Exhibit
10.1


EXECUTION
COPY


SECURITIES PURCHASE
AGREEMENT


SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated as of
July 25, 2006, by and among Apollo Resources International, Inc., a Utah
corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the ”Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).


WHEREAS:


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


B.            The Buyer wishes to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate number of shares (the “Common Shares”)
of the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”), set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers attached hereto (which aggregate amount
for all Buyers shall be 13,157,895 and (ii) warrants, in substantially the form
attached hereto as Exhibit A (the “Warrants”),
to acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, collectively, the “Warrant Shares”).


C.            Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement, substantially in the form attached hereto as Exhibit B
(the “Registration Rights Agreement”),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.


D.            The Common Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the “Securities”.


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


1.             PURCHASE AND SALE OF COMMON
SHARES AND WARRANTS.


(a)           Purchase of Common
Shares and Warrants.


(i)            Common Shares and Warrants.  Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
on the Closing Date (as defined below), the Company shall issue and sell to
each Buyer, and each Buyer severally, but not jointly, shall purchase from the
Company the number of Common Shares as is set forth opposite such Buyer’s name
in column (3) on the Schedule of Buyers along with  Warrants to









 



acquire up to that number of Warrant Shares
as is set forth opposite such Buyer’s name in column (4) on the Schedule of
Buyers (the “Closing”).


(ii)           Closing.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York City time, on
July 26, 2006 (or such other date as is mutually agreed to by the Company and
each Buyer) after notification of satisfaction (or waiver) of the conditions to
the Closing set forth in Sections 6 and 7 below at the offices of Schulte Roth
& Zabel LLP, 919 Third Avenue, New York, New York 10022.


(iii)          Purchase Price.  The aggregate purchase price for the Common
Shares and the Warrants to be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the amount set forth opposite each
Buyer’s name in column (5) of the Schedule of Buyers.


(b)           Form of Payment.  On the Closing Date, (i) each Buyer shall pay
its Purchase Price to the Company for the Common Shares and the Warrants to be
issued and sold to such Buyer at the Closing (less, (x) in the case of
Castlerigg, the amounts withheld pursuant to Section 4(g)), 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 one or more
stock certificates, free and clear of all restrictive and other legends (except
as expressly provided in Section 2(g) hereof), evidencing the number of Common
Shares such Buyer is purchasing as is set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers along with the Warrants (allocated in the
amounts as such Buyer shall request) to acquire up to an aggregate number of
Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers, in each case duly executed on behalf of the Company and
registered in the name of such Buyer.


2.             BUYER’S REPRESENTATIONS AND WARRANTIES.


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


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


(b)           Accredited Investor Status.  At the time such Buyer was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises Warrants it



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will be, an “accredited investor” as defined
in Rule 501(a) under the 1933 Act.  Such
Buyer is not a registered broker-dealer under Section 15 of the 1934 Act.


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


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


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


(f)            Transfer
or Resale.  Such Buyer understands
that except as provided in the Registration Rights Agreement: (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended,
(or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance
on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured
by the Securities and such pledge of Securities shall not be



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deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document (as defined
in Section 3(b)), including, without limitation, this Section 2(f).


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


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


The legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the 1933
Act (a “Registration Event”), or
(ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that such sale or transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act,
or (iii) following a sale of transfer of such Securities pursuant to Rule 144
(assuming the transferor is not an affiliate of the Company), or (iv) while
such Securities are eligible for sale under Rule 144(k).  If the Company shall fail for any reason or
for no reason to issue to the holder of the Securities within three (3) Trading
Days after the occurrence of any of (i) through (iii) above, a certificate
without such legend to the holder or to issue such Securities to such holder by
electronic delivery at the applicable balance account at DTC, and if on or
after such Trading Day the holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a



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sale by the holder of such Securities that the holder
anticipated receiving without legend from the Company (a “Buy-In”), then the Company shall, within
three (3) Business Days after the holder’s request and in the holder’s
discretion, either (i) pay cash to the holder in an amount equal to the holder’s
total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
unlegended Securities shall terminate, or (ii) promptly honor its obligation to
deliver to the holder such unlegended Securities as provided above and pay cash
to the holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise.


