Exhibit 4.92


    

      Exhibit
        4.92

       

      SECURITIES
        PURCHASE AGREEMENT

       

      


       

      SECURITIES
        PURCHASE AGREEMENT (this “Agreement”),
        dated
        as of January 23, 2006, by and among Pacificap Entertainment Holdings, Inc.,
        a
        Nevada corporation, with headquarters located at 12268 Via Latina, Del Mar,
        California 92914 (the “Company”),
        and
        each of the purchasers set forth on the signature pages hereto (the
“Buyers”).

       

      WHEREAS:
        

       

      A.  The
        Company and the Buyers are executing and delivering this Agreement in reliance
        upon the exemption from securities registration afforded by the rules and
        regulations as promulgated by the United States Securities and Exchange
        Commission (the “SEC”)
        under
        the Securities Act of 1933, as amended (the “1933
        Act”);

       

      B.  Buyers
        desire to purchase and the Company desires to issue and sell, upon the terms
        and
        conditions set forth in this Agreement (i) 10%
        secured convertible notes of the Company, in the form attached hereto as
        Exhibit
        “A”,
        in the
        aggregate principal amount of One Hundred and Eighty Thousand Dollars ($180,000)
        (together with any note(s) issued in replacement thereof or as a dividend
        thereon or otherwise with respect thereto in accordance with the terms thereof,
        the “Notes”),
        convertible into shares of common stock, par value $.001 per share, of the
        Company (the “Common
        Stock”),
        upon
        the terms and subject to the limitations and conditions set forth in such
        Notes
        and (ii) warrants,
        in the form attached hereto as Exhibit
        “B”,
        to
        purchase 180,000 shares of Common Stock (the “Warrants”).

       

      C.  Each
        Buyer wishes to purchase, upon the terms and conditions stated in this
        Agreement, such principal amount of Notes and number of Warrants as is set
        forth
        immediately below its name on the signature pages hereto; and

       

      D.  Contemporaneous
        with the execution and delivery of this Agreement, the parties hereto are
        executing and delivering a Registration Rights Agreement, in the form attached
        hereto as Exhibit
        “C”
        (the
“Registration
        Rights Agreement”),
        pursuant to which the Company has agreed to provide certain registration
        rights
        under the 1933 Act and the rules and regulations promulgated thereunder,
        and
        applicable state securities laws.

       

      NOW
        THEREFORE,
        the
        Company and each of the Buyers severally (and not jointly) hereby agree as
        follows:

       

      1.  PURCHASE
        AND SALE OF NOTES AND WARRANTS.

       

      a.  Purchase
        of Notes and Warrants.
        On the
        Closing Date (as defined below), the Company shall issue and sell to each
        Buyer
        and each Buyer severally agrees to purchase from the Company such principal
        amount of Notes and number of Warrants as is set forth immediately below
        such
        Buyer’s name on the signature pages hereto.

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      


       

      Form
        of Payment.
        On the
        Closing Date (as defined below), (i) each
        Buyer shall pay the purchase price for the Notes and the Warrants to be issued
        and sold to it at the Closing (as defined below) (the “Purchase
        Price”)
        by
        wire transfer of immediately available funds to the Company, in accordance
        with
        the Company’s written wiring instructions, against delivery of the Notes in the
        principal amount equal to the Purchase Price and the number of Warrants as
        is
        set forth immediately below such Buyer’s name on the signature pages hereto, and
(ii) the
        Company shall deliver such Notes and Warrants duly executed on behalf of
        the
        Company, to such Buyer, against delivery of such Purchase Price. 

       

      b.  Closing
        Date.
        Subject
        to the satisfaction (or written waiver) of the conditions thereto set forth
        in
        Section 6 and Section 7 below, the date and time of the issuance and sale
        of the
        Notes and the Warrants pursuant to this Agreement (the “Closing
        Date”)
        shall
        be 12:00 noon, Eastern Standard Time on January 23, 2006, or such other mutually
        agreed upon time. The closing of the transactions contemplated by this Agreement
        (the “Closing”)
        shall
        occur on the Closing Date at such location as may be agreed to by the
        parties.

       

      2.  BUYERS’
        REPRESENTATIONS AND WARRANTIES.
        Each
        Buyer severally (and not jointly) represents and warrants to the Company
        solely
        as to such Buyer that:

       

      a.  Investment
        Purpose.
        As of
        the date hereof, the Buyer is purchasing the Notes and the shares of Common
        Stock issuable upon conversion of or otherwise pursuant to the Notes (including,
        without limitation, such additional shares of Common Stock, if any, as are
        issuable (i) on
        account of interest on the Notes, (ii) as
        a result of the events described in Sections 1.3 and 1.4(g) of the Notes
        and
        Section 2(c) of the Registration Rights Agreement or (iii) in
        payment of the Standard Liquidated Damages Amount (as defined in Section
        2(f)
        below) pursuant to this Agreement, such shares of Common Stock being
        collectively referred to herein as the “Conversion
        Shares”)
        and
        the Warrants and the shares of Common Stock issuable upon exercise thereof
        (the
“Warrant
        Shares”
and,
        collectively with the Notes, Warrants and Conversion Shares, the “Securities”)
        for
        its own account and not with a present view towards the public sale or
        distribution thereof, except pursuant to sales registered or exempted from
        registration under the 1933 Act; provided,
        however,
        that by
        making the representations herein, the 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.

       

      b.  Accredited
        Investor Status.
        The
        Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
        Regulation D (an “Accredited
        Investor”).

       

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

       


      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      


      


       

      d.  Information.
        The
        Buyer and its advisors, if any, have been, and for so long as the Notes and
        Warrants remain outstanding will continue to be, 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
        the Buyer or its advisors. The Buyer and its advisors, if any, have been,
        and
        for so long as the Notes and Warrants remain outstanding will continue to
        be,
        afforded the opportunity to ask questions of the Company. Notwithstanding
        the
        foregoing, the Company has not disclosed to the Buyer any material nonpublic
        information and will not disclose such information unless such information
        is
        disclosed to the public prior to or promptly following such disclosure to
        the
        Buyer. Neither such inquiries nor any other due diligence investigation
        conducted by Buyer or any of its advisors or representatives shall modify,
        amend
        or affect Buyer’s right to rely on the Company’s representations and warranties
        contained in Section 3 below. The Buyer understands that its investment in
        the
        Securities involves a significant degree of risk.

       

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

       

      f.  Transfer
        or Re-sale.
        The
        Buyer understands that (i) except
        as provided in the Registration Rights Agreement, the sale or re-sale of
        the
        Securities has not been and is not being registered under the 1933 Act or
        any
        applicable state securities laws, and the Securities may not be transferred
        unless (a) the
        Securities are sold pursuant to an effective registration statement under
        the
        1933 Act, (b) the
        Buyer shall have delivered to the Company an opinion of counsel that shall
        be in
        form, substance and scope customary for opinions of counsel in comparable
        transactions to the effect that the Securities to be sold or transferred
        may be
        sold or transferred pursuant to an exemption from such registration, which
        opinion shall be accepted by the Company, (c) the
        Securities are sold or transferred to an “affiliate” (as defined in Rule 144
        promulgated under the 1933 Act (or a successor rule) (“Rule
        144”))
        of
        the Buyer who agrees to sell or otherwise transfer the Securities only in
        accordance with this Section 2(f) and who is an Accredited Investor,
(d) the
        Securities are sold pursuant to Rule 144, or (e) the
        Securities are sold pursuant to Regulation S under the 1933 Act (or a successor
        rule) (“Regulation
        S”),
        and
        the Buyer shall have delivered to the Company an opinion of counsel that
        shall
        be in form, substance and scope customary for opinions of counsel in corporate
        transactions, which opinion shall be accepted by the Company; (ii) any sale
        of
        such Securities made in reliance on Rule 144 may be made only in accordance
        with
        the terms of said Rule and further, if said Rule is not applicable, any re-sale
        of such Securities under circumstances in which the seller (or the person
        through whom the sale is made) may be deemed to be an underwriter (as that
        term
        is 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
        such Securities under the 1933 Act or any state securities laws or to comply
        with the terms and conditions of any exemption thereunder (in each case,
        other
        than pursuant to the Registration Rights Agreement). Notwithstanding the
        foregoing or anything else contained herein to the contrary, the Securities
        may
        be pledged as collateral in connection with a bona fide
        margin
        account or other lending arrangement. In the event that the Company does
        not
        accept the opinion of counsel provided by the Buyer with respect to the transfer
        of Securities pursuant to an exemption from registration, such as Rule 144
        or
        Regulation S, within three (3) business days of delivery of the opinion to
        the
        Company, the Company shall pay to the Buyer liquidated damages of three percent
        (3%) of the outstanding amount of the Notes per month plus accrued and unpaid
        interest on the Notes, prorated for partial months, in cash or shares at
        the
        option of the Company (“Standard
        Liquidated Damages Amount”).
        If
        the Company elects to be pay the Standard Liquidated Damages Amount in shares
        of
        Common Stock, such shares shall be issued at the Conversion Price (as defined
        in
        the Notes) at the time of payment.

