Unassociated Document


    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of March 10, 2006 among Aprecia Inc., a Delaware corporation (the
      “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      Rule 506 promulgated thereunder, the Company desires to issue and sell to each
      Purchaser, and each Purchaser, severally and not jointly, desires to purchase
      from the Company, securities of the Company as more fully described in this
      Agreement.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration the receipt and adequacy of which
      are hereby acknowledged, the Company and each Purchaser agree as
      follows:

     

    ARTICLE
      I.  

    DEFINITIONS

     

    1.1  Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Debentures (as defined herein), and (b) the following terms have the
      meanings indicated in this Section 1.1:

     

    “Action”
shall
      have the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate”
means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144 under the Securities
      Act.
      With
      respect to a Purchaser, any investment fund or managed account that is managed
      on a discretionary basis by the same investment manager as such Purchaser will
      be deemed to be an Affiliate of such Purchaser.

     

    “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday in the United States or a day on which banking institutions in the
      State
      of New York are authorized or required by law or other government action to
      close. 

     

    “Closing”
means
      the closing of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    “Closing
      Date”
means
      the Business Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the Securities have been satisfied or
      waived.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Collateral
      Agent Agreement”
shall
      mean the Collateral Agent Agreement in substantially the form of Exhibit
      F
      hereto
      executed and delivered contemporaneously with this Agreement.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $0.0001 per share, and any other
      class of securities into which such securities may hereafter have been
      reclassified or changed into.

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock.

     

    “Company
      Counsel”
means
      Sichenzia Ross Friedman Ference LLP.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Debentures.

     

    “Conversion
      Shares”
means
      the Underlying Shares.

     

    “Debentures”
means,
      the 7% Convertible Debentures due, subject to the terms therein, to be issued
      by
      the Company to the Purchasers hereunder, in the form of Exhibit
      A.

     

    “Disclosure
      Schedules”
shall
      have the meaning ascribed to such term in Section 3.1.

     

    “Effectiveness
      Date”
shall
      have the meaning set forth in the Registration Rights Agreement.

     

    “Escrow
      Agent”
shall
      have the meaning set forth in the Escrow Agreement.

    


    “Escrow
      Agreement”
shall
      mean the Escrow Agreement in substantially the form of Exhibit
      B
      hereto
      executed and delivered contemporaneously with this Agreement.

    


    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    


    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to any stock or option plan duly adopted
      by a
      majority of the Board of Directors of the Company or a majority of the members
      of a committee of directors established for such purpose, (b) securities upon
      the exercise of or conversion of any Securities issued hereunder, convertible
      securities, options or warrants issued and outstanding on the date of this
      Agreement, provided that such securities have not been amended since the date
      of
      this Agreement to increase the number of such securities or to decrease the
      exercise or conversion price of any such securities, (c) securities issued
      in
      connection with a proposed private placement of shares of common stock of the
      Company not to exceed $50,000 in gross proceeds at an issue price of not less
      than $0.12 per share, and (d) securities issued pursuant to acquisitions or
      strategic transactions, provided any such issuance shall only be to a Person
      which is, itself or through its subsidiaries, an operating company in a business
      synergistic with the business of the Company and in which the Company receives
      benefits in addition to the investment of funds, but shall not include a
      transaction in which the Company is issuing securities primarily for the purpose
      of raising capital or to an entity whose primary business is investing in
      securities; provided none of the foregoing at any time Debentures are
      outstanding, is registered with the Commission.

     

    
      
        
        

      

      
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    “Fully-Diluted
      Outstanding Capital Stock”
means
      the sum of (i) the total number of then issued and outstanding shares of Common
      Stock and all other classes of capital stock of the Company, plus (ii) the
      total
      number of shares of all Common Stock and all other classes of capital stock
      of
      the Company into which all then issued and outstanding and fully-vested Common
      Stock Equivalents and other securities convertible, exchangeable or otherwise
      into other classes of capital stock of the company may be converted,
      exchangeable or otherwise.

    


    “GAAP”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    “GM”
means
      Grushko & Mittman, P.C., with offices located at 551 Fifth Avenue, Suite
      1601, New York, New York 10176.

     

    “Government
      Entity”
shall
      have the meaning ascribed to such term in Section 4.22.

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

    “Liens”
means
      a
      lien, charge, security interest, encumbrance, right of first refusal, preemptive
      right or other restriction. 

     

    “Listing
      Date”
shall
      have the meaning ascribed to such term in Section 4.12(c).

     

    “Material
      Adverse Effect”
shall
      have the meaning assigned to such term in Section 3.1(b).

     

    “Material
      Permits”
shall
      have the meaning ascribed to such term in Section 3.1(m).

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    
      
        
        

      

      
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    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

    “Records”
means
      all documents, books, records and other information (including, without
      limitation, computer programs, tapes, disks, punch cards, data processing
      software and related property and rights) maintained with respect to the
      Company’s business.

    


    “Registration
      Rights Agreement”
shall
      mean the Registration Rights Agreement in substantially the form of Exhibit
      E
      hereto
      executed and delivered contemporaneously with this Agreement.

    


    “Registrable
      Securities”
means
      (i) all of the shares of Common Stock issuable upon conversion in full of the
      Debentures, (ii) any securities issued or issuable upon any stock split,
      dividend or other distribution, recapitalization or similar event with respect
      to the shares identified in clause (i) above and (iii) any additional shares
      issuable in connection with any anti-dilution provisions in the Debentures
      (in
      each case, without giving effect to any limitations on conversion set forth
      in
      the Debenture).

    


    “Registration
      Statement”
means
      a
      registration statement covering the resale of the Registrable
      Securities.

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon conversion in full
      of
      all Debentures, ignoring any conversion or exercise limits set forth therein,
      and assuming that the Conversion Price is at all times on and after the date
      of
      determination 50% of the then Conversion Price on the Business Day immediately
      prior to the date of determination.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    
      
        
        

      

      
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    “Securities”
means
      the Debentures and the Underlying Shares.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder. 

     

    “Security
      Agreement”
means
      the Security Agreement, dated the date hereof, among the Company and the
      Purchasers, in the form of Exhibit
      D
      attached
      hereto.

     

    “Security
      Documents”
shall
      mean the Security Agreement and any other documents and filing required
      thereunder in order to grant the Purchasers a first priority security interest
      in all of the assets of the Company, including all UCC-1 filing
      receipts.

     

    “Subscription
      Amount”
means,
      as to each Purchaser, the aggregate amount
      to be
      paid for Debentures purchased hereunder as specified below such Purchaser’s name
      on the signature page of this Agreement and next to the heading “Subscription
      Amount”, in United States Dollars and in immediately available
      funds.

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.13.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Subsidiary”
means
      any subsidiary of the Company as set forth on Schedule
      3.1(a).

     

    “Trading
      Market”
means,
      as applicable, the following markets or exchanges on which the Common Stock
      is
      listed or quoted for trading on the date in question: the American Stock
      Exchange, the New York Stock Exchange, the Nasdaq National Market, the Nasdaq
      Capital Market or the OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Security Agreement, and any other documents
      or agreements executed in connection with the transactions contemplated
      hereunder.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Debentures.


     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg Financial L.P. (based on a
      Business Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if
      the
      Common Stock is not then listed or quoted on a Trading Market and if prices
      for
      the Common Stock are then reported in the “Pink Sheets” published by the Pink
      Sheets LLC (or a similar organization or agency succeeding to its functions
      of
      reporting prices), the most recent bid price per share of the Common Stock
      so
      reported; or (c) in all other cases, the fair market value of a share of Common
      Stock as determined by an independent appraiser selected in good faith by the
      Purchasers and reasonably acceptable to the Company.

     

    
      
        
        

      

      
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    ARTICLE
      II.  

    PURCHASE
      AND SALE

     

    2.1  Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      concurrent with the execution and delivery of this Agreement by the parties
      hereto, the Company agrees to sell, and each Purchaser agrees to purchase in
      the
      aggregate, severally and not jointly, up to $500,000 principal amount of the
      Debentures. Each Purchaser shall deliver to the Escrow Agent via wire transfer
      for immediately available funds equal to their Subscription Amount and the
      Company shall deliver to each Purchaser its Debenture as determined pursuant
      to
      Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
      Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and
      2.3,
      the Closing shall occur at the offices of GM, or such other location as the
      parties shall mutually agree.

     

    2.2  Deliveries

     

    .

     

    
      	a)  	
              On
                the Closing Date, the Company shall deliver or cause to be delivered
                to
                each Purchaser the following:

            


    

     

    
      	(i)  	
              this
                Agreement duly executed by the
                Company;

            


    

     

    
      	(ii)  	
              a
                legal opinion of Company Counsel, in the form of Exhibit
                C
                attached hereto; 

            


    

     

    
      	(iii)  	
              a
                Debenture with a principal amount equal to such Purchaser’s Subscription
                Amount, registered in the name of such Purchaser;
                

            


    

     

    
      	(iv)  	
              the
                Registration Rights Agreement duly executed by the
                Company;

            


    

     

    
      	(v)  	
              the
                Security Agreement duly executed by the
                Company;

            


    

     

    
      	(vi)  	
              the
                Escrow Agreement duly executed by the Company;
                and

            


    

     

    
      	(vii)  	
              
                the
                  Collateral Agent Agreement duly executed by the
                  Company.

              

            


    

     

    
      	b)  	
              On
                the Closing Date, each Purchaser shall deliver or cause to be delivered
                to
                the Escrow Agent the following: 

            


    

     

    
      	(i)  	
              this
                Agreement duly executed by such
                Purchaser;

            


    

     

    
      	(ii)  	
              such
                Purchaser’s Subscription Amount by wire transfer to the accounts specified
                in the Escrow Agreement;

            


    

     

    
      	(iii) 	
              
                the
                  Security Agreement, duly executed by such
                  Purchaser;

              

            


    

     

    
      
        
        

      

      
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      	(iv) 	
              
                the
                  Registration Rights Agreement duly executed by such
                  Purchaser;

              

            


    

     

    
      	(v)  	
              the
                Escrow Agreement duly executed by such Purchaser;
                and

            


    

     

    
      	(vi) 	
              the
                Collateral Agent Agreement duly executed by such
                Purchaser.

