EXECUTION
      COPY

     

    
      SECURITIES
        PURCHASE AGREEMENT 

       

      SECURITIES
        PURCHASE AGREEMENT
        (the
        "Agreement"),
        dated
        as of January 5, 2006, by and among Phantom Fiber Corporation, a Delaware
        corporation, with headquarters located at 144 Front Street, Suite 580, Toronto,
        Ontario, Canada M5J 2L7 (the "Company"),
        and
        the investors listed on the Schedule of Buyers attached hereto (individually,
        a
        "Buyer"
        and
        collectively, the "Buyers").

       

      WHEREAS:

       

      A.  The
        Company and each Buyer is executing and delivering this Agreement in reliance
        upon the exemption from securities registration afforded by Section 4(2)
        of the
        Securities Act of 1933, as amended (the "1933
        Act"),
        and
        Rule 506 of Regulation D ("Regulation D")
        as
        promulgated by the United States Securities and Exchange Commission (the
        "SEC")
        under
        the 1933 Act.

       

      B.  The
        Company has authorized a new series of senior convertible notes of the Company,
        which Notes shall be convertible into the Company's common stock, $0.001
        par
        value per share (the "Common
        Stock"),
        in
        accordance with the terms of the Notes.

       

      C.  Each
        Buyer wishes to purchase, and the Company wishes to sell, upon the terms
        and
        conditions stated in this Agreement, (i) that aggregate principal amount
        of
        Notes, in substantially the form attached hereto as Exhibit
        A
        (the
        "Notes"),
        set
        forth opposite such Buyer's name in column (3) on the Schedule of Buyers
        (which
        aggregate amount for all Buyers shall be $3,500,000) (as converted,
        collectively, the "Conversion
        Shares")
        and
        (ii) Series A Warrants and Series B Warrants, in substantially the form attached
        hereto as Exhibit
        B
        (collectively, the "Warrants"),
        to
        acquire that number of shares of Common Stock (as exercised, collectively,
        the
        "Warrant
        Shares")
        set
        forth opposite such Buyer's name in column (4) on the Schedule of
        Buyers.

       

      D.  The
        Notes
        bear interest, which, subject to certain conditions, may be paid in Common
        Stock
        ("Interest
        Shares").

       

      E.  Contemporaneously
        with the execution and delivery of this Agreement, the parties hereto are
        executing and delivering a Registration Rights Agreement, substantially in
        the
        form attached hereto as Exhibit
        C
        (the
        "Registration
        Rights Agreement"),
        pursuant to which the Company has agreed to provide certain registration
        rights
        with respect to the Conversion Shares, Interest Shares and Warrant Shares
        under
        the 1933 Act and the rules and regulations promulgated thereunder, and
        applicable state securities laws.

       

      F.  The
        Notes, the Conversion Shares, the Interest Shares, the Warrants and the Warrant
        Shares, are collectively are referred to herein as the "Securities".

       

      NOW,
        THEREFORE,
        the
        Company and each Buyer hereby agree as follows:

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      1.  PURCHASE
        AND SALE OF NOTES AND WARRANTS.

       

      (a)  Amount.
        Subject
        to the satisfaction (or waiver) of the conditions set forth in Sections 6
        and 7
        below, the Company shall issue and sell to each Buyer, and each Buyer severally,
        but not jointly, agrees to purchase from the Company on the Closing Date
        (as
        defined below), a principal amount of Notes, as is set forth opposite such
        Buyer's name in column (3) on the Schedule of Buyers, along
        with Warrants to acquire that number of Warrant Shares as is set forth opposite
        such Buyer's name in column (4) on the Schedule of Buyers. 

       

      (b)  Closing.
        The
        closing (the "Closing")
        of the
        purchase of the Notes and the Warrants by the Buyers shall occur at the offices
        of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. The
        date and time of the Closing (the "Closing
        Date")
        shall
        be 10:00 a.m., New York City Time, on the date hereof, subject to notification
        of satisfaction (or waiver) of the conditions to the Closing set forth in
        Sections 6 and 7 below (or such later date as is mutually agreed to by the
        Company and each Buyer). 

       

      (c)  Purchase
        Price.
        The
        purchase price for each Buyer (the "Purchase
        Price")
        of the
        Notes and related Warrants to be purchased by each Buyer at the Closing shall
        be
        equal to $1.00 for each $1.00 of principal amount of Notes being purchased
        by
        such Buyer at the Closing. The aggregate Purchase Price to be paid by each
        Buyer
        at the Closing is as set forth opposite such Buyer's name in column (3) on
        the
        Schedule of Buyers.

       

      (d)  Form
        of Payment.
        On the
        Closing Date, (A) each Buyer shall pay its aggregate Purchase Price to the
        Company for the Notes and the Warrants to be issued and sold to such Buyer
        at
        the Closing, by wire transfer of immediately available funds in accordance
        with
        the Company's written wire instructions, and (B) the Company shall deliver
        to each Buyer the Notes (in
        such
        principal amount
        as
        is set forth opposite such Buyer's name in column (3) on the Schedule
        of
        Buyers),
        along with the Warrants (exercisable for the number of shares of Common Stock
        as
        is set forth opposite such Buyer's name in column (4) on the Schedule of
        Buyers), each duly executed on behalf of the Company and registered in the
        name
        of such Buyer or its designee.

       

      2.  BUYER'S
        REPRESENTATIONS AND WARRANTIES.

       

      Each
        Buyer represents and warrants with respect to only itself that: 

       

      (a)  Organization;
        Authority.
        Such
        Buyer is an entity duly organized, validly existing and in good standing
        under
        the laws of the jurisdiction of its organization with the requisite power
        and
        authority to enter into and to consummate the transactions contemplated by
        the
        Transaction Documents (as defined below) to which it is a party and otherwise
        to
        carry out its obligations hereunder and thereunder.

       

      (b)  No
        Public Sale or Distribution.
        Such
        Buyer is (i) acquiring the Notes and the Warrants, (ii) upon conversion of
        the
        Notes will acquire the Conversion Shares, and (iii) upon exercise of the
        Warrants will acquire the Warrant Shares, in each case, for its own account
        and
        not with a view towards, or for resale in connection with, the public sale
        or
        distribution thereof, except pursuant to sales registered or exempted under
        the
        1933 Act; provided, however, that by making the representations herein, such
        Buyer does not agree to hold any of the Securities for any minimum or other
        specific term and reserves the right to dispose of the Securities at any
        time in
        accordance with or pursuant to a registration statement or an exemption under
        the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary
        course of its business. Such Buyer does not presently have any agreement
        or
        understanding, directly or indirectly, with any Person to distribute any
        of the
        Securities.

       

      
        
          
          

        

        
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      (c)  Accredited
        Investor Status.
        Such
        Buyer is an "accredited investor" as that term is defined in Rule 501(a)
        of
        Regulation D.

       

      (d)  Reliance
        on Exemptions.
        Such
        Buyer understands that the Securities are being offered and sold to it in
        reliance on specific exemptions from the registration requirements of United
        States federal and state securities laws and that the Company is relying
        in part
        upon the truth and accuracy of, and such Buyer's compliance with, the
        representations, warranties, agreements, acknowledgments and understandings
        of
        such Buyer set forth herein in order to determine the availability of such
        exemptions and the eligibility of such Buyer to acquire the
        Securities.

       

      (e)  Information.
        Such
        Buyer and its advisors, if any, have been furnished with all materials relating
        to the business, finances and operations of the Company and materials relating
        to the offer and sale of the Securities which have been requested by such
        Buyer.
        Such Buyer and its advisors, if any, have been afforded the opportunity to
        ask
        questions of the Company. Neither such inquiries nor any other due diligence
        investigations conducted by such Buyer or its advisors, if any, or its
        representatives shall modify, amend or affect such Buyer's right to rely
        on the
        Company's representations and warranties contained herein. Such Buyer
        understands that its investment in the Securities involves a high degree
        of
        risk. Such Buyer has sought such accounting, legal and tax advice as it has
        considered necessary to make an informed investment decision with respect
        to its
        acquisition of the Securities.

       

      (f)  No
        Governmental Review.
        Such
        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 or the fairness or suitability of the investment
        in the Securities nor have such authorities passed upon or endorsed the merits
        of the offering of the Securities.

       

      (g)  Transfer
        or Resale.
        Such
        Buyer understands that except as provided in the Registration Rights Agreement:
        (i) the Securities have not been and are not being registered under the 1933
        Act
        or any state securities laws, and may not be offered for sale, sold, assigned
        or
        transferred unless (A) subsequently registered thereunder, (B) such Buyer
        shall
        have delivered to the Company an opinion of counsel, by counsel reasonably
        acceptable to the Company and in form and substance reasonably satisfactory
        to
        the Company, to the effect that such Securities to be sold, assigned or
        transferred may be sold, assigned or transferred pursuant to an exemption
        from
        such registration, or (C) such Buyer provides the Company with reasonable
        assurance that such Securities can be sold, assigned or transferred pursuant
        to
        Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a
        successor rule thereto) (collectively, "Rule
        144");
        (ii)
        any sale of the Securities made in reliance on Rule 144 may be made only
        in
        accordance with the terms of Rule 144 and further, if Rule 144 is not
        applicable, any resale of the Securities under circumstances in which the
        seller
        (or the Person (as defined in Section 3(s)) through whom the sale is made)
        may
        be deemed to be an underwriter (as that term is defined 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 (iii) neither the Company nor any
        other
        Person is under any obligation to register the Securities under the 1933
        Act or
        any state securities laws or to comply with the terms and conditions of any
        exemption thereunder. The Securities may be pledged pursuant to an available
        exemption from registration under the 1933 Act in connection with a bona
        fide
        margin account or other loan or financing arrangement secured by the Securities
        and such pledge of Securities shall not be deemed to be a transfer, sale
        or
        assignment of the Securities hereunder, and no Buyer effecting a pledge of
        Securities shall be required to provide the Company with any notice thereof
        or
        otherwise make any delivery to the Company pursuant to this Agreement or
        any
        other Transaction Document (as defined in Section 3(b)), including, without
        limitation, this Section 2(g).

       

      
        
          
          

        

        
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      (h)  Legends.
        Such
        Buyer understands that the certificates or other instruments representing
        the
        Notes and the Warrants and, until such time as the resale of the Conversion
        Shares, the Warrant Shares and the Interest Shares, if any, have been registered
        under the 1933 Act as contemplated by the Registration Rights Agreement,
        the
        stock certificates representing the Conversion Shares, the Warrant Shares
        and
        the Interest Shares, if any, except as set forth below, shall bear any legend
        as
        required by the "blue sky" laws of any state and a restrictive legend in
        substantially the following form (and a stop-transfer order may be placed
        against transfer of such stock certificates):

         
      

      

          NEITHER
            THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
            NOR THE
            SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE]
            HAVE
            BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
            UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
            LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
            ASSIGNED
            (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
            SECURITIES
            UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
            LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
            REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
            LAWS
            OR (II) UNLESS SOLD PURSUANT TO RULE 144(K) UNDER SAID
            ACT.  NOTWITHSTANDING THE FOREGOING,
            THE SECURITIES MAY BE PLEDGED PURSUANT TO AN AVAILABLE EXEMPTION FROM
            REGISTRATION UNDER THE 1933 ACT IN CONNECTION WITH A BONA FIDE MARGIN
            ACCOUNT OR
            OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
            SECURITIES.


         

      

      The
        legend set forth above shall be removed and the Company shall issue a
        certificate without such legend to the holder of the Securities upon which
        it is
        stamped, if, unless otherwise required by state securities laws, (i) such
        Securities are registered for resale under the 1933 Act, (ii) in connection
        with
        a sale, assignment or other transfer, such holder provides the Company with
        an
        opinion of counsel, by counsel reasonably acceptable to the Company and in
        form
        and substance reasonably satisfactory to the Company, to the effect that
        such
        sale, assignment or transfer of the Securities may be made without registration
        under the applicable requirements of the 1933 Act, or (iii) such holder provides
        the Company with reasonable assurance that the Securities can be sold, assigned
        or transferred pursuant to Rule 144(k).

       

      
        
          
          

        

        
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      (i)  Validity;
        Enforcement.
        This
        Agreement and the Registration Rights Agreement to which such Buyer is a
        party
        have been duly and validly authorized, executed and delivered on behalf of
        such
        Buyer and shall constitute the legal, valid and binding obligations of such
        Buyer enforceable against such Buyer in accordance with their respective
        terms,
        except as such enforceability may be limited by general principles of equity
        or
        to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
        and other similar laws relating to, or affecting generally, the enforcement
        of
        applicable creditors' rights and remedies.

       

      (j)  No
        Conflicts.
        The
        execution, delivery and performance by such Buyer of this Agreement and the
        Registration Rights Agreement to which such Buyer is a party and the
        consummation by such Buyer of the transactions contemplated hereby and thereby
        will not (i) result in a violation of the organizational documents of such
        Buyer
        or (ii) conflict with, or constitute a default (or an event which with notice
        or
        lapse of time or both would become a default) under, or give to others any
        rights of termination, amendment, acceleration or cancellation of, any
        agreement, indenture or instrument to which such Buyer is a party, or (iii)
        result in a violation of any law, rule, regulation, order, judgment or decree
        (including United States federal and state securities laws) applicable to
        such
        Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts,
        defaults, rights or violations which would not, individually or in the
        aggregate, reasonably be expected to have a material adverse effect on the
        ability of such Buyer to perform its obligations hereunder.

       

      (k)  Residency.
        Such
        Buyer is a resident of that jurisdiction specified below its address on the
        Schedule of Buyers.