       


      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      


      


       

      g.  Legends.
        The
        Buyer understands that the Notes and the Warrants and, until such time as
        the
        Conversion Shares and Warrant Shares have been registered under the 1933
        Act as
        contemplated by the Registration Rights Agreement or otherwise may be sold
        pursuant to Rule 144 or Regulation S without any restriction as to the number
        of
        securities as of a particular date that can then be immediately sold, the
        Conversion Shares and Warrant Shares may bear a restrictive legend in
        substantially the following form (and a stop-transfer order may be placed
        against transfer of the certificates for such Securities):

       

      “The
        securities represented by this certificate have not been registered under
        the
        Securities Act of 1933, as amended. The securities may not be sold, transferred
        or assigned in the absence of an effective registration statement for the
        securities under said Act, or an opinion of counsel, in form, substance and
        scope customary for opinions of counsel in comparable transactions, that
        registration is not required under said Act or unless sold pursuant to Rule
        144
        or Regulation S under said Act.”

       

      The
        legend set forth above shall be removed and the Company shall issue a
        certificate without such legend to the holder of any Security upon which
        it is
        stamped, if, unless otherwise required by applicable state securities laws,
        (a)
        such Security is registered for sale under an effective registration statement
        filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
        Regulation S without any restriction as to the number of securities as of
        a
        particular date that can then be immediately sold, or (b) such holder provides
        the Company with an opinion of counsel, in form, substance and scope customary
        for opinions of counsel in comparable transactions, to the effect that a
        public
        sale or transfer of such Security may be made without registration under
        the
        1933 Act, which opinion shall be accepted by the Company so that the sale
        or
        transfer is effected or (c) such holder provides the Company with reasonable
        assurances that such Security can be sold pursuant to Rule 144 or Regulation
        S.
        The Buyer agrees to sell all Securities, including those represented by a
        certificate(s) from which the legend has been removed, in compliance with
        applicable prospectus delivery requirements, if any.

       

      h.  Authorization;
        Enforcement.
        This
        Agreement and the Registration Rights Agreement have been duly and validly
        authorized. This Agreement has been duly executed and delivered on behalf
        of the
        Buyer, and this Agreement constitutes, and upon execution and delivery by
        the
        Buyer of the Registration Rights Agreement, such agreement will constitute,
        valid and binding agreements of the Buyer enforceable in accordance with
        their
        terms.

       

      i.  Residency.
        The
        Buyer is a resident of the jurisdiction set forth immediately below such
        Buyer’s
        name on the signature pages hereto. 

       

      3.  REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY.
        The
        Company represents and warrants to each Buyer that:

       


      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      


      


       

      a.  Organization
        and Qualification.
        The
        Company and each of its Subsidiaries (as defined below), if any, is a
        corporation duly organized, validly existing and in good standing under the
        laws
        of the jurisdiction in which it is incorporated, with full power and authority
        (corporate and other) to own, lease, use and operate its properties and to
        carry
        on its business as and where now owned, leased, used, operated and conducted.
        Schedule
        3(a)
        sets
        forth a list of all of the Subsidiaries of the Company and the jurisdiction
        in
        which each is incorporated. The Company and each of its Subsidiaries is duly
        qualified as a foreign corporation to do business and is in good standing
        in
        every jurisdiction in which its ownership or use of property or the nature
        of
        the business conducted by it makes such qualification necessary, except where
        the failure to be so qualified or in good standing would not have a Material
        Adverse Effect. “Material
        Adverse Effect”
means
        any material adverse effect on the business, operations, assets, financial
        condition or prospects of the Company or its Subsidiaries, if any, taken
        as a
        whole, or on the transactions contemplated hereby or by the agreements or
        instruments to be entered into in connection herewith. “Subsidiaries”
means
        any corporation or other organization, whether incorporated or unincorporated,
        in which the Company owns, directly or indirectly, any equity or other ownership
        interest.

       

      b.  Authorization;
        Enforcement.
        (i) The
        Company has all requisite corporate power and authority to enter into and
        perform this Agreement, the Registration Rights Agreement, the Notes and
        the
        Warrants and to consummate the transactions contemplated hereby and thereby
        and
        to issue the Securities, in accordance with the terms hereof and thereof,
        (ii)
        the execution and delivery of this Agreement, the Registration Rights Agreement,
        the Notes and the Warrants by the Company and the consummation by it of the
        transactions contemplated hereby and thereby (including without limitation,
        the
        issuance of the Notes and the Warrants and the issuance and reservation for
        issuance of the Conversion Shares and Warrant Shares issuable upon conversion
        or
        exercise thereof) have been duly authorized by the Company’s Board of Directors
        and no further consent or authorization of the Company, its Board of Directors,
        or its stockholders is required, (iii) this Agreement has been duly executed
        and
        delivered by the Company by its authorized representative, and such authorized
        representative is the true and official representative with authority to
        sign
        this Agreement and the other documents executed in connection herewith and
        bind
        the Company accordingly, and (iv) this Agreement constitutes, and upon execution
        and delivery by the Company of the Registration Rights Agreement, the Notes
        and
        the Warrants, each of such instruments will constitute, a legal, valid and
        binding obligation of the Company enforceable against the Company in accordance
        with its terms.

       

      c.  Capitalization.
        As of
        the date hereof, the authorized capital stock of the Company consists of
        (i) [ ]
        shares of Common Stock, of which [ ] shares are issued and outstanding, no
        shares are reserved for issuance pursuant to the Company’s stock option plans,
        1,500,000 shares are reserved for issuance pursuant to securities (other
        than
        the Notes and the Warrants) exercisable for, or convertible into or exchangeable
        for shares of Common Stock and [ ] shares are reserved for issuance upon
        conversion of the Notes and exercise of the Warrants (subject to adjustment
        pursuant to the Company’s covenant set forth in Section 4(h) below); and (ii)
        50,000,000 shares of preferred stock, of which no shares are issued and
        outstanding. All of such outstanding shares of capital stock are, or upon
        issuance will be, duly authorized, validly issued, fully paid and nonassessable.
        No shares of capital stock of the Company are subject to preemptive rights
        or
        any other similar rights of the stockholders of the Company or any liens
        or
        encumbrances imposed through the actions or failure to act of the Company.
        Except as disclosed in Schedule
        3(c),
        as of
        the effective date of this Agreement,

       


      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      


      (i)
        there
        are no outstanding options, warrants, scrip, rights to subscribe for, puts,
        calls, rights of first refusal, agreements, understandings, claims or other
        commitments or rights of any character whatsoever relating to, or securities
        or
        rights convertible into or exchangeable for any shares of capital stock of
        the
        Company or any of its Subsidiaries, or arrangements by which the Company
        or any
        of its Subsidiaries is or may become bound to issue additional shares of
        capital
        stock of the Company or any of its Subsidiaries, (ii) there are no agreements
        or
        arrangements under which the Company or any of its Subsidiaries is obligated
        to
        register the sale of any of its or their securities under the 1933 Act (except
        the Registration Rights Agreement) and (iii) there are no anti-dilution or
        price
        adjustment provisions contained in any security issued by the Company (or
        in any
        agreement providing rights to security holders) that will be triggered by
        the
        issuance of the Notes, the Warrants, the Conversion Shares or Warrant Shares.
        The Company has furnished to the Buyer true and correct copies of the Company’s
        Articles of Incorporation as in effect on the date hereof (“Articles
        of Incorporation”),
        the
        Company’s By-laws, as in effect on the date hereof (the “By-laws”),
        and
        the terms of all securities convertible into or exercisable for Common Stock
        of
        the Company and the material rights of the holders thereof in respect thereto.
        The Company shall provide the Buyer with a written update of this representation
        signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
        the Company as of the Closing Date.

