SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT, dated as of February ___, 2008 (this
“Agreement”), is entered into by and between AMERICAN SECURITY RESOURCES
CORPORATION, a Nevada corporation with headquarters located at 9601 Katy
Freeway, Suite 220, Houston, TX 77024 (the “Company”), and the individual or
entity named on the executed counterpart of the signature page hereto (the
“Buyer”).

W I T N E S S E T H:

WHEREAS, the Company and the Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration for offers and sales
to accredited investors afforded, inter alia, by Rule 506 under Regulation D
(“Regulation D”) as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”), and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to lend to the Company, subject to and  upon  the
terms and conditions of this Agreement and acceptance of this Agreement by the
Company, the Debenture Purchase Price (as defined below), the repayment of which
will be represented by 7.75%  Convertible Debentures Series 08 of the Company
(the “Convertible Debentures”), which Convertible Debentures will be convertible
into shares of Common Stock, $0.001 par value per share, of the Company (the
“Common Stock”), upon the terms and subject to the conditions of such
Convertible Debentures, together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock;

WHEREAS, the Company’s obligations to repay each Convertible Debenture will be
guaranteed under a Personal Guarantee of Guarantor (the “Guarantee”) by one or
more guarantors named therein (each, a “Pledgor”), which Guarantee will be
secured by a pledge of certain shares of the Company’s Common Stock (the
“Pledged Shares”), as to which Pledged Shares the Pledgor is the registered and
beneficial owner, pursuant to the terms of a Security Interest and Pledge
Agreement (the “Pledge Agreement”), executed by each such Pledgor and
acknowledged by the Company;

NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

1.           AGREEMENT TO PURCHASE; PURCHASE PRICE.

a.           Purchase.

(i)           Subject to the terms and conditions of this Agreement and the
other Transaction Agreements (as defined below), the undersigned Buyer hereby
agrees to loan to the Company the aggregate principal amount specified as the
“Aggregate Debenture Purchase Price” on the signature page hereof.  Subject to
the terms and conditions hereof, the Buyer will lend the Aggregate Debenture
Purchase Price in equal installments of $500,000 each (each, a “Debenture
Purchase Price”) on the respective Closing Dates (as defined below) provided
below.  The Debenture Purchase Price on each Closing Date shall be allocated to
the purchase of Debentures in principal amounts determined by the Buyer, as
provided herein.

(ii)           The obligation to repay each loan from the Buyer shall be
evidenced by the Company’s issuance of one or more Convertible Debentures to the
Buyer each in a principal amount designated by the Buyer to the Company on or
before the relevant closing date (where the aggregate principal amount of all
such Convertible Debentures issued on a Closing Date shall be equal to the
Debenture Purchase Price being loaned on the relevant Closing Date).   Each
Debenture actually issued to the Buyer is referred to as a “Debenture.” The
principal amount of each Debenture issued on the relevant Closing Date shall be
as provided in the Allocation of Debentures, Cash Purchase Price Amount and
Purchase Notes for Specified Closing Date attached hereto as Annex XIV (the
“Allocation Table”).  Each Debenture (a) shall provide for a Conversion Price
(as defined below), which price may be adjusted from time to as provided herein
and therein, (b) shall have the terms and conditions of, and be substantially in
the form attached hereto as, Annex I and (c) shall be guaranteed by each
respective Pledgor pursuant to the terms of the Guarantee, substantially in the
form annexed hereto as Annex VIII, which Guarantee shall be secured pursuant to
the terms of the Pledge Agreement, substantially in the form annexed hereto as
Annex IX.  A schedule of the Pledgors and the number of shares to be pledged by
each of them is  attached hereto as Annex XIII.

(iii)           On each Closing Date, the Buyer shall pay the Debenture Purchase
Price and the Warrant Purchase Price (as defined below) to the Company in the
manner provided below, and the Company shall deliver the relevant Certificates
(as defined below) to the Escrow Agent, as provided in Section 1(c) hereof.

(iv)           Each loan to be made by the Buyer and the issuance of the
Debentures (as defined below) and the Warrants (collectively, the “Purchased
Securities”) to the Buyer are sometimes referred to herein and in the other
Transaction Agreements as the purchase and sale of the Debentures and the
Warrants.

b.           Certain Definitions.     As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:

“Additional Closing Date” means the date of each closing of the purchase and
sale of the Additional Debentures and the Additional Warrants, as provided
herein.

“Additional Debentures” means the Convertible Debentures issued to the Buyer on
the relevant Additional Closing Date or on one or more Additional Closing Dates,
as the context may require.

“Additional Warrants” means the Warrants issued to the Buyer on the relevant
Additional Closing Date or on one or more Additional Closing Dates, as the
context may require.

“Affiliate” means, with respect to a specific Person referred to in the relevant
provision, another Person who or which controls or is controlled by or is under
common control with such specified Person.

“Agreement Amount” means the amount, if any (other than interest and principal
due under the Debentures), due to the Buyer or the Holder, as the case may be,
pursuant to any provision of the Transaction Agreements.

“Agreement Payment Date” means the date the Buyer or the Holder, as the case may
be, demands payment of an Agreement Amount.

“Agreement Shares” means the shares of Common Stock issuable in payment of
Agreement Amounts , if such Agreement Amounts may be paid in such shares.

“Authorized Share Increase” means the approval (in accordance with the laws of
the State of Incorporation and the By-laws) of an amendment to the Company’s
Certificate of Incorporation, as amended to date, increasing the authorized
shares of the Common Stock to at least 400,000,000 shares and the filing of a
certificate of amendment in the State of Incorporation reflecting such increase.

“Buyer Control Person” means the Buyer and each such other Persons as may be
deemed in control of the Buyer pursuant to Rule 405 under the 1933 Act or
Section 20 of the 1934 Act (as defined below).

“By-laws” means the by-laws of the Company (howsoever denominated), as amended
to date.

“Certificate of Incorporation” means the certificate of incorporation, articles
of incorporation or other charter document (howsoever denominated) of the
Company, as amended to date.

“Certificates” means the (x) the original manually-signed Debentures and (y) the
original manually-signed Warrants, each duly executed by the Company and issued
in the name of the Buyer on the Closing Date.

“Closing Date” means the relevant Initial Closing Date or the relevant
Additional Closing Date(s).

“Closing Price” means the 4:00 P.M. closing bid price of the Common Stock on the
Principal Trading Market on the relevant Trading Day(s), as reported by the
Reporting Service for the relevant date.

 “Company Control Person” means each director, executive officer, promoter, and
such other Persons as may be deemed in control of the Company pursuant to Rule
405 under the 1933 Act or Section 20 of the 1934 Act.

“Company Counsel” means Jack Chapline Vaughan, Esq.

“Company's SEC Documents” means the Company’s filings on the SEC’s EDGAR system
which are listed on Annex VI annexed hereto, to the extent available on EDGAR or
otherwise provided to the Buyer as indicated on said Annex VI.

“Conversion Certificates” means certificates representing any one or more of the
following, if any: (i) Conversion Shares, (ii) Warrant Shares,  (iii) Added
Warrant Shares (as defined in Section 4(g) hereof), or (iv) Spin Off Adjustment
Shares (as defined in Section 4(p) hereof).

“Conversion Date” means the date a Holder submits a Notice of Conversion, as
provided in the Debentures or makes a demand for an Agreement Amount which is to
be paid in Agreement Shares.

“Conversion Price” means (i) the VWAP for the three (3) Regular Trading Days
(which need not be consecutive) selected by the Holder  from the twenty (20)
Trading Days ending on the Trading Day immediately before the relevant
Conversion Date, multiplied by (ii) eighty percent (80%).

“Conversion Shares” means (i) the shares of Common Stock issuable upon
conversion of the Debentures, (ii) the shares of Common Stock issuable in
payment of accrued interest thereon, as contemplated in the Debentures, (iii)
the shares of Common Stock issuable in payment of an Agreement Amount which is
being paid in Agreement Shares, (iv) the shares of Common Stock issuable as Spin
Off Adjustment Shares, or (v) any or all of them, as the context may require.

“Converting Holder” means the Holder of Debentures or Warrants, as the case may
be, who or which has submitted a Notice of Conversion (as contemplated by the
Debentures) or a Notice of Exercise (as contemplated by the Warrants) or a
demand for Agreement Shares.

“Debenture End Date” means the Transaction End Date but assumes that clause (y)
of the definition of that term has been satisfied.

“Debentures” means the Initial Debentures or the relevant Additional Debentures,
or any or all of them, as the context may require.

“Delivery Date” (x) has the meaning ascribed to it, as may be relevant, in the
Debentures (with respect to Conversion Shares) or in the Warrants (with respect
to Warrant Shares), or (y) means the third Trading Day after the Buyer or the
Holder, as the case may be, makes a demand for an Agreement Amount which is
being paid in Agreement Shares.

“Disclosure Annex” means Annex IV to this Agreement; provided, however, that the
Disclosure Annex shall be arranged in sections corresponding to the identified
Sections of this Agreement, but the disclosure in any such section of the
Disclosure Annex shall qualify other provisions in this Agreement to the extent
that it would be readily apparent to an informed reader from a reading of such
section of the Disclosure Annex that it is also relevant to other provisions of
this Agreement.

“Escrow Agent” means Krieger & Prager LLP, the escrow agent identified in the
Joint Escrow Instructions attached hereto as Annex II (the “Joint Escrow
Instructions”).

“Escrow Funds” means the relevant Total Cash Amount delivered to the Escrow
Agent in connection with the relevant Closing Date as contemplated by Sections
1(c) and (d) hereof.

“Escrow Property” means (i) the relevant Escrow Funds, (ii) the  relevant
Purchase Notes (as defined below), and (iii) the relevant Certificates, each as
delivered to the Escrow Agent, as contemplated by Section 1(c) hereof.

“Exercise Price” means the per share exercise price of the relevant Warrant.

“Filing Evidence” and “Filing Evidence Date” have the meanings ascribed to them
in Section 4(l) hereof.

“Holder” means the Person holding the relevant Securities at the relevant time.

“Initial Closing Date” means the date of the closing of the purchase and sale of
the Initial Debentures and Initial Warrants.

“Initial Debentures” means the Convertible Debentures issued to the Buyer on the
Initial Closing Date.

“Initial Warrants” means the Warrants issued to the Buyer on the Initial Closing
Date.

“Issue Date” means, with respect each Debenture and each Warrant, the Closing
Date on which such instrument was initially issued to the Buyer.

“Last Audited Date” means December 31, 2006.

“Majority in Interest of the Holders” means the Buyer, unless there is more than
one Holder, in which event it means one or more Holders whose respective
outstanding principal amounts of the Debentures held by each of them, as of the
relevant date, aggregate more than sixty-six and 67/100 percent (66.67%) of the
aggregate outstanding principal amounts of the outstanding Debentures held by
the Holder and all other Holders on that date.

“Material Adverse Effect” means an event or combination of events, which
individually or in the aggregate, would reasonably be expected to (x) adversely
affect the legality, validity or enforceability of the Purchased Securities or
any of the Transaction Agreements, (y)  have or result in a material adverse
effect on the results of operations, assets, or financial condition of the
Company and its subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its material obligations
under any of the Transaction Agreements or the transactions contemplated
thereby.

