SECURITIES
      PURCHASE AGREEMENT

     

    THIS SECURITIES
      PURCHASE AGREEMENT
      (this
“Agreement”)
      dated
      as of December ___, 2004 by and among CLAYTON,
      DUNNING GROUP, INC.,
      a
      Florida corporation (the “Company”) and the Buyers listed on Schedule I attached
      hereto (individually, a “Buyer”
or
      collectively “Buyers”).

     

    WITNESSETH:

     

    WHEREAS,
      the
      Company and the Buyer(s) are executing and delivering this Agreement in reliance
      upon an exemption from securities registration pursuant to Section 4(2) and/or
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “Securities
      Act”);

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Buyer(s), as provided herein,
      and the Buyer(s) shall purchase One Million Seventy Five Thousand Dollars
      ($1,075,000) of secured convertible debentures (the “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value $0.001
      (the “Common
      Stock”)
      (as
      converted, the “Conversion
      Shares”),
      of
      which $575,000 shall be funded within five (5) business days hereof (the
“First
      Closing”),
      and
      $500,000 shall be funded within five (5) business days after the filing of
      a
      registration statement (the “Registration
      Statement”)
      pursuant to the Investor Registration Rights Agreement of even date herewith,
      with the United States Securities and Exchange Commission (the “SEC”)
      (the
“Second
      Closing”),
      for a
      total purchase price of $1,075,000 (the “Purchase
      Price”)
      in the
      respective amounts set forth opposite each Buyer(s) name on Schedule I (the
      “Subscription
      Amount”);
      and

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Registration Rights Agreement (the
“Investor
      Registration Rights Agreement”)
      pursuant to which the Company has agreed to provide certain registration rights
      under the Securities Act and the rules and regulations promulgated there under,
      and applicable state securities laws; and

     

    WHEREAS,
      the
      aggregate proceeds of the sale of the Convertible Debentures contemplated hereby
      shall be held in escrow pursuant to the terms of an Escrow Agreement (the
“Escrow
      Agreement”)
      of
      even date herewith.

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering Irrevocable Transfer Agent
      Instructions (the “Irrevocable
      Transfer Agent Instructions”).

     

    WHEREAS,
      contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Security Agreement (the “Security
      Agreement”)
      pursuant to which the Company has agreed to provide the Buyer a security
      interest in Pledged Collateral (as this term is defined in the Security
      Agreement) to secure Company’s obligations under this Agreement, the Convertible
      Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
      Agent Instructions, or any other obligations of the Company to the
      Buyer.

     

    
      
        
        

      

      
         

        
          

        

      

      
        
        

      

       

    

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants and other agreements contained in this
      Agreement the Company and the Buyer(s)hereby agree as follows:

     

    1.  PURCHASE
      AND SALE OF CONVERTIBLE DEBENTURES.

     

    (a)  Purchase
      of Convertible Debentures.
      Subject
      to the satisfaction (or waiver) of the terms and conditions of this Agreement,
      each Buyer agrees, severally and not jointly, to purchase at each Closing and
      the Company agrees to sell and issue to each Buyer, severally and not jointly,
      at each Closing, Convertible Debentures in amounts corresponding with the
      Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.
      Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
      Amount set forth opposite his name on Schedule I in same-day funds or a check
      payable to “David Gonzalez, Esq., as Escrow Agent for Clayton, Dunning Group,
      Inc./Cornell Capital Partners, LP”, which Subscription Amount shall be held in
      escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined)
      and disbursed in accordance therewith.

     

    (b)  Closing
      Date.
      The
      First Closing of the purchase and sale of the Convertible Debentures shall
      take
      place on or before the fifth (5th)
      business day following the date hereof, subject to notification of satisfaction
      of the conditions to the First Closing set forth herein and in Sections 6 and
      7
      below (or such later date as is mutually agreed to by the Company and the
      Buyer(s)) (the “First
      Closing Date”),
      the
      Second Closing of the purchase and sale of the Convertible Debentures shall
      take
      place on or before the fifth (5th)
      business day after the Registration Statement is filed with the SEC, subject
      to
      notification of satisfaction of the conditions to the Second Closing set forth
      herein and in Sections 6 and 7 below (or such later date as is mutually agreed
      to by the Company and the Buyer(s)) (the “Second
      Closing Date”) (collectively
      referred to a the “Closing
      Dates”).
      The
      Closings shall occur on the respective Closing Dates at the offices of Yorkville
      Advisors, LLC, 3700 Hudson Street, Suite 3700, Jersey City, New Jersey 07302
      (or
      such other place as is mutually agreed to by the Company and the Buyer(s)).
      

     

    (c)  Escrow
      Arrangements; Form of Payment.
      Upon
      execution hereof by Buyer(s) and pending the Closings, the aggregate proceeds
      of
      the sale of the Convertible Debentures to Buyer(s) pursuant hereto shall be
      deposited in a non-interest bearing escrow account with David Gonzalez, Esq.,
      as
      escrow agent (the “Escrow
      Agent”),
      pursuant to the terms of the Escrow Agreement. Subject to the satisfaction
      of
      the terms and conditions of this Agreement, on the Closing Dates, (i) the Escrow
      Agent shall deliver to the Company in accordance with the terms of the Escrow
      Agreement such aggregate proceeds for the Convertible Debentures to be issued
      and sold to such Buyer(s), minus a structuring fee of $75,000 to the Buyer
      pursuant to Section 4(g) hereof, which shall be paid directly from the
      gross proceeds of the First Closing held in escrow, each by wire transfer of
      immediately available funds in accordance with the Company’s written wire
      instructions, and (ii) the Company shall deliver to each Buyer, Convertible
      Debentures which such Buyer(s) is purchasing in amounts indicated opposite
      such
      Buyer’s name on Schedule I, duly executed on behalf of the Company.

     

    
      
        
        

      

      
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    2.  BUYER’S
      REPRESENTATIONS AND WARRANTIES.

     

    Each
      Buyer represents and warrants, severally and not jointly, that:

     

    (a)  Investment
      Purpose.
      Each
      Buyer is acquiring the Convertible Debentures and, upon conversion of
      Convertible Debentures, the Buyer will acquire the Conversion Shares then
      issuable, for its own account for investment only and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof,
      except pursuant to sales registered or exempted under the Securities Act;
      provided, however, that by making the representations herein, such Buyer
      reserves the right to dispose of the Conversion Shares at any time in accordance
      with or pursuant to an effective registration statement covering such Conversion
      Shares or an available exemption under the Securities Act.

     

    (b)  Accredited
      Investor Status.
      Each
      Buyer is an “Accredited
      Investor”
as
      that
      term is defined in Rule 501(a)(3) of Regulation D.