       

      d.  Issuance
        of Shares.
        The
        Conversion Shares and Warrant Shares are duly authorized and reserved for
        issuance and, upon conversion of the Notes and exercise of the Warrants in
        accordance with their respective terms, will be validly issued, fully paid
        and
        non-assessable, and free from all taxes, liens, claims and encumbrances with
        respect to the issue thereof and shall not be subject to preemptive rights
        or
        other similar rights of stockholders of the Company and will not impose personal
        liability upon the holder thereof.

       

      e.  Acknowledgment
        of Dilution.
        The
        Company understands and acknowledges the potentially dilutive effect to the
        Common Stock upon the issuance of the Conversion Shares and Warrant Shares
        upon
        conversion of the Note or exercise of the Warrants. The Company further
        acknowledges that its obligation to issue Conversion Shares and Warrant Shares
        upon conversion of the Notes or exercise of the Warrants in accordance with
        this
        Agreement, the Notes and the Warrants is absolute and unconditional regardless
        of the dilutive effect that such issuance may have on the ownership interests
        of
        other stockholders of the Company.

       

      f.  No
        Conflicts.
        The
        execution, delivery and performance of this Agreement, the Registration Rights
        Agreement, the Notes and the Warrants by the Company and the consummation
        by the
        Company of the transactions contemplated hereby and thereby (including, without
        limitation, the issuance and reservation for issuance of the Conversion Shares
        and Warrant Shares) will not (i) conflict with or result in a violation of
        any
        provision of the Articles of Incorporation or By-laws or (ii) violate or
        conflict with, or result in a breach of any provision of, or constitute a
        default (or an event which with notice or lapse of time or both could become
        a
        default) under, or give to others any rights of termination, amendment,
        acceleration or cancellation of, any agreement, indenture, patent, patent
        license or instrument to which the Company or any of its Subsidiaries is
        a
        party, or (iii) result in a violation of any law, rule, regulation, order,
        judgment or decree (including federal and state securities laws and regulations
        and regulations of any self-regulatory organizations to which the Company
        or its
        securities are subject) 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 for such conflicts, defaults, terminations,
        amendments, accelerations, cancellations and violations as would not,
        individually or in the aggregate, have a Material Adverse Effect). 

       


      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      


      Neither
        the Company nor any of its Subsidiaries is in violation of its Articles of
        Incorporation, By-laws or other organizational documents and neither the
        Company
        nor any of its Subsidiaries is in default (and no event has occurred which
        with
        notice or lapse of time or both could put the Company or any of its Subsidiaries
        in default) under, and neither the Company nor any of its Subsidiaries has
        taken
        any action or failed to take any action that would 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 or by which any property or assets of the Company or any of its
        Subsidiaries is bound or affected, except for possible defaults as would
        not,
        individually or in the aggregate, have a Material Adverse Effect. The businesses
        of the Company and its Subsidiaries, if any, are not being conducted, and
        shall
        not be conducted so long as a Buyer owns any of the Securities, in violation
        of
        any law, ordinance or regulation of any governmental entity. Except as
        specifically contemplated by this Agreement and as required under the 1933
        Act
        and any applicable state securities laws, the Company is not required to
        obtain
        any consent, authorization or order of, or make any filing or registration
        with,
        any court, governmental agency, regulatory agency, self regulatory organization
        or stock market or any third party in order for it to execute, deliver or
        perform any of its obligations under this Agreement, the Registration Rights
        Agreement, the Notes or the Warrants in accordance with the terms hereof
        or
        thereof or to issue and sell the Notes and Warrants in accordance with the
        terms
        hereof and to issue the Conversion Shares upon conversion of the Notes and
        the
        Warrant Shares upon exercise of the Warrants. Except as disclosed in
Schedule
        3(f),
        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 date hereof. The Company is not in violation
        of the
        listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”)
        and
        does not reasonably anticipate that the Common Stock will be delisted by
        the
        OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware
        of
        any facts or circumstances which might give rise to any of the foregoing.
        

       

      g.  SEC
        Documents; Financial Statements.
        Except
        as disclosed in Schedule
        3(g),
        the
        Company has timely 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 Securities Exchange Act of 1934, as amended (the
“1934
        Act”)
        (all
        of the foregoing filed prior to the date hereof and all exhibits included
        therein and financial statements and schedules thereto and documents (other
        than
        exhibits to such documents) incorporated by reference therein, being hereinafter
        referred to herein as the “SEC
        Documents”).
        The
        Company has delivered to each Buyer true and complete copies of the SEC
        Documents, except for such exhibits and incorporated documents. As of their
        respective dates, the SEC Documents complied in all material respects with
        the
        requirements of the 1934 Act 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 light
        of
        the circumstances under which they were made, not misleading. None of the
        statements made in any such SEC Documents is, or has been, required to be
        amended or updated under applicable law (except for such statements as have
        been
        amended or updated in subsequent filings prior the date hereof). 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. Such financial statements have been prepared in accordance
        with
        United States 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 not include footnotes or may be
        condensed or summary statements) and fairly present in all material respects
        the
        consolidated financial position of the Company and its consolidated Subsidiaries
        as of the dates thereof and the consolidated results of their operations
        and
        cash flows for the periods then ended (subject, in the case of unaudited
        statements, to normal year-end audit adjustments). Except as set forth in
        the
        financial statements of the Company included in the SEC Documents, the Company
        has no liabilities, contingent or otherwise, other than (i) liabilities incurred
        in the ordinary course of business subsequent to December 31, 2004 and (ii)
        obligations under contracts and commitments incurred in the ordinary course
        of
        business and not required under generally accepted accounting principles
        to be
        reflected in such financial statements, which, individually or in the aggregate,
        are not material to the financial condition or operating results of the
        Company.

       


      
        
          
          

        

        
          -7-

          
            

          

        

        
          
          

        

      


      


       

      h.  Absence
        of Certain Changes.
        Since
        December 31, 2004, there has been no material adverse change and no material
        adverse development in the assets, liabilities, business, properties,
        operations, financial condition, results of operations or prospects of the
        Company or any of its Subsidiaries.

       

      i.  Absence
        of Litigation.
        There
        is no action, suit, claim, proceeding, inquiry or investigation before or
        by any
        court, public board, government agency, self-regulatory organization or body
        pending or, to the knowledge of the Company or any of its Subsidiaries,
        threatened against or affecting the Company or any of its Subsidiaries, or
        their
        officers or directors in their capacity as such, that could have a Material
        Adverse Effect. Schedule
        3(i)
        contains
        a complete list and summary description of any pending or threatened proceeding
        against or affecting the Company or any of its Subsidiaries, without regard
        to
        whether it would have a Material Adverse Effect. The Company and its
        Subsidiaries are unaware of any facts or circumstances which might give rise
        to
        any of the foregoing.