“Maturity Date” has the meaning ascribed to it in the relevant Debentures.

“Meeting Date” has the meaning ascribed to it in Section 4(l) hereof.

“New Common Stock” means shares of Common Stock and/or securities convertible
into, and/or other rights exercisable for, Common Stock, which are offered or
sold in a New Transaction.

“New Investor” means the third party investor, purchaser or lender (howsoever
denominated) or, where relevant, an Existing Securityholder (as defined below)
in a New Transaction.

“New Transaction” means, unless consented to by a Majority in Interest of the
Holders (which consent is in the sole discretion of the Holders and may be
withheld for any reason or for no reason whatsoever),

(i) the sale of New Common Stock by or on behalf of the Company to a New
Investor in connection with a transaction which will provide funds to the
Company (including, but not necessarily limited to, any such transaction which
is an equity, debt, credit line or equity line transaction), and/or

(ii) the grant of a security interest in, or the pledge of, shares of the
Company’s Common Stock or securities convertible into or exercisable for the
Company’s Common Stock to any other party, or the pledge of such shares or
securities to any other party, whether such grant or pledge is made by the
Company or any other holder thereof, in connection with a transaction in which
the Company borrows or is otherwise obligated to pay funds to a third party,
and/or

(iii) in exchange for the forbearance, modification or relinquishment of any
rights an existing holder of any of the Company’s securities (each, an “Existing
Securityholder”), (x) the sale or issuance to such Existing Securityholder of
additional New Common Stock and/or (y) the effectuation by the Company of, or
the other agreement of the Company to provide,  more beneficial terms with
respect to any existing securities of the Company held by an Existing
Securityholder, and/or,

(iv) the effectuation by the Company of, or the other agreement of the Company
to provide, the reduction of the conversion price of any security convertible
into Common Stock and/or the reduction of the exercise price of any right
exercisable for Common Stock held by an Existing Securityholder in a transaction
consummated after the date hereof; provided, however, that it is specifically
understood that the term “New Transaction” (1) unless consented to otherwise by
a Majority in Interest of the Holders (which consent is in the sole discretion
of the Holders and may be withheld for any reason or for no reason whatsoever),
includes, but is not limited to, a sale of Common Stock or of a security
convertible into Common Stock or an equity or credit line transaction, but (2)
does not include (a) the issuance of Common Stock upon the exercise or
conversion of options, warrants or convertible securities outstanding on the
date hereof, or in respect of any other financing agreements as in effect on the
date hereof and identified in the Disclosure Annex (provided the same is not
amended after the date hereof to a per share price below the Conversion Price or
the Exercise Price, as the case may be) or in the Company’s SEC Documents
(provided the same is not amended after the date hereof to a per share price
below the Conversion Price or the Exercise Price, as the case may be), (b) the
issuance of an Employee Stock Option Plan (an "ESOP") of the Company, such ESOP
having been properly approved by the shareholders of the Company, (c) the
issuance of a non-employee director stock option plan of the Company, or (d) the
issuance of Common Stock upon the exercise of any options or warrants referred
to in the preceding clauses of this paragraph (provided the same is not amended
after the date hereof).

“New Transaction Closing Date” means the date a New Transaction is consummated.

“Person” means any living person or any entity, such as, but not necessarily
limited to,  a corporation, partnership or trust.

“Principal Trading Market” means the Over the Counter Bulletin Board or such
other market on which the Common Stock is principally traded at the relevant
time, but shall not include the “pink sheets.”

“Qualification State” means a state, other than the State of Incorporation, in
which the Company is qualified.

“Regular Trading Day” means the regular trading hours of a Trading Day on the
Principal Trading Market shall be open for business (as of the date of this
Agreement, such hours are, for most Trading Days, approximately 9:00 or 9:30AM
to approximately 4PM Eastern Time; provided, however, that certain Trading Days
may have shorter regular trading hours; and provided, further, that the regular
trading hours may be subsequently changed for the Principal Trading Market).

“Reporting Service” means Bloomberg LP or if that service is not then reporting
the relevant information regarding the Common Stock, a comparable reporting
service of national reputation selected by a Majority in Interest of the Holders
and reasonably acceptable to the Company.

 “Rule 144" means, as may be in effect from time to time, (i) Rule 144
promulgated under the 1933 Act or (ii) any other similar rule or regulation of
the SEC that may at any time permit Holder to sell securities of the Company to
the public without registration under the 1933 Act.

“Securities” means the Purchased Securities and the Shares.

“Shares” means the shares of Common Stock representing any or all of the
Conversion Shares and the Warrant Shares and, if relevant, any Spin Off
Adjustment Shares..

“State of Incorporation” means Nevada.

“Subsidiary” means, as of the relevant date, any subsidiary of the Company
(whether or not included in the Company's SEC Documents) whether now existing or
hereafter acquired or created.

“Total Cash Amount” means, with respect to the relevant Closing Date, the sum of
(i) the Cash Debenture Purchase Price Amount (as defined below) for such Closing
Date, plus (ii) the Warrant Purchase Price.

“Trading Day” means any day during which the Principal Trading Market shall be
open for business.

“Transaction Agreements” means this Agreement, each issued Debenture, the Joint
Escrow Instructions, each issued Warrant, each Guarantee, each Pledge, the
Purchase Note Security Agreement, and the Disclosure Annex and includes all
ancillary documents referred to in those agreements.

“Transaction End Date” means the date which is the later of (x) the date on
which  all of the Debentures have been converted or have been paid in full or
(y) the date on which all of the Warrants have been fully exercised or have
expired; provided, however, that solely for purposes of this definition, if the
Buyer remains obligated to purchase any Additional Debentures and Additional
Warrants, it shall be deemed as if such Debentures and Warrants have been issued
but, in the case of the Debentures, have not been converted or paid in full or,
in the case of the Warrants, have not been fully exercised or expired.

“Transfer Agent” means, at any time, the transfer agent for the Company’s Common
Stock.

“VWAP” means the volume weighted average price of the Common Stock on the
Principal  Trading Market for the relevant Regular Trading Day(s), as reported
by the Reporting Service.

“Warrants” means (i) the Initial Warrants and the Additional Warrants, or (ii)
any or all of them, as the context may require.

“Warrant Shares” means (i) the shares of Common Stock issuable upon exercise of
the Warrants, (ii) the Added Warrant Shares, if any, or (iii) any or all of
them, as the context may require.

c.           Form of Payment; Delivery of Certificates.

(i)           With respect to each Closing Date, the Buyer shall pay the
Debenture Purchase Price by delivering to the Escrow Agent, no later than the
date prior to the relevant Closing Date, (x) (1) immediately available good
funds in the amount of the relevant Cash Debenture Purchase Price Amount (as
defined below), which shall be allocated as payment towards the purchase price
of each of the separate Debentures issued on that Closing Date as provided in
the Allocation Table, and (2) one or more separate  promissory notes (each, a
“Purchase Note”), substantially in the form of Annex XI  attached hereto, each
in the amount of the balance of a specific Debenture being issued on that
Closing Date (such balance being the excess of the principal amount of the
specific Debenture over the Cash Debenture Purchase Price Amount allocated to
such Debenture as contemplated by the Allocation Table applicable to the
relevant Closing Date) and (y) immediately available good funds in the amount of
the Warrant Purchase Price.  Payment of all Purchase Notes will be secured under
the terms of a security agreement and pledge agreement (the “Purchase Note
Security Agreement”) between the Buyer and the Company, substantially in the
form of Annex XII attached hereto, pursuant to which, but subject to the terms
therof, the Buyer will grant a security interest in certain specified collateral
to secure the payment of each Purchase Note.  The term “Cash Debenture Purchase
Price Amount” means $400,000 for the Initial Closing Date and $125,000 for each
Additional Closing Date.

(ii)           Within three (3) Trading Days after the Company is notified that
the Escrow Agent has on deposit cleared funds from or on behalf of the Buyer
equal to the Total Cash Amount for that Closing Date and the one or more
relevant Purchase Notes for that Closing Date, each executed by the Buyer, then,
in no event later than the relevant Closing Date, the Company will deliver the
relevant Certificates to the Escrow Agent.  Such Certificates shall be held in
escrow by the Escrow Agent until released as provided in the Joint Escrow
Instructions.

(iii)           By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.

d.           Method of Payment.  The Buyer shall deposit the Total Cash Amount
for the relevant Closing Date into escrow in the manner provided in instructions
given by the Escrow Agent to the Buyer.

2.           BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.

The Buyer represents and warrants to, and covenants and agrees with, the
Company, as of the date hereof and, except as otherwise noted, as of each
Closing Date, as follows:

a.           Without limiting Buyer's right to sell the Securities pursuant to
an effective registration statement or otherwise in compliance with the 1933
Act, the Buyer is purchasing the Securities for the Buyer’s own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.

b.           The Buyer is (i) an “accredited investor” as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act, (ii)
experienced in making investments of the kind described in this Agreement and
the other Transaction Agreements, (iii) able, by reason of the business and
financial experience of the Buyer and the Buyer’s professional advisors (who are
not affiliated with or compensated in any way by the Company or any of its
Affiliates or selling agents), to protect the Buyer’s own interests in
connection with the transactions described in this Agreement and the other
Transaction Agreements, and to evaluate the merits and risks of an investment in
the Securities, and (iv) able to afford the entire loss of its investment in the
Securities.

c.           All subsequent offers and sales of the Securities by the Buyer
shall be made pursuant to registration of the relevant Securities under the 1933
Act or pursuant to an exemption from such registration.

d.           The Buyer understands that the Securities are being offered and
sold to the Buyer in reliance on specific exemptions from the registration
requirements of the 1933 Act and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Securities.

e.           [This representation is made as of the Initial Closing Date.]  The
Buyer and the Buyer’s advisors, if any, have been furnished with or have been
given access to all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Purchased
Securities which have been requested by the Buyer, including those set forth in
any annex attached hereto. The Buyer and the Buyer’s advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management and
have received complete and satisfactory answers to any such inquiries.  Without
limiting the generality of the foregoing, the Buyer has also had the opportunity
to obtain and to review the Company's SEC Documents.

f.           The Buyer understands that its investment in the Securities
involves a high degree of risk.

g.           The Buyer hereby represents that, in connection with the Buyer’s
investment or the Buyer’s decision to  purchase the Securities, the Buyer has
not relied on any statement or representation of any Person, including any such
statement or representation by the Company or any of their respective
controlling Persons,  officers, directors, partners, agents and employees or any
of their respective attorneys, except as specifically set forth herein.

h.           The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.

k.           This Agreement and each of the other Transaction Agreements to
which the Buyer is a party, and the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Buyer.  This Agreement has
been executed and delivered by the Buyer, and this Agreement is, and each of the
other Transaction Agreements to which the Buyer is a party, when executed and
delivered by the Buyer (if necessary), will be valid and binding obligations of
the Buyer enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.

