SECURITIES
PURCHASE AGREEMENT

 

This
Securities Purchase Agreement (this “Agreement”) is
dated as of ______ __, 2005, among Global National Communications Corp., a
Nevada corporation (the “Company”), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and
collectively the “Purchasers”);
and

 

WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below), 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 in
the aggregate, up to $7,000,000 of 8% Convertible Debentures and Warrants on the
Closing Date.

 

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
not other 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. 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.

 

“Closing” means
the closing of the purchase and sale of the Common Stock and the Warrants
pursuant to Section 2.1.

 

“Closing
Date” means
the Trading 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.

 

“Closing
Price” means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 PM (New York time) as the last reported closing bid price for regular
session trading on such day), or (b) if there is no such price on such date,
then the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the
closing bid price for regular session trading on such day), or (c)  if the
Common Stock is not then listed or quoted on the Trading Market and if prices
for the Common Stock are then reported in the “pink sheets” published by the
National Quotation Bureau Incorporated (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 (d) if the shares of Common Stock
are not then publicly traded the fair market value of a share of Common Stock as
determined by an appraiser selected in good faith by the Purchasers of a
majority in interest of the Debentures then outstanding.

 







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“Commission” means
the Securities and Exchange Commission.

 

“Common
Stock” means
the common stock of the Company, par value $0.00001 per share, and any
securities into which such common stock may hereafter be reclassified.


 

“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
Troy & Gould PC.

 

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




“Debentures” means,
the 8% Convertible Debentures due, subject to the terms therein, three years
from their date of issuance, issued by the Company to the Purchasers hereunder,
in the form of Exhibit
A.




“Disclosure
Schedules” means
the Disclosure Schedules of the Company delivered concurrently herewith.


 

“Effective
Date” means
the date that the Registration Statement is first declared effective by the
Commission.

 

“Evaluation
Date” shall
have the meaning ascribed to such term in Section 3.1(r). 

 

“Exchange
Act” means
the Securities Exchange Act of 1934, as amended.

 

“Exempt
Issuance” means
the issuance of (a) up to 1,000,000 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 non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee 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, and (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance
shall only be to a Person or shareholders of such 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.

 







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“Filing
Date” means
the date that the Registration Statement is first filed with the Commission.


 

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

 

“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.

 

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

 

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

 

“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.

 

“Pledge
Agreement” means
the Pledge Agreement, dated as of the date of this Agreement, among Yarek
Bartosz, the Pledge Holder and each Purchaser, in the form of Exhibit
E
hereto.

 

“Pledge
Holder” means
Troy & Gould PC.

 

“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 4.9.

 







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“SRFF” means
Sichenzia Ross Friedman Ference LLP with offices located at 1065 Avenue of the
Americas, 21st Floor,
New York, New York 10018.

 

“Registration
Rights Agreement” means
the Registration Rights Agreement, dated as of the date of this Agreement, among
the Company and each Purchaser, in the form of Exhibit
B
hereto.

 

“Registration
Statement” means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Underlying
Shares. 

 

“Required
Approvals” shall
have the meaning ascribed to such term in Section 3.1(e).

 

“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 exercise or conversion
in full of all Warrants and Debentures (including Underlying Shares issuable as
payment of interest), 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 75% of the then Conversion Price on the Trading 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. 

 

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

 

“Securities” means
the Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.

 

“Securities
Act” means
the Securities Act of 1933, as amended.

 

“Subscription
Amount” means,
as to each Purchaser, the amounts set forth below such Purchaser’s signature
block on the signature page hereto, 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” shall
mean the subsidiaries of the Company, if any, set forth on Schedule
3.1(a).

 







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“Trading
Day” means a
day on which the Common Stock is traded on a Trading Market.

 

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

 

“Transaction
Documents” means
this Agreement, the Debentures, the Warrants and the Registration Rights
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 and upon
exercise of the Warrants and issued and issuable in lieu of the cash payment of
interest on the Debentures.