            


    

     

    2.3  Closing
      Conditions. 

     

    
      	a)  	
              The
                obligations of the Company hereunder in connection with the Closing
                are
                subject to the following conditions being
                met:

            


    

     

    
      	(i)  	
              the
                accuracy in all material respects when made and on the Closing Date
                of the
                representations and warranties of the Purchasers contained
                herein;

            


    

     

    
      	(ii)  	
              all
                obligations, covenants and agreements of the Purchasers required
                to be
                performed at or prior to the Closing Date shall have been performed;
                and

            


    

     

    
      	(iii)  	
              the
                delivery by the Purchasers of the items set forth in Section 2.2(b)
                of
                this Agreement.

            


    

     

    
      	b)  	
              The
                respective obligations of the Purchasers hereunder in connection
                with the
                Closing are subject to the following conditions being
                met:

            


    

     

    
      	(i)  	
              the
                accuracy in all material respects on the Closing Date of the
                representations and warranties of the Company contained
                herein;

            


    

     

    
      	(ii)  	
              all
                obligations, covenants and agreements of the Company required to
                be
                performed at or prior to the Closing Date shall have been performed;
                

            


    

     

    
      	(iii)  	
              the
                delivery by the Company of the items set forth in Section 2.2(a)
                of this
                Agreement; 

            


    

     

    
      	(iv)  	
              there
                shall have been no Material Adverse Effect with respect to the Company
                since the date hereof; and

            


    

     

    
      	(v)  	
              from
                the date hereof to the Closing Date, there shall not have been a
                banking
                moratorium declared either by the United States or New York State
                authorities nor shall there have occurred any material outbreak or
                escalation of hostilities or other national or international calamity
                of
                such magnitude in its effect on, or any material adverse change in,
                any
                financial market which, in each case, in the reasonable judgment
                of each
                Purchaser, makes it impracticable or inadvisable to purchase the
                Debentures at the Closing.

            


    

     

    
      
        
        

      

      
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    ARTICLE
      III.  

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company.
      Except
      as set forth under the corresponding section of the disclosure schedules
      delivered to the Purchasers concurrently herewith (the “Disclosure
      Schedules”)
      which
      Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
      the
      representations and warranties set forth below to each Purchaser.

     

    (a)  Subsidiaries.
      All of
      the direct subsidiaries of the Company are set forth on Schedule
      3.1(a).
      The
      Company owns all of the capital stock or other equity interests of each
      Subsidiary free and clear of any Liens, and all the issued and outstanding
      shares of capital stock of each Subsidiary are validly issued and are fully
      paid, non-assessable and free of preemptive and similar rights to subscribe
      for
      or purchase securities. If the Company has no subsidiaries, then references
      in
      the Transaction Documents to the Subsidiaries will be disregarded.

     

    (b)  Organization
      and Qualification.
      The
      Company and each of the Subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own and use its properties and assets and
      to
      carry on its business as currently conducted. Neither the Company nor any
      Subsidiary is in violation or default of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. Each of the Company and the Subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business,
      prospects or financial condition of the Company and the Subsidiaries, taken
      as a
      whole, or (iii) a material adverse effect on the Company’s ability to perform in
      any material respect on a timely basis its obligations under any Transaction
      Document (any of (i), (ii) or (iii), a “Material
      Adverse Effect”)
      and no
      Proceeding has been instituted in any such jurisdiction revoking, limiting
      or
      curtailing or seeking to revoke, limit or curtail such power and authority
      or
      qualification.

     

    (c)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company. Each Transaction
      Document has been (or upon delivery will have been) duly executed by the Company
      and, when delivered in accordance with the terms hereof, will constitute the
      valid and binding obligation of the Company enforceable against the Company
      in
      accordance with its terms except (i) as limited by applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally and (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies.

     

    
      
        
        

      

      
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    (d)  No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the other transactions contemplated
      thereby do not and will not: (i) conflict with or violate any provision of
      the
      Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
      or other organizational or charter documents, or (ii) conflict with, or
      constitute a default (or an event that with notice or lapse of time or both
      would become a default) under, result in the creation of any Lien upon any
      of
      the properties or assets of the Company or any Subsidiary, or give to others
      any
      rights of termination, amendment, acceleration or cancellation (with or without
      notice, lapse of time or both) of, any agreement, credit facility, debt or
      other
      instrument (evidencing a Company or Subsidiary debt or otherwise) or other
      understanding to which the Company or any Subsidiary is a party or by which
      any
      property or asset of the Company or any Subsidiary is bound or affected, or
      (iii) conflict with or result in a violation of any law, rule, regulation,
      order, judgment, injunction, decree or other restriction of any court or
      governmental authority to which the Company or a Subsidiary is subject
      (including federal and state securities laws and regulations), or by which
      any
      property or asset of the Company or a Subsidiary is bound or affected; except
      in
      the case of each of clauses (ii) and (iii), such as could not have or reasonably
      be expected to result in a Material Adverse Effect.

     

    (e)  Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents.

     

    (f)  Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Underlying Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company. The Company has reserved from its duly
      authorized capital stock a number of shares of Common Stock for issuance of
      the
      Underlying Shares at least equal to the Required Minimum on the date hereof.
      

     

    (g)  Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      3.1(g).
      No
      Person has any right of first refusal, preemptive right, right of participation,
      or any similar right to participate in the transactions contemplated by the
      Transaction Documents. Except as a result of the purchase and sale of the
      Securities or as set forth on Schedule
      3.1(g),
      there
      are no outstanding options, warrants, script rights to subscribe to, calls
      or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or exchangeable for, or giving any Person any
      right
      to subscribe for or acquire, any shares of Common Stock, or contracts,
      commitments, understandings or arrangements by which the Company or any
      Subsidiary is or may become bound to issue additional shares of Common Stock
      or
      Common Stock Equivalents. The issuance and sale of the Securities will not
      obligate the Company to issue shares of Common Stock or other securities to
      any
      Person (other than the Purchasers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under such securities. All of the outstanding shares of capital stock
      of
      the Company are validly issued, fully paid and nonassessable, have been issued
      in compliance with all federal and state securities laws, and none of such
      outstanding shares was issued in violation of any preemptive rights or similar
      rights to subscribe for or purchase securities. No further approval or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Securities. Except as
      disclosed in Schedule
      3.1(g),
      there
      are no stockholders agreements, voting agreements or other similar agreements
      with respect to the Company’s capital stock to which the Company is a party or,
      to the knowledge of the Company, between or among any of the Company’s
      stockholders. A complete list of stockholders of record, with their
      shareholdings as of March 1, 2006, and the Closing Date, is included in
Schedule
      3.1(g).

     

    
      
        
        

      

      
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    (h)  Financial
      Statements.
      The
      unaudited financial statements of the Company for the fiscal year ended December
      31, 2005 and unaudited statements as of February 28, 2006, are attached hereto
      as Schedule
      3.1(h).
      Such
      financial statements fairly present in all material respects the financial
      position of the Company and its consolidated subsidiaries, if any, as of and
      for
      the dates thereof and the results of operations and cash flows for the periods
      then ended, subject to normal, immaterial adjustments.

     

    (i)  Material
      Changes.
      Since
      the date of the Company’s most recent financial statements, attached hereto as
Schedule
      3.1(h),
      (i)
      there has been no event, occurrence or development that has had or that could
      reasonably be expected to result in a Material Adverse Effect, (ii) the Company
      has not incurred any liabilities (contingent or otherwise) other than (A) trade
      payables and accrued expenses incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company’s financial statements pursuant to GAAP, (iii) the Company has
      not altered its method of accounting, (iv) the Company has not declared or
      made
      any dividend or distribution of cash or other property to its stockholders
      or
      purchased, redeemed or made any agreements to purchase or redeem any shares
      of
      its capital stock and (v) the Company has not issued any equity securities
      to
      any officer, director or Affiliate, except pursuant to existing Company stock
      option plans. 

     

    (j)  Litigation.
      There
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company, any Subsidiary or any of their respective properties before or by
      any
      court, arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or has been the subject of any Action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. There has not been, and to the knowledge of the
      Company, there is not pending or contemplated, any investigation by the
      Commission involving the Company or any current or former director or officer
      of
      the Company. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect.

     

    (l)  Compliance.
      Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its business
      except in each case as could not have a Material Adverse Effect.

     

    (m)  Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as listed on
Schedule
      3.1(m),
      except
      where the failure to possess such permits could not have or reasonably be
      expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    (n)  Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all personal property owned
      by
      them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases of which the Company
      and the Subsidiaries are in compliance in all material respects.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (o)  Intellectual
      Property.

     

    (i)  The
      term
“Intellectual
      Property Rights”
      includes:

     

    
      	1.  	
              the
                name of the Company, all fictional business names, trading names,
                registered and unregistered trademarks, service marks, and applications
                (collectively, “Marks'');

            


    

     

    
      	2.  	
              all
                patents, patent applications, and inventions and discoveries that
                may be
                patentable (collectively, “Patents'');

            


    

     

    
      	3.  	
              all
                copyrights in both published works and published works (collectively,
                “Copyrights”);
                

            


    

     

    
      	4.  	
              all
                rights in mask works (collectively, “Rights
                in Mask Works'');
                and

            


    

     

    
      	5.  	
              all
                know-how, trade secrets, confidential information, customer lists,
                software, technical information, data, process technology, plans,
                drawings, and blue prints (collectively, “Trade
                Secrets'');
                owned, used, or licensed by the Company as licensee or
                licensor.

