Unassociated Document


    SECURITIES
      PURCHASE AGREEMENT

     

     

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”),
      dated
      as of March 9, 2007, by and among GlobalNet Corporation, a Nevada corporation,
      with headquarters located at 2616 South Loop West, Suite 670, Houston, Texas
      77054 (the “Company”),
      and
      each of the purchasers set forth on the signature pages hereto (the
“Buyers”).

     

    WHEREAS:

     

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

     

    B. Buyers
      desire to purchase and the Company desires to issue and sell, upon the terms
      and
      conditions set forth in this Agreement (i) 10% convertible debentures of the
      Company, in the form attached hereto as Exhibit
      “A”,
      in the
      aggregate principal amount of One Hundred Eighty Thousand Dollars ($180,000)
      (together with any debenture(s) issued in replacement thereof or as a dividend
      thereon or otherwise with respect thereto in accordance with the terms thereof,
      the “Debentures”),
      convertible into shares of common stock, $.005 par value per share, of the
      Company (the “Common
      Stock”),
      upon
      the terms and subject to the limitations and conditions set forth in such
      Debentures and (ii) warrants, in the form attached hereto as Exhibit
      “B”,
      to
      purchase 10,000,000 shares of Common Stock (the “Warrants”).

     

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

     

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

     

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

     

    1. PURCHASE
      AND SALE OF DEBENTURES AND WARRANTS.

     

    a.     Purchase
      of Debentures and Warrants.
      On the
      Closing Date (as defined below), the Company shall issue and sell to each Buyer
      and each Buyer severally agrees to purchase from the Company such principal
      amount of Debentures and number of Warrants as is set forth immediately below
      such Buyer’s name on the signature pages hereto, for an aggregate of One Hundred
      Eighty Thousand Dollars ($180,000) principal amount of Debentures and Warrants
      to purchase an aggregate of 10,000,000 shares of Common Stock.

     

    


    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    


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

     

    c.     Closing
      Date.
      Subject
      to the satisfaction (or written waiver) of the conditions thereto set forth
      in
      Section 6 and Section 7 below, the date and time of the issuance and sale of
      the
      Debentures and the Warrants pursuant to this Agreement (the “Closing
      Date”)
      shall
      be 12:00 noon, Eastern Standard Time on March 9, 2007 or such other mutually
      agreed upon time. The closing of the transactions contemplated by this Agreement
      (the “Closing”)
      shall
      occur on the Closing Date at such location as may be agreed to by the
      parties.

     

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

     

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

     

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

     

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

     

    


    
      
        
          
          

        

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

     

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

     