 

“Warrants” means
the Common Stock Purchase Warrants, in the form of Exhibit
C,
delivered to the Purchasers at the Closing in accordance with Section
2.2(a)(iii) hereof, which warrants shall be exercisable immediately upon
issuance for a term of five years and have an exercise price equal to
$4.75,
subject
to adjustment as provided therein.

 

“Warrant
Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE
II.
PURCHASE
AND SALE

 

2.1  Closing. On the
Closing Date, each Purchaser shall purchase from the Company, severally and not
jointly with the other Purchasers, and the Company shall issue and sell to each
Purchaser (a) up to $7,000,000 principal amount of the Debentures and (b) the
Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate
Subscription Amounts for the Securities sold hereunder shall be up to
$7,000,000; provided, however, a condition precedent to the Closing shall be the
sale of an aggregate of a minimum of $2,000,000 principal amount of the
Debentures. Upon satisfaction of the conditions set forth in Section 2.3, the
Closing shall occur at the offices of SRFF 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)  Debenture
with a principal amount equal to such Purchaser’s Subscription Amount,
registered in the name of such Purchaser;

 

(iii)  within 3
Trading Days of the date hereof, a Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to acquire up
to the number of shares of Common Stock equal to 100% of such Purchaser’s
Subscription Amount divided by the Conversion Price (as defined in the
Debenture) immediately prior to the date hereof, 

 







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

 

(v)  the
Pledge Agreement duly executed by Wang Hanqing and the Pledge Holder;
and

 

(vi)  a legal
opinion of Company Counsel, in the form of Exhibit
D attached
hereto.

 

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

 

(i)  this
Agreement duly executed by such Purchaser;

 

(ii)  such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company; 

 

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

 

(iv)  the
Pledge 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; 

 







6












(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, trading in the Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the Closing), and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been 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.


 

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
PurchaserExcept as
set forth under the corresponding section of 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 and indirect subsidiaries of the Company are set forth on
Schedule
3.1(a). The
Company owns, directly or indirectly, 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. Each of
the Company and 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 Documents, (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
Documents (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.

 







7












(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 and no further
action is required by the Company in connection therewith other than in
connection with the Required Approvals. Each Transaction Documents 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.

 

(d)  No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company,
the issuance and sale of the Securities 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) subject to the Required Approvals,
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.

 







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(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, other than (i) filings required pursuant to Section 4.4
of this Agreement, (ii) the filing with the Commission of the Registration
Statement, (iii) application(s) to each applicable Trading Market for the
listing of the Underlying Shares and Warrant Shares for trading thereon in the
time and manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required
Approvals”).

 

(f)  Issuance
of the Securities. The
Securities are duly authorized and, when issued and paid for in accordance with
the 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 described in the Company’s most recent
periodic report filed with the Commission. The Company has not issued any
capital stock since such filing other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase plan
and pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. 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, 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 issue
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. 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.

 







9












(h)  SEC
Reports; Financial Statements. The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
“SEC
Reports”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
(“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

 

(i)  Material
Changes. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (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 or required to be disclosed in filings
made with the Commission, (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.
The Company does not have pending before the Commission any request for
confidential treatment of information.

 

(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. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.

 







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(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 described in the
SEC Reports, 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.

 







11












(o)  Patents
and Trademarks. The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of
others.

 

(p)  Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To the best of
Company’s knowledge, such insurance contracts and policies are accurate and
complete. Neither the Company nor any Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in
cost.

 

(q)  Transactions
With Affiliates and Employees. Except
as set forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is 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 $60,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company.

 

(r)  Sarbanes-Oxley;
Internal Accounting Controls. The
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 which are applicable to it as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with 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. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the date prior to the filing date of
the most recently filed periodic report under the Exchange Act (such date, the
“Evaluation
Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge,
in other factors that could significantly affect the Company’s internal
controls.

