SECURITIES PURCHASE AGREEMENT

      SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 8, 2006,
by and  among  Midnight  Auto  Holdings,  Inc.,  a  Delaware  corporation,  with
headquarters located at 3872 Rochester Road, Troy, MI 48083 (the "COMPANY"), and
each of the purchasers set forth on the signature pages hereto (the "BUYERS").

      WHEREAS:

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

      B. Buyers  desire to purchase  and the Company  desires to issue and sell,
upon the  terms  and  conditions  set forth in this  Agreement  (i) 10%  secured
convertible notes of the Company, in the form attached hereto as EXHIBIT "A", in
the  aggregate  principal  amount of Three  Hundred and Fifty  Thousand  Dollars
($350,000) (together with any note(s) issued in replacement thereof or otherwise
with  respect  thereto  in  accordance  with the terms  thereof,  the  "NOTES"),
convertible  into shares of common stock,  par value  $.00005 per share,  of the
Company (the "COMMON STOCK"),  upon the terms and subject to the limitations and
conditions  set forth in such  Notes  and (ii)  warrants,  in the form  attached
hereto as EXHIBIT  "B", to  purchase  an  aggregate  of Seven  Hundred  Thousand
(700,000) shares of Common Stock (the "WARRANTS");

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

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

<PAGE>

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

            1. PURCHASE AND SALE OF NOTES AND WARRANTS.

                  A.  PURCHASE OF NOTES AND  WARRANTS.  On the Closing  Date (as
defined  below),  the Company  shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of Notes and
number of Warrants as is set forth  immediately  below such  Buyer's name on the
signature pages hereto.

                  B. FORM OF PAYMENT.  On the Closing  Date (as defined  below),
(i)each  Buyer shall pay the  purchase  price for the Notes  (less the  purchase
price paid with  respect to any Bridge  Note) and the  Warrants to be issued and
sold to it at the  Closing (as defined  below)  (the  "PURCHASE  PRICE") by wire
transfer of immediately  available funds to the Company,  in accordance with the
Company's  written  wiring  instructions,  against  delivery of the Notes in the
principal  amount equal to the  Purchase  Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company  shall  deliver such Notes and Warrants duly executed on behalf
of the Company, to such Buyer, against delivery of such Purchase Price.

                  C.  CLOSING  DATE.  Subject to the  satisfaction  (or  written
waiver) of the  conditions  thereto  set forth in Section 6 and Section 7 below,
the  date and  time of the  issuance  and  sale of the  Notes  and the  Warrants
pursuant to this  Agreement  (the "CLOSING  DATE") shall be 12:00 noon,  Eastern
Standard  Time on May 8, 2006,  or such other  mutually  agreed  upon time.  The
closing of the transactions contemplated by this Agreement (the "CLOSING") shall
occur on the Closing Date at such location as may be agreed to by the parties.

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

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


                                       2
<PAGE>

                  B. ACCREDITED  INVESTOR  STATUS.  Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").

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

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

                  E. GOVERNMENTAL  REVIEW. Such Buyer understands that no United
States federal or state agency or any other  government or  governmental  agency
has passed upon or made any recommendation or endorsement of the Securities.

                  F. TRANSFER OR RE-SALE. Such Buyer understands that (i) except
as provided in the  Registration  Rights  Agreement,  the sale or re-sale of the
Securities have not been and are not being  registered under the 1933 Act or any
applicable  state  securities  laws,  and the  Securities may not be transferred
unless  (a) the  Securities  are  sold  pursuant  to an  effective  registration
statement under the 1933 Act, (b) such Buyer shall have delivered to the Company
an opinion of counsel that shall be in form,  substance and scope  customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred  may be sold or  transferred  pursuant to an exemption
from such registration,  which opinion shall be accepted by the Company, (c) the
Securities are sold or  transferred  to an  "affiliate"  (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("RULE 144")) of such Buyer
who agrees to sell or otherwise  transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited  Investor,  or (d) the Securities are
sold pursuant to Rule 144, and such Buyer shall have delivered to the Company an
opinion of counsel  that shall be in form,  substance  and scope  customary  for
opinions of counsel in corporate  transactions,  which opinion shall be accepted
by the Company;  (ii) any sale of such  Securities  made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further,  if said
Rule is not applicable,  any re-sale of such Securities  under  circumstances in
which the seller (or the person  through whom the sale is made) may be deemed to
be an  underwriter  (as  that  term is  defined  in the 1933  Act)  may  require
compliance with some other exemption under the 1933 Act or the rules and


                                       3
<PAGE>

regulations of the SEC  thereunder;  and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state  securities  laws or to comply  with the terms and  conditions  of any
exemption  thereunder  (in each case,  other than  pursuant to the  Registration
Rights  Agreement).  Notwithstanding  the foregoing or anything  else  contained
herein to the contrary, subject to applicable law, the Securities may be pledged
as  collateral in  connection  with a BONA FIDE margin  account or other lending
arrangement. In the event that the Company does not accept an opinion of counsel
provided by such Buyer with respect to the transfer of Securities pursuant to an
exemption  from  registration,  such as Rule 144, and such opinion is correct in
form and substance, within three (3) business days of delivery of the opinion to
the Company,  the Company  shall pay to such Buyer  liquidated  damages of three
percent (3%) of the outstanding amount of the Notes held by such Buyer per month
plus accrued and unpaid interest on the Notes,  prorated for partial months,  in
cash or  shares at the  option  of the  Company  ("STANDARD  LIQUIDATED  DAMAGES
AMOUNT"). If the Company elects to pay the Standard Liquidated Damages Amount in
shares of Common Stock,  such shares shall be issued at the Conversion  Price at
the time of payment.

