PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 17th day of August, 2007
by and among House of Taylor Jewelry, Inc., a Nevada corporation (the
“Company”), and the Investors set forth on the signature pages affixed hereto
(each an “Investor” and collectively the “Investors”).

Recitals

A.

The Company and the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended; and

B.

The Investors wish to purchase from the Company, and the Company wishes to sell
and issue to the Investors, upon the terms and conditions stated in this
Agreement, (i) an aggregate of up to 11,052,632 shares of the Company’s Common
Stock, par value $0.0001 per share (together with any securities into which such
shares may be reclassified the “Common Stock”), at purchase price of $0.95 per
share, and (ii) warrants to purchase an aggregate of 16,578,948 shares of Common
Stock (subject to adjustment) at an exercise price of $0.95 per share (subject
to adjustment) in the form attached hereto as Exhibit A (the “Warrants”); and

C.

Contemporaneous with the sale of the Common Stock and Warrants, the parties
hereto will execute and deliver a Registration Rights Agreement, in the form
attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to
which the Company will agree to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder, and applicable state securities laws.

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1.

Definitions.  In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall have
the meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

“Debt Refinancing” means the proposed refinancing of the Company’s existing
indebtedness previously described by the Company to the Investors, which shall
occur on terms satisfactory to SSF in its sole discretion.

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

“Effectiveness Deadline” means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.

“Information Statement” has the meaning specified in Section 7.9.

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

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“Nasdaq” means The Nasdaq Stock Market, Inc.

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Proposal” has the meaning set forth in Section 7.9.

“Purchase Price” means up to Ten Million Five Hundred Thousand Dollars
($10,500,000).

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

“SEC Filings” has the meaning set forth in Section 4.6.

“Securities” means the Shares, the Warrants and the Warrant Shares.

“Shares” means the shares of Common Stock being purchased by the Investors
hereunder.

“SSF” means the Special Situations Private Equity Fund, L.P.

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

“Transaction Documents” means this Agreement, the Warrants and the Registration
Rights Agreement.

“Warrant Amendment” means the amendment and restatement of warrants to acquire
shares of Common Stock held by certain of the Investors to (i) reduce the
Warrant Price specified therein to $0.95 per share and (ii) extend the
expiration date thereof to the expiration date of the Warrants.

“Warrant Shares” means the shares of Common Stock issuable upon the exercise of
the Warrants.

“1933 Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

“1934 Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.

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2.

Purchase and Sale of the Shares and Warrants.  Subject to the terms and
conditions of this Agreement, on the Closing Date, each of the Investors shall
severally, and not jointly, purchase, and the Company shall sell and issue to
the Investors, the Shares and Warrants in the respective amounts set forth
opposite the Investors’ names on the signature pages attached hereto in exchange
for the Purchase Price as specified in Section 3 below.

3.

Closing.  Unless other arrangements have been made with an Investor, upon
confirmation that the other conditions to closing specified herein have been
satisfied or duly waived by the Investors, the Company shall deliver to
Lowenstein Sandler PC, in trust, a certificate or certificates, registered in
such name or names as the Investors may designate, representing the Shares and
Warrants, with instructions that such certificates are to be held for release to
the Investors only upon payment in full of the Purchase Price to the Company by
all the Investors.  Upon such receipt by Lowenstein Sandler PC of the
certificates, each Investor shall promptly, but no more than one Business Day
thereafter, cause a wire transfer in same day funds to be sent to the account of
the Company as instructed in writing by the Company, in an amount representing
such Investor’s pro rata portion of the Purchase Price as set forth on the
signature pages to this Agreement.  On the date (the “Closing Date”) the Company
receives the Purchase Price, the certificates evidencing the Shares and Warrants
shall be released to the Investors (the “Closing”).  The Closing of the purchase
and sale of the Shares and Warrants shall take place at the offices of
Lowenstein Sandler PC, 1251 Avenue of the Americas, 18th Floor, New York, New
York 10020, or at such other location and on such other date as the Company and
the Investors shall mutually agree.

4.

Representations and Warranties of the Company.  The Company hereby represents
and warrants to the Investors that, except as set forth in the schedules
delivered herewith (collectively, the “Disclosure Schedules”):

4.

Organization, Good Standing and Qualification.  Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and to own its properties.  Each of the Company and its Subsidiaries
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or leasing necessary
unless the failure to so qualify has not had and could not reasonably be
expected to have a Material Adverse Effect.  The Company’s Subsidiaries are
listed on Schedule 4.1 hereto.

4.

Authorization.  The Company has full power and authority and , except for the
mailing of the Information Statement as contemplated in Section 7.9, has taken
all requisite action on the part of the Company, its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of the
Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Securities .  The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy,

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insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors’ rights generally.
 The stockholders of the Company have irrevocably consented to the issuance of
the Securities and the other transactions contemplated hereby in accordance with
applicable law, the Company’s Articles of Incorporation and Bylaws and the
applicable requirements of Nasdaq and no further action on the part of the
stockholders of the Company is necessary for (i) the authorization, execution
and delivery of the Transaction Documents, (ii) the authorization of the
performance of all obligations of the Company hereunder or thereunder, and (iii)
the authorization, issuance (or reservation for issuance) and delivery of the
Securities .

4.