3.           COMPANY REPRESENTATIONS, ETC.   The Company represents and warrants
to the Buyer as of the date hereof and as of each Closing Date that, except as
otherwise provided in the Disclosure Annex or in the Company’s SEC Documents:

a.           Rights of Others Affecting the Transactions.  There are no
preemptive rights of any stockholder of the Company to acquire the
Securities.  No other party has a currently exercisable right of first refusal
which would be applicable to any or all of the transactions contemplated by the
Transaction Agreements.  Except as set forth in the Disclosure Annex, no Person
has, and as of the relevant Closing Date, no Person shall have, any demand,
“piggy-back” or other rights to cause the Company to file any registration
statement under the 1933 Act relating to any of its securities or to participate
in any such registration statement

b.           Status.  The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Incorporation and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted.  The 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 or result in a Material Adverse Effect.  The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “1934
Act”).  The Common Stock is quoted on the Principal Trading Market.  The Company
has received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for quotation on the Principal Trading Market,
and the Company has maintained all requirements on its part for the continuation
of such quotation.

c.           Authorized Shares.

(i)           The authorized capital stock of the Company consists of (x)
200,000,000 shares of Common Stock, $.001 par value per share, of which
approximately 185,000,000 are outstanding as of February 14, 2008, and (y)
1,000,000 shares of Preferred Stock, $.001 par value, of which no shares are
outstanding as of such date.

(ii)           There are no outstanding securities which are exercisable for,
exchangeable for or convertible into shares of Common Stock or exercisable for,
exchangeable for or convertible into instruments which are convertible into
shares of Common Stock, whether such exercise, exchange or conversion is
currently exercisable or exercisable only upon some future date or the
occurrence of some event in the future.  If any such securities are listed on
the Disclosure Annex, the number or amount of each such outstanding convertible
security and the conversion terms are set forth in said Disclosure Annex.

(iii)           All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable.  Subject to
the provisions of subparagraph (v) of this Section 3(c), the Company has
sufficient authorized and unissued shares of Common Stock as may be necessary to
effect the issuance of the Shares on the relevant Closing Date, were the
Debentures fully converted and were the Warrant fully exercised on that date.

(iv)           The Shares have been duly authorized by all necessary corporate
action on the part of the Company, and, when issued on conversion of, or in
payment of interest on, the Debentures or upon exercise of the Warrants, in each
case in accordance with their respective terms, will have been duly and validly
issued, fully paid and non-assessable and will not subject the Holder thereof to
personal liability by reason of being such Holder.

(v)           Notwithstanding any other representation made herein or in any of
the other Transaction Agreements, as of the date hereof and as of the Initial
Closing Date, the Company does not have sufficient authorized but unissued and
unreserved shares to be able to honor all Notices of Conversion of Debentures
and all Notices of Exercise of Warrants.  The Company represents that the Board
of Directors (x) has voted to recommend to the shareholders that the Company’s
Certificate of Incorporation, as currently in effect, be amended to reflect the
Authorized Share Increase, and (ii) the Company will file with the SEC and send
out to the Company’s shareholders a notice of and proxy statement for the annual
or a special stockholders meeting (or an information statement in lieu of a
meeting, if appropriate), whichever is to be held first, but in no event later
than the Meeting Date  (as defined below), which meeting (whichever is first
held) will consider shareholder approval of the Authorized Share Increase (which
approval will be recommended by the Board of Directors of the Company). Upon
such shareholder approval the Company (and, if relevant, the passage of the
relevant period of time after the distribution of an information statement) will
file a certificate of amendment reflecting, among other things, if relevant, the
Authorized Share Increase in the State of Incorporation and in all Qualification
States (except, with respect to any one or more Qualification States, where
Company Counsel advises the Company that the filing of such an amendment is not
required or the absence of such filing will not have a material adverse effect
on the Company’s qualification in such state) and will provide the Filing
Evidence to the Buyer by the Filing Evidence Date. All representations and
covenants contained in this Agreement or the other Transaction Agreements are
made subject to the provisions of this paragraph (v).

d.           Transaction Agreements and Stock.  This Agreement and each of the
other Transaction Agreements, and the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Company.  This Agreement
has been duly executed and delivered by the Company and this Agreement is, and
each of the Debentures, the Warrants and each of the other Transaction
Agreements, when executed and delivered by the Company (if necessary), will be,
valid and binding obligations of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.

e.           Non-contravention.  The execution and delivery of this Agreement
and each of the other Transaction Agreements by the Company, the issuance of the
Securities in accordance with the terms hereof, and the consummation by the
Company of the other transactions contemplated by this Agreement, the
Debentures, the Warrants and the other Transaction Agreements do not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the Certificate of
Incorporation or By-laws, each as currently in effect, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
including any listing agreement for the Common Stock except as herein set forth,
or (iii) to its knowledge, any existing applicable law, rule, or regulation or
any applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have or result in a Material Adverse
Effect.  The timely payment of interest on the Debentures is not prohibited by
the Certificate of Incorporation or By-Laws, or any agreement, contract,
document or other undertaking to which the Company is a party.

f.           Securities Law Matters; Approvals.

(i)           No authorization, approval or consent of any court, governmental
body, regulatory agency, self-regulatory organization, or stock exchange or
market or the stockholders of the Company is required to be obtained by the
Company for the issuance and sale of the Securities to the Buyer as contemplated
by this Agreement, except such authorizations, approvals and consents that have
been obtained.

(ii)           Assuming the accuracy of the representations and warranties of
Holder set forth in Section 2, the offer and sale by the Company of the
Purchased Securities is exempt from (A) the registration and prospectus delivery
requirements of the 1933 Act and the rules and regulations of the SEC thereunder
and (B) the registration and/or qualification provisions of all applicable state
and provincial securities and “blue sky” laws.

g.           Filings.  None of the Company’s SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.  Since February 1, 2007, the Company has filed all annual
and quarterly reports and all proxy statements required to be filed by the
Company with the SEC under Section 13(a) or 15(d) of the 1934 Act.  The
financial statements of the Company included in the Commission Filings, as of
the dates of such documents, were true and complete in all material respects and
complied with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with generally accepted accounting principles in the United States (“GAAP”)
(except in the case of unaudited statements permitted by Form 10-QSB under the
1934 Act) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly presented the consolidated
financial position of the Company and its Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments that in the aggregate are not material and to any other
adjustment described therein).

h.           Absence of Certain Changes.  Since the Last Audited Date, there has
been no Material Adverse Effect, except as disclosed in the Company’s SEC
Documents. Since the Last Audited Date, except as provided in the Company’s SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other material tangible assets, or canceled any material debts
owed to the Company by any third party  or material claims of the Company
against any third party, except in the ordinary course of business consistent
with past practices; (v) waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any increases in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.

i.           Full Disclosure.  There is no fact known to the Company (other than
conditions known to the public generally or as disclosed in the Company’s SEC
Documents) that has not been disclosed in writing to the Buyer that would
reasonably be expected to have or result in a Material Adverse Effect.

j.           Absence of Litigation.  There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the Company
before or by any governmental authority or non-governmental department,
commission, board, bureau, agency or instrumentality or any other person,
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of the
Transaction Agreements.  The Company is not aware of any valid basis for any
such claim that (either individually or in the aggregate with all other such
events and circumstances) could reasonably be expected to have a Material
Adverse Effect. There are no outstanding or unsatisfied judgments, orders,
decrees, writs, injunctions or stipulations to which the Company is a party or
by which it or any of its properties is bound, that involve the transaction
contemplated herein or that, alone or in the aggregate, could reasonably be
expect to have a Material Adverse Effect.

k.           Absence of Events of Default.  Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company or its Subsidiary is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreement), has occurred and is continuing, which would have a Material Adverse
Effect.

l.           Absence of Certain Company Control Person Actions or Events.  To
the Company’s knowledge, none of the following has occurred during the past five
(5) years with respect to a Company Control Person:

(1) A petition under the federal bankruptcy laws or any state insolvency law was
filed by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such Company Control
Person, or any partnership in which he was a general partner at or within two
years before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the time of
such filing;

(2) Such Company Control Person was convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding (excluding traffic violations and
other minor offenses);

(3) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:

(i) acting, as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance company, as a futures
commission merchant, introducing broker, commodity trading advisor, commodity
pool operator, floor broker, any other Person regulated by the Commodity Futures
Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice
in connection with such activity;

(ii) engaging in any type of business practice; or

(iii) engaging in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of federal or state
securities laws or federal commodities laws;

(4) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days the
right of such Company Control Person to engage in any activity described in
paragraph (3) of this item, or to be associated with Persons engaged in any such
activity; or

(5) Such Company Control Person was found by a court of competent jurisdiction
in a civil action or by the CFTC or SEC to have violated any federal or state
securities law, and the judgment in such civil action or finding by the CFTC or
SEC has not been subsequently reversed, suspended, or vacated.

m.           No Undisclosed Liabilities or Events.  The Company has no
liabilities or obligations other than those disclosed in the Transaction
Agreements or the Company's SEC Documents or those incurred in the ordinary
course of the Company's business since the Last Audited Date, or which
individually or in the aggregate, do not or would not have a Material Adverse
Effect.  No event or circumstance has occurred or exists with respect to the
Company or its properties, business, operations, condition (financial or
otherwise), or results of operations, which, 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.  There
are no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (x) change the Certificate of Incorporation or the
By-laws, each as currently in effect, with or without stockholder approval,
which change would reduce or otherwise adversely affect the rights and powers of
the stockholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.

n.           No Integrated Offering.  Neither the Company nor any of its
Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time since August 1, 2007, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
o.           Dilution.  Each of the Company and its executive officers and
directors is aware that the number of shares issuable on conversion of the
Debentures, upon exercise of the Warrants or pursuant to the other terms of the
Transaction Agreements may have a dilutive effect on the ownership interests of
the other stockholders (and Persons having the right to become stockholders) of
the Company.  The Company specifically acknowledges that its obligation to issue
the Conversion Shares upon conversion of the Debentures 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 stockholders of the Company, and the Company will honor such obligations,
including honoring every Notice of Conversion (as contemplated by the
Debentures) and every Notice of Exercise (as contemplated by the Warrants),
unless the Company is subject to an injunction (which injunction was not sought
by the Company) prohibiting the Company from doing so.

p.           Fees to Brokers, Finders and Others.  The Company has taken no
action which would give rise to any claim by any Person for brokerage
commission, placement agent or finder's fees or similar payments by Buyer
relating to this Agreement or the transactions contemplated hereby.  Except for
such fees arising as a result of any agreement or arrangement entered into by
the Buyer without the knowledge of the Company (a  “Buyer’s Fee”), Buyer shall
have no obligation with respect to such fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this
paragraph that may be due in connection with the transactions contemplated
hereby.  The Company shall indemnify and hold harmless each of Buyer, its
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees (other than a Buyer’s Fee).

q.           Tax Returns.  The Company and each of its Subsidiaries has made and
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

r.           Disclosure.  All information relating to or concerning the Company
set forth in the Transaction Agreements or in the Company’s public filings with
the SEC is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.  No event or circumstance has occurred or exists with respect to the
Company or its business, properties, prospects, operations or financial
conditions, which under applicable law, rule or regulation, requires public
disclosure or announcement by the Company.   In furtherance of the foregoing,
and not in limitation thereof, the Company confirms that, any other
representation or provision of this Agreement or any of the other Transaction
Agreements to the contrary notwithstanding, the Company is in compliance with
Regulation FD promulgated by the SEC or any similar rule or regulation regarding
the dissemination of information regarding the Company and the Company has not
provided, and will not provide, the Buyer with any non-public material
information regarding the Company prior to the consummation of the transactions
consummated hereunder on  the relevant Closing Date.

s.           Confirmation.  The Company agrees that, if, to the knowledge of the
Company, any events occur or circumstances exist prior to the release of the
Escrow Funds to the Company which would make any of the Company’s
representations or warranties set forth herein materially untrue or materially
inaccurate as of such date, the Company shall immediately notify the Buyer and
the Escrow Agent in writing prior to such date of such fact, specifying which
representation, warranty or covenant is affected and the reasons therefor.