    f.     Transfer
      or Re-sale.
      The
      Buyer understands that (i) except as provided in the Registration Rights
      Agreement, the sale or re-sale of the Securities has not been and is not being
      registered under the 1933 Act or any applicable state securities laws, and
      the
      Securities may not be transferred unless (a) the Securities are sold pursuant
      to
      an effective registration statement under the 1933 Act, (b) the Buyer shall
      have
      delivered to the Company an opinion of counsel that shall be in form, substance
      and scope customary for opinions of counsel in comparable transactions to the
      effect that the Securities to be sold or transferred may be sold or transferred
      pursuant to an exemption from such registration, which opinion shall be accepted
      by the Company, (c) the Securities are sold or transferred to an “affiliate” (as
      defined in Rule 144 promulgated under the 1933 Act (or a successor rule)
      (“Rule
      144”))
      of
      the Buyer who agrees to sell or otherwise transfer the Securities only in
      accordance with this Section 2(f) and who is an Accredited Investor, (d) the
      Securities are sold pursuant to Rule 144, or (e) the Securities are sold
      pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation
      S”),
      and
      the Buyer shall have delivered to the Company an opinion of counsel that shall
      be in form, substance and scope customary for opinions of counsel in corporate
      transactions, which opinion shall be accepted by the Company; (ii) any sale
      of
      such Securities made in reliance on Rule 144 may be made only in accordance
      with
      the terms of said Rule and further, if said Rule is not applicable, any re-sale
      of such Securities under circumstances in which the seller (or the person
      through whom the sale is made) may be deemed to be an underwriter (as that
      term
      is defined in the 1933 Act) may require compliance with some other exemption
      under the 1933 Act or the rules and regulations of the SEC thereunder; and
      (iii)
      neither the Company nor any other person is under any obligation to register
      such Securities under the 1933 Act or any state securities laws or to comply
      with the terms and conditions of any exemption thereunder (in each case, other
      than pursuant to the Registration Rights Agreement). Notwithstanding the
      foregoing or anything else contained herein to the contrary, the Securities
      may
      be pledged as collateral in connection with a bona fide
      margin
      account or other lending arrangement. In the event that the Company does not
      accept the opinion of counsel provided by the Buyer with respect to the transfer
      of Securities pursuant to an exemption from registration, such as Rule 144
      or
      Regulation S, within three (3) business days of delivery of the opinion to
      the
      Company, the Company shall pay to the Buyer liquidated damages of three percent
      (3%) of the outstanding amount of the Debentures per month plus accrued and
      unpaid interest on the Debentures, prorated for partial months, in cash or
      shares at the option of the Buyer (“Standard
      Liquidated Damages Amount”).
      If
      the Buyer elects to be paid the Standard Liquidated Damages Amount in shares
      of
      Common Stock, such shares shall be issued at the Conversion Price at the time
      of
      payment.

     

    


    
      
        
          
          

        

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

     

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

     

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

     

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

     

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

     

     

    
      
        
        

      

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

     

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

     

     

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

     

     

    
      
        
        

      

      
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    c.     Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      20,000,000,000 shares of Common Stock, of which approximately 12,200,000,000
      shares are issued and outstanding, no shares are reserved for issuance pursuant
      to the Company’s stock option plans, subject to obtaining Stockholder Approval
      (as defined in Section 4(k)), approximately 15,000,000,000 shares are reserved
      for issuance pursuant to securities (other than the Notes and the Warrants)
      exercisable for, or convertible into or exchangeable for shares of Common Stock
      and--, subject to obtaining Stockholder Approval (as defined in Section 4(k)),
      60,000,000,000 shares are reserved for issuance upon conversion of the Notes
      and
      exercise of the Warrants (subject to adjustment pursuant to the Company’s
      covenant set forth in Section 4(h) below); and (ii) 30,000,000 shares
of
      preferred stock, of which no shares are issued and outstanding. All of such
      outstanding shares of capital stock are, or upon issuance will be, duly
      authorized, validly issued, fully paid and nonassessable. No shares of capital
      stock of the Company are subject to preemptive rights or any other similar
      rights of the shareholders of the Company or any liens or encumbrances imposed
      through the actions or failure to act of the Company. Except as disclosed in
      Schedule
      3(c),
      as of
      the effective date of this Agreement, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, (ii) there are no agreements or arrangements under
      which the Company or any of its Subsidiaries is obligated to register the sale
      of any of its or their securities under the 1933 Act (except the Registration
      Rights Agreement) and (iii) there are no anti-dilution or price adjustment
      provisions contained in any security issued by the Company (or in any agreement
      providing rights to security holders) that will be triggered by the issuance
      of
      the Notes, the Warrants, the Conversion Shares or Warrant Shares. The Company
      has furnished to the Buyer true and correct copies of the Company’s Articles of
      Incorporation as in effect on the date hereof (“Articles
      of Incorporation”),
      the
      Company’s By-laws, as in effect on the date hereof (the “By-laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      of
      the Company and the material rights of the holders thereof in respect thereto.
      The Company shall provide the Buyer with a written update of this representation
      signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
      the Company as of the Closing Date.