Capitalization.  Schedule 4.3 sets forth (a) the authorized capital stock of the
Company on the date hereof; (b) the number of shares of capital stock issued and
outstanding; (c) the number of shares of capital stock issuable pursuant to the
Company’s stock plans; and (d) the number of shares of capital stock issuable
and reserved for issuance pursuant to securities (other than the Shares and the
Warrants) exercisable for, or convertible into or exchangeable for any shares of
capital stock of the Company.  All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance with applicable state and federal securities law and any rights of
third parties.  Except as described on Schedule 4.3, all of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights, were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim.  Except as described on Schedule 4.3, no Person is entitled to
pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company.  Except as described on Schedule 4.3, there are no
outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company or any of
its Subsidiaries is or may be obligated to issue any equity securities of any
kind and except as contemplated by this Agreement, neither the Company nor any
of its Subsidiaries is currently in negotiations for the issuance of any equity
securities of any kind.  Except as described on Schedule 4.3 and except for the
Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them.  Except as described on
Schedule 4.3 and except as provided in the Registration Rights Agreement, no
Person has the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.

Except as described on Schedule 4.3, the issuance and sale of the Securities
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Investors) and will not result in
the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any

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Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.

4.4

Valid Issuance.  The Shares have been duly and validly authorized and, when
issued and paid for pursuant to this Agreement, will be validly issued, fully
paid and nonassessable, and shall be free and clear of all encumbrances and
restrictions (other than those created by the Investors), except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws.  The Warrants have been duly and validly authorized.
 Upon the due exercise of the Warrants, the Warrant Shares will be validly
issued, fully paid and non-assessable free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors.  The Company has reserved a sufficient number of shares of
Common Stock for issuance upon the exercise of the Warrants, free and clear of
all encumbrances and restrictions, except for restrictions on transfer set forth
in the Transaction Documents or imposed by applicable securities laws and except
for those created by the Investors.

4.5

Consents.  T he execution, delivery and performance by the Company of the
Transaction Documents and the offer, issuance and sale of the Securities require
no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods and such consents as have been obtained
and are in full force and effect.  Subject to the accuracy of the
representations and warranties of each Investor set forth in Section 5 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Securities, (ii) the issuance of the Warrant Shares upon due exercise of
the Warrants, and (iii) the other transactions contemplated by the Transaction
Documents from the provisions of any stockholder rights plan or other “poison
pill” arrangement, any anti-takeover, business combination or control share law
or statute binding on the Company or to which the Company or any of its assets
and properties may be subject and any provision of the Company’s Articles of
Incorporation or Bylaws that is or could reasonably be expected to become
applicable to the Investors as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.

4.6

Delivery of SEC Filings; Business.  The Company has made available to the
Investors through the EDGAR system, true and complete copies of the Company’s
most recent Annual Report on Form 10-KSB for the fiscal year ended December 31,
2006 (the “10-KSB”), and all other reports filed by the Company pursuant to the
1934 Act since the filing of the 10-KSB and prior to the date hereof
(collectively, the “SEC Filings”).  The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period.  The Company
and its Subsidiaries are engaged in all material respects only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description in all material respects of the business of the Company and its
Subsidiaries, taken as a whole.

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4.7

Use of Proceeds.  The net proceeds of the sale of the Shares and the Warrants
hereunder shall be used by the Company for the repayment of indebtedness,
working capital and other general corporate purposes.

4.8

No Material Adverse Change.  Since December 31, 2006, except as identified and
described in the SEC Filings or as described on Schedule 4.8, there has not
been:

(i)

any change in the consolidated assets, liabilities, financial condition or
operating results of the Company from that reflected in the financial statements
included in the Company’s Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2007, except for changes in the ordinary course of business which have
not had and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;

(ii)

any declaration or payment of any dividend, or any authorization or payment of
any distribution, on any of the capital stock of the Company, or any redemption
or repurchase of any securities of the Company;

(iii)

any material damage, destruction or loss, whether or not covered by insurance to
any assets or properties of the Company or its Subsidiaries;

(iv)

any waiver, not in the ordinary course of business, by the Company or any
Subsidiary of a material right or of a material debt owed to it;

(v)

any satisfaction or discharge of any lien, claim or encumbrance or payment of
any obligation by the Company or a Subsidiary, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its Subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);

(vi)

any change or amendment to the Company's Articles of Incorporation or Bylaws, or
material change to any material contract or arrangement by which the Company or
any Subsidiary is bound or to which any of their respective assets or properties
is subject;

(vii)

any material labor difficulties or labor union organizing activities with
respect to employees of the Company or any Subsidiary;

(viii)

any material transaction entered into by the Company or a Subsidiary other than
in the ordinary course of business;

(ix)

the loss of the services of any key employee, or material change in the
composition or duties of the senior management of the Company or any Subsidiary;

(x)

the loss or threatened loss of any customer which has had or could reasonably be
expected to have a Material Adverse Effect; or

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(xi)

any other event or condition of any character that has had or could reasonably
be expected to have a Material Adverse Effect.

4.9

SEC Filings; S-3 Eligibility.

(a)

At the time of filing thereof, the SEC Filings complied as to form in all
material respects with the requirements of the 1934 Act and did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.

(b)

Each registration statement and any amendment thereto filed by the Company since
January 1, 2004 pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein not misleading; and each prospectus filed pursuant to Rule 424(b)
under the 1933 Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.