4.           CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a.           Transfer Restrictions.  The Buyer acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and the Shares have not been and are not being registered under the
1933 Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such Securities under circumstances in which the seller, or the Person through
whom the sale is made, may be deemed to be an underwriter, as that term is used
in the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other Person is under any obligation to register the Securities
under the 1933 Act or to comply with the terms and conditions of any exemption
thereunder.

b.           Restrictive Legend.  The Buyer acknowledges and agrees that, until
such time as the relevant Shares have been registered under the 1933 Act and may
be sold in accordance with an effective registration statement, or until such
Shares can otherwise be sold without restriction, whichever is earlier, the
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.

c.           Filings.  The Company undertakes and agrees to make all filings
required to be made by it in connection with the sale of the Securities to the
Buyer under the 1933 Act, the 1934 Act or any United States state securities
laws and regulations thereof applicable to the Company or by the rules and
regulations of the Principal Trading Market, and, unless such filing is publicly
available on the SEC’s EDGAR system (via the SEC’s web site at no additional
charge), to provide a copy thereof to the Buyer promptly after such
filing.  Reference is made to the Section titled “Publicity, Filings, Releases,
Etc.” below.

d.           Reporting Status; Disclosure of Information.

(i)           During the period from the Initial Closing Date to and including
the Transaction End Date, the Company shall

(A) timely file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act,

(B) take all reasonable action under its control to ensure that adequate current
public information with respect to the Company, as required in accordance with
Rule 144 of the 1933 Act, is publicly available,

(C) not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination, and

(D) comply with Regulation FD promulgated by the SEC or any similar rule or
regulation regarding the dissemination of information regarding the Company, and
in furtherance of the foregoing, and not in limitation thereof, and
notwithstanding anything to the contrary in this Agreement or in any of the
other Transaction Agreements, without the prior written consent of the Holder in
each instance, not disclose to the Holder any non-public material information
regarding the Company.

(ii)           The Company will take all reasonable action under its control to
maintain the continued listing and quotation and trading of its Common Stock
(including, without limitation, all Shares) on the Principal Trading Market or a
listing on the NASDAQ Capital, Global or Global Select Markets or AMEX and, to
the extent applicable to it, will comply in all material respects with the
Company’s reporting, filing and other obligations under the by-laws or rules of
the Principal Trading Market and/or the National Association of Securities
Dealers, Inc., as the case may be, applicable to it at least through the date
which is the Trading Day after the Transaction End Date.

e.           Use of Proceeds.  The Company will use the net  proceeds received
hereunder (excluding amounts paid as contemplated by the Joint Escrow
Instructions) for general corporate purposes.

f.           Warrants.

(i)           The Company agrees to issue to the Buyer, and the Buyer agrees to
purchase from the Company, on each Closing Date a transferable warrant (each, a
“Warrant” and, collectively, the “Warrants”) for the purchase of 15,000,000
shares (such number being subject, with respect to each Additional Closing Date,
to adjustment to the same extent that the number of shares issuable on exercise
of the Initial Warrant would be adjusted, assuming such Warrant was outstanding
and had not been exercised in whole or in part; the number of such shares, as
adjusted if applicable, the “Closing Date Warrant Amount”).   The purchase price
for the Warrant issued on each relevant Closing Date is $15,000 (the “Warrant
Purchase Price”).  For each Closing Date, the Warrant Purchase Price divided by
the Closing Date Warrant Amount is referred to as the “Per Share Warrant
Purchase Price.”  The Buyer will pay the Warrant Purchase Price to the Company
on the relevant Closing Date as provided in Section 1(c) hereof.

(ii)           Each Warrant shall have an exercise price (each, an “Exercise
Price”) equal to (x) (1) the VWAP on the Trading Day immediately before the
relevant Closing Date, multiplied by (2) 110%, less (y) the Per Share Warrant
Purchase Price for that Closing Date.

(iii)           Each Warrant shall be exercisable commencing on the Closing Date
on which it is issued and shall expire at the close of business on the last day
of the calendar month in which the seventh annual anniversary of the Issue Date
of such Warrant occurs, except that each Warrant shall provide that the Company
may, upon the terms and conditions provided in the Warrant, accelerate the
expiration date of the Warrant.

(iv)           Each Warrant shall have cashless exercise rights and automatic
exercise provisions, each as provided in the Warrant.  Except as specified
above, each Warrant shall generally be in the form annexed hereto as Annex V.

g.           Certain Agreements.

(i)           For purposes of this Agreement, the following terms shall have
meanings indicated:

(A)           “New Transaction Period” means the period commencing on the
Initial Closing Date and continuing through and including the Transaction End
Date.

(B)           “New Transaction Price” means, as may be applicable, on a per
share basis, the lower of (1) the lowest fixed purchase price of any shares of
the New Common Stock contemplated in the New Transaction, (2) the lowest
conversion price or put or call price which would be applicable under the terms
of the New Transaction or (3) the lowest exercise price per share applicable to
the warrants, option or similar instrument (howsoever denominated; collectively,
“New Transaction Warrants”) included in such New Transaction; in each such case,
whether such purchase or conversion price or put or call price or exercise price
is stated or otherwise specified or is determined on the closing date of the New
Transaction or is determined by the application of a formula set in the
documents reflecting the New Transaction or does result from adjustments or
revisions contemplated in the relevant agreements for the New Transaction (and
the Company hereby covenants that it will provide written notice to the Buyer of
any such adjustment or revision within five (5) Trading Days after an event
reflecting such adjustment or revision and, if there was an exercise of any
portion of a Warrant after such adjustment or revision and before Buyer’s
receipt of such notice, the Company will issue additional shares to Buyer based
on such adjusted exercise price), whenever such formula, adjustment or revision
would be applicable; (and if no minimum purchase price,  conversion price or put
or call price, as the case may be, is set, it shall be assumed that such minimum
purchase price, conversion price is $.001); and provided, further, that, if the
securities issued in the New Transaction are issued at a Face Value Discount (as
defined below), the New Transaction Price shall be adjusted to reflect such
discount.1

(C)           “Face Value Discount” means consideration less than, as the case
may be, (x) the number of shares being issued multiplied by the stated purchase
price, (y) the stated principal amount of a debenture, note or similar
instrument or (z) the stated value of the shares of convertible stock.

(D)           “Added Warrant Shares” means the number of shares equal to the
excess of

(I) the number of shares equal to  (X) the amount equal to (1) the number of
Warrant Shares held by the Holder as of the relevant date (the “Preadjustment
Warrant Shares”),2 multiplied by (2) the Exercise Price effective in connection
with the exercise of Warrants pursuant to which such shares were issued (after
taking into account, if relevant, any previous adjustments to such exercise
price which may have resulted in the previous issuance of Added Warrants Shares
and any other adjustments to such price other than as a result of the
application of the provisions of this Section 4(g)), divided by (Y) the New
Transaction Price after it has been adjusted as a result of the application of
the provisions of this Section 4(g) (such adjusted conversion price, the “New
Exercise Price”), over

(II) the number of Preadjustment Warrant Shares.

(ii)  The Company covenants and agrees that, if, during the New Transaction
Period, without the prior written consent of a Majority in Interest of the
Holders in each instance (which consent is in the sole discretion of the Holders
and may be withheld for any reason or for no reason whatsoever), the Company
enters into a New Transaction, then the Exercise Price for all outstanding
Warrants and for any Additional Warrants issued thereafter shall be the lower of
(x) the Exercise Price as provided in the Warrant as in effect immediately prior
to the consummation of the relevant New Transaction (subject to adjustment as
provided herein or in the Warrant other than as a result of the provisions of
this Section 4(g)), or (y) the New Transaction Price; provided, however, if
there was one or more previous New Transactions, the Holder may select which New
Transaction Price3 to use in determining the applicable Exercise Price; and if,
as of the consummation of the relevant New Transaction, the Holder is then the
holder of Warrant Shares which have not yet been sold, the Company will issue to
such Holder the Added Warrant Shares (which Added Warrant Shares shall be
delivered to the Buyer within three Trading Days after the consummation of the
relevant New Transaction; such third Trading Day, a “Delivery Date”).

(iii)           Any of the foregoing provisions of this Section 4(g) or any
other provision of this Agreement or any of the other Transaction Agreements to
the contrary notwithstanding, the Company shall not engage in any offers, sales
or other transactions of its securities which would adversely affect the
exemption from registration available for the transactions contemplated by the
Transaction Agreements.

h.           Termination Options.

(i)           At any time prior to the next Additional Closing Date, if any, the
Company may give written notice to the Buyer (a “Company Termination Notice”)
terminating the Company’s obligation to issue any then unissued Additional
Debentures and Additional Warrants.  Such Company Termination Notice shall be
effective only if within one Trading Day after the Buyer provides wiring
instructions to the Company, the Company pays the Buyer a termination payment of
$50,000 by wire transfer in accordance with such instructions.

(ii)           At any time prior to the next Additional Closing Date, if any,
the Buyer may give written notice to the Company (a “Buyer Termination Notice”)
terminating the Buyer’s obligation to purchase any then unissued Additional
Debentures and Additional Warrants.  Such Buyer Termination Notice shall be
effective only if within one Trading Day after the Company provides wiring
instructions to the Buyer, the Buyer pays the Company a termination payment of
$100,000 by wire transfer in accordance with such instructions.

(iii)           Upon the effectiveness of the Company Termination Notice or a
Buyer Termination Notice (each, a “Termination Notice”), as the case may be, the
Buyer will have no further obligation to purchase, and the Company will have no
further obligation to sell, Additional Debentures and Additional Warrants, and
the term “Aggregate Debenture Purchase Price” in the Transaction Agreements
shall be deemed amended to refer to the aggregate principal amount of all
Debentures issued prior to such effectiveness, whether or not such principal
amount is then still outstanding.   All other rights and obligations under the
Transaction Agreements, including but not limited to, the rights and obligations
under the then outstanding Debentures, Warrants, Purchase Notes, shall remain in
full force and effect without regard to the effect of the relevant Termination
Notice.

i.           Available Shares.