       

      3.  REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY.

       

      The
        Company represents and warrants to each of the Buyers that:

       

      (a)  Organization
        and Qualification.
        The
        Company and its "Subsidiaries"
        (which
        for purposes of this Agreement means any entity in which the Company, directly
        or indirectly, owns capital stock or holds an equity or similar interest)
        are
        entities duly organized and validly existing in good standing under the laws
        of
        the jurisdiction in which they are formed, and have the requisite power and
        authorization to own their properties and to carry on their business as now
        being conducted. Each of the Company and its Subsidiaries is duly qualified
        as a
        foreign entity to do business and is in good standing in every jurisdiction
        in
        which its ownership of property or the nature of the business conducted by
        it
        makes such qualification necessary, except to the extent that the failure
        to be
        so qualified or be in good standing would not have a Material Adverse Effect.
        As
        used in this Agreement, "Material
        Adverse Effect"
        means
        any material adverse effect on the business, properties, assets, operations,
        results of operations, condition (financial or otherwise) or prospects of
        the
        Company and its Subsidiaries, taken as a whole, or on the transactions
        contemplated hereby and by the other Transaction Documents or by the agreements
        and instruments to be entered into in connection herewith or therewith, or
        on
        the authority or ability of the Company to perform its obligations under
        the
        Transaction Documents (as defined below). The Company has no Subsidiaries,
        except as set forth on Schedule
        3(a).

       

      
        
          
          

        

        
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      (b)  
        Authorization; Enforcement; Validity.
        The
        Company has the requisite corporate power and authority to enter into and
        perform its obligations under this Agreement, the Notes, the Warrants, the
        Registration Rights Agreement, the Irrevocable Transfer Agent Instructions
        (as
        defined in Section 5(b)), and each of the other agreements entered into by
        the
        parties hereto in connection with the transactions contemplated by this
        Agreement (collectively, the "Transaction
        Documents")
        and to
        issue the Securities in accordance with the terms hereof and thereof. The
        execution and delivery of the Transaction Documents by the Company and the
        consummation by the Company of the transactions contemplated hereby and thereby,
        including, without limitation, the issuance of the Notes, the reservation
        for
        issuance and the issuance of the Conversion Shares issuable
        upon conversion of the Notes, the issuance of the Warrants and the reservation
        for issuance and issuance of the Warrant Shares issuable upon exercise of
        the
        Warrants, have been duly authorized by the Company's Board of Directors and
        (other than the filing with the SEC of one or more Registration Statements
        in
        accordance with the requirements of the Registration Rights Agreement and
        any
        other filings as may be required by any state securities agencies) no further
        filing, consent, or authorization is required by the Company, its Board of
        Directors or its stockholders. This Agreement and the other Transaction
        Documents of even date herewith have been duly executed and delivered by
        the
        Company, and constitute the legal, valid and binding obligations of the Company,
        enforceable against the Company in accordance with their respective terms,
        except as such enforceability may be limited by general principles of equity
        or
        applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
        or
        similar laws relating to, or affecting generally, the enforcement of applicable
        creditors' rights and remedies.

       

      (c)  Issuance
        of Securities.
        The
        issuance of the Notes and the Warrants are duly authorized and upon issuance
        in
        accordance with the terms of the Transaction Documents shall be free from
        all
        taxes, liens and charges with respect to the issue thereof. As of the Closing,
        the Company shall have reserved from its duly authorized capital stock not
        less
        than the sum of (i) 125% of the maximum number of shares of Common Stock
        issuable upon conversion of the Notes (assuming for purposes hereof, that
        the
        Notes are convertible at the Conversion Price and without taking into account
        any limitations on the conversion of the Notes set forth in the Notes) and
        (ii)
        125% of the maximum number of shares of Common Stock issuable upon exercise
        of
        the Warrants (without taking into account any limitations on the exercise
        of the
        Warrants set forth in the Warrants). Upon issuance or conversion in accordance
        with the Notes or exercise in accordance with the Warrants, as the case may
        be,
        the Interest Shares, the Conversion Shares and the Warrant Shares, respectively,
        will be validly issued, fully paid and nonassessable and free from all
        preemptive or similar rights, taxes, liens and charges with respect to the
        issue
        thereof, with the holders being entitled to all rights accorded to a holder
        of
        Common Stock. The offer and issuance by the Company of the Securities is
        exempt
        from registration under the 1933 Act and all Canadian securities laws are
        inapplicable to such offer and issuance.

       

      (d)  No
        Conflicts.
        The
        execution, delivery and performance of the Transaction Documents by the Company
        and the consummation by the Company of the transactions contemplated hereby
        and
        thereby (including, without limitation, the issuance of the Notes, the Warrants,
        and reservation for issuance of the Conversion Shares and the Warrant Shares
        and
        Interest Shares, if any) will not (i) result in a violation of the Certificate
        of Incorporation (as defined in Section 3(r)) of the Company or any of its
        Subsidiaries, any capital stock of the Company or Bylaws (as defined in Section
        3(r)) of the Company or any of its Subsidiaries or (ii) conflict with, or
        constitute a default (or an event which with notice or lapse of time or both
        would become a default) under, or give to others any rights of termination,
        amendment, acceleration or cancellation of, any agreement, indenture or
        instrument to which the Company or any of its Subsidiaries is a party, except
        to
        the extent such conflict, default or termination right would not reasonably
        be
        expected to have a Material Adverse Effect, or (iii) result in a violation
        of
        any law, rule, regulation, order, judgment or decree (including United States
        federal and state securities laws or Canadian securities laws and regulations
        and the rules and regulations of the OTC Bulletin Board (the "Principal
        Market")
        applicable to the Company or any of its Subsidiaries or by which any property
        or
        asset of the Company or any of its Subsidiaries is bound or affected except
        to
        the extent such violation would not reasonably be expected to have a Material
        Adverse Effect.

       

      
        
          
          

        

        
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      (e)  Consents.
        The
        Company is not required to obtain any consent, authorization or order of,
        or
        make any filing or registration with, any court, governmental agency or any
        regulatory or self-regulatory agency or any other Person in order for it
        to
        execute, deliver or perform any of its obligations under or contemplated
        by the
        Transaction Documents, in each case in accordance with the terms hereof or
        thereof. All consents, authorizations, orders, filings and registrations
        which
        the Company is required to obtain pursuant to the preceding sentence have
        been
        obtained or effected on or prior to the Closing Date, and the Company and
        its
        Subsidiaries are unaware of any facts or circumstances which might prevent
        the
        Company from obtaining or effecting any of the registration, application
        or
        filings pursuant to the preceding sentence. The Company is not in violation
        of
        the listing requirements of the Principal Market and has no knowledge of
        any
        facts which would reasonably lead to delisting or suspension of the Common
        Stock
        in the foreseeable future. 

       

      (f)  Acknowledgment
        Regarding Buyer's Purchase of Securities.
        The
        Company acknowledges and agrees that each Buyer is acting solely in the capacity
        of arm's length purchaser with respect to the Transaction Documents and the
        transactions contemplated hereby and thereby and that no Buyer is (i) an
        officer
        or director of the Company, (ii) an "affiliate" of the Company (as defined
        in
        Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner"
        of more
        than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3
        of
        the Securities Exchange Act of 1934, as amended (the "1934
        Act")).
        The
        Company further acknowledges that no Buyer is acting as a financial advisor
        or
        fiduciary of the Company (or in any similar capacity) with respect to the
        Transaction Documents and the transactions contemplated hereby and thereby,
        and
        any advice given by a Buyer or any of its representatives or agents in
        connection with the Transaction Documents and the transactions contemplated
        hereby and thereby is merely incidental to such Buyer's purchase of the
        Securities. The Company further represents to each Buyer that the Company's
        decision to enter into the Transaction Documents has been based solely on
        the
        independent evaluation by the Company and its representatives.

       

      (g)  No
        General Solicitation; Placement Agent's Fees.
        Neither
        the Company, nor any of its affiliates, nor any Person acting on its or their
        behalf, has engaged in any form of general solicitation or general advertising
        (within the meaning of Regulation D) in connection with the offer or sale
        of the
        Securities. The Company shall be responsible for the payment of any placement
        agent's fees, financial advisory fees, or brokers' commissions (other than
        for
        persons engaged by any Buyer or its investment advisor) relating to or arising
        out of the transactions contemplated hereby. The Company shall pay, and hold
        each Buyer harmless against, any liability, loss or expense (including, without
        limitation, attorney's fees and out-of-pocket expenses) arising in connection
        with any such claim. The Company acknowledges that it has engaged Oberon
        Securities as placement agent (the "Agent")
        in
        connection with the sale of the Securities. Other than the Agent, the Company
        has not engaged any placement agent or other agent in connection with the
        sale
        of the Securities.

       

      
        
          
          

        

        
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      (h)  No
        Integrated Offering.
        None of
        the Company, its Subsidiaries, any of their affiliates, and any Person acting
        on
        their behalf has, directly or indirectly, made any offers or sales of any
        security or solicited any offers to buy any security, under circumstances
        that
        would require registration of any of the Securities under the 1933 Act or
        cause
        this offering of the Securities to be integrated with prior offerings by
        the
        Company for purposes of the 1933 Act or any applicable stockholder approval
        provisions, including, without limitation, under the rules and regulations
        of
        any exchange or automated quotation system on which any of the securities
        of the
        Company are listed or designated. None of the Company, its Subsidiaries,
        their
        affiliates and any Person acting on their behalf will take any action or
        steps
        referred to in the preceding sentence that would require registration of
        any of
        the Securities under the 1933 Act or cause the offering of the Securities
        to be
        integrated with other offerings.

       

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

       

      (j)  Application
        of Takeover Protections; Rights Agreement.
        The
        Company and its Board of Directors have taken all necessary action, if any,
        in
        order to render inapplicable any poison pill (including any distribution
        under a
        rights agreement) or other similar anti-takeover provision which is or could
        become applicable to any Buyer as a result of the transactions contemplated
        by
        this Agreement, including, without limitation, the Company's issuance of
        the
        Securities and any Buyer's ownership of the Securities. The Company has not
        adopted a stockholder rights plan or similar arrangement relating to
        accumulations of beneficial ownership of Common Stock or a change in control
        of
        the Company.

       

      (k)  SEC
        Documents; Financial Statements.
        During
        the two (2) years prior to the date hereof, the Company has filed all reports,
        schedules, forms, statements and other documents required to be filed by
        it with
        the SEC pursuant to the reporting requirements of the 1934 Act and Canadian
        securities laws (all of the foregoing filed prior to the date hereof and
        all
        exhibits included therein and financial statements, notes and schedules thereto
        and documents incorporated by reference therein being hereinafter referred
        to as
        the "SEC
        Documents").
        The
        Company has delivered to the Buyers or their respective representatives true,
        correct and complete copies of each of the SEC Documents not available on
        the
        EDGAR system that have been requested by each Buyer. As of their respective
        dates, the SEC Documents complied in all material respects with the requirements
        of the 1934 Act and Canadian securities laws and the rules and regulations
        of
        the SEC promulgated thereunder applicable to the SEC Documents, and none
        of the
        SEC Documents, at the time they were filed with the SEC, contained any untrue
        statement of a material fact or omitted to state a material fact required
        to be
        stated therein or necessary in order to make the statements therein, in the
        light of the circumstances under which they were made, not misleading. As
        of
        their respective dates, the financial statements of the Company included
        in the
        SEC Documents complied as to form in all material respects with applicable
        accounting requirements and the published rules and regulations of the SEC
        with
        respect thereto as in effect as of the time of filing. Such financial statements
        have been prepared in accordance with generally accepted accounting principles,
        consistently applied, during the periods involved (except (i) as may be
        otherwise indicated in such financial statements or the notes thereto, or
        (ii)
        in the case of unaudited interim statements, to the extent they may exclude
        footnotes or may be condensed or summary statements) and fairly present in
        all
        material respects the financial position of the Company as of the dates thereof
        and the results of its operations and cash flows for the periods then ended
        (subject, in the case of unaudited statements, to normal year-end audit
        adjustments). 

       

      
        
          
          

        

        
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      (l)  Absence
        of Certain Changes.
        Except
        as disclosed in Section 3(l), since the date of the Company's most recent
        audited financial statements contained in a Form 10-KSB, there has been no
        material adverse change and no material adverse development in the business,
        assets, properties, operations, condition (financial or otherwise), results
        of
        operations or prospects of the Company. Except as disclosed in Schedule
        3(l),
        since
        the date of the Company's most recent audited financials statements contained
        in
        a Form 10-KSB, the Company has not (i) declared or paid any dividends, (ii)
        sold
        any assets, individually or in the aggregate, in excess of $50,000 outside
        of
        the ordinary course of business or (iii) had capital expenditures, individually
        or in the aggregate, in excess of $50,000. The Company has not taken any
        steps
        to seek protection pursuant to any bankruptcy law nor does the Company have
        any
        knowledge or reason to believe that its creditors intend to initiate involuntary
        bankruptcy proceedings or any actual knowledge of any fact which would
        reasonably lead a creditor to do so. 

       

      (m)  No
        Undisclosed Events, Liabilities, Developments or Circumstances.
        No
        event, liability, development or circumstance has occurred or exists, or
        is
        contemplated to occur with respect to the Company, its Subsidiaries or their
        respective business, properties, prospects, operations or financial condition,
        that would be required to be disclosed by the Company under applicable
        securities laws on a registration statement on Form S-1 filed with the SEC
        relating to an issuance and sale by the Company of its Common Stock and which
        has not been publicly announced.