(c)

The Company is eligible to use Form S-3 to register the Registrable Securities
(as such term is defined in the Registration Rights Agreement) for sale by the
Investors as contemplated by the Registration Rights Agreement.

4.10

No Conflict, Breach, Violation or Default.  T he execution, delivery and
performance of the Transaction Documents by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company’s Articles of Incorporation or the Company’s Bylaws, both as in effect
on the date hereof (true and complete copies of which have been made available
to the Investors through the EDGAR system), or (ii)(a) any statute, rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective assets or properties, or (b) any agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or a Subsidiary is
bound or to which any of their respective assets or properties is subject.

4.11

Tax Matters.  The Company and each Subsidiary has timely prepared and filed all
tax returns required to have been filed by the Company or such Subsidiary with
all appropriate governmental agencies and timely paid all taxes shown thereon or
otherwise owed by it.  The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company or
any Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of
any additional taxes, penalties or interest for any fiscal period or audits by
any federal, state or local taxing authority except for any assessment which is
not material to the

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Company and its Subsidiaries, taken as a whole.  All taxes and other assessments
and levies that the Company or any Subsidiary is required to withhold or to
collect for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due.  There are no tax liens or claims
pending or, to the Company’s Knowledge, threatened against the Company or any
Subsidiary or any of their respective assets or property.  Except as described
on Schedule 4.11, there are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.

4.12

Title to Properties.  Except as disclosed in the SEC Filings, the Company and
each Subsidiary has good and marketable title to all real properties and all
other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

4.13

Certificates, Authorities and Permits.  The Company and each Subsidiary possess
adequate certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by it, and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate, authority or
permit that, if determined adversely to the Company or such Subsidiary, could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate.

4.14

Labor Matters .

(a)

Except as set forth on Schedule 4.14 , the Company is not a party to or bound by
any collective bargaining agreements or other agreements with labor
organizations.  The Company has not violated in any material respect any laws,
regulations, orders or contract terms, affecting the collective bargaining
rights of employees, labor organizations or any laws, regulations or orders
affecting employment discrimination, equal opportunity employment, or employees’
health, safety, welfare, wages and hours.

(b)

(i) There are no labor disputes existing, or to the Company's Knowledge,
threatened, involving strikes, slow-downs, work stoppages, job actions,
disputes, lockouts or any other disruptions of or by the Company's employees,
(ii) there are no unfair labor practices or petitions for election pending or,
to the Company's Knowledge, threatened before the National Labor Relations Board
or any other federal, state or local labor commission relating to the Company's
employees, (iii) no demand for recognition or certification heretofore made by
any labor organization or group of employees is pending with respect to the
Company and (iv) to the Company's Knowledge, the Company enjoys good labor and
employee relations with its employees and labor organizations.

(c)

The Company is, and at all times has been, in compliance in all material
respects with all applicable laws respecting employment (including laws relating
to classification

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of employees and independent contractors) and employment practices, terms and
conditions of employment, wages and hours, and immigration and naturalization.
 There are no claims pending against the Company before the Equal Employment
Opportunity Commission or any other administrative body or in any court
asserting any violation of Title VII of the Civil Rights Act of 1964, the Age
Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other federal,
state or local Law, statute or ordinance barring discrimination in employment.

(d)

Except as disclosed in the SEC Filings or as described on Schedule 4.14 , the
Company is not a party to, or bound by, any employment or other contract or
agreement that contains any severance, termination pay or change of control
liability or obligation, including, without limitation, any “excess parachute
payment,” as defined in Section 280G(b) of the Internal Revenue Code.

(e)

Except as specified in Schedule 4.14 , each of the Company's employees is a
Person who is either a United States citizen or a permanent resident entitled to
work in the United States.  To the Company's Knowledge, the Company has no
liability for the improper classification by the Company of such employees as
independent contractors or leased employees prior to the Closing.

4.15

Intellectual Property.

(a)

All Intellectual Property of the Company and its Subsidiaries is currently in
compliance with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable.  No Intellectual Property of the
Company or its Subsidiaries which is necessary for the conduct of Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted has been or is now involved in any
cancellation, dispute or litigation, and, to the Company’s Knowledge, no such
action is threatened.  No patent of the Company or its Subsidiaries has been or
is now involved in any interference, reissue, re-examination or opposition
proceeding.

(b)

All of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which the Company or any
Subsidiary is a party or by which any of their assets are bound (other than
 generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, “License Agreements”) are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company’s Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.

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(c)

The Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses.  The Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.

(d)

The conduct of the Company’s and its Subsidiaries’ businesses as currently
conducted does not infringe or otherwise impair or conflict with (collectively,
“Infringe”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s
Knowledge, the Intellectual Property and Confidential Information of the Company
and its Subsidiaries which are necessary for the conduct of Company’s and each
of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted are not being Infringed by any third party.
 There is no litigation or order pending or outstanding or, to the Company’s
Knowledge, threatened or imminent, that seeks to limit or challenge or that
concerns the ownership, use, validity or enforceability of any Intellectual
Property or Confidential Information of the Company and its Subsidiaries and the
Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is no
valid basis for the same.

(e)

The consummation of the transactions contemplated hereby and by the other
Transaction Documents will not result in the alteration, loss, impairment of or
restriction on the Company’s or any of its Subsidiaries’ ownership or right to
use any of the Intellectual Property or Confidential Information which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted.