(i)           The Company shall have at all times authorized and reserved for
issuance, free from preemptive rights, a number of shares (the “Reserved
Amount”) at least equal to the sum of (x) one hundred fifty percent (150%) of
the number of shares of Common Stock issuable as may be required, at any time,
to satisfy the conversion rights of the Holders of principal on all outstanding
Debentures plus interest thereon through the Maturity Date (assuming for such
purposes that interest is paid in shares at the Conversion Price in effect on
the Reserved Share Determination Date, as defined below), plus (y) one hundred
percent (100%) of the number of shares issuable upon exercise of all outstanding
Warrants held by the Holders (in each case, whether any of such outstanding
Convertible Debentures or Warrants were originally issued to the Holder, the
Buyer or to any other party and without regard to any restrictions which might
limit any Holder’s right to convert any of the Debentures or to exercise any of
the Warrants held by such Holder).

(ii)           The Reserved Amount shall be determined on the relevant Closing
Date and after each New Transaction Closing Date, and thereafter on the first
Trading Day after the end of each subsequent calendar quarter (each such
determination date, a “Reserved Share Determination Date”), and the number of
shares to be reserved shall be based on (q) all outstanding Debentures and the
Conversion Price which would have been applicable  as of such Reserved Share
Determination Date and (r) all unexercised Warrants as of such date.  The
Reserved Amount determined on such date shall remain the Reserved Amount until
the next Closing Date,  the next New Transaction Closing Date or the next
quarterly determination, as the case may be.  The Company shall give written
instructions to the Transfer Agent to reserve for issuance to the Buyer the
number of shares equal to the Reserved Amount.  The Company will, at the request
of the Buyer, provide written confirmation, certified by an executive officer of
the Company, of the number of shares then reserved for the Buyer and that the
instructions referred to in the preceding sentence have been given to the
Transfer Agent.

j.           Publicity, Filings, Releases, Etc.  Each of the parties agrees that
it will not disseminate any information relating to the Transaction Agreements
or the transactions contemplated thereby, including issuing any press releases,
holding any press conferences or other forums, or filing any reports
(collectively, “Publicity”), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof.  Neither party
will include in any such Publicity any statement or statements or other material
to which the other party reasonably objects, unless in the reasonable opinion of
counsel to the party proposing such statement, such statement is legally
required to be included.  In furtherance of the foregoing, the Company will
provide to the counsel designated by the Buyer (“Investor’s Counsel”) drafts of
the applicable text the first filing of a Current Report on Form 8-K or a
Quarterly or Annual Report on Form 10-Q or 10-K (or equivalent SB forms), as the
case may be, intended to be made with the SEC which refers to the Transaction
Agreements or the transactions contemplated thereby as soon as practicable (but
at least two (2) Trading Days before such filing will be made) and will not
include in such filing (or any other filing filed before then) any statement or
statements or other material to which the other party reasonably objects, unless
in the reasonable opinion of counsel to the party proposing such statement, such
statement is legally required to be included.  Notwithstanding the foregoing,
each of the parties hereby consents to the inclusion of the text of the
Transaction Agreements in filings made with the SEC (but any descriptive text
accompanying or part of such filing shall be subject to the other provisions of
this paragraph).  Notwithstanding, but subject to, the foregoing provisions of
this  Section 4(j), the Company will, after the Closing Date, promptly issue a
press release and file a Current Report on Form 8-K or, if appropriate, a
quarterly or annual report on the appropriate form, referring to the
transactions contemplated by the Transaction Agreements.

k.           Right of First Refusal.   During the period from the Initial
Closing Date through and including the second anniversary of the last Closing
Date to occur, the Buyer shall be given not less than seven (7) Trading Days'
prior written notice of any proposed sale by the Company to any party of New
Transaction, except in connection with (i) a transaction contemplated by
subparagraph (iii) of the definition of New Transaction above, (ii) the
Company's issuance of Common Stock or the issuances or grants of options to
purchase Common Stock pursuant to stock option plans and employee stock purchase
plans, if any, described on the Disclosure Annex at prices equal to or higher
than the closing price of the Common Stock on the issue date of any of the
foregoing, or (iii) as a result of the exercise of Warrants or conversion of
Debentures which are granted or issued pursuant to this Agreement or that have
been issued prior to the Initial Closing Date all on the original terms thereof,
the issuance of which has been disclosed in on the Company’s SEC Documents filed
not less than five (5) days prior to the Initial Closing Date (collectively the
foregoing are “Excepted Issuances”). A Buyer who or which exercise the rights
provided pursuant to this Section 4(h) shall have the right during the seven (7)
Trading Days following receipt of the notice to purchase  all or a portion of
the offered common stock, debt or other securities in accordance with the terms
and conditions set forth in the notice of sale.  In the event such terms and
conditions are modified during the notice period, the Buyer shall be given
prompt notice of such modification and shall have the right during the seven (7)
Trading Days following the notice of modification to exercise such right.

l.           Authorized Share Increase.

(i)           The Company will take all commercially reasonable steps necessary
to effectuate the filing of an amendment to its Certificate of Incorporation, as
currently in effect, to reflect the Authorized Share Increase.  In furtherance
of the foregoing, it will take all reasonable steps necessary to have the
shareholders meeting held and to obtain the requisite shareholder approval,
including, but not necessarily limited to, filing with the SEC and distributing
to the Company’s shareholders a notice of and a proxy statement for the annual
stockholders meeting or a special meeting of shareholders (whichever shall first
occur), but in no event later than the date (the “Meeting Date”) which is ninety
(90) days after the Initial Closing Date, and the Board of Directors’
recommending approval of the Authorized Share Increase.  If appropriate to do
so, in lieu of the Company may distribute an  information statement reflecting
the written approval of the Authorized Share Increase by shareholders holding
sufficient rights to do so in accordance with the corporation law of the State
of Incorporation and consistent with the Certificate of Incorporation and
By-laws.

(ii)           Upon the requisite authorization for the Authorized Share
Increase (including, if relevant, the passage of the appropriate time from the
circulation of the information statement, if any), the Company will file an
amendment to the Certificate of Incorporation of the Company, as currently in
effect, in the State of Incorporation and in all other states where the Company
is qualified (except, with respect to such other states, where  Company Counsel
provides a written opinion to the Company that the filing of such an amendment
is not required; such opinion shall state that a copy thereof may be provided to
the Buyer), which amendments will reflect the Authorized Share Increase.  Such
filing(s) shall be made no later than the date which is two (2) Trading Days
after the date of the shareholders’ meeting at which the Authorized Share
Increase is approved.

(iii)           Evidence of such filing(s) (the “Filing Evidence”) shall be made
by the Company providing a letter from Company Counsel to the Buyer within three
(3) Trading Days after the filing of the amendment, but in no event later than
the Filing Evidence Date(as defined below) confirming (1) the Authorized Share
Increase was duly approved by the Company’s shareholders on or before the
Meeting Date and (2) confirming the filing of the amendment to the certificate
of incorporation in the State of Incorporation and (except as provided below) in
each Qualification State, specifying the date of each such filing and providing
a copy of each such amendment which is either (x) an original or a photocopy of
the amendment certified or stamped by the office in the State of Incorporation
or Qualification State, as the case may be, or (y) a photocopy of each such
filed amendment as filed, together with an unqualified confirmation from Company
Counsel that such amendment has been filed in the relevant state.  If the letter
from Company Counsel referred to in this subparagraph provides, with respect to
each Qualification State in which such amendment was not filed, that, in Company
Counsel’s opinion, the filing of such an amendment in such state is not required
by the corporate law of such state or the absence of such filing does not
adversely affect the Company’s qualification in such state, then the provisions
of clause (2) of above shall be deemed satisfied with respect to such
Qualification State.

(iv)           The “Filing Evidence Date” is the date which is five (5) Trading
Days after the date which is ninety (90) days after the Initial Closing
Date.  The “Cancellation Date” is the earlier of (i) the first Trading Day after
the date, which shall not be before the conclusion of the first Company’s
shareholders meeting held after the date hereof, on which on which the Company
advises the Buyer in writing  that the shareholders did not approve the
Authorized Share Increase, or (ii) the Filing Evidence Date, if the Filing
Evidence is not received by that date.

(v)           In addition to, and not in lieu of, the foregoing, the Company
agrees that, any other provision of this Agreement or any of the other
Transaction Agreements to the contrary notwithstanding,  if there is a
Cancellation Date, (A) the Buyer shall have no further obligation to purchase
any Additional Debentures and Additional Warrants, but shall have the right to
declare an Event of Default under any outstanding Debenture, and (B) the Company
will not, without the prior written consent of a Majority in Interest of the
Holders in each instance (which consent is in the sole discretion of such
Holders and may be withheld for any reason or for no reason whatsoever),  enter
into any New Transaction whatsoever until the date which is the first annual
anniversary of the Initial Closing Date.

m.           Reports under 1933 Act and 1934 Act.  With a view to making
available to Investor the benefits of Rule 144, the Company agrees, subject to
the provisions of  Section 4(d) hereof, to (all at the Company’s expense)::

(i)           make and keep public information available, as those terms are
understood and defined in Rule 144;

(ii)           file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and

(iii)           furnish to the Holder at any time prior to the Transaction End
Date, promptly upon reasonable request, (a) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the 1933 Act
and the 1934 Act, and (b) such other information as may be reasonably requested
to permit the Holder to sell such securities pursuant to Rule 144 without
limitation; and

(iv)           at the request of the Holder, give the Transfer Agent
instructions (supported by an opinion of Company Counsel or other counsel to the
Company, if required or requested by the Transfer Agent) to the effect that,
upon the Transfer Agent’s receipt from the Buyer of

(A) a certificate (a “Rule 144 Certificate”) certifying that the Holder’s
holding period (as determined in accordance with the provisions of Rule 144) for
the Shares which the Holder proposes to sell (the “Securities Being Sold”) is
not less than six (6) months; and

(B) an opinion of counsel acceptable to the Company (for which purposes it is
agreed that Krieger & Prager, LLP shall be deemed acceptable)4 if not given by
Company Counsel) that, based on the Rule 144 Certificate, Securities Being Sold
may be sold pursuant to the provisions of Rule 144, even in the absence of an
effective registration statement,

the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent’s  books and records (except to the extent any such
legend or restriction results from facts other than the identity of the Holder,
as the seller or transferor thereof, or the status, including any relevant
legends or restrictions, of the shares of the Securities Being Sold while held
by the Holder). If the Transfer Agent reasonably requires any additional
documentation at the time of the transfer, the Company shall deliver or cause to
be delivered all such reasonable additional documentation as may be necessary to
effectuate the issuance of an unlegended certificate.

n.           NASD Rule 2710. The Company is aware that the Corporate Financing
Rule 2710 (“NASD Rule 2710") of the National Association of Securities Dealers
(“NASD”) is or may become applicable to the transactions contemplated by the
Transaction Agreements or to the sale by a Holder of any of the Securities. If
NASD Rule 2710 is so applicable, the Company shall, to the extent required by
such rule, timely make any filings and cooperate with any broker or selling
stockholder in respect of any consents, authorizations or approvals that may be
necessary for the NASD to timely and expeditiously permit the stockholder to
sell the securities.