       

      (n)  Conduct
        of Business; Regulatory Permits.
        Neither
        the Company nor its Subsidiaries is in violation of any term of or in default
        under its Certificate of Incorporation or Bylaws or their organizational
        charter
        or certificate of incorporation or bylaws, respectively. Neither the Company
        nor
        any of its Subsidiaries is in violation of any judgment, decree or order
        or any
        statute, ordinance, rule or regulation applicable to the Company or its
        Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
        its business in violation of any of the foregoing, except in all cases for
        possible violations which would not, individually or in the aggregate, have
        a
        Material Adverse Effect. Without limiting the generality of the foregoing,
        the
        Company is not in violation of any of the rules, regulations or requirements
        of
        the Principal Market and has no knowledge of any facts or circumstances that
        would reasonably lead to delisting or suspension of the Common Stock by the
        Principal Market in the foreseeable future. During the two (2) years prior
        to
        the date hereof, (i) the Common Stock has been designated for quotation on
        the
        Principal Market, (ii) trading in the Common Stock has not been suspended
        by the
        SEC or the Principal Market and (iii) the Company has received no communication,
        written or oral, from the SEC or the Principal Market regarding the suspension
        or delisting of the Common Stock from the Principal Market. The Company and
        its
        Subsidiaries possess all certificates, authorizations and permits issued
        by the
        appropriate regulatory authorities necessary to conduct their respective
        businesses, except where the failure to possess such certificates,
        authorizations or permits would not have, individually or in the aggregate,
        a
        Material Adverse Effect, and neither the Company nor any such Subsidiary
        has
        received any notice of proceedings relating to the revocation or modification
        of
        any such certificate, authorization or permit.

       

      
        
          
          

        

        
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      (o)  Foreign
        Corrupt Practices.
        Neither
        the Company nor any of its Subsidiaries nor any director, officer, agent,
        employee or other Person acting on behalf of the Company or any of its
        Subsidiaries has, in the course of its actions for, or on behalf of, the
        Company
        (i) used any corporate funds for any unlawful contribution, gift, entertainment
        or other unlawful expenses relating to political activity; (ii) made any
        direct
        or indirect unlawful payment to any foreign or domestic government official
        or
        employee from corporate funds; (iii) violated or is in violation of any
        provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended;
        or (iv)
        made any unlawful bribe, rebate, payoff, influence payment, kickback or other
        unlawful payment to any foreign or domestic government official or
        employee.

       

      (p)  Sarbanes-Oxley
        Act.
        The
        Company is in compliance with any and all applicable requirements of the
        Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
        any and
        all applicable rules and regulations promulgated by the SEC thereunder that
        are
        effective as of the date hereof, except where such noncompliance would not
        have,
        individually or in the aggregate, a Material Adverse Effect.

       

      (q)  Transactions
        With Affiliates.
        Except
        as set forth in the SEC Documents filed at least ten days prior to the date
        hereof and other than the grant of stock options disclosed on Schedule
        3(q),
        none of
        the officers, directors or employees of the Company is presently a party
        to any
        transaction with the Company or any of its Subsidiaries (other than for ordinary
        course services as employees, officers or directors), including any contract,
        agreement or other arrangement providing for the furnishing of services to
        or
        by, providing for rental of real or personal property to or from, or otherwise
        requiring payments to or from any such officer, director or employee or,
        to the
        knowledge of the Company, any corporation, partnership, trust or other entity
        in
        which any such officer, director, or employee has a substantial interest
        or is
        an officer, director, trustee or partner.

       

      (r)  Equity
        Capitalization.
        As of
        the date hereof, the authorized capital stock of the Company consists of
        400,000,000 shares of Common Stock, of which as of the date hereof, 14,147,421
        are issued and outstanding, 2,000,000 shares are reserved for issuance pursuant
        to the Company's stock option and purchase plans and 1,481,538 shares are
        reserved for issuance pursuant to securities (other than the Notes and the
        Warrants) exercisable or exchangeable for, or convertible into, shares of
        Common
        Stock and (ii) 2,000 shares of preferred stock, par value $100 per share,
        of
        which as of the date hereof, none are issued or outstanding. All of such
        outstanding shares have been, or upon issuance will be, validly issued and
        are
        fully paid and nonassessable. Except as disclosed in Schedule
        3(r):
        (i)
        none of the Company's share capital is subject to preemptive rights or any
        other
        similar rights or any liens or encumbrances suffered or permitted by the
        Company; (ii) there are no outstanding options, warrants, scrip, rights to
        subscribe to, calls or commitments of any character whatsoever relating to,
        or
        securities or rights convertible into, or exercisable or exchangeable for,
        any
        share capital of the Company or any of its Subsidiaries, or contracts,
        commitments, understandings or arrangements by which the Company or any of
        its
        Subsidiaries is or may become bound to issue additional share capital of
        the
        Company or any of its Subsidiaries or options, warrants, scrip, rights to
        subscribe to, calls or commitments of any character whatsoever relating to,
        or
        securities or rights convertible into, or exercisable or exchangeable for,
        any
        share capital of the Company or any of its Subsidiaries; (iii) there are
        no
        outstanding debt securities, notes, credit agreements, credit facilities
        or
        other agreements, documents or instruments evidencing Indebtedness of the
        Company or any of its Subsidiaries or by which the Company or any of its
        Subsidiaries is or may become bound; (iv) there are no financing statements
        securing obligations in any material amounts, either singly or in the aggregate,
        filed in connection with the Company or any of its Subsidiaries; (v) there
        are
        no agreements or arrangements under which the Company or any of its Subsidiaries
        is obligated to register the sale of any of their securities under the 1933
        Act
        (except the Registration Rights Agreement); (vi) there are no outstanding
        securities or instruments of the Company or any of its Subsidiaries which
        contain any redemption or similar provisions, and there are no contracts,
        commitments, understandings or arrangements by which the Company or any of
        its
        Subsidiaries is or may become bound to redeem a security of the Company or
        any
        of its Subsidiaries; (vii) there are no securities or instruments containing
        anti-dilution or similar provisions that will be triggered by the issuance
        of
        the Securities; (viii) the Company does not have any stock appreciation rights
        or "phantom stock" plans or agreements or any similar plan or agreement;
        and
        (ix) the Company and its Subsidiaries have no liabilities or obligations
        required to be disclosed in the SEC Documents but not so disclosed in the
        SEC
        Documents, other than those incurred in the ordinary course of the Company's
        or
        its Subsidiaries' respective businesses and which, individually or in the
        aggregate, do not or would not have a Material Adverse Effect. The Company
        has
        furnished to the Buyer true, correct and complete copies of the Company's
        Certificate of Incorporation, as amended and as in effect on the date hereof
        (the "Certificate
        of Incorporation"),
        and
        the Company's Bylaws, as amended and as in effect on the date hereof (the
        "Bylaws"),
        and
        the terms of all securities convertible into, or exercisable or exchangeable
        for, shares of Common Stock and the material rights of the holders thereof
        in
        respect thereto.

       

      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      

      (s)  Indebtedness
        and Other Contracts.
        Neither
        the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
        (as
        defined below), (ii) is in violation of any term of or in default under any
        contract, agreement or instrument relating to any Indebtedness, except where
        such violations and defaults would not result, individually or in the aggregate,
        in a Material Adverse Effect, or (iii) is a party to any contract, agreement
        or
        instrument relating to any Indebtedness, the performance of which, in the
        judgment of the Company's officers, has or is expected to have a Material
        Adverse Effect. Schedule
        3(s)
        provides
        a detailed description of the material terms of any such outstanding
        Indebtedness. For purposes of this Agreement: (x) "Indebtedness"
        of any
        Person means, without duplication (A) all indebtedness for borrowed money,
        (B)
        all obligations issued, undertaken or assumed as the deferred purchase price
        of
        property or services (including, without limitation, "capital leases" in
        accordance with generally accepted accounting principals) (other than trade
        payables entered into in the ordinary course of business), (C) all reimbursement
        or payment obligations with respect to letters of credit, surety bonds and
        other
        similar instruments, (D) all obligations evidenced by notes, bonds, debentures
        or similar instruments, including obligations so evidenced incurred in
        connection with the acquisition of property, assets or businesses, (E) all
        indebtedness created or arising under any conditional sale or other title
        retention agreement, or incurred as financing, in either case with respect
        to
        any property or assets acquired with the proceeds of such indebtedness (even
        though the rights and remedies of the seller or bank under such agreement
        in the
        event of default are limited to repossession or sale of such property), (F)
        all
        monetary obligations under any leasing or similar arrangement which, in
        connection with generally accepted accounting principles, consistently applied
        for the periods covered thereby, is classified as a capital lease, (G) all
        indebtedness referred to in clauses (A) through (F) above secured by (or
        for
        which the holder of such Indebtedness has an existing right, contingent or
        otherwise, to be secured by) any mortgage, lien, pledge, charge, security
        interest or other encumbrance upon or in any property or assets (including
        accounts and contract rights) owned by any Person, even though the Person
        which
        owns such assets or property has not assumed or become liable for the payment
        of
        such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
        or obligations of others of the kinds referred to in clauses (A) through
        (G)
        above; (y) "Contingent
        Obligation"
        means,
        as to any Person, any direct or indirect liability, contingent or otherwise,
        of
        that Person with respect to any indebtedness, lease, dividend or other
        obligation of another Person if the primary purpose or intent of the Person
        incurring such liability, or the primary effect thereof, is to provide assurance
        to the obligee of such liability that such liability will be paid or discharged,
        or that any agreements relating thereto will be complied with, or that the
        holders of such liability will be protected (in whole or in part) against
        loss
        with respect thereto; and (z) "Person"
        means
        an individual, a limited liability company, a partnership, a joint venture,
        a
        corporation, a trust, an unincorporated organization and a government or
        any
        department or agency thereof.

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

      (t)  Absence
        of Litigation.
        There
        is no action, suit, proceeding, inquiry or investigation before or by the
        Principal Market, any court, public board, government agency, self-regulatory
        organization or body pending or, to the knowledge of the Company, threatened
        against or affecting the Company, the Common Stock or any of the Company's
        Subsidiaries or any of the Company's or its Subsidiaries' officers or directors,
        that could, individually or in the aggregate, reasonably be expected to result
        in a Material Adverse Effect.

       

      (u)  Insurance.
        The
        Company and each of its Subsidiaries are insured by insurers of recognized
        financial responsibility against such losses and risks and in such amounts
        as
        management of the Company believes to be prudent and customary in the businesses
        in which the Company and its Subsidiaries are engaged. Neither the Company
        nor
        any such Subsidiary has been refused any insurance coverage sought or applied
        for and neither the Company nor any such Subsidiary has any reason to believe
        that it will not be able to renew its existing insurance coverage as and
        when
        such coverage expires or to obtain similar coverage from similar insurers
        as may
        be necessary to continue its business at a cost that would not have a Material
        Adverse Effect.

       

      (v)  Employee
        Relations.
        (i)
        Neither
        Company nor any of its Subsidiaries is a party to any collective bargaining
        agreement or employs any member of a union. The Company and its Subsidiaries
        believe that their relations with their employees are good. No executive
        officer
        of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the
        1933
        Act) has notified the Company or any such Subsidiary that such officer intends
        to leave the Company or any such Subsidiary or otherwise terminate such
        officer's employment with the Company or any such Subsidiary. No executive
        officer of the Company or any of its Subsidiaries, to the knowledge of the
        Company or any such Subsidiary, is, or is now expected to be, in violation
        of
        any material term of any employment contract, confidentiality, disclosure
        or
        proprietary information agreement, non-competition agreement, or any other
        contract or agreement or any restrictive covenant, and the continued employment
        of each such executive officer does not subject the Company or any such
        Subsidiary to any liability with respect to any of the foregoing
        matters.

       

      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      

      (ii)  The
        Company and its Subsidiaries are in compliance with all Canadian, United
        States
        federal, state, provincial, local and foreign laws and regulations respecting
        labor, employment and employment practices and benefits, terms and conditions
        of
        employment and wages and hours, except where failure to be in compliance
        would
        not, either individually or in the aggregate, reasonably be expected to result
        in a Material Adverse Effect.

       

      (w)  Title.
        The
        Company and its Subsidiaries have good and marketable title in fee simple
        to all
        real property and good and marketable title to all personal property owned
        by
        them which is material to the business of the Company and its Subsidiaries,
        in
        each case free and clear of all liens, encumbrances and defects except such
        as
        do not materially affect the value of such property and do not interfere
        with
        the use made and proposed to be made of such property by the Company and
        any of
        its Subsidiaries. Any real property and facilities held under lease by the
        Company and any of its Subsidiaries are held by them under valid, subsisting
        and
        enforceable leases with such exceptions as are not material and do not interfere
        with the use made and proposed to be made of such property and buildings
        by the
        Company and its Subsidiaries.

       

      (x)  Intellectual
        Property Rights.
        The
        Company and its Subsidiaries own or possess adequate rights or licenses to
        use
        all trademarks, trade names, service marks, service mark registrations, service
        names, patents, patent rights, copyrights, inventions, licenses, approvals,
        governmental authorizations, trade secrets and other intellectual property
        rights ("Intellectual
        Property Rights")
        necessary to conduct their respective businesses as now conducted except
        where
        the failure to so own or possess would not reasonably be expected to result
        in a
        Material Adverse Effect. None of the Company's Intellectual Property Rights
        have
        expired or terminated, or are expected to expire or terminate, within three
        years from the date of this Agreement. The Company does not have any knowledge
        of any infringement by the Company or its Subsidiaries of Intellectual Property
        Rights of others. There is no claim, action or proceeding being made or brought,
        or to the knowledge of the Company, being threatened, against the Company
        or its
        Subsidiaries regarding its Intellectual Property Rights. The Company is unaware
        of any facts or circumstances which might give rise to any of the foregoing
        infringements or claims, actions or proceedings. The Company and its
        Subsidiaries have taken reasonable security measures to protect the secrecy,
        confidentiality and value of all of their intellectual properties.