(f)

The Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information.  Each employee, consultant and contractor who has had
access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms thereof.  Except under confidentiality obligations, there has
been no material disclosure of any of the Company’s or its Subsidiaries’
Confidential Information to any third party.

4.16

Environmental Matters.  Neither the Company nor any Subsidiary is in violation
of any statute, rule, regulation, decision or order of any governmental agency
or body or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to

-11-

hazardous or toxic substances (collectively, “Environmental Laws”), owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.

4.17

Litigation.  Except as described on Schedule 4.17, there are no pending actions,
suits or proceedings against or affecting the Company, its Subsidiaries or any
of its or their properties; and to the Company’s Knowledge, no such actions,
suits or proceedings are threatened or contemplated.  Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or since January 1, 2002
has been the subject of any action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty.  There has not been, and to the Company’s Knowledge, there is
not pending or contemplated, any investigation by the SEC involving the Company
or any current or former director or officer of the Company.  The SEC has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the 1933 Act
or the 1934 Act.

4.18

Financial Statements.  The financial statements included in each SEC Filing
present fairly, in all material respects, the consolidated financial position of
the Company as of the dates shown and its consolidated results of operations and
cash flows for the periods shown, and such financial statements have been
prepared in conformity with United States generally accepted accounting
principles applied on a consistent basis (“GAAP”) (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-QSB under the 1934 Act).  Except as set
forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof or as described on Schedule 4.18, neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.

4.19

Insurance Coverage.  The Company and each Subsidiary maintains in full force and
effect insurance coverage that is customary for comparably situated companies
for the business being conducted and properties owned or leased by the Company
and each Subsidiary, and the Company reasonably believes such insurance coverage
to be adequate against all liabilities, claims and risks against which it is
customary for comparably situated companies to insure.

4.20

Compliance with Nasdaq Continued Listing Requirements.  The Company is in
compliance with applicable Nasdaq continued listing requirements.  There are no
proceedings pending or, to the Company’s Knowledge, threatened against the
Company relating to the continued listing of the Common Stock on Nasdaq and the
Company has not received any

-12-

notice of, nor to the Company’s Knowledge is there any basis for, the delisting
of the Common Stock from Nasdaq.

4.21

Brokers and Finders.  No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.21.

4.22

No Directed Selling Efforts or General Solicitation.  Neither the Company nor
any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Securities.

4.23

No Integrated Offering.  Neither the Company nor any of its Affiliates, nor any
Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) for the exemption from registration for the transactions
contemplated hereby or would require registration of the Securities under the
1933 Act.

4.24

Private Placement.  The offer and sale of the Securities to the Investors as
contemplated hereby is exempt from the registration requirements of the 1933
Act.

4.25

Questionable Payments.  Neither the Company nor any of its Subsidiaries nor, to
the Company’s Knowledge, any of their respective current or former stockholders,
directors, officers, employees, agents or other Persons acting on behalf of the
Company or any Subsidiary, has on behalf of the Company or any Subsidiary or in
connection with their respective businesses: (a) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity; (b) made any direct or indirect unlawful payments to any
governmental officials or employees from corporate funds; (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
(d) made any false or fictitious entries on the books and records of the Company
or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature.

4.26

Transactions with Affiliates.  Except as disclosed in the SEC Filings or as
disclosed on Schedule 4.26, none of the officers or directors of the Company
and, to the Company’s Knowledge, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary (other
than as holders of stock options and/or warrants, and for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the Company’s Knowledge, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

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4.27

Internal Controls.  The Company is in material compliance with the provisions of
the Sarbanes-Oxley Act of 2002 currently applicable to the Company.  The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in 1934 Act Rules 13a-15(e) and 15d-15(e))
for the Company and designed such disclosure controls and procedures to ensure
that material information relating to the Company, including the Subsidiaries,
is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the 1934 Act, as the case may be, is being prepared.  The
Company's certifying officers have evaluated the effectiveness of the Company's
controls and procedures as of the end of the period covered by the most recently
filed periodic report under the 1934 Act (such date, the "Evaluation Date").
 The Company presented in its most recently filed periodic report under the 1934
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.  Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item 308
of Regulation S-K) or, to the Company's Knowledge, in other factors that could
significantly affect the Company's internal controls.  The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP and the applicable requirements of the 1934
Act.

4.28

Disclosures.  Neither the Company nor any Person acting on its behalf has
provided the Investors or their agents or counsel with any information that
constitutes or might constitute material, non-public information, other than the
terms of the transactions contemplated hereby.  The written materials delivered
to the Investors in connection with the transactions contemplated by the
Transaction Documents do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.

5.

Representations and Warranties of the Investors.  Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company that:

5.

Organization and Existence.  With respect to any Investor which is not a natural
Person, such Investor is a validly existing corporation, limited partnership or
limited liability company and has all requisite corporate, partnership or
limited liability company power and authority to invest in the Securities
pursuant to this Agreement.

5.

Authorization.  The execution, delivery and performance by such Investor of the
Transaction Documents to which such Investor is a party have been duly
authorized and each will constitute the valid and legally binding obligation of
such Investor, enforceable against

-14-

such Investor in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors’ rights generally.

5.