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

p.           Transactions with Affiliates or Subsidiaries.

(i)            Until the Debenture End Date, neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any material transaction
or agreement with any stockholder, officer, director or Affiliate of the Company
or family member of any officer, director or Affiliate of the Company, unless
the transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as such term is hereinafter defined) and (ii) on terms
no less favorable to the Company or the applicable Subsidiary than those
obtainable from a non-affiliated person.  The term “Disinterested Director”
means a director of the Company who is not and has not been an officer or
employee of the Company and who is not a member of the family of, controlled by
or under common control with, any such officer or employee.

(ii)           If, at any time while a Debenture or Warrant is outstanding, the
Company spins off any of its assets to a Subsidiary, unless otherwise consented
to by a Majority in Interest of the Holders (which consent is in the sole
discretion of the Holder and can be withheld for any reason or for no reason) in
each instance, such Subsidiary shall assume all of the obligations and
liabilities of the Company under the Transaction Agreements (including, but not
necessarily limited to, all reporting and other obligations to the extent the
Subsidiary is a publicly held corporation) and any action subsequently taken by
such Subsidiary with respect to such assets shall have the same effect as if
such action had been taken by the Company directly.  Such assumption shall be
confirmed in writing from the Subsidiary to the Holder prior to the consummation
of such spin off.  Such writing shall include the agreement of the Subsidiary
that, if the Subsidiary is a publicly held corporation, at the election of the
Holder, the Holder may convert the Debentures or exercise the Warrants for
shares of the Subsidiary’s common stock on the same terms as provided in such
instruments issued by the Company.  Such assumption of all obligations and
liabilities by the Subsidiary shall not relieve the Company of any of its
obligations under any of the Transaction Agreements.

(iii)           The Company agrees that while any Debenture or Warrant is
outstanding, it will not sell or spin off (in whole or in part) any Subsidiary
or a substantial part of the assets of a Subsidiary (any such sale or spin off,
a “Subsidiary Spin Off”) without giving the Holder advance written notice
thereof at least thirty (30) Trading Days in advance and without the consent of
a Majority in Interest of the Holders (which consent is in the sole discretion
of the Holder and can be withheld for any reason or for no reason) in each
instance; provided that, upon the giving of such notice, the Company shall, to
the extent relevant, comply with the provisions of Section 4(d)(i)(D)
hereof.  In addition, the party or parties receiving the shares or assets of the
Subsidiary in the Subsidiary Spin Off (each, a “Subsidiary Spin Off Recipient”)
shall assume all of the obligations and liabilities of the Company under the
Transaction Agreements (including, but not necessarily limited to, all reporting
and other obligations to the extent the Subsidiary Spin Off Recipient is a
publicly held corporation) and any action subsequently taken by such Subsidiary
Spin Off Recipient with respect to such assets shall have the same effect as if
such action had been taken by the Company directly.  Such assumption shall be
confirmed in writing from the Subsidiary to the Holder prior to the consummation
of such spin off.  Such writing shall include the agreement of the Subsidiary
that, if the Subsidiary is a publicly held corporation, at the election of the
Holder, the Holder may convert the Debentures or exercise the Warrants for
shares of the Subsidiary’s common stock on the same terms as provided in such
instruments issued by the Company.  Such assumption of all obligations and
liabilities by the Subsidiary shall not relieve the Company of any of its
obligations under any of the Transaction Agreements.

(iv)           The Company agrees that if a Subsidiary Spin Off is announced
(the date of such announcement, the “Spin Off Announcement Date”), then, in
addition to any applicable provisions in any outstanding Debentures or Warrants,
the Company shall issue Spin Off Adjustment Shares to the Holder and deliver
certificates representing such Spin Off Adjustment Shares to the Holder within
three (3) Trading Days  of the date (the “Spin Off Effective Date”) on which the
Subsidiary Spin Off was consummated or effected (such third Trading Day, a
“Delivery Date”).  The term “Spin Off Adjustment Shares” means the number of
shares equal to the excess of (x) (1) the aggregate number of Conversion Shares
and  Warrant Shares held by the Holder on the Spin Off Announcement Date (such
shares, collectively, “Pre-Spin Off Held Shares”) , multiplied by (2) a
fraction, of which the numerator is the VWAP for the Trading Day immediately
before the Spin Off Announcement Date and the denominator is the VWAP for the
Trading Day immediately following the Spin Off Effective Date (provided,
however, that such fraction shall not be less than 1), over (y) the number of
the Pre-Spin Off Held Shares.  Nothing in this provision limits the Company’s
obligations under the immediately preceding subparagraph (iii).

(v)           The Company covenants that it will not consummate or effect or
permit the consummation or effectuation of a spin off or Subsidiary Spin Off
unless the same complies in all relevant respects to the provisions of this
Section 4(p).

q.           Certain Restrictions.  Until the Debenture End Date, no dividends
shall be declared or paid or set apart for payment nor shall any other
distribution be declared or made upon any capital stock of the Company, nor
shall any capital stock of the Company be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of shares of
Common Stock made for purposes of an employee incentive or benefit plan
(including a stock option plan) of the Company or pursuant to the security
agreements, if any, listed on the Disclosure Annex) for any consideration by the
Company, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any Common Stock.

r.           Failure to Make Timely Filings.  The Company agrees that, if the
Company fails to timely file on the SEC’s EDGAR system any information required
to be filed by it, whether on a Form 10-K, Form 10-Q, Form 8-K, Proxy Statement
or otherwise, the Company shall be liable to pay to the Holder an amount based
on the following schedule (where “No. Trading Days Late” refers to each Trading
Day after the latest due date for the relevant filing):

No. Trading Days Late
Late Filing Payment For Each $10,000 of Principal of Outstanding Debentures
   
1
$100
2
$200
3
$300
4
$400
5
$500
6
$600
7
$700
8
$800
9
$900
10
$1,000
>10
$1,000 + $200 for each Trading Day Late beyond 10 days

The Company shall pay any payments incurred under this Section in immediately
available funds upon demand by the Holder; provided, however, that the Holder
making the demand may specify that the payment shall be made in shares of Common
Stock at the Conversion Price applicable to the date of such demand.  If the
payment is to be made in shares of Common Stock, such shares shall be considered
Conversion Shares under the Debentures, with the “Delivery Date” for such shares
shall determined from the date of such demand,, the certificates to be delivered
shall be considered Conversion Certificates, the demand for payment of such
amount in shares shall be considered a Notice of Conversion  (but the delivery
of such shares shall be in payment of the amount contemplated by this paragraph
and not in payment of any principal or interest on any Debenture).

s.           Certain Short Sales.  Provided that the Company is in compliance in
all material respects with its obligations to the Buyer or Holder under this
Agreement and the other Transaction Agreements, during the period from the
Initial Closing Date through the Debenture End Date, the Buyer will not directly
or through an Affiliate engage in any open market Short Sales (as defined below)
of the Common Stock, other than Short Sales of not more than the number of
shares that are the subject of a Notice of Conversion which is submitted within
three (3) Trading Days after such sale; provided, however, that unless and until
the Company has affirmatively demonstrated by the use of specific evidence that
the Buyer is engaging in such open market Short Sales, the Buyer shall be
assumed to be in compliance with the provisions of this Section 4(s) and the
Company shall remain obligated to fulfill all of its obligations under the
Transaction Agreements; and provided, further, that (i) the Company shall under
no circumstances be entitled to request or demand that the Buyer either (x)
provide trading or other records of the Buyer or of any party or (y)
affirmatively demonstrate that the Buyer or any other party has not engaged in
any such Short Sales in breach of these provisions as a condition to the
Company’s fulfillment of its obligations under any of the Transaction
Agreements, and (ii) the Company shall not assert the Buyer’s or any other
party’s failure to demonstrate such absence of such Short Sales or to provide
any trading or other records of the Buyer or any other party as all or part of a
defense to any breach of the Company’s obligations under any of the Transaction
Agreements.  As used herein, “Short Sale” has the meaning provided in Rule 3b-3
under the 1934 Act.

           t.           Administrative Costs.  The Company will reimburse for
the Holder for all Administrative Costs (as defined below) incurred by the
Holder, whether paid or payable by the Holder.  The term “Administrative Costs”
means extraordinary costs in administering and protecting the Holder’s rights
under the Transaction Agreements, including, but not necessarily limited to,
costs of collection and attorneys’ fees and expenses in connection therewith.

5.           TRANSFER AGENT INSTRUCTIONS.

a.           The Company warrants that, with respect to the Securities, other
than the stop transfer instructions to give effect to Section 4(a) hereof, it
will give the Transfer Agent no instructions inconsistent with instructions to
issue Common Stock from time to time upon conversion of the Debentures, the
exercise of the Warrants, the issuance of Added Warrant Shares, if any, or in
connection with the issuance of Payment Shares, as may be applicable from time
to time, in such amounts as specified from time to time by the Company to the
Transfer Agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Buyer or its nominee and in such denominations to be specified
by the Holder in connection therewith.  Except as so provided, the Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the other Transaction
Agreements.  Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities.  If the Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
the Buyer of any of the Securities in accordance with clause (1)(B) of Section
4(a) of this Agreement is not required under the 1933 Act or upon request from a
Holder while there is an effective registration statement covering the sale of
the relevant Shares, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer of the Securities, as may be
applicable, promptly instruct the Transfer Agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.

b.           (i)           The Company understands that a delay in the delivery
of Conversion Certificates, whether on conversion of a Debenture and/or in
payment of accrued interest thereon or on exercise of the Warrants, beyond the
relevant Delivery Date (as defined in the relevant Debenture or Warrant or in
Section 4(g) hereof, as the case may be), could result in economic loss to the
Holder.  As compensation to the Holder for such loss, in addition to any other
available remedies at law, the Company agrees to pay late payments to the Holder
for late issuance of the Conversion Certificates in accordance with the
following schedule (where “No. Trading Days Late” is defined as the number of
Trading Days beyond two (2) Trading Days after the Delivery Date):

No. Trading Days Late
 
Late Payment For Each $10,000 of Principal or Interest Being Converted, of Late
Fees5, of Added Warrant Shares, of Spin Off Adjustment Shares6 or of Exercise
Price of Warrant Being Exercised
 
1
$100
2
$200
3
$300
4
$400
5
$500
6
$600
7
$700
8
$800
9
$900
10
$1,000
>10
$1,000 + $200 for each Trading Day Late beyond 10 days

The Company shall pay any payments incurred under this Section in immediately
available funds upon demand; provided, however, that the Holder making the
demand may specify that the payment shall be made in shares of Common Stock at
the Conversion Price applicable to the date of such demand.  If the payment is
to be made in shares of Common Stock, such shares shall be considered Conversion
Shares under the Debentures, with the “Delivery Date” for such shares shall
determined from the date of such demand,, the certificates to be delivered shall
be considered Conversion Certificates, the demand for payment of such amount in
shares shall be considered a Notice of Conversion (but the delivery of such
shares shall be in payment of the amount contemplated by this paragraph and not
in payment of any principal or interest on any Debenture).  Nothing herein shall
limit the Holder’s right to pursue actual damages for the Company’s failure to
issue and deliver the Conversion Certificates to the Holder within a reasonable
time.  Furthermore, in addition to any other remedies which may be available to
a Holder, in the event that the Company fails for any reason to effect delivery
of such Conversion Certificates within two (2) Trading Days after the Delivery
Date, the Converting Holder will be entitled to revoke the relevant Notice of
Conversion or Notice of Exercise by delivering a notice to such effect to the
Company prior to the Converting Holder’s receipt of the relevant Conversion
Certificates, whereupon the Company and the Converting Holder shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion or Notice of Exercise, as the case may be; provided,
however, that any payments contemplated by this Section 5(b) of this Agreement
which have accrued through the date of such revocation notice shall remain due
and owing to the Converting Holder notwithstanding such revocation.