       

      (y)  Environmental
        Laws.
        The
        Company and its Subsidiaries (i) are in compliance with any and all
        Environmental Laws (as hereinafter defined), (ii) have received all permits,
        licenses or other approvals required of them under applicable Environmental
        Laws
        to conduct their respective businesses and (iii) are in compliance with all
        terms and conditions of any such permit, license or approval where, in each
        of
        the foregoing clauses (i), (ii) and (iii), the failure to so comply could
        be
        reasonably expected to have, individually or in the aggregate, a Material
        Adverse Effect. The term "Environmental
        Laws"
        means
        all Canadian, United States federal, state, provincial, local or foreign
        laws
        relating to pollution or protection of human health or the environment
        (including, without limitation, ambient air, surface water, groundwater,
        land
        surface or subsurface strata), including, without limitation, laws relating
        to
        emissions, discharges, releases or threatened releases of chemicals, pollutants,
        contaminants, or toxic or hazardous substances or wastes (collectively,
        "Hazardous
        Materials") into
        the
        environment, or otherwise relating to the manufacture, processing, distribution,
        use, treatment, storage, disposal, transport or handling of Hazardous Materials,
        as well as all authorizations, codes, decrees, demands or demand letters,
        injunctions, judgments, licenses, notices or notice letters, orders, permits,
        plans or regulations issued, entered, promulgated or approved
        thereunder.

       

      
        
          
          

        

        
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      (z)  Subsidiary
        Rights.
        The
        Company or one of its Subsidiaries has the unrestricted right to vote, and
        (subject to limitations imposed by applicable law) to receive dividends and
        distributions on, all capital securities of its Subsidiaries as owned by
        the
        Company or such Subsidiary.

       

      (aa)  Investment
        Company.
        The
        Company is not, and is not an affiliate of, an "investment company" within
        the
        meaning of the Investment Company Act of 1940, as amended.

       

      (bb)  Tax
        Status.
        The
        Company and each of its Subsidiaries (i) has made or filed all foreign,
        Canadian, United States federal, state and provincial income and all other
        tax
        returns, reports and declarations required by any jurisdiction to which it
        is
        subject, (ii) 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
        (iii)
        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.

       

      (cc)  Internal
        Accounting and Disclosure Controls.
        The
        Company maintains a system of internal accounting controls sufficient to
        provide
        reasonable assurance that (i) transactions are executed in accordance with
        management's general or specific authorizations, (ii) transactions are recorded
        as necessary to permit preparation of financial statements in conformity
        with
        generally accepted accounting principles and to maintain asset and liability
        accountability, (iii) access to assets or incurrence of liabilities is permitted
        only in accordance with management's general or specific authorization and
        (iv)
        the recorded accountability for assets and liabilities is compared with the
        existing assets and liabilities at reasonable intervals and appropriate action
        is taken with respect to any difference. The Company maintains disclosure
        controls and procedures (as such term is defined in Rule 13a-14 under the
        1934
        Act) that are designed to ensure that information required to be disclosed
        by
        the Company in the reports that it files or submits under the 1934 Act is
        recorded, processed, summarized and reported, within the time periods specified
        in the rules and forms of the SEC, including, without limitation, controls
        and
        procedures designed in to ensure that information required to be disclosed
        by
        the Company in the reports that it files or submits under the 1934 Act is
        accumulated and communicated to the Company's management, including its
        principal executive officer or officers and its principal financial officer
        or
        officers, as appropriate, to allow timely decisions regarding required
        disclosure. During the twelve months prior to the date hereof neither the
        Company nor any of its Subsidiaries have received any notice or correspondence
        from any accountant relating to any potential material weakness in any part
        of
        the system of internal accounting controls of the Company or any of its
        Subsidiaries.

       

      
        
          
          

        

        
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      (dd)  Off
        Balance Sheet Arrangements.
        There
        is no transaction, arrangement, or other relationship between the Company
        and an
        unconsolidated or other off balance sheet entity that is required to be
        disclosed by the Company in its Exchange Act filings and is not so disclosed
        or
        that otherwise would be reasonably likely to have a Material Adverse
        Effect.

       

      (ee)  Ranking
        of Notes.
        No
        Indebtedness of the Company is senior to or ranks pari
        passu
        with the
        Notes in right of payment, whether with respect of payment of redemptions,
        interest, damages or upon liquidation or dissolution or otherwise.

       

      (ff)  Registration
        Eligibility.
        The
        Company is eligible to register the Conversion Shares, the Warrant Shares
        and
        the Interest Shares for resale by the Buyers using Form SB-2 promulgated
        under
        the 1933 Act.

       

      (gg)  Manipulation
        of Price.
        The
        Company has not, and to its knowledge no one acting on its behalf has, (i)
        taken, directly or indirectly, any action designed to cause or to result
        in the
        stabilization or manipulation of the price of any security of the Company
        to
        facilitate the sale or resale of any of the Securities, (ii) other than the
        Agent, sold, bid for, purchased, or paid any compensation for soliciting
        purchases of, any of the Securities, or (iii) other than the Agent, paid
        or
        agreed to pay to any person any compensation for soliciting another to purchase
        any other securities of the Company.

       

      (hh)  Disclosure.
        The
        Company confirms that neither it nor any other Person acting on its behalf
        has
        provided any of the Buyers or their agents or counsel with any information
        that
        constitutes or could reasonably be expected to constitute material, nonpublic
        information other than as set forth in the following sentence. The Company
        understands and confirms that each of the Buyers will rely on the foregoing
        representations in effecting transactions in securities of the Company. All
        disclosure provided to the Buyers regarding the Company, its business and
        the
        transactions contemplated hereby, including the Schedules to this Agreement,
        furnished by or on behalf of the Company is true and correct and does not
        contain any untrue statement of a material fact or omit to state any material
        fact necessary in order to make the statements made therein, in the light
        of the
        circumstances under which they were made, not misleading. Each press release
        issued by the Company during the twelve (12) months preceding the date of
        this
        Agreement did not at the time of release contain any untrue statement of
        a
        material fact or omit to state a material fact required to be stated therein
        or
        necessary in order to make the statements therein, in the light of the
        circumstances under which they are made, not misleading. No event or
        circumstance has occurred or information exists with respect to the Company
        or
        any of its Subsidiaries or its or their business, properties, prospects,
        operations or financial conditions, which, under applicable law, rule or
        regulation, requires public disclosure or announcement by the Company but
        which
        has not been so publicly announced or disclosed.

       

      
        
          
          

        

        
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      4.  COVENANTS.

       

      (a)  Best
        Efforts.
        Each
        party shall use its best efforts timely to satisfy each of the conditions
        to be
        satisfied by it as provided in Sections 6 and 7 of this Agreement.

       

      (b)  Form
        D
        and Blue Sky.
        The
        Company agrees to file a Form D with respect to the Securities as required
        under
        Regulation D and to provide a copy thereof to each Buyer promptly after such
        filing. The Company shall, on or before the Closing Date, take such action
        as
        the Company shall reasonably determine is necessary in order to obtain an
        exemption for or to qualify the Securities for sale to the Buyers at the
        Closing
        pursuant to this Agreement under applicable securities or "Blue Sky" laws
        of the
        states of the United States (or to obtain an exemption from such qualification),
        and shall provide evidence of any such action so taken to the Buyers on or
        prior
        to the Closing Date. The Company shall make all filings and reports relating
        to
        the offer and sale of the Securities required under applicable securities
        or
        "Blue Sky" laws of the states of the United States following the Closing
        Date.


       

      (c)  Reporting
        Status.
        Until
        the date on which the Investors (as defined in the Registration Rights
        Agreement) shall have sold all the Conversion Shares, Warrant Shares and
        Interest Shares, if any, and none of the Notes or Warrants
        is outstanding (the "Reporting
        Period"),
        the
        Company shall file all reports required to be filed pursuant to Canadian
        securities laws and with the SEC pursuant to the 1934 Act, and the Company
        shall
        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 otherwise
        permit such termination.

       

      (d)  Use
        of
        Proceeds.
        The
        Company will use the proceeds from the sale of the Securities for general
        working capital, and not for (A) repayment of any outstanding Indebtedness
        of
        the Company or any of its Subsidiaries or (B) redemption or repurchase of
        any of
        its or its Subsidiaries equity securities.

       

      (e)  Financial
        Information.
        The
        Company agrees to send the following to each Investor (as defined in the
        Registration Rights Agreement) during the Reporting Period (i) unless the
        following are filed with the SEC through EDGAR and are available to the public
        through the EDGAR system, within one (1) Business Day after the filing thereof
        with the SEC, a copy of its Annual Reports on Form 10-K or 10-KSB, any interim
        reports or any consolidated balance sheets, income statements, stockholders'
        equity statements and/or cash flow statements for any period other than annual,
        any Current Reports on Form 8-K and any registration statements (other than
        on
        Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same
        day as
        the release thereof, facsimile or e-mailed copies of all press releases issued
        by the Company or any of its Subsidiaries, and (iii) copies of any notices
        and
        other information made available or given to the stockholders of the Company
        generally, contemporaneously with the making available or giving thereof
        to the
        stockholders.

       

      
        (f)  Listing.
          The
          Company shall promptly secure the listing of all of the Registrable Securities
          (as defined in the Registration Rights Agreement) upon each national securities
          exchange and automated quotation system, if any, upon which the Common
          Stock is
          then listed (subject to official notice of issuance) and shall maintain
          such
          listing of all Registrable Securities from time to time issuable under
          the terms
          of the Transaction Documents. The Company shall maintain the Common Stocks'
          authorization for quotation on the Principal Market. Neither the Company
          nor any
          of its Subsidiaries shall take any action which would be reasonably expected
          to
          result in the delisting or suspension of the Common Stock on the Principal
          Market. The Company shall pay all fees and expenses in connection with
          satisfying its obligations under this Section 4(f).

         

      

      
        
          
          

        

        
          -16-

          
            

          

        

        
          
          

        

      

       

      (g)  Fees.
        The
        Company shall reimburse Magnetar Capital Master Fund, Ltd. (a Buyer) or its
        designee(s) (in addition to any other expense amounts paid to any Buyer prior
        to
        the date of this Agreement) for all reasonable costs and expenses incurred
        in
        connection with the transactions contemplated by the Transaction Documents
        (including all reasonable legal fees and disbursements in connection therewith,
        documentation and implementation of the transactions contemplated by the
        Transaction Documents and due diligence in connection therewith), which amount
        shall be limited to $35,000 and shall be withheld by such Buyer from its
        Purchase Price at the Closing. The Company shall be responsible for the payment
        of any placement agent's fees, financial advisory fees, or broker's commissions
        (other than for Persons engaged by any Buyer) relating to or arising out
        of the
        transactions contemplated hereby, including, without limitation, any fees
        payable to the Agent. The Company shall pay, and hold each Buyer harmless
        against, any liability, loss or expense (including, without limitation,
        reasonable attorney's fees and out-of-pocket expenses) arising in connection
        with any claim relating to any such payment. 

       

      (h)  Pledge
        of Securities.
        The
        Company acknowledges and agrees that the Securities may be pledged pursuant
        to
        an available exemption from registration under the 1933 Act by an Investor
        (as
        defined in the Registration Rights Agreement) in connection with a bona fide
        margin agreement or other loan or financing arrangement that is secured by
        the
        Securities. The pledge of Securities shall not be deemed to be a transfer,
        sale
        or assignment of the Securities hereunder, and no Investor effecting a pledge
        of
        Securities shall be required to provide the Company with any notice thereof
        or
        otherwise make any delivery to the Company pursuant to this Agreement or
        any
        other Transaction Document, including, without limitation, Section 2(g) hereof;
        provided that an Investor and its pledgee shall be required to comply with
        the
        provisions of Section 2(g) hereof in order to effect a sale, transfer or
        assignment of Securities to such pledgee. The Company hereby agrees to execute
        and deliver such documentation as a pledgee of the Securities may reasonably
        request in connection with a pledge of the Securities to such pledgee by
        an
        Investor.

       

      (i)  Disclosure
        of Transactions and Other Material Information.
        On or
        before 8:30 a.m., New York Time, on the
        first
        Business Day following the date of this Agreement, the Company shall file
        a
        Current Report on Form 8-K describing the terms of the transactions contemplated
        by the Transaction Documents in the form required by the 1934 Act and attaching
        the material Transaction Documents (including, without limitation, this
        Agreement (and all schedules to this Agreement), the form of Notes, the form
        of
        Warrant and the Registration Rights Agreement) (including all attachments,
        the
        "8-K
        Filing").
        From
        and after the filing of the 8-K Filing with the SEC, the Company shall have
        disclosed any material nonpublic information delivered to the Buyers by the
        Company or any of its Subsidiaries, or any of their respective officers,
        directors, employees or agents. The Company shall not, and shall cause each
        of
        its Subsidiaries and its and each of their respective officers, directors,
        employees and agents, not to, provide any Buyer with any material, nonpublic
        information regarding the Company or any of its Subsidiaries from and after
        the
        filing of the 8-K Filing with the SEC without the express written consent
        of
        such Buyer. In the event of a breach of the foregoing covenant by the Company,
        or any of its Subsidiaries, or any of its or their respective officers,
        directors, employees and agents, in addition to any other remedy provided
        herein
        or in the Transaction Documents, a Buyer shall have the right to make a public
        disclosure, in the form of a press release, public advertisement or otherwise,
        of such material, nonpublic information without the prior approval by the
        Company, its Subsidiaries, or any of its or their respective officers,
        directors, employees or agents. No Buyer shall have any liability to the
        Company, its Subsidiaries, or any of its or their respective officers,
        directors, employees, stockholders or agents, for any such disclosure. Subject
        to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall
        issue any press releases or any other public statements with respect to the
        transactions contemplated hereby; provided,
        however,
        that
        the Company shall be entitled, without the prior approval of any Buyer, to
        make
        any press release or other public disclosure with respect to such transactions
        (i) in substantial conformity with the 8-K Filings and contemporaneously
        therewith and (ii) as is required by applicable law and regulations (provided
        that in the case of clause (i) each Buyer shall be consulted by the Company
        in
        connection with any such press release or other public disclosure prior to
        its
        release). Without the prior written consent of any applicable Buyer, the
        Company
        shall not disclose the name of any Buyer in any filing, announcement, release
        or
        otherwise. 

