EXHIBIT 4.2






 




STOCK
AND WARRANT PURCHASE AGREEMENT




This
STOCK AND WARRANT PURCHASE AGREEMENT (this
“Agreement”) is
made as of the date of the signature of the Company set forth on the signature
pages hereof, by and among MDU
COMMUNICATIONS INTERNATIONAL, INC., a
Delaware corporation, with its principal offices at 60-D Commerce Way, Totowa,
New Jersey 07512 (including its two wholly-owned subsidiaries as more fully
described below, the “Company”), and
each person identified as an Investor on the signature pages hereto
(collectively, the “Investors”).




WHEREAS, the
Company desires to sell on a “best efforts-no minimum” basis, up to
6,063,440 units (the “Units”), each
Unit consisting of (i) one (1) share (each a “Share,”
collectively, the “ Shares”) of the
Company’s common stock, par value $0.001 per share (the “Common
Stock”), and
(ii) three-tenths of one warrant to acquire one share of the Common Stock,
subject to adjustment, at an exercise price of $3.40 per share (each a
“Warrant,”
collectively the “Warrants
”), in a
private placement (the “Offering”) to be
conducted by the Company, the terms of which are set forth in an Offering
Memorandum dated November 17, 2004, including all exhibits and attachments
thereto or incorporated by reference therein (the “Memorandum”);




WHEREAS,
the
Company is offering the Units pursuant to Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended (the “Securities
Act”), to
“accredited investors” only, as such term is defined in Rule 501(a) of said
Regulation D; and




WHEREAS,
all
capitalized terms used herein and not otherwise defined herein shall have the
same meanings as in the Memorandum.




NOW,
THEREFORE, for and
in consideration of the premises and the mutual covenants hereinafter set forth,
the parties hereto do hereby agree as follows:

 

SECTION
1
PURCHASE
AND SALE OF UNITS

 

1.1  Agreement
to Purchase and Sell.
Upon the
terms and subject to the conditions set forth in this Agreement and in the
Memorandum, each Investor, severally and not jointly, agrees to purchase at the
Closing (as defined below), and the Company agrees to issue and sell to such
Investor at the Closing, for the purchase price set forth opposite such
Investor’s name on such Investor’s signature page that number of Units set
forth opposite such Investor’s name on such Investor’s signature page at a
purchase price of $2.68 per Unit; provided,
however, that
the Units must be purchased in increments of 10 Units. Each Investor
hereby:

 

(a)  tenders
an executed copy of its signature page to this Agreement;

 

(b)  tenders
the Investor Qualification Questionnaire and an executed signature page thereto;
and

 

(c)  tenders
the purchase price set forth opposite each Investor’s name as set forth on such
Investor’s signature page to Wachovia Bank, National Association (the
“Escrow
Agent”) by (i)
check made payable to “MDU
Communications International, Inc.” or (ii)
wire transfer of immediately available funds to the Escrow Account (as defined
below) designated on the signature pages hereto (the “Proceeds”). The
Offering is on a “best efforts - no minimum” basis”. The Company and the
Investors agree that the Proceeds will be deposited in an escrow account (the
“Escrow
Account”)
maintained by the Escrow Agent, pending a determination to close on such
Proceeds or a termination of the Offering pursuant to Section 5 hereof. There is
no minimum number of Units that must be sold in order to conduct a
Closing.

 




























1.2  Closing. The
closing of the purchase and sale of the Units pursuant to Section 1.1 (the
“Closing”) will
take place on the earlier of (A) such date as the Company may determine in its
discretion, with the consent of the CRT Capital Group LLC (the “Placement
Agent”), and
(B) December 17, 2004 for any amount of Proceeds at the offices of Piper Rudnick
LLP, 1251
Avenue of the Americas, New York New York 10020, or at such other place or time
as may be mutually agreed upon by the Company and the Investors (the
“Closing
Date”). Upon
the Closing Date, subject to the fulfillment of the conditions set forth in
Section 3 hereof, the Company shall issue and deliver to such Investor
(i) a stock certificate or certificates representing that number of Shares
set forth opposite such Investor’s name as set forth on such Investor’s
signature page, in such denominations and registered in such names as such
Investor may request and (ii) Warrants to purchase that number of shares of
Common Stock set forth opposite such Investor’s name as set forth on such
Investor’s signature page registered in such names as such Investor may
request.

 

1.3  Separate
Agreements. The
Company’s agreement with each Investor is a separate agreement, and the sale of
the Units to each Investor is a separate sale, and no Investor shall be
responsible or liable in any way for the performance of the obligations of any
other Investor under this Agreement.

 

 

SECTION
2
REPRESENTATIONS,
WARRANTIES AND COVENANTS

 

2.1  Investor
Representations, Warranties and Covenants. The
Investor hereby acknowledges, represents, warrants or covenants, as the case may
be, to the Company as follows:

 

(a)  The
Investor is an “accredited investor” as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act, as indicated by his response
set forth in the Investor Questionnaire attached hereto, and that he is able to
bear economic risk of an investment in the Units.

 

(b)  The
Investor has prior investment experience, including investment in non-listed and
non-registered securities, or he has employed the services of an investment
advisor, attorney or accountant to read all of the documents furnished or made
available by the Company both to him and to all other prospective investors in
the Units, including the documents filed with the Securities and Exchange
Commission (“SEC”)
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and to
evaluate the merits and risks of such an investment on his behalf, and that he
recognizes the highly speculative nature of this investment.

 

(c)  The
Investor acknowledges receipt and careful review of the Memorandum, including,
but not limited to, the attachments and exhibits thereto, including the
Company’s (i) Form 10-KSB for the fiscal year ended September 30, 2003
(“Form
10-KSB”), (ii)
Forms 10-QSB for the quarters ended December 31, 2003, March 31, 2004 and
June 30, 2004, (iii) the 2004 Definitive Proxy Statement on Schedule 14A
and (iv) Current Reports on Form 8-K filed on May 12, 2004, May 19, 2004, June
15, 2004, July 19, 2004, November 3, 2004, November 12, 2004 and November 17,
2004, as the documents may have been amended since the time of their filing (the
“SEC
Documents”), and
hereby represents that he has been furnished by the Company during the course of
this transaction with all other information regarding the Company which he had
requested or desired to know, that all documents which could be reasonably
provided have been made available for his inspection and review, that he has
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the terms
and conditions of the Offering, and any additional information which he had
requested and in the Memorandum.