       

      j.  Patents,
        Copyrights, etc.
        The
        Company and each of its Subsidiaries owns or possesses the requisite licenses
        or
        rights to use all patents, patent applications, patent rights, inventions,
        know-how, trade secrets, trademarks, trademark applications, service marks,
        service names, trade names and copyrights (“Intellectual
        Property”)
        necessary to enable it to conduct its business as now operated (and, except
        as
        set forth in Schedule
        3(j)
        hereof,
        to the best of the Company’s knowledge, as presently contemplated to be operated
        in the future); there is no claim or action by any person pertaining to,
        or
        proceeding pending, or to the Company’s knowledge threatened, which challenges
        the right of the Company or of a Subsidiary with respect to any Intellectual
        Property necessary to enable it to conduct its business as now operated (and,
        except as set forth in Schedule
        3(j)
        hereof,
        to the best of the Company’s knowledge, as presently contemplated to be operated
        in the future); to the best of the Company’s knowledge, the Company’s or its
        Subsidiaries’ current and intended products, services and processes do not
        infringe on any Intellectual Property or other rights held by any person;
        and
        the Company is unaware of any facts or circumstances which might give rise
        to
        any of the foregoing. The Company and each of its Subsidiaries have taken
        reasonable security measures to protect the secrecy, confidentiality and
        value
        of their Intellectual Property.

       

      k.  No
        Materially Adverse Contracts, Etc.
        Neither
        the Company nor any of its Subsidiaries is subject to any charter, corporate
        or
        other legal restriction, or any judgment, decree, order, rule or regulation
        which in the judgment of the Company’s officers has or is expected in the future
        to have a Material Adverse Effect. Neither the Company nor any of its
        Subsidiaries is a party to any contract or agreement which in the judgment
        of
        the Company’s officers has or is expected to have a Material Adverse
        Effect.

       


      
        
          
          

        

        
          -8-

          
            

          

        

        
          
          

        

      


      


       

      l.  Tax
        Status.
        Except
        as set forth on Schedule
        3(l),
        the
        Company and each of its Subsidiaries has made or filed all federal, state
        and
        foreign income and all other tax returns, reports and declarations required
        by
        any jurisdiction to which it is subject (unless and only to the extent that
        the
        Company and each of its Subsidiaries has set aside on its books provisions
        reasonably adequate for the payment of all unpaid and unreported taxes) and
        has
        paid all taxes and other governmental assessments and charges that are material
        in amount, shown or determined to be due on such returns, reports and
        declarations, except those being contested in good faith and has set aside
        on
        its books provisions 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. The Company has not executed a waiver with respect
        to
        the statute of limitations relating to the assessment or collection of any
        foreign, federal, state or local tax. Except as set forth on Schedule
        3(l),
        none of
        the Company’s tax returns is presently being audited by any taxing
        authority.

       

      m.  Certain
        Transactions.
        Except
        as set forth on Schedule
        3(m)
        and
        except for arm’s length transactions pursuant to which the Company or any of its
        Subsidiaries makes payments in the ordinary course of business upon terms
        no
        less favorable than the Company or any of its Subsidiaries could obtain from
        third parties and other than the grant of stock options disclosed on
Schedule
        3(c),
        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 services
        as employees, officers and directors), including any contract, agreement
        or
        other arrangement providing for the furnishing of services to or by, providing
        for rental of real or personal property to or from, or otherwise requiring
        payments to or from any officer, director or such employee or, to the knowledge
        of the Company, any corporation, partnership, trust or other entity in which
        any
        officer, director, or any such employee has a substantial interest or is
        an
        officer, director, trustee or partner.

       

      n.  Disclosure.
        All
        information relating to or concerning the Company or any of its Subsidiaries
        set
        forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
        hereof and otherwise in connection with the transactions contemplated hereby
        is
        true and correct in all material respects and the Company has not omitted
        to
        state any material fact necessary in order to make the statements made herein
        or
        therein, in light of the circumstances under which they were made, not
        misleading. No event or circumstance has occurred or exists with respect
        to the
        Company or 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 (assuming for this
        purpose
        that the Company’s reports filed under the 1934 Act are being incorporated into
        an effective registration statement filed by the Company under the 1933
        Act).

       


      
        
          
          

        

        
          -9-

          
            

          

        

        
          
          

        

      


      


       

      o.  Acknowledgment
        Regarding Buyers’ Purchase of Securities.
        The
        Company acknowledges and agrees that the Buyers are acting solely in the
        capacity of arm’s length purchasers with respect to this Agreement and the
        transactions contemplated hereby. 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 this Agreement and the transactions contemplated
        hereby and any statement made by any Buyer or any of their respective
        representatives or agents in connection with this Agreement and the transactions
        contemplated hereby is not advice or a recommendation and is merely incidental
        to the Buyers’ purchase of the Securities. The Company further represents to
        each Buyer that the Company’s decision to enter into this Agreement has been
        based solely on the independent evaluation of the Company and its
        representatives.

       

      p.  No
        Integrated Offering.
        Neither
        the Company, nor any of its affiliates, nor any person acting on its or their
        behalf, has directly or indirectly made any offers or sales in any security
        or
        solicited any offers to buy any security under circumstances that would require
        registration under the 1933 Act of the issuance of the Securities to the
        Buyers.
        The issuance of the Securities to the Buyers will not be integrated with
        any
        other issuance of the Company’s securities (past, current or future) for
        purposes of any shareholder approval provisions applicable to the Company
        or its
        securities.

       

      q.  No
        Brokers.
        The
        Company has taken no action which would give rise to any claim by any person
        for
        brokerage commissions, transaction fees or similar payments relating to this
        Agreement or the transactions contemplated hereby. 

       

      r.  Permits;
        Compliance.
        The
        Company and each of its Subsidiaries is in possession of all franchises,
        grants,
        authorizations, licenses, permits, easements, variances, exemptions, consents,
        certificates, approvals and orders necessary to own, lease and operate its
        properties and to carry on its business as it is now being conducted
        (collectively, the “Company
        Permits”),
        and
        there is no action pending or, to the knowledge of the Company, threatened
        regarding suspension or cancellation of any of the Company Permits. Neither
        the
        Company nor any of its Subsidiaries is in conflict with, or in default or
        violation of, any of the Company Permits, except for any such conflicts,
        defaults or violations which, individually or in the aggregate, would not
        reasonably be expected to have a Material Adverse Effect. Since December
        31,
        2004, neither the Company nor any of its Subsidiaries has received any
        notification with respect to possible conflicts, defaults or violations of
        applicable laws, except for notices relating to possible conflicts, defaults
        or
        violations, which conflicts, defaults or violations would not have a Material
        Adverse Effect.

       

      s.  Environmental
        Matters.

       

      (i)  Except
        as
        set forth in Schedule
        3(s),
        there
        are, to the Company’s knowledge, with respect to the Company or any of its
        Subsidiaries or any predecessor of the Company, no past or present violations
        of
        Environmental Laws (as defined below), releases of any material into the
        environment, actions, activities, circumstances, conditions, events, incidents,
        or contractual obligations which may give rise to any common law environmental
        liability or any liability under the Comprehensive Environmental Response,
        Compensation and Liability Act of 1980 or similar federal, state, local or
        foreign laws and neither the Company nor any of its Subsidiaries has received
        any notice with respect to any of the foregoing, nor is any action pending
        or,
        to the Company’s knowledge, threatened in connection with any of the foregoing.


       


      
        
          
          

        

        
          -10-

          
            

          

        

        
          
          

        

      


      The
        term
“Environmental
        Laws”
means
        all federal, state, 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.

       

      (ii)  Other
        than those that are or were stored, used or disposed of in compliance with
        applicable law, no Hazardous Materials are contained on or about any real
        property currently owned, leased or used by the Company or any of its
        Subsidiaries, and no Hazardous Materials were released on or about any real
        property previously owned, leased or used by the Company or any of its
        Subsidiaries during the period the property was owned, leased or used by
        the
        Company or any of its Subsidiaries, except in the normal course of the Company’s
        or any of its Subsidiaries’ business.