       

      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

      

      (j)  Restriction
        on Redemption and Cash Dividends.
        So long
        as any Notes are outstanding, the Company shall not, directly or indirectly,
        redeem, or declare or pay any cash dividend or distribution on, the Common
        Stock
        without the prior express written consent of the holders of Notes representing
        not less than a majority of the aggregate principal amount of the then
        outstanding Notes.

       

      (k)  Additional
        Notes; Variable Securities; Dilutive Issuances.
        So long
        as any Buyer beneficially owns any Securities, the Company will not, without
        the
        prior written consent of Buyers holding a majority of the principal amount
        of
        the Notes, issue any Notes (other than to the Buyers as contemplated hereby)
        and
        the Company shall not issue any other securities that would cause a breach
        or
        default under the Notes. For so long as any Notes or Warrants remain
        outstanding, the Company shall not, in any manner, issue or sell any rights,
        warrants or options to subscribe for or purchase Common Stock or directly
        or
        indirectly convertible into or exchangeable or exercisable for Common Stock
        at a
        conversion, exchange or exercise price which varies or may vary after issuance
        with the market price of the Common Stock, including by way of one or more
        reset(s) to any fixed price unless the conversion, exchange or exercise price
        of
        any such security cannot be less than the then applicable Conversion Price
        (as
        defined in the Notes) with respect to the Common Stock into which any Note
        is
        convertible or the then applicable Exercise Price (as defined in the Warrants)
        with respect to the Common Stock into which any Warrant is exercisable. For
        purposes of clarification, this does not prohibit the issuance of securities
        with customary "weighted average" or "full ratchet" anti-dilution adjustments
        which adjust a fixed conversion or exercise price of securities sold by the
        Company in the future. For so long as any Notes or Warrants remain outstanding,
        the Company shall not, in any manner, enter into or affect any Dilutive Issuance
        (as defined in the Notes) if the effect of such Dilutive Issuance is to cause
        the Company to be required to issue upon conversion of any Note or exercise
        of
        any Warrant any shares of Common Stock in excess of that number of shares
        of
        Common Stock which the Company may issue upon conversion of the Notes and
        exercise of the Warrants without breaching the Company's obligations under
        the
        rules or regulations of the Principal Market.

       

      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

      

      (l)  Corporate
        Existence.
        So long
        as any Buyer beneficially owns any Securities, the Company shall not be party
        to
        any Fundamental Transaction (as defined in the Notes) unless the Company
        is in
        compliance with the applicable provisions governing Fundamental Transactions
        set
        forth in the Notes and the Warrants.

       

      (m)  Conduct
        of Business.
        The
        business of the Company and its Subsidiaries shall not be conducted in violation
        of any law, ordinance or regulation of any governmental entity, except where
        such violations would not result, either individually or in the aggregate,
        in a
        Material Adverse Effect.

       

      (n)  Additional
        Issuances of Securities.

       

      (i)  For
        purposes of this Section 4(n), the following definitions shall
        apply.

       

      (1)  "Convertible
        Securities"
        means
        any stock or securities (other than Options) convertible into or exercisable
        or
        exchangeable for shares of Common
        Stock.

       

      (2)  "Options"
        means
        any rights, warrants or options to subscribe for or purchase shares of
Common
        Stock or
        Convertible Securities.

       

      (3)  "Common
        Stock Equivalents"
        means,
        collectively, Options and Convertible Securities.

       

      (ii)  From
        the
        date hereof until two hundred seventy (270) days after the Effective Date
        (as
        defined in the Registration Rights Agreement) the Company will not, directly
        or
        indirectly, file any registration statement with the SEC other than the
        Registration Statement (as defined in the Registration Rights Agreement)
        or a
        registration statement on Form S-8 pursuant to the 1933 Act. From the date
        hereof until the Effective Date, the Company will not, directly or indirectly,
        offer, sell, grant any option to purchase, or otherwise dispose of (or announce
        any offer, sale, grant or any option to purchase or other disposition of)
        any of
        its or its Subsidiaries' equity or equity equivalent securities, including
        without limitation any debt, preferred stock or other instrument or security
        that is, at any time during its life and under any circumstances, convertible
        into or exchangeable or exercisable for shares of Common Stock or Common
        Stock
        Equivalents (any such offer, sale, grant, disposition or announcement being
        referred to as a "Subsequent
        Placement").

       

      (iii)  From
        the
        Closing Date until the date twelve months after the Effective Date, the Company
        will not, directly or indirectly, effect any Subsequent Placement unless
        the
        Company shall have first complied with this Section 4(n)(iii).

       

      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

      

      (1)  The
        Company shall deliver to each Buyer a written notice (the "Offer
        Notice")
        of any
        proposed or intended issuance or sale or exchange (the "Offer")
        of the
        securities being offered (the "Offered
        Securities")
        in a
        Subsequent Placement, which Offer Notice shall (w) identify and describe
        the
        Offered Securities, (x) describe the price and other terms upon which they
        are to be issued, sold or exchanged, and the number or amount of the Offered
        Securities to be issued, sold or exchanged, and (y) identify the persons
        or
        entities (if known) to which or with which the Offered Securities are to
        be
        offered, issued, sold or exchanged and (z) offer to issue and sell to or
        exchange with such Buyers at least 80% of the Offered Securities, allocated
        among such Buyers (a) based on such Buyer's pro rata portion of the aggregate
        principal amount of Notes purchased hereunder (the "Basic
        Amount"),
        and
        (b) with respect to each Buyer that elects to purchase its Basic Amount,
        any
        additional portion of the Offered Securities attributable to the Basic Amounts
        of other Buyers as such Buyer shall indicate it will purchase or acquire
        should
        the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription
        Amount").

       

      (2)  To
        accept
        an Offer, in whole or in part, such Buyer must deliver a written notice to
        the
        Company prior to the end of the tenth (10th)
        Business Day after such Buyer's receipt of the Offer Notice (the "Offer
        Period"),
        setting forth the portion of such Buyer's Basic Amount that such Buyer elects
        to
        purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
        the
        Undersubscription Amount, if any, that such Buyer elects to purchase (in
        either
        case, the "Notice
        of Acceptance").
        If
        the Basic Amounts subscribed for by all Buyers are less than the total of
        all of
        the Basic Amounts, then each Buyer who has set forth an Undersubscription
        Amount
        in its Notice of Acceptance shall be entitled to purchase, in addition to
        the
        Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
        for; provided,
        however,
        that if
        the Undersubscription Amounts subscribed for exceed the difference between
        the
        total of all the Basic Amounts and the Basic Amounts subscribed for (the
        "Available
        Undersubscription Amount"),
        each
        Buyer who has subscribed for any Undersubscription Amount shall be entitled
        to
        purchase only that portion of the Available Undersubscription Amount as the
        Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers
        that
        have subscribed for Undersubscription Amounts, subject to rounding by the
        Company to the extent its deems reasonably necessary.

       

      (3)  The
        Company shall have five (5) Business Days from the expiration of the Offer
        Period above to offer, issue, sell or exchange all or any part of such Offered
        Securities as to which a Notice of Acceptance has not been given by the Buyers
        (the "Refused
        Securities"),
        but
        only to the offerees described in the Offer Notice (if so described therein)
        and
        only upon terms and conditions (including, without limitation, unit prices
        and
        interest rates) that are not more favorable to the acquiring person or persons
        or less favorable to the Company than those set forth in the Offer
        Notice.

       

      (4)  In
        the
        event the Company shall propose to sell less than all the Refused Securities
        (any such sale to be in the manner and on the terms specified in Section
        4(n)(iii)(3) above), then each Buyer may, at its sole option and in its sole
        discretion, reduce the number or amount of the Offered Securities specified
        in
        its Notice of Acceptance to an amount that shall be not less than the number
        or
        amount of the Offered Securities that such Buyer elected to purchase pursuant
        to
        Section 4(n)(iii)(2) above multiplied by a fraction, (i) the numerator of
        which
        shall be the number or amount of Offered Securities the Company actually
        proposes to issue, sell or exchange (including Offered Securities to be issued
        or sold to Buyers pursuant to Section 4(n)(iii)(3) above prior to such
        reduction) and (ii) the denominator of which shall be the original amount
        of the
        Offered Securities. In the event that any Buyer so elects to reduce the number
        or amount of Offered Securities specified in its Notice of Acceptance, the
        Company may not issue, sell or exchange more than the reduced number or amount
        of the Offered Securities unless and until such securities have again been
        offered to the Buyers in accordance with Section 4(n)(iii)(1)
        above.

       

      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

      

      (5)  Upon
        the
        closing of the issuance, sale or exchange of all or less than all of the
        Refused
        Securities, the Buyers shall acquire from the Company, and the Company shall
        issue to the Buyers, the number or amount of Offered Securities specified
        in the
        Notices of Acceptance, as reduced pursuant to Section 4(n)(iii)(3) above
        if the
        Buyers have so elected, upon the terms and conditions specified in the Offer.
        The purchase by the Buyers of any Offered Securities is subject in all cases
        to
        the preparation, execution and delivery by the Company and the Buyers of
        a
        purchase agreement relating to such Offered Securities reasonably satisfactory
        in form and substance to the Buyers and their respective counsel.

       

      (6)  Any
        Offered Securities not acquired by the Buyers or other persons in accordance
        with Section 4(n)(iii)(3) above may not be issued, sold or exchanged until
        they
        are again offered to the Buyers under the procedures specified in this
        Agreement.

       

      (iv)  The
        restrictions contained in subsections (ii) and (iii) of this Section 4(n)
        shall
        not apply in connection with the issuance of any Excluded Securities (as
        defined
        in the Notes) or any security issued in a bona fide underwritten public offering
        by the Company or any of its Subsidiaries.

       

      5.  REGISTER;
        TRANSFER AGENT INSTRUCTIONS.

       

      (a)  Register.
        The
        Company shall maintain at its principal executive offices (or such other
        office
        or agency of the Company as it may designate by notice to each holder of
        Securities), a register for the Notes and the Warrants in which the Company
        shall record the name and address of the Person in whose name the Notes
        and the
        Warrants have been issued (including the name and address of each transferee),
        the principal amount of Notes held by such Person, the number of Conversion
        Shares issuable upon conversion of the Notes and Warrant Shares issuable
        upon
        exercise of the Warrants held by such Person. The Company shall keep the
        register open and available at all times during business hours for inspection
        of
        any Buyer or its legal representatives.

       

      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

      

      (b)  Transfer
        Agent Instructions.
        The
        Company shall issue irrevocable instructions to its transfer agent, and any
        subsequent transfer agent, to issue certificates or credit shares to the
        applicable balance accounts at The Depository Trust Company ("DTC"),
        registered in the name of each Buyer or its respective nominee(s), for the
        Conversion Shares, the Interest Shares, if any, and the Warrant
        Shares in
        such
        amounts as specified from time to time by each Buyer to the Company upon
        conversion of the Notes or exercise of the Warrants in the form of Exhibit
        D
        attached
        hereto (the "Irrevocable
        Transfer Agent Instructions").
        The
        Company warrants that no instruction other than the Irrevocable Transfer
        Agent
        Instructions referred to in this Section 5(b), and stop transfer instructions
        to
        give effect to Section 2(g) hereof, will be given by the Company to its transfer
        agent with respect to the Securities, and that the Securities shall otherwise
        be
        freely transferable on the books and records of the Company, as applicable,
        and
        to the extent provided in this Agreement and the other Transaction Documents.
        If
        a Buyer effects a sale, assignment or transfer of the Securities in accordance
        with Section 2(g), the Company shall permit the transfer and shall promptly
        instruct its transfer agent to issue one or more certificates or credit shares
        to the applicable balance accounts at DTC in such name and in such denominations
        as specified by such Buyer to effect such sale, transfer or assignment. In
        the
        event that such sale, assignment or transfer involves Conversion Shares,
        Interest Shares, Warrant Shares sold, assigned or transferred pursuant to
        an
        effective registration statement or pursuant to Rule 144, the transfer agent
        shall issue such Securities to the Buyer, assignee or transferee, as the
        case
        may be, without any restrictive legend. The Company acknowledges that a breach
        by it of its obligations hereunder will cause irreparable harm to a Buyer.
        Accordingly, the Company acknowledges that the remedy at law for a breach
        of its
        obligations under this Section 5(b) will be inadequate and agrees, in the
        event
        of a breach or threatened breach by the Company of the provisions of this
        Section 5(b), that a Buyer shall be entitled, in addition to all other available
        remedies, to an order and/or injunction restraining any breach and requiring
        immediate issuance and transfer, without the necessity of showing economic
        loss
        and without any bond or other security being required.