            


    

     

    (ii)  Agreements.
      Schedule
      3.1(o)
      contains
      a complete and accurate list and summary description including any royalties
      paid or received by the Company, of all contracts relating to the Intellectual
      Property Rights to which the Company is a party or by which the Company is
      bound, except for any license implied by the sale of a product and perpetual,
      paid-up licenses for commonly available software programs with a value of less
      than $10,000 under which the Company is the licensee. There are no outstanding
      and, to Company’s knowledge, no threatened disputes or disagreements with
      respect to any such agreement.

     

    (iii)  Know-How
      Necessary for the Business.
      The
      Intellectual Property Rights are all those necessary for the operation of the
      Company’s businesses as it is currently conducted or as reflected in the
      business plan given to the Purchaser. The Company is the owner of all right,
      title, and interest in and to each of the Intellectual Property Rights, free
      and
      clear of all liens, security interests, charges, encumbrances, equities, and
      other adverse claims, and has the right to use without payment to a third party
      all of the Intellectual Property Rights. Except as set forth in Schedule
      3.1(o),
      all
      former and current employees of the Company have executed written contracts
      with
      the Company that assign to the Company all rights to any inventions,
      improvements, discoveries, or information relating to the business of the
      Company. To the Company’s knowledge, no employee of the Company has entered into
      any contract that restricts or limits in any way the scope or type of work
      in
      which the employee may be engaged or requires the employee to transfer, assign,
      or disclose information concerning his work to anyone other than of the
      Company.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (iv)  Know-How
      Necessary for the Business.
      Schedule
      3.1(o)
      contains
      a complete and accurate list and summary description of all Patents. The Company
      is the owner of all right, title and interest in and to each of the Patents,
      free and clear of all liens, security interests, charges, encumbrances,
      entities, and other adverse claims. All of the issued Patents are currently
      in
      compliance with formal legal requirements (including payment of filing,
      examination, and maintenance fees and proofs of working or use), are valid
      and
      enforceable, and are not subject to any maintenance fees or taxes or actions
      falling due within ninety days after the Closing Date. No patent has been or
      is
      now involved in any interference, reissue, reexamination, or opposition
      proceeding. To the Company’s knowledge, there is no potentially interfering
      patent or patent application of any third party. No Patent is infringed or,
      to
      the Company’s knowledge, has been challenged or threatened in any way. To the
      Company’s knowledge, none of the products manufactured and sold, nor any process
      or know-how used, by the Company infringes or is alleged to infringe any patent
      or other proprietary right of any other Person. All products made, used, or
      sold
      under the Patents have been marked with the proper patent notice.

     

    (v)  Trademarks.
      Schedule
      3.1(o)
      contains
      a complete and accurate list and summary description of all Marks. The Company
      is the owner of all right, title, and interest in and to each of the Marks,
      free
      and clear of all liens, security interests. charges, encumbrances, equities,
      and
      other adverse claims. All Marks that have been registered with the United States
      Patent and Trademark Office are currently in compliance with all formal legal
      requirements (including the timely post-registration tiling of affidavits of
      use
      and incontestability and renewal applications), are valid and enforceable,
      and
      are not subject to any maintenance fees or taxes or actions falling due within
      ninety days after the Closing Date. No Mark has been or is now involved in
      any
      opposition, invalidation, or cancellation and, to the Company’s knowledge, no
      such action is threatened with respect to any of the Marks. To the Company’s
      knowledge, there is no potentially interfering trademark or trademark
      application of any third party. No Mark is infringed or, to the Company’s
      knowledge, has been challenged or threatened in any way. To the Company’s
      knowledge, none of the Marks used by the Company infringes or is alleged to
      infringe any trade name, trademark, or service mark of any third party. All
      products and materials containing a Mark bear the proper federal registration
      notice where permitted by law.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (vi)  Copyrights.
      Schedule
      3.1(o)
      contains
      a complete and accurate list and summary description of all Copyrights. The
      Company is the owner of all right, title, and interest in and to each of the
      Copyrights, free and clear of all liens, security interests, charges,
      encumbrances, equities, and other adverse claims. All the Copyrights have been
      registered and are currently in compliance with formal requirements, are valid
      and enforceable, and are not subject to any maintenance fees or taxes or actions
      falling due within one year after the date of Closing. No Copyright is infringed
      or, to the Company’s knowledge, has been challenged or threatened in any way. To
      the Company’s knowledge, none of the subject matter of any of the Copyrights
      infringes or is alleged to infringe any copyright of any third party or is
      a
      derivative work based on the work of a third party. All works encompassed by
      the
      Copyrights have been marked with the proper copyright notice.

     

    (vii)  Trade
      Secrets.
      With
      respect to each Trade Secret, the documentation relating to such Trade Secret
      is
      current, accurate, and sufficient in detail and content to identify and explain
      it and to allow its full and proper use without reliance on the knowledge or
      memory of any individual. The Company has taken all reasonable precautions
      to
      protect the secrecy, confidentiality, and value of its Trade Secrets. The
      Company has good title and an absolute (but not necessarily exclusive) right
      to
      use the Trade Secrets. The Trade Secrets are not part of the public knowledge
      or
      literature, and, to the Company’s knowledge, have not been used, divulged, or
      appropriated either for the benefit of any Person (other the Company) or to
      the
      detriment of the Company. No Trade Secret is subject to any adverse claim or
      has
      been challenged or threatened in any way.

     

    (p)  [INTENTIONALLY
      OMITTED]

     

    (q)  Transactions
      With Affiliates and Employees.
      Except
      as set forth in Schedule
      3.1(q),
      none of
      the officers or directors of the Company and, to the knowledge of the Company,
      none of the employees of the Company are presently a party to any transaction
      with the Company or any Subsidiary (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
      entity in which any officer, director, or any such employee has a substantial
      interest or is an officer, director, trustee or partner, in each case in excess
      of $10,000.

     

    (r)  Internal
      Accounting Controls.
      The
      Company and the Subsidiaries maintain a system of internal accounting controls
      which the Company believes is 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 GAAP 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..

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (s)  Certain
      Fees.
      Except
      as set forth on Schedule
      3.1(s),
      no
      brokerage or finder’s fees or commissions are or will be payable by the Company
      to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by this Agreement. The Purchasers shall have no obligation with
      respect to any fees or with respect to any claims made by or on behalf of other
      Persons for fees of a type contemplated in this Section that may be due in
      connection with the transactions contemplated by this Agreement. 

     

    (t)  Private
      Placement.
      Assuming the accuracy of the Purchasers representations and warranties set
      forth
      in Section 3.2, no registration under the Securities Act is required for the
      offer and sale of the Securities by the Company to the Purchasers as
      contemplated hereby. 

     

    (u)  Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an Affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act.

     

    (v)  Registration
      Rights.
      Except
      for the Purchasers, and as set forth in Schedule 3.1(t) hereto, no Person has
      any right to cause the Company to effect the registration under the Securities
      Act of any securities of the Company.

     

    (w)  Application
      of Takeover Protections.
      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 Company’s Certificate of
      Incorporation (or similar charter documents) or the laws of its state of
      incorporation that is or could become applicable to the Purchasers as a result
      of the Purchasers and the Company fulfilling their obligations or exercising
      their rights under the Transaction Documents, including without limitation
      as a
      result of the Company’s issuance of the Securities and the Purchasers’ ownership
      of the Securities.

     

    (x)  Disclosure.
      The
      Company understands and confirms that the Purchasers will rely on the foregoing
      representations and covenants in effecting transactions in securities of the
      Company. All disclosure provided to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, furnished by or on behalf of the Company with
      respect to the representations and warranties made herein are true and correct
      with respect to such representations and warranties and do 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 light of the circumstances
      under which they were made, not misleading. The Company acknowledges and agrees
      that no Purchaser makes or has made any representations or warranties with
      respect to the transactions contemplated hereby other than those specifically
      set forth in Section 3.2 hereof.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (y)  No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, neither the Company, nor any of its affiliates, nor any Person
      acting on its or their behalf has, directly or indirectly, made any offers
      or
      sales of any security or solicited any offers to buy any security, under
      circumstances that would cause this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provisions.

     

    (z)  Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the Company’s fair saleable value of its assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business for the current fiscal
      year
      as now conducted and as proposed to be conducted including its capital needs
      taking into account the particular capital requirements of the business
      conducted by the Company, and projected capital requirements and capital
      availability thereof; and (iii) the current cash flow of the Company, together
      with the proceeds the Company would receive, were it to liquidate all of its
      assets, after taking into account all anticipated uses of the cash, would be
      sufficient to pay all amounts on or in respect of its debt when such amounts
      are
      required to be paid. The Company does not intend to incur debts beyond its
      ability to pay such debts as they mature (taking into account the timing and
      amounts of cash to be payable on or in respect of its debt). 

     

    (aa)  Tax
      Status.
      Except
      for matters that would not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect, the Company and each
      Subsidiary has filed all necessary federal, state and foreign income and
      franchise tax returns and has paid or accrued all taxes shown as due thereon,
      and the Company has no knowledge of a tax deficiency which has been asserted
      or
      threatened against the Company or any Subsidiary.

     

    (bb)  No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation or general
      advertising. The Company has offered the Securities for sale only to the
      Purchasers and certain other “accredited investors” within the meaning of Rule
      501 under the Securities Act.

     

    (cc)  Foreign
      Corrupt Practices.
      Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any funds
      for unlawful contributions, gifts, entertainment or other unlawful expenses
      related to foreign or domestic political activity, (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic political parties or campaigns from corporate funds, (iii)
      failed to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in violation
      of law, or (iv) violated in any material respect any provision of the Foreign
      Corrupt Practices Act of 1977, as amended.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (dd)  Accountants.
      The
      Company’s accountants are set forth on Schedule
      3.1(dd)
      of the
      Disclosure Schedule. 