 











2
















(d)  The
Investor understands and recognizes that the purchase of the Units is highly
speculative and involves a high degree of risk and that only investors who can
afford the loss of their entire investment should consider investing in the
Company. The Investor understands all the risks of investing in the Company,
including, without limitation, that the Company has incurred losses of
$2,177,707, $2,377,366, $2,576,237 and $200,782, for the fiscal year ended
September 30, 2003 and each of the quarters ended December 31, 2003,
March 31, 2004 and June 30, 2004, respectively. The Investor has also reviewed
the risk factors contained in Part I of the Form 10-KSB and in the
Memorandum.

 

(e)  The
Investor acknowledges that the Offering will be conducted on a “best efforts-no
minimum” basis, and that there is no minimum amount of Units which must be
purchased in order to close any purchase. One or more Closings will be held at
such times as agreed to by the Company and the determination as to the timing of
Closing shall bear no relation to the aggregate amount of funds and could be
with respect to one or more Investor purchases. The Company may find it
necessary to raise additional capital, of which there can be no
assurance.

 

(f)  The
Investor acknowledges the Memorandum has not been reviewed by the SEC or any
state securities regulators. The Investor represents that the Units are being
purchased for his own account, for investment and not for distribution or resale
to others. The Investor agrees that he will not sell or otherwise transfer such
securities unless they are registered under the Securities Act or unless an
exemption from such registration is available. The Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to the Units.

 

(g)  The
Investor understands that he may never be able to liquidate his investment in
the Company. Although the Company has undertaken to register under the
Securities Act the Common Stock comprising Units and the shares of Common Stock
issued upon the exercise of the Warrants (the “Warrant
Shares”), there
can be no assurance that such registration will ever be effective or remain
effective, or that there will be any liquidity with respect to the sale of such
securities, if and when registered. The Investor understands that although the
Company’s Common Stock is traded on the Over The Counter Bulletin Board (the
“OTC
Bulletin Board”), there
currently is a limited public market for such securities. Investor represents
that he has sufficient liquid assets so that the illiquidity associated with
this investment will not cause any undue financial difficulties or affect the
Investor’s ability to provide for its current needs and possible financial
contingencies, and that the Investor’s commitment to all high risk investments
(including this one if this purchase is agreed to and accepted by the Company)
is reasonable in relation to the Investor’s net worth and/or annual
income.

 

(h)  The
Investor understands that pending an effective registration under the Securities
Act, if any, the Common Stock and Warrants comprising the Units and the Warrant
Shares (collectively, the “Securities”) will
be restricted securities as such term is defined under Rule 144 (“Rule
144” )
promulgated under the Securities Act. Rule 144 requires, among other conditions,
a one year holding period prior to the resale (subject to certain volume
limitations) of securities acquired in a non-public offering without having to
satisfy the registration requirements of the Securities Act. The Investor
understands that the Company must be current with respect to the reporting
requirements under the Exchange Act and its dissemination to the public of any
current financial or other information concerning the Company, as required by
Rule 144, as one of the conditions of its availability. The Investor understands
and hereby acknowledges that the Company is under no obligation to register the
Securities under the Securities Act, with the exception of certain registration
rights set forth in the Registration Rights Agreement, in the form attached
hereto as Exhibit
A ,
hereafter exclusively with respect to the Common Stock comprising the Units and
the Warrant Shares. The Investor further understands that, other than a transfer
pursuant to an effective registration statement under the Securities Act, the
Company may, if it desires, permit the transfer of the Securities out of his
name only when his request for transfer is accompanied by a letter from the
Investor making certain representations that, to the reasonable satisfaction of
the Company, the Company can rely upon in delivering an opinion that the
proposed transfer does not result in a violation of the Securities Act or any
applicable state “blue sky” laws. 

 











3
















(i)  The
Investor understands that the Company is relying on the Investor’s
representations herein and the information provided by the Investor in the
Investor Qualification Questionnaire, in the form attached hereto as
Exhibit
B. Any
information which the Investor has heretofore furnished to the Company in the
Investor Qualification Questionnaire or otherwise, including, without
limitation, information with respect to his financial position and business
experience is correct and complete as of the date of this Agreement, and if
there should be any material change in such information prior to the Closing he
will immediately furnish such revised or corrected information to the Placement
Agent and Company.

 

(j)  The
Investor understands the tax consequences of this investment and that the
contents of the Memorandum do not contain tax advice or information. The
Investor confirms that it is not relying on any statements or representations of
the Company or any of its agents with respect to the tax and other economic
considerations of an investment in the Units. The Investor has had the
opportunity to consult with the Investor’s own legal, accounting, tax,
investment and other advisors, who are unaffiliated with the Company or any
affiliate or selling agent of the Company, with respect to the tax treatment of
an investment by the Investor in the Units. The Investor also acknowledges that
it is solely responsible for any of its own tax liability that may arise as a
result of this investment or the transactions contemplated by this
Agreement.

 

(k)  If the
Investor is an entity, it is a corporation, limited liability company, trust or
partnership or other similar entity duly organized, validly existing and in good
standing under the laws of its jurisdiction. The Investor has full power and
authority (corporate or otherwise) to execute, deliver and enter into this
Agreement and to purchase the Units. The execution and delivery by the Investor
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate or other action on the part
of the Investor. If the Investor is an individual, the Investor has the legal
capacity to enter into this Agreement and is a bona fide resident of the state
shown in the address set forth on the signature pages hereto. This Agreement
constitutes a legal, valid and binding obligation of the Investor, enforceable
against the Investor in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy.

 

(l)  The
Investor consents to the placement of a legend on any certificate or other
documents evidencing the Securities substantially in the following form:


 

“THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES
FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY PURSUANT TO AN EXEMPTION FROM REGISTRATION IN
ACCORDANCE WITH RULE 144 (IF AVAILABLE) UNDER THE SECURITIES ACT, OR PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES.”

 











4
















(m)  The
address of the Investor furnished by him on the signature pages hereto is the
undersigned’s principal residence if he is an individual or its principal
business address if it is a corporation or other entity.

 

(n)  The
Investor acknowledges that if he is a Registered Representative of an NASD
member firm, he must give such firm the notice required by the NASD’s Rules of
Fair Practice, receipt of which must be acknowledged by such firm on the
signature page hereto.