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


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


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


(k)           Independent
Investment Decision.  Such Buyer has
independently evaluated the merits of its decision to purchase Securities
pursuant to the Transaction Documents, and such Buyer confirms that it has not
relied on the advice of the Company nor any other Buyer’s business and/or legal
counsel in making such decision.


(l)            Certain Trading
Activities.  Such Buyer has not
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Buyer, engaged in any transactions in the
securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities) since the earlier of (i) the time that such
Buyer was first contacted by the Company regarding the transactions
contemplated hereby and (ii) twenty (20) calendar days prior to the date
hereof.  Such Buyer covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will engage in any transactions in the securities of the Company
(including Short Sales) prior to the time that the transactions



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contemplated
by this Agreement are publicly disclosed. 
For the purpose of this Agreement, “Short Sales” include,
without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO
under the 1934 Act and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, swaps and similar arrangements (including
on a total return basis), and sales and other transactions through non-US
broker dealers or foreign regulated brokers.


(m)          General
Solicitation.  Such Buyer is not
purchasing the Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar.


(n)           Organization.  Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents (as defined below) and otherwise to carry out its
obligations thereunder.


3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.


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


(a)           Organization and
Qualification.  The Company and its “Subsidiaries” (which for purposes of this Agreement means
any joint venture or any entity (i) in which the Company, directly or
indirectly, owns 50% or more of the outstanding capital stock or holds an
equity or similar interest representing 50% or more of the outstanding equity
or similar interest of such entity, (ii) that is a significant subsidiary of
the Company as defined under Regulation S-X of the 1934 Act or (iii) in which
the Company controls or operates all or part of the business, operations or
administration of such entity) are entities duly organized and validly existing
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and to
carry on their business as now being conducted.   Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not reasonably be
expected to have a Material Adverse Effect. 
As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below).  The Company has no Subsidiaries except as set
forth on Schedule 3(a).


(b)           Authorization;
Enforcement; Validity.  The Company
has the requisite power and authority to enter into and perform its obligations
under this Agreement, the Common Shares, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Warrants and each of the other agreements entered into by



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the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the “Transaction Documents”)
and to issue the Securities in accordance with the terms hereof and
thereof.  The execution and delivery of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Common Shares and the Warrants, the reservation
for issuance and issuance of Warrant Shares issuable upon exercise of the
Warrants have been duly authorized by the Company’s Board of Directors and
other than (i) the filing of a Form D under Regulation D of the 1933 Act,
(ii) the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (iii)
such filings as are required by the Principal Market (as defined below) and
(iv) such filings required under applicable securities or “Blue Sky” laws of
the states of the United States, no further filing, consent, or authorization
is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction
Documents of even date herewith have been duly executed and when delivered by
the Company will constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.


(c)           Issuance of
Securities.  The issuance of the
Common Shares and the Warrants are duly authorized and are free from all taxes,
liens and charges with respect to the issue thereof.  As of the Closing, a number of shares of
Common Stock shall have been duly authorized and reserved for issuance which
equals 130% of the maximum number of shares of Common Stock issuable upon
exercise of the Warrants (assuming such exercise occurred at Closing).  The Common Shares and, upon exercise in
accordance with the Warrants, the Warrant Shares, respectively, when issued,
will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.  Based in part
upon the accuracy of the representations and warranties of the Buyers’ set
forth in Article 2, issuance by the Company of the Securities is, or will be
upon issuance, exempt from registration under the 1933 Act.


(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Common Shares and the Warrants, and reservation
for issuance and issuance of the Warrant Shares) will not (i) result in a
violation of any certificate of incorporation, certificate of formation, any
certificate of designations or other constituent documents of the Company or
any of its Subsidiaries, any capital stock of the Company or any of its
Subsidiaries or bylaws of the Company or any of its Subsidiaries or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) in any respect 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 (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board as reported on Bloomberg Financial Markets LP (the “Principal Market”)) applicable to the Company or any of



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its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.


(e)           Consents.  Other than as contemplated in Section 3(b),
and otherwise as set forth on Schedule 3(e), the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the Closing Date (other
than those which the Company is not required to obtain in accordance with the
Transaction Documents until after the Closing Date) and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence. 
The Company is not in violation of the listing requirements of the Principal
Market and has no knowledge of any facts which would reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.