       

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

       

      (a)  The
        obligation of the Company hereunder to issue and sell the Notes and
        the
        related Warrants to each Buyer at the Closing is subject to the satisfaction,
        at
        or before the Closing Date, of each of the following conditions, provided
        that
        these conditions are for the Company's sole benefit and may be waived by
        the
        Company at any time in its sole discretion by providing each Buyer with prior
        written notice thereof:

       

      (i)  Such
        Buyer shall have executed each of the Transaction Documents to which it is
        a
        party and delivered the same to the Company.

       

      (ii)  Such
        Buyer and each other Buyer shall have delivered to the Company the Purchase
        Price for the Notes and the related Warrants being
        purchased by such Buyer at the Closing by wire transfer of immediately available
        funds pursuant to the wire instructions provided by the Company.

       

      (iii)  The
        representations and warranties of such Buyer shall be true and correct in
        all
        material respects as of the date when made and as of the Closing Date as
        though
        made at that time (except for representations and warranties that speak as
        of a
        specific date), and such Buyer shall have performed, satisfied and complied
        in
        all material respects with the covenants, agreements and conditions required
        by
        this Agreement to be performed, satisfied or complied with by such Buyer
        at or
        prior to the Closing Date.

       

      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

      

      7.  CONDITIONS
        TO EACH BUYER'S OBLIGATION TO PURCHASE.

       

      (a)  The
        obligation of each Buyer hereunder to purchase the Notes and
        the
        related Warrants at the Closing is subject to the satisfaction, at or before
        the
        Closing Date, of each of the following conditions, provided that these
        conditions are for each Buyer's sole benefit and may be waived by such Buyer
        at
        any time in its sole discretion by providing the Company with prior written
        notice thereof:

       

      (i)  The
        Company shall have executed and delivered to such Buyer (A) each of the
        Transaction Documents and (B) the Notes (in such principal amounts as is
        set
        forth across from such Buyer's name in column (3) of the Schedule of
        Buyers and
        the
        related Warrants (in such principal amounts as is set forth across from such
        Buyer's name in column (4) of the Schedule of Buyers) being purchased by
        such
        Buyer at the Closing pursuant to this Agreement.

       

      (ii)  Such
        Buyer shall have received the opinion of [Sichenzia Ross Friedman Ference
        LLP],
        the Company's outside counsel, dated as of the Closing Date, in substantially
        the form of Exhibit
        E
        attached
        hereto.

       

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

       

      (iv)  The
        Company shall have delivered to such Buyer a certificate evidencing the
        formation and good standing of the Company and each of its Subsidiaries in
        such
        entity's jurisdiction of formation issued by the Secretary of State (or
        comparable office) of such jurisdiction, as of a date within 10 days of the
        Closing Date.

       

      (v)  The
        Company shall have delivered to such Buyer a certificate evidencing the
        Company's qualification as a foreign corporation and good standing issued
        by the
        Secretary of State (or comparable office) of each jurisdiction in which the
        Company conducts business and is required to so qualify, as of a date within
        10
        days of the Closing Date.

       

      (vi)  The
        Company shall have delivered to such Buyer a certified copy of the Certificate
        of Incorporation as certified by the Secretary of State of the State of Delaware
        within ten (10) days of the Closing Date.

       

      (vii)  The
        Company shall have delivered to such Buyer a certificate, executed by the
        Secretary of the Company and dated as of the Closing Date, as to (i) the
        resolutions consistent with Section 3(b) as adopted by the Company's Board
        of
        Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
        of
        Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
        the
        form attached hereto as Exhibit
        F.

       

      (viii)  The
        representations and warranties of the Company shall be true and correct as
        of
        the date when made and as of the Closing Date as though made at that time
        (except for representations and warranties that speak as of a specific date)
        and
        the Company shall have performed, satisfied and complied in all respects
        with
        the covenants, agreements and conditions required by the Transaction Documents
        to be performed, satisfied or complied with by the Company at or prior to
        the
        Closing Date. Such Buyer shall have received a certificate, executed by the
        Chief Executive Officer of the Company, dated as of the Closing Date, to
        the
        foregoing effect and as to such other matters as may be reasonably requested
        by
        such Buyer in the form attached hereto as Exhibit
        G.

       

      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

      

      (ix)  The
        Company shall have delivered to such Buyer a letter from the Company's transfer
        agent certifying the number of shares of Common Stock outstanding as of a
        date
        within five days of the Closing Date.

       

      (x)  The
        Common Stock (I) shall be designated for quotation or listed on the Principal
        Market and (II) shall not have been suspended, as of the Closing Date, by
        the
        SEC or the Principal Market from trading on the Principal Market nor shall
        suspension by the SEC or the Principal Market have been threatened, as of
        the
        Closing Date, either (A) in writing by the SEC or the Principal Market or
        (B) by
        falling below the minimum listing maintenance requirements of the Principal
        Market.

       

      (xi)  The
        Company shall have obtained all governmental, regulatory or third party consents
        and approvals, if any, necessary for the sale of the Securities.

       

      (xii)  The
        Company shall have delivered to such Buyer such other documents relating
        to the
        transactions contemplated by this Agreement as such Buyer or its counsel
        may
        reasonably request.

       

      8.  TERMINATION.
        In the event that the Closing shall not have occurred with respect to a Buyer
        on
        or before five (5) Business Days from the date hereof due to the Company's
        or
        such Buyer's failure to satisfy the conditions set forth in Sections 6 and
        7
        above (and the nonbreaching party's failure to waive such unsatisfied
        condition(s)), the nonbreaching party shall have the option to terminate
        this
        Agreement with respect to such breaching party at the close of business on
        such
        date without liability of any party to any other party; provided, however,
        if
        this Agreement is terminated pursuant to this Section 8, the Company shall
        remain obligated to reimburse the non-breaching Buyers for the expenses
        described in Section 4(g) above.

       

      9.  MISCELLANEOUS.

       

      (a)  Governing
        Law; Jurisdiction; Jury Trial.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Agreement shall be governed by the internal laws of the State of
        New
        York, without giving effect to any choice of law or conflict of law provision
        or
        rule (whether of the State of New York or any other jurisdictions) that would
        cause the application of the laws of any jurisdictions other than the State
        of
        New York. Each party hereby irrevocably submits to the exclusive jurisdiction
        of
        the state and United States federal courts sitting in The City of New York,
        Borough of Manhattan, for the adjudication of any dispute hereunder or in
        connection herewith or with any transaction contemplated hereby or discussed
        herein, and hereby irrevocably waives, and agrees not to assert in any suit,
        action or proceeding, any claim that it is not personally subject to the
        jurisdiction of any such court, that such suit, action or proceeding is brought
        in an inconvenient forum or that the venue of such suit, action or proceeding
        is
        improper. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof to such party at the address for such notices to it
        under
        this Agreement and agrees that such service shall constitute good and sufficient
        service of process and notice thereof. Nothing contained herein shall be
        deemed
        to limit in any way any right to serve process in any manner permitted by
        law.
EACH
        PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
        REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
        CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
        HEREBY. 

       

      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

        

      

      (b)  Counterparts.
        This
        Agreement may be executed in two or more identical counterparts, all of which
        shall be considered one and the same agreement and shall become effective
        when
        counterparts have been signed by each party and delivered to the other party;
        provided that a facsimile signature shall be considered due execution and
        shall
        be binding upon the signatory thereto with the same force and effect as if
        the
        signature were an original, not a facsimile signature.

       

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

       

      (d)  Severability.
        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 in that jurisdiction
        or the
        validity or enforceability of any provision of this Agreement in any other
        jurisdiction.

       

      (e)  Entire
        Agreement; Amendments.
        This
        Agreement and the other Transaction Documents supersede all other prior oral
        or
        written agreements between the Buyers, the Company, their Affiliates and
        Persons
        acting on their behalf with respect to the matters discussed herein, and
        this
        Agreement, the other Transaction Documents and the instruments referenced
        herein
        and therein contain the entire understanding of the parties with respect
        to the
        matters covered herein and therein and, except as specifically set forth
        herein
        or therein, neither the Company nor any Buyer makes any representation,
        warranty, covenant or undertaking with respect to such matters. No provision
        of
        this Agreement may be amended other than by an instrument in writing signed
        by
        the Company and the holders of at least a majority of the aggregate number
        of
        Registrable Securities issued and issuable hereunder, and any amendment to
        this
        Agreement made in conformity with the provisions of this Section 9(e) shall
        be
        binding on all Buyers and holders of Securities, as applicable. No provision
        hereof may be waived other than by an instrument in writing signed by the
        party
        against whom enforcement is sought. No such amendment shall be effective
        to the
        extent that it applies to less than all of the holders of the applicable
        Securities then outstanding. No consideration shall be offered or paid to
        any
        Person to amend or consent to a waiver or modification of any provision of
        any
        of the Transaction Documents unless the same consideration also is offered
        to
        all of the parties to the Transaction Documents, holders of Notes or holders
        of
        the Warrants, as the case may be. The Company has not, directly or indirectly,
        made any agreements with any Buyers relating to the terms or conditions of
        the
        transactions contemplated by the Transaction Documents except as set forth
        in
        the Transaction Documents. Without limiting the foregoing, the Company confirms
        that, except as set forth in this Agreement, no Buyer has made any commitment
        or
        promise or has any other obligation to provide any financing to the Company
        or
        otherwise.

       

      
        
          
          

        

        
          -25-

          
            

          

        

        
          
          

        

      

      (f)  Notices.
        Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms of this Agreement must be in writing and will be deemed
        to
        have been delivered: (i) upon receipt, when delivered personally; (ii) upon
        receipt, when sent by facsimile (provided confirmation of transmission is
        mechanically or electronically generated and kept on file by the sending
        party);
        or (iii) one Business Day after deposit with an overnight courier service,
        in
        each case properly addressed to the party to receive the same. The addresses
        and
        facsimile numbers for such communications shall be:

       

      If
        to the
        Company:

       

      Phantom
        Fiber Corporation 

      144
        Front
        Street, Suite 580, 

      Toronto,
        Ontario, Canada M5J 2L7

      Telephone:
         (416)
        703-4007 

      Facsimile:
         (416)
        703-0900

      Attention:
         Jeffrey
        Halloran

       

      With
        a
        copy (for informational purposes only) to:

       

      Sichenzia
        Ross Friedman Ference LLP

      1065
        Avenue of the Americas, 21st Floor

      New
        York,
        New York 10018

      Telephone: (212)
        930-9700

      Facsimile:
         (212)
        930-9725

      Attention: Gregory
        Sichenzia, Esq.

      


      If
        to the
        Transfer Agent:

       

      PacWest
        Transfer, LLC

      360
        Main
        Street

      P.O.
        Box
        393

      Washington,
        Virginia 22747

      Telephone:
         (540)
        675-3129

      Facsimile:
         (540)
        675-3281

      Attention: Laurel
        Poffenroth

       

      If
        to a
        Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
        with copies to such Buyer's representatives as set forth on the Schedule
        of
        Buyers, 

       

      with
        a
        copy (for informational purposes only) to:

       

      Schulte
        Roth & Zabel LLP 

      919
        Third
        Avenue

      New
        York,
        New York 10022

      Telephone: (212)
        756-2000

      Facsimile: (212)
        593-5955

      Attention: Eleazer
        N. Klein, Esq.

       

      
        
          
          

        

        
          -26-

          
            

          

        

        
          
          

        

      

      or
        to
        such other address and/or facsimile number and/or to the attention of such
        other
        Person as the recipient party has specified by written notice given to each
        other party five (5) days prior to the effectiveness of such change. Written
        confirmation of receipt (A) given by the recipient of such notice, consent,
        waiver or other communication, (B) mechanically or electronically generated
        by
        the sender's facsimile machine containing the time, date, recipient facsimile
        number and an image of the first page of such transmission or (C) provided
        by an
        overnight courier service shall be rebuttable evidence of personal service,
        receipt by facsimile or receipt from an overnight courier service in accordance
        with clause (i), (ii) or (iii) above, respectively.

       

      (g)  The
        Company hereby irrevocably appoints The Corporation Trust Company at 1209
        Orange
        Street, Wilmington, Delaware 19801, Telephone: (302) 658-7581, Facsimile:
        (302)
        655-5049, as its agent for the receipt of service of process in connection
        with
        any action pursuant to any Transaction Document in the United States. The
        Company agrees that any document may be effectively served on it in connection
        with any action, suit or proceeding in the United States by service on its
        agents.

       

      Any
        document shall be deemed to have been duly served if marked for the attention
        of
        the agent at its address (as set out above) or such other address in the
        United
        States as may be notified to the party wishing to serve the document and
        delivered in accordance with the notice provisions set forth in this Section
        9(g).

       

      If
        the
        Company's agent at any time ceases for any reason to act as such, the Company
        shall appoint a replacement agent having an address for service in the United
        States and shall notify each Buyer in writing of the name and address of
        the
        replacement agent. Failing such appointment and notification, each Buyer
        shall
        be entitled by notice to the Company to appoint a replacement agent to act
        on
        the Company's behalf. The provisions of this Section 9(g) applying to service
        on
        an agent apply equally to service on a replacement agent.

