ex1005.htm


    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.]

    

      

    

      
      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:                      __________________________