     

    (ee)  Indebtedness
      and Seniority.
      As of
      the date hereof, all indebtedness and liens of the Company are as set forth
      on
Schedule
      3.1(ee).
      As of
      the Closing Date, no indebtedness or other equity of the Company is senior
      to
      the Debentures in right of payment, whether with respect to interest or upon
      liquidation or dissolution, or otherwise, other than indebtedness secured by
      purchase money security interests (which is senior only as to underlying assets
      covered thereby) and capital lease obligations (which is senior only as to
      the
      property covered thereby).

     

    (ff)  No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the accountants and lawyers formerly or
      presently employed by the Company and the Company is current with respect to
      any
      fees owed to its accountants and lawyers.

     

    (gg)  Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated hereby. The Company further
      acknowledges that no Purchaser 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 advice given by any Purchaser or any
      of
      their respective representatives or agents in connection with this Agreement
      and
      the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities. The Company further represents to each Purchaser
      that the Company’s decision to enter into this Agreement has been based solely
      on the independent evaluation of the transactions contemplated hereby by the
      Company and its representatives.

     

    (hh)  Manufacturing
      and Marketing Rights.
      The
      Company has not granted rights to manufacture, produce, assemble, license,
      market, or sell its products to any other Person and is not bound by any
      agreement that affects the Company’s exclusive right to develop, manufacture,
      assemble, distribute, market or sell its products.

     

    (ii)  Employees.
      The
      Company has no collective bargaining agreements with any of its employees.
      There
      is no labor union organizing activity pending or, to the Company’s knowledge,
      threatened with respect to the Company. Except as set forth on Schedule
      3.1(ii),
      the
      Company is not a party to or bound by any currently effective employment
      contract, deferred compensation arrangement, bonus plan, incentive plan, profit
      sharing plan, retirement agreement or other employee compensation plan or
      agreement. To the Company’s knowledge, no employee of the Company, nor any
      consultant with whom the Company has contracted, is in violation of any term
      of
      any employment contract, proprietary information agreement or any other
      agreement relating to the right of any such individual to be employed by, or
      to
      contract with, the Company because of the nature of the business to be conducted
      by the Company; and to the Company’s knowledge the continued employment by the
      Company of its present employees, and the performance of the Company’s contracts
      with its independent contractors, will not result in any such violation. The
      Company has not received any notice alleging that any such violation has
      occurred. No employee of the Company has been granted the right to continued
      employment by the Company or to any material compensation following termination
      of employment with the Company. The Company is not aware that any officer,
      key
      employee or group of employees intends to terminate his, her or their employment
      with the Company nor does the Company have a present intention to terminate
      the
      employment of any officer, key employee or group of employees.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (jj)  Obligations
      of Management.
      The
      Company’s Chief Executive Officer, Isidore Sobkowski, is currently devoting
      substantially all of his business time to the conduct of business of the
      Company. The Company is not aware that Isidore Sobkowski is planning to work
      less than full time at the Company in the future. No officer or key employee
      is
      the currently working or, to the Company’s knowledge, plans to work for a
      competitive enterprise, whether or not such officer of key employee is or will
      be compensated by such enterprise.

     

    (kk)  Environmental
      and Safety Laws.
      Except
      as set forth in Schedule
      3.1(kk):

     

    (i)  The
      Company is, and at all times has been, in full compliance with, and has not
      been
      and is not in violation of or liable under, any Environmental Law. The Company
      has no basis to expect, nor has it or any other Person for whose conduct it
      is
      or may be held to be responsible received, any actual or threatened order,
      notice, or other communication from (i) any governmental body or private citizen
      acting in the public interest, or (ii) the current or prior owner or operator
      of
      any facilities, of any actual or potential violation or failure to comply with
      any Environmental Law, or of any actual or threatened obligation to undertake
      or
      bear the cost of any environmental, health, and safety liabilities with respect
      to any of the facilities or any other properties or assets (whether real,
      personal, or mixed) in which the Company has had an interest, or with respect
      to
      any property or facility at or to which Hazardous Materials were generated,
      manufactured, refined, transferred, imported, used, or processed by the Company,
      or any other Person for whose conduct it are or may be held responsible, or
      from
      which Hazardous Materials have been transported, treated, stored, handled,
      transferred, disposed, recycled, or received. 

     

    (ii)  There
      are
      no pending or, to the knowledge of the Company, threatened claims, encumbrances,
      or other restrictions of any nature, resulting from any environmental, health,
      and safety liabilities or arising under or pursuant to any Environmental Law,
      with respect to or affecting any of the facilities or any other properties
      and
      assets (whether real, personal, or mixed) in which the Company has or had an
      interest. 

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (iii)  The
      Company has no knowledge of any basis to expect, nor has it or any other Person
      for whose conduct it is or may be held responsible, received, any citation,
      directive, inquiry, notice, order, summons, warning, or other communication
      that
      relates to Hazardous Materials, or any alleged, actual, or potential violation
      or failure to comply with any Environmental Law, or of any alleged, actual,
      or
      potential obligation to undertake or bear the cost of any environmental, health,
      and safety liabilities with respect to any of the facilities or any other
      properties or assets (whether real, personal, or mixed) in which the Company
      had
      an interest, or with respect to any property or facility to which Hazardous
      Materials generated, manufactured, refined, transferred, imported, used, or
      processed by the Company, or any other Person for whose conduct it is or may
      be
      held responsible, have been transported, treated, stored, handled, transferred,
      disposed, recycled, or received.

     

    (iv)  Neither
      the Company nor any other Person for whose conduct it is or may be held
      responsible, had any environmental, health, and safety liabilities with respect
      to the facilities or, to the knowledge of the Company, with respect to any
      other
      properties and assets (whether real, personal, or mixed) in which the Company
      (or any predecessor), has or had an interest, or at any property geologically
      or
      hydrologically adjoining the facilities or any such other property or
      assets.

     

    (v)  There
      are
      no Hazardous Materials present on or in the environment at the facilities or
      at
      any geologically or hydrologically adjoining property, including any Hazardous
      Materials contained in barrels, above or underground storage tanks, landfills,
      land deposits, dumps, equipment (whether moveable or fixed) or other containers,
      either temporary or permanent, and deposited or located in land, water, sumps,
      or any other part of the facilities or such adjoining property, or incorporated
      into any structure therein or thereon. Neither the Company nor any other Person
      for whose conduct it is or may be held responsible, or to the knowledge of
      the
      Company, any other Person, has permitted or conducted, or is aware of, any
      hazardous activity conducted with respect to the facilities or any other
      properties or assets (whether real, personal, or mixed) in which the Company
      has
      or had an interest except in full compliance with all applicable Environmental
      Laws. 

     

    
      
        
        

      

      
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    (vi)  There
      has
      been no release or, to the knowledge of the Company, threat of release, of
      any
      Hazardous Materials at or from the facilities or at any other locations where
      any Hazardous Materials were generated, manufactured, refined, transferred,
      produced, imported, used, or processed from or by the facilities, or from or
      by
      any other properties and assets (whether real, personal, or mixed) in which
      the
      Company has or had an interest, or to the knowledge of the Company any
      geologically or hydrologically adjoining property, whether by the Company,
      or
      any other Person.

     

    (vii)  The
      Company has delivered to the Purchasers true and complete copies and results
      of
      any reports, studies, analyses, tests, or monitoring possessed or initiated
      by
      the Company pertaining to Hazardous Materials in, on, or under the facilities,
      or concerning compliance by the Company, or any other Person for whose conduct
      they are or may be held responsible, with Environmental Laws.

     

    (viii)  For
      the
      purpose of this Section, Hazardous Material shall mean (i) materials which
      are
      listed or otherwise defined as “hazardous” or “toxic” under any applicable
      federal, local or stated and/or foreign laws and regulations that govern the
      existence and/or remedy of contamination on property, the protection of the
      environment from contamination, the control of the hazardous wastes, or other
      activities involving hazardous substances, including building materials or
      (b)
      petroleum products or nuclear materials.

     

    (ix)  For
      the
      purpose of this Section 3.1(kk), “Environmental Law” shall have the following
      meaning:

     

    
      	1.  	
              advising
                appropriate authorities, employees, and the public intended or actual
                releases of pollutants or hazardous substances or material, violations
                of
                discharge limits, or other prohibitions and of the commencements
                of
                activities, such as resource extraction or construction, that could
                have
                significant impact on the
                environment;

            


    

     

    
      	2.  	
              preventing
                or reducing to acceptable levels the release of pollutants or hazardous
                substances or materials into the
                environment;

            


    

     

    
      	3.  	
              reducing
                the quantities, preventing the release, or minimizing the hazardous
                characterics of waste that are
                generated;

            


    

     

    
      	4.  	
              assuring
                that products are designed, formulated, packaged, and used so that
                they do
                not present unreasonable risks to human health or the environment
                when
                used or disposed of;

            


    

     

    
      	5.  	
              protecting
                resources, species or ecological
                amenities;

            


    

     

    
      	6.  	
              reducing
                to acceptable levels the risk inherent in the transportation of hazardous
                substances, pollutants, oil or other potentially harmful
                substances;

            


    

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    
      	7.  	
              cleaning
                up pollutants that have been released, preventing the threat of release
                or
                paying the costs of such clean up or prevention;
                or

            


    

     

    
      	8.  	
              making
                responsible parties pay private parties, or groups of them, for damages
                done to their health or to the environment, or permitting self appointed
                representatives of the public interest to recover for injuries done
                to
                public assets.

            


    

     

    (ll)  Minute
      Books.
      The
      minute books of the Company made available to the Purchasers contain a complete
      summary of all meetings of directors and stockholders since the time of
      incorporation.