       

      (h)  Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties and
        their respective successors and assigns, including any purchasers of the
        Notes
        or the Warrants. The Company shall not assign this Agreement or any rights
        or
        obligations hereunder without the prior written consent of the holders of
        at
        least a majority of the aggregate number of Registrable Securities issued
        and
        issuable hereunder, including by way of a Fundamental Transaction (unless
        the
        Company is in compliance with the applicable provisions governing Fundamental
        Transactions set forth in the Notes and the Warrants). A Buyer may assign
        some
        or all of its rights hereunder in connection with transfer of any of its
        Securities without the consent of the Company, in which event such assignee
        shall be deemed to be a Buyer hereunder with respect to such assigned
        rights.

       

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

       

      (j)  Survival.
        Unless
        this Agreement is terminated under Section 8, the representations and warranties
        of the Company and the Buyers contained in Sections 2 and 3 and the agreements
        and covenants set forth in Sections 4, 5 and 9 shall survive the Closing.
        Each
        Buyer shall be responsible only for its own representations, warranties,
        agreements and covenants hereunder.

       

      
        
          
          

        

        
          -27-

          
            

          

        

        
          
          

        

      

      (k)  Further
        Assurances.
        Each
        party shall do and perform, or cause to be done and performed, all such further
        acts and things, and shall execute and deliver all such other agreements,
        certificates, instruments and documents, as any other party may reasonably
        request in order to carry out the intent and accomplish the purposes of this
        Agreement and the consummation of the transactions contemplated
        hereby.

       

      (l)  Indemnification.
        In
        consideration of each Buyer's execution and delivery of the Transaction
        Documents and acquiring the Securities thereunder and in addition to all
        of the
        Company's other obligations under the Transaction Documents, the Company
        shall
        defend, protect, indemnify and hold harmless each Buyer and each other holder
        of
        the Securities and all of their stockholders, partners, members, officers,
        directors, employees and direct or indirect investors and any of the foregoing
        Persons' agents or other representatives (including, without limitation,
        those
        retained in connection with the transactions contemplated by this Agreement)
        (collectively, the "Indemnitees")
        from
        and against any and all actions, causes of action, suits, claims, losses,
        costs,
        penalties, fees, liabilities and damages, and expenses in connection therewith
        (irrespective of whether any such Indemnitee is a party to the action for
        which
        indemnification hereunder is sought), and including reasonable attorneys'
        fees
        and disbursements (the "Indemnified
        Liabilities"),
        incurred by any Indemnitee as a result of, or arising out of, or relating
        to (a)
        any misrepresentation or breach of any representation or warranty made by
        the
        Company in the Transaction Documents or any other certificate, instrument
        or
        document contemplated hereby or thereby, (b) any breach of any covenant,
        agreement or obligation of the Company contained in the Transaction Documents
        or
        any other certificate, instrument or document contemplated hereby or thereby
        or
        (c) any cause of action, suit or claim brought or made against such Indemnitee
        by a third party (including for these purposes a derivative action brought
        on
        behalf of the Company) and arising out of or resulting from (i) the execution,
        delivery, performance or enforcement of the Transaction Documents or any
        other
        certificate, instrument or document contemplated hereby or thereby, (ii)
        any
        transaction financed or to be financed in whole or in part, directly or
        indirectly, with the proceeds of the issuance of the Securities, (iii) any
        disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
        of
        such Buyer or holder of the Securities as an investor in the Company pursuant
        to
        the transactions contemplated by the Transaction Documents. To the extent
        that
        the foregoing undertaking by the Company may be unenforceable for any reason,
        the Company shall make the maximum contribution to the payment and satisfaction
        of each of the Indemnified Liabilities which is permissible under applicable
        law. Except as otherwise set forth herein, the mechanics and procedures with
        respect to the rights and obligations under this Section 9(l) shall be the
        same
        as those set forth in Section 6 of the Registration Rights
        Agreement.

       

      (m)  No
        Strict Construction.
        The
        language used in this Agreement will be deemed to be the language chosen
        by the
        parties to express their mutual intent, and no rules of strict construction
        will
        be applied against any party.

       

      (n)  Remedies.
        Each
        Buyer and each holder of the Securities shall have all rights and remedies
        set
        forth in the Transaction Documents and all rights and remedies which such
        holders have been granted at any time under any other agreement or contract
        and
        all of the rights which such holders have under any law. Any Person having
        any
        rights under any provision of this Agreement shall be entitled to enforce
        such
        rights specifically (without posting a bond or other security), to recover
        damages by reason of any breach of any provision of this Agreement and to
        exercise all other rights granted by law. Furthermore, the Company recognizes
        that in the event that it fails to perform, observe, or discharge any or
        all of
        its obligations under the Transaction Documents, any remedy at law may prove
        to
        be inadequate relief to the Buyers. The Company therefore agrees that the
        Buyers
        shall be entitled to seek temporary and permanent injunctive relief in any
        such
        case without the necessity of proving actual damages and without posting
        a bond
        or other security.

       

      
        
          
          

        

        
          -28-

          
            

          

        

        
          
          

        

      

      (o)  Payment
        Set Aside.
        To the
        extent that the Company makes a payment or payments to the Buyers hereunder
        or
        pursuant to any of the other Transaction Documents or the Buyers enforce
        or
        exercise their rights hereunder or thereunder, and such payment or payments
        or
        the proceeds of such enforcement or exercise or any part thereof are
        subsequently invalidated, declared to be fraudulent or preferential, set
        aside,
        recovered from, disgorged by or are required to be refunded, repaid or otherwise
        restored to the Company, a trustee, receiver or any other Person under any
        law
        (including, without limitation, any bankruptcy law, Canadian, foreign,
        provincial, state or United States federal law, common law or equitable cause
        of
        action), then to the extent of any such restoration the obligation or part
        thereof originally intended to be satisfied shall be revived and continued
        in
        full force and effect as if such payment had not been made or such enforcement
        or setoff had not occurred.

       

      (p)  Currency.
        Unless
        otherwise indicated, all dollar amounts referred to in this Agreement are
        in
        United States Dollars ("US
        Dollars").
        All
        amounts owing under this Agreement or any Transaction Document shall be paid
        in
        US Dollars. All amounts denominated in other currencies shall be converted
        in
        the US Dollar equivalent amount in accordance with the Exchange Rate on the
        date
        of calculation. "Exchange
        Rate"
        means,
        in relation to any amount of currency to be converted into US Dollars pursuant
        to this Agreement, the US Dollar exchange rate as published in the Wall Street
        Journal on the relevant date of calculation.

       

      (q)  Judgment
        Currency.

       

      (i)  If
        for
        the purpose of obtaining or enforcing judgment against the Company or any
        Subsidiary, in any court in any jurisdiction it becomes necessary to convert
        into any other currency (such other currency being hereinafter in this Section
        9(q) referred to as the "Judgment
        Currency")
        an
        amount due in US Dollars under this Agreement, the conversion shall be made
        at
        the Exchange Rate prevailing on the Business Day immediately
        preceding:

       

      (1)  the
        date
        of actual payment of the amount due, in the case of any proceeding in the
        courts
        of New York or in the courts of any other jurisdiction that will give effect
        to
        such conversion being made on such date: or 

       

      (2)  the
        date
        on which the foreign court determines, in the case of any proceeding in the
        courts of any other jurisdiction (the date as of which such conversion is
        made
        pursuant to this Section 9(q) being hereinafter referred to as the "Judgment
        Conversion Date").

       

      
        
          
          

        

        
          -29-

          
            

          

        

        
          
          

        

      

      (ii)  If
        in the
        case of any proceeding in the court of any jurisdiction referred to in Section
        9(q)(i)(2) above, there is a change in the Exchange Rate prevailing between
        the
        Judgment Conversion Date and the date of actual payment of the amount due,
        the
        applicable party shall pay such adjusted amount as may be necessary to ensure
        that the amount paid in the Judgment Currency, when converted at the Exchange
        Rate prevailing on the date of payment, will produce the amount of US Dollars
        which could have been purchased with the amount of Judgment Currency stipulated
        in the judgment or judicial order at the Exchange Rate prevailing on the
        Judgment Conversion Date.

       

      (iii)  Any
        amount due from the Company or any Subsidiary, under this provision shall
        be due
        as a separate debt and shall not be affected by judgment being obtained for
        any
        other amounts due under or in respect of this Agreement.

       

      (r)  Independent
        Nature of Buyers' Obligations and Rights.
        The
        obligations of each Buyer under any Transaction Document are several and
        not
        joint with the obligations of any other Buyer, and no Buyer shall be responsible
        in any way for the performance of the obligations of any other Buyer under
        any
        Transaction Document. Nothing contained herein or in any other Transaction
        Document, and no action taken by any Buyer pursuant hereto or thereto, shall
        be
        deemed to constitute the Buyers as a partnership, an association, a joint
        venture or any other kind of entity, or create a presumption that the Buyers
        are
        in any way acting in concert or as a group with respect to such obligations
        or
        the transactions contemplated by the Transaction Documents and the Company
        acknowledges that the Buyers are not acting in concert or as a group with
        respect to such obligations or the transactions contemplated by the Transaction
        Documents. Each Buyer confirms that it has independently participated in
        the
        negotiation of the transaction contemplated hereby with the advice of its
        own
        counsel and advisors. Each Buyer shall be entitled to independently protect
        and
        enforce its rights, including, without limitation, the rights arising out
        of
        this Agreement or out of any other Transaction Documents, and it shall not
        be
        necessary for any other Buyer to be joined as an additional party in any
        proceeding for such purpose.

       

      [Signature
        Page Follows]

       

      
        
          
          

        

        
          -30-

          
            

          

        

        
          
          

        

      



      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    COMPANY:

                     

                    PHANTOM
                      FIBER CORPORATION

                  
	 
 	 
 	 
 
	 	By:  	/s/ Jeffrey
                    Halloran 
	 	
                    

                    Name:
                      Jeffrey Halloran

                    Title:
                      Chief Executive Officer

                  
	 	 


          



      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
        	 	 	 
	 	
                BUYERS:

                 

                
                  MAGNETAR
                    CAPITAL MASTER FUND, LTD.

                

              
	 
 	 
 	 
 
	 	By:	
                Magnetar
                  Financial LLC

              
	 	Its:	Investment Manager
	 	 	 
	 	By:  	/s/ Paul
                Smith 
	 	
                

                Name:
                  Paul Smith

                Title:
                  General Counsel

              
	 	 


      

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

       

      
        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                
	 
 	 
 	 
 
	 	By:  	/s/ Mark
                  J.
                  Nuovo 
	 	
                  

                  Name:
                    Mark J. Nuovo

                  Title:
                    Individual

                
	 	 


        



      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


       IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      


      
         

        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                
	 
 	 
 	 
 
	 	By:  	/s/ Konstantine
                  (Gus) John Lucas 
	 	
                  

                  Name:
                    Konstantine (Gus) John Lucas

                  Title:
                    Investor

                
	 	 


        

        
 

        
 

        
          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

        

        


      

      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                  
	 
 	 
 	 
 
	 	By:  	/s/ Pamela
                    Ritchie 
	 	
                    

                    Name:
                      Pamela Ritchie

                    Title:
                      Investor

                  
	 	 


          




      

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                     

                    The
                      Sunderland Family Trust

                  
	 
 	 
 	 
 
	 	By:  	/s/ 
Ronald
                    B. Sunderland 
	 	
                    

                    Name:
                      Ronald B. Sunderland

                    Title:
                      Trustee/Trustor

                  
	 	 


          



      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                  
	 
 	 
 	 
 
	 	By:  	/s/ 
Linda
                    A.
                    Abrams 
	 	
                    

                    Name:
                      Linda A. Abrams

                    Title:
                      Investor

                  
	 	 


          




      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                  
	 
 	 
 	 
 
	 	By:  	/s/ Michael
                    Russo 
	 	
                    

                    Name:
                      Michael Russo

                    Title:
                      Trustee, Russo Living Trust 5/1/98

                  
	 	 


          




      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

       

      
        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                
	 
 	 
 	 
 
	 	By:  	/s/ Mark
                  P.
                  DeVitre 
	 	
                  
                    

                  

                  Name: Mark P. DeVitre

                  Title:
                    Investor

                
	 	 


        




      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                  
	 
 	 
 	 
 
	 	By:  	/s/ Howard
                    Shapiro 
	 	
                    

                    Name:
                      

                    Title:

                  
	 	 


          



          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          



      

      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

       

      
        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                   

                  Financial
                    Trading Consultants

                
	 
 	 
 	 
 
	 	By:  	/s/ Howard
                  Shapiro 
	 	
                  

                  Name:
                    

                  Title:
                    Trustee

                
	 	 


        



      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    
                      OTHER
                        BUYERS:

                    

                     

                    Mequer Masters Int Pension Plan

                  
	 
 	 
 	 
 
	 	By:  	/s/ Howard
                    Shapiro 
	 	
                    

                    Name:
                      

                    Title:
                      Trustee

                  
	 	 


          



          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          



      

      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                  
	 
 	 
 	 
 
	 	By:  	/s/ Timothy
                    J. Livak 
	 	
                    

                    Name:
                      Timothy J. Livak

                    Title:

                  
	 	 


          



          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          



      

      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

      
         

        
          
            	 	 	 
	 	
                    OTHER
                      BUYERS:

                  
	 
 	 
 	 
 
	 	By:  	/s/ 
John
                    Cramer 
	 	
                    

                    Name:
                      John Cramer

                    Title:

                  
	 	
                     

                    /s/
                      Sharon R. Hawkins

                    Sharon
                      R. Hawkins

                  


          



          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          



      

      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

       

      
        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                
	 
 	 
 	 
 
	 	By:  	/s/ Robert
                  Kantor 
	 	
                  

                  Name:
                    Robert Kantor

                  Title:
                    Owner

                
	 	 


        




      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

       

      
        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                
	 
 	 
 	 
 
	 	By:  	/s/ Harry
                  Forman 
	 	
                  

                  Name:
                    Harry Forman

                  Title:

                
	 	 


        



      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        each
        Buyer and the Company have caused their respective signature page to this
        Securities Purchase Agreement to be duly executed as of the date first written
        above.