 

(o)  Except as
set forth herein, no representations or warranties have been made to the
Investor by the Company or any agent, employee or affiliate of the Company and
in entering into this transaction, the Investor is not relying on any
information, other than that contained herein and the results of independent
investigation by the Investor. The Investor acknowledges that no representations
or warranties have been made to the Investor by the Placement Agent or any
agent, employee or affiliate of the Placement Agent.

 

(p)  Such
Investor either has a pre-existing personal or business relationship with the
Company or any of its partners, officers, directors or controlling persons, or
by reason of such Investor’s business or financial experience or the business or
financial experience of such Investor’s professional advisors, who are
unaffiliated with and who are not compensated by the Company, or any affiliate
or selling agent of the Company, directly or indirectly, such Investor could be
reasonably assumed to have the capacity to protect such Investor’s own interests
in connection with the transaction.

 

(q)  This
Agreement constitutes the legal, valid and binding agreement of the Investor,
enforceable against the Investor 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 by general equitable principles, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies, and (iii) to the extent any indemnification provisions
contained in this Agreement may be limited by applicable Federal or state
securities laws.

 

(r)  If the
Investor is not a United States person, it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
purchase the Units or any use of this Agreement, including (i) the legal
requirements within its jurisdiction for the purchase of the Units, Common Stock
or Warrants, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained and (iv)
the income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale or transfer of the Units, Common Stock or
Warrants. Such Investor’s payment for, and his or her continued beneficial
ownership of the Units, Common Stock or Warrants, will not violate any
applicable securities or other laws of the Investor’s jurisdiction.

 

(s)  The
Investor also understands and agrees that, although the Company will use its
best efforts to keep confidential the information provided herein, the Company
may present the information provided herein to such parties as it deems
advisable (a) if called upon to establish either the availability under any
Federal or state securities laws of an exemption from registration of the
Offering or compliance with any other legal requirement, or (b) if the contents
hereof are relevant to any issue in any action, investigation, suit or
proceeding to which the Company is a party, is subject, or by which it is or may
be bound. Further, the Investor understands that the Offering may be reported to
the SEC pursuant to the requirements of applicable Federal law and to various
state securities or blue sky commissioners pursuant to applicable
laws.

 











5
















(t)  No court
or governmental injunction, order or decree affecting the Investor and
prohibiting the execution and delivery by the Investor of this Agreement and the
consummation of the transactions contemplated hereby is in effect, and the terms
of this Agreement do not conflict with the provision of the Certificate or
Articles of Incorporation or By-laws (or comparable charter, partnership or
other organizational documents) of the Investor, or conflict with, or result in
a material breach or violation of, any of the terms or provisions of, or
constitute (with due notice or lapse of time or both) a material default under,
any material lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Investor is a
party.

 

(u)  No
material consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, remains to be obtained or is otherwise required to be obtained by the
Investor in connection with the authorization, execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby,
including, without limitation the purchase and sale of the Units.

 

(v)  Other
than the Placement Agent (as placement agent on behalf of the Company), and any
subagents it may appoint, no finder, broker, agent, financial person or other
intermediary has acted on behalf of the Investor in connection with the
Investor’s purchase of the Units, the consummation of this Agreement or any of
the transactions contemplated hereby. The Investor has not had any direct or
indirect contact with any other investment banking firm (or similar firm) with
respect to the offer of the Units by the Company to the Investor or the
Investor’s purchase of the Units.

 

(w)  Other
than the Memorandum and the exhibits attached thereto, the Investors did not (i)
receive or review any advertisement, article, notice or other communication
published in a newspaper or magazine or similar media or broadcast over
television or radio, whether closed circuit, or generally available, with
respect to the Units or (ii) attend any seminar, meeting or investor or other
conference whose attendees were, to the Investor’s knowledge, invited by any
general solicitation or general advertising with respect to the
Units.

 

(x)  The
foregoing acknowledgments, representations, warranties and covenants shall
survive the Closing.

 











6
















2.2  Representations,
Warranties and Covenants of the Company. The
Company hereby acknowledges, represents, warrants or covenants, as the case may
be, to the Investor as follows:

 

(a)  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company has full corporate power
and authority to own and hold its properties and to conduct its business. The
Company is duly licensed or qualified to do business, and in good standing, in
each jurisdiction in which the nature of its business requires licensing,
qualification or good standing, except for any failure to be so licensed or
qualified or in good standing that would not have a material adverse effect on
(i) the Company and each Subsidiary (as defined below) taken as a whole, (ii)
its consolidated results of operations, assets, or financial condition, (iii)
its ability to perform its obligations under this Agreement, the Warrants or
(iv) the Securities (a “Material
Adverse Effect”).

 

(b)  The
Company has two wholly-owned subsidiaries, MDU Communications (USA) Inc. and MDU
Communications Inc. (each, a “Subsidiary,”
together, the “Subsidiaries”).
Schedule
2.2(b) sets
forth, with respect to each Subsidiary, its type of entity, the jurisdiction of
its organization, its authorized and outstanding capital stock, partnership
interests or equivalent ownership interests and the Company’s current ownership
of such shares or interests. Each of the outstanding shares of capital stock of
each of the Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and owned by the Company, and, except as set forth on Schedule
2.2(b), is free
and clear of all liens, claims, encumbrances, options, pledges and security
interests (collectively, “Liens
”)
and were not issued in violation of, nor subject to, any preemptive,
subscription or similar rights. There are no outstanding warrants, options,
subscriptions, calls, rights, agreements, convertible or exchangeable securities
or other commitments or arrangements relating to the issuance, sale, purchase,
return or redemption, voting or transfer of any shares, whether issued or
unissued, of any capital stock, equity interest or other securities of any
Subsidiary. The Company and the Subsidiaries do not own any equity interests in
any person, other than the Subsidiaries. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority to own, lease and operate
its properties and to conduct its business.