     

    d.     Issuance
      of Shares.
      Subject
      to obtaining Stockholder Approval (as defined in Section 4(k)), the Conversion
      Shares and Warrant Shares are duly authorized and reserved for issuance and,
      upon conversion of the Debentures and exercise of the Warrants in accordance
      with their respective terms, will be validly issued, fully paid and
      non-assessable, and free from all taxes, liens, claims and encumbrances with
      respect to the issue thereof and shall not be subject to preemptive rights
      or
      other similar rights of shareholders of the Company and will not impose personal
      liability upon the holder thereof.

     

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

     

    
      
        
        

      

      
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    f.     No
      Conflicts.
      Subject
      to obtaining Stockholder Approval (as defined in Section 4(k)), the execution,
      delivery and performance of this Agreement, the Registration Rights Agreement,
      the Debentures, the Security Agreement and the Warrants by the Company and
      the
      consummation by the Company of the transactions contemplated hereby and thereby
      (including, without limitation, the issuance and reservation for issuance of
      the
      Conversion Shares and Warrant Shares) will not (i) conflict with or result
      in a
      violation of any provision
      of the Articles of Incorporation or By-laws or (ii) violate or conflict with,
      or
      result in a breach of any provision of, or constitute a default (or an event
      which with notice or lapse of time or both could become a default) under, or
      give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, indenture, patent, patent license or instrument
      to which the Company or any of its Subsidiaries is a party, or (iii) result
      in a
      violation of any law, rule, regulation, order, judgment or decree (including
      federal and state securities laws and regulations and regulations of any
      self-regulatory organizations to which the Company or its securities are
      subject) applicable to the Company or any of its Subsidiaries or by which any
      property or asset of the Company or any of its Subsidiaries is bound or affected
      (except for such conflicts, defaults, terminations, amendments, accelerations,
      cancellations and violations as would not, individually or in the aggregate,
      have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries
      is in violation of its Articles of Incorporation, By-laws or other
      organizational documents and neither the Company nor any of its Subsidiaries
      is
      in default (and no event has occurred which with notice or lapse of time or
      both
      could put the Company or any of its Subsidiaries in default) under, and neither
      the Company nor any of its Subsidiaries has taken any action or failed to take
      any action that would give to others any rights of termination, amendment,
      acceleration or cancellation of, any agreement, indenture or instrument to
      which
      the Company or any of its Subsidiaries is a party or by which any property
      or
      assets of the Company or any of its Subsidiaries is bound or affected, except
      for possible defaults as would not, individually or in the aggregate, have
      a
      Material Adverse Effect. The businesses of the Company and its Subsidiaries,
      if
      any, are not being conducted, and shall not be conducted so long as a Buyer
      owns
      any of the Securities, in violation of any law, ordinance or regulation of
      any
      governmental entity. Except as specifically contemplated by this Agreement
      and
      as required under the 1933 Act and any applicable state securities laws, the
      Company is not required to obtain any consent, authorization or order of, or
      make any filing or registration with, any court, governmental agency, regulatory
      agency, self regulatory organization or stock market or any third party in
      order
      for it to execute, deliver or perform any of its obligations under this
      Agreement, the Registration Rights Agreement, the Debentures or the Warrants
      in
      accordance with the terms hereof or thereof or to issue and sell the Debentures
      and Warrants in accordance with the terms hereof and to issue the Conversion
      Shares upon conversion of the Debentures and the Warrant Shares upon exercise
      of
      the Warrants. Except as disclosed in Schedule
      3(f),
      all
      consents, authorizations, orders, filings and registrations which the Company
      is
      required to obtain pursuant to the preceding sentence have been obtained or
      effected on or prior to the date hereof. The Company is not in violation of
      the
      listing requirements of the Pinksheets (the “Pinksheets”)
      and
      does not reasonably anticipate that the Common Stock will be delisted by the
      Pinksheets in the foreseeable future. The Company and its Subsidiaries are
      unaware of any facts or circumstances which might give rise to any of the
      foregoing. 