     

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

     

    (d)  Information.
      Each
      Buyer and its advisors (and his or, its counsel), if any, have been furnished
      with all materials relating to the business, finances and operations of the
      Company and information he deemed material to making an informed investment
      decision regarding his purchase of the Convertible Debentures and the Conversion
      Shares, which have been requested by such Buyer. Each Buyer and its advisors,
      if
      any, have been afforded the opportunity to ask questions of the Company and
      its
      management. Neither such inquiries nor any other due diligence investigations
      conducted by such Buyer or its advisors, if any, or its representatives shall
      modify, amend or affect such Buyer’s right to rely on the Company’s
      representations and warranties contained in Section 3 below. Each Buyer
      understands that its investment in the Convertible Debentures and the Conversion
      Shares involves a high degree of risk. Each Buyer is in a position regarding
      the
      Company, which, based upon employment, family relationship or economic
      bargaining power, enabled and enables such Buyer to obtain information from
      the
      Company in order to evaluate the merits and risks of this investment. Each
      Buyer
      has sought such accounting, legal and tax advice, as it has considered necessary
      to make an informed investment decision with respect to its acquisition of
      the
      Convertible Debentures and the Conversion Shares.

     

    (e)  No
      Governmental Review.
      Each
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Convertible Debentures or the Conversion Shares, or the
      fairness or suitability of the investment in the Convertible Debentures or
      the
      Conversion Shares, nor have such authorities passed upon or endorsed the merits
      of the offering of the Convertible Debentures or the Conversion
      Shares.

     

    
      
        
        

      

      
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    (f)  Transfer
      or Resale.
      Each
      Buyer understands that except as provided in the Investor Registration Rights
      Agreement: (i) the Convertible Debentures have not been and are not being
      registered under the Securities Act or any state securities laws, and may not
      be
      offered for sale, sold, assigned or transferred unless (A) subsequently
      registered thereunder, or (B) such Buyer shall have delivered to the Company
      an
      opinion of counsel, in a generally acceptable form, to the effect that such
      securities to be sold, assigned or transferred may be sold, assigned or
      transferred pursuant to an exemption from such registration requirements; (ii)
      any sale of such securities made in reliance on Rule 144 under the Securities
      Act (or a successor rule thereto) (“Rule 144”)
      may be
      made only in accordance with the terms of Rule 144 and further, if Rule 144
      is not applicable, any resale of 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 Securities Act) may require
      compliance with some other exemption under the Securities 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 Securities
      Act or any state securities laws or to comply with the terms and conditions
      of
      any exemption thereunder. The Company reserves the right to place stop transfer
      instructions against the shares and certificates for the Conversion
      Shares.

     

    (g)  Legends.
      Each
      Buyer understands that the certificates or other instruments representing the
      Convertible Debentures and or the Conversion Shares shall bear a restrictive
      legend in substantially the following form (and a stop -transfer order may
      be
      placed against transfer of such stock certificates):

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
      VIEW
      TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
      AN
      OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. 

     

    The
      legend set forth above shall be removed and the Company within two (2) business
      days shall issue a certificate without such legend to the holder of the
      Conversion Shares upon which it is stamped, if, unless otherwise required by
      state securities laws, (i) in connection with a sale transaction, provided
      the
      Conversion Shares are registered under the Securities Act, or (ii) in connection
      with a sale transaction, after such holder provides the Company with an opinion
      of counsel, which opinion shall be in form, substance and scope customary for
      opinions of counsel in comparable transactions, to the effect that a public
      sale, assignment or transfer of the Conversion Shares may be made without
      registration under the Securities Act. 

     

    
      
        
        

      

      
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    (h)  Authorization,
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of such Buyer and is a valid and binding agreement of such Buyer enforceable
      in
      accordance with its terms, except as such enforceability may be limited by
      general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies.

     

    (i)  Receipt
      of Documents.
      Each
      Buyer and his or its counsel has received and read in their entirety: (i) this
      Agreement and each representation, warranty and covenant set forth herein,
      the
      Security Agreement, the Investor Registration Rights Agreement, the Escrow
      Agreement, and the Irrevocable transfer Agent Instructions; (ii) all due
      diligence and other information necessary to verify the accuracy and
      completeness of such representations, warranties and covenants;
      (iii) answers to all questions each Buyer submitted to the Company
      regarding an investment in the Company; and each Buyer has relied on the
      information contained therein and has not been furnished any other documents,
      literature, memorandum or prospectus.

     

    (j)  Due
      Formation of Corporate and Other Buyers.
      If the
      Buyer(s) is a corporation, trust, partnership or other entity that is not an
      individual person, it has been formed and validly exists and has not been
      organized for the specific purpose of purchasing the Convertible Debentures
      and
      is not prohibited from doing so.

     

    (k)  No
      Legal Advice From the Company.
      Each
      Buyer acknowledges that it had the opportunity to review this Agreement and
      the
      transactions contemplated by this Agreement with his or its own legal counsel
      and investment and tax advisors. Each Buyer is relying solely on such counsel
      and advisors and not on any statements or representations of the Company or
      any
      of its representatives or agents for legal, tax or investment advice with
      respect to this investment, the transactions contemplated by this Agreement
      or
      the securities laws of any jurisdiction. 

     

    (l)  No
      Buyer
      makes any representation or warranty regarding the Company’s ability to
      successfully become a public company or to have any registration statement
      filed
      by the Company pursuant to the Registration Rights Agreement or otherwise
      declared effective by the SEC. The Company has the sole obligation to make
      any
      and all such filings as may be necessary to become a public company and to
      have
      any registration statement declared effective by the SEC. 

     

    3.  REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

     

    The
      Company represents and warrants to each of the Buyers as set forth below, except
      as set forth in the Disclosure Schedule attached as Exhibit “A” hereto. All
      references to the Company in this Section 3 shall mean the Company and its
      wholly owned subsidiary, Clayton, Dunning and Company, Inc. (the “Subsidiary”).

     

    (a)  Organization
      and Qualification.
      The
      Company and its subsidiaries are corporations duly organized and validly
      existing in good standing under the laws of the jurisdiction in which they
      are
      incorporated, and have the requisite corporate power to own their properties
      and
      to carry on their business as now being conducted. Each of the Company and
      its
      subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except to the extent that
      the failure to be so qualified or be in good standing would not have a material
      adverse effect on the Company and its subsidiaries taken as a
      whole.