(f)            Acknowledgment
Regarding Buyer’s Purchase of Securities. 
The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company, (ii) to the Company’s knowledge,
an “affiliate” of the Company (as defined in Rule 144 of the 1933 Act) or (iii)
to the knowledge of the Company, a “beneficial owner” of more than 10% of the
shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the “1934 Act”)).  The
Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such Buyer’s
purchase of the Securities.  The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.


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



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


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


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


(k)           SEC Documents;
Financial Statements.  Except as
disclosed in Schedule 3(k), since October 7, 2005, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC Documents”).  The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on the EDGAR
system.  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 the light of the circumstances under
which they were made, not misleading.  As
of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto.  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



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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 Buyers which is not included in the SEC Documents,
including, without limitation, information referred to in Section 2(d) of 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 circumstance under which they are or were made and not misleading.


(l)            Absence of
Certain Changes.  Except as disclosed in Schedule 3(l), since
December 31, 2005, there has been no material adverse change and no material
adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries.  Except as disclosed in Schedule 3(1), since
October 7, 2005, the Company has not (i) declared or paid any dividends,
(ii) sold any assets, individually or in the aggregate, in excess of $100,000
outside of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $100,000.  The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so.  The
Company and its Subsidiaries, individually and on a consolidated basis, will
not, after giving effect to the transactions contemplated hereby to occur at
the Closing, be Insolvent (as defined below). 
For purposes of this Section 3(l), “Insolvent”
means, with respect to any Person (as defined in Section 3(s)), (i) the present
fair saleable value of such Person’s assets is less than the amount required to
pay such Person’s total Indebtedness (as defined in Section 3(s)), (ii) such
Person is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii) such
Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted.


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


(n)           Conduct of
Business; Regulatory Permits. 
Neither the Company nor its Subsidiaries is in violation of any term of
or in default under its Articles of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or
Bylaws or their organizational charter or bylaws, respectively.  Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries,
and neither the Company nor any of its



 10
 






 



Subsidiaries
will conduct its business in violation of any of the foregoing, except for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules, regulations or
requirements of the
Principal Market and has no knowledge of any facts or circumstances that
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. 
Since October 7, 2005, the Common Stock has been designated for
quotation on the Principal Market.  Since
December 31, 2005, (i) trading in the Common Stock has not been suspended by
the SEC or the Principal Market and (ii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding the
suspension or delisting of the Common Stock from the Principal Market.  The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.


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


(p)           Sarbanes-Oxley
Act.  The Company is in compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.


(q)           Transactions With
Affiliates.  Except as set forth in
the SEC Documents filed at least ten (10) days prior to the date hereof and
other than the grant of stock options disclosed on Schedule 3(q), none
of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.


(r)            Equity
Capitalization.  The Company’s
capitalization is set forth on Schedule 3(r).  All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and
nonassessable.  Except as disclosed in Schedule
3(r): (i) none of the



 11
 






 



Company’s
capital stock is subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by the Company; (ii) there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any 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 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, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound; (iv) there are no financing statements securing obligations in
any material amounts, either singly or in the aggregate, filed in connection
with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except
pursuant to the Registration Rights Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s or
its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.  The Company has furnished to the Buyers true,
correct and complete 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 Bylaws, as
amended and as in effect on the date hereof (the “Bylaws”),
and the terms of all securities convertible into, or exercisable or
exchangeable for, shares of Common Stock and the material rights of the holders
thereof in respect thereto.  Schedule
3(r) sets forth the shares of Common Stock owned beneficially or of record
and Common Stock Equivalents (as defined below) held by each director and executive
officer.


(s)           Indebtedness and
Other Contracts.  Except as disclosed
in Schedule 3(s), neither the Company nor any of its Subsidiaries (i)
has any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect.  Schedule 3(s) provides a detailed
description of the material terms of any such outstanding Indebtedness.  For purposes of this Agreement:  (x) “Indebtedness” of any



 12
 






 



Person means,
without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become liable
for the payment of such indebtedness, and (H) all Contingent Obligations in
respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (G) above; (y) “Contingent
Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) “Person” means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.


(t)            Absence of
Litigation.  Except as set forth on Schedule
3(s), there is no action, suit, proceeding or investigation before or by
the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its
Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any of
the Company’s or its Subsidiaries’ officers or directors, whether of a civil or
criminal nature or otherwise.