 

(c)  As of the
date hereof, the authorized capital stock of the Company consists of 70,000,000
shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of
Preferred Stock, par value $0.001 per share. As of November 8, 2004, (i)
42,765,671 shares of Common Stock were issued and outstanding, (ii) no shares of
Preferred Stock were issued and outstanding, (iii) 4,247,191 shares of Common
Stock were reserved for issuance upon exercise of outstanding options issued or
issuable under the Company’s 2001 Stock Option Plan, (iv) 76,115 shares of
Common Stock were reserved for issuance upon exercise of outstanding options
issued or issuable under the Suppliers Stock Option Plan for 1998/1999 (the
“Option
Plans”), (v)
1,059,965 shares of Common Stock reserved for future issuance under the
Company’s 2001 Employee Stock Purchase Plan and (vi) 4,168,348 shares of Common
Stock were reserved for issuance upon the exercise of outstanding warrants. All
the outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and free of preemptive rights
created by or through the Company. All of the shares underlying the Company’s
outstanding options and warrants (“Convertible
Securities”), have
been duly authorized and, when issued in accordance with the agreements or
documents pursuant to which such Convertible Securities were issued, will be
validly issued, fully paid and nonassessable and will be free and clear of all
Liens imposed by or through the Company other than restrictions imposed by this
Agreement and applicable securities laws. There are no other options, warrants
or other rights, convertible debt, agreements, arrangements or commitments of
any character obligating the Company or any of its Subsidiaries to issue or sell
any shares of capital stock of or other equity interests in the Company. The
Company is not obligated to retire, redeem, repurchase or otherwise reacquire
any of its capital stock or other securities.

 











7
















(d)  The
Company has full corporate power and authority to execute, deliver and enter
into this Agreement, the Registration Rights Agreement, the
Warrants and the Escrow Agreement, dated as of the date hereof, by and among the
Company, the Placement Agent and the Escrow Agent (collectively, the
“Transaction
Documents”)
and
to consummate the transactions contemplated hereby and thereby. All action on
the part of the Company, its directors or stockholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents by the Company, the authorization, sale, issuance
and delivery of the Securities contemplated by this Agreement and the
performance of the Company’s obligations hereunder and thereunder has been
taken. The Securities to be purchased on the Closing Date have been duly
authorized and, when issued in accordance with this Agreement, will be validly
issued, fully paid and nonassessable and will be free and clear of all Liens
imposed by or through the Company other than restrictions imposed by this
Agreement and applicable securities laws. No preemptive or other rights to
subscribe for or purchase equity securities of the Company exists with respect
to the issuance and sale of the Securities by the Company pursuant to this
Agreement or the other Transaction Documents. This Agreement and the other
Transaction Documents have been duly executed and delivered by the Company, and
each such agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy.

 

(e)  (i)
Included in the Company’s Form 10-KSB are true and complete copies of the
consolidated audited balance sheets (the “Balance
Sheets”) of the
Company at September 30, 2003 and 2002, and the related consolidated audited
statements of operations, changes in stockholders’ equity (deficit) and
comprehensive income (loss) and cash flows for the years ended September 30,
2003 and 2002 (the “ Financial Statements”),
accompanied by the report of J.H. Cohn. The Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”),
applied consistently with the past practices of the Company (except as may be
indicated in the notes thereto), and as of their respective dates, fairly
present, in all material respects, the consolidated financial position of the
Company and the results of its operations as of the time and for the periods
indicated therein. The Financial Statements have been prepared and are in
accordance with the accounting books and records of the Company.

 

(ii)  A copy of
each report, schedule, effective registration statement and definitive proxy
statement filed by the Company with the SEC since September 30, 2003, including,
but not limited to the SEC Documents, have also been made available to the
Investor either by physical delivery or via the SEC’s EDGAR System. As of their
respective filing dates, each SEC Document complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the SEC thereunder applicable to the SEC
Documents, and no SEC Document contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with then applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP, applied consistently with the past practices of the
Company, and as of their respective dates, fairly presented in all material
respects the financial position of the Company and the results of its operations
as of the time and for the periods indicated therein (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, as permitted
by Form 10-QSB, and Regulations S-K and S-X of the SEC). 














8
















(iii)  The
Company confirms that neither it nor any person acting on its behalf has
provided any of the Investors or their agents or counsel with any information
that the Company believes constitutes material, non-public information. The
Company understands and confirms that the Investors will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company’s representations and warranties set forth in this
Agreement and the schedules to this Agreement and the information contained or
incorporated by reference in the Memorandum) are true and correct in all
material respects 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. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or
disclosed.




(iv)  Since
September 30, 2003, except as disclosed in the SEC Documents, neither the
Company nor any of the Company’s Subsidiaries has incurred any liabilities or
obligations of any nature, whether or not accrued, absolute, contingent or
otherwise, other than liabilities (A) disclosed in the SEC Documents filed prior
to the date of this Agreement, (B) adequately provided for in the Balance Sheets
or disclosed in any related notes thereto, (C) not required under GAAP to be
reflected in the Balance Sheets, or disclosed in any related notes thereto (D)
incurred in connection with this Agreement or (E) incurred in the ordinary
course of business.




(v)  Since
September 30, 2003, except as disclosed in the SEC Documents, filed subsequent
to that date, there has not been any material adverse change in the business,
financial condition or operating results of the Company and its Subsidiaries.


 

(f)  Except as
contemplated by this Agreement or disclosed in the SEC Documents, since
September 30, 2003 through the date immediately preceding the Closing Date,
neither the Company nor any of its Subsidiaries has (i) issued any stock,
options, bonds or other corporate securities other than pursuant to the Option
Plans, (ii) borrowed any amount or incurred or became subject to any liabilities
(absolute, accrued or contingent), other than current liabilities incurred in
the ordinary course of business and liabilities under contracts entered into in
the ordinary course of business, (iii) discharged or satisfied any lien or
adverse claim or paid any obligation or liability (absolute, accrued or
contingent), other than current liabilities shown on the Balance Sheets and
current liabilities incurred in the ordinary course of business, (iv) declared
or made any payment or distribution of cash or other property to the
stockholders of the Company or purchased or redeemed any securities of the
Company, (v) mortgaged, pledged or subjected to any lien or adverse claim any of
its properties or assets, except for liens for taxes not yet due and payable or
otherwise in the ordinary course of business, (vi) sold, assigned or transferred
any of its assets, tangible or intangible, except in the ordinary course of
business or in an amount less than $250,000, (vii) suffered any extraordinary
losses or waived any rights of material value other than in the ordinary course
of business, (viii) made any capital expenditures or commitments therefor other
than in the ordinary course of business or in an amount less than $250,000, (ix)
entered into any other transaction other than in the ordinary course of business
in an amount less than $250,000 or entered into any material transaction,
whether or not in the ordinary course of business, (x) made any charitable
contributions or pledges, (xi) suffered any damages, destruction or casualty
loss, whether or not covered by insurance, affecting any of the properties or
assets of the Company or any other properties or assets of the Company which
could, individually or in the aggregate, have or result in a Material Adverse
Effect, (xii) made any material change in the nature or operations of the
business of the Company or (xiii) entered into any agreement or commitment to do
any of the foregoing.