     

    
      
        
        

      

      
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    (b)  Authorization,
      Enforcement, Compliance with Other Instruments.
      (i) The Company has the requisite corporate power and authority to enter
      into and perform this Agreement, the Security Agreement, the Investor
      Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
      Agent Instructions, and any related agreements, and to issue the Convertible
      Debentures and the Conversion Shares in accordance with the terms hereof and
      thereof, (ii) the execution and delivery of this Agreement, the Security
      Agreement, the Investor Registration Rights Agreement, the Escrow Agreement,
      the
      Irrevocable Transfer Agent Instructions (as defined herein) and any related
      agreements by the Company and the consummation by it of the transactions
      contemplated hereby and thereby, including, without limitation, the issuance
      of
      the Convertible Debentures the Conversion Shares and the reservation for
      issuance and the issuance of the Conversion Shares issuable upon conversion
      or
      exercise thereof, have been duly authorized by the Company’s Board of Directors
      and no further consent or authorization is required by the Company, its Board
      of
      Directors or its stockholders, (iii) this Agreement, the Security Agreement,
      the
      Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
      Transfer Agent Instructions and any related agreements have been duly executed
      and delivered by the Company, (iv) this Agreement, the Security Agreement,
      the
      Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable
      Transfer Agent Instructions and any related agreements constitute the valid
      and
      binding obligations of the Company enforceable against the Company in accordance
      with their terms, except as such enforceability may be limited by general
      principles of equity or applicable bankruptcy, insolvency, reorganization,
      moratorium, liquidation or similar laws relating to, or affecting generally,
      the
      enforcement of creditors’ rights and remedies. The authorized officer of the
      Company executing this Agreement, the Security Agreement, the Investor
      Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer
      Agent Instructions and any related agreements knows of no reason why the Company
      cannot file the registration statement as required under the Investor
      Registration Rights Agreement or perform any of the Company’s other obligations
      under such documents. 

     

    (c)  Capitalization.
      As
      of the
      date hereof, the authorized capital stock of the Company, excluding the
      Subsidiary, consists of ninety nine million (99,000,000) shares of Common Stock
      and one million (1,000,000) shares of blank check preferred stock, of which
      ten
      million (10,000,000) shares of Common Stock are outstanding, seventy five
      thousand (75,000) shares of Series A Preferred are outstanding, and ten (10)
      shares of Series B Preferred are outstanding. All
      outstanding shares of the Company and the Subsidiary have been validly issued
      and are fully paid and nonassessable. Except as disclosed in the Disclosure
      Schedule, no shares of Common Stock of the Company are subject to preemptive
      rights or any other similar rights or any liens or encumbrances suffered or
      permitted by the Company. Except as disclosed in the Disclosure Schedule, as
      of
      the date of this Agreement, (i) there are no outstanding options, warrants,
      scrip, rights to subscribe to, calls or commitments of any character whatsoever
      relating to, or securities or rights convertible into, any shares of capital
      stock of the Company or any of its subsidiaries, or contracts, commitments,
      understandings or arrangements by which the Company or any of its subsidiaries
      is or may become bound to issue additional shares of capital stock of the
      Company or any of its subsidiaries or options, warrants, scrip, rights to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, any shares of capital stock of the
      Company or any of its subsidiaries, (ii) there are no outstanding debt
      securities and (iii) there are no agreements or arrangements under which the
      Company or any of its subsidiaries is obligated to register the sale of any
      of
      their securities under the Securities Act (except pursuant to the Registration
      Rights Agreement) and (iv) there are no outstanding registration statements
      and
      there are no outstanding comment letters from the SEC or any other regulatory
      agency. There are no securities or instruments containing anti-dilution or
      similar provisions that will be triggered by the issuance of the Convertible
      Debentures as described in this Agreement. The Company has furnished to the
      Buyer true and correct copies of the Company’s Articles of Incorporation, as
      amended and as in effect on the date hereof (the “Articles
      of Incorporation”),
      and
      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
      and
      the material rights of the holders thereof in respect thereto other than stock
      options issued to employees and consultants. The Company owns all the stock
      of
      the Subsidiary. 

     

    
      
        
        

      

      
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    (d)  Issuance
      of Securities.
      The
      Convertible Debentures are duly authorized and, upon issuance in accordance
      with
      the terms hereof, shall be duly issued, fully paid and nonassessable, are free
      from all taxes, liens and charges with respect to the issue thereof. The
      Conversion Shares issuable upon conversion of the Convertible Debentures have
      been duly authorized and reserved for issuance. Upon conversion or exercise
      in
      accordance with the Convertible Debentures the Conversion Shares will be duly
      issued, fully paid and nonassessable.

     

    (e)  No
      Conflicts.
      Except
      as disclosed in the Disclosure Schedule, the execution, delivery and performance
      of this Agreement, the Security Agreement, the Investors Registration Rights
      Agreement, the Escrow Agreement and the Irrevocable Transfer Agent Instructions
      by the Company and the consummation by the Company of the transactions
      contemplated hereby will not (i) result in a violation of the Articles of
      Incorporation, any certificate of designations of any outstanding series of
      preferred stock of the Company or the By-laws or (ii) conflict with or
      constitute a default (or an event which with notice or lapse of time or both
      would become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation of, any agreement, indenture or
      instrument to which the Company or any of its subsidiaries is a party, or result
      in a violation of any law, rule, regulation, order, judgment or decree
      (including federal and state securities laws and regulations and the rules
      and
      regulations of The National Association of Securities Dealers Inc.’s OTC
      Bulletin Board on which the Common Stock is quoted) 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 as disclosed in the Disclosure
      Schedule, neither the Company nor its subsidiaries is in violation of any term
      of or in default under its Articles of Incorporation or By-laws or their
      organizational charter or by-laws, respectively, or any material contract,
      agreement, mortgage, indebtedness, indenture, instrument, judgment, decree
      or
      order or any statute, rule or regulation applicable to the Company or its
      subsidiaries. The business of the Company and its subsidiaries is not being
      conducted, and shall not be conducted in violation of any material law,
      ordinance, or regulation of any governmental entity. Except as specifically
      contemplated by this Agreement and as required under the Securities 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 or governmental agency in order for it to execute, deliver or perform
      any
      of its obligations under or contemplated by this Agreement or the Registration
      Rights Agreement in accordance with the terms hereof or thereof. Except as
      disclosed in the Disclosure Schedule, 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 and its subsidiaries are unaware of any facts or
      circumstance, which might give rise to any of the foregoing.

     

    
      
        
        

      

      
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    (f)  Financial
      Statements.
      As of
      their respective dates, the financial statements of the Company (the
“Financial
      Statements”)
      for
      the two most recently completed fiscal years and any subsequent interim period
      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
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such Financial
      Statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and, fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments). No other
      information provided by or on behalf of the Company to the Buyer, including,
      without limitation, information referred to in this Agreement, contains any
      untrue statement of a material fact or omits to state any material fact
      necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading.