       

      (iii)  Except
        as
        set forth in Schedule
        3(s),
        there
        are no underground storage tanks on or under any real property owned, leased
        or
        used by the Company or any of its Subsidiaries that are not in compliance
        with
        applicable law. 

       

      t.  Title
        to Property.
        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
        are described in Schedule
        3(t)
        or such
        as would not have a Material Adverse Effect. Any real property and facilities
        held under lease by the Company and its Subsidiaries are held by them under
        valid, subsisting and enforceable leases with such exceptions as would not
        have
        a Material Adverse Effect.

       

      u.  Insurance.
        Except
        as set forth in
        Schedule 3(u),
        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 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. The Company
        has provided to Buyer true and correct copies of all policies relating to
        directors’ and officers’ liability coverage, errors and omissions coverage, and
        commercial general liability coverage.

       

      v.  Internal
        Accounting Controls.
        The
        Company and each of its Subsidiaries maintain a system of internal accounting
        controls sufficient, in the judgment of the Company’s board of directors, 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
        accountability, (iii) access to assets is permitted only in accordance with
        management’s general or specific authorization and (iv) the recorded
        accountability for assets is compared with the existing assets at reasonable
        intervals and appropriate action is taken with respect to any
        differences.

       


      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      


      


       

      w.  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 Subsidiary
        has,
        in the course of his actions for, or on behalf of, the Company, used any
        corporate funds for any unlawful contribution, gift, entertainment or other
        unlawful expenses relating to political activity; made any direct or indirect
        unlawful payment to any foreign or domestic government official or employee
        from
        corporate funds; violated or is in violation of any provision of the U.S.
        Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
        payoff, influence payment, kickback or other unlawful payment to any foreign
        or
        domestic government official or employee.

       

      x.  Solvency.
        The
        Company (after giving effect to the transactions contemplated by this Agreement)
        is solvent (i.e.,
        its
        assets have a fair market value in excess of the amount required to pay its
        probable liabilities on its existing debts as they become absolute and matured)
        and currently the Company has no information that would lead it to reasonably
        conclude that the Company would not, after giving effect to the transaction
        contemplated by this Agreement, have the ability to, nor does it intend to
        take
        any action that would impair its ability to, pay its debts from time to time
        incurred in connection therewith as such debts mature. The Company did not
        receive a qualified opinion from its auditors with respect to its most recent
        fiscal year end and, after giving effect to the transactions contemplated
        by
        this Agreement, does not anticipate or know of any basis upon which its auditors
        might issue a qualified opinion in respect of its current fiscal
        year.

       

      y.  No
        Investment Company.
        The
        Company is not, and upon the issuance and sale of the Securities as contemplated
        by this Agreement will not be an “investment company” required to be registered
        under the Investment Company Act of 1940 (an “Investment
        Company”).
        The
        Company is not controlled by an Investment Company.

       

      z.  Breach
        of Representations and Warranties by the Company.
        If the
        Company breaches any of the representations or warranties set forth in this
        Section 3, and in addition to any other remedies available to the Buyers
        pursuant to this Agreement, the Company shall pay to the Buyer the Standard
        Liquidated Damages Amount in cash or in shares of Common Stock at the option
        of
        the Company, until such breach is cured. If the Company elects to pay the
        Standard Liquidated Damages Amounts in shares of Common Stock, such shares
        shall
        be issued at the Conversion Price at the time of payment.

       

      4.  COVENANTS.

       

      a.  Best
        Efforts.
        The
        parties shall use their best efforts to satisfy timely each of the conditions
        described in Section 6 and 7 of this Agreement. 

       

      b.  Form
        D; Blue Sky Laws.
        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 to qualify the Securities
        for sale to the Buyers at the applicable 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 each Buyer on or prior to the Closing
        Date.

       


      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      


      


       

      c.  Reporting
        Status; Eligibility to Use Form S-3, SB-2 or Form 

       

      S-1. The
        Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
        Company represents and warrants that it meets the requirements for the use
        of
        Form S-3 (or if the Company is not eligible for the use of Form S-3 as of
        the
        Filing Date (as defined in the Registration Rights Agreement), the Company
        may
        use the form of registration for which it is eligible at that time) for
        registration of the sale by the Buyer of the Registrable Securities (as defined
        in the Registration Rights Agreement). So long as the Buyer beneficially
        owns
        any of the Securities, the Company shall timely file all reports required
        to be
        filed 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 permit such termination.
        The Company further agrees to file all reports required to be filed by the
        Company with the SEC in a timely manner so as to become eligible, and thereafter
        to maintain its eligibility, for the use of Form S-3. The Company shall issue
        a
        press release describing the materials terms of the transaction contemplated
        hereby as soon as practicable following the Closing Date but in no event
        more
        than two (2) business days of the Closing Date, which press release shall
        be
        subject to prior review by the Buyers. The Company agrees that such press
        release shall not disclose the name of the Buyers unless expressly consented
        to
        in writing by the Buyers or unless required by applicable law or regulation,
        and
        then only to the extent of such requirement.

       

      d.  Use
        of Proceeds.
        The
        Company shall use the proceeds from the sale of the Notes and the Warrants
        in
        the manner set forth in Schedule
        4(d)
        attached
        hereto and made a part hereof and shall not, directly or indirectly, use
        such
        proceeds for any loan to or investment in any other corporation, partnership,
        enterprise or other person (except in connection with its currently existing
        direct or indirect Subsidiaries)

       

      e.  Future
        Offerings.
        Subject
        to the exceptions described below, the Company will not, without the prior
        written consent of a majority-in-interest of the Buyers, not to be unreasonably
        withheld, negotiate or contract with any party to obtain additional equity
        financing (including debt financing with an equity component) that involves
        (A)
        the issuance of Common Stock at a discount to the market price of the Common
        Stock on the date of issuance (taking into account the value of any warrants
        or
        options to acquire Common Stock issued in connection therewith) or (B) the
        issuance of convertible securities that are convertible into an indeterminate
        number of shares of Common Stock or (C) the issuance of warrants during the
        period (the “Lock-up
        Period”)
        beginning on the Closing Date and ending on the later of (i) two hundred
        seventy
        (270) days from the Closing Date and (ii) one hundred eighty (180) days from
        the
        date the Registration Statement (as defined in the Registration Rights
        Agreement) is declared effective (plus any days in which sales cannot be
        made
        thereunder). In addition, subject to the exceptions described below, the
        Company
        will not conduct any equity financing (including debt with an equity component)
        (“Future
        Offerings”)
        during
        the period beginning on the Closing Date and ending two (2) years after the
        end
        of the Lock-up Period unless it shall have first delivered to each Buyer,
        at
        least twenty (20) business days prior to the closing of such Future Offering,
        written notice describing the proposed Future Offering, including the terms
        and
        conditions thereof and proposed definitive documentation to be entered into
        in
        connection therewith, and providing each Buyer an option during the fifteen
        (15)
        day period following delivery of such notice to purchase its pro rata share
        (based on the ratio that the aggregate principal amount of Notes purchased
        by it
        hereunder bears to the aggregate principal amount of Notes purchased hereunder)
        of the securities being offered in the Future Offering on the same terms
        as
        contemplated by such Future Offering (the limitations referred to in this
        sentence and the preceding sentence are collectively referred to as the
“Capital
        Raising Limitations”). 
        In the
        event the terms and conditions of a proposed Future Offering are amended
        in any
        respect after delivery of the notice to the Buyers concerning the proposed
        Future Offering, the Company shall deliver a new notice to each Buyer describing
        the amended terms and conditions of the proposed Future Offering and each
        Buyer
        thereafter shall have an option during the fifteen (15) day period following
        delivery of such new notice to purchase its pro rata share of the securities
        being offered on the same terms as contemplated by such proposed Future
        Offering, as amended. The foregoing sentence shall apply to successive
        amendments to the terms and conditions of any proposed Future Offering. The
        Capital Raising Limitations shall not apply to any transaction involving
        (i)
        issuances of securities in a firm commitment underwritten public offering
        (excluding a continuous offering pursuant to Rule 415 under the 1933 Act)
        or
        (ii) issuances of securities as consideration for a merger, consolidation
        or
        purchase of assets, or in connection with any strategic partnership or joint
        venture (the primary purpose of which is not to raise equity capital), or
        in
        connection with the disposition or acquisition of a business, product or
        license
        by the Company. The Capital Raising Limitations also shall not apply to the
        issuance of securities upon exercise or conversion of the Company’s options,
        warrants or other convertible securities outstanding as of the date hereof
        or to
        the grant of additional options or warrants, or the issuance of additional
        securities, under any Company stock option or restricted stock plan approved
        by
        the shareholders of the Company. 