 











9
















(g)  (i) The
execution and delivery by the Company of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby will not
(A) result in the violation of any provision of the Certificate of Incorporation
or By-laws of the Company, (B) result in any violation of any law, statute,
rule, regulation, order, writ, injunction, judgment or decree of any court or
governmental authority to or by which the Company or any of its Subsidiaries is
bound or (C) conflict with, or result in a breach or violation of, any of the
terms or provisions of, or constitute (with due notice or lapse of time or both)
a default under, any lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement to which the Company or any of its Subsidiaries is
a party or by which it is bound or to which any of its properties or assets is
subject, nor result in the creation or imposition of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries, in the cases of
clauses (ii) and (iii) above, only to the extent such conflict, breach,
violation, default or Lien reasonably could, individually or in the aggregate,
have or result in a Material Adverse Effect.

 

(ii)  No
consent, approval, license, permit, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority remains to be obtained or is otherwise required to
be obtained by the Company in connection with the authorization, execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, including, without limitation the issue and sale of the Units, except
filings as may be required to be made by the Company after the Closing with (A)
the SEC, (B) the OTC Bulletin Board and (C) state “blue sky” or other securities
regulatory authorities.

 

(h)  The
Company and its Subsidiaries have all licenses, permits and other governmental
authorizations currently required for the conduct of its current business and
the ownership of its properties and is in all respects complying therewith,
except where the failure to have such licenses, permits and other governmental
authorizations would not have a Material Adverse Effect.

 

(i)  Except as
disclosed in the Company’s SEC Documents, there are no claims, actions, suits,
investigations or proceedings pending or, to the Company’s knowledge, threatened
against the Company and its Subsidiaries or their respective assets, at law or
in equity, by or before any governmental authority, or by or on behalf of any
third-party. 

 

(j)  The
Company is not, and following the Closing of the Offering will not be, an
“investment company” within the meaning of that term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the SEC
thereunder.

 

(k)  Except as
disclosed in the Company’s SEC Documents, neither the Company nor any of its
Subsidiaries is (i) in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party of
by which it or any of its properties is bound or (ii) in violation of any order,
decree or judgment of any court, arbitrator or governmental body.

 











10
















(l)  Except as
disclosed in the SEC Documents, the Company has not since September 30, 2003
received notice (written or oral) from any stock exchange or market on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the continuing listing or
maintenance requirements of the exchange or market. 

 

(m)  The
Company or its Subsidiaries have all trademarks, registered copyrights, service
marks or trade names, permits, grants and licenses and all other intangible
assets, properties and rights that are material and necessary to conduct of the
business of the Company, and, there are no other trademarks, copyrights, service
marks, trade names or other intangible assets, properties or rights that are
material to or that are necessary for the conduct of the business of the Company
(the “Intellectual
Property ”). The
Company and its Subsidiaries, as the case may be, own all right, title and
interest, or possesses adequate rights, in and to the Intellectual Property
necessary to conduct the business of the Company and the Intellectual Property
do not infringe on or conflict with the rights or intellectual property of third
parties, and neither the Company, nor any of its Subsidiaries has received any
notice contesting its right to use any such Intellectual Property. The
Intellectual Property has not been and are not the subject of any pending or
threatened litigation or claim of infringement, and the transactions
contemplated hereby and by the Transaction Documents will not adversely affect
the right, title and interest of the Company in and to the Intellectual
Property.

 

(n)  The
Company and its Subsidiaries have obtained all permits, licenses and other
authorizations which are required under United States federal, state and local
laws relating to pollution or protection of the environment, including laws
related to emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic material or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling or pollutants, contaminants or hazardous or toxic materials or wastes
(“ Environmental
Laws”). The
Company and its Subsidiaries are in compliance with all terms and conditions of
the required permits, licenses and authorizations and are also in full
compliance with all other limitations, restrictions, conditions and requirements
contained in the Environmental Laws or contained in any plan, except where the
failure to so comply would not have a Material Adverse Effect. The Company is
not aware of, nor has the Company received notice of, any events, conditions,
circumstances, actions or plans which may interfere with or prevent continued
compliance or which would give rise to any liability under any Environmental
Laws.

 

(o)  All
material agreements to which the Company and its Subsidiaries are parties and
which are required to have been filed by the Company pursuant to the Securities
Act, the Exchange Act and the rules and regulations thereunder have been filed
by the Company with the SEC. As of the date hereof, except as disclosed in the
SEC Documents, and except for those agreements that by their terms are no longer
in effect, each such agreement is in full force and effect and is binding on the
Company and, to the Company’s knowledge, is binding upon such other parties, in
each case in accordance with its terms, and neither the Company nor, to the
Company’s knowledge, any other party thereto is in material breach of or
material default under any such agreement. Except as disclosed in the SEC
Documents, the Company has not received any written notice regarding the
termination of any such agreements.

 

(p)  The
Company has good title to all the properties and assets reflected as owned by it
in the consolidated financial statements included in the Memorandum, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such consolidated financial statements or (ii) those which
are not material in amount and do not adversely affect the use made and intended
to be made of such property by the Company. The Company holds its leased
properties under valid and binding leases. Except as disclosed in the
Memorandum, the Company owns or leases all such properties as are necessary to
its operations as now conducted.

 











11
















(q)  The
Company and its Subsidiaries maintain insurance of the types, against such
losses and in the amounts and with such insurers as are customary in the
Company’s industry and otherwise reasonably prudent, including, but not limited
to, insurance covering all real and personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against by similarly situated companies, all of which
insurance is in full force and effect.

 

(r)  The
Company and its Subsidiaries are in compliance in all material respects with all
applicable laws and all orders of, and agreements with, any governmental
authority applicable to the Company, any Subsidiary or any of their respective
assets. The Company and the Subsidiaries have all permits, certificates,
licenses, approvals and other authorizations required under applicable laws or
necessary in connection with the conduct of their businesses, except where the
failure to have such permits, certificates, licenses, approvals and other
authorizations would not have a Material Adverse Effect.