     

    (g)  Absence
      of Litigation.
      Except
      as disclosed in the Disclosure Schedule, there is no action, suit, proceeding,
      inquiry or investigation before or by any court, public board, government
      agency, self-regulatory organization or body pending against or affecting the
      Company, the Common Stock or any of the Company’s subsidiaries, wherein an
      unfavorable decision, ruling or finding would (i) have a material adverse effect
      on the transactions contemplated hereby (ii) adversely affect the validity
      or
      enforceability of, or the authority or ability of the Company to perform its
      obligations under, this Agreement or any of the documents contemplated herein,
      or (iii) except as expressly disclosed in the Disclosure Schedule, have a
      material adverse effect on the business, operations, properties, financial
      condition or results of operations of the Company and its subsidiaries taken
      as
      a whole.

     

    (h)  Acknowledgment
      Regarding Buyer’s Purchase of the Convertible Debentures.
      The
      Company acknowledges and agrees that the Buyer(s) is acting solely in the
      capacity of an arm’s length purchaser with respect to this Agreement and the
      transactions contemplated hereby. The Company further acknowledges that the
      Buyer(s) is not 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 advice given by the Buyer(s) or any of their
      respective representatives or agents in connection with this Agreement and
      the
      transactions contemplated hereby is merely incidental to such Buyer’s purchase
      of the Convertible Debentures or the Conversion Shares. The Company further
      represents to the Buyer that the Company’s decision to enter into this Agreement
      has been based solely on the independent evaluation by the Company and its
      representatives.

     

    
      
        
        

      

      
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    (i)  No
      General Solicitation.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D under the Securities Act) in connection
      with
      the offer or sale of the Convertible Debentures or the Conversion
      Shares.

     

    (j)  No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any security
      or
      solicited any offers to buy any security, under circumstances that would require
      registration of the Convertible Debentures or the Conversion Shares under the
      Securities Act or cause this offering of the Convertible Debentures or the
      Conversion Shares to be integrated with prior offerings by the Company for
      purposes of the Securities Act.

     

    (k)  Employee
      Relations.
      Neither
      the Company nor any of its subsidiaries is involved in any labor dispute nor,
      to
      the knowledge of the Company or any of its subsidiaries, is any such dispute
      threatened. None of the Company’s or its subsidiaries’ employees is a member of
      a union and the Company and its subsidiaries believe that their relations with
      their employees are good.

     

    (l)  Intellectual
      Property Rights.
      The
      Company and its subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, inventions, licenses, approvals,
      governmental authorizations, trade secrets and rights necessary to conduct
      their
      respective businesses as now conducted. The Company and its subsidiaries do
      not
      have any knowledge of any infringement by the Company or its subsidiaries of
      trademark, trade name rights, patents, patent rights, copyrights, inventions,
      licenses, service names, service marks, service mark registrations, trade secret
      or other similar rights of others, and, to the knowledge of the Company there
      is
      no claim, action or proceeding being made or brought against, or to the
      Company’s knowledge, being threatened against, the Company or its subsidiaries
      regarding trademark, trade name, patents, patent rights, invention, copyright,
      license, service names, service marks, service mark registrations, trade secret
      or other infringement; and the Company and its subsidiaries are unaware of
      any
      facts or circumstances which might give rise to any of the
      foregoing.

     

    (m)  Environmental
      Laws.
      The
      Company and its subsidiaries are (i) in compliance with any and all applicable
      foreign, federal, state and local laws and regulations relating to the
      protection of human health and safety, the environment or hazardous or toxic
      substances or wastes, pollutants or contaminants (“Environmental
      Laws”),
      (ii)
      have received all permits, licenses or other approvals required of them under
      applicable Environmental Laws to conduct their respective businesses and (iii)
      are in compliance with all terms and conditions of any such permit, license
      or
      approval.

     

    (n)  Title.
      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 are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the Company and its
      subsidiaries.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (o)  Insurance.
      The
      Company and each of its subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its subsidiaries are engaged. Neither the Company
      nor
      any such subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and when
      such coverage expires or to obtain similar coverage from similar insurers as
      may
      be necessary to continue its business at a cost that would not materially and
      adversely affect the condition, financial or otherwise, or the earnings,
      business or operations of the Company and its subsidiaries, taken as a
      whole.

     

    (p)  Regulatory
      Permits.
      The
      Company and its subsidiaries possess all material certificates, authorizations
      and permits issued by the appropriate federal, state or foreign regulatory
      authorities necessary to conduct their respective businesses, and neither the
      Company nor any such subsidiary has received any notice of proceedings relating
      to the revocation or modification of any such certificate, authorization or
      permit.

     

    (q)  Internal
      Accounting Controls.
      The
      Company and each of its subsidiaries maintain a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset accountability, and (iii) the recorded amounts for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    (r)  No
      Material Adverse Breaches, etc.
      Except
      as set forth in the Disclosure Schedule, 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 on the business, properties, operations, financial condition, results
      of
      operations or prospects of the Company or its subsidiaries. Except as set forth
      in the Disclosure Schedule, neither the Company nor any of its subsidiaries
      is
      in breach of any contract or agreement which breach, in the judgment of the
      Company’s officers, has or is expected to have a material adverse effect on the
      business, properties, operations, financial condition, results of operations
      or
      prospects of the Company or its subsidiaries.

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (t)  Certain
      Transactions.
      Except
      as set forth in the Disclosure Schedule, and except for arm’s length
      transactions pursuant to which the Company makes payments in the ordinary course
      of business upon terms no less favorable than the Company could obtain from
      third parties and other than the grant of stock options disclosed in the
      Disclosure Schedule, none of the officers, directors, or employees of the
      Company is presently a party to any transaction with the Company (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.

     

    (u)  Fees
      and Rights of First Refusal.
      The
      Company is not obligated to offer the securities offered hereunder on a right
      of
      first refusal basis or otherwise to any third parties including, but not limited
      to, current or former shareholders of the Company, underwriters, brokers, agents
      or other third parties.

     

    (v)  No
      person
      has any right to acquire any shares of the Subsidiary, including through grants
      or exercise of options, warrants, or securities convertible into shares of
      the
      Subsidiary.

     

    (w)  The
      Company acknowledges that the Buyer is relying on the representations and
      warranties made by the Company hereunder and that such representations and
      warranties are a material inducement to the Buyer purchasing the Convertible
      Debentures. The Company further acknowledges that without such representations
      and warranties of the Company made hereunder, the Buyer would not enter into
      this Agreement.

     

    4.  COVENANTS.

     

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

     

    (b)  Form
      D.
      The
      Company agrees to file a Form D with respect to the Convertible Debenture 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
      Conversion Shares, or obtain an exemption for the Conversion Shares for sale
      to
      the Buyers at the Closing pursuant to this Agreement under applicable securities
      or “Blue
      Sky”
laws
      of
      the states of the United States, and shall provide evidence of any such action
      so taken to the Buyers on or prior to the Closing Date.