     

     

    
      
        
        

      

      
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    g.    SEC
      Documents; Financial Statements.
      Except
      as disclosed in Schedule
      3(g),
      the
      Company has timely filed all reports, schedules, forms, statements and other
      documents required to be filed by it with the SEC pursuant to the reporting
      requirements of the Securities Exchange Act of 1934, as amended (the
“1934
      Act”)
      (all
      of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements and schedules thereto and documents (other
      than
      exhibits to such documents) incorporated by reference therein, being hereinafter
      referred to herein as the “SEC
      Documents”).
      The
      Company has delivered to each Buyer true and complete copies of the SEC
      Documents, except for such exhibits and incorporated documents. Except as
      disclosed on Schedule 3(g), as of their respective dates, the SEC
      Documents complied in all material respects with the requirements of the 1934
      Act and the rules and regulations of the SEC promulgated thereunder applicable
      to the SEC Documents, and none of the SEC Documents, at the time they were
      filed
      with the SEC, contained any untrue statement of a material fact or omitted
      to
      state a material fact required to be stated therein or necessary in order to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading. Except as disclosed on Schedule 3(g), none of the
      statements made in any such SEC Documents is, or has been, required to be
      amended or updated under applicable law (except for such statements as have
      been
      amended or updated in subsequent filings prior the date hereof). As of their
      respective dates, the financial statements of the Company included in the SEC
      Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      United States generally accepted accounting principles, consistently applied,
      during the periods involved (except (i) as may be otherwise indicated in such
      financial statements or the notes thereto, or (ii) in the case of unaudited
      interim statements, to the extent they may not include footnotes or may be
      condensed or summary statements) and fairly present in all material respects
      the
      consolidated financial position of the Company and its consolidated Subsidiaries
      as of the dates thereof and the consolidated results of their operations and
      cash flows for the periods then ended (subject, in the case of unaudited
      statements, to normal year-end audit adjustments). Except as set forth in the
      financial statements of the Company included in the SEC Documents, the Company
      has no liabilities, contingent or otherwise, other than (i) liabilities incurred
      in the ordinary course of business subsequent to December 31, 2003 and (ii)
      obligations under contracts and commitments incurred in the ordinary course
      of
      business and not required under generally accepted accounting principles to
      be
      reflected in such financial statements, which, individually or in the aggregate,
      are not material to the financial condition or operating results of the
      Company.

     

    h.    Absence
      of Certain Changes.
      Except
      as set forth on Schedule 3(h), since December 31, 2003, there has been no
      material adverse change and no material adverse development in the assets,
      liabilities, business, properties, operations, financial condition, results
      of
      operations or prospects of the Company or any of its Subsidiaries.

     

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

     

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

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    k.    No
      Materially Adverse Contracts, Etc.
      Except
      as disclosed on Schedule 3(k), neither the Company nor any of its Subsidiaries
      is subject to any charter, corporate or other legal restriction, or any
      judgment, decree, order, rule or regulation which in the judgment of the
      Company’s officers has or is expected in the future to have a Material Adverse
      Effect. Except as disclosed on Schedule 3(k), neither the Company nor any of
      its
      Subsidiaries is a party to any contract or agreement which in the judgment
      of
      the Company’s officers has or is expected to have a Material Adverse
      Effect.

     

    l.     Tax
      Status.
      Except
      as set forth on Schedule
      3(l),
      the
      Company and each of its Subsidiaries has made or filed all federal, state and
      foreign income and all other tax returns, reports and declarations required
      by
      any jurisdiction to which it is subject (unless and only to the extent that
      the
      Company and each of its Subsidiaries has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes) and
      has
      paid all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and has set aside
      on
      its books provisions reasonably adequate for the payment of all taxes for
      periods subsequent to the periods to which such returns, reports or declarations
      apply. There are no unpaid taxes in any material amount claimed to be due by
      the
      taxing authority of any jurisdiction, and the officers of the Company know
      of no
      basis for any such claim. The Company has not executed a waiver with respect
      to
      the statute of limitations relating to the assessment or collection of any
      foreign, federal, state or local tax. Except as set forth on Schedule
      3(l),
      none of
      the Company’s tax returns is presently being audited by any taxing
      authority.