 

(s)  The
Company and its Subsidiaries have in all material respects filed or obtained
extensions of all federal, state, local and foreign income, excise, franchise,
real estate, sales and use and other tax returns heretofore required by any law
to which the Company is bound to be filed by it. All material federal, state,
county, local, foreign or other income taxes which have become due or payable by
the Company or any of its Subsidiaries (collectively, “Taxes”), have
been paid in full or are adequately provided for in accordance with GAAP on the
financial statements of the applicable person. No Liens arising from or in
connection with Taxes have been filed and are currently in effect against the
Company or any of its Subsidiaries, except for Liens for Taxes which are not yet
due or which would not have a Material Adverse Effect. No audits or
investigations are pending or, to the knowledge of the Company, threatened with
respect to any tax returns or Taxes of the Company or any of its
Subsidiaries.

 

(t)  The
Company is in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder
(“ERISA”); no
“reportable event” (as defined in ERISA) has occurred with respect to any
“pension plan” (as defined in ERISA) for which the Company would have any
material liability; the Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the “Code”); and
each “pension plan” for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.

 

(u)  The
Company is not involved in any material labor dispute with its employees nor is
any such dispute, to the Company’s knowledge, threatened or
imminent.

 











12
















(v)  Assuming
the truth of the Investor’s representations and acknowledgments contained in
Section 2.1 hereof, neither the Company nor any person acting on its behalf
(other than Investor, as to whom the Company makes no representations) has
offered or sold the Securities by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act. The
Company has not sold the Securities to anyone other than the Investors
designated on the signature pages hereto. Each Share and Warrant Share
certificate shall bear substantially the same legend set forth in Section 2.1(l)
hereof for at least so long as required by the Securities Act.

 

(w)  Other
than CRT Capital Group LLC (as placement agent on behalf of the Company, the
“Placement
Agent”), and
any subagents it may appoint, no finder, broker, agent, financial person or
other intermediary has acted on behalf of the Company in connection with the
sale of the Units by the Company or the consummation of this Agreement or any of
the transactions contemplated hereby. The Company has not had any direct or
indirect contact with any other investment banking firm (or similar firm) with
respect to the offer of the Units by the Company to the Investor or the
Investor’s purchase of the Units.

 

(x)  Except as
set forth in the SEC Documents, the Company is in material compliance with the
Sarbanes-Oxley Act of 2002 and all requirements under the Exchange
Act.

 

(y)  The
foregoing acknowledgments, representations, warranties and covenants shall
survive the Closing.

 

SECTION
3
CONDITIONS
FOR CLOSING

 

3.1  Conditions
of Investor’s Obligations at Closing. The
obligations of each Investor under this Agreement are subject to the Company’s
fulfillment on or before Closing of each of the following
conditions:

 

(a)  Representations
and Warranties. The
representations and warranties of the Company contained in Section 2.2 shall be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing. 

 

(b)  Performance. The
Company shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.

 

(c)  Opinion
of Counsel to the Company. The
Investors and the Placement Agent shall have received from each of Shughart
Thomson & Kilroy, P.C., counsel for the Company, and the Company’s inside
counsel, their respective opinions dated as of the Closing Date and addressed to
the Investors in substantially the forms attached hereto as Exhibit
C-1 and
Exhibit
C-2 respectively.

 











13
















(d)  Registration
Rights Agreement. The
Investor shall have received from the Company the Registration Rights Agreement,
executed by the Company.

 

(e)  Warrant
Agreement. The
Investor shall have received from the Company Warrants to purchase that number
of shares of Common Stock equal to the number of Units purchased by such
Investor multiplied by 0.3, pursuant to a Warrant Agreement dated the Closing
Date, in substantially the form attached as Exhibit D hereto
(the “ Warrant
Agreement”),
executed by the Company.

 

 

(f)  Stock
Certificates. The
Investor shall have received from the Company certificates representing that
number of Shares equal to the number of Units purchased by such
Investor.

 

(g)  No
Injunctions; etc. No
court or governmental injunction, order or decree prohibiting the purchase and
sale of the Units will be in effect. There will not be in effect any law, rule
or regulation prohibiting or restricting the sale or requiring any consent or
approval of any person that has not been obtained to issue and sell the Units to
the Investor. 

 

(h)  Waivers
and Consents. The
Company will have obtained all consents and waivers necessary to execute and
deliver this Agreement and all related documents and agreements and to issue and
deliver the Shares, the Warrants, and the Warrant Shares issuable thereon, and
all consents and waivers will be in full force and effect.

 

3.2  Conditions
of the Company’s Obligations at Closing. The
obligations of the Company with respect to each Investor under this Agreement
are subject to such Investor’s fulfillment on or before the Closing of each of
the following conditions by the Investor:

 

(a)  Representations
and Warranties. The
representations and warranties of the Investor contained in Section 2.1 shall be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing
Date.

 

(b)  Payment
of Purchase Price. The
Investor shall have delivered the purchase price and other documents required
pursuant hereto.

 

(c)  Registration
Rights Agreement. The
Company shall have received from the Investor the Registration Rights Agreement,
executed by the Investor.

 

(d)  Investor
Qualification Questionnaire. The
Company shall have received from the Investor a completed Investor Qualification
Questionnaire, executed by the Investor.

 

(e)  No
Injunctions; etc. No
court or governmental injunction, order or decree prohibiting the purchase and
sale of the Units will be in effect. There will not be in effect any law, rule
or regulation prohibiting or restricting the sale or requiring any consent or
approval of any person that has not been obtained to issue and sell the Units to
the Investor. 