     

    (mm)  Elections.
      To the
      Company’s knowledge, all elections and notices permitted by Section 83(b) of the
      Code and any analogous provisions of applicable state tax laws have been timely
      filed by all employees who have purchased shares of the Common Stock under
      agreements that provide for the vesting of such shares of Common
      Stock.

     

    (nn)  Accounts
      Receivable.
      All
      accounts receivable of the Company and its Subsidiaries that are reflected
      on
      the Company’s balance sheet or interim balance sheet or on the accounting
      records of the Company and its Subsidiaries as of the Closing Date
      (collectively, the “Accounts
      Receivable”)
      represent or will represent valid obligations arising from sales actually made
      or services actually performed in the ordinary course of business. Unless paid
      prior to the Closing Date, the Accounts Receivable are or will be as of the
      Closing Date current and collectible net of the respective reserves shown on
      the
      balance sheet or interim balance sheet or on the accounting records of the
      Company and its Subsidiaries as of the Closing Date (which reserves are adequate
      and calculated consistent with past practice and, in the case of the reserve
      as
      of the Closing Date, will not represent a greater percentage of the Accounts
      Receivable as of the Closing Date than the reserve reflected in the interim
      balance sheet represented of the Accounts Receivable reflected therein and
      will
      not represent a material adverse change in the composition of such Accounts
      Receivable in terms of aging). Subject to such reserves, each of the Accounts
      Receivable either has been or will be collected in full without any set-off,
      within ninety days after the day on which it must becomes due and payable.
      There
      is no contest, claim, or right of set-off, other than returns in the ordinary
      course of business, under any agreement and/or contract with any obligor of
      an
      Accounts Receivable relating to the amount or validity of such Accounts
      Receivable. Schedule
      3.1(nn)
      contains
      a complete and accurate list of all Accounts Receivable as of the date of the
      interim balance sheet, which list sets forth the aging of such Accounts
      Receivable.

     

    (oo)  Inventory.
      All
      inventory of the Company and the Subsidiaries, whether or not reflected in
      the
      balance sheet or interim balance sheet, consists of a quality and quantity
      usable and salable in the ordinary course of business, except for obsolete
      items
      and items of below standard quality, all of which have been written off or
      written down to net realizable value in the balance sheet or interim balance
      sheet or on the accounting records of the Company and the Subsidiaries as of
      the
      Closing Date, as the case may be. All inventories not written off have been
      priced at the lower of cost or market on the last in, first out basis. The
      quantities of each item of inventory (whether raw materials, work-in-process,
      or
      finished goods) are not excessive, but are reasonable in the present
      circumstances of the Company and the Subsidiaries.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (pp)  Employee
      Benefits: 
      Except as set forth on Schedule
      3.1(pp),
      the
      Company has no plans which are subject to ERISA.   “ERISA”
means
      the Employee Retirement Income Security Act of 1974 or any successor law, and
      regulations and rules issued pursuant to that Act or any successor
      law.

     

    (qq)  Returns
      and Complaints.
      The
      Company has received no customer complaints concerning its products and/or
      services, nor has it had any of its products returned by a purchaser thereof,
      other than minor, nonrecurring warranty or similar problems. 

     

    (rr)  Material
      Agreements.
      Schedule
      3.1(rr)
      sets
      forth all agreements of the Company that would otherwise be required to be
      filed
      with the Commission pursuant to the Exchange Act, if the Company were subject
      to
      the reporting requirements of the Exchange Act.

     

    (ss)  Subsidiary
      Representations.
      All of
      the representations, warranties and disclosure described in Article III of
      this
      Agreement are hereby made by the Company with respect to each of the
      Subsidiaries. All such disclosure is made on the Schedules hereto with respect
      to the Subsidiaries.

     

    3.2  Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      as of the date hereof and as of the Closing Date to the Company as
      follows:

     

    (a)  Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with full right,
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations thereunder. The execution, delivery and performance by
      such
      Purchaser of the transactions contemplated by this Agreement have been duly
      authorized by all necessary corporate or similar action on the part of such
      Purchaser. Each Transaction Document to which it is a party has been duly
      executed by such Purchaser, and when delivered by such Purchaser in accordance
      with the terms hereof, will constitute the valid and legally binding obligation
      of such Purchaser, enforceable against it in accordance with its terms, except
      (i) as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (b)  Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no arrangement or understanding with any other persons regarding the
      distribution of such Securities (this representation and warranty not limiting
      such Purchaser’s right to sell the Securities pursuant to the Registration
      Statement or otherwise in compliance with applicable federal and state
      securities laws) in violation of the Securities Act or any applicable state
      securities law. Such Purchaser is acquiring the Securities hereunder in the
      ordinary course of its business. Such Purchaser does not have any agreement
      or
      understanding, directly or indirectly, with any Person to distribute any of
      the
      Securities.

     

    (c)  Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it converts any Debentures it will be either:
      (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
      (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional
      buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is
      not required to be registered as a broker-dealer under Section 15 of the
      Exchange Act.

     

    (d)  Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    (e)  General
      Solicitation.
      Such
      Purchaser 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 or any other general solicitation or general
      advertisement.

     

    The
      Purchasers acknowledge that the Company will be relying on the foregoing
      representations and warranties in making a determination as to the availability
      of federal and state securities laws exemptions. The Company acknowledges and
      agrees that each Purchaser does not make or has not made any representations
      or
      warranties with respect to the transactions contemplated hereby other than
      those
      specifically set forth in this Section 3.2.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    
ARTICLE
      IV.  

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

    (a)  The
      Securities may only be disposed of in compliance with state and federal
      securities laws. In connection with any transfer of Securities other than
      pursuant to an effective registration statement or Rule 144, to the Company
      or
      to an affiliate of a Purchaser or in connection with a pledge as contemplated
      in
      Section 4.1(b), the Company may require the transferor thereof to provide to
      the
      Company an opinion of counsel selected by the transferor and reasonably
      acceptable to the Company, the form and substance of which opinion shall be
      reasonably satisfactory to the Company, to the effect that such transfer does
      not require registration of such transferred Securities under the Securities
      Act. As a condition of transfer, any such transferee shall agree in writing
      to
      be bound by the terms of this Agreement and shall have the rights of a Purchaser
      under this Agreement.

     

    (b)  The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1(b), of a legend on any of the Securities in the following form:

     

    [NEITHER]
      THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
      CONVERTIBLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR
      THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
      SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
      OTHER
      LOAN SECURED BY SUCH SECURITIES.

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and, if required under the terms of such arrangement, such Purchaser may
      transfer pledged or secured Securities to the pledgees or secured parties.
      Such
      a pledge or transfer would not be subject to approval of the Company and no
      legal opinion of legal counsel of the pledgee, secured party or pledgor shall
      be
      required in connection therewith. Further, no notice shall be required of such
      pledge. At the appropriate Purchaser’s expense, the Company will execute and
      deliver such reasonable documentation as a pledgee or secured party of
      Securities may reasonably request in connection with a pledge or transfer of
      the
      Securities.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (c)  Certificates
      evidencing the Underlying Shares shall not contain any legend (including the
      legend set forth in Section 4.1(b) hereof): (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such
      Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
      are
      eligible for sale under Rule 144(k), or (iv) if such legend is not required
      under applicable requirements of the Securities Act (including judicial
      interpretations and pronouncements issued by the staff of the Commission).
      The
      Company shall cause its counsel to issue a legal opinion to the Company’s
      transfer agent promptly after the Effectiveness Date if required by the
      Company’s transfer agent to effect the removal of the legend hereunder. If all
      or any portion of a Debenture is converted at a time when there is an effective
      registration statement to cover the resale of the Underlying Shares, or if
      such
      Underlying Shares may be sold under Rule 144(k) or if such legend is not
      otherwise required under applicable requirements of the Securities Act
      (including judicial interpretations thereof) then such Underlying Shares shall
      be issued free of all legends. The Company agrees that following the
      Effectiveness Date or at such time as such legend is no longer required under
      this Section 4.1(c), it will, no later than three Business Days following the
      delivery by a Purchaser to the Company or the Company’s transfer agent of a
      certificate representing Underlying Shares, as applicable, issued with a
      restrictive legend (such third Business Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Purchaser a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to any transfer agent
      of the Company that enlarge the restrictions on transfer set forth in this
      Section. Certificates for Securities subject to legend removal hereunder shall
      be transmitted by the transfer agent of the Company to the Purchasers by
      crediting the account of the Purchaser’s prime broker with the Depository Trust
      Company System.

    


    (d)  If
      after
      the date hereof the Company becomes subject to the reporting requirements of
      the
      Exchange Act, in addition to such Purchaser’s other available remedies, the
      Company shall pay to a Purchaser, in cash, as partial liquidated damages and
      not
      as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the
      Common Stock on the date such Securities are submitted to the Company’s transfer
      agent) delivered for removal of the restrictive legend and subject to Section
      4.1(c), $10 per Business Day (increasing to $20 per Business Day 5 Business
      Days
      after such damages have begun to accrue) for each Business Day after the Legend
      Removal Date until such certificate is delivered without a legend. Nothing
      herein shall limit such Purchaser’s right to pursue actual damages for the
      Company’s failure to deliver certificates representing any Securities as
      required by the Transaction Documents, and such Purchaser shall have the right
      to pursue all remedies available to it at law or in equity including, without
      limitation, a decree of specific performance and/or injunctive
      relief.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser has sold or will imminently sell any Securities pursuant to either
      the
      registration requirements of the Securities Act, including compliance with
      any
      applicable prospectus delivery requirements, or an exemption
      therefrom.

     

    4.2  Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligations under the Transaction Documents, including without limitation its
      obligation to issue the Underlying Shares pursuant to the Transaction Documents,
      are unconditional and absolute and not subject to any right of set off,
      counterclaim, delay or reduction, regardless of the effect of any such dilution
      or any claim the Company may have against any Purchaser and regardless of the
      dilutive effect that such issuance may have on the ownership of the other
      stockholders of the Company.

