriber of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in a violation of such Subscriber’s charter documents or bylaws or other
organizational documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Notes or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Subscriber is assuming and relying
upon the accuracy of the relevant representations and agreements made by the
Company herein.

                              (d)      Information on Company.  The Subscriber
has had access at the EDGAR Website of the Commission to the Company's Form
10-KSB for the year ended July 31, 2006 and all periodic or other reports filed
with the Commission (hereinafter referred to as the "Reports"). In addition, the
Subscriber has received in writing from the Company such other information
concerning its operations, financial condition and other matters as the
Subscriber has requested in writing (such other information is collectively, the
"Other Written Information"), and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities.

                              (e)      Information on Subscriber.  The
Subscriber is, and will be at the time of the conversion of the Notes and
exercise of the Warrants, an "accredited investor", as such term is defined in
Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to make an informed investment decision with respect to the proposed
purchase of the Note, which represents a speculative investment. The Subscriber
has the authority and is duly and legally qualified to purchase and own the
Securities. The Subscriber is able to bear the risk of such investment for an
indefinite period and to afford a complete loss thereof. The information set
forth on the signature page hereto regarding the Subscriber is accurate.

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                              (f)      Purchase of Notes and Warrants.  On the
Closing Date, the Subscriber will purchase the Notes and Warrants as principal
for its own account for investment only and not with a view toward, or for
resale in connection with, the public sale or any distribution thereof.

                              (g)      Compliance with Securities Act.  The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933 Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.

                              (h)      Shares Legend.  The Shares and the
Warrant Shares shall bear the following or similar legend:

> > "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
> > THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD,
> > OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
> > REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
> > SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO [THE
> > COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."

                             (i)      Warrants Legend.  The Warrants shall bear
the following or similar legend:

> > "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
> > HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
> > WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
> > BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
> > EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY
> > APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
> > SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."

                             (j)      Note Legend.  The Note shall bear the
following legend:

> > "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
> > NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE
> > AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
> > OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
> > REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF
> > COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
> > REQUIRED."

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                              (k)      Communication of Offer.  The offer to
sell the Securities was communicated to the Subscriber by the Company. At no
time was the Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.

                              (l)      Authority; Enforceability.  This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by the
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.

                              (m)      Restricted Securities.  Subscriber
understands that the Securities have not been registered under the 1933 Act and
such Subscriber will not sell, offer to sell, assign, pledge, hypothecate or
otherwise transfer any of the Securities unless pursuant to an effective
registration statement under the 1933 Act. Notwithstanding anything to the
contrary contained in this Agreement, and provided that prior to any transfer,
the Subscriber and the proposed transferee execute and deliver to the Company a
representation letter that is reasonably acceptable to the Company, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an “accredited investor” under Regulation D, such
Affiliate agrees to be bound by the terms and conditions of this Agreement. The
Company will be liable for damages arising out of any unreasonable delay in
reissuing Common Stock to an Affiliate of the Subscriber. Subscriber indemnifies
the Company in the event an exemption from such transfer under the 1933 Act is
found not to have been available. For the purposes of this Agreement, an
“Affiliate” of any person or entity means any other person or entity directly or
indirectly controlling, controlled by or under direct or indirect common control
with such person or entity. Affiliate includes each subsidiary of the Company.
For purposes of this definition, “control” means the power to direct the
management and policies of such person or firm, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.

                              (n)      No Governmental Review.  Each Subscriber
understands that no United States federal or state agency or any other
governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.

                              (o)      Correctness of Representations.  Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to each Closing Date shall be
true and correct as of the Closing Date.

                              (p)      Survival.  The foregoing representations
and warranties shall survive the Closing Date until three years after the
Closing Date.

          5.      Company Representations and Warranties.  The Company
represents and warrants to and agrees with each Subscriber that except as set
forth in the Reports and as otherwise qualified in the Transaction Documents:

                              (a)      Due Incorporation.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite corporate power
to own its properties and to carry on its business is disclosed in the Reports.
The

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Company is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a “Material Adverse Effect” shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken as a whole. For purposes
of this Agreement, “Subsidiary” means, with respect to any entity at any date,
any corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity) of which
more than 50% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company’s Subsidiaries as of the
Closing Date are set forth on Schedule 5(a) hereto.

                              (b)      Outstanding Stock.  All issued and
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable.

                              (c)      Authority; Enforceability.  Except for
the Approval, if the Approval is required by the applicable NASD Market Place
Rules and/or Nasdaq’s corporate governance rules, the Agreement, the Note, the
Warrants, the Escrow Agreement, and any other agreements delivered together with
this Agreement or in connection herewith (collectively “Transaction Documents”)
have been duly authorized, executed and delivered by the Company and are valid
and binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. Except for the Approval, if the
Approval is required by the applicable NASD Market Place Rules and/or Nasdaq’s
corporate governance rules, the Company has full corporate power and authority
necessary to enter into and deliver the Transaction Documents and to perform its
obligations thereunder.

                              (d)      Additional Issuances.  There are no
outstanding agreements or preemptive or similar rights affecting the Company's
common stock or equity and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on Schedule 5(d), or the
Reports. The Common stock of the Company on a fully diluted basis outstanding as
of the last trading day preceding the Closing Date is set forth on Schedule
5(d).

                              (e)      Consents.  Except for the Approval
described in Section 9 of this Agreement, if the Approval is required by
applicable NASD Market Place Rules and/or Nasdaq’s corporate governance rules,
and the approval and/or notice required by the corporate governance rules of the
NASDAQ Capital Market (formerly known as the NASDAQ SmallCap Market) (the
“SmallCap”), including but not limited to the requirement to file an Additional
Shares Listing Application with the SmallCap at least (15) days prior to the
issuance of the Shares or the Warrant Shares, no consent, approval,
authorization or order of any court, governmental agency or body or arbitrator
having jurisdiction over the Company, or any of its Affiliates, any Principal
Market, nor the Company's shareholders is required for the execution by the
Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities.

                              (f)      No Violation or Conflict.  Assuming the
representations and warranties of the Subscribers in Section 4 are true and
correct, neither the issuance and sale of the Securities nor the

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performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company will:

                                       (i)       violate, conflict with, result
in a breach of, or constitute a default (or an event which with the giving of
notice or the lapse of time or both would be reasonably likely to constitute a
default in any material respect) of a material nature under (A) the articles or
certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or

                                       (ii)       result in the creation or
imposition of any lien, charge or encumbrance upon the Securities or any of the
assets of the Company or any of its Affiliates; or

                                       (iii)       result in the activation of
any anti-dilution rights or a reset or repricing of any debt or security
instrument of any other creditor or equity holder of the Company, nor result in
the acceleration of the due date of any obligation of the Company; or

                                       (iv)       result in the activation of
any piggy-back registration rights of any person or entity holding securities or
debt of the Company or having the right to receive securities of the Company.