Purchase Entirely for Own Account.  The Securities to be received by such
Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Securities
in compliance with applicable federal and state securities laws .   Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time.  Such Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.

5.

Investment Experience.  Such Investor acknowledges that it can bear the economic
risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.

5.

Disclosure of Information.  Such Investor has had an opportunity to receive all
information related to the Company requested by it and to ask questions of and
receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Securities.  Such Investor
acknowledges receipt of copies of the SEC Filings.  Neither such inquiries nor
any other due diligence investigation conducted by such Investor shall modify,
limit or otherwise affect such Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement.

5.

Restricted Securities.  Such Investor understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.

5.7

Legends.  It is understood that, except as provided below, certificates
evidencing the Securities may bear the following or any similar legend:

()

“The securities represented hereby may not be transferred unless (i) such
securities have been registered for sale pursuant to the Securities Act of 1933,
as amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii)
the Company has received an opinion of counsel reasonably satisfactory to it
that such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities laws.”

()

If required by the authorities of any state in connection with the issuance of
sale of the Securities, the legend required by such state authority.

-15-

5.8

Accredited Investor.  Such Investor is an accredited investor as defined in Rule
501(a) of Regulation D, as amended, under the 1933 Act.

5.9

No General Solicitation.  Such Investor did not learn of the investment in the
Securities as a result of any general solicitation or general advertising.

5.10

Brokers and Finders.  No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of such Investor.

5.11

Prohibited Transactions.  During the last thirty (30) days prior to the date
hereof, neither such Investor nor any Affiliate of such Investor which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares discretion
relating to such Investor’s investments or trading or information concerning
such Investor’s investments, including in respect of the Securities, or (z) is
subject to such Investor’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”) has, directly or
indirectly, effected or agreed to effect any short sale, whether or not against
the box, established any “put equivalent position” (as defined in Rule 16a-1(h)
under the 1934 Act) with respect to the Common Stock, granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a “Prohibited
Transaction”).  Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the Effective Date or (iii) the Effectiveness Deadline, such
Investor shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction.  Such Investor acknowledges
that the representations, warranties and covenants contained in this Section
5.11 are being made for the benefit of the Investors as well as the Company and
that each of the other Investors shall have an independent right to assert any
claims against such Investor arising out of any breach or violation of the
provisions of this Section 5.11.

6.  Conditions to Closing.

6.1

Conditions to the Investors’ Obligations. The obligation of each Investor to
purchase the Shares and the Warrants at the Closing is subject to the
fulfillment to such Investor’s satisfaction, on or prior to the Closing Date, of
the following conditions, any of which may be waived by such Investor (as to
itself only):

(a)

The representations and warranties made by the Company in Section 4 hereof
qualified as to materiality shall be true and correct at all times prior to and
on the Closing Date, except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case such representation or
warranty shall be true and correct as of such earlier date, and, the
representations and warranties made by the Company in Section 4 hereof not
qualified as to materiality shall be true and correct in all material respects
at all times prior to

-16-

and on the Closing Date, except to the extent any such representation or
warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct in all material respects as
of such earlier date.  The Company shall have performed in all material respects
all obligations and covenants herein required to be performed by it on or prior
to the Closing Date.

(b)

The Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.

(c)

The Company shall have executed and delivered the Registration Rights Agreement.

(d)

The Company shall have filed with Nasdaq a Notification Form: Listing of
Additional Shares for the inclusion of the Shares and the Warrant Shares in the
Nasdaq Capital Market, a copy of which shall have been provided to the
Investors.

(e)

The Company shall have taken all action necessary to effect the Debt Refinancing
simultaneously with the Closing.

(f)

The Company shall have completed the Warrant Amendment.

(g)

No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.

(h)

The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b), (g) and (k) of this Section 6.1.

(i)

The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities and the calling the Stockholders Meeting (as
defined below), certifying the current versions of the Articles of Incorporation
and Bylaws of the Company and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.

(j)

The Investors shall have received an opinion from the Law Offices of Aaron A.
Grunfeld, the Company's counsel, dated as of the Closing Date, in form and

-17-

substance reasonably acceptable to the Investors and addressing such legal
matters as the Investors may reasonably request.

(k)

No stop order or suspension of trading shall have been imposed by Nasdaq, the
SEC or any other governmental or regulatory body with respect to public trading
in the Common Stock.

(l)

The Company shall have delivered to such Investor a copy of the Irrevocable
Transfer Agent Instructions, in the form of Exhibit C attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company's transfer agent.

(m)

There shall have been no Material Adverse Effect with respect to the Company
since the date hereof.

(n)

At least $5,500,000 of the Purchase Price shall have been delivered to the
Company subject only to the conditions set forth in this Section 6.1.

6.2

Conditions to Obligations of the Company. The Company's obligation to sell and
issue the Shares and the Warrants at the Closing is subject to the fulfillment
to the satisfaction of the Company on or prior to the Closing Date of the
following conditions, any of which may be waived by the Company:

(a)

The representations and warranties made by the Investors in Section 5 hereof,
other than the representations and warranties contained in Sections 5.3, 5.4,
5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.  The Investment Representations shall be
true and correct in all respects when made, and shall be true and correct in all
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.  The Investors shall have performed in all material
respects all obligations and covenants herein required to be performed by them
on or prior to the Closing Date.