     

    4.3  Furnishing
      of Information.
      If
      after the date hereof the Company becomes subject to the reporting requirements
      of the Exchange Act and as long as any Purchaser owns Securities, the Company
      covenants to timely file (or obtain extensions in respect thereof and file
      within the applicable grace period) all reports required to be filed by the
      Company after the date hereof pursuant to the Exchange Act. As long as any
      Purchaser owns Securities and the Company is subject to the reporting
      requirement of the Exchange Act, it will prepare and furnish to the Purchasers
      and make publicly available in accordance with Rule 144(c) such information
      as
      is required for the Purchasers to sell the Securities under Rule 144. As long
      as
      any Purchaser owns Securities and the Company is subject to the reporting
      requirement of the Exchange Act, the Company further covenants that it will
      take
      such further action as any holder of Securities may reasonably request, all
      to
      the extent required from time to time to enable such Person to sell such
      Securities without registration under the Securities Act within the limitation
      of the exemptions provided by Rule 144.

     

    4.4  Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market.

     

    4.5  Conversion
      and Exercise Procedures.
      The
      form of Notice of Conversion included in the Debentures set
      forth
      the totality of the procedures required of the Purchasers in order to convert
      the Debentures. No additional legal opinion or other information or instructions
      shall be required of the Purchasers to convert their Debentures. The Company
      shall honor conversions of the Debentures and shall deliver Underlying Shares
      in
      accordance with the terms, conditions and time periods set forth in the
      Transaction Documents.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    4.6  Securities
      Laws Disclosure; Publicity.
      The
      Company and each Purchaser shall consult with each other in issuing any other
      press releases with respect to the transactions contemplated hereby, and neither
      the Company nor any Purchaser shall issue any such press release or otherwise
      make any such public statement without the prior consent of the Company, with
      respect to any press release of any Purchaser, or without the prior consent
      of
      each Purchaser, with respect to any press release of the Company, which consent
      shall not unreasonably be withheld, except if such disclosure is required by
      law, in which case the disclosing party shall promptly provide the other party
      with prior notice of such public statement or communication. Notwithstanding
      the
      foregoing, the Company shall not publicly disclose the name of any Purchaser,
      or
      include the name of any Purchaser in any filing with the Commission or any
      regulatory agency or Trading Market, without the prior written consent of such
      Purchaser, except (i) as required by federal securities law in connection with
      the registration statement contemplated by a Registration Statement and (ii)
      to
      the extent such disclosure is required by law or Trading Market regulations,
      in
      which case the Company shall provide the Purchasers with prior notice of such
      disclosure permitted under subclause (i) or (ii).

     

    4.7  Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, to the knowledge of the
      Company, any other Person that any Purchaser is an “Acquiring Person” under any
      shareholder rights plan or similar plan or arrangement in effect or hereafter
      adopted by the Company, or that any Purchaser could be deemed to trigger the
      provisions of any such plan or arrangement, by virtue of receiving Securities
      under the Transaction Documents or under any other agreement between the Company
      and the Purchasers. The Company shall conduct its business in a manner so that
      it will not become subject to the Investment Company Act.

     

    4.8  Non-Public
      Information.
      If at
      any time the Company becomes subject to the reporting provisions of the Exchange
      Act, the Company covenants and agrees that neither it nor any other Person
      acting on its behalf will provide any Purchaser or its agents or counsel with
      any information that the Company believes constitutes material non-public
      information, unless prior thereto such Purchaser shall have executed a written
      agreement regarding the confidentiality and use of such information. The Company
      understands and confirms that each Purchaser shall be relying on the foregoing
      representations in effecting transactions in securities of the
      Company.

     

    4.9  Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      4.9
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and not for the satisfaction of any
      portion of the Company’s debt (other than payment of trade payables in the
      ordinary course of the Company’s business, consistent with prior practices) nor
      to redeem any Common Stock or Common Stock Equivalents or to settle any
      outstanding litigation.

     

    4.10  Reimbursement.
      If any
      Purchaser becomes involved in any capacity in any Proceeding by or against
      any
      Person who is a stockholder of the Company (except as a result of sales,
      pledges, margin sales and similar transactions by such Purchaser to or with
      any
      current stockholder), solely as a result of such Purchaser’s acquisition of the
      Securities under this Agreement, the Company will reimburse such Purchaser
      for
      its reasonable legal and other expenses (including the cost of any investigation
      preparation and travel in connection therewith) incurred in connection
      therewith, as such expenses are incurred. The reimbursement obligations of
      the
      Company under this paragraph shall be in addition to any liability which the
      Company may otherwise have, shall extend upon the same terms and conditions
      to
      any Affiliates of the Purchasers who are actually named in such action,
      proceeding or investigation, and partners, directors, agents, employees and
      controlling persons (if any), as the case may be, of the Purchasers and any
      such
      Affiliate, and shall be binding upon and inure to the benefit of any successors,
      assigns, heirs and personal representatives of the Company, the Purchasers
      and
      any such Affiliate and any such Person. The Company also agrees that neither
      the
      Purchasers nor any such Affiliates, partners, directors, agents, employees
      or
      controlling persons shall have any liability to the Company or any Person
      asserting claims on behalf of or in right of the Company solely as a result
      of
      acquiring the Securities under this Agreement.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    4.11  Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.11, the Company will indemnify and hold
      the
      Purchasers and their directors, officers, shareholders, partners, employees
      and
      agents (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing. Any Purchaser Party shall
      have
      the right to employ separate counsel in any such action and participate in
      the
      defense thereof, but the fees and expenses of such counsel shall be at the
      expense of such Purchaser Party except to the extent that (i) the employment
      thereof has been specifically authorized by the Company in writing, (ii) the
      Company has failed after a reasonable period of time to assume such defense
      and
      to employ counsel or (iii) in such action there is, in the reasonable opinion
      of
      such separate counsel, a material conflict on any material issue between the
      position of the Company and the position of such Purchaser Party. The Company
      will not be liable to any Purchaser Party under this Agreement (i) for any
      settlement by a Purchaser Party effected without the Company’s prior written
      consent, which shall not be unreasonably withheld or delayed; or (ii) to the
      extent, but only to the extent that a loss, claim, damage or liability is
      attributable to any Purchaser Party’s breach of any of the representations,
      warranties, covenants or agreements made by the Purchasers in this Agreement
      or
      in the other Transaction Documents.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    4.12  Reservation
      and Listing of Securities.

     

    (a)  The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such amount as may be
      required to fulfill its obligations in full under the Transaction
      Documents.

     

    (b)  If,
      on
      any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than the Required Minimum on such date, then
      the
      Board of Directors of the Company shall use commercially reasonable efforts
      to
      amend the Company’s certificate or articles of incorporation to increase the
      number of authorized but unissued shares of Common Stock to at least the
      Required Minimum at such time, as soon as possible and in any event not later
      than the 60th day after such date.

     

    (c)  The
      Company shall, promptly after the sooner of the Effectiveness Date or the date
      the Company has a class of shares registered with the Commission: (i) in the
      time and manner required by a Trading Market, prepare and file with such Trading
      Market an additional shares listing application covering a number of shares
      of
      Common Stock at least equal to the Registrable Securities on the date of such
      application, (ii) take all steps necessary to cause such Registrable Securities
      to be approved for listing and actually listed on the Trading Market as soon
      as
      possible thereafter but in no event later than sixty days after the
      Effectiveness Date or the date the Company has a class of shares registered
      with
      the Commission (“Listing Date”), (iii) provide to the Purchasers evidence of
      such listing, and (iv) maintain the listing of such Registrable Securities
      on
      any date at least equal to the Required Minimum on such date on such Trading
      Market or another Trading Market. In the event the shares of Common Stock
      described above are not timely listed by the Listing Date, or if the listing
      is
      not continuously maintained for two years after the Listing Date (each a
“Listing Default”), then in addition to any other rights the Purchasers may have
      hereunder or under applicable law, on the first day of a Listing Default and
      on
      each monthly anniversary of each such Listing Default date (if the applicable
      Listing Default shall not have been cured by such date) until the applicable
      Listing Default is cured, the Company shall pay to each Purchaser an amount
      in
      cash, as partial liquidated damages and not as a penalty, equal to 1.5% of
      the
      aggregate purchase price paid by such Purchaser pursuant to this Agreement
      for
      any Debenture and Registrable Securities then held by such Purchaser. If the
      Company fails to pay any partial liquidated damages pursuant to this Section
      in
      full within seven days after the date payable, the Company will pay interest
      thereon at a rate of 18% per annum (or such lesser maximum amount that is
      permitted to be paid by applicable law) to the Purchaser, accruing daily from
      the date such partial liquidated damages are due until such amounts, plus all
      such interest thereon, are paid in full. The partial liquidated damages pursuant
      to the terms hereof shall apply on a daily pro-rata basis for any portion of
      a
      month prior to the cure of a Listing Default. 

     

    4.13  Participation
      in Future Financing.
      

     

    (a)  From
      the
      date hereof until the date that is the 24 month anniversary of the date hereof,
      upon any financing by the Company or any of its Subsidiaries of Common Stock
      or
      Common Stock Equivalents (a “Subsequent
      Financing”),
      each
      Purchaser shall have the right to participate in up to an amount of the
      Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
      Maximum”).
      

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (b)  At
      least
      5 Business Days prior to the closing of the Subsequent Financing, the Company
      shall deliver to each Purchaser a written notice of its intention to effect
      a
      Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Purchaser, and only upon a request by such Purchaser, for
      a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      1
      Business Day after such request, deliver a Subsequent Financing Notice to such
      Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing, the amount of proceeds intended
      to be raised thereunder, the Person with whom such Subsequent Financing is
      proposed to be effected, and attached to which shall be a term sheet or similar
      document relating thereto. 