                              (g)      The Securities.  The Securities upon
issuance:

                                       (i)       are, or will be, free and clear
of any security interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the 1933 Act and any applicable state
securities laws;

                                       (ii)       have been, or will be, duly
and validly authorized and on the date of issuance of the Shares and upon
exercise of the Warrants, the Shares and Warrant Shares will be duly and validly
issued, fully paid and nonassessable or if registered pursuant to the 1933 Act,
and resold pursuant to an effective registration statement will be free trading
and unrestricted);

                                       (iii)       will not have been issued or
sold in violation of any preemptive or other similar rights of the holders of
any securities of the Company; and

                                       (iv)       will not subject the holders
thereof to personal liability by reason of being such holders provided
Subscriber’s representations herein are true and accurate and Subscribers take
no actions or fail to take any actions required for their purchase of the
Securities to be in compliance with all applicable laws and regulations; and

                                                     (v)       will not result
in a violation of Section 5 under the 1933 Act.

                              (h)      Litigation.  There is no pending or, to
the best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates that would affect
the execution by the Company or the performance by the Company of its
obligations under the Transaction

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Documents. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.

                              (i)      Reporting Company.  The Company is a
publicly-held company subject to reporting obligations pursuant to Section 13 of
the Securities Exchange Act of 1934 (the “1934 Act”) and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, as amended, the Company has filed all 10-KSB and
10-QSB reports required to be filed thereunder with the Commission during the
preceding twelve months.

                              (j)      No Market Manipulation.  The Company and
its Affiliates have not taken, and will not take, directly or indirectly, any
action designed to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold, provided, however, that this provision shall not prevent
the Company from engaging in investor relations/public relations activities
consistent with past practices.

                              (k)      Information Concerning Company.  The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates and all the
material information required to be disclosed therein. Since the last day of the
fiscal year of the most recent audited financial statements included in the
Reports (“Latest Financial Date”), and except as modified in the Other Written
Information or in the Schedules hereto, there has been no Material Adverse Event
relating to the Company's business, financial condition or affairs not disclosed
in the Reports. The Reports do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances when
made.

                              (l)      Stop Transfer.  The Company will not
issue any stop transfer order or other order impeding the sale, resale or
delivery of any of the Securities, except as may be required by any applicable
federal or state securities laws and unless contemporaneous notice of such
instruction is given to the Subscriber.

                              (m)      Defaults.  The Company is not in
violation of its articles of incorporation or bylaws. The Company is (i) not in
default under or in violation of any other material agreement or instrument to
which it is a party or by which it or any of its properties are bound or
affected, which default or violation would have a Material Adverse Effect, (ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.

                              (n)      Not an Integrated Offering.   Neither the
Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the SmallCap Market or any Principal Market which would
impair exemptions relied upon in this Offering (as defined in Section 8(b)). Nor
will the Company or any of its Affiliates take any action or steps that would
cause the offer or issuance of the Securities to be integrated with other
offerings which would impair the exemptions relied upon in this Offering or the
Company’s ability to timely comply with its obligations hereunder.

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                              (o)      No General Solicitation.  Neither the
Company, nor any of its Affiliates, nor to its knowledge, 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 1933 Act) in
connection with the offer or sale of the Securities.

                              (p)      Listing.  The Company's common stock is
quoted on the SmallCap. Other than prior notices, all of which the Company has
complied with and the notice dated June 24, 2004, and any subsequent
notifications related thereto from the SmallCap, the Company has not received
any oral or written notice that its common stock is not eligible nor will become
ineligible for quotation on the SmallCap nor that its common stock does not meet
all requirements for the continuation of such quotation. As of the date hereof,
other than the requirements of NASD Market Place Rule Section 4310 (c) (4), the
Company satisfies all the requirements for the continued quotation of its common
stock on the SmallCap.

                              (q)      No Undisclosed Liabilities.  Other than
the execution of this Subscription Agreement and the transactions contemplated
therein, the Company has no liabilities or obligations which are material,
individually or in the aggregate, which are not disclosed in the Reports and
Other Written Information, other than those incurred in the ordinary course of
the Company’s businesses since the Latest Financial Date and which, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect, except as disclosed on Schedule 5(q).

                              (r)      No Undisclosed Events or
Circumstances.  Other than the execution of this Subscription Agreement and the
transactions contemplated therein, since the Latest Financial Date, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.

                              (s)      Capitalization.  The authorized and
outstanding capital stock of the Company as of the date of this Agreement and
the Closing Date (not including the Securities) are set forth on Schedule 5(d).
Except as set forth on Schedule 5(d), there are no options, warrants, or rights
to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company or any of its Subsidiaries. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable.

                              (t)      Dilution.  The Company's executive
officers and directors understand the nature of the Securities being sold hereby
and recognize that the issuance of the Securities will have a potential dilutive
effect on the equity holdings of other holders of the Company’s equity or rights
to receive equity of the Company. The board of directors of the Company has
concluded, in its good faith business judgment that the issuance of the
Securities is in the best interests of the Company. The Company specifically
acknowledges that subject to the Company’s receiving the Approval, if the
Approval is required by the applicable NASD Market Place rules and/or Nasdaq’s
corporate governance rules, its obligation to issue the Shares upon conversion
of the Notes, and the Warrant Shares upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.

                              (u)      No Disagreements with Accountants and
Lawyers.   There are no disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company, including
but not limited to disputes or conflicts over payment owed to such accountants
and lawyers.

                              (v)      DTC Status.  The Company’s transfer agent
is a participant in and the

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Common Stock is eligible for transfer pursuant to the Depository Trust Company
Automated Securities Transfer Program. The name, address, telephone number, fax
number, contact person and email address of the Company transfer agent is set
forth on Schedule 5(v) hereto.

                              (w)      Investment Company.  Neither the Company
nor any Affiliate is an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

                              (x)      Solvency.  Based on the financial
condition of the Company as of the Closing Date after giving effect to the
receipt by the Company of the proceeds from the Offering (i) the Company’s fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company’s existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company’s
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).

                              (y)      Correctness of Representations.  The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to each Closing Date, shall be
true and correct in all material respects as of the Closing Date.

                              (z)      Survival.  The foregoing representations
and warranties shall survive the Closing Date until two years after the Closing
Date.

                    6.        Regulation D Offering.  The offer and issuance of
the Securities to the Subscribers is being made pursuant to the exemption from
the registration provisions of the 1933 Act afforded by Section 4(2) or Section
4(6) of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On
the Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit D. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement, provided, however, the
Subscriber seeking such opinion meets all applicable requirements for such
resale and provided such Subscriber provides the Company and/or its counsel with
such information as the Company’s counsel may need in order to render such
opinion. Subscriber agrees that any legal opinions required hereunder or under
any other Transaction Documents may be supplied by the Company’s in house
General Counsel.