       

      f.  Expenses.
        At the
        Closing, the Company shall reimburse Buyers for expenses incurred by them
        in
        connection with the negotiation, preparation, execution, delivery and
        performance of this Agreement and the other agreements to be executed in
        connection herewith (“Documents”), including, without limitation, attorneys’ and
        consultants’ fees and expenses, transfer agent fees, fees for stock quotation
        services, fees relating to any amendments or modifications of the Documents
        or
        any consents or waivers of provisions in the Documents, fees for the preparation
        of opinions of counsel, escrow fees, and costs of restructuring the transactions
        contemplated by the Documents. When possible, the Company must pay these
        fees
        directly, otherwise the Company must make immediate payment for reimbursement
        to
        the Buyers for all fees and expenses immediately upon written notice by the
        Buyer or the submission of an invoice by the Buyer If the Company fails to
        reimburse the Buyer in full within three (3) business days of the written
        notice
        or submission of invoice by the Buyer, the Company shall pay interest on
        the
        total amount of fees to be reimbursed at a rate of 15% per annum.

       


      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      


      


       

      g.  Financial
        Information.
        The
        Company agrees to send the following reports to each Buyer until such Buyer
        transfers, assigns, or sells all of the Securities: (i) within
        ten (10) days after the filing with the SEC, a copy of its Annual Report
        on Form
        10-KSB its Quarterly Reports on Form 10-QSB and any Current Reports on Form
        8-K;
(ii) within
        one (1) day after release, copies of all press releases issued by the Company
        or
        any of its Subsidiaries; and (iii) contemporaneously
        with the making available or giving to the stockholders of the Company, copies
        of any notices or other information the Company makes available or gives
        to such
        stockholders.

       

      h.  Authorization
        and Reservation of Shares.
        The
        Company shall at all times have authorized, and reserved for the purpose
        of
        issuance, a sufficient number of shares of Common Stock to provide for the
        full
        conversion or exercise of the outstanding Notes and Warrants and issuance
        of the
        Conversion Shares and Warrant Shares in connection therewith (based on the
        Conversion Price of the Notes or Exercise Price (as defined in the Warrants)
        of
        the Warrants in effect from time to time) and as otherwise required by the
        Notes. The Company shall not reduce the number of shares of Common Stock
        reserved for issuance upon conversion of Notes and exercise of the Warrants
        without the consent of each Buyer. The Company shall at all times maintain
        the
        number of shares of Common Stock so reserved for issuance at an amount
        (“Reserved
        Amount”)
        equal
        to no less than two (2) times the number that is then actually issuable upon
        full conversion of the Notes and Additional Notes and upon exercise of the
        Warrants and the Additional Warrants (based on the Conversion Price of the
        Notes
        or the Exercise Price of the Warrants in effect from time to time). If at
        any
        time the number of shares of Common Stock authorized and reserved for issuance
        (“Authorized
        and Reserved Shares”)
        is
        below the Reserved Amount, the Company will promptly take all corporate action
        necessary to authorize and reserve a sufficient number of shares, including,
        without limitation, calling a special meeting of stockholders to authorize
        additional shares to meet the Company’s obligations under this Section 4(h), in
        the case of an insufficient number of authorized shares, obtain stockholder
        approval of an increase in such authorized number of shares, and voting the
        management shares of the Company in favor of an increase in the authorized
        shares of the Company to ensure that the number of authorized shares is
        sufficient to meet the Reserved Amount. If the Company fails to obtain such
        stockholder approval within thirty (30) days following the date on which
        the
        number of Reserved Amount exceeds the Authorized and Reserved Shares, the
        Company shall pay to the Borrower the Standard Liquidated Damages Amount,
        in
        cash or in shares of Common Stock at the option of the Buyer. If the Buyer
        elects to be paid the Standard Liquidated Damages Amount in shares of Common
        Stock, such shares shall be issued at the Conversion Price at the time of
        payment. In order to ensure that the Company has authorized a sufficient
        amount
        of shares to meet the Reserved Amount at all times, the Company must deliver
        to
        the Buyer at the end of every month a list detailing (1) the current amount
        of
        shares authorized by the Company and reserved for the Buyer; and (2) amount
        of
        shares issuable upon conversion of the Notes and upon exercise of the Warrants
        and as payment of interest accrued on the Notes for one year. If the Company
        fails to provide such list within five (5) business days of the end of each
        month, the Company shall pay the Standard Liquidated Damages Amount, in cash
        or
        in shares of Common Stock at the option of the Buyer, until the list is
        delivered. If the Buyer elects to be paid the Standard Liquidated Damages
        Amount
        in shares of Common Stock, such shares shall be issued at the Conversion
        Price
        at the time of payment.

       

      i.  Listing.
        The
        Company shall promptly secure the listing of the Conversion Shares and Warrant
        Shares upon each national securities exchange or automated quotation system,
        if
        any, upon which shares of Common Stock are then listed (subject to official
        notice of issuance) and, so long as any Buyer owns any of the Securities,
        shall
        maintain, so long as any other shares of Common Stock shall be so listed,
        such
        listing of all Conversion Shares and Warrant Shares from time to time issuable
        upon conversion of the Notes or exercise of the Warrants. The Company will
        obtain and, so long as any Buyer owns any of the Securities, maintain the
        listing and trading of its Common Stock on the OTCBB or any equivalent
        replacement exchange, the Nasdaq National Market (“Nasdaq”),
        the
        Nasdaq SmallCap Market (“Nasdaq
        SmallCap”),
        the
        New York Stock Exchange (“NYSE”),
        or
        the American Stock Exchange (“AMEX”)
        and
        will comply in all respects with the Company’s reporting, filing and other
        obligations under the bylaws or rules of the National Association of Securities
        Dealers (“NASD”)
        and
        such exchanges, as applicable. The Company shall promptly provide to each
        Buyer
        copies of any notices it receives from the OTCBB and any other exchanges
        or
        quotation systems on which the Common Stock is then listed regarding the
        continued eligibility of the Common Stock for listing on such exchanges and
        quotation systems.

       


      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

      


      


       

      j.  Corporate
        Existence.
        So long
        as a Buyer beneficially owns any Notes or Warrants, the Company shall maintain
        its corporate existence and shall not sell all or substantially all of the
        Company’s assets, except in the event of a merger or consolidation or sale of
        all or substantially all of the Company’s assets, where the surviving or
        successor entity in such transaction (i) assumes the Company’s obligations
        hereunder and under the agreements and instruments entered into in connection
        herewith and (ii) is a publicly traded corporation whose Common Stock is
        listed
        for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

       

      k.  No
        Integration.
        The
        Company shall not make any offers or sales of any security (other than the
        Securities) under circumstances that would require registration of the
        Securities being offered or sold hereunder under the 1933 Act or cause the
        offering of the Securities to be integrated with any other offering of
        securities by the Company for the purpose of any stockholder approval provision
        applicable to the Company or its securities.