 

SECTION
4
AFFIRMATIVE
COVENANTS TO THE COMPANY

 

4.1  The
Company hereby covenants and agrees with the Investors as follows:

 

(a)  Conduct
of the Company. Between
the date hereof and the Closing Date, the Company shall, and shall cause each
Subsidiary to:

 

(i)  preserve
and maintain in full force and effect its existence and good standing under the
laws of its jurisdiction of formation or organization;

 











14
















(ii)  preserve
and maintain in full force and effect all material rights, privileges,
qualifications, applications, licenses and franchises necessary for the Company
and the Subsidiaries to operate in the normal conduct of their respective
businesses as presently and as proposed to be conducted;

 

(iii)  use its
best efforts to preserve intact its business organization;

 

(iv)  conduct
its business in the ordinary course in accordance with sound business practices,
and keep its properties in good working order and condition (normal wear and
tear excepted); 

 

(v)  take all
reasonable actions to protect and maintain the Company Intellectual Property,
including, without limitation, prosecuting all pending applications for patents
or for the registration of trademarks and copyrights and maintaining, to the
extent permitted by law, each patent or registration owned by the Company or any
Subsidiary;

 

(vi)  (A)
comply in all material respects with all applicable laws, rules and regulations
and with the directions of any governmental authority, and (B) not take any
action designed to or that might reasonably be expected to cause or result in
unlawful manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares, the Warrants or the Warrant Shares in violation of
applicable law;

 

(vii)  file or
cause to be filed in a timely manner all reports, applications, estimates and
licenses that shall be required by a governmental authority;

 

(viii)  conduct
its business in a manner such that the representations and warranties of the
Company contained in Section 2.2 shall continue to be true and correct on
and as of the Closing;

 

(ix)  use its
best efforts to cause the conditions contained in Section 3.1 to be satisfied on
or before the Closing Date; and

 

(x)  not
issue, deliver, sell or authorize, or propose the issuance, delivery, sale or
purchase of, any additional shares of capital stock, stock equivalents or any
other security of the Company or any Subsidiary, other than (A) the
issuance of Common Stock pursuant to the exercise of any warrants or options
outstanding as of the date hereof and (B) the issuance of shares of Common
Stock pursuant to the Company’s Option Plans.

 

4.2  Disclosure. The
Company covenants and agrees that neither it nor any other person acting on its
behalf will provide any Investor or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Investor shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Investor shall be relying on the foregoing covenant in
effecting transactions in securities of the Company. In the event of a breach of
the foregoing covenant by the Company or any person acting on its or their
behalf, the Company shall, upon written notice of such breach, make public
disclosure of such material non-public information. 

 

4.3  Reservation
of Common Stock. The
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock the maximum number of Shares and Warrant Shares that may
be issuable or deliverable hereunder and under all the Warrant
Agreements.

 











15
















4.4  Securities
Law Filings. For so
long as the Investors and their respective Affiliates in the aggregate hold any
of the Shares, the Warrants or the Warrant Shares, the Company agrees to file
with the SEC in a timely manner all reports and other documents required to be
filed by the Company under the Securities Act and Exchange Act.

 

4.5  Legends. The
Company agrees that at such time as such legend specified in Section 2.2(l) is
no longer required to be printed on certificates evidencing the Shares, the
Warrants or the Warrant Shares (or any securities issued in exchange therefor in
connection with any merger, recapitalization, reclassification or other similar
transaction), the Company shall cause its counsel to promptly issue a legal
opinion addressed to the Company’s transfer agent if required by such transfer
agent to effect the removal of such legend as and when any Investor so requests.
The Company further agrees that at such time, it will, promptly following, and
in any event within six (6) business days of, the delivery by a Investor to the
Company or the Company’s transfer agent of a certificate representing Shares or
Warrant Shares issued with a restrictive legend, deliver or cause to be
delivered to such Investor a certificate representing such Shares or Warrant
Shares that is free from all restrictive and other legends.

 

4.6  Use
of Proceeds. The
Company shall use the net proceeds from the sale of the Units for the purposes
specified in the Memorandum.

 

4.7  Securities
Laws Disclosure; Publicity. By 8:30
a.m. the day following the Closing Date, the Company will issue a press release
disclosing the material terms of the transactions contemplated hereby in
accordance with the applicable SEC rules and regulations. 

 

SECTION
5
TERMINATION

 

5.1  Termination. This
Agreement may be terminated prior to the Closing as follows:

 

(i)  with
respect to any individual Investor, at any time on or prior to the Closing Date,
by mutual written consent of the Company and such Investor;

 

(ii)  at the
election of the Company or the Investors by written notice to the other parties
hereto after 5:00 p.m., New York time, on December 20, 2004, if the Closing
shall not have occurred on or prior to such date, unless such date is extended
by the mutual written consent of the Company and the Investors; provided,
however
,
that the right to terminate this Agreement under this Section 5.1(ii) shall not
be available (A) to any party whose breach of any representation, warranty,
covenant or agreement under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date or (B) if
the Closing has not occurred solely because any party hereto has not yet
obtained a necessary approval from any governmental authority; or

 

(iii)  by either
the Company or the Investors by written notice to the other parties hereto if
any governmental authority shall have issued any injunction or other order
prohibiting the consummation of the Closing and such injunction or order shall
not be subject to appeal or shall have become final and
nonappeable.

 











16
















5.2  Effect
of Termination. If this
Agreement is terminated pursuant to Section 5.1, this Agreement shall
become void and of no further force and effect and none of the parties hereto
shall have any liability in respect of such termination; provided,
however
,
that such termination shall not relieve the Company or any Investor of any
liability for any breach or non-performance of, or non-compliance with, this
Agreement.

 

SECTION
6
SURVIVAL
OF REPRESENTATIONS, WARRANTIES AND 

COVENANTS;
INDEMNIFICATION

 

6.1  Survival
of Representations, Warranties and Covenants. All of
the representations and warranties made herein shall survive the execution and
delivery of this Agreement until twenty-four (24) months following the Closing
Date, except for (a) Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d) which
representations and warranties shall survive the execution and delivery of this
Agreement and the Closing hereunder for the period of any applicable statute of
limitations or indefinitely if no statute of limitation applies, (b) 2.2(e),
2.2(v) and 2.2(w), which representations and warranties shall survive until the
third anniversary of the Closing Date, and (c) Section 2.2(s), which shall
survive until the later to occur of (i) the lapse of the statute of limitations
with respect to the assessment of any tax to which such representation and
warranty relates (including any extensions or waivers thereof) and (ii) sixty
(60) days after the final administrative or judicial determination of the taxes
to which such representation and warranty relates, and no claim with respect to
Section 2.2(s) may be asserted thereafter with the exception of claims arising
out of any fact, circumstance, action or proceeding to which the party asserting
such claim shall have given notice to the other parties to this Agreement prior
to the termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom. Except as otherwise provided in this Agreement,
all such representations, warranties, covenants and agreements shall inure to
the benefit of the parties (subject to Section 6.2 below) and their respective
successors and assigns.