(b)

The Investors shall have executed and delivered the Registration Rights
Agreement.

(c)

The Investors shall have delivered the Purchase Price to the Company.

6.3

Termination of Obligations to Effect Closing; Effects.

(a)

The obligations of the Company, on the one hand, and the Investors, on the other
hand, to effect the Closing shall terminate as follows:

-18-

(i)

Upon the mutual written consent of the Company and the Investors;

(ii)

By the Company if any of the conditions set forth in Section 6.2 shall have
become incapable of fulfillment, and shall not have been waived by the Company;

(iii)

By an Investor (with respect to itself only) if any of the conditions set forth
in Section 6.1 shall have become incapable of fulfillment, and shall not have
been waived by the Investor; or

(iv)

By either the Company or any Investor (with respect to itself only) if the
Closing has not occurred on or prior to October 31, 2007;

provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

(b)

In the event of termination by the Company or any Investor of its obligations to
effect the Closing pursuant to this Section 6.3, written notice thereof shall
forthwith be given to the other Investors by the Company and the other Investors
shall have the right to terminate their obligations to effect the Closing upon
written notice to the Company and the other Investors.  Nothing in this Section
6.3 shall be deemed to release any party from any liability for any breach by
such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.

7.

Covenants and Agreements of the Company.

7.1

Reservation of Common Stock.  The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the exercise of the Warrants, such number of shares
of Common Stock as shall from time to time equal to 130% of the number of shares
sufficient to permit the exercise of the Warrants issued pursuant to this
Agreement in accordance with their respective terms.

7.2

Reports.  The Company will furnish to the Investors and/or their assignees such
information relating to the Company and its Subsidiaries as from time to time
may reasonably be requested by the Investors and/or their assignees; provided,
however, that the Company shall not disclose material nonpublic information to
the Investors, or to advisors to or representatives of the Investors, unless
prior to disclosure of such information the Company identifies such information
as being material nonpublic information and provides the Investors, such
advisors and representatives with the opportunity to accept or refuse to accept
such material nonpublic information for review and any Investor wishing to
obtain such information enters into an appropriate confidentiality agreement
with the Company with respect thereto.

-19-

7.3

No Conflicting Agreements.  The Company will not take any action, enter into any
agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.

7.4

Insurance.  The Company shall not materially reduce the insurance coverages
described in Section 4.19.

7.5

Compliance with Laws.  The Company will comply in all material respects with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities.

7.6

Listing of Underlying Shares and Related Matters.  Promptly following the date
hereof, the Company shall take all necessary action to cause the Shares and the
Warrant Shares to be listed on the Nasdaq Capital Market no later than the
Closing Date.  Further, if the Company applies to have its Common Stock or other
securities traded on any other principal stock exchange or market, it shall
include in such application the Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed.  The
Company will use commercially reasonable efforts to continue the listing and
trading of its Common Stock on the Nasdaq Capital Market and, in accordance,
therewith, will use commercially reasonable efforts to comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of such market or exchange, as applicable.

7.7

Termination of Covenants.  The provisions of Sections 7.2 through 7.5 shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

7.8

Removal of Legends.  In connection with any sale or disposition of the
Securities by an Investor pursuant to Rule 144 or pursuant to any other
exemption under the 1933 Act such that the purchaser acquires freely tradable
shares and upon compliance by the Investor with the requirements of this
Agreement, the Company shall or, in the case of Common Stock, shall cause the
transfer agent for the Common Stock (the “Transfer Agent”) to issue replacement
certificates representing the Securities sold or disposed of without restrictive
legends.  Upon the earlier of (i) registration for resale pursuant to the
Registration Rights Agreement or (ii) Rule 144(k) becoming available the Company
shall (A) deliver to the Transfer Agent irrevocable instructions that the
Transfer Agent shall reissue a certificate representing shares of Common Stock
without legends upon receipt by such Transfer Agent of the legended certificates
for such shares, together with either (1) a customary representation by the
Investor that Rule 144(k) applies to the shares of Common Stock represented
thereby or (2) a statement by the Investor that such Investor has sold the
shares of Common Stock represented thereby in accordance with the Plan of
Distribution contained in the Registration Statement, and (B) cause its counsel
to deliver to the Transfer Agent one or more blanket opinions to the effect that
the removal of such legends in such circumstances may be effected under the 1933
Act.  From and after the earlier of such dates, upon an Investor’s written
request, the Company shall promptly

-20-

cause certificates evidencing the Investor’s Securities to be replaced with
certificates which do not bear such restrictive legends, and Warrant Shares
subsequently issued upon due exercise of the Warrants shall not bear such
restrictive legends provided the provisions of either clause (i) or clause (ii)
above, as applicable, are satisfied with respect to such Warrant Shares.  When
the Company is required to cause an unlegended certificate to replace a
previously issued legended certificate, if: (1) the unlegended certificate is
not delivered to an Investor within three (3) Business Days of submission by
that Investor of a legended certificate and supporting documentation to the
Transfer Agent as provided above and (2) prior to the time such unlegended
certificate is received by the Investor, the Investor, or any third party on
behalf of such Investor or for the Investor’s account, purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Investor of shares represented by such certificate
(a “Buy-In”), then the Company shall pay in cash to the Investor (for costs
incurred either directly by such Purchaser or on behalf of a third party) the
amount by which the total purchase price paid for Common Stock as a result of
the Buy-In (including brokerage commissions, if any) exceeds the proceeds
received by such Investor as a result of the sale to which such Buy-In relates.
 The Investor shall provide the Company written notice indicating the amounts
payable to the Investor in respect of the Buy-In.