     

    (c)  Any
      Purchaser desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the 5th
      Business
      Day after all of the Purchasers have received the Pre-Notice that the Purchaser
      is willing to participate in the Subsequent Financing, the amount of the
      Purchaser’s participation, and that the Purchaser has such funds ready, willing,
      and available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from a Purchaser as of such
      5th
      Business
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate. 

     

    (d)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Business
      Day after all of the Purchasers have received the Pre-Notice, notifications
      by
      the Purchasers of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Subsequent Financing, then the Company may effect the
      remaining portion of such Subsequent Financing on the terms and to the Persons
      set forth in the Subsequent Financing Notice. 

     

    (e)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Business
      Day after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers seeking
      to
      purchase more than the aggregate amount of the Participation Maximum, each
      such
      Purchaser shall have the right to purchase the greater of (a) their Pro Rata
      Portion (as defined below) of the Participation Maximum and (b) the difference
      between the Participation Maximum and the aggregate amount of participation
      by
      all other Purchasers.  “Pro
      Rata Portion”
is
      the
      ratio of (x) the Subscription Amount of Securities purchased on the Closing
      Date
      by a Purchaser participating under this Section 4.13 and (y) the sum of the
      aggregate Subscription Amounts of Securities purchased on the Closing Date
      by
      all Purchasers participating under this Section 4.13.

     

    (f)  The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on substantially the same
      terms as set forth in such Subsequent Financing Notice within 60 Business Days
      after the date of the initial Subsequent Financing Notice. 

     

    
      
        
        

      

      
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    (g)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of an Exempt
      Issuance.

     

    4.14  [INTENTIONALLY
      OMITTED]

     

    4.15  Equal
      Treatment of Purchasers.
      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 is also offered to all of the parties to the
      Transaction Documents. Further, the Company shall not make any payment of
      principal or interest on the Debentures in amounts which are disproportionate
      to
      the respective principal amounts outstanding on the Debentures at any applicable
      time. For clarification purposes, this provision constitutes a separate right
      granted to each Purchaser by the Company and negotiated separately by each
      Purchaser, and is intended to treat for the Company the Debenture holders as
      a
      class and shall not in any way be construed as the Purchasers acting in concert
      or as a group with respect to the purchase, disposition or voting of Securities
      or otherwise.

     

    4.16  Priority
      of Investment.
      Except
      as set forth on Schedule
      4.9,
      the
      Company shall subordinate all loans from shareholders and other beneficial
      owners of Common Stock and Common Stock Equivalents to the
      Debentures.

     

    4.17  Reporting
      Requirements.
      Until
      the time the Company becomes subject to the reporting provisions of the Exchange
      Act, the Company shall furnish to each Purchaser that holds at least $100,000
      of
      shares of Common Stock (on an as converted basis) the following: 

     

    (a)  As
      soon
      as available and in any event within ninety (90) days after the end of each
      fiscal year of the Company, audited financial statements of the Company as
      at
      the end of such fiscal year and related statements of income and expenses for
      such fiscal year, all in reasonable detail and in scope to the Purchaser,
      prepared in accordance with GAAP, with the opinion of an independent certified
      public accountant reasonably acceptable to the Purchaser as evidenced by the
      prior written consent of the Purchaser;

     

    (b)  As
      soon
      as available and in any event within forth-five (45) days after the end of
      the
      sixth (6th)
      month
      of the Company’s fiscal year, reviewed financial statements of the Company as at
      the end of such six month period and related statements of income and expenses
      for such period, all in reasonable detail and scope to Purchaser, prepared
      in
      accordance with GAAP, and prepared by an independent certified public accountant
      reasonably acceptable to the Purchaser as evidenced by the prior written consent
      of the Purchaser; 

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    (c)  As
      soon
      as available and in any event within thirty (30) days after the end of each
      fiscal quarter, quarterly financial statements prepared by the Company and
      other
      information reasonably requested by the Purchaser;

     

    (d)  As
      soon
      as available and in any event within fifteen (15) days after the end of each
      month, monthly reports containing information on the Company's sales and other
      information reasonably requested by the Purchaser;

     

    (e)  As
      soon
      as available and in any event not less than thirty (30) days prior to the
      commencement of each fiscal year, a detailed annual budget and strategic plan
      for the Company's business for such fiscal year, which shall have been approved
      by the Company's Board of Directors;

     

    (f)  As
      soon
      as possible and in any event within five (5) days after the Purchasers notify
      the Company of the occurrence of each Event of Default, a statement of an
      authorized officer of the Company setting forth the nature and period of
      existence of such Event of Default and the action which the Company has taken
      and proposes to take with respect thereto;

     

    (g)  Promptly
      after the sending or filing thereof, copies of all reports, if any, which the
      Company sends to any of its shareholders, and copies of all reports and
      registration statements, if any, which the Company files with the Commission
      or
      any Trading Market;

     

    (h)  Promptly
      after the filing or receiving thereof, copies of all reports and notices, if
      any, which the Company files under ERISA, with the Internal Revenue Service
      or
      the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or
      which the Company receives from any of such Persons;

     

    (i)  Promptly
      upon determination of the need for the Company to obtain additional financing,
      all information concerning such determination if, as and when available;


     

    (j)  Information
      concerning offers or solicitations, and the terms and conditions thereof, for
      additional equity financing, given to the Purchaser not less than 30 days prior
      to the entering into of such financial arrangement; and

     

    (k)  Such
      other information respecting the condition or operations, financial or
      otherwise, of the Company as the Purchasers may from time to time reasonably
      request.

     

    4.18  
      [INTENTIONALLY OMITTED]

     

    4.19  Access
      to Records.
      Until
      the time the Company becomes subject to the reporting provisions of the Exchange
      Act, the Company shall provide each Purchaser that holds at least $100,000
      of
      shares of Common Stock (on an as converted basis) and/or any of its duly
      authorized representatives, attorneys or accountants access to any and all
      records at the premises of the Company where such records are kept, such access
      being afforded without charge, but only upon reasonable request and during
      normal business hours.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    4.20  Board
      of Directors.
      The
      Company shall have elected and in place a duly elected Board of Directors
      consisting of at least three directors and provide each Purchaser that holds
      at
      least $100,000 of shares of Common Stock (on an as converted basis) with
“observer” status and the right to attend all meetings of the Board of Directors
      of the Company and to obtain copies of all minutes from and notices regarding
      such meetings, as well as copies of all correspondence to members of the Board
      of Directors, subject to reasonable limitations in order to maintain the
      attorney-client privilege and confidentiality, including with respect to
      transactions involving such Purchaser. If requested by the Purchasers, the
      Company will use its best efforts to cause one representative of the Purchasers
      to be elected to its Board of Directors. 

     

    4.21  Maintenance
      of Property.
      The
      Company shall keep all of its property, which is necessary or useful to the
      conduct of its business, in good working order and condition, ordinary wear
      and
      tear excepted.

     

    4.22  Litigation.
      The
      Company shall promptly give the Purchasers notice in writing of all litigation
      and of all proceedings before any court, tribunal or Government Entity (as
      defined below) affecting the Company or any Subsidiary, except litigation
      proceedings which, if adversely determined, would not have a Material Adverse
      Effect. A “Government
      Entity”
means
      the United States of America, any state, any political subdivision of a state
      and any agency or instrumentality of the United States of America or any state
      or political subdivision thereof and any entity exercising executive,
      legislative, judicial, regulatory or administrative functions of or pertaining
      to government.

     

    4.23  Preservation
      of Corporate Existence.
      The
      Company shall preserve and maintain its corporate existence, rights, privileges
      and franchises in the jurisdiction of its incorporation, and qualify and remain
      qualified, as a foreign corporation in each jurisdiction in which such
      qualification is necessary in view of its business or operations and where
      the
      failure to qualify or remain qualified might reasonably have a Material Adverse
      Effect upon the financial condition, business or operations of the Company
      and
      its Subsidiaries taken as a whole.

     

    4.24  Accountants.
      The
      Company shall promptly give the Purchaser notice of any change in the firm
      of
      independent certified public accountants utilized by the Company, provided
      that
      any new firm shall be reasonably acceptable to the Purchasers.

     

    4.25  Other
      Registration Statements.
      Until
      the Registration Statement has been effective for ninety days or until
      Debentures are no longer outstanding, whichever is sooner, the Company will
      not
      file any registration statement with any Government Entity nor allow any such
      other registration statement to become effective for the resale of any Common
      Stock or Common Stock Equivalent.

     

    ARTICLE
      V.  

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before March 28, 2006;
      provided,
      however,
      that no
      such termination will affect the right of any party to sue for any breach by
      the
      other party (or parties).

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    5.2  Fees
      and Expenses.
      The
      Company shall deliver, prior to the Closing, a completed and executed copy
      of
      the Closing Statement, attached hereto as Annex
      A.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities.

     

    5.3  Entire
      Agreement.
      The
      Transaction Documents, together with the exhibits and schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents, exhibits and schedules.

     

    5.4  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Business
      Day,
      (b) the next Business Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Business Day or
      later
      than 5:30 p.m. (New York City time) on any Business Day, (c) the second Business
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.5  Amendments;
      Waivers.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed, in the case of an amendment, by the Company and each
      Purchaser or, in the case of a waiver, by the party against whom enforcement
      of
      any such waiver is sought. No waiver of any default with respect to any
      provision, condition or requirement of this Agreement shall be deemed to be
      a
      continuing waiver in the future or a waiver of any subsequent default or a
      waiver of any other provision, condition or requirement hereof, nor shall any
      delay or omission of either party to exercise any right hereunder in any manner
      impair the exercise of any such right.

     

    5.6  Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. 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.