 







12












(s)  Certain
Fees. 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 other
than to Duncan Capital LLC (which will sole responsibility of the
Company). 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. The
Company agrees to indemnify and hold harmless each Purchaser from any liability
for any commission or compensation in the nature of a finder’s fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives
is responsible, including without limitation payments to Duncan Capital
LLC

 

(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. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.

 

(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. No
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company.

 







13












(w)  Listing
and Maintenance Requirements. The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification that
the Commission is contemplating terminating such registration. The Company has
not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

 

(x)  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 the
Company’s issuance of the Securities and the Purchasers’ ownership of the
Securities.

 

(y)  Disclosure. The
Company confirms that, neither the Company nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. 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.

 

(z)  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, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. 

 







14












(aa)  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). The Company has no
knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The SEC Reports
set forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall
mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments
in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

(bb)  Form
S-3 Eligibility.
Assuming that the Company’s securities have been listed on The Nasdaq Stock
Market, the Company is eligible to register the resale of its Common Stock by
the Purchasers under Form S-3 promulgated under the Securities Act and the
Company hereby covenants and agrees to use its best efforts to maintain its
eligibility to use Form S-3 until the Registration Statement covering the resale
of the Underlying Shares shall have been filed with, and declared effective by,
the Commission.

 

(cc)  Taxes. 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.

 

(dd)  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.

 

 







15












(ee)  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
corrupt 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.

 

(ff)  Accountants. The
Company’s accountants are set forth on Schedule
3.1(ff) of the
Disclosure Schedule. To the Company’s knowledge, such accountants, who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ending September 30, 2004, are a registered public accounting firm as
required by the Securities Act.

 

(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)  Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.15 hereof), it is understood and agreed by the Company (i)
that none of the Purchasers have been asked to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; and (ii) that each
Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction.

 

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:

 







16












(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 Documents 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.

 

(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, has no present intention of distributing any of such Securities 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). 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 exercises any Warrants or 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.

 







17












(f)  Short
Sales. The
Purchaser and each of its affiliates will not and will not cause any person or
entity to directly engage in an illegal “short sale” of the Company’s Common
Stock as long as the Debentures and Warrants are held by the Purchaser or any
such affiliates.

 

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.

 

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 and the Registration Rights 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:

 

THESE
SECURITIES HAVE NOT 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 WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT.

 







18












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 the Registration Rights 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, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

 

(c)  Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b)), (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, 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 Effective 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 or a
Warrant is converted or exercised (as applicable) 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 Effective
Date or at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company’s transfer agent of a certificate
representing Underlying Shares, as the case may be, issued with a restrictive
legend (such date, the “Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities 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.

 







19












(d)  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 Closing Price of the Common Stock
on the date such Securities are submitted to the Company’s transfer agent)
subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading
Day five (5) Trading Days after such damages have begun to accrue and increasing
to $30 per Trading Day ten (10) Trading Days after such damages have begun to
accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered. 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.

 

(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 will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

 

4.2  Furnishing
of Information. 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, if the
Company is not required to file reports pursuant to 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. 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.

 

4.3  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 such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.

 







20












4.4  Securities
Laws Disclosure; Publicity. The
Company shall, by 8:30 a.m. Eastern time on the third Trading Day following the
date hereof, issue a Current Report on Form 8-K, reasonably acceptable to each
Purchaser disclosing the material terms of the transactions contemplated hereby,
and shall attach the Transaction Documents thereto. 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 the Registration Rights Agreement 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).

 

4.5  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.

 

4.6  Non-Public
Information. 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.

 

4.7  Use of
Proceeds. Except as set forth on Schedule 4.7 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 and prior practices), to redeem any Common Stock or Common
Stock Equivalents or to settle any outstanding litigation.

 







21












4.8  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.

 

4.9  Indemnification
of Purchasers. Subject to the provisions of this Section 4.9, 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.

 

4.10  Reservation
of Common Stock. As of
the date hereof, the Company has reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, a sufficient
number of 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. 