     

    m.    Certain
      Transactions.
      Except
      as set forth on Schedule
      3(m)
      and
      except for arm’s length transactions pursuant to which the Company or any of its
      Subsidiaries makes payments in the ordinary course of business upon terms no
      less favorable than the Company or any of its Subsidiaries could obtain from
      third parties and other than the grant of stock options disclosed on
Schedule
      3(c),
      none of
      the officers, directors, or employees of the Company is presently a party to
      any
      transaction with the Company or any of its Subsidiaries (other than for services
      as employees, officers and directors), including any contract, agreement or
      other arrangement providing for the furnishing of services to or by, providing
      for rental of real or personal property to or from, or otherwise requiring
      payments to or from any officer, director or such employee or, to the knowledge
      of the Company, any corporation, partnership, trust or other entity in which
      any
      officer, director, or any such employee has a substantial interest or is an
      officer, director, trustee or partner.

     

    


    
      
        
          
          

        

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

     

    o.    Acknowledgment
      Regarding Buyers’ Purchase of Securities.
      The
      Company acknowledges and agrees that the Buyers are acting solely in the
      capacity of arm’s length purchasers with respect to this Agreement and the
      transactions contemplated hereby. The Company further acknowledges that no
      Buyer
      is acting as a financial advisor or fiduciary of the Company (or in any similar
      capacity) with respect to this Agreement and the transactions contemplated
      hereby and any statement made by any Buyer or any of their respective
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereby is not advice or a recommendation and is merely incidental
      to the Buyers’ purchase of the Securities. The Company further represents to
      each Buyer that the Company’s decision to enter into this Agreement has been
      based solely on the independent evaluation of the Company and its
      representatives.

     

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

     

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

     

    r.    Permits;
      Compliance.
      The
      Company and each of its Subsidiaries is in possession of all franchises, grants,
      authorizations, licenses, permits, easements, variances, exemptions, consents,
      certificates, approvals and orders necessary to own, lease and operate its
      properties and to carry on its business as it is now being conducted
      (collectively, the “Company
      Permits”),
      and
      there is no action pending or, to the knowledge of the Company, threatened
      regarding suspension or cancellation of any of the Company Permits. Neither
      the
      Company nor any of its Subsidiaries is in conflict with, or in default or
      violation of, any of the Company Permits, except for any such conflicts,
      defaults or violations which, individually or in the aggregate, would not
      reasonably be expected to have a Material Adverse Effect. Since December 31,
      2003, neither the Company nor any of its Subsidiaries has received any
      notification with respect to possible conflicts, defaults or violations of
      applicable laws, except for notices relating to possible conflicts, defaults
      or
      violations, which conflicts, defaults or violations would not have a Material
      Adverse Effect.

     

    


    
      
        
          
          

        

        
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    s.    Environmental
      Matters.

     

    (i) Except
      as
      set forth in Schedule
      3(s),
      there
      are, to the Company’s knowledge, with respect to the Company or any of its
      Subsidiaries or any predecessor of the Company, no past or present violations
      of
      Environmental Laws (as defined below), releases of any material into the
      environment, actions, activities, circumstances, conditions, events, incidents,
      or contractual obligations which may give rise to any common law environmental
      liability or any liability under the Comprehensive Environmental Response,
      Compensation and Liability Act of 1980 or similar federal, state, local or
      foreign laws and neither the Company nor any of its Subsidiaries has received
      any notice with respect to any of the foregoing, nor is any action pending
      or,
      to the Company’s knowledge, threatened in connection with any of the foregoing.
      The term “Environmental
      Laws”
means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
      substances or wastes (collectively, “Hazardous
      Materials”)
      into
      the environment, or otherwise relating to the manufacture, processing,
      distribution, use, treatment, storage, disposal, transport or handling of
      Hazardous Materials, as well as all authorizations, codes, decrees, demands
      or
      demand letters, injunctions, judgments, licenses, notices or notice letters,
      orders, permits, plans or regulations issued, entered, promulgated or approved
      thereunder.