(ii)           If, by the tenth Trading Day after the  relevant Delivery Date,
the Company fails for any reason to deliver the Conversion Certificates, but at
any time after the Delivery Date, the Converting Holder purchases, in an
arm’s-length open market transaction or otherwise, shares of Common Stock (the
“Covering Shares”) in order to make delivery in satisfaction of a sale of Common
Stock by the Converting Holder (the “Sold Shares”), which delivery such
Converting Holder anticipated to make using the shares to be issued upon such
conversion (a “Buy-In”), the Converting Holder shall have the right to require
the Company to pay to the Converting Holder, in addition to and not in lieu
of  the amounts contemplated in other provisions of the Transaction Agreements,
including, but not limited to, the provisions of the immediately preceding
Section 5(b)(i)), the Buy-In Adjustment Amount (as defined below).  The “Buy-In
Adjustment Amount” is the amount equal to the number of Sold Shares multiplied
by the excess, if any, of (x) the Holder's total purchase price per share
(including brokerage commissions, if any) for the Covering Shares over (y) the
net proceeds per share (after brokerage commissions, if any) received by the
Holder from the sale of the  Sold Shares.  The Company shall pay the Buy-In
Adjustment Amount to the Holder in immediately available funds immediately upon
demand by the Converting Holder.  By way of illustration and not in limitation
of the foregoing, if the Holder purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
with respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which Company will be required to pay to the Holder
will be $1,000.

c.           The provisions of this paragraph apply if the provisions of Rule
144 would then be applicable to the sale of the relevant Shares by the Holder
without restriction or other limitation (any such period, the “Effective
Period”).  During the Effective Period, the Company will issue Shares without
legend and without transfer restrictions on the books of the Transfer Agent,
and, at the request of the Holder, will use it best efforts to have previously
issued certificates representing the Shares re-issued without legend and without
transfer restrictions on the books of the Transfer Agent.  In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion of
the Debenture or exercise of a Warrant or at the request of the Holder with
respect to any Shares previously issued, provided the Transfer Agent is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer program, upon request of the Holder and the Holder’s compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Holder thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause the Transfer Agent to electronically transmit to the
Holder the Common Stock issuable upon conversion of the Debenture or exercise of
the Warrant or in replacement of any Shares previously issued by crediting the
account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.  The Company specifically acknowledges that, as of the date
hereof and as of the Closing Date, the Transfer Agent is participating in the
DTC program and the Company is not aware of any plans of the Transfer Agent to
terminate such participation.  While any Holder holds Securities, the Company
will not appoint any transfer agent which does not participate in the DTC
program.

d.            The Company shall assume any fees or charges of the Transfer Agent
or Company counsel regarding (i) the removal of a legend or stop transfer
instructions with respect to Shares, and (ii) the issuance of certificates or
DTC registration to or in the name of  the Holder or the Holder’s designee or to
a transferee.  Notwithstanding the foregoing, it shall be the Holder’s
responsibility to obtain all needed formal requirements (specifically: medallion
guarantee) in connection with any electronic issuance of shares of Common Stock.

e.           The Holder of a Debenture or a Warrant shall be entitled to
exercise its conversion or exercise privilege with respect to the Debenture or
the Warrant, as the case may be, notwithstanding the commencement of any case
under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”).  In the event the Company
is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. §362 in
respect of such holder’s exercise privilege.  The Company hereby waives, to the
fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362
in respect of the conversion of the Debenture or the exercise of the Warrant.
The Company agrees, without cost or expense to such Holder, to take or to
consent to any and all action necessary to effectuate relief under 11 U.S.C.
§362.

f.           The Company will authorize the Transfer Agent to give information
relating to the Company directly to the Holder or the Holder’s representatives
upon the request of the Buyer or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Holder in connection with a Notice of Conversion or
a Notice of Exercise, or (ii) the aggregate number of outstanding shares of
Common Stock of all stockholders (as a group and not individually) as of a
current or other specified date.  At the request of the Holder, the Company will
provide the Holder with a copy of the authorization so given to the Transfer
Agent.

6.           CLOSING DATE.

a.           The Initial Closing Date shall occur on the date which is the first
Trading Day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.  Notwithstanding the foregoing, the Initial Closing Date shall
occur after the Buyer completes, to the Buyer’s own satisfaction, its own due
diligence review of the Company.  If the Initial Closing Date does not occur
within thirty (30) days from the date of this Agreement, the Company may, by
written notice to the Buyer, terminate this Agreement, in which event neither
party shall have any obligations to the other hereunder.

b.           (i)  Each Additional Closing Date shall occur as follows:

(A)           the first Additional Closing Date shall occur on the date which is
fifteen (15) Trading Days after the aggregate principal balance of the
outstanding Initial Debentures is less than $100,000; and

(B)           each subsequent Additional Closing Date shall occur on the date
which is fifteen (15) Trading Days after the aggregate principal balance of the
outstanding Additional Debentures issued on the immediately preceding Additional
Closing Date is less than $75,000.

(ii)           Except as provided in this Section 6(b) and Section 8, the
closing for the Additional Debentures and the Additional Warrants shall be
conducted upon the same terms and conditions as those applicable to the Initial
Debentures and Initial Warrants.

c.           Each closing of the purchase and issuance of Debentures and
Warrants shall occur on the relevant Closing Date at the offices of the Escrow
Agent and shall take place no later than 3:00 P.M., Eastern Time, on the day
specified above (or if such day is not a Trading Day, the next Trading Day) or
such other time as is mutually agreed upon by the Company and the Buyer.

d.           Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Funds to the Company and
to others and to release the other Escrow Property on the relevant Closing Date
upon satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.

7.           CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

The Buyer understands that the Company's obligation to sell the relevant
Purchased Securities to the Buyer pursuant to this Agreement on each relevant
Closing Date is conditioned upon:

a.           The execution and delivery of this Agreement and, where
indicated,  the other Transaction Agreements by the Buyer on or before such
Closing Date;

b.           The execution and delivery by the Buyer to the Escrow Agent by such
Closing Date of good funds as payment in full of an amount equal to the relevant
Total Cash Amount in accordance with this Agreement;

c.           The execution and delivery by the Buyer to the Escrow Agent by such
Closing Date of the relevant Purchase Notes;

d.           The accuracy on such Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and

e.           There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.

8.           CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

The Company understands that the Buyer's obligation to purchase the relevant
Purchased Securities on each relevant Closing Date is conditioned upon:

a.           The execution and delivery of this Agreement and the other
Transaction Agreements by the Company on or before such Closing Date;

b.           The delivery by the Company to the Escrow Agent of the Certificates
in accordance with this Agreement;

c.           The delivery by the Company to the Escrow Agent on or before the
Closing Date of (i) the executed Guarantee of each Pledgor, (ii) the executed
Pledge Agreement of each Pledgor, (iii) the collateral referred to in each such
Pledge Agreement, endorsed in blank (on the certificate of in one or more
separate stock powers), with medallion guaranties, and (iv) one or more executed
letters of irrevocable instructions from the Company to the Transfer Agent,
substantially in the form of Annex X attached hereto, countersigned by the
relevant Pledgor(s) and by the Transfer Agent;

d.           On such Closing Date, each of the Transaction Agreements executed
by the Company on or before such date shall be in full force and effect and the
Company shall not be in default thereunder;

e.           The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;

f.           The delivery to the Escrow Agent of an opinion of counsel for the
Company, dated such Closing Date, addressed to the Buyer, in form, scope and
substance reasonably satisfactory to the Buyer, substantially to the effect set
forth in Annex III attached hereto;

g.           There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained; and

h.           From and after the date hereof to and including such Closing Date,
each of the following conditions will remain in effect: (i) the trading of the
Common Stock shall not have been suspended by the SEC or on the Principal
Trading Market; (ii) trading in securities generally on the Principal Trading
Market shall not have been suspended or limited; (iii), no minimum prices shall
been established for securities traded on the Principal Trading Market;
and  (iv) there shall not have been any material adverse change in any financial
market; and

i.           With respect to each Additional Closing Date,

(i)  the conditions for the relevant Additional Closing Date referred to in
Section 6(b) hereof shall have been satisfied;

(ii) the Authorized Share Increase shall have been approved by the Meeting Date
and the Buyer shall have received the Filing Evidence by the Filing Evidence
Date;

(iii) there shall have no Event of Default under any previously issued Debenture
at any time prior to such Additional Closing Date;

(iv) the Buyer shall have received an opinion of counsel to the Company
substantially in the form of Annex III attached hereto (which may refer to an
opinion issued on a previous Closing Date provided the Buyer may rely on it as
if it were issued on the current Additional Closing Date); and

(v) the representations and warranties of the Company contained in Section 3
hereof shall be true and correct in all material respects as if made on such
Additional Closing Date (rather than the Initial Closing Date) and there shall
have been no Material Adverse Effect from the Initial Closing Date or the
immediately preceding Additional Closing Date, if any, through and including the
current Additional Closing Date (and an executive officer of the Company7 shall
issue an certificate substantially in the form of Annex VII hereto with respect
thereto (the “Officer’s Certificate”; provided, however, that such Officer’s
Certificate may update certain  factual information, such as the number of
shares of the Company’s stock outstanding, included in Section 3).

9.           INDEMNIFICATION AND REIMBURSEMENT.

a.           (i)  The Company agrees to indemnify and hold harmless the Buyer
and its officers, directors, employees, and agents, and each Buyer Control
Person from and against any losses, claims, damages, liabilities or expenses
incurred (collectively, “Damages”), joint or several, and any action in respect
thereof to which the Buyer, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Buyer Control Person becomes
subject to, resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any covenant or
agreement on the part of Company contained in this Agreement, as such Damages
are incurred, except to the extent such Damages result primarily from Buyer's
failure to perform any covenant or agreement contained in this Agreement or the
Buyer's or its officer’s, director’s, employee’s, agent’s or Buyer Control
Person’s illegal or willful misconduct, gross negligence, recklessness or bad
faith (in each case, as determined by a non-appealable judgment to such effect)
in performing its obligations under this Agreement.