       

      l.  Key
        Man Insurance.
        The
        Company shall use its best efforts to obtain, on or before five (5) business
        days from the date hereof, key man life insurance on all of the Company’s
        officers and division heads.

       

      m.  Breach
        of Covenants.
        If the
        Company breaches any of the covenants set forth in this Section 4, and in
        addition to any other remedies available to the Buyers pursuant to this
        Agreement, the Company shall pay to the Buyers the Standard Liquidated Damages
        Amount, in cash or in shares of Common Stock at the option of the Company,
        until
        such breach is cured. If the Company elects to pay the Standard Liquidated
        Damages Amount in shares, such shares shall be issued at the Conversion Price
        at
        the time of payment.

       

      5.  TRANSFER
        AGENT INSTRUCTIONS.
        The
        Company shall issue irrevocable instructions to its transfer agent to issue
        certificates, registered in the name of each Buyer or its nominee, for the
        Conversion Shares and 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 accordance with the terms thereof (the “Irrevocable
        Transfer Agent Instructions”).
        Prior
        to registration of the Conversion Shares and Warrant Shares under the 1933
        Act
        or the date on which the Conversion Shares and Warrant Shares may be sold
        pursuant to Rule 144 without any restriction as to the number of Securities
        as
        of a particular date that can then be immediately sold, all such certificates
        shall bear the restrictive legend specified in Section 2(g) of this Agreement.
        The Company warrants that no instruction other than the Irrevocable Transfer
        Agent Instructions referred to in this Section 5, and stop transfer instructions
        to give effect to Section 2(f) hereof (in the case of the Conversion Shares
        and
        Warrant Shares, prior to registration of the Conversion Shares and Warrant
        Shares under the 1933 Act or the date on which the Conversion Shares and
        Warrant
        Shares may be sold pursuant to Rule 144 without any restriction as to the
        number
        of Securities as of a particular date that can then be immediately sold),
        will
        be given by the Company to its transfer agent and that the Securities shall
        otherwise be freely transferable on the books and records of the Company
        as and
        to the extent provided in this Agreement and the Registration Rights Agreement.
        

       


      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      


      Nothing
        in this Section shall affect in any way the Buyer’s obligations and agreement
        set forth in Section 2(g) hereof to comply with all applicable prospectus
        delivery requirements, if any, upon re-sale of the Securities. If a Buyer
        provides the Company with (i) an opinion of counsel in form, substance and
        scope
        customary for opinions in comparable transactions, to the effect that a public
        sale or transfer of such Securities may be made without registration under
        the
        1933 Act and such sale or transfer is effected or (ii) the Buyer provides
        reasonable assurances that the Securities can be sold pursuant to Rule 144,
        the
        Company shall permit the transfer, and, in the case of the Conversion Shares
        and
        Warrant Shares, promptly instruct its transfer agent to issue one or more
        certificates, free from restrictive legend, in such name and in such
        denominations as specified by such Buyer. The Company acknowledges that a
        breach
        by it of its obligations hereunder will cause irreparable harm to the Buyers,
        by
        vitiating the intent and purpose of the transactions contemplated hereby.
        Accordingly, the Company acknowledges that the remedy at law for a breach
        of its
        obligations under this Section 5 may be inadequate and agrees, in the event
        of a
        breach or threatened breach by the Company of the provisions of this Section,
        that the Buyers shall be entitled, in addition to all other available remedies,
        to an injunction restraining any breach and requiring immediate 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.
        The
        obligation of the Company hereunder to issue and sell the Notes and Warrants
        to
        a Buyer at the Closing is subject to the satisfaction, at or before the Closing
        Date of each of the following conditions thereto, 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:

       

      a.  The
        applicable Buyer shall have executed this Agreement and the Registration
        Rights
        Agreement, and delivered the same to the Company.

       

      b.  The
        applicable Buyer shall have delivered the Purchase Price in accordance with
        Section 1(b) above.

       

      c.  The
        representations and warranties of the applicable 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 the applicable 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 the applicable Buyer at or prior to the Closing Date. 

       

      d.  No
        litigation, statute, rule, regulation, executive order, decree, ruling or
        injunction shall have been enacted, entered, promulgated or endorsed by or
        in
        any court or governmental authority of competent jurisdiction or any
        self-regulatory organization having authority over the matters contemplated
        hereby which prohibits the consummation of any of the transactions contemplated
        by this Agreement.

       

      7.  CONDITIONS
        TO EACH BUYER’S OBLIGATION TO PURCHASE.
        The
        obligation of each Buyer hereunder to purchase the Notes and 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 such Buyer’s
        sole benefit and may be waived by such Buyer at any time in its sole
        discretion:

       


      
        
          
          

        

        
          -16-

          
            

          

        

        
          
          

        

      


      


       

      a.  The
        Company shall have executed this Agreement and the Registration Rights
        Agreement, and delivered the same to the Buyer.

       

      b.  The
        Company shall have delivered to such Buyer duly executed Notes (in such
        denominations as the Buyer shall request) and Warrants in accordance with
        Section 1(b) above.

       

      c.  The
        Irrevocable Transfer Agent Instructions, in form and substance satisfactory
        to a
        majority-in-interest of the Buyers, shall have been delivered to and
        acknowledged in writing by the Company’s Transfer Agent.

       

      d.  The
        representations and warranties of the Company 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 such time (except for representations and warranties that speak as
        of a
        specific date) and the Company 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 the Company
        at or
        prior to the Closing Date. The Buyer shall have received a certificate or
        certificates, 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 including, but not limited to certificates
        with respect to the Company’s Articles of Incorporation, By-laws and Board of
        Directors’ resolutions relating to the transactions contemplated
        hereby.

       

      e.  No
        litigation, statute, rule, regulation, executive order, decree, ruling or
        injunction shall have been enacted, entered, promulgated or endorsed by or
        in
        any court or governmental authority of competent jurisdiction or any
        self-regulatory organization having authority over the matters contemplated
        hereby which prohibits the consummation of any of the transactions contemplated
        by this Agreement.

       

      f.  No
        event
        shall have occurred which could reasonably be expected to have a Material
        Adverse Effect on the Company.

       

      g.  The
        Conversion Shares and Warrant Shares shall have been authorized for quotation
        on
        the OTCBB and trading in the Common Stock on the OTCBB shall not have been
        suspended by the SEC or the OTCBB.

       

      h.  The
        Buyer
        shall have received an opinion of the Company’s counsel, dated as of the Closing
        Date, in form, scope and substance reasonably satisfactory to the Buyer and
        in
        substantially the same form as Exhibit
        “D”
        attached
        hereto.

       

      i.  The
        Buyer
        shall have received an officer’s certificate described in Section 3(c) above,
        dated as of the Closing Date.

       


      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

      


      


       

      8.  GOVERNING
        LAW; MISCELLANEOUS.
        

       

      a.  Governing
        Law.
        THIS
        AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
        THE
        LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
        ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT
        OF
        LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
        UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO
        ANY
        DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
        HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
        IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
        OF
        SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
        UPON
        A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
        SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
        HEREIN
        SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
        BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH
        SUIT
        OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
        BY
        SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES
        NOT
        PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE
        FOR ALL
        FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
        IN CONNECTION WITH SUCH DISPUTE.

       

      b.  Counterparts;
        Signatures by Facsimile.
        This
        Agreement may be executed in one or more counterparts, each of which shall
        be
        deemed an original but all of which shall constitute one and the same agreement
        and shall become effective when counterparts have been signed by each party
        and
        delivered to the other party. This Agreement, once executed by a party, may
        be
        delivered to the other party hereto by facsimile transmission of a copy of
        this
        Agreement bearing the signature of the party so delivering this
        Agreement.