     

    (c)  Reporting
      Status.
      Commencing on the effectiveness of the registration statement filed with the
      SEC
      pursuant to the Investor Registration Rights Agreement and until the earlier
      of
      (i) the date as of which the Buyer(s) may sell all of the Conversion Shares
      without restriction pursuant to Rule 144(k) promulgated under the Securities
      Act
      (or successor thereto), or (ii) the date on which (A) the Buyer(s) shall
      have sold all the Conversion Shares and (B) none of the Convertible Debentures
      are outstanding (the “Registration
      Period”),
      the
      Company shall file in a timely manner all reports required to be filed with
      the
      SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
      and
      the Company shall not terminate its status as an issuer required to file reports
      under the Exchange Act even if the Exchange Act or the rules and regulations
      thereunder would otherwise permit such termination.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (d)  Use
      of
      Proceeds.
      The
      Company shall use the net proceeds to be received in this transaction in a
      manner consistent with the uses described in the Budget attached as Exhibit
      B
      hereto. The Company in its discretion may deviate up to ten percent (10%) for
      any single line described in Exhibit B hereto.

     

    (e)  Reservation
      of Shares.
      The
      Company shall take all action reasonably necessary to at all times have
      authorized, and reserved for the purpose of issuance, such number of shares
      of
      Common Stock as shall be necessary to effect the issuance of the Conversion
      Shares. If at any time the Company does not have available such shares of Common
      Stock as shall from time to time be sufficient to effect the conversion of
      all
      of the Conversion Shares of the Company shall call and hold a special meeting
      of
      the shareholders within thirty (30) days of such occurrence, for the sole
      purpose of increasing the number of shares authorized. The Company’s management
      shall recommend to the shareholders to vote in favor of increasing the number
      of
      shares of Common Stock authorized. Management shall also vote all of its shares
      in favor of increasing the number of authorized shares of Common
      Stock.

     

    (f)  Listings
      or Quotation.
      The
      Company shall, concurrently with the effectiveness of the registration statement
      filed with the SEC pursuant to the Investor Registration Rights Agreement,
      secure the listing or quotation of its Common Stock (including, without
      limitation, the Conversion Shares) upon a national securities exchange,
      automated quotation system or the Over-The-Counter Bulletin Board (“OTCBB”)
      maintained by the National Association of Securities Dealers, Inc. The Company
      shall maintain the listing or quotation of the Common Stock for so long as
      the
      Buyer is the beneficial owner of any Common Stock or Conversion Shares (whether
      obtained or to be obtained under this Agreement), the Convertible Debentures
      or
      any other agreement between the Company and the Buyer. The Company shall
      maintain the Common Stock’s authorization for quotation on the OTCBB. It shall
      be an event of default hereunder if the Company fails to strictly comply with
      its obligations under this Section 4(f).

     

    (g)  Fees
      and Expenses.
      Except
      as set forth below, each of the Company and the Buyer(s) shall pay all costs
      and
      expenses incurred by such party in connection with the negotiation,
      investigation, preparation, execution and delivery of this Agreement, the Escrow
      Agreement, the Investor Registration Rights Agreement, the Security Agreement
      and the Irrevocable Transfer Agent Instructions. The Buyer(s) shall be entitled
      to a commitment fee of ten percent (10%) on the Purchase Price. 

     

    The
      Company shall pay to the Buyer a structuring fee of Seventy Five Thousand
      Dollars ($75,000) (the “Structuring
      Fee”)
      in
      connection with this transaction which shall be paid on the First Closing Date
      directly from the gross proceeds payable to the Company hereunder. The
      structuring fee shall be deemed fully earned on the date hereof.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Upon
      the
      execution of this Agreement the Company shall issue to the Buyer a Promissory
      Note (the “Promissory
      Note”)
      in the
      amount of Two Hundred Forty Thousand Dollars ($240,000). The Promissory Note
      shall be deemed fully earned as of the date hereof and any shares of Common
      Stock issued pursuant to the Promissory Note shall have “piggy back”
registration rights. 

     

    The
      Company shall be solely responsible for the contents of any such registration
      statement, prospectus or other filing made with the SEC or otherwise used in
      the
      offering of the Company’s securities (except as such disclosure relates
      solely to the Buyer and then only to the extent that such disclosure conforms
      with information furnished in writing by the Buyer to the Company), even if
      the
      Buyer or its agents as an accommodation to the Company participate or assist
      in
      the preparation of such registration statement, prospectus or other SEC filing.
      The Company shall retain its own legal counsel to review, edit, confirm and
      do
      all things such counsel deems necessary or desirable to such registration
      statement, prospectus or other SEC filing to ensure that it does not contain
      an
      untrue statement or alleged untrue statement of material fact or omit or alleged
      to omit a material fact necessary to make the statements made therein, in light
      of the circumstances under which the statements were made, not misleading.
      

     

    (h)  Corporate
      Existence.
      So long
      as any of the Convertible Debentures remain outstanding, the Company shall
      not
      directly or indirectly consummate any merger, reorganization, restructuring,
      reverse stock split consolidation, sale of all or substantially all of the
      Company’s assets or any similar transaction or related transactions (each such
      transaction, an “Organizational
      Change”)
      unless, prior to the consummation an Organizational Change, the Company obtains
      the written consent of each Buyer. In any such case, the Company will make
      appropriate provision with respect to such holders’ rights and interests to
      insure that the provisions of this Section 4(h) will thereafter be applicable
      to
      the Convertible Debentures.

     

    (i)  Transactions
      With Affiliates.
      So long
      as any Convertible Debentures are outstanding, the Company shall not, and shall
      cause each of its subsidiaries not to, enter into, amend, modify or supplement,
      or permit any subsidiary to enter into, amend, modify or supplement any
      agreement, transaction, commitment, or arrangement with any of its or any
      subsidiary’s officers, directors, person who were officers or directors at any
      time during the previous two (2) years, stockholders who beneficially own five
      percent (5%) or more of the Common Stock, or Affiliates (as defined below)
      or
      with any individual related by blood, marriage, or adoption to any such
      individual or with any entity in which any such entity or individual owns a
      five
      percent (5%) or more beneficial interest (each a “Related
      Party”),
      except for (a) customary employment arrangements and benefit programs on
      reasonable terms, (b) any investment in an Affiliate of the Company, (c) any
      agreement, transaction, commitment, or arrangement on an arms-length basis
      on
      terms no less favorable than terms which would have been obtainable from a
      person other than such Related Party, (d) any agreement transaction, commitment,
      or arrangement which is approved by a majority of the disinterested directors
      of
      the Company, for purposes hereof, any director who is also an officer of the
      Company or any subsidiary of the Company shall not be a disinterested director
      with respect to any such agreement, transaction, commitment, or arrangement.
      “Affiliate”
for
      purposes hereof means, with respect to any person or entity, another person
      or
      entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
      interest in that person or entity, (ii) has ten percent (10%) or more common
      ownership with that person or entity, (iii) controls that person or entity,
      or
      (iv) shares common control with that person or entity. “Control”
or
      “controls”
for
      purposes hereof means that a person or entity has the power, direct or indirect,
      to conduct or govern the policies of another person or entity.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (j)  Transfer
      Agent.
      The
      Company covenants and agrees that, in the event that the Company’s agency
      relationship with the transfer agent should be terminated for any reason prior
      to a date which is two (2) years after the Closing Date, the Company shall
      immediately appoint a new transfer agent and shall require that the new transfer
      agent execute and agree to be bound by the terms of the Irrevocable Transfer
      Agent Instructions (as defined herein).