7.9

Information Statement .  (a)  Promptly following the execution and delivery of
this Agreement the Company shall prepare and file with the SEC an information
statement describing the transactions contemplated by the Transaction Documents,
disclosing that t he stockholders of the Company have irrevocably consented to
the issuance of the Securities and the other transactions contemplated hereby in
accordance with applicable law, the Company’s Articles of Incorporation and
Bylaws and the applicable requirements of Nasdaq and otherwise meeting the
requirements of Section 14(c) of the 1934 Act and the rules promulgated
thereunder (the “Information Statement”) and, after receiving and promptly
responding to any comments of the SEC thereon, shall promptly mail such
Information Statement to the stockholders of the Company not less than 20
calendar days prior to the Closing Date, or such longer period as may be
required by applicable law or the Company’s Articles of Incorporation or Bylaws.
 Each Investor shall promptly furnish in writing to the Company such information
relating to such Investor and its investment in the Company as the Company may
reasonably request for inclusion in the Information Statement.  The Company will
comply with Section 14(c) of the 1934 Act and the rules promulgated thereunder
connection with the preparation and mailing of the Information Statement, and
the Information Statement shall not, as of the date that the Information
Statement (or any amendment thereof or supplement thereto) is first mailed to
stockholders or at the Closing Date, contain any statement which, at the time
and in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the same subject matter which has become false or misleading.
 If the Company should discover at any time prior to the Closing Date, any event
relating to the Company or any of its Subsidiaries or any of their respective
affiliates, officers or directors that is required to be set forth in a
supplement or amendment to the Information Statement, in addition to the
Company's obligations under the 1934 Act, the Company will promptly inform the
Investors thereof.

7.10

Subsequent Equity Sales.

-21-

(a)

From the date hereof until ninety (90) days after the Effective Date, without
the consent of the Investors, neither the Company nor any Subsidiary shall issue
shares of Common Stock or Common Stock Equivalents; provided, however, that the
provisions of this Section 7.10(a) shall not apply to any Excluded Issuances (as
defined in the Warrants).

(b)

From the date hereof until such time as no Investor holds any of the Securities,
the Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a “Variable Rate Transaction”.  The
term “Variable Rate Transaction” shall mean a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock or (ii) enters into any
agreement, including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price.

7.11

Equal Treatment of Investors.  No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents.  For clarification purposes,
this provision constitutes a separate right granted to each Investor by the
Company and negotiated separately by each Investor, and is intended for the
Company to treat the Investors as a class and shall not in any way be construed
as the Investors acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

8.

Survival and Indemnification.

8.  Survival.  The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.

8.  Indemnification.  The Company agrees to indemnify and hold harmless each
Investor and its Affiliates and their respective directors, officers, employees
and agents from and against any and all losses, claims, damages, liabilities and
expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of (a) any misrepresentation or breach of
any representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action,

-22-

suit or claim brought or made against such Investor by a third party (including
for these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities, (iii) any disclosure made by such Investor pursuant
to Section 9.7, or (iv) the status of such Investor or holder of the Securities
as an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person.

8.  Conduct of Indemnification Proceedings.  Promptly after receipt by any
Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify.  In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them.  The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.

9.

Miscellaneous.

9.

Successors and Assigns.  This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as
applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a transaction complying with
applicable securities laws without the prior written consent of the Company or
the other Investors.  The provisions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties.  Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties

-23-

hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

9.

Counterparts; Faxes.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may also
be executed via facsimile, which shall be deemed an original.

9.

Titles and Subtitles.  The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.

9.

Notices.  Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given as
hereinafter described (i) if given by personal delivery, then such notice shall
be deemed given upon such delivery, (ii) if given by telex or telecopier, then
such notice shall be deemed given upon receipt of confirmation of complete
transmittal, (iii) if given by mail, then such notice shall be deemed given upon
the earlier of (A) receipt of such notice by the recipient or (B) three days
after such notice is deposited in first class mail, postage prepaid, and (iv) if
given by an internationally recognized overnight air courier, then such notice
shall be deemed given one Business Day after delivery to such carrier.  All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:

If to the Company:

House of Taylor Jewelry, Inc.

9200 Sunset Boulevard, Suite 425

West Hollywood, California 90069

Attention:  Jack Abramov, President

Fax:  (310) 860-2661

With a copy (not constituting notice) to:

Law Offices of Aaron A. Grunfeld

9200 Sunset Boulevard, 9th Floor

Los Angeles, California 90069

Attention:  Aaron A. Grunfeld, Esq.

Fax:  (310) 788-6677

If to the Investors:

to the addresses set forth on the signature pages hereto,

With a copy (for informational purposes only) to:

-24-

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York  10022
Telephone:

(212) 756-2000
Facsimile:

(212) 593-5955
Attention:

Eleazer N. Klein, Esq.

9.