       

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

       

      d.  Severability.
        In the
        event that any provision of this Agreement is invalid or unenforceable under
        any
        applicable statute or rule of law, then such provision shall be deemed
        inoperative to the extent that it may conflict therewith and shall be deemed
        modified to conform with such statute or rule of law. Any provision hereof
        which
        may prove invalid or unenforceable under any law shall not affect the validity
        or enforceability of any other provision hereof.

       

      e.  Entire
        Agreement; Amendments.
        This
        Agreement and the instruments referenced herein 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
        the
        Buyer makes any representation, warranty, covenant or undertaking with respect
        to such matters. No provision of this Agreement may be waived or amended
        other
        than by an instrument in writing signed by the party to be charged with
        enforcement. 

       


      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

      


      


       

      f.  Notices.
        Any
        notices required or permitted to be given under the terms of this Agreement
        shall be sent by certified or registered mail (return receipt requested)
        or
        delivered personally or by courier (including a recognized overnight delivery
        service) or by facsimile and shall be effective five (5) days after being
        placed
        in the mail, if mailed by regular United States mail, or upon receipt, if
        delivered personally or by courier (including a recognized overnight delivery
        service) or by facsimile, in each case addressed to a party. The addresses
        for
        such communications shall be:

       

      If
        to the
        Company:

      


      Pacificap
        Entertainment Holdings, Inc.

      12268
        Via
        Latina 

      Del
        Mar,
        California 92914

      Attention:
        Ed Litwak, President

      Telephone:
        858-481-2207

      Facsimile:
        858-481-2207

      


       

      With
        a
        copy to:

       

      Sichenzia
        Ross Friedman Ference LLP

      1065
        Avenue of the Americas

      New
        York,
        New York 10018

      Attention:
        Gregory Sichenzia, Esq.

      Telephone:
        212-930-9700

      Facsimile:
        212-930-9725

      


       

      If
        to a
        Buyer: To the address set forth immediately below such Buyer’s name on the
        signature pages hereto.

       

      With
        copy
        to:

      


      Ballard
        Spahr Andrews & Ingersoll, LLP

      1735
        Market Street

      51st
        Floor

      Philadelphia,
        Pennsylvania 19103

      Attention:
        Gerald J. Guarcini, Esq.

      Telephone:
        215-864-8625

      Facsimile:
        215-864-8999

      Email:
        guarcini@ballardspahr.com

       

      Each
        party shall provide notice to the other party of any change in
        address.

       


      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

      


      


       

      g.  Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties and
        their successors and assigns. Neither the Company nor any Buyer shall assign
        this Agreement or any rights or obligations hereunder without the prior written
        consent of the other. Notwithstanding the foregoing, subject to
        Section 2(f), any Buyer may assign its rights hereunder to any person that
        purchases Securities in a private transaction from a Buyer or to any of its
        “affiliates,” as that term is defined under the 1934 Act, without the consent of
        the Company.

       

      h.  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.

       

      i.  Survival.
        The
        representations and warranties of the Company and the agreements and covenants
        set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
        notwithstanding any due diligence investigation conducted by or on behalf
        of the
        Buyers. The Company agrees to indemnify and hold harmless each of the Buyers
        and
        all their officers, directors, employees and agents for loss or damage arising
        as a result of or related to any breach or alleged breach by the Company
        of any
        of its representations, warranties and covenants set forth in Sections 3
        and 4
        hereof or any of its covenants and obligations under this Agreement or the
        Registration Rights Agreement, including advancement of expenses as they
        are
        incurred.

       

      j.  Publicity.
        The
        Company and each of the Buyers shall have the right to review a reasonable
        period of time before issuance of any press releases, SEC, OTCBB or NASD
        filings, 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 each of the
        Buyers,
        to make any press release or SEC, OTCBB (or other applicable trading market)
        or
        NASD filings with respect to such transactions as is required by applicable
        law
        and regulations (although each of the Buyers shall be consulted by the Company
        in connection with any such press release prior to its release and shall
        be
        provided with a copy thereof and be given an opportunity to comment
        thereon).

       

      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 the 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.  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.

       

      m.  Remedies.
        The
        Company acknowledges that a breach by it of its obligations hereunder will
        cause
        irreparable harm to the Buyers by vitiating the intent and purpose of the
        transaction contemplated hereby. Accordingly, the Company acknowledges that
        the
        remedy at law for a breach of its obligations under this Agreement will be
        inadequate and agrees, in the event of a breach or threatened breach by the
        Company of the provisions of this Agreement, that the Buyers shall be entitled,
        in addition to all other available remedies at law or in equity, and in addition
        to the penalties assessable herein, to an injunction or injunctions restraining,
        preventing or curing any breach of this Agreement and to enforce specifically
        the terms and provisions hereof, without the necessity of showing economic
        loss
        and without any bond or other security being required.

       

      


       

      


       

      


       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       


      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF,
        the
        undersigned Buyers and the Company have caused this Agreement to be duly
        executed as of the date first above written.

       

      


      


      PACIFICAP
        ENTERTAINMENT HOLDINGS, INC.

      


      


      /s/
        EDWARD LITWAK

      Ed
        Litwak

      President

      


      


      AJW
        PARTNERS, LLC

      By:
        SMS
        Group, LLC

      


      


      /s/
        COREY S. RIBOTKSY

      Corey
        S.
        Ribotsky

      Manager

      


      


      RESIDENCE:
        Delaware

      


      ADDRESS: 1044
        Northern Boulevard

      Suite
        302

      Roslyn,
        New York 11576

      Facsimile:
        (516) 739-7115

      Telephone:
        (516) 739-7110

      


      AGGREGATE
        SUBSCRIPTION AMOUNT:

      


      Aggregate
        Principal Amount of Notes: $

      Number
        of
        Warrants:  

      Aggregate
        Purchase Price: $


      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

      


      


      


      


      


      AJW
        OFFSHORE, LTD.

      By:
        First
        Street Manager II, LLC

      


      


      /s/
        COREY S. RIBOTKSY

      Corey
        S.
        Ribotsky 

      Manager

      


      


      RESIDENCE: 
        Cayman
        Islands

      


      ADDRESS: AJW
        Offshore, Ltd.

      P.O.
        Box
        32021 SMB

      Grand
        Cayman, Cayman Island, B.W.I. 

      


      AGGREGATE
        SUBSCRIPTION AMOUNT:

      


      Aggregate
        Principal Amount of Notes: $

      Number
        of
        Warrants:         

      Aggregate
        Purchase Price: $


      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

      


      


      AJW
        QUALIFIED PARTNERS, LLC

       

      By:
        AJW
        Manager, LLC

       

      /s/
        COREY S. RIBOTKSY

      Corey
        S.
        Ribotsky 

       

      Manager

       

      


      


      RESIDENCE: 
        New
        York

      


      ADDRESS: 1044
        Northern Boulevard

      Suite
        302

      Roslyn,
        New York 11576

      Facsimile: (516)
        739-7115

      Telephone: (516)
        739-7110

      


      


      AGGREGATE
        SUBSCRIPTION AMOUNT:

      


      Aggregate
        Principal Amount of Notes: $

      Number
        of
        Warrants:         

      Aggregate
        Purchase Price: $

      



      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

      


      


      NEW
        MILLENNIUM CAPITAL PARTNERS II, LLC 

       

      By:
        First
        Street Manager II, LLP

       

      /s/
        COREY S. RIBOTKSY

      Corey
        S.
        Ribotsky 

       

      Manager

       

      


      


      RESIDENCE: 
        New
        York

      


      ADDRESS: 1044
        Northern Boulevard

      Suite
        302

      Roslyn,
        New York 11576

      Facsimile: (516)
        739-7115

      Telephone: (516)
        739-7110

      


      


      AGGREGATE
        SUBSCRIPTION AMOUNT:

      


      Aggregate
        Principal Amount of Notes: $

      Number
        of
        Warrants:         

      Aggregate
        Purchase Price: $