     

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

     

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

     

    t.    Title
      to Property.
      The
      Company and its Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and its Subsidiaries,
      in
      each case free and clear of all liens, encumbrances and defects except such
      as
      are described in Schedule
      3(t)
      or such
      as would not have a Material Adverse Effect. Any real property and facilities
      held under lease by the Company and its Subsidiaries are held by them under
      valid, subsisting and enforceable leases with such exceptions as would not
      have
      a Material Adverse Effect.


    
      
        
          
          

        

        
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    u.    Insurance.
      Except
      as set forth under Schedule 3(u), the Company and each of its Subsidiaries
      are
      insured by insurers of recognized financial responsibility against such losses
      and risks and in such amounts as management of the Company believes to be
      prudent and customary in the businesses in which the Company and its
      Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
      reason to believe that it will not be able to renew its existing insurance
      coverage as and when such coverage expires or to obtain similar coverage from
      similar insurers as may be necessary to continue its business at a cost that
      would not have a Material Adverse Effect. The Company has provided to Buyer
      true
      and correct copies of all policies relating to directors’ and officers’
liability coverage, errors and omissions coverage, and commercial general
      liability coverage.

     

    v.    Internal
      Accounting Controls.
      Except
      as disclosed at Schedule 3(v), the Company and each of its Subsidiaries maintain
      a system of internal accounting controls sufficient, in the judgment of the
      Company’s board of directors, to provide reasonable assurance that (i)
      transactions are executed in accordance with management’s general or specific
      authorizations, (ii) transactions are recorded as necessary to permit
      preparation of financial statements in conformity with generally accepted
      accounting principles and to maintain asset accountability, (iii) access to
      assets is permitted only in accordance with management’s general or specific
      authorization and (iv) the recorded accountability for assets is compared with
      the existing assets at reasonable intervals and appropriate action is taken
      with
      respect to any differences.

     

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

     

    x.    Solvency.
      Except
      as disclosed at Schedule 3(x), the Company (after giving effect to the
      transactions contemplated by this Agreement) is solvent (i.e.,
      its
      assets have a fair market value in excess of the amount required to pay its
      probable liabilities on its existing debts as they become absolute and matured)
      and currently the Company has no information that would lead it to reasonably
      conclude that the Company would not, after giving effect to the transaction
      contemplated by this Agreement, have the ability to, nor does it intend to
      take
      any action that would impair its ability to, pay its debts from time to time
      incurred in connection therewith as such debts mature. The Company received
      a
      qualified opinion from its auditors with respect to its most recent fiscal
      year
      end and, after giving effect to the transactions contemplated by this Agreement,
      anticipates that its new auditors will continue to provide a going concern
      qualification in respect of its current fiscal year.

     

    


    
      
        
          
          

        

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

     

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

     

    4.    COVENANTS.

     

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

     

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

     

    c.    Press
      Release.
      The
      Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
      Company shall issue a press release describing the materials terms of the
      transaction contemplated hereby as soon as practicable following the Closing
      Date but in no event more than two (2) business days of the Closing Date, which
      press release shall be subject to prior review by the Buyers. The Company agrees
      that such press release shall not disclose the name of the Buyers unless
      expressly consented to in writing by the Buyers or unless required by applicable
      law or regulation, and then only to the extent of such requirement.