       

       

      
        
          	 	 	 
	 	
                  OTHER
                    BUYERS:

                
	 
 	 
 	 
 
	 	By:  	/s/ Philip
                  M.
                  Barone 
	 	
                  

                  Name:
                    

                  Title:

                
	 	 


        



      


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      SCHEDULE
        OF BUYERS

      


      
        	
                 

                (1)

              	
                 

                (2)

              	
                 

                (3)

              	
                 

                (4)

              	
                (5)

              
	
                Buyer

              	
                Address
                  and Facsimile Number

              	
                 

                Aggregate
                  Principal Amount of Notes

              	
                 

                 

                Aggregate
                  Number of Warrants

              	
                Legal
                  Representative's

                Address
                  and Facsimile Number

              
	 	 	 	 	 
	
                Magnetar
                  Capital Master Fund, Ltd.

              	
                1603
                  Orrington Avenue

                Evanston,
                  IL 60201

                Attn:
                  Richard Levy and Matthew Ray

                Facsimile:
                  (847)
                  905-5603

                Telephone:
                  (847) 962-2308

              	
                $2,642,000

              	
                5,284,000

              	
                Schulte
                  Roth & Zabel LLP

                919
                  Third Avenue

                New
                  York, New York 10022

                Attention:
                  Eleazer Klein, Esq.

                Facsimile:
                  (212) 593-5955

                Telephone:
                  (212) 756-2376

              
	
                Mark
                  J. Nuovo

              	
                2302
                  City Lights Dr.

                Aliso
                  Viejo, CA 92656

                 

              	
                $100,000

              	
                200,000

              	 
	
                Konstantine
                  (Gus) John Lucas

              	
                17428
                  Oak Creek Court

                Encino,
                  CA 91316

                Telephone:
                  (818) 891-6465

                 

              	
                $275,000

              	
                550,000

              	 
	
                Pamela
                  Ritchie

              	
                7514
                  Graystone Dr.

                West
                  Hills, CA 91304

                (818)
                  716-6568

                 

              	
                $16,500

              	
                33,000

              	 
	
                The
                  Sutherland Family Trust

              	
                3728
                  Regal Vista Drive

                Sherman
                  Oaks, CA 91403

                Fax:
                  (818) 906-0197

                H:
                  (818) 906-0197

                O:
                  (818) 977-4370

                C:
                  (310) 850-0571

                 

              	
                $60,500

              	
                121,000

              	 
	
                Linda
                  Anne Abrams

              	
                7251
                  Sycamore Trail

                Los
                  Angeles, CA 90068

                Home:
                  (323) 876-5277

                Cell:
                  (818) 802-9995

                Wk:
                  (818) 977-4242

                 

              	
                $50,000

              	
                100,000

              	 
	
                Russo
                  Living Trust 5/1/98

              	
                Michael
                  Russo, Trustee

                4610
                  Encino Ave.

                Encino,
                  CA 91316

                Fax:
                  (818) 789-0053

                Phone:
                  (818) 788-9335

                 

              	
                $11,000

              	
                22,000

              	 
	
                Mark
                  P. DeVitre

              	
                530
                  S. Bentley Ave.

                Los
                  Angeles, CA 90049

                Hm:
                  (310) 476-4633

                Work:
                  (818) 977-1056

                 

              	
                $5,500

              	
                11,000

              	 
	
                Howard
                  Shapiro

              	
                199
                  Logtown Road

                Port
                  Jeruis, NY 12771

                (845)
                  856-0451

                 

              	
                $55,000

              	
                110,000

              	 
	
                Financial
                  Trading Consultants Pension Plan

              	
                199
                  Logtown Road

                Port
                  Jeruis, NY 12771

                (845)
                  856-0451

                 

              	
                $55,000

              	
                110,000

              	 
	
                Meuqer
                  Masters International Pension Plan

              	
                199
                  Logtown Road

                Port
                  Jeruis, NY 12771

                (845)
                  856-0451

                 

              	
                $55,000

              	
                110,000

              	 
	
                Timothy
                  J. Livak

              	
                24945
                  Grissom Circle

                Laguna
                  Hills, CA 92653

                (714)
                  878-6766

                Fax:
                  (949) 305-6073

                 

              	
                $70,000

              	
                140,000

              	 
	
                John
                  Cramer and

                Sharon
                  Hawkins

              	
                33167
                  Wakeen Circle

                Temecola,
                  CA 92592

                Fax:
                  (818) 549-1409

                Tel:
                  (310) 764-3439

                 

              	
                $5,500

              	
                11,000

              	 
	
                Robert
                  Kantor

              	
                31
                  Garfield Avenue

                Clifton,
                  NJ 07012

                Fax:
                  (212) 206-6028

                Phone:
                  (212) 206-6179

                 

              	
                $77,000

              	
                154,000

              	 
	
                Harry
                  Forman

              	
                5401
                  Bevis Ave.

                Sherman
                  Oaks, CA 91411

                (818)
                  787-4900

                 

              	
                $11,000

              	
                22,000

              	 
	
                Philip
                  M. Barone

              	
                3103
                  Executive Parkway, Suite 100

                Toledo,
                  OH 43606

                (419)
                  551-4300

                cell:
                  (419) 392-2812

              	
                $11,000

              	
                22,000

              	 
	
                TOTAL:

              	 	
                $3,500,000.00

              	
                7,000,000

              	 


      

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      Disclosure
        Schedules

      to

      Securities
        Purchase Agreement

      (Prepared
        in connection with Notes and Warrants sold by the Company to the Buyers pursuant
        to the Securities Purchase Agreement dated as of January 5, 2006 (the “January
        2006 Purchase Agreement”). Capitalized terms not defined herein shall have the
        meaning given to such terms in the January 2006 Purchase Agreement.)


      


      


      


       

      


      
 

      January
        5, 2005


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(a)

      Subsidiaries

      


      


      Phantom
        Fiber Corp., a 100% owned subsidiary of the Company incorporated in Ontario,
        Canada

      


      Phantom
        Fiber, Inc., a 100% owned subsidiary of Phantom Fiber Corp., incorporated
        in
        Ontario, Canada

      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(l)

      Absence
        of Certain Changes

      


      


      None.

       

      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(q)

      Transactions
        With Affiliates

      


      


      
      

      
       

      


       

      


       

      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(q)

      Transactions
        With Affiliates (continued)

      


       

      
      

      
       

      


       

      


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      


       

      Schedule
        3(q)

      Transactions
        With Affiliates (continued)

      


      


      The
        Company is contingently liable for the following:

      


      
        	a)  	
                Issuance
                  of 500,000 restricted common shares (after adjustment for a 1 for
                  20 stock
                  consolidation) to Jeff Halloran in satisfaction of certain “earn-in’
                  criteria specified in an employment agreement dated February 4,
                  2004 with
                  Pivotal Self-Service Technologies
                  Inc.

              


      

      


      
        	b)  	
                Issuance
                  of 250,000 share purchase warrants (after adjustment for a 1 for
                  20 stock
                  consolidation) to Jeff Halloran with a term of five years in satisfaction
                  of certain “earn-in’ criteria specified in an employment agreement dated
                  February 4, 2004 with Pivotal Self-Service Technologies Inc., with
                  each
                  warrant entitling the holder to purchase one share of common stock
                  at
                  $4.00 per share.

              


      

      


      
        	c)  	
                Issuance
                  of compensatory restricted common shares to the pre-merger shareholders
                  of
                  Phantom Fiber Corporation in connection with Reverse Acquisition
                  Transaction with Pivotal Self-Service Technologies Inc. An initial
                  provision of 500,000 common shares (after adjustment for a 1 for
                  20 stock
                  consolidation) has been established to date in this
                  regard.

              


      

      


      
        	d)  	
                Grant
                  of 37,500 stock options(after adjustment for a 1 for 20 stock
                  consolidation) to Gordon Fowler for services rendered as an Executive
                  Director for the period November 1, 2004 to January 31, 2005, such
                  options
                  granted at a volume weighted average exercise price for the period
                  of
                  $1.29.

              


      

      


      
        	e)  	
                Grant
                  of 37,500 stock options(after adjustment for a 1 for 20 stock
                  consolidation) to Gordon Fowler for services rendered as an Executive
                  Director for the period February 1, 2005 to April 30, 2005, such
                  options
                  granted at a volume weighted average exercise price for the period
                  of
                  $1.06.

              


      

      


      
        	f)  	
                Issuance
                  of 16,949 restricted common shares (after adjustment for a 1 for
                  20 stock
                  consolidation) to Gordon Fowler in consideration for services rendered
                  as
                  an Executive Director for the period November 1, 2004 to December
                  31,
                  2004, such shares computed on the basis of $10,000 per month multiplied
                  by
                  two months and divided by the volume weighted average share price
                  for the
                  period of $1.18.

              


      

      


      
 


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(r)

      Equity
        Capitalization

      


      


      Obligations
        of the Company and its Subsidiaries to issue Equity Securities

      


      See
        Schedule 3(q).

      


      In
        addition to the securities described in Schedule 3(q), on December 8, 2005,
        the
        Company completed a private placement of 1,560,000 shares of common stock
        and
        warrants to purchase 1,560,000 shares of common stock to 14 accredited investors
        resulting in aggregate gross proceeds of $858,000. The common stock and warrants
        were sold as Units, with each Unit consisting of one share of common stock
        and a
        warrant to purchase one share of common stock, for a per Unit purchase price
        of
        $0.55. Each warrant entitles the holder to purchase one share of the Company’s
        common stock at $1.10 per share, exercisable for a period of three years.
        Each
        of the investors in this private placement has the right to exchange their
        Units
        for other equity securities of the Company which may be sold by the Company
        during the period ending 45 days after closing if the Company completes an
        equity financing within such period. The Company also agreed to file a
        registration statement with the SEC on Form SB-2 no later than 90 days following
        closing covering the resale of common stock and common stock issuable upon
        exercise of warrants sold to such investors.

      


      Outstanding
        Debt Securities and Other Documents Evidencing Indebtedness

      


      In
        2001,
        the Company restructured a $416,821 payable with a creditor, whereby $76,821
        was
        forgiven, $180,000 was satisfied through the issuance of 1.8 million shares
        of
        the Company’s common stock and a note payable of $160,000 was issued and has
        since been paid down to $57,500. This amount is due on demand and has therefore
        not been discounted.

      


      Financing
        Statements

      


      There
        are
        no financing statements filed in connection with the Company or any
        Subsidiaries. However, there are existing security interests with respect
        to the
        Company’s capital lease obligations for equipment.

      


      Registration
        Obligations

      


      On
        December 8, 2005, the Company completed a private placement of 1,560,000
        shares
        of common stock and warrants to purchase 1,560,000 shares of common stock
        to 14
        accredited investors resulting in aggregate gross proceeds of $858,000. The
        common stock and warrants were sold as Units, with each Unit consisting of
        one
        share of common stock and a warrant to purchase one share of common stock,
        for a
        per Unit purchase price of $0.55. Each warrant entitles the holder to purchase
        one share of the Company’s common stock at $1.10 per share, exercisable for a
        period of three years. 


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(r)

      Equity
        Capitalization (continued)

      


      Each
        of
        the investors in the above private placement has the right to exchange their
        Units for other equity securities of the Company which may be sold by the
        Company during the period ending 45 days after closing if the Company completes
        an equity financing within such period. The Company also agreed to file a
        registration statement with the SEC on Form SB-2 no later than 90 days following
        closing covering the resale of common stock and common stock issuable upon
        exercise of warrants sold to such investors.

      


      


      



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Schedule
        3(s)

      Indebtedness
        and Other Contracts

      


      


      As
        of the
        date of the Agreement and excluding contingent debt and liabilities disclosed
        elsewhere, the Company has total debt on a consolidated and unaudited basis
        of
        approximately $1,000,000, which includes approximately $885,000 of accounts
        payable and other accrued liabilities.

      


      As
        of the
        date of the Agreement the Company has approximately$24,500 of outstanding
        short
        term borrowings, which represents an unsecured loan from a shareholder of
        the
        Company repayable on demand and bearing no interest. As of the date of the
        Agreement the Company has approximately $57,500 of notes payable, resulting
        from
        a restructuring of a $416,821 payable in 2001,
        whereby
        $76,821 was forgiven, $180,000 was satisfied through the issuance of 1.8
        million
        shares of the Company’s common stock and a note payable of $160,000 was issued
        and has since been paid down to $57,500. This amount is due on
        demand.

      


      As
        of the
        date of the Agreement the Company has approximately $33,000 of outstanding
        capital lease obligations relating to computers and office
        equipment.

      


      
 


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      EXHIBITS

       

       

      
        	
              	Exhibit	
                A
                  Form of Notes

              


      

      
        	
              	Exhibit	
                B
                  Form of Warrants

              


      

      
        	
              	Exhibit	
                C
                  Registration Rights Agreement

              


      

      
        	
              	Exhibit	
                D
                  Irrevocable Transfer Agent
                  Instructions

              


      

      
        	
              	Exhibit	
                E
                  Form of Outside Company Counsel
                  Opinion

              


      

      
        	
              	Exhibit	
                F
                  Form of Secretary's Certificate

              


      

      
        	
              	Exhibit	
                G
                  Form of Officer's Certificate