     

    (k)  Restriction
      on Issuance of the Capital Stock.
      So long
      as any Convertible Debentures are outstanding, the Company shall not, without
      the prior written consent of the Buyer(s), (i) issue or sell shares of Common
      Stock or Preferred Stock without consideration or for a consideration per share
      less than the Bid Price of the Common Stock determined immediately prior to
      its
      issuance, (ii) issue or sell any Preferred Stock, warrant, option, right,
      contract, call, or other security instrument granting the holder thereof, the
      right to acquire Common Stock without consideration or for a consideration
      less
      than such Common Stock’s Bid Price value determined immediately prior to it’s
      issuance, (iii) enter into any security instrument granting the holder a
      security interest in any and all assets of the Company, or (iv) file any
      registration statement on Form S-8.

     

    (l)  Lock-up
      Agreement.
      On the
      date hereof, the Company shall obtain from each officer and director of the
      Company a lock-up agreement. Such lock-up agreement shall prohibit sales of
      the
      Company’s Common Stock for so long as any portion of the Convertible Debentures
      are outstanding.

     

    (m)  No
      Payment of Management Fees.Except
      as
      set forth in the Budget attached as Exhibit B hereto, The Company shall not
      make
      any payments of (i) salaries, management fees, commissions or any other
      remuneration to officers or directors of the Company or any person or entity
      that is an “affiliate” of any such person or entity (the “Management
      Group”)
      or
      (ii) on any notes, accounts payable or other obligations or liabilities owed
      to
      any member of Management Group until the Registration Statement has been
      effective (as declared by the Securities and Exchange Commission) for a period
      of at least 90 days (the “Prohibition
      Period”).

     

    (n)  No
      Merger or Sale of Business.
      For
      so
      long as the Convertible Debenture is outstanding, the Company hereby agrees
      that
      it will not merge or consolidate with any person or entity, or sell, lease
      or
      otherwise dispose of its assets other than in the ordinary course of business
      involving an aggregate consideration of more than ten percent (10%) of the
      book
      value of its assets on a consolidated basis in any 12 month period, or
      liquidate, dissolve, recapitalize or reorganize.

     

    (o)  No
      Indebtedness.
      For
      so
      long as the Convertible Debenture is outstanding, the Company shall not incur
      any indebtedness for borrowed money or become a guarantor or otherwise
      contingently liable for any such indebtedness except for trade payables or
      purchase money obligations incurred in the ordinary course of
      business.

     

    
      
        
        

      

      
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    (p)  No
      Other Registration Statements.
      Except
      for the filing of the registration statements contemplated in this transaction
      or the Standby Equity Distribution Agreement of even date herewith (the
“Permitted
      Registration Statements”),
      for
      so long as the Convertible Debenture is outstanding, the Company shall not
      file
      any other registration statements on any form (including but not limited to
      forms S-1, SB-2, S-3 and S-8) without the prior written consent of the Buyer.
      Further, the Company shall not register for sale or resale of any shares of
      capital stock in the Permitted Registration Statements other than the capital
      stock beneficially owned by the Buyer or to be issued to the Buyer upon
      conversion of the Convertible Debentures, exercise of warrants or issuance
      under
      the Standby Equity Distribution Agreement of even date herewith.

     

    (q)  Capital
      Structure of the Company.
      The
      Company agrees to change or modify its capital structure at the Buyer’s request,
      which request may be made by the Buyer at any time or from time to time so
      long
      as such modification is permitted by laws of the State in which the Company
      is
      incorporated.

     

    5.  TRANSFER
      AGENT INSTRUCTIONS.

     

    The
      Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
      agent irrevocably appointing David Gonzalez, Esq. as its agent for purpose
      of
      having certificates issued, registered in the name of the Buyer(s) or its
      respective nominee(s), for the Conversion Shares representing such amounts
      of
      Convertible Debentures as specified from time to time by the Buyer(s) to the
      Company upon conversion of the Convertible Debentures, for interest owed
      pursuant to the Convertible Debenture, and for any and all Liquidated Damages
      (as this term is defined in the Investor Registration Rights Agreement).
      Yorkville Advisors Management, LLC shall be paid a cash fee of Fifty Dollars
      ($50) for every occasion they act pursuant to the Irrevocable Transfer Agent
      Instructions. The Company shall not change its transfer agent without the
      express written consent of the Buyer(s), which may be withheld by the Buyer(s)
      in its sole discretion. Prior to registration of the Conversion Shares under
      the
      Securities Act, 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(g)
      hereof (in the case of the Conversion Shares prior to registration of such
      shares under the Securities Act) will be given by the Company to its transfer
      agent and that the Conversion Shares shall otherwise be freely transferable
      on
      the books and records of the Company as and to the extent provided in this
      Agreement and the Investor Registration Rights Agreement. Nothing in this
      Section 5 shall affect in any way the Buyer’s obligations and agreement to
      comply with all applicable securities laws upon resale of Conversion Shares.
      If
      the Buyer(s) provides the Company with an opinion of counsel, in form, scope
      and
      substance customary for opinions of counsel in comparable transactions to the
      effect that registration of a resale by the Buyer(s) of any of the Conversion
      Shares is not required under the Securities Act, the Company shall within two
      (2) business days instruct its transfer agent to issue one or more certificates
      in such name and in such denominations as specified by the Buyer. The Company
      acknowledges that a breach by it of its obligations hereunder will cause
      irreparable harm to the Buyer 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 Section 5 will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Section 5, that the Buyer(s) shall be
      entitled, in addition to all other available remedies, to an injunction
      restraining any breach and requiring immediate issuance and transfer, without
      the necessity of showing economic loss and without any bond or other security
      being required.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

       

    

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

     

    The
      obligation of the Company hereunder to issue and sell the Convertible Debentures
      to the Buyer(s) at the Closings is subject to the satisfaction, at or before
      the
      Closing Dates, of each of the following conditions, provided that these
      conditions are for the Company’s sole benefit and may be waived by the Company
      at any time in its sole discretion:

     

    (a)  Each
      Buyer shall have executed this Agreement, the Security Agreement, the Escrow
      Agreement and the Investor Registration Rights Agreement and the Irrevocable
      Transfer Agent Instructions and delivered the same to the Company.

     

    (b)  The
      Buyer(s) shall have delivered to the Escrow Agent the Purchase Price for
      Convertible Debentures in respective amounts as set forth next to each Buyer
      as
      outlined on Schedule I attached hereto and the Escrow Agent shall have delivered
      the net proceeds to the Company by wire transfer of immediately available U.S.
      funds pursuant to the wire instructions provided by the Company.

     

    (c)  The
      representations and warranties of the Buyer(s) shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Dates as though
      made at that time (except for representations and warranties that speak as
      of a
      specific date), and the Buyer(s) 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 Buyer(s)
      at or
      prior to the Closing Dates.

     

    (d)  The
      Company shall have filed a form UCC -1 with regard to the Pledged Property
      and
      Pledged Collateral as detailed in the Security Agreement dated the date hereof
      and provided proof of such filing to the Buyer(s). 

     

    7.  CONDITIONS
      TO THE BUYER’S OBLIGATION TO PURCHASE.

     

    The
      obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
      at
      the Closing is subject to the satisfaction, at or before the Closing Date,
      of
      each of the following conditions, provided that these conditions are for the
      Buyer’s sole benefit and may be waived by the Buyer(s) at any time in its sole
      discretion:

     

    (a)  The
      Company shall have executed this Agreement, the Security Agreement, the
      Convertible Debenture, the Escrow Agreement, the Irrevocable Transfer
      Instructions and the Investor Registration Rights Agreement, and delivered
      the
      same to the Buyer(s).

     

    (b)  With
      regard to the Second Closing, the Company shall have filed a registration
      statement with the SEC as described in the Investor Registration Rights
      Agreement.

     

    
      
        
        

      

      
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    (c)  The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except to the extent that any of such representations and
      warranties is already qualified as to materiality in Section 3 above, in which
      case, such representations and warranties shall be true and correct without
      further qualification) as of the date when made and as of the Closing Dates
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date) and the Company shall have performed, satisfied and
      complied in all 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 Dates. If requested by the Buyer, the Buyer
      shall have received a certificate, executed by the President of the Company,
      dated as of the Closing Dates, to the foregoing effect and as to such other
      matters as may be reasonably requested by the Buyer including, without
      limitation an update as of the Closing Dates regarding the representation
      contained in Section 3(c) above.

     

    (d)  The
      Company shall have executed and delivered to the Buyer(s) the Convertible
      Debentures in the respective amounts set forth opposite each Buyer(s) name
      on
      Schedule I attached hereto.

     

    (e)  The
      Buyer(s) shall have received an opinion of counsel in a form satisfactory to
      the
      Buyer(s).

     

    (f)  The
      Company shall have provided to the Buyer(s) a certificate of good standing
      from
      the Secretary of State of Florida.

     

    (g)  As
      of
      each Closing Date, the Company shall have reserved out of its authorized and
      unissued Common Stock, solely for the purpose of effecting the conversion of
      the
      Convertible Debentures, shares of Common Stock to effect the conversion of
      all
      of the Conversion Shares then outstanding.

     

    (h)  The
      Irrevocable Transfer Agent Instructions, in form and substance satisfactory
      to
      the Buyer, shall have been delivered to and acknowledged in writing by the
      Company’s transfer agent.

     

    (i)  The
      Company shall have provided to the Buyer an acknowledgement, to the satisfaction
      of the Buyer, from the Company’s independent certified public accountants, as to
      its ability to provide all consents required in order to file a registration
      statement in connection with this transaction.

     

    (j)  The
      Company shall have filed a form UCC -1 with regard to the Pledged Property
      and
      Pledged Collateral as detailed in the Security Agreement and provided proof
      of
      such filing to the Buyer(s).

     

    (k)  The
      Company shall have obtained the approval of its board of directors and a
      majority of its outstanding shares of capital stock (voting as separate classes,
      if required by applicable law) to increase its authorized common stock to a
      number mutually acceptable to the Company and the Buyer.

     

    8.  INDEMNIFICATION.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

       

    

    (a)  In
      consideration of the Buyer’s execution and delivery of this Agreement and
      acquiring the Convertible Debentures and the Conversion Shares hereunder, and
      in
      addition to all of the Company’s other obligations under this Agreement, the
      Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
      each
      other holder of the Convertible Debentures and the Conversion Shares, and
      all of their officers, directors, employees and agents (including, without
      limitation, those retained in connection with the transactions contemplated
      by
      this Agreement) (collectively, the “Buyer
      Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Buyer Indemnitee is a party to the action
      for
      which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
      Liabilities”),
      incurred by the Buyer Indemnitees or any of them as a result of, or arising
      out
      of, or relating to (a) any misrepresentation or breach of any representation
      or
      warranty made by the Company in this Agreement, the Convertible Debentures
      or
      the Investor Registration Rights Agreement or any other certificate, instrument
      or document contemplated hereby or thereby, (b) any breach of any covenant,
      agreement or obligation of the Company contained in this Agreement, or the
      Investor Registration Rights Agreement or any other certificate, instrument
      or
      document contemplated hereby or thereby, or (c) any cause of action, suit or
      claim brought or made against such Indemnitee and arising out of or resulting
      from the execution, delivery, performance or enforcement of this Agreement
      or
      any other instrument, document or agreement executed pursuant hereto by any
      of
      the Indemnities, any transaction financed or to be financed in whole or in
      part,
      directly or indirectly, with the proceeds of the issuance of the Convertible
      Debentures or the status of the Buyer or holder of the Convertible Debentures
      the Conversion Shares, as a Buyer of Convertible Debentures in the Company.
      To
      the extent that the foregoing undertaking by the Company may be unenforceable
      for any reason, the Company shall make the maximum contribution to the payment
      and satisfaction of each of the Indemnified Liabilities, which is permissible
      under applicable law.

     

    (b)  In
      consideration of the Company’s execution and delivery of this Agreement, and in
      addition to all of the Buyer’s other obligations under this Agreement, the Buyer
      shall defend, protect, indemnify and hold harmless the Company and all of its
      officers, directors, employees and agents (including, without limitation, those
      retained in connection with the transactions contemplated by this Agreement)
      (collectively, the “Company
      Indemnitees”)
      from
      and against any and all Indemnified Liabilities incurred by the Indemnitees
      or
      any of them as a result of, or arising out of, or relating to (a) any
      misrepresentation or breach of any representation or warranty made by the
      Buyer(s) in this Agreement, instrument or document contemplated hereby or
      thereby executed by the Buyer, (b) any breach of any covenant, agreement or
      obligation of the Buyer(s) contained in this Agreement, the Investor
      Registration Rights Agreement or any other certificate, instrument or document
      contemplated hereby or thereby executed by the Buyer, or (c) any cause of
      action, suit or claim brought or made against such Company Indemnitee based
      on
      material misrepresentations or due to a material breach and arising out of
      or
      resulting from the execution, delivery, performance or enforcement of this
      Agreement, the Investor Registration Rights Agreement or any other instrument,
      document or agreement executed pursuant hereto by any of the Company
      Indemnities. To the extent that the foregoing undertaking by each Buyer may
      be
      unenforceable for any reason, each Buyer shall make the maximum contribution
      to
      the payment and satisfaction of each of the Indemnified Liabilities, which
      is
      permissible under applicable law.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    9.  GOVERNING
      LAW: MISCELLANEOUS.

     

    (a)  Governing
      Law.
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New Jersey without regard to the principles of conflict of laws.
      The parties further agree that any action between them shall be heard
      exclusively in Hudson County, New Jersey, and expressly consent to the
      jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson
      County and the United States District Court for the District of New Jersey
      sitting in Newark, New Jersey for the adjudication of any civil action asserted
      pursuant to this Paragraph.

     

    (b)  Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      In
      the event any signature page is delivered by facsimile transmission, the party
      using such means of delivery shall cause four (4) additional original executed
      signature pages to be physically delivered to the other party within five (5)
      days of the execution and delivery hereof.

     

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

     

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

     

    (e)  Entire
      Agreement, Amendments.
      This
      Agreement supersedes all other prior oral or written agreements between the
      Buyer(s), the Company, their affiliates and persons acting on their behalf
      with
      respect to the matters discussed herein, and 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 any 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.

     

    (f)  Notices.
      Any
      notices, consents, waivers, or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered (i) upon receipt, when delivered personally; (ii) upon
      confirmation of receipt, when sent by facsimile; (iii) three (3) days after
      being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
      day
      after deposit with a nationally recognized overnight delivery service, in each
      case properly addressed to the party to receive the same. The addresses and
      facsimile numbers for such communications shall be:

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    
      	
              If
                to the Company, to:

            	
              Clayton,
                Dunning Group, Inc.

            
	 	
              477
                Madison Avenue, 12th
                Floor

            
	 	
              New
                York, NY 10022

            
	 	
              Attention: Robert
                Lau

            
	 	
              Telephone: (212)
                981-4800

            
	 	
              Facsimile: (212)
                

            
	 	 
	
              With
                a copy to:

            	
              Gersten,
                Savage, Kaplowitz, Wolf & Marcus LLP

            
	 	
              600
                Lexington Avenue

            
	 	
              New
                York, NY 10022-6018

            
	 	
              Attention:
                Arthur Marcus, Esq.

            
	 	
              Telephone: (212)
                752-9700

            
	 	
              Facsimile: (212)
                980-5192

            
	 	 
	
              If
                to the Transfer Agent, to:

            	 
	 	 
	 	 
	 	 
	 	
              Attention: 

            
	 	
              Telephone: (
                

            
	 	
              Facsimile: (

            
	 	 


    

     

    If
      to the
      Buyer(s), to its address and facsimile number on Schedule I, with copies to
      the
      Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
      days’ prior written notice to the other party of any change in address or
      facsimile number.

     

    (g)  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective 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 party hereto.

     

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

     

    (i)  Survival.
      Unless
      this Agreement is terminated under Section 9(l), the representations and
      warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
      agreements and covenants set forth in Sections 4, 5 and 9, and the
      indemnification provisions set forth in Section 8, shall survive the Closing
      for
      a period of two (2) years following the date on which the Convertible Debentures
      are converted in full. The Buyer(s) shall be responsible only for its own
      representations, warranties, agreements and covenants hereunder.

     

    (j)  Publicity.
      The
      Company and the Buyer(s) shall have the right to approve, before issuance any
      press release or any other public statement with respect to the transactions
      contemplated hereby made by any party; provided, however, that the Company
      shall
      be entitled, without the prior approval of the Buyer(s), to issue any press
      release or other public disclosure with respect to such transactions required
      under applicable securities or other laws or regulations (the Company shall
      use
      its best efforts to consult the Buyer(s) in connection with any such press
      release or other public disclosure prior to its release and Buyer(s) shall
      be
      provided with a copy thereof upon release thereof).

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (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)  Termination.
      In the
      event that the Closing shall not have occurred with respect to the Buyers on
      or
      before five (5) business days from the date hereof due to the Company’s or the
      Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above
      (and the non-breaching party’s failure to waive such unsatisfied condition(s)),
      the non-breaching party shall have the option to terminate this Agreement with
      respect to such breaching party at the close of business on such date without
      liability of any party to any other party.

     

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

     

    [REMAINDER
      PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

       

    

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

     

    
      	 	 	 
	 	
              COMPANY:

            
	 	
              CLAYTON,
                DUNNING GROUP, INC. 

            
	 
 	 
 	 
 
	 	By:  	 
	 	
              

            
	 	
              Name: Robert
                C. Lau

            
	 	
              Title: Chairman
                & CEO

            


    

    
      	 	 	 
	 	THE
              BUYER’S(S’) SIGNATURES ARE 
	 	CONTAINED ON SCHEDULE I
              HERETO
	 
 	 
       
              	 
 
	 	   
               	 


    

    
 

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    


     

    EXHIBIT
      A

     

     

    DISCLOSURE
      SCHEDULE

    
 

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

     

     

    BUDGET

    
 

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

     

     

    SCHEDULE
      I

     

     

    SCHEDULE
      OF BUYERS

     

    
      	
              Name

            	
              Signature

            	 	 	
              Address/Facsimile
                

              Number
                of Buyer

            	
              Amount
                of Subscription

            
	 	 	 	 	 	 
	
              Cornell
                Capital Partners, LP

            	
              By: 

            	Yorkville Advisors, LLC	 	
              101
                Hudson Street - Suite 3700

            	
              $1,075,000

            
	 	
              Its: 

            	General Partner	 	
              Jersey
                City, NJ 07303

            	 
	 	 	 	 	
              Facsimile: (201)
                985-8266

            	 
	 	 	 	 	 	 
	 	
              By:   

            	   
              	 	
              With
                a copy to:

            	 
	 	
              Name:

            	Mark A. Angelo	 	
              Cornell
                Capital Partners, LP

            	 
	 	
              Its: 

            	Portfolio Manager	 	
              101
                Hudson Street, Suite 3700

            	 
	 	 	 	 	
              Jersey
                City, NJ 07303

            	 
	 	 	 	 	
              Attention: Troy
                J. Rillo, Esq.

            	 
	 	 	 	 	
              Facsimile: (201)
                985-8266

            	 


    

    


    


    
      
        
        

      

        I-1