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    


    
      
        
          
          

        

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

     

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

     

    


    
      
        
          
          

        

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

     

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

     

    k.    Naming
      of New Chief Executive Officer.
      The
      Company shall publicly announce, within 3 business days of the Company becoming
      current with its 34 Act Reports, the name of the new Chief Executive Officer
      of
      the Company.

     

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

     

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

     

    
      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

    

     

    5.    TRANSFER
      AGENT INSTRUCTIONS.
      The
      Company shall issue irrevocable instructions to its transfer agent to issue
      certificates, registered in the name of each Buyer or its nominee, for the
      Conversion Shares and Warrant Shares in such amounts as specified from time
      to
      time by each Buyer to the Company upon conversion of the Debentures or exercise
      of the Warrants in accordance with the terms thereof (the “Irrevocable
      Transfer Agent Instructions”).
      Prior
      to registration of the Conversion Shares and Warrant Shares under the 1933
      Act
      or the date on which the Conversion Shares and Warrant Shares may be sold
      pursuant to Rule 144 without any restriction as to the number of Securities
      as
      of a particular date that can then be immediately sold, all such certificates
      shall bear the restrictive legend specified in Section 2(g) of this Agreement.
      The Company warrants that no instruction other than the Irrevocable Transfer
      Agent Instructions referred to in this Section 5, and stop transfer instructions
      to give effect to Section 2(f) hereof (in the case of the Conversion Shares
      and
      Warrant Shares, prior to registration of the Conversion Shares and Warrant
      Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
      Shares may be sold pursuant to Rule 144 without any restriction as to the number
      of Securities as of a particular date that can then be immediately sold), will
      be given by the Company to its transfer agent and that the Securities shall
      otherwise be freely transferable on the books and records of the Company as
      and
      to the extent provided in this Agreement and the Registration Rights Agreement.
      Nothing in this Section shall affect in any way the Buyer’s obligations and
      agreement set forth in Section 2(g) hereof to comply with all applicable
      prospectus delivery requirements, if any, upon re-sale of the Securities. If
      a
      Buyer provides the Company with (i) an opinion of counsel in form, substance
      and
      scope customary for opinions in comparable transactions, to the effect that
      a
      public sale or transfer of such Securities may be made without registration
      under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
      provides reasonable assurances that the Securities can be sold pursuant to
      Rule
      144, the Company shall permit the transfer, and, in the case of the Conversion
      Shares and Warrant Shares, promptly instruct its transfer agent to issue one
      or
      more certificates, free from restrictive legend, in such name and in such
      denominations as specified by such Buyer. The Company acknowledges that a breach
      by it of its obligations hereunder will cause irreparable harm to the Buyers,
      by
      vitiating the intent and purpose of the transactions contemplated hereby.
      Accordingly, the Company acknowledges that the remedy at law for a breach of
      its
      obligations under this Section 5 may be inadequate and agrees, in the event
      of a
      breach or threatened breach by the Company of the provisions of this Section,
      that the Buyers shall be entitled, in addition to all other available remedies,
      to an injunction restraining any breach and requiring immediate transfer,
      without the necessity of showing economic loss and without any bond or other
      security being required.

     

     

     

    


    
      
        
          
          

        

        
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                6.   CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL.
      The
      obligation of the Company hereunder to issue and sell the Debentures and
      Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
      the Closing Date of each of the following conditions thereto, provided that
      these conditions are for the Company’s sole benefit and may be waived by the
      Company at any time in its sole discretion:

     

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

     

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

     

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

     

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

     

    7.    CONDITIONS
      TO EACH BUYER’S OBLIGATION TO PURCHASE.
      The
      obligation of each Buyer hereunder to purchase the Debentures and Warrants
      at
      the Closing is subject to the satisfaction, at or before the Closing Date of
      each of the following conditions, provided that these conditions are for such
      Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
      discretion:

     

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

     

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

     

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

     

    d.     The
      representations and warranties of the Company shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Date as though
      made at such time (except for representations and warranties that speak as
      of a
      specific date) and the Company shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Company at
      or
      prior to the Closing Date. The Buyer shall have received a certificate or
      certificates, executed by the chief executive officer of the Company, dated
      as
      of the Closing Date, to the foregoing effect and as to such other matters as
      may
      be reasonably requested by such Buyer including, but not limited to certificates
      with respect to the Company’s Articles of Incorporation, By-laws and Board of
      Directors’ resolutions relating to the transactions contemplated
      hereby.