Expenses.  The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay the reasonable fees and
expenses of Lowenstein Sandler PC not to exceed $35,000; it being understood
that Lowenstein Sandler PC has only rendered legal advice to SSF and its
Affiliates, if any, participating in this transaction and not to the Company or
any other Investor in connection with the transactions contemplated hereby, and
that each of the Company and each Investor has relied for such matters on the
advice of its own respective counsel.  Such expenses shall be paid not later
than the Closing.  The Company shall reimburse the Investors upon demand for all
reasonable out-of-pocket expenses incurred by the Investors, including without
limitation reimbursement of attorneys’ fees and disbursements, in connection
with any amendment, modification or waiver of this Agreement or the other
Transaction Documents.  In the event that legal proceedings are commenced by any
party to this Agreement against another party to this Agreement in connection
with this Agreement or the other Transaction Documents, the party or parties
which do not prevail in such proceedings shall severally, but not jointly, pay
their pro rata share of the reasonable attorneys’ fees and other reasonable
out-of-pocket costs and expenses incurred by the prevailing party in such
proceedings.

9.

Amendments and Waivers.  Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investors.  Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Securities purchased under this Agreement at the time outstanding, each
future holder of all such Securities, and the Company.

9.

Publicity.  Except as set forth below, no public release or announcement
concerning the transactions contemplated hereby shall be issued by the Company
or the Investors without the prior consent of the Company (in the case of a
release or announcement by the Investors) or the Investors (in the case of a
release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance.  By 8:30 a.m. (New York
City time) on the trading day immediately following the Closing Date, the
Company shall issue a press release disclosing the consummation of the
transactions contemplated by this Agreement (the "Press Release").  No later
than the fourth trading day following the Closing Date, the Company will file a
Current Report on Form 8-K attaching the press release described in the
foregoing sentence as well as copies of the Transaction Documents.  From and
after the filing of the Press Release with the SEC, no Investor (other than

-25-

an Investor who either is (i) an officer or director of the Company or (ii) a
supplier or licensor to, or customer of the Company (collectively, “Inside
Investors”)) shall be in possession of any material, nonpublic information
received from the Company, any of its Subsidiaries or any of their respective
officers, directors, employees or agents, that is not disclosed in the Press
Release.  Except for any Insider Investors, the Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Investor with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the Press Release with the SEC without the express written
consent of such Investor.  No Investor shall have any liability to the Company,
its Subsidiaries, or any of its or their respective officers, directors,
employees, stockholders or agents for any such disclosure.  Subject to the
foregoing, neither the Company, its Subsidiaries nor any Investor shall issue
any press releases or any other public statements with respect to the
transactions contemplated hereby.  Without the prior written consent of any
applicable Investor, the Company shall not disclose the name of any Investor in
any filing, announcement, release or otherwise.  In addition, the Company will
make such other filings and notices in the manner and time required by the SEC
or Nasdaq.

9.

Severability.  Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.  To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.

9.

Entire Agreement.  This Agreement, including the Exhibits and the Disclosure
Schedules, and the other Transaction Documents constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof.

9.

Further Assurances.  The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.

9.

Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement
shall be governed by, and construed in accordance with, the internal laws of the
State of New York without regard to the choice of law principles thereof.  Each
of the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby.  Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement.  Each of the

-26-

parties hereto irrevocably consents to the jurisdiction of any such court in any
such suit, action or proceeding and to the laying of venue in such court.  Each
party hereto irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.

9.12

Independent Nature of Investors' Obligations and Rights .  The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document.  The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor.  Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents.  Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents.  Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose.  The Company acknowledges that each of the
Investors has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Investors and not because it was required
or requested to do so by any Investor.

[signature page follows]

-27-

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

The Company:

HOUSE OF TAYLOR JEWELRY, INC.

By:_________________________

Name:  

Title:     

-28-

The Investors:

SPECIAL SITUATIONS FUND III QP, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

Number of Shares:  

Number of Warrants:  

Address for Notice:

527 Madison Avenue

Suite 2600

New York, NY  10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

SPECIAL SITUATIONS FUND III, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

Number of Shares:  

Number of Warrants:  

Address for Notice:

527 Madison Avenue

Suite 2600

New York, NY  10022

-29-

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

SPECIAL SITUATIONS CAYMAN FUND, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

Number of Shares:  

Number of Warrants:  

Address for Notice:

527 Madison Avenue

Suite 2600

New York, NY  10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

-30-

Number of Shares:  

Number of Warrants:  

527 Madison Avenue

Suite 2600

New York, NY  10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

Number of Shares:  

Number of Warrants:  

Address for Notice:

527 Madison Avenue

Suite 2600

New York, NY  10022

-31-

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

Number of Shares:  

Number of Warrants:  

Address for Notice:

527 Madison Avenue

Suite 2600

New York, NY  10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

SPECIAL SITUATIONS LIFE SCIENCES FUND, L.P.

By:_________________________

Name: Austin W. Marxe

Title: General Partner

Aggregate Purchase Price:  $

-32-

Number of Shares:  

Number of Warrants:  

Address for Notice:

527 Madison Avenue

Suite 2600

New York, NY  10022

with a copy to:

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ  07068

Attn:  John D. Hogoboom, Esq.

Telephone:

973.597.2500

Facsimile:

973.597.2400

INVESTOR:

By:_________________________

Name:

Title:

Aggregate Purchase Price:  $

Number of Shares:  

Number of Warrants:  

Address for Notice:

-33-