     

    5.7  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of each Purchaser. Any Purchaser may assign any or all of its rights
      under this Agreement to any Person to whom such Purchaser assigns or transfers
      any Securities, provided such transferee agrees in writing to be bound, with
      respect to the transferred Securities, by the provisions hereof that apply
      to
      the “Purchasers” and
      provided, further, that until the Effectiveness Date, no Purchaser shall
      transfer Securities representing less than $50,000 of shares of Common Stock
      (unless such Purchaser is transferring all of the Securities owned by such
      Purchaser).

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    5.8  No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.11.

     

    5.9  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of the Transaction Documents shall be governed by and construed and enforced
      in
      accordance with the internal laws of the State of New York, without regard
      to
      the principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
      transactions contemplated by this Agreement and any other Transaction Documents
      (whether brought against a party hereto or its respective affiliates, directors,
      officers, shareholders, employees or agents) shall be commenced exclusively
      in
      the state and federal courts sitting in the City 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 (including with respect
      to
      the enforcement of any of the Transaction Documents), and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is improper or inconvenient venue for such
      proceeding. 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 via registered or certified mail or overnight delivery
      (with evidence of delivery) to such party at the address in effect for 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. The parties hereby waive all rights to a trial by jury. If
      either party shall commence an action or proceeding to enforce any provisions
      of
      the Transaction Documents, then the prevailing party in such action or
      proceeding shall be reimbursed by the other party for its attorneys’ fees and
      other costs and expenses incurred with the investigation, preparation and
      prosecution of such action or proceeding.

     

    5.10  Survival.
      The
      representations and warranties contained herein shall survive the Closing and
      the delivery, exercise and/or conversion of the Securities, as applicable for
      the applicable statue of limitations.

     

    5.11  Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together 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, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission, such signature shall create a valid and binding obligation of
      the
      party executing (or on whose behalf such signature is executed) with the same
      force and effect as if such facsimile signature page were an original
      thereof.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    5.12  Severability.
      If any
      provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefore, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    5.13  Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Purchaser
      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 Purchaser 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; provided,
      however,
      in the
      case of a rescission of a conversion of a Debenture, the Purchaser shall be
      required to return any shares of Common Stock subject to any such rescinded
      conversion or exercise notice.

     

    5.14  Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof, or in lieu of and substitution
      therefore, a new certificate or instrument, but only upon receipt of evidence
      reasonably satisfactory to the Company of such loss, theft or destruction and
      customary and reasonable indemnity, if requested. The applicants for a new
      certificate or instrument under such circumstances shall also pay any reasonable
      third-party costs associated with the issuance of such replacement
      Securities.

     

    5.15  Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations described in the foregoing
      sentence and hereby agrees to waive in any action for specific performance
      of
      any such obligation the defense that a remedy at law would be adequate.


     

    5.16  Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, 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.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    5.17  Usury.
      To the
      extent it may lawfully do so, the Company hereby agrees not to insist upon
      or
      plead or in any manner whatsoever claim, and will resist any and all efforts
      to
      be compelled to take the benefit or advantage of, usury laws wherever enacted,
      now or at any time hereafter in force, in connection with any claim, action
      or
      proceeding that may be brought by any Purchaser in order to enforce any right
      or
      remedy under any Transaction Document. Notwithstanding any provision to the
      contrary contained in any Transaction Document, it is expressly agreed and
      provided that the total liability of the Company under the Transaction Documents
      for payments in the nature of interest shall not exceed the maximum lawful
      rate
      authorized under applicable law (the “Maximum
      Rate”),
      and,
      without limiting the foregoing, in no event shall any rate of interest or
      default interest, or both of them, when aggregated with any other sums in the
      nature of interest that the Company may be obligated to pay under the
      Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
      contract rate of interest allowed by law and applicable to the Transaction
      Documents is increased or decreased by statute or any official governmental
      action subsequent to the date hereof, the new maximum contract rate of interest
      allowed by law will be the Maximum Rate applicable to the Transaction Documents
      from the Effectiveness Date forward, unless such application is precluded by
      applicable law. If under any circumstances whatsoever, interest in excess of
      the
      Maximum Rate is paid by the Company to any Purchaser with respect to
      indebtedness evidenced by the Transaction Documents, such excess shall be
      applied by such Purchaser to the unpaid principal balance of any such
      indebtedness or be refunded to the Company, the manner of handling such excess
      to be at such Purchaser’s election.

     

    5.18  Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance of the obligations of any other
      Purchaser under any Transaction Document. Nothing contained herein or in any
      Transaction Document, and no action taken by any Purchaser pursuant thereto,
      shall be deemed to constitute the Purchasers as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Purchasers are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      Each
      Purchaser shall be entitled to independently protect and enforce its rights,
      including without limitation the rights arising out of this Agreement or out
      of
      the other Transaction Documents, and it shall not be necessary for any other
      Purchaser to be joined as an additional party in any proceeding for such
      purpose. Each Purchaser has been represented by its own separate legal counsel
      in their review and negotiation of the Transaction Documents. GM does not
      represent all of the Purchasers but only Platinum. The Company has elected
      to
      provide all Purchasers with the same terms and Transaction Documents for the
      convenience of the Company and not because it was required or requested to
      do so
      by the Purchasers.

     

    5.19  Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Transaction Documents is a continuing obligation of the Company
      and shall not terminate until all unpaid partial liquidated damages and other
      amounts have been paid notwithstanding the fact that the instrument or security
      pursuant to which such partial liquidated damages or other amounts are due
      and
      payable shall have been canceled.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    5.20  Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Transaction Documents and, therefore, the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    



    IN
      WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
      Agreement to be duly executed by their respective authorized signatories as
      of
      the date first indicated above.

     

    
      	
              APRECIA
                INC.

               

               

            	
              Address
                for Notice:

            
	By:	
              /s/Isidore
                Sobkowski

              Name:
                Isidore Sobkowski

              Title:
                Pres and CEO

            	
              1065
                Avenue of Americas

              New
                York, NY 10018

              Fax:
                (212) 930-9725

              Attn:
                Marc Ross, Esq.

            
	 	 	 
	 	 	 
	
              As
                to Section 4.18 only:

               

            	 
	
              10%
                SHAREHOLDERS

               

            	 
	/s/Isidore
              Sobkowski	 
	
               

               

              __________________________________________

            	 


    

    


    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
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    [PURCHASER
      SIGNATURE PAGES TO APRECIA INC. 

    SECURITIES
      PURCHASE AGREEMENT]

    


    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser: ALPHA CAPITAL AKTIENGESELLSCHAFT

    Signature
      of Authorized Signatory of Purchaser:
      /s/Konrad Ackerman

    Name
      of
      Authorized Signatory: Konrad Ackerman

    Title
      of
      Authorized Signatory:
      _____________________________________________________

    Email
      Address of
      Purchaser:________________________________________________

    


    Address
      for Notice of Purchaser:

    


    Pradafant
      7

    9490
      Furstentums

    Vaduz,
      Lichtenstein

    Fax:
      011-42-32323196

    


    Address
      for Delivery of Securities for Purchaser (if not same as above):

    


    


    Subscription
      Amount: $250,000.00

     

    [SIGNATURE
      PAGES CONTINUE]


    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    



    [PURCHASER
      SIGNATURE PAGES TO APRECIA INC. 

    SECURITIES
      PURCHASE AGREEMENT]

    


    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser: DOUBLE U MASTER FUND L.P.

    Signature
      of Authorized Signatory of Purchaser:
      /s/Carl
      Jacobsohn and John Elliot

    Name
      of
      Authorized Signatory: Carl Jacobsohn and John Elliot

    Title
      of
      Authorized Signatory:
      _____________________________________________________

    Email
      Address of
      Purchaser:________________________________________________

    


    Address
      for Notice of Purchaser:

    


    C/o
      Navigator Management Ltd.

    Harbor
      House, Waterfront Drive

    P.O.
      Box
      972

    Road
      Town, Tortola

    British
      Virgin Islands

    Attn:
      Susan Parker

    Fax:
      (284) 494-4771

    


    Address
      for Delivery of Securities for Purchaser (if not same as above):

    


    


    Subscription
      Amount: $100,000.00

    
 

    [SIGNATURE
      PAGES CONTINUE]

    


    
      
        
        

      

      
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    [PURCHASER
      SIGNATURE PAGES TO APRECIA INC. 

    SECURITIES
      PURCHASE AGREEMENT]

    


    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser: TOBANNA ENTERPRISES CORP.

    Signature
      of Authorized Signatory of Purchaser:
      /s/David Rosenbaum

    Name
      of
      Authorized Signatory: David Rosenbaum

    Title
      of
      Authorized Signatory:
      _____________________________________________________

    Email
      Address of
      Purchaser:________________________________________________

    


    Address
      for Notice of Purchaser:

    


    24
      Hazanchanim Street, Apt. #26

    Tel
      Aviv,
      Israel 69270

    Fax:
      011-972-3-648-6948

    


    Address
      for Delivery of Securities for Purchaser (if not same as above):

    


    


    Subscription
      Amount: $125,000.00

     

    [SIGNATURE
      PAGES CONTINUE]

    


    
      
        
        

      

      
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    [PURCHASER
      SIGNATURE PAGES TO APRECIA INC. 

    SECURITIES
      PURCHASE AGREEMENT]

    


    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser: CMS CAPITAL

    Signature
      of Authorized Signatory of Purchaser:
      /s/M.
      Lipskin

    Name
      of
      Authorized Signatory: M. Lipskin

    Title
      of
      Authorized Signatory:
      _____________________________________________________

    Email
      Address of
      Purchaser:________________________________________________

    


    Address
      for Notice of Purchaser:

    


    9612
      Ventura Blvd., Suite 108

    Panorama
      City, CA 91402

    Attn:
      Judah Zavdi

    Fax:
      (818) 907-3372

    


    Address
      for Delivery of Securities for Purchaser (if not same as above):

    


    


    Subscription
      Amount: $25,000.00

    


    
      
        
        

      

      
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