     

    


    
      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

    

    


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

     

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

     

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

     

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

     

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

     

    8.     GOVERNING
      LAW; MISCELLANEOUS.
      

     

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

     

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

     

    
      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

    

     

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

     

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

     

    e.    Entire
      Agreement; Amendments.
      This
      Agreement and the instruments referenced herein contain the entire understanding
      of the parties with respect to the matters covered herein and therein and,
      except as specifically set forth herein or therein, neither the Company nor
      the
      Buyer makes any representation, warranty, covenant or undertaking with respect
      to such matters. No provision of this Agreement may be waived or amended other
      than by an instrument in writing signed by the party to be charged with
      enforcement. 

     

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

     

    If
      to the
      Company:

    


    Globalnet
      Corporation

    2616
      South Loop West, Suite 670

    Houston,
      Texas 77054

    Telephone:
      (832) 778-9591

    Facsimile:
      (713) 583-9509

    Attention:
      President and Chief Executive Officer

     

    


     

    With
      a
      copy to:

    


    Sichenzia
      Ross Friedman Ference LLP

    1065
      Avenue of the Americas

    New
      York,
      NY 10018

    
      Attention:
        Gregory Sichenzia, Esq.

      Telephone:
        (212) 930-9700

      Facsimile:
        (212) 930-9725

    

    


    
      
        
          
          

        

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

     

    With
      a
      copy to:

    


    Ballard
      Spahr Andrews & Ingersoll, LLP

    1735
      Market Street

    51st
      Floor

    Philadelphia,
      Pennsylvania 19103

    Attention:
      Gerald J. Guarcini, Esq.

    Telephone:
      (215) 864-8625

    Facsimile:
      (215) 864-8999

    Email:
      guarcini@ballardspahr.com

     

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

     

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

     

    h.    Third
      Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

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

     

    j.    Publicity.
      The
      Company and each of the Buyers shall have the right to review a reasonable
      period of time before issuance of any press releases, SEC, Pinksheet or NASD
      filings, or any other public statements with respect to the transactions
      contemplated hereby; provided,
      however,
      that
      the Company shall be entitled, without the prior approval of each of the Buyers,
      to make any press release or SEC, Pinksheet (or other applicable trading market)
      or NASD filings with respect to such transactions as is required by applicable
      law and regulations (although each of the Buyers shall be consulted by the
      Company in connection with any such press release prior to its release and
      shall
      be provided with a copy thereof and be given an opportunity to comment
      thereon).

     

    
      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

    

     

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

     

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

     

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

     

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    


    
      
        
          
          

        

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

     

     

    
      	 GLOBALNET
              CORPORATION	 
	 	 
	 

              
Mark
              Schaftlein	 
	 Chief Executive Officer	 


    

     

    
      	 AJW OFFSHORE,
              LTD.	 
	 	 
	 

              
Corey
              S. Ribotsky 	 
	 Chief Executive Officer	 


    

    

RESIDENCE:    Cayman
      Islands

    


    ADDRESS:     P.O.
      Box
      32021 SMB

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

    


    AGGREGATE
      SUBSCRIPTION AMOUNT:

     

    
      	 Aggregate Principal Amount of
              Debentures:     	 $180,000
	 Number of Warrants: 	 10,000,000
	 Aggregate Purchase Price:	 $180,000


    

     

            

          

    23