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


 



 13














 


 


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


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


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


(x)            Intellectual
Property Rights. The Company and its Subsidiaries own or possess adequate
rights or licenses to use all trademarks, service marks and all applications
and registrations therefor, trade names, patents, patent rights, copyrights,
original works of authorship, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to conduct their
respective businesses as now conducted. 
None of the Company’s registered, or applied for, Intellectual Property
Rights have expired or terminated or have been abandoned, or are expected to
expire or terminate or expected to be abandoned, within three years from the
date of this Agreement.  The Company does
not have any knowledge of any infringement by the Company or its Subsidiaries
of Intellectual Property Rights of others. 
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or any of its
Subsidiaries regarding its Intellectual Property Rights.  The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
Rights.



 14
 






 



(y)           Environmental
Laws.  The Company and its
Subsidiaries (i) are in compliance with any and all Environmental Laws (as
hereinafter defined), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where, in each of the foregoing clauses
(i), (ii) and (iii), the failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.  The term “Environmental Laws” means all 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.


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


(aa)         Investment Company.  The Company is not, and upon consummation of
the sale of the Securities will not be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or “promoter”
or “principal underwriter” for, an “investment company” as such terms are
defined in the Investment Company Act of 
1940, as amended.


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


(cc)         Internal
Accounting and Disclosure Controls. 
The Company 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 and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. The



 15
 






 



Company
maintains disclosure controls and procedures (as such term is defined in Rule
13a-14 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed in to ensure that information required
to be disclosed by the Company in the reports that it files or submits under
the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.  Since
October 7, 2005, neither the Company nor any of its Subsidiaries have received
any notice or correspondence from any accountant identifying a material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries which is not specified in the Company’s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005.


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


(ee)         Form SB-2
Eligibility.  The Company is eligible
to register the Warrant Shares for resale by the Buyers using Form SB-2
promulgated under the 1933 Act.


(ff)           Transfer Taxes.  On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.


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


(hh)         Acknowledgement
Regarding Buyers’ Trading Activity. 
It is understood and acknowledged by the Company (i) that following the
public disclosure of the transactions contemplated by the Transaction Documents
in accordance with the terms hereof, none of the Buyers have been asked to
agree, nor has any Buyer agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term (ii) that any Buyer, and counter parties in “derivative” transactions to
which any such Buyer is a party, directly or indirectly, which were established
prior to their learning of the transactions contemplated by the Transaction
Documents, presently may have a “short” position in the Common Stock, and (iii)
that each Buyer shall not be deemed to have any affiliation with or control
over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and
acknowledges that, following the public disclosure of the transactions
contemplated by the



 16
 






 



Transaction Documents in accordance with the terms hereof, (a) one or
more Buyers may engage in hedging and/or trading activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Warrant Shares deliverable
with respect to Securities are being determined and (b) such hedging and/or
trading activities, if any, can reduce the value of the existing stockholders’
equity interest in the Company both at and after the time the hedging and/or
trading activities are being conducted. 
The Company acknowledges that such aforementioned hedging and/or trading
activities do not constitute a breach of this Agreement, the Warrants or any of
the documents executed in connection herewith.


(ii)           U.S. Real
Property Holding Corporation.  The
Company is not, nor has ever been, a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon Buyer’s request.


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


4.             COVENANTS.


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


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



 17
 






 



Buyers on or
prior to the Closing Date.  The Company
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or “Blue Sky” laws of the
states of the United States following the Closing Date.


(c)           Reporting Status.  Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Common
Shares and Warrant Shares and
none of the Warrants are outstanding (the “Reporting Period”),
the Company shall 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 otherwise permit such termination.


(d)           Use of Proceeds.  The Company will use the proceeds from the
sale of the Securities for general corporate and for working capital purposes,
provided, however, that the Company may not use the proceeds from the sale of
the Securities for (i) the repayment of any other outstanding Indebtedness of
the Company or any of its Subsidiaries or (ii) the redemption or repurchase of
any of its or its Subsidiaries’ equity securities.