(ii)           The Company hereby agrees that, if the Buyer, other than by
reason of its gross negligence or willful misconduct (in each case, as
determined by a non-appealable judgment to such effect), (x) becomes involved in
any capacity in any action, proceeding or investigation brought by any
stockholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements, or if the Buyer is impleaded in any such action,
proceeding or investigation by any Person, or (y) becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC, any
self-regulatory organization or other body having jurisdiction, against or
involving the Company or in connection with or as a result of the consummation
of the transactions contemplated by this Agreement or the other Transaction
Agreements, or (z) is impleaded in any such action, proceeding or investigation
by any Person, then in any such case, the Company shall indemnify, defend and
hold harmless the Buyer from and against and in respect of all losses, claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the
Buyer, directly or indirectly, and reimburse such Buyer for its reasonable legal
and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred.  The
indemnification and reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Buyer who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Buyer Control Persons (if any), as
the case may be, of the Buyer and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Buyer, any such Affiliate and any such
Person.  The Company also agrees that neither the Buyer nor any such Affiliate,
partner, director, agent, employee or Buyer Control Person shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the other Transaction Agreements, except as may be expressly and
specifically provided in or contemplated by this Agreement.

b.           All claims for indemnification by any Indemnified Party (as defined
below) under this Section shall be asserted and resolved as follows:

(i)            In the event any claim or demand in respect of which any Person
claiming indemnification under any provision of this Section (an “Indemnified
Party”) might seek indemnity under paragraph (a) of this Section is asserted
against or sought to be collected from such Indemnified Party by a Person other
than a party hereto or an Affiliate thereof (a “Third Party Claim”), the
Indemnified Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of this Section against any Person (the
“Indemnifying Party”), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a “Claim Notice”) with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the “Dispute Period”) whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim.  The following provisions shall also apply.

(x)  If the Indemnifying Party notifies the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this paragraph (b) of this Section,
then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to paragraph (a) of this Section). The Indemnifying Party shall
have full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this subparagraph (x), file any motion, answer or other pleadings or take any
other action that the Indemnified Party reasonably believes to be necessary or
appropriate protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this subparagraph (x), and except as provided in the preceding
sentence, the Indemnified Party shall bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a Third Party
Claim at any time if it irrevocably waives its right to indemnity under
paragraph (a) of this Section with respect to such Third Party Claim.

(y)  If the Indemnifying Party fails to notify the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the Third Party
Claim pursuant to paragraph (b) of this Section, or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, each in a reasonable manner, or if the Indemnifying Party
fails to give any notice whatsoever within the Dispute Period, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party, the Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted by the Indemnified Party in a reasonable
manner and in good faith or will be settled at the discretion of the Indemnified
Party (with the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full control of such
defense and proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting. Notwithstanding
the foregoing provisions of this subparagraph (y), if the Indemnifying Party has
notified the Indemnified Party within the Dispute Period that the Indemnifying
Party disputes its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if such dispute is
resolved in favor of the Indemnifying Party in the manner provided in
subparagraph(z) below, the Indemnifying Party will not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this
subparagraph (y) or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such litigation. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this subparagraph (y), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.

(z)  If the Indemnifying Party notifies the Indemnified Party that it does not
dispute its liability or the amount of its liability to the Indemnified Party
with respect to the Third Party Claim under paragraph (a) of this Section or
fails to notify the Indemnified Party within the Dispute Period  whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the amount of Damages
specified in the Claim Notice shall be conclusively deemed a liability of the
Indemnifying Party under paragraph (a) of this Section and the Indemnifying
Party shall pay the amount of such Damages to the Indemnified Party on demand.
If the Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.

(ii)           In the event any Indemnified Party should have a claim under
paragraph (a) of this Section against the Indemnifying Party that does not
involve a Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under paragraph (a) of this Section
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim (an “Indemnity Notice”) with reasonable promptness to the
Indemnifying Party. The failure by any Indemnified Party to give the Indemnity
Notice shall not impair such party's rights hereunder except to the extent that
the Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. If the Indemnifying Party notifies the Indemnified Party that it does
not dispute the claim or the amount of the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim or the amount of the claim
described in such Indemnity Notice, the amount of Damages specified in the
Indemnity Notice will be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.

c.           The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to.

10.           JURY TRIAL WAIVER.   The Company and the Buyer hereby waive a
trial by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.

11.           SPECIFIC PERFORMANCE.  The Company and  the Buyer acknowledge and
agree that irreparable damage would occur in the event that any provision of
this Agreement or any of the other Transaction Agreements were not performed in
accordance with its specific terms or were otherwise breached.  It is
accordingly agreed that the parties (including any Holder) shall be entitled to
an injunction or injunctions, without (except as specified below) the necessity
to post a bond, to prevent or cure breaches of the provisions of this Agreement
or such other Transaction Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity; provided, however that the
Company, upon receipt of a Notice of Conversion or a Notice of Exercise, may not
fail or refuse to deliver the stock certificates and the related legal opinions,
if any, or if there is a claim for a breach by the Company of any other
provision of this Agreement or any of the other Transaction Agreements, the
Company shall not raise as a legal defense, based on any claim that the Holder
or anyone associated or affiliated with the Holder has violated any provision
hereof or any other Transaction Agreement, has engaged in any violation of law
or for any other reason, unless the Company has first posted a bond for one
hundred fifty percent (150%) of the principal amount and, if relevant, then
obtained a court order specifically directing it not to deliver said stock
certificates to the Holder. The proceeds of such bond shall be payable to the
Holder to the extent that the Holder obtains judgment or its defense is
recognized.  Such bond shall remain in effect until the completion of the
relevant proceeding and, if the Holder appeals therefrom, until all such appeals
are exhausted.  This provision is deemed incorporated by reference into each of
the Transaction Agreements as if set forth therein in full.

12.           GOVERNING LAW:  MISCELLANEOUS.

a.           (i)  This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Illinois for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws.  Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of Chicago or the state courts of the State of Illinois sitting in the City
of Chicago in connection with any dispute arising under this Agreement or any of
the other Transaction Agreements and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions or to
any claim that such 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.

(ii)  In the event of any litigation or dispute arising from this Agreement or
any of the other Transaction Agreements, the parties agrees that the party which
is awarded the most money shall be deemed the prevailing party for all purposes
and such prevailing party shall be entitled to an additional award from the
other party for the full amount of the attorneys’ fees and expenses paid or
payable by such prevailing party in connection with the litigation and/or
dispute, without reduction or apportionment based upon the individual claims or
defenses giving rise to such fees and expenses.  Nothing in this clause (ii)
shall restrict or impair a court’s power to award fees and expenses to any party
for frivolous or bad faith pleading by the other party.

b.           Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

c.           This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.

d.           All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.

e.           This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.

f.           A facsimile or other electronic transmission of this signed
Agreement shall be legal and binding on all parties hereto.

g.           The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

h.           If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

i.           This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.

j.           This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.

k.           All dollar amounts referred to or contemplated by this Agreement or
any other Transaction Agreement shall be deemed to refer to US Dollars, unless
otherwise explicitly stated to the contrary.

13.           NOTICES.  Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of

(a) the date delivered, if delivered by personal delivery as against written
receipt therefor or by confirmed facsimile transmission,

(b) the fifth Trading Day after deposit, postage prepaid, in the United States
Postal Service by registered or certified mail, or

(c) the third Trading Day after mailing by domestic or international express
courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days’ advance written notice similarly given to each of the other
parties hereto):

COMPANY:                          At the address set forth at the head of this
Agreement.
Attn: President
Telephone No.: (732) 440-1992
Telecopier No.: (732) 389-7542

with a copy to:

Jack Chapline Vaughan, Esq.
1240 Blalock Road, Suite 150
Houston, TX 77055
Telephone No.: (713) 266-3700
Telecopier No.: (   )    -

BUYER:                                At the address set forth on the signature
page of this Agreement.

with a copy to each of:

Merrill Weber, Esq.
303 East Wacker Drive, Suite 311
Chicago, Illinois 60601
Tel: (773) 406-2386
Fax: (312) 819-9701

and
 
                      Krieger & Prager llp, Esqs.
39 Broadway
Suite 920
New York, NY 10006
Attn: Ronald J. Nussbaum, Esq.
Telephone No.: (212) 363-2900
Telecopier No.  (212) 363-2999

ESCROW AGENT:                                           Krieger & Prager llp,
Esqs.
39 Broadway
Suite 920
New York, NY 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No.  (212) 363-2999

14.           SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s and the
Buyer’s representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the payment
of the relevant Debenture Purchase Price and Warrant Purchase Price, for a
period of three (3) years after the last Closing Date hereunder and shall inure
to the benefit of the Buyer and the Company and their respective successors and
assigns.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]

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1By way of illustration, if convertible preferred shares having a stated value
of $1 million and a fixed conversion price of $0.05 were sold for a purchase
price of $800,000, the effective New Transaction Price would be $0.04.
 
2If the Holder effected more than one exercise and sold less than all of such
shares, the sold shares shall be deemed to be derived first from the exercises
in the sequence of such exercises (that is, for example, until the number of
shares from the first of such exercise have been sold, all shares shall be
deemed to be from the first exercise; thereafter, from the second exercise until
all such shares are sold; and so on).
 
3If a New Transaction Exercise Price is determined as of a particular date, that
New Transaction Price shall be adjusted for events occurring subsequent to such
date, as contemplated by this Agreement, the Warrants or the applicable New
Transaction instruments.
 
4The Company will be responsible for paying the fees of such counsel or
reimbursing the Holder for any such fees paid or payable by the Holder.
 
5“Late Fees” are amounts payable under the provisions of Section 4(r) or this
Section 5(b) which the Holder has designated to be paid in shares of Common
Stock.
 
6For Added Warrant Shares, such value shall be deemed equal to the number of
such shares multiplied by the closing sale price of the Common Stock on the New
Transaction Closing Date.  For Spin Off Adjustment Shares, such value shall be
deemed equal to the number of such shares multiplied by the closing sale price
of the Common Stock on the Trading Day immediately before the Spin Off
Announcement Date.
 
7“Executive officer” means one or more of the following: president, chairman of
the board, chief executive officer, chief financial officer.

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

 
 

 
[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]

IN WITNESS WHEREOF, with respect to the Purchase Price specified below, each of
the undersigned represents that the foregoing statements made by it above are
true and correct and that it has caused this Agreement to be duly executed on
its behalf (if an entity, by one of its officers thereunto duly authorized) as
of the date first above written.

 
AGGREGATE DEBENTURE PURCHASE
PRICE:                                                                                                                     $2,000,000.00
 
 
303 East Wacker Drive, Suite 311
ST. GEORGE INVESTMENTS, LLC
Chicago, Illinois 60601
Printed Name of Buyer
Address
 
 
Telecopier No. (312) 819-9701
By: Fife Trading, Inc., Managing Member
   
Illinois
By: __________________________________
Jurisdiction of Incorporation or Organization
(Signature of Authorized Person)
 
_____________________________________
 
Printed Name and Title
   

COMPANY:

AMERICAN SECURITY RESOURCES CORPORATION

By:                      __________________________

Title:                      __________________________