 







22












4.11  Listing
of Common Stock.  The
Company undertakes to file the application to be listed on The Nasdaq Stock
Market (“Nasdaq”) no later than 60 days after the Closing Date. The Company will
use its best efforts to qualify and list the Company’s Common Stock on Nasdaq as
soon as possible after the Closing Date. Until such time that the Company’s
securities are listed on Nasdaq, the Company hereby agrees to use best efforts
to maintain the listing of the Common Stock on its current Trading Market, and
as soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Underlying Shares on such current Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market including Nasdaq as set forth in this Section 4.11, it will
include in such application all of the Underlying Shares, and will take such
other action as is necessary to cause all of the Underlying Shares to be listed
on such other Trading Market as promptly as possible. The Company will take all
action reasonably necessary to continue the listing and trading of its Common
Stock on the current Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the current Trading Market. 

 

4.12  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. 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 Purchasers 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.

 

4.13  Participation
in Future Financing. From the date hereof until 12 months after the
Effective Date, upon any financing by the Company of its Common Stock or Common
Stock Equivalents (a “Subsequent Financing”), each Purchaser shall have
the right to participate in up to 100% of such Subsequent Financing (the
“Participation Maximum”).  At least 5 Trading 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 Trading 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.    If by 6:30 p.m. (New York City time) on the fifth
Trading 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.  If
the Company receives no notice from a Purchaser as of such fifth Trading Day,
such Purchaser shall be deemed to have notified the Company that it does not
elect to participate.  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 the terms set forth in such Subsequent Financing Notice within
60 Trading Days after the date of the initial Subsequent Financing Notice. In
the event the Company receives responses to Subsequent Financing Notices from
Purchasers seeking to purchase more than the aggregate amount of the Subsequent
Financing, each such Purchaser shall have the right to purchase their Pro Rata
Portion (as defined below) of the Participation Maximum.  “Pro Rata
Portion” is the ratio of (x) the Subscription Amount of Securities purchased by
a participating Purchaser and (y) the sum of the aggregate Subscription Amount
of all participating Purchasers.  Notwithstanding the foregoing, this
Section 4.13 shall not apply in respect of an Exempt Issuance.

 







23












4.14  Intentionally
Left Blank. 

 

4.15  Most
Favored Nation Provision. From the date hereof until 12 months from the
Filing Date, any time the Company effects a Subsequent Financing equal to or in
excess of $1,000,000, to any person or entity at a price per share or conversion
or exercise price per share which shall be less than the Conversion Price,
without the consent of each of the Subscribers holding Debentures, then the
Conversion Price then in effect shall be reduced to an amount equal to the
product of (x) the Conversion Price in effect immediately prior to such issue or
sale and (y) the quotient of (I) the sum of the product derived by multiplying
the Conversion Price in effect immediately prior to such issue or sale by the
number of shares of Common Stock deemed outstanding immediately prior to such
issue or sale plus (II) the consideration, if any, received by the Company upon
such issue or sale, by (2) the product derived by multiplying (I) the Conversion
Price in effect immediately prior to such issue or sale by (II) the number of
shares of Common Stock deemed outstanding immediately after such issue or sale.
The delivery to the Subscriber of the additional shares of Common Stock shall be
not later than the closing date of the transaction giving rise to the
requirement to issue additional shares of Common Stock. In addition, pursuant to
the procedure set forth in Section 3(b) of the Warrant, the exercise price of
the Warrants still owned by the Subscriber shall be reduced to equal such lower
price per share and the number of Warrant Shares issuable shall be increased
such that the aggregate Exercise Price, after taking into account the decrease
in the Exercise Price, shall be equal to the aggregate Exercise Price prior to
such adjustment. The Subscriber is granted the registration rights described in
Section 4.15 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date vis-à-vis such additional common shares
shall be, respectively, the sixtieth (60th) and one
hundred and twentieth (120th) date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described in
this paragraph, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the issuance of such convertible security, warrant,
right or option and again upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights if such issuance is at
a price lower than the then Conversion Price. The rights of the Subscriber set
forth in this Section 4.15 are in addition to any other rights the Subscriber
has pursuant to this Agreement and any other agreement referred to or entered
into in connection herewith.

 







24












4.16  Delivery
of Securities After Closing. The Company shall deliver, or cause to be
delivered, the Debentures and Warrants purchased by each Purchaser to such
Purchaser within 3 Trading Days of the Closing Date.

 

ARTICLE
V.
MISCELLANEOUS

 

5.1  Termination. This
Agreement may be terminated by any Purchaser, by written notice to the other
parties, if the Closing has not been consummated on or before March 31, 2005;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).

 

5.2  Fees
and Expenses. The Company shall reimburse Duncan Capital LLC (“Duncan”) the
sum of $25,000 for its legal fees and expenses. Accordingly, in lieu of such
payment, Duncan is hereby authorized and instructed to deduct $25,000 from its
Subscription Amount at the Closing. The Company shall deliver, prior to the
Closing, a completed and executed copy of the Closing Statement, attached hereto
as Annex A. Except as otherwise set forth in this Agreement, 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 stamp and other taxes and duties levied in connection
with the delivery of the 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 6:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading 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 Trading Day
or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the second
Trading 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.

 







25












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.

 

5.6     
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”.

 

5.7  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 4.9.

 

5.8  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.

 







26












5.9  Survival.
The representations and warranties herein shall survive the Closing and
delivery, exercise and/or conversion of the Securities.

 

5.10  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.

 

5.11  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 therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

 

5.12  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 Documents 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.

 

5.13  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 therefor, 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.

 

5.14  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.

 

5.15  Payment
Set Aside. To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Documents 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.

 







27












5.16  Independent
Nature of Purchasers’ Obligations and Rights. The obligations of each
Purchaser under any Transaction Documents 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 Documents. Nothing contained herein or in any Transaction Documents,
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. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through SRFF. SRFF does not represent all of the
Purchasers but only Duncan. 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.

 

5.17  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.

 

5.18  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
Page Follows)

 

 







28












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.

 





	 	
      GLOBAL
      NATIONAL COMMUNICATIONS CORP.
	
      Address
      for Notice:

	 	 	 
	
      By:
	
       
	 
	 	
      Name:

      Title:
	 



 

With a copy to (which shall not constitute
notice):








[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE
PAGES FOR PURCHASERS FOLLOW]


 







29














[PURCHASER
SIGNATURE PAGES TO GLNC 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: ________________________________________________________

Signature
of Authorized Signatory of Purchaser:
__________________________________

Name of
Authorized Signatory:
____________________________________________________

Title of
Authorized Signatory:
_____________________________________________________

Email
Address of
Purchaser:________________________________________________




Address
for Notice of Purchaser:













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
















Subscription
Amount:

Debentures:

Warrant
Shares:

EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]




[SIGNATURE
PAGES CONTINUE]

 







30












Annex
A 




CLOSING
STATEMENT




Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $7,000,000 of Debentures and Warrants from
Global National Communications Corp. (the “Company”). All
funds will be wired into a trust account maintained by Troy & Gould PC,
counsel to the Company. All funds will be disbursed in accordance with this
Closing Statement. 




Disbursement
Date: ___________
____, 2005







	 	 
	 	 
	
      I.
      PURCHASE
      PRICE
	 
	 	 
	
      Gross
      Proceeds to be Received in Trust
	
      $

	 	 
	
      II. DISBURSEMENTS
	 
	
       
	
      $

	
       
	
      $

	 	
      $

	 	
      $

	 	
      $

	 	 
	
      Total
      Amount Disbursed:
	
      $

	 	 
	 	 
	 	 
	
      WIRE
      INSTRUCTIONS:
	 
	 	 
	
      To:
      _____________________________________

       

       

       

       
	 
	
      To:
      _____________________________________

       

       

       

       
	 














31