(e)           Financial
Information.  The Company agrees to
send the following to each Investor (as defined in the Registration Rights
Agreement) during the Reporting Period (i) unless the following are filed with
the SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of
its Annual Reports on Form 10-K or 10-KSB, any interim reports or any
consolidated balance sheets, income statements, stockholders’ equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8)
or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, if not publicly filed, facsimile or e-mailed copies of all
press releases issued by the Company or any of its Subsidiaries, and (iii)
copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.  As used herein, “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.


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


(g)           Fees.  The Company shall reimburse Castlerigg Master
Investments Ltd. (a Buyer) (“Castlerigg”)
or its designee(s) (in addition to any other expense amounts paid to any Buyer
prior to the date of this Agreement) for all reasonable documentation costs and
expenses incurred in connection with the transactions contemplated by the
Transaction Documents



 18
 






 



(including all
reasonable legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction
Documents and due diligence in connection therewith), which amount shall be
withheld by such Buyer from its Purchase Price at the Closing.  The Company shall be responsible for the payment
of any placement agent’s fees, financial advisory fees, or broker’s commissions
(other than for Persons engaged by any Buyer) relating to or arising out of the
transactions contemplated hereby.  The
Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any claim against a Buyer
relating to any such payment.  Except as
otherwise set forth in the Transaction Documents, each party to this Agreement shall
bear its own expenses in connection with the sale of the Securities to the
Buyers.


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


(i)            Disclosure of
Transactions and Other Material Information.  On or before 8:30 a.m., New York City time,
on the first Business Day following the date of this Agreement, the Company
shall issue a press release and file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Transaction Documents in the
form required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of the Warrant and the form of the Registration Rights
Agreement) as exhibits to such filing (including all attachments, the “8-K Filing”).  From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company,
any of its Subsidiaries or any of its respective officers, directors, employees
or agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause each
of its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent of
such Buyer or as may be required under the terms of the Transaction Documents.  If a Buyer has, or believes it has, received
any such material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within five (5) Trading
Days (as defined in the Warrant) of receipt of such notice, make public
disclosure of such material, nonpublic information.  In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a



 19
 






 



press release,
public advertisement or otherwise, of such material, nonpublic information
without the prior approval by the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees or agents.  No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable
law and regulations (provided that in the case of clause (i) each Buyer shall
be consulted by the Company in connection with any such press release or other
public disclosure prior to its release). 
Without the prior written consent of any applicable Buyer, neither the
Company nor any of its Subsidiaries or affiliates shall disclose the name of
such Buyer in any filing, announcement, release or otherwise, unless such
disclosure is required by law, regulation or the Principal Market.


(j)            Additional
Warrants; Variable Securities; Dilutive Issuances.  So long as any Warrants remain outstanding,
the Company will not issue any Warrants other than to the Buyers as
contemplated hereby and the Company shall not issue any other securities that
would cause a breach or default under the Warrants.  For so long as any Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or indirectly
exchangeable or exercisable for Common Stock at a price which varies or may
vary with the market price of the Common Stock, including by way of one or more
reset(s) to any fixed price (other than pursuant to antidilution provisions)
unless the exchange or exercise price of any such security cannot be less than
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable.  For long as any Warrants remain outstanding,
the Company shall not, in any manner, enter into or affect any Dilutive
Issuance (as defined in the Warrants) if the effect of such Dilutive Issuance
is to cause the Company to be required to issue upon exercise of any Warrant
any shares of Common Stock in excess of that number of shares of Common Stock
which the Company may issue upon exercise of the Warrants without breaching the
Company’s obligations under the rules or regulations of the Eligible Market (as
defined in the Registration Rights Agreement).


(k)           Reservation of
Shares.  So long as any Buyer owns
any Warrant, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 130% of the
number of shares of Common Stock issuable upon exercise of the Warrants then
outstanding (without taking into account any limitations on the exercise of the
Warrants set forth in Warrants).


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


(m)          Corporate
Existence.  So long as any Warrants
remain outstanding, the Company shall not be party to any Fundamental
Transaction (as defined in the Warrants) unless



 20
 






 



the Company is
in compliance with the applicable provisions governing Fundamental Transactions
set forth in the Warrants.


(n)           Additional
Issuances of Securities.


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


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


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


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


(ii)           From the date hereof until the date
that is thirty (30) calendar days following the Effective Date (as defined in
the Registration Rights Agreement) (the “Trigger Date”), the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries’ equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”).