 

6.2  Indemnification.


 

(i)  The
Company agrees to indemnify and hold harmless each Investor and its affiliates
and its and their stockholders, directors, officers, employees and agents and
each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (collectively, the
“Indemnified
Parties” and
each a “Indemnified
Party ”), and
will reimburse such Indemnified Party, from and against any and all loss,
damage, liability, cost and expense to which such Indemnified Party may become
subject under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses that are in any manner based upon, relating to or
arising out of in any manner based upon or relating to (A) any untrue
representation, misstatement, omission, breach of warranty or failure to perform
any covenants or agreement by the Company contained herein or in any of the
other Transaction Documents or (B) any action instituted against any Indemnified
Party by any holder of any securities of the Company that is not an affiliate of
such Indemnified Party with respect to any of the transactions contemplated by
this agreement or the Transaction Documents. The Company will also advance
expenses to a Indemnified Party as incurred to the fullest extent permitted
under applicable law; provided,
however, that
the Indemnified Party agrees to repay such advances to the Company if it is
ultimately determined that such Indemnified Party is not entitled to
indemnification.

 

(ii)  Promptly
after receipt by an Indemnified Party under this Section 6.2 of a notice of the
commencement of any action (including any governmental action) such Indemnified
Party will, if a claim in respect thereof is to be made against any indemnifying
party hereunder, deliver to the indemnifying party a written notice of the
commencement thereof. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall
relieve such indemnifying party of any liability to the Indemnified Party under
this Section 6.2 only to the extent prejudicial to its ability to defend such
action, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to an Indemnified Party
otherwise than under this Agreement. The indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an
Indemnified Party shall have the right to retain its own counsel, with the
reasonable fees and expenses to be paid by the indemnifying party, if in the
reasonable determination of counsel for the Indemnified Party, representation of
such Indemnified Party by the counsel obtained by the indemnifying party would
be inappropriate due to actual or potential conflicting interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. After notice from the indemnifying party to such Indemnified Party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such Indemnified Party pursuant to the provisions of paragraph
6.2(i) above for any legal or other expense subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation, unless (A) the Indemnified Party shall have employed
counsel in accordance with the provisions of the preceding sentence, (B) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action or (C) the indemnifying
party has authorized in writing the employment of counsel for the Indemnified
Party at the expense of the indemnifying party.

 











17
















SECTION
7
MISCELLANEOUS

 

7.1  Modification. Neither
this Agreement nor any provisions hereof should be modified, discharged or
terminated except by an instrument in writing signed by the party against whom
any waiver, change, discharge or termination is sought.

 

7.2  Notices. All
notices and other communications required or permitted hereunder must be in
writing and, except as otherwise noted herein, must be addressed as
follows:

 

if to the
Company, to:

 

MDU
Communications International, Inc.

60-D
Commerce Way

Totowa,
New Jersey 07512

Attn:
Sheldon Nelson

Facsimile:
(973) 237-9243

 

if to any
Investor, to the address shown on such Investor’s signature page, marked for
attention as there indicated, or to
such other address as the party to whom notice is to be given may have furnished
to the other parties in writing in accordance with the provisions of this
Section 7.2. Any such notice or communication will be deemed to have been
received: (A) in the case of facsimile or personal delivery, on the date of such
delivery; (B) in the case of nationally-recognized overnight courier, on the
next business day after the date sent; and (C) if by registered or certified
mail, on the third business day following the date postmarked.

 

7.3  Execution. By the
execution of the signature page attached hereto, the parties hereby agree to be
bound by all of the terms and conditions of this Agreement.

 

7.4  Counterparts. This
Agreement may by executed through the use of separate signature pages or in any
number of counterparts, and each of such counterparts shall, for all purposes,
constitute one agreement binding on all the parties, notwithstanding that all
parties are not signatories to the same counterpart.

 

7.5  Binding
Effect. Except
as otherwise provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties and their heirs executors, administrators,
successors, legal representatives and assigns. The obligation of the Investors
shall be joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators and
successors.

 

7.6  Entire
Agreement. This
instrument contains the entire agreement of the parties, and there are no
representations, covenants or other agreements except as stated or referred to
herein.

 

7.7  Assignability. This
Agreement is not transferable or assignable by the Investor.

 

7.8  Applicable
Law; Jurisdiction. This
Agreement shall be governed by and construed under the internal laws of the
State of New York without regard to conflict of law rules. The parties hereby
submit to the exclusive jurisdiction of the courts of the State of New York
located in New York County and the Federal courts located in the Southern
District of New York, with respect to any action or legal proceeding commenced
by either party with respect to this Agreement or the Units. Each party
irrevocably waives any objection it now has or hereafter may have respecting the
venue of any such action or proceeding or the inconvenience of such forum, and
each party consents to the service of process in any such action or proceeding
in the manner set forth for the delivery of notices herein. 

 

7.9  Waiver
of Jury Trial. The
parties hereby waive their rights to a trial by jury in any action or proceeding
involving any matter arising out of or relating to this Agreement or to the
Units.

 


IN
WITNESS WHEREOF, the
parties have executed this Agreement as of the acceptance date by the Company
indicated below:




[signatures
on following page]












18















 


STOCK
AND WARRANT PURCHASE AGREEMENT SIGNATURE PAGE

 




 


		 	 
	Signature
      of Investor 	 	Signature
      of Co-Investor 
	 	 	 
	 	 	 
	Name
      of Investor	 	Name
      of Co-Investor 
	 	 	 
	 	 	 
	Address
      of Investor	 	Address
      of Co-Investor 
	 	 	 
	 	 	 
	Social
      Security or Taxpayer Identification Number of Investor	 	Social
      Security or Taxpayer Identification Number of
  Co-Investor 
	 	 	 
	 	 	 
	Number
      of Units Purchased at $___ per Unit	 	MDU
      Communications International, Inc. 
	 	 	 
	 	 	 
	 	 	Name:
      Sheldon Nelson
	 	 	Title:
      President and Chief Executive Officer 
	Total
      Purchase Price Amount	 	Date: 










*If
Investor is a Registered Representative

with
an NASD member firm, have the following

acknowledgement
signed by the appropriate party:

 


	
      The
      undersigned NASD member firm acknowledges

      receipt
      of the notice required by Rule 3050 of the NASD 

      Conduct
      Rules.    

      

       

      Name
      of NASD Member Firm        

       

      By:___________________________

      Authorized
      Officer

       
	 
	
      Escrow
      Account Wire Instructions:

       

       
	
      Check
      Delivery Instructions: