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EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "AGREEMENT") is dated as of
February 17, 2005, among Armor Electric Inc., a Florida 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 $520,000 of shares of Common
Stock 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, for all purposes of this Agreement, 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), 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) for the
         closing bid price for regular session trading on such day), or (c) if


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         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 Pink Sheets, LLC (or a similar organization or agency
         succeeding to its functions of reporting prices), the most recent bid
         price per share of the Common Stock so reported, or (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 a qualified independent
         appraiser selected in good faith by the Purchasers of a majority in
         interest of the principal amount of Securities then outstanding.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the common stock of the Company, par
         value $0.001 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 Braun & Company, Vancouver, BC.

                  "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) 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
         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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                   "FW" means Feldman Weinstein LLP with offices located at 420
         Lexington Avenue, Suite 2620, New York, New York 10170-0002.

                  "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.

                  "PER SHARE PURCHASE PRICE" equals $0.10, subject to adjustment
         for reverse and forward stock splits, stock dividends, stock
         combinations and other similar transactions of the Common Stock that
         occur after the date of this Agreement.

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

                  "PRE-NOTICE" shall have the meaning ascribed to such term in
         Section 4.13.

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

                  "PURCHASER PARTY" shall have the meaning ascribed to such term
         in Section 4.9.

                  "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 A 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 Shares and the Warrant
         Shares.

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                  "REQUIRED APPROVALS" shall have the meaning ascribed to such
         term in Section 3.1(e).

                  "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 Shares, the Warrants and the Warrant
         Shares.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended.

                  "SHARES" means the shares of Common Stock issued or issuable
         to each Purchaser pursuant to this Agreement.

                  "SHORT SALES" shall include, without limitation, all "short
         sales" as defined in Rule 3b-3 of the Exchange Act.

                   "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).

                  "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 American Stock Exchange, the New York Stock Exchange, the
         Nasdaq National Market, the Nasdaq SmallCap Market or the OTC Bulletin
         Board.

                  "TRANSACTION DOCUMENTS" means this Agreement, the Warrants and
         the Registration Rights Agreement and any other documents or agreements
         executed in connection with the transactions contemplated hereunder.

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                  "WARRANTS" means the Common Stock Purchase Warrants, in the
         form of EXHIBIT B, 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 seven years and
         have an exercise price equal to $0.15, 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) a number of Shares equal to
such Purchaser's Subscription Amount divided by the Per Share Purchase Price and
(b) the Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate
Subscription Amounts for the Shares sold hereunder shall be up to $520,000. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of FW or such other location as the parties shall
mutually agree.

         2.2 DELIVERIES.

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

                           (i) this Agreement duly executed by the Company;

                           (ii) a copy of the irrevocable instructions to the
                  Company's transfer agent instructing the transfer agent to
                  deliver, on an expedited basis, a certificate evidencing a
                  number of Shares equal to such Purchaser's Subscription Amount
                  divided by the Per Share Purchase Price, 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 the Shares
                  to be issued to such Purchaser;

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

                           (v) a legal opinion of Company Counsel, in the form
                  of EXHIBIT C 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;

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

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

         2.3 CLOSING CONDITIONS.

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

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

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

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

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

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

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

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

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

                  (v) From the date hereof to the Closing Date, 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
         Shares at the Closing.

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                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

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

                  (c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations thereunder. The execution and
         delivery of each of the Transaction Documents by the Company and the
         consummation by it of the transactions contemplated thereby have been


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         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
         Shares 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.

                  (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 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 Shares and Warrants 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 Warrant Shares, when issued in accordance with the terms


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         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 the maximum
         number of shares of Common Stock issuable pursuant to this Agreement
         and the Warrants.

                  (g) CAPITALIZATION. The capitalization of the Company is as
         set forth on SCHEDULE 3.1(g). The Company has not issued any capital
         stock since its most recently filed periodic report under the Exchange
         Act, 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
         Shares. 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.

                  (h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
         all reports, schedules, forms, statements and other documents 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 and documents incorporated by reference
         therein, 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


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         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.

                  (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.

                                      -11-

<PAGE>

                  (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


                                      -12-

<PAGE>

         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.

                  (s) CERTAIN FEES. Granite shall receive a warrant, identical
         to the Warrant, registered in the name of Granite, pursuant to which
         Granite shall have the right to acquire up to the number of shares of
         Common Stock equal to 10% of the Shares to be issued to the Purchasers
         (the "GRANITE WARRANT"). Other than the Granite Warrant, no brokerage
         or finder's fees or commissions are or will be payable by the Company
         to any broker, financial advisor or consultant, finder, placement
         agent, investment banker, bank or other Person with respect to the
         transactions contemplated by this Agreement. The Purchasers shall have
         no obligation with respect to any fees or with respect to any claims
         made by or on behalf of other Persons for fees of a type contemplated
         in this Section that may be due in connection with the transactions
         contemplated by this Agreement.

                  (t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
         representations and warranties set forth in Section 3.2, no
         registration under the Securities Act is required for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby. 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 Shares,
         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. Other than the Purchasers, no Person
         has any right to cause the Company to effect the registration under the
         Securities Act of any securities of the Company.

                  (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


                                      -13-

<PAGE>

         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
         Trading Market on which any of the securities of the Company are listed
         or designated.

                  (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


                                      -14-

<PAGE>

         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) INTENTIONALLY OMITTED.

                  (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 Shares
         by any form of general solicitation or general advertising. The Company
         has offered the Shares for sale only to the Purchasers and certain
         other "accredited investors" within the meaning of Rule 501 under the
         Securities Act.

                  (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 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 June 30,
         2005, are a registered public accounting firm as required by the
         Securities Act.

                                      -15-

<PAGE>

                  (gg) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SHARES.
         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 Shares. 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; (ii) that past or future open market
         or other transactions by any Purchaser, including Short Sales, and
         specifically including, without limitation, Short Sales or "derivative"
         transactions, before or after the closing of this or future private
         placement transactions, may negatively impact the market price of the
         Company's publicly-traded securities; (iii) that any Purchaser, and
         counter parties in "derivative" transactions to which any such
         Purchaser is a party, directly or indirectly, presently may have a
         "short" position in the Common Stock, and (iv) 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:

                  (a) ORGANIZATION; AUTHORITY. If such Purchaser is not a
         natural Person, 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 non-natural
         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, if such Purchaser
         is not a natural Person, 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.

                                      -16-

<PAGE>

                  (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, such Purchaser was, and at the date hereof such
         Purchaser is, and on each date on which it exercises any Warrants, it
         will be either: (i) an "accredited investor" as defined in Rule 501
         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.

                  (f) SHORT SALES. Such Purchaser has not directly or
         indirectly, nor has any Person acting on behalf of or pursuant to any
         understanding with such Purchaser, executed any Short Sales in the
         securities of the Company (including, without limitations, any Short
         Sales involving the Company's securities) since the time that such
         Purchaser was first contacted regarding an investment in the Company
         prior to the date hereof ("DISCUSSION TIME").

         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.

                                      -17-

<PAGE>

                                   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 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.

                  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


                                      -18-

<PAGE>

         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 Shares and Warrant 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 Shares or Warrant
         Shares pursuant to Rule 144, or (iii) if such Shares or Warrant 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 Warrant is
         exercised at a time when there is an effective registration statement
         to cover the resale of the Warrant Shares, such Warrant 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 Shares or Warrant 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.

                  (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 Shares or Warrant
         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) 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.

                                      -19-

<PAGE>

                  (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.

                  (f) Until the date that each Purchaser holds less than 20% of
         the Shares initially purchased hereunder by such Purchaser, the Company
         shall not undertake a reverse or forward stock split or
         reclassification of the Common Stock without the prior written consent
         of the Purchasers holding a majority in interest of the Shares.

         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.

         4.4 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the 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


                                      -20-

<PAGE>

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.

         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.

                                      -21-

<PAGE>

         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 the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

         4.11 LISTING OF COMMON STOCK. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a 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 Shares and Warrant Shares on such Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application all of the Shares and


                                      -22-

<PAGE>

Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant 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 a Trading Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the 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.

         (a) 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").

         (b) 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.

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

                                      -23-

<PAGE>

         (d) If by 5:30 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.

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

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

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

         4.14 SUBSEQUENT EQUITY SALES.

                  (a) From the date hereof until 90 days after the Effective
         Date, neither the Company nor any Subsidiary shall issue shares of
         Common Stock or Common Stock Equivalents; provided, however, the 90 day
         period set forth in this Section 4.14 shall be extended for the number
         of Trading Days during such period in which (i) trading in the Common
         Stock is suspended by any Trading Market, or (ii) following the
         Effective Date, the Registration Statement is not effective or the
         prospectus included in the Registration Statement may not be used by
         the Purchasers for the resale of the Shares and Warrant Shares.

                  (b) From the date hereof until such time as no Purchaser holds
         any of the Securities, the Company shall be prohibited from effecting
         or entering into an agreement to effect any Subsequent Financing
         involving a "Variable Rate Transaction" or an "MFN Transaction" (each
         as defined below). The term "Variable Rate Transaction" shall mean a
         transaction in which the Company issues or sells (i) any debt or equity
         securities that are convertible into, exchangeable or exercisable for,
         or include the right to receive additional shares of Common Stock
         either (A) at a conversion, exercise or exchange rate or other price
         that is based upon and/or varies with the trading prices of or
         quotations for the shares of Common Stock at any time after the initial
         issuance of such debt or equity securities, or (B) with a conversion,
         exercise or exchange price that is subject to being reset at some
         future date after the initial issuance of such debt or equity security


                                      -24-

<PAGE>

         or upon the occurrence of specified or contingent events directly or
         indirectly related to the business of the Company or the market for the
         Common Stock or (ii) enters into any agreement, including, but not
         limited to, an equity line of credit, whereby the Company may sell
         securities at a future determined price. The term "MFN Transaction"
         shall mean a transaction in which the Company issues or sells any
         securities in a capital raising transaction or series of related
         transactions which grants to an investor the right to receive
         additional shares based upon future transactions of the Company on
         terms more favorable than those granted to such investor in such
         offering. Any Purchaser shall be entitled to obtain injunctive relief
         against the Company to preclude any such issuance, which remedy shall
         be in addition to any right to collect damages.

                  (c) Notwithstanding the foregoing, this Section 4.14 shall not
         apply in respect of an Exempt Issuance, except that no Variable Rate
         Transaction or MFN Transaction shall be an Exempt Issuance.

         4.15 SHORT SALES. Each Purchaser covenants that neither it nor any
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period from the Discussion Time until prior
to the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.4. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4.

         4.16 DELIVERY OF SECURITIES AFTER CLOSING. The Company shall deliver,
or cause to be delivered, the respective Shares 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, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before February 28, 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 Granite Financial
Group, Inc. ("GRANITE"), the sum of $25,000 for its legal fees and expenses. The
Company shall deliver, prior to the Closing, a completed and executed copy of
the Closing Statement, attached hereto as ANNEX A. Except as 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.

                                      -25-

<PAGE>

         5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a 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 5:30 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.

         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
California, 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


                                      -26-

<PAGE>

respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of San Diego. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of San Diego
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

         5.9 SURVIVAL. The representations and warranties herein shall survive
the Closing and delivery of the Shares and Warrant Shares.

         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.

                                      -27-

<PAGE>

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

         5.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Granite. 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.

                                      -28-

<PAGE>

         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)



                                      -29-

<PAGE>


                  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.




ARMOR ELECTRIC, INC.                                        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]

                                      -30-

<PAGE>


        [PURCHASER SIGNATURE PAGES TO ARME 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 (if an entity): _____________________________
Email Address of Purchaser:________________________________________________

Address for Notice of Purchaser:




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





Subscription Amount:
Shares:
Warrant Shares:
EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]


                                      -31-

<PAGE>


                                                                         ANNEX A

                                CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $520,000 of Common Stock and
Warrants from Armor Electric Inc. (the "COMPANY"). All funds will be wired into
a trust account maintained by ____________, counsel to the Company. All funds
will be disbursed in accordance with this Closing Statement.

DISBURSEMENT DATE:    February ____, 2005



I.   PURCHASE PRICE
                             GROSS PROCEEDS TO BE RECEIVED IN TRUST   $


II.  DISBURSEMENTS
                             Feldman Weinstein, LLP (per the instruction of
                             Granite)                                 $25,000
                                                                      $
                                                                      $
                                                                      $
                                                                      $

TOTAL AMOUNT DISBURSED:                                               $





WIRE INSTRUCTIONS:
------------------


To: Feldman Weinstein, LLP

                  STERLING NATIONAL BANK
                  622 3RD AVENUE
                  NEW YORK, NY 10017
                  ACCOUNT NAME:  FELDMAN WEINSTEIN LLP
                  ABA ROUTING NO: 026007773
                  ACCT NO: 0814180101
                  REMARK:  ARME/[FUND NAME]


                                      -32-