                    7.1.      Conversion of Note.  

                              (a)       Upon the conversion of a Note or part
thereof, the Company shall, at its own cost and expense, take all necessary
action, including obtaining and delivering, an opinion of counsel to assure that
the Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber
and in such denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, provided however, if
the stock certificates being issued pursuant to this Section are being issued to
the Subscriber’s nominee and not in connection with a sale thereof, prior to
such issuance, the Subscriber and the proposed

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nominee shall execute and deliver to the Company a representation letter that is
reasonably acceptable to the Company. The Company warrants that no instructions
other than these instructions have been or will be given to the transfer agent
of the Company's Common Stock and that, unless waived by the Subscriber, the
Shares will, subject to the provisions of this Subscription Agreement, be
free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability of the Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares or are
otherwise exempt from registration. Subscriber hereby agrees to indemnify the
Company in the event an exemption from such transfer under the 1933 Act is found
not to have been available.

                              (b)       Subscriber will give notice of its
decision to exercise its right to convert the Note, interest, any sum due to the
Subscriber under the Transaction Documents including Liquidated Damages, or part
thereof by telecopying an executed and completed Notice of Conversion (a form of
which is annexed as Exhibit A to the Note) to the Company via confirmed
telecopier transmission or otherwise pursuant to Section 12(a) of this
Agreement. The Subscriber will be required to surrender the Note prior to the
conversion of the Note. Subscriber will also be required to surrender the note
within three business days of the satisfaction by the Company of such Note. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
itself or cause the Company’s transfer agent to transmit the Company's Common
Stock certificates representing the Shares issuable upon conversion of the Note
to the Subscriber via express courier for receipt by such Subscriber within five
(5) business days after receipt by the Company of the Notice of Conversion (such
fifth day being the "Delivery Date"). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic transfer
provided request for such electronic transfer has been made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber has delivered the original Note to the
Company. In the event that a Subscriber does not surrender a Note for reissuance
upon partial payment or conversion, the Subscriber hereby indemnifies the
Company against any and all loss or damage attributable to a third-party claim
in an amount in excess of the actual amount then due under the Note. “Business
day” and “trading day” as employed in the Transaction Documents is a day that
the New York Stock Exchange is open for trading for three or more hours.

                              (c)       The Company understands that a delay in
the delivery of the Shares in the form required pursuant to Section 7.1 hereof,
or the Mandatory Redemption Amount described in Section 7.2 hereof, respectively
after the Delivery Date or the Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand.

                              (d)       Nothing contained herein or in any
document referred to herein or delivered in connection herewith shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.

                              (e)      The Company may in its sole discretion
reduce the Conversion Price of any Notes that have not been paid off or fully
converted if (i) the Approval has been obtained or (ii) if the Approval is not
required by the applicable NASD Market Place Rules and/or the Nasdaq’s corporate

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governance rules. In the event the Conversion Price is reduced pursuant to this
Section 7.1(e), the Company shall notify any Subscribers holding Notes which
have not been paid by the Company or fully converted by the Subscribers of such
reduced Conversion Price.

                    7.2.      Mandatory Redemption at Subscriber’s Election.  In
the event (i) the Company is prohibited from issuing Shares, (ii) the Company
fails to timely deliver Shares on a Delivery Date, (iii) upon the occurrence of
any other Event of Default (as defined in the Note or in this Agreement), (iv)
of the liquidation, dissolution or winding up of the Company, or (v) a Change of
Control (as defined below) any of which that continues for more than ten days,
then at the Subscriber's election, the Company must pay to the Subscriber ten
(10) business days after request by the Subscriber, at the Subscriber’s
election, a sum of money determined by (y) multiplying up to the outstanding
principal amount of the Note designated by the Subscriber by 120%, or (z)
multiplying the number of Shares otherwise deliverable upon conversion of an
amount of Note principal and/or interest designated by the Subscriber (with the
date of giving of such designation being a “Deemed Conversion Date”) at the
Conversion Price that would be in effect on the Deemed Conversion Date by the
highest closing price of the Common Stock on the Principal Market for the period
commencing on the Deemed Conversion Date until the day prior to the receipt by
the Subscriber of the Mandatory Redemption Payment, whichever is greater,
together with accrued but unpaid interest thereon ("Mandatory Redemption
Payment"). The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Company Shares otherwise deliverable or within ten (10)
business days after request, whichever is sooner ("Mandatory Redemption Payment
Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Note
principal and interest will be deemed paid and no longer outstanding. Liquidated
damages calculated pursuant to Section 7.1(c) hereof, that have been paid or
accrued for the twenty day period prior to the actual receipt of the Mandatory
Redemption Payment by the Subscriber shall be credited against the Mandatory
Redemption Payment. For purposes of this Section 7.2, “Change in Control” shall
mean (i) the Company becoming a Subsidiary of another entity, (ii) a majority of
the board of directors of the Company as of the Closing Date no longer serving
as directors of the Company except due to natural causes, (iii) the sale, lease
or transfer of substantially all the assets of the Company or Subsidiaries.

                     7.3.      Maximum Conversion.  The Subscriber shall not be
entitled to convert on a Conversion Date that amount of the Note in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of common stock beneficially owned by the Subscriber
and its Affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Subscriber and its Affiliates of more than
4.99% of the outstanding shares of common stock of the Company on such
Conversion Date. Beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be limited
to aggregate conversions of only 4.99% and aggregate conversions by the
Subscriber may exceed 4.99% . The Subscriber may waive the conversion limitation
described in this Section 7.3, in whole or in part, upon and effective after 61
days prior written notice to the Company. The Subscriber may decide whether to
convert a Note or exercise Warrants to achieve an actual 4.99% ownership
position.

                     7.4.      Injunction Posting of Bond.  In the event a
Subscriber shall elect to convert a Note or part thereof or exercise the Warrant
in whole or in part, the Company may not refuse conversion or exercise based on
any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of such Note or exercise of all or part of such
Warrant shall have been sought and obtained by the Company and the Company has
posted a surety bond for the benefit of such Subscriber in the amount of 120% of
the outstanding principal and interest of the Note, or aggregate purchase price
of the Warrant Shares which are sought to be subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the

11

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proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment. Notwithstanding the foregoing, if the Company receives an
order restraining it from converting from a court or administration agency of
competent jurisdiction, it shall comply without a bond requirement.

                     7.5.      Buy-In.  In addition to any other rights
available to the Subscriber, if the Company fails to deliver to the Subscriber
such shares issuable upon conversion of a Note by the Delivery Date and if after
seven (7) business days after the Delivery Date the Subscriber purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice and acceptable written proof of the purchase and the amount
thereof and indicating the amounts payable to the Subscriber in respect of the
Buy-In.

                    7.6     Adjustments.      The Conversion Price, Warrant
exercise price and amount of Shares issuable upon conversion of the Notes and
exercise of the Warrants shall be adjusted as described in this Agreement, the
Notes and Warrants.

                    7.7.     Redemption.  The Note and Warrants shall not be
redeemable or mandatorily convertible except as described in the Note and
Warrants.

                     8.      Broker/Legal Fees.

                   (a)      Broker’s Commission.  The Company on the one hand,
and each Subscriber (for himself only) on the other hand, agrees to indemnify
the other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions or similar fees other than other than
First Montauk Securities Corp., (“Broker”) on account of services purported to
have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions. Anything in this Agreement to the contrary notwithstanding,
each Subscriber is providing indemnification only for such Subscriber’s own
actions and not for any action of any other Subscriber. The liability of the
Company and each Subscriber’s liability hereunder is several and not joint. The
Company agrees that it will pay the Broker the fees set forth on Schedule 8
hereto (“Broker’s Fees”). The Company represents that to the best of its
knowledge there are no other parties entitled to receive fees, commissions, or
similar payments in connection with the offering described in this Agreement
except the Broker.

                  (b)      Legal Fees.  The Company shall pay to Grushko &
Mittman, P.C., a cash fee of $15,000 and the Broker shall pay to Grushko &
Mittman, P.C. a cash fee of $5,000 (“Legal Fees”) as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Notes and Warrants (the “Offering”). The Legal Fees will be
payable on the Closing Date out of funds held pursuant to the Escrow Agreement.

                    9.      Covenants of the Company.  The Company covenants and
agrees with the Subscribers as follows:

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                              (a)      Stop Orders.  So long as the Subscribers
own any of the Securities, the Company will advise the Subscribers, within two
hours after the Company receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

                              (b)      Listing.  The Company shall promptly
secure the listing of the shares of the Common Stock and the Warrant Shares upon
each national securities exchange, or automated quotation system upon which they
are or become eligible for listing (subject to official notice of issuance) and
shall maintain such listing so long as any Notes or Warrants are outstanding,
provided the Company’s Common Stock continues to be listed on such national
securities exchange or automated quotation system. So long as Subscriber own any
securities, the Company will use its best reasonable efforts to maintain the
listing of its Common Stock on the American Stock Exchange, SmallCap, Nasdaq
National Market System, OTC Bulletin Board, or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock (the “Principal Market”)), and will comply in all
respects with the Company’s reporting, filing or other obligations under the
bylaws or rules of the Principal Market, as applicable. So long as the
Subscriber own the securities, the Company will provide the Subscribers copies
of all notices it receives notifying the Company of the threatened and actual
delisting of the Common Stock from any Principal Market. As of the date of this
Agreement and the Closing Date, the SmallCap is the Principal Market.

                              (c)      Market Regulations.  The Company shall
notify the Commission, the Principal Market and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, 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 Subscribers and promptly provide copies
thereof to Subscriber.

                              (d)      Filing Requirements.  From the date of
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will (A) cause its
Common Stock to continue to be registered under Section 12(b) or 12(g) of the
1934 Act, (B) comply in all respects with its reporting and filing obligations
under the 1934 Act, (C) voluntarily comply with all reporting requirements that
are applicable to an issuer with a class of shares registered pursuant to
Section 12(g) of the 1934 Act, if Company is not subject to such reporting
requirements, and (D) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Closing Date. Until
the earlier of the resale of the Common Stock, and the Warrant Shares by each
Subscriber or two (2) years after the Warrants have been exercised, the Company
will use its best efforts to continue the listing or quotation of the Common
Stock on a Principal Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with respect to the
Securities if required under Regulation D and to provide a copy thereof to each
Subscriber promptly after such filing.

                              (e)      Use of Proceeds.  The proceeds of the
Offering will be employed by the Company for the purposes set forth on Schedule
9(e) hereto. Except as set forth on Schedule 9(e), the Purchase Price may not
and will not be used for accrued and unpaid officer and director salaries,
payment of financing related debt, redemption of outstanding notes or equity
instruments of the Company, litigation related expenses or settlements,
brokerage fees, nor non-trade obligations outstanding on a Closing Date.

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For so long as any Notes are outstanding, the Company will not prepay any
financing related debt obligations nor redeem any equity instruments of the
Company.

                              (f)      Reservation.  Prior to the Closing Date,
the Company undertakes to reserve, pro rata, on behalf of the Subscribers from
its authorized but unissued common stock, a number of common shares equal to
175% of the amount of Common Stock necessary to allow each Subscriber to be able
to convert all Notes issuable pursuant to this Agreement and interest thereon
and reserve 100% of the amount of Warrant Shares issuable upon exercise of the
Warrants. Failure to have sufficient shares reserved pursuant to this Section
9(f) for five (5) consecutive business days or fifteen (15) days in the
aggregate shall be a material default of the Company’s obligations under this
Agreement and an Event of Default under the Note.

                              (g)      Taxes.  From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.

                              (h)      Insurance.  From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company’s line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.

                              (i)      Books and Records.   From the date of
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a consistent
basis.

                              (j)      Governmental Authorities.   From the date
of this Agreement and until the sooner of (i) two (2) years after the Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.

                              (k)      Intellectual Property.  From the date of
this Agreement and until the sooner of (i) two (2) years after the Closing Date,
or (ii) until all the Shares and Warrant Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144,

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without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business, unless it is
sold for value.

                              (l)      Properties.   From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.

                              (m)      Confidentiality/Public Announcement.
  From the date of this Agreement and until the sooner of (i) six months after
the Closing Date, or (ii) until all the Shares and Warrant Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, the
Company agrees that except in connection with a Form 8-K or the Registration
Statement or as otherwise required in any other Commission filing or in filings
with the SmallCap or such other Principal Market, it will not disclose publicly
the identity of the Subscribers unless expressly agreed to in writing by a
Subscriber, only to the extent required by law or regulations of the SmallCap or
such other Principal Market. In any event and subject to the foregoing, the
Company shall make a public announcement describing the Offering not later than
the first business day after the Closing Date. The Company also undertakes to
file a Form 8-K describing the Offering. In the Form 8-K or public announcement,
the Company will specifically disclose the amount of common stock outstanding
immediately after the Closing. A form of the proposed Form 8-K or public
announcement to be employed in connection with the Closing is annexed hereto as
Exhibit E. The Subscribers expressly consent to the filing of such Form 8-K and
the making of the aforementioned public announcement.

                              (n)      Further Registration Statements.   Except
for a registration statement filed on behalf of the Subscribers pursuant to
Section 11 of this Agreement and as set forth on Schedule 11.1 hereto, the
Company will not file any registration statements or amend any already filed
registration statement, other than (i) a registration statement on Forms S-8 for
the registration of up to 800,000 Shares of Common Stock issuable to employees,
directors, officers or consultants of the Company (ii) or a post-effective
amendment to a registration statement which has previously been declared
effective so long as a such post-effective amendment does not seek to register
additional shares of the Company’s common stock with the Commission or with
state regulatory authorities without the consent of the Subscriber until the
sooner of (i) the Registration Statement shall have been current and available
for use in connection with the resale of the Registrable Securities (as defined
in Section 11.1(i)) for a period of 90 days after the Actual Effective Date of
the Registration Statement, or (ii) until all the Shares and Warrant Shares have
been resold or transferred by the Subscribers pursuant to the Registration
Statement or Rule 144, without regard to volume limitations (the “Exclusion
Period”). The Exclusion Period will be tolled during the pendency of an Event of
Default as defined in the Note.

                              (o)      Blackout.   The Company undertakes and
covenants that until the end of the Exclusion Period, the Company will not enter
into any acquisition, merger, exchange or sale or other transaction that could
have the effect of delaying the effectiveness of any pending registration
statement or causing an already effective registration statement to no longer be
effective or current for a period ten (10) or more consecutive days nor more
than twenty (20) days during any consecutive three hundred and sixty-five (365)
day period.

                              (p)      Non-Public Information.  The Company
covenants and agrees that neither it nor any other person acting on its behalf
will provide any Subscriber or its agents or counsel with any

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information that the Company believes constitutes material non-public
information, unless prior thereto such Subscriber shall have agreed in writing
to receive such information. The Company understands and confirms that each
Subscriber shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

                              (q)      Shareholder Approval.  If required by the
applicable NASD Market Place Rules and/or Nasdaq’s corporate governance rules,
the Company and Subscriber agree that until the Company either obtains
shareholder approval of the issuance of the Securities, or an exemption from
NASDAQ's corporate governance rules as they may apply to the Shares and
Warrants, and an opinion of counsel reasonably acceptable to Subscriber that the
issuance of the Shares and Warrants will not violate NASDAQ's corporate
governance rules nor may result in a delisting of the Company's common stock
from the SmallCap (the "Approval"), each Subscriber may not receive any Shares
or Warrants. If the Approval is required by the applicable NASD Market Place
Rules, and or Nasdaq’s corporate governance rules, the Company covenants to use
its best reasonable efforts to obtain the Approval to allow the issuance of the
Shares and Warrants. If the Approval is required by the applicable NASD Market
Place Rules and/or the Nasdaq’s corporate governance rules, the Company further
covenants to file the preliminary proxy statement relating to the Approval with
the Commission on or before thirty (30) days after the Closing Date (“Proxy
Filing Date”). If the Approval is required by the applicable NASD Market Place
Rules and/or the Nasdaq’s corporate governance rules, the Company further
covenants to use its best reasonable efforts to obtain the Approval not later
than the sooner of ninety (90) days from the Closing Date (“Approval Date”). If
the Approval is required by the applicable NASD Market Place Rules and/or
Nasdaq’s corporate governance rules, the Company’s failure to (i) file the proxy
on or before the Proxy Filing Date; or (ii) the Company’s failure to convene a
meeting or shareholders with a quorum present and vote upon the Approval within
ninety (90) days, or in the case of an SEC review, one hundred and twenty-five
(125) days after the Closing Date; or (iii) the Company’s failure to obtain the
Approval on or before the Approval Date (any of the preceding being an “Approval
Default”) shall be deemed a rejection (“Rejection”) and the Company shall
immediately notify each Subscriber of such Approval Default; provided, however
that any Subscriber may waive such Rejection During the ten (10) business days
following its receipt of notification from the Company that such Approval
Default has occurred, in which case the Company shall remain obligated to such
Subscriber to use its best reasonable efforts to file the proxy and obtain the
Approval as set forth above.

                              (r)      For purposes of this Section, in the
event the Subscribers or their permitted assignees no longer own any Notices,
Warrants and none of the Shares and Warrant Shares are held in the name of the
Subscribers, the Shares and Warrant Shares shall be deemed to have been
transferred by the Subscribers unless the Subscriber provide the Company with
written proof reasonably acceptable to the Company that the Shares or Warrant
Shares are still owned by such Subscriber or such Subscriber’s Affiliate.

                    10.      Covenants of the Company and Subscriber Regarding
Indemnification.

                              (a)      The Company agrees to indemnify, hold
harmless, reimburse and defend the Subscribers, the Subscribers' officers,
directors, agents, Affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Subscriber or any such person which results, arises out of or is based upon (i)
any material misrepresentation by Company or material breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
other agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any material breach or default in performance by the
Company of any covenant or undertaking to be performed by the Company hereunder,
or any other agreement entered into by the Company and Subscriber relating
hereto.

                              (b)      Each Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company’s officers,
directors, agents, Affiliates, control persons

16

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against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company or any such person which results, arises out of or is based upon (i) any
material misrepresentation by such Subscriber or a material breach of any
warranty by the Subscribers in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any material breach or default in
performance by such Subscriber of any covenant or undertaking to be performed by
such Subscriber hereunder, or any other agreement entered into by the Company
and Subscribers, relating hereto.

                              (c)      The procedures set forth in Section 11.6
shall apply to the indemnification set forth in Sections 10(a) and 10(b) above.

                  11.1.      Registration Rights.  The Company hereby grants the
following registration rights to holders of the Securities.

                              (i)      On one occasion, for a period commencing
ninety-one (91) days after the Closing Date, but not later than two (2) years
after the Closing Date, upon a written request therefor from any record holder
or holders of more than 50% of the Shares issued and issuable upon conversion of
the outstanding Notes and outstanding Warrant Shares, the Company shall prepare
and file with the Commission a registration statement under the 1933 Act
registering the Registrable Securities, as defined in Section 11.1(iv) hereof,
which are the subject of such request for unrestricted public resale by the
holder thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable
Securities shall not include Securities which are (A) registered for resale in
an effective registration statement, (B) included for registration in a pending
registration statement, or (C) which have been issued without further transfer
restrictions after a sale or transfer pursuant to Rule 144 under the 1933 Act.
Upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement is to be filed and shall include in such registration statement
Registrable Securities for which it has received written requests within ten
(10) days after the Company gives such written notice. Such other requesting
record holders shall be deemed to have exercised their demand registration right
under this Section 11.1(i) .

                              (ii)      From the Closing Date but not later than
two (2) years after the Closing Date, if the Company at any time proposes to
register any of its securities under the 1933 Act for sale to the public,
whether for its own account or for the account of other security holders or
both, except with respect to registration statements on Forms S-4, S-8 or
another form not available for registering the Registrable Securities for sale
to the public, provided the Registrable Securities are not otherwise registered
for resale by the Subscribers or Holder pursuant to an effective registration
statement, each such time it will give at least fifteen (15) days' prior written
notice to the record holder of the Registrable Securities of its intention so to
do. Upon the written request of the holder, received by the Company within ten
(10) days after the giving of any such notice by the Company, to register any of
the Registrable Securities not previously registered, the Company will cause
such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition of the Registrable Securities so registered
by the holder of such Registrable Securities (the “Seller” or “Sellers”). In the
event that any registration pursuant to this Section 11.1(ii) shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.

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                              (iii)      If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii) .

                              (iv)      The Company shall file with the
Commission a Form SB-2 registration statement (the “Registration Statement”) (or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act on the sooner of (i)
within ten (10) calendar days after the Approval has been obtained, if the
Approval is required by the applicable NASD Market Place Rules and/or Nasdaq’s
corporate governance rules, or (ii) one hundred and twenty (120) days after the
Closing Date (the “Filing Date”), and use its reasonable best efforts cause to
be declared effective not later than ninety (90) calendar days after the Filing
Date (the “Effective Date”). The Company will register not less than a number of
shares of common stock in the aforedescribed registration statement that is
equal to 175% of the Shares issuable upon conversion of all of the Notes
issuable to the Subscribers, and 100% of the Warrant Shares issuable pursuant to
this Agreement upon exercise of the Warrants (collectively the “Registrable
Securities”). The Registrable Securities shall be reserved and set aside
exclusively for the benefit of each Subscriber and Warrant holder, pro rata, and
not issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of the Subscriber, or as described
on Schedule 11.1 hereto, no securities of the Company other than the Registrable
Securities will be included in the Registration Statement, provided, however,
and notwithstanding anything to the contrary herein, the Company may include any
shares issued to the Broker or any designee of the Broker, upon the exercise of
warrants granted to the Broker. It shall be deemed a Non-Registration Event if
at any time after the date the Registration Statement is declared effective by
the Commission (“Actual Effective Date”) the Company has registered for resale
on behalf of the Sellers fewer than 125% of the amount of Common Shares issuable
upon full conversion of all sums due under the Notes and 100% of the Warrant
Shares issuable upon exercise of the Warrants.

                              (v)      The amount of Registrable Securities
required to be included in the Registration Statement as described in Section
11.1(iv) (“Initial Registrable Securities”) shall be limited to not less than
100% of the maximum amount (“Rule 415 Amount”) of Common Stock which may be
included in a single Registration Statement without exceeding registration
limitations (or guidelines) imposed by the Commission pursuant to Rule 415 of
the 1933 Act but in no event not less than 33% of the shares of Common Stock of
the Company held by non-affiliates of the Company immediately prior to the day
the Company files the Registration Statement with the Commission . In the event
that less than all of the Initial Registrable Securities are included in the
Registration Statement as a result of the limitation described in this Section
11.1(v), then the Company will file one additional Registration Statement
registering the allowable balance pursuant to Rule 415 (such Registration
Statement a “Subsequent Registration Statement”). The Filing Date and Effective
Date of such additional Registration Statement shall be, respectively, fourteen
(14) and forty-five (45) days after the first day such Subsequent Registration
Statement may be filed without objection by the Commission based on Rule 415 of
the 1933 Act.

                              (vi)      Unless otherwise instructed in writing
by a holder of Registrable Securities and only if the initial Registration
Statement does not include all of the Registrable Securities, the Registrable
Securities will be registered on behalf of each such holder in the Registration
Statements based on Common Stock issuable upon conversion or exercise of Notes
and Warrants, in the following order and priority:

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                                        (A)      Notes (based on the multiple
set forth above).

                                        (B)      Warrants.

                                        (C)      Warrants issued to the
Subscribers at any time based on exercise prices, with the lower exercise priced
Warrant Shares being registered first and then the higher exercise priced
Warrant Shares. In the case of Warrants with the same exercise prices but
different Issue Dates, the later issued Warrants will be registered first.

                    The foregoing notwithstanding, priority shall be given to
Common Stock issuable upon conversion of actual outstanding Notes ahead of
Warrant Shares.

                    11.2.     Registration Procedures.  If and whenever the
Company is required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to
effect the registration of any Registrable Securities under the 1933 Act, the
Company will, as expeditiously as possible:

                              (a)      subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify Subscribers (by telecopier
and by e-mail addresses provided by Subscribers) and Grushko & Mittman, P.C. (by
telecopier and or by email to Counslers@aol.com) within two (2) business days
that the Company receives notice that (i) the Commission has no comments or no
further comments on the Registration Statement, and (ii) the registration
statement has been declared effective (failure to timely provide notice as
required by this Section 11.2(a) shall be a material breach of the Company’s
obligation and an Event of Default as defined in the Notes and a
Non-Registration Event as defined in Section 11.4 of this Agreement);

                              (b)      prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective for a
period of two (2) years, and comply with the provisions of the 1933 Act with
respect to the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Sellers’ intended method of
disposition set forth in such registration statement for such period;

                              (c)     furnish to the Sellers, at the Company’s
expense, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement or make
them electronically available;

                              (d)      use its commercially reasonable best
efforts to register or qualify the Registrable Securities covered by such
registration statement under the securities or “blue sky” laws of New York and
such jurisdictions as the Sellers shall request in writing, provided, however,
that the Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where it is
not so qualified or to consent to general service of process in any such
jurisdiction;

                              (e)      if applicable, list the Registrable
Securities covered by such registration statement with any securities exchange
on which the Common Stock of the Company is then listed;

                              (f)      if a prospectus relating to the Shares or
the Warrant Shares is required to be delivered under the 1933 Act, notify the
Subscribers within two hours of the Company’s becoming aware of the happening of
any event of which the Company has knowledge as a result of which the

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prospectus contained in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing or which becomes subject
to a Commission, state or other governmental order suspending the effectiveness
of the registration statement covering any of the Shares; and

                              (g)      provided same would not be in violation
of the provision of Regulation FD under the 1934 Act, make available for
inspection by the Sellers, and any attorney, accountant or other agent retained
by the Seller or underwriter, all publicly available, non-confidential financial
and other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.

                    11.3.      Provision of Documents.  In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.

                    11.4.      Non-Registration Events.  The Company and the
Subscribers agree that the Sellers will suffer damages if the Registration
Statement is not filed by the Filing Date and not declared effective by the
Commission by the Effective Date, and any registration statement required under
Section 11.1(i) or 11.1(ii) is not filed within 60 days after written request
and declared effective by the Commission within 120 days after such request, and
maintained in the manner and within the time periods contemplated by Section 11
hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (A) the Registration Statement is not filed on
or before the Filing Date, (B) is not declared effective on or before the
Effective Date, (C) due to the action or inaction of the Company the
Registration Statement is not declared effective within 3 business days after
receipt by the Company or its attorneys of a written or oral communication from
the Commission that the Registration Statement will not be reviewed or that the
Commission has no further comments, (D) if the registration statement described
in Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall thereafter cease
to be effective without being succeeded within 15 business days by an effective
replacement or amended registration statement or for a period of time which
shall exceed 30 days in the aggregate per year (defined as a period of 365 days
commencing on the Actual Effective Date (each such event referred to in clauses
(A) through (E) of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to one percent
(1%) for each 30 days or part thereof of the Purchase Price of the Notes
remaining unconverted and purchase price of Shares issued upon conversion of the
Notes owned of record by such holder which are subject to such Non-Registration
Event. Notwithstanding anything to the contrary in this section, a maximum of
four percent (4%) liquidated damages will be payable in connection with the
Non-Registration Event described in this Section 11.4. The Company must pay the
Liquidated Damages in cash. The Liquidated Damages must be paid within 10 days
after the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed. The Company shall use its best reasonable efforts to respond to all oral
or written comments received from the Commission relating to the Registration
Statement within 15 days in connection with the initial filing of the
Registration Statement and within 10 days in connection with amendments to the
Registration Statement after receipt of such comments from the Commission.
Failure to timely respond to Commission comments is a Non-Registration Event for
which Liquidated Damages shall accrue and be payable by the Company to the
holders of Registrable Securities at the same rate set forth above.
Notwithstanding the foregoing, the Company shall not be liable to the Subscriber
under this Section 11.4 for any events or delays occurring as a consequence of
the acts or omissions of the

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Subscribers contrary to the obligations undertaken by Subscribers in this
Agreement. Liquidated Damages will not accrue nor be payable pursuant to this
Section 11.4 nor will a Non-Registration Event be deemed to have occurred for
times during which Registrable Securities are transferable by the holder of
Registrable Securities pursuant to Rule 144(k) under the 1933 Act.

                    11.5.      Expenses.  All reasonable expenses incurred by
the Company in complying with Section 11, including, without limitation, all
registration and filing fees, printing expenses (if required), fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, and fees of transfer
agents and registrars, are called “Registration Expenses.” All underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities are called "Selling Expenses." The Company will pay all Registration
Expenses in connection with the registration statement under Section 11. Selling
Expenses in connection with each registration statement under Section 11 shall
be borne by the Seller and may be apportioned among the Sellers in proportion to
the number of shares sold by the Seller relative to the number of shares sold
under such registration statement or as all Sellers thereunder may agree.

                    11.6.     Indemnification and Contribution.  

                              (a)      In the event of a registration of any
Registrable Securities under the 1933 Act pursuant to Section 11, the Company
will, to the extent permitted by law, indemnify and hold harmless the Seller,
each officer of the Seller, each director of the Seller, each underwriter of
such Registrable Securities thereunder and each other person, if any, who
controls such Seller or underwriter within the meaning of the 1933 Act, against
any losses, claims, damages or liabilities, joint or several, to which the
Seller, or such underwriter or controlling person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities was registered
under the 1933 Act pursuant to Section 11, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances when made, and will subject
to the provisions of Section 11.6(c) reimburse the Seller, each such underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable to the Seller to the extent that any such damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Seller failed to send or deliver a copy of the final
prospectus delivered or made available by the Company to the Seller with or
prior to the delivery of written confirmation of the sale by the Seller to the
person asserting the claim from which such damages arise, (ii) the final
prospectus would have corrected such untrue statement or alleged untrue
statement or such omission or alleged omission, or (iii) to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, or any such
controlling person in writing specifically for use in such registration
statement or prospectus.

                              (b)      In the event of a registration of any of
the Registrable Securities under the 1933 Act pursuant to Section 11, each
Seller severally but not jointly will, to the extent permitted by law, indemnify
and hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based

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upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.

                              (c)      Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 11.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.

                              (d)      In order to provide for just and
equitable contribution in the event of joint liability under the 1933 Act in any
case in which either (i) a Seller, or any controlling person of a Seller, makes
a claim for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities sold by it pursuant to such registration statement; and (z) no person
or entity guilty of fraudulent misrepresentation (within the

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meaning of Section 11(f) of the 1933 Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.

                  11.7.      Delivery of Unlegended Shares.  

                              (a)      Within three (3) business days (such
third business day being the “Unlegended Shares Delivery Date”) after the
business day on which the Company has received (i) a notice that Shares or
Warrant Shares or any other Common Stock held by a Subscriber have been sold
pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(h) above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the 1933
Act (the “Unlegended Shares”); and (z) cause the transmission of the
certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted Shares certificate, if
any, to the Subscriber at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the Unlegended
Shares Delivery Date.

                              (b)      In lieu of delivering physical
certificates representing the Unlegended Shares, if the Company’s transfer agent
is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer program, upon request of a Subscriber, so long as the
certificates therefor do not bear a legend and the Subscriber is not obligated
to return such certificate for the placement of a legend thereon, the Company
shall cause its transfer agent to electronically transmit the Unlegended Shares
by crediting the account of Subscriber’s prime Broker with DTC through its
Deposit Withdrawal Agent Commission system. Such delivery must be made on or
before the Unlegended Shares Delivery Date.

                              (c)      The Company understands that a delay in
the delivery of the Unlegended Shares pursuant to Section 11 hereof later than
two business days after the Unlegended Shares Delivery Date could result in
economic loss to a Subscriber. As compensation to a Subscriber for such loss,
the Company agrees to pay late payment fees (as liquidated damages and not as a
penalty) to the Subscriber for late delivery of Unlegended Shares in the amount
of $100 per business day after the Delivery Date for each $10,000 of purchase
price of the Unlegended Shares subject to the delivery default. If during any
360 day period, the Company fails to deliver Unlegended Shares as required by
this Section 11.7 for an aggregate of thirty (30) days, then each Subscriber or
assignee holding Securities subject to such default may, at its option, require
the Company to redeem all or any portion of the Shares and Warrant Shares
subject to such default at a price per share equal to 120% of the Purchase Price
of such Common Stock and Warrant Shares (“Unlegended Redemption Amount”). The
amount of the aforedescribed liquidated damages that have accrued or been paid
for the twenty day period prior to the receipt by the Subscriber of the
Unlegended Redemption Amount shall be credited against the Unlegended Redemption
Amount. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.

                              (d)      In addition to any other rights available
to a Subscriber, if the Company fails to deliver to a Subscriber Unlegended
Shares as required pursuant to this Agreement, within seven (7) business days
after the Unlegended Shares Delivery Date and the Subscriber purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by

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the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.

                              (e)      In the event a Subscriber shall request
delivery of Unlegended Shares as described in Section 11.7 and the Company is
required to deliver such Unlegended Shares pursuant to Section 11.7, the Company
may not refuse to deliver Unlegended Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
or temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares or exercise of all or part of said
Warrant shall have been sought and obtained and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate purchase price of the Common Stock and Warrant Shares which are
subject to the injunction or temporary restraining order, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Subscriber to the extent
Subscriber obtains judgment in Subscriber’s favor.

                    11.8      Covenants of Subscriber.  The Subscriber covenants
and promises to (i) the timely provision of any Subscriber information required
hereunder or reasonably requested by the Company in connection with the filing
and declaration of effectiveness of the Registration Statement and any
amendments to the Registration Statement; (ii) the timely execution of any and
all documents required hereunder or reasonably requested by the Company in
connection with the filing and declaration of effectiveness of the Registration
Statement and any amendments to the Registration Statement; and (iii) any other
timely action as required hereunder or reasonably requested by the Company in
connection with the filing and declaration of effectiveness of the Registration
Statement and any amendments of the Registration Statement.

                    12. (a)   Right of Participation.  Commencing on the date of
this Agreement and through the Exclusion Period, the Subscribers shall be given
not less than ten (10) business days prior written notice of any proposed sale
by the Company of its common stock or other securities or debt obligations,
except in connection with (i) employee stock options or compensation plans, (ii)
as full or partial consideration in connection with any merger, consolidation or
purchase of substantially all of the securities or assets of any corporation or
other entity, (iii) issuance of an aggregate of 800,000 Shares of the Company’s
Common Stock which may be issued to officers, directors, consultants and
employees to the Company, or (iv) the issuance of the stock of the company in
connection with any outstanding warrants, options, convertible preferred stock
or any other security of the company which has been described in the Reports or
Other Written Information filed with the Commission or delivered to the
Subscribers prior to the Closing Date (collectively “Excepted Issuances”). The
Subscribers who exercise their rights pursuant to this Section 11(a) shall have
the right during the ten (10) business days following receipt of the notice to
participate in the purchase of such offered common stock, debt or other
securities in accordance with the terms and conditions set forth in the notice
of sale in the same proportion to each other as their purchase of Shares in the
Offering. In the event such terms and conditions are modified during the notice
period, the Subscribers shall be given prompt notice of such modification and
shall have the right during the original notice period or for a period of five
(5) business days following the notice of modification, whichever is longer, to
exercise such right. In the event there is an Approval Default, this Right of
Participation shall be extended and effective for 180 days after such Approval
Default.

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                              (b)      Favored Nations Provision.  Until the
sooner of 180 days from the Actual Effective Date of the Registration Statement,
provided the Approval has been obtained or is not required by the applicable
NASD Market Place Rules and/or Nasdaq’s corporate governance rules, or the date
the Notes have been paid, other than in connection with the Excepted Issuances,
if the Company shall offer, issue or agree to issue any common stock or
securities convertible into or exercisable for shares of common stock (or modify
any of the foregoing which may be outstanding) to any person or entity at a
price per share or conversion or exercise price per share which shall be less
than the Conversion Price without the consent of each Subscriber holding Notes,
the Conversion Price shall be reduced to such other lower issue price. For
purposes of the issuance and adjustment described in this paragraph, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the reduction of the Conversion Price upon
the sooner of the agreement to or actual issuance of such convertible security,
warrant, right or option and again at any time upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the Conversion Price in effect upon such
issuance. The rights of the Subscriber set forth in this Section 12 are in
addition to any other rights the Subscriber has pursuant to this Agreement, the
Note, any Transaction Document, and any other agreement referred to or entered
into in connection herewith.

                              (c)      Paid In Kind.  The Subscriber may demand
that some or all of the sums payable to the Subscriber pursuant to Sections
7.1(c), 7.2, 7.5, 11.4, 11.7(c), 11.7(d) and 11.7(e) that are not paid within
ten business days after the required payment date be paid in shares of Common
Stock valued at the Conversion Price in effect at the time Subscriber makes such
demand or, at the Subscriber’s election, at such other valuation described in
the Transaction Documents. In addition to any other rights granted to the
Subscriber herein, the Subscriber is also granted the registration rights set
forth in Section 11.1(ii) hereof in relation to the aforedescribed shares of
Common Stock.

                              (d)      Maximum Exercise of Rights.  In the event
the exercise of the rights described in Sections 12(a), 12(b) and 12(c) would
result in the issuance of an amount of common stock of the Company that would
exceed the maximum amount that may be issued to a Subscriber calculated in the
manner described in Section 7.3 of this Agreement, then the issuance of such
additional shares of common stock of the Company to such Subscriber will be
deferred in whole or in part until such time as such Subscriber is able to
beneficially own such common stock without exceeding the maximum amount set
forth calculated in the manner described in Section 7.3 of this Agreement. The
determination of when such common stock may be issued shall be made by each
Subscriber as to only such Subscriber.

                               (e)      Offering Restrictions.  Until the later
of the (i) the Approval, if the Approval is required by the applicable NASD
Market Place Rules and/or the Nasdaq’s corporate governance rules, or (ii) six
months after the Closing Date and during the pendency of an Event of Default,
provided there is an effective registration statement current and available for
resale of the Registrable Securities, the Company will not enter into an
agreement to nor issue any equity, convertible debt or other securities
convertible into common stock or equity of the Company nor modify any of the
foregoing which may be outstanding at anytime, without the prior written consent
of the Subscriber, which consent may be withheld for any reason. Until six
months after the Closing Date, the Company will not enter into any equity line
of credit or similar agreement, nor issue nor agree to issue any floating or
variable priced equity linked instruments nor any of the foregoing or equity
with price reset rights.

                    13.      Miscellaneous.  

                              (a)      Notices.  All notices, demands, requests,
consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such party

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shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, 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: (i) if to the
Company, to: Conolog Corporation, 5 Columbia Road, Somerville, NJ 08876, Attn:
Robert Benou, telecopier: (908) 722-5461, with a copy by telecopier only to:
Sichenzia Ross Friedman Ference LLP, 1065 Avenue of Americas, New York, NY
10018, Attn: David Manno, Esq., telecopier: (212) 930-9725, (ii) if to the
Subscribers, to: the one or more addresses and telecopier numbers indicated on
the signature pages hereto, with an additional copy by telecopier only to:
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575, and (iii) if to the Broker, to: First Montauk
Securities Corp., 328 Newman Springs Road, Red Bank, NJ 07701, Attn: Ernest
Pellegrino, Director of Corporate Finance, telecopier: (732) 842-9047.

                              (b)      Entire Agreement; Assignment.  This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and the
written consent of the Subscribers.

                              (c)       Counterparts/Execution.  This Agreement
may be executed in any number of counterparts and by the different signatories
hereto on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute but one and the
same instrument. This Agreement may be executed by facsimile signature and
delivered by facsimile transmission.

                              (d)      Law Governing this Agreement.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without regard to conflicts of laws principles that would
result in the application of the substantive laws of another jurisdiction. Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the civil or state
courts of New York or in the federal courts located in New York County. The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. In the event that any
provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of any agreement.

                              (e)      Specific Enforcement, Consent to
Jurisdiction.  The Company and Subscriber acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to one or
more preliminary and final injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity. Subject to Section 13(d) hereof, each of
the Company, Subscriber and any signature hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of such
court, that

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the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

                              (f)      Damages.  In the event the Subscriber is
entitled to receive any liquidated damages pursuant to the Transactions, the
Subscriber may elect to receive the greater of actual damages or such liquidated
damages.

                              (g)      Independent Nature of Subscribers.  The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that each Subscriber has represented that
the decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber 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 which may have been made or
given by any other Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii)
review by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers 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 each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all Subscribers
with the same terms and Transaction Documents for the convenience of the Company
and not because Company was required or requested to do so by the Subscribers.
The Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby.

                              (h)      As used in the Agreement, “consent of the
Subscribers” or similar language means the consent of holders of not less than
80% of the total of the Shares issued and issuable upon conversion of
outstanding Notes owned by Subscribers on the date consent is requested.

[THIS SPACE INTENTIONALLY LEFT BLANK]

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

          Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.

    CONOLOG CORPORATION     a Delaware corporation         By:
_________________________________               Name: Robert S. Benou    
          Title: Chairman and Chief Executive Officer                 Dated:
March 12, 2007    

  SUBSCRIBER

  NOTE PRINCIPAL

                      ______________________________________________________  
  (Signature)     By:      

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LIST OF EXHIBITS AND SCHEDULES

Exhibit A   Form of Note       Exhibit B   Form of Warrant       Exhibit C  
Escrow Agreement       Exhibit D   Form of Legal Opinion       Exhibit E   Form
of Form 8-K or Public Announcement       Schedule 5(a)   Subsidiaries      
Schedule 5(d)   Additional Issuances / Capitalization       Schedule 5(q)  
Undisclosed Liabilities       Schedule 8   Broker       Schedule 9(e)   Use of
Proceeds       Schedule 11.1   Other Registrable Securities

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