(iii)          For a period of 24 months following
the Effective Date (as defined in the Registration Rights Agreement), the
Company will not, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4(o)(iii).


(1)           The Company shall deliver to each
Buyer (each an “Eligible Buyer”)
a written notice (the ”Offer Notice”)
of any proposed or intended issuance or sale or exchange (the ”Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer
Notice shall (w) identify and describe the Offered Securities,
(x) describe the price and other terms upon which they are to be issued,
sold or exchanged, and the number or amount of the Offered Securities to be
issued, sold or exchanged, (y) identify the persons or entities (if known)
to which or with which the Offered Securities are to be offered, issued, sold
or exchanged and (z) offer to issue and sell to or exchange with such Eligible
Buyers at least 50% of the Offered Securities, allocated among such Eligible
Buyers (a) based on such Eligible Buyer’s pro rata portion of the Common Shares
purchased hereunder by Eligible Buyers (the “Basic Amount”),
and (b) with respect to each Eligible Buyer that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable to the
Basic Amounts of other Eligible Buyers as such Eligible Buyer shall indicate it
will purchase or acquire should the other Eligible Buyers subscribe for less
than their Basic



 21
 






 



Amounts (the “Undersubscription Amount”), which process shall be repeated
until the Buyers shall have an opportunity to subscribe for any remaining
Undersubscription Amount.


(2)           To accept an Offer, in whole or in
part, such Eligible Buyer must deliver a written notice to the Company prior to
the end of the seventh (7th) Business Day after such Eligible Buyer’s
receipt of the Offer Notice (the “Offer
Period”), setting forth the portion of such Eligible Buyer’s Basic
Amount that such Eligible Buyer elects to purchase and, if such Eligible Buyer
shall elect to purchase all of its Basic Amount, the Undersubscription Amount,
if any, that such Eligible Buyer elects to purchase (in either case, the “Notice of Acceptance”). 
If the Basic Amounts subscribed for by all Eligible Buyers are less than
the total of all of the Basic Amounts, then each Eligible Buyer who has set
forth an Undersubscription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however,
that if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts subscribed for
(the “Available Undersubscription Amount”),
each Eligible Buyer who has subscribed for any Undersubscription Amount shall
be entitled to purchase only that portion of the Available Undersubscription
Amount as the Basic Amount of such Eligible Buyer bears to the total Basic
Amounts of all Eligible Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.


(3)           The Company shall have ten (10)
Business Days from the expiration of the Offer Period above to (i) offer,
issue, sell or exchange all or any part of such Offered Securities as to which
a Notice of Acceptance has not been given by the Eligible Buyers (the “Refused Securities”), but only to the offerees described in
the Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement (as defined below),
and (b) either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Placement Agreement and any documents
contemplated therein filed as exhibits thereto (the “Offer 8-K”).  In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents.  No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure.



 22
 






 



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


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


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


(iv)          The restrictions contained in
subsections (ii) and (iii) of this Section 4(o) shall not apply in connection
with the issuance of any Excluded Securities (as defined in the Warrant).


(v)           In exchange for the Company’s
willingness to agree to these procedures, each Eligible Buyer hereby
irrevocably agrees that it will hold in strict confidence any and all Offer Notices,
the information contained therein, and the fact that the Company is
contemplating a Subsequent Placement, from the date such Eligible Buyer
receives such Offer Notice until the earlier to occur of (1) the date the Offer
8-K is filed with the SEC and (2) the date such information is disclosed to the
public by any Eligible Buyer in accordance with Section 4(o)(iii)(3)
above.  Notwithstanding anything in this
Section 4(o) to the contrary, at any time any Eligible Buyer may elect, by
delivering written notice to the Company, not to receive any Offer Notices
hereunder and, until such time as such Eligible Buyer or its successor elects,
by delivering written notice to the Company, to receive Offer Notices
hereunder, the Company shall not be obligated to deliver any Offer Notices to
such Eligible Buyer.



 23
 






 



(o)           Additional
Registration Statements.  Until the
Effective Date (as defined in the Registration Rights Agreement), the Company
will not file a registration statement under the 1933 Act relating to securities
that are not the Securities.


(p)           Stockholder
Approval.  If at any time the
Exchange Cap (as defined in the Warrants) would limit the aggregate number of
shares of Common Stock which the Company may issue upon exercise of the
Warrants, at the written request of holders of a majority of the Warrant Shares
outstanding at such time (as determined assuming full exercise of the Warrants
prior to such date without taking into account any limitations on the exercise
of the Warrants set forth in the Warrants) (the date of such request, the “Stockholder Meeting Request Date”), the
Company shall provide each stockholder entitled to vote at a special or annual
meeting of stockholders of the Company (the “Stockholder Meeting”), which shall be promptly called and
held not later than ninety (90) calendar days after the Stockholder Meeting
Request Date (the “Stockholder Meeting
Deadline”), a proxy statement, substantially in the form which has
been previously reviewed by the Buyers and Schulte Roth & Zabel LLP,
soliciting each such stockholder’s affirmative vote at the Stockholder Meeting
for approval of resolutions providing for the Company’s issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market and such
affirmative approval being referred to herein as the “Stockholder
Approval”), and the Company shall use its reasonable best efforts to
solicit its stockholders’ approval of such resolutions  and to cause the Board of Directors of the
Company to recommend to the stockholders that they approve such
resolutions.  The Company shall be
obligated to use its reasonable best efforts to obtain the Stockholder Approval
by the Stockholder Meeting Deadline.  If,
despite the Company’s reasonable best efforts the Stockholder Approval is not
obtained on or prior to the Stockholder Meeting Deadline, the Company shall
cause an additional Stockholder Meeting to be held every six (6) months
thereafter until such Stockholder Approval is obtained or the Warrants are no
longer outstanding.


5.             REGISTER; TRANSFER AGENT INSTRUCTIONS.


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


(b)           Transfer Agent
Instructions.  The Company shall
issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company (“DTC”), registered in the name of each Buyer or its
respective nominee(s), for the Common Shares and the Warrant Shares issued at
the Closing or upon exercise of the Warrants in such amounts as specified from
time to time by each Buyer to the Company upon exercise of the Warrants in the
form of Exhibit C attached hereto (the “Irrevocable
Transfer Agent Instructions”). 
The Company warrants



 24
 






 



that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, 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 other
Transaction Documents.  Upon a
Registration Event or if a Buyer effects a sale, assignment or transfer of the
Securities in accordance with Section 2(f), the Company shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment and, with respect to any transfer, shall permit the
transfer.  In the event that a
Registration Event has occurred or such sale, assignment or transfer involves
Common Shares or Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144, the transfer agent
shall issue such Securities to the Buyer, assignee or transferee, as the case
may be, without any restrictive legend. 
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer.  Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 5(b) will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.


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


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


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


(b)           Such Buyer and each
other Buyer shall have delivered to the Company the Purchase Price (less in the
case of Castlerigg, the amounts withheld pursuant to Section 4(g)) for the
Common Shares and the related Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.


(c)           The representations
and warranties of such Buyer shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
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, which shall be true and correct as of such specific date), and
such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.


 



 25














 


 


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


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


(a)           The Company shall
have duly executed and delivered to such Buyer (i) each of the Transaction
Documents and (ii) the Common Shares (allocated in such amounts as such Buyer
shall request), being purchased by such Buyer at the Closing pursuant to this
Agreement, (iii) the related Warrants (allocated in such amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement.


(b)           Such Buyer shall
have received the opinion of Scheef & Stone, LLP, the Company’s outside
counsel, dated as of the Closing Date, in substantially the form of Exhibit
D attached hereto.


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


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


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


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


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


(h)           The representations
and warranties of the Company shall be true and correct in all material
respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
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, which shall be true and correct as of such specific date) and
the Company shall have performed, satisfied and complied in all



 26
 






 



material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. 
Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer in the form attached hereto as Exhibit F.


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


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


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


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


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


9.             MISCELLANEOUS.


(a)           Governing Law;
Jurisdiction; Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit,



 27
 






 



action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.


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


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


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


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



 28
 






 



except as set
forth in this Agreement, no Buyer has made any commitment or promise or has any
other obligation to provide any financing to the Company or otherwise.


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


	
   

  	
  If to the Company:

  
	
   

  	
   

  
	
   

  	
  Apollo Resources
  International, Inc.

  
	
   

  	
  3001 Knox
  Street, Suite 403,

  
	
   

  	
  Dallas, Texas
  75205

  
	
   

  	
  Telephone:

  	
   

  	
  (214) 389-9800

  
	
   

  	
  Facsimile:

  	
   

  	
  (214) 389-9806

  
	
   

  	
  Attention:

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy to (for informational purposes only):

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Scheef &
  Stone, LLP

  
	
   

  	
  Telephone:

  	
   

  	
  (214) 706-4200

  
	
   

  	
  Facsimile:

  	
   

  	
  (214) 706-4242

  
	
   

  	
  Attention:

  	
   

  	
  Roger A. Crabb, Esq.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the Transfer Agent:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Colonial Stock
  Transfer

  
	
   

  	
  66 Exchange
  Place

  
	
   

  	
  Salt Lake City,
  Utah 84111

  
	
   

  	
  Telephone:

  	
   

  	
  (801) 355-5740

  
	
   

  	
  Facsimile:

  	
   

  	
  (801) 355-6505

  



 


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


	
   

  	
  with a copy (for informational purposes only)
  to:

  
	
   

  	
   

  
	
   

  	
  Schulte Roth
  & Zabel LLP

  
	
   

  	
  919 Third Avenue

  
	
   

  	
  New York, New
  York 10022

  
	
   

  	
  Telephone:

  	
   

  	
  (212) 756-2000

  
	
   

  	
  Facsimile:

  	
   

  	
  (212) 593-5955

  
	
   

  	
  Attention:

  	
   

  	
  Eleazer N. Klein, Esq.

  



 



 29
 






 



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


(g)           Successors and
Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Common Shares or the
Warrants.  The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Required Holders (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Common Shares and the Warrants).  A Buyer
may assign some or all of its rights hereunder without the consent of the Company,
in which event such assignee shall be deemed to be a Buyer hereunder with
respect to such assigned rights.


(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 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing and the delivery and exercise of
Securities, as applicable.  Each Buyer
shall be responsible only for its own representations, warranties, agreements
and covenants hereunder.


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


(k)           Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the



 30
 






 



Company in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i) or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant
to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.  Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 9(k) shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.


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


(n)           Rescission and
Withdrawal Right.  Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) the Transaction Documents, whenever any Buyer exercises a right,
election, demand or option under a Transaction Document and the Company does
not timely perform its related obligations within the periods therein provided,
then such Buyer may rescind or withdraw, in its sole discretion from time to
time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights.


(o)           Payment Set Aside.  To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated,



 31
 






 



declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.


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


[Signature Page Follows]


 



 32














 


 


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


 


	
  

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  APOLLO RESOURCES INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 










 



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


 


	
  

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  CASTLERIGG MASTER INVESTMENTS LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 

















 


SCHEDULE OF BUYERS


 


	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  
	
  Buyer

  	
   

  	
  Address and

  Facsimile

  Number

  	
   

  	
  Number of

  Common

  Shares

  	
   

  	
  Number of 

  Warrant

  Shares

  	
   

  	
  Purchase

  Price

  	
   

  	
  Legal Representative’s

  Address and Facsimile

  Number

  
	
  Castlerigg Master

  Investments Ltd.

  	
   

  	
  c/o Sandell Asset

  Management

  40 West 57th St

  26th Floor

  New York, NY 10019

  Attention: Cem Hacioglu
                 Matthew Pliskin

  Fax: 212-603-5710

  Telephone: 212-603-5700

  Residence: British Virgin

  Islands

  	
   

  	
  13,157,895

  	
   

  	
  16,447,369

  	
   

  	
  $5,000,000

  	
   

  	
  Schulte Roth & Zabel LLP 

  919 Third Avenue

  New York, New York 10022

  Attention: Eleazer Klein, Esq.

  Facsimile: (212) 593-5955

  Telephone: (212) 756-2376

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 









 



EXHIBITS


	
  Exhibit A

  	
   

  	
  Form of Warrants

  
	
  Exhibit B

  	
   

  	
  Registration Rights Agreement

  
	
  Exhibit C

  	
   

  	
  Irrevocable Transfer Agent Instructions

  
	
  Exhibit D

  	
   

  	
  Form of Outside Company Counsel Opinion

  
	
  Exhibit E

  	
   

  	
  Form of Secretary’s Certificate

  
	
  Exhibit F

  	
   

  	
  Form of Officer’s Certificate