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

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

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


                                       4
<PAGE>

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

                  I. RESIDENCY. Such Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.

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

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

                  B.  AUTHORIZATION;   ENFORCEMENT.  (i)  The  Company  has  all
requisite  corporate  power  and  authority  to  enter  into  and  perform  this
Agreement,  the Registration  Rights Agreement,  the Notes and the Warrants and,
subject to the adoption of necessary  resolutions  by the Board of Directors and
the  stockholders  of  the  Company  and  the  filing  of an  amendment  to  the
Certificate of Incorporation of the Company (the "CERTIFICATE OF INCORPORATION")
increasing the number of authorized shares of Common Stock with the Secretary of
State of the State of Delaware (the "CHARTER  AMENDMENT  ACTIONS") to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants by
the Company and, subject to the completion of the Charter Amendment Actions, the
consummation  by  it  of  the  transactions   contemplated  hereby  and  thereby
(including,  without limitation,  the issuance of the Notes and the Warrants and
the issuance and reservation  for issuance of the Conversion  Shares and Warrant
Shares issuable upon  conversion or exercise  thereof) have been duly authorized
by the Company's Board of Directors and no further consent or  authorization  of
the Company, its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its  authorized
representative,  and such  authorized  representative  is the true and  official
representative with


                                       5
<PAGE>

authority to sign this Agreement and the other documents  executed in connection
herewith and bind the Company accordingly,  and (iv) this Agreement constitutes,
and upon  execution  and  delivery  by the  Company of the  Registration  Rights
Agreement, the Notes and the Warrants, each of such instruments will constitute,
a legal,  valid and binding  obligation of the Company  enforceable  against the
Company in accordance with its respective terms.

                  C. CAPITALIZATION. Except as set forth on SCHEDULE 3(C), as of
the date hereof,  the  authorized  capital stock of the Company  consists of (i)
350,000,000  shares of Common Stock,  par value $0.00005,  of which  350,000,000
shares are issued and outstanding and (ii) 10,000,000 shares of preferred stock,
par value  $0.001,  of which no shares are issued and  outstanding.  The Company
intends to amend it Certificate of  Incorporation,  as soon as  practicable,  in
order  to  increase  the  number  of  authorized   shares  of  Common  Stock  to
1,000,000,000  shares,  in order  that the  Company  may issue an  aggregate  of
117,700,000  shares of Common  Stock to certain of its  shareholders  (as it has
committed to do) and have enough  shares of Common  Stock  reserved for issuance
upon exercise of outstanding  warrants and conversion of outstanding  notes. All
of such outstanding  shares of capital stock are, or upon issuance will be, duly
authorized,  validly issued, fully paid and nonassessable.  No shares of capital
stock of the  Company  are  subject to  preemptive  rights or any other  similar
rights of the  shareholders of the Company or any liens or encumbrances  imposed
through the actions or failure to act of the  Company.  Except as  disclosed  in
SCHEDULE  3(C), as of the date of this  Agreement,  (i) there are no outstanding
options,  warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal,  agreements,  understandings,  claims or other commitments or rights of
any character  whatsoever  relating to, or securities or rights convertible into
or  exchangeable  for any shares of capital  stock of the  Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue  additional  shares of capital stock of the Company
or any of its Subsidiaries,  (ii) there are no agreements or arrangements  under
which the Company or any of its  Subsidiaries  is obligated to register the sale
of any of its or their  securities  under the 1933 Act (except the  Registration
Rights  Agreement)  and (iii)  there are no  anti-dilution  or price  adjustment
provisions  contained in any security issued by the Company (or in any agreement
providing rights to security  holders) that will be triggered by the issuance of
the Notes, the Warrants,  the Conversion  Shares or Warrant Shares.  The Company
has made available to each Buyer true copies of the Certificate of Incorporation
as in effect on the date hereof, the Company's By-laws, as in effect on the date
hereof (the  "BY-LAWS"),  and the terms of all  securities  convertible  into or
exercisable  for Common  Stock of the  Company  and the  material  rights of the
holders thereof in respect thereto.

                  D.  ISSUANCE  OF  SHARES.  Subject  to the  completion  of the
Charter  Amendment  Actions,  the Conversion  Shares and Warrant Shares are duly
authorized  and reserved  for issuance  and,  upon  conversion  of the Notes and
exercise of the Warrants in  accordance  with their  respective  terms,  will be
validly issued,  fully paid and non-assessable,  and free from all taxes, liens,
claims  and  encumbrances  with  respect to the issue  thereof  and shall not be
subject to preemptive  rights or other  similar  rights of  shareholders  of the
Company and will not impose personal liability upon the holder thereof.

                  E.  ACKNOWLEDGMENT  OF DILUTION.  The Company  understands and
acknowledges  the  potentially  dilutive  effect to the  Common  Stock  upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or exercise of the Warrants.


                                       6
<PAGE>

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

                  F. NO  CONFLICTS.  Subject to the  completion  of the  Charter
Amendment  Actions,  the execution,  delivery and performance of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the Company and
the  consummation  by the Company of the  transactions  contemplated  hereby and
thereby  (including,  without  limitation,  the  issuance  and  reservation  for
issuance of the Conversion Shares and Warrant Shares) will not (i) conflict with
or result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or  constitute  a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,
amendment,  acceleration or cancellation of, any agreement,  indenture,  patent,
patent license or instrument to which the Company or any of its  Subsidiaries is
a party,  or (iii) result in a violation of any law,  rule,  regulation,  order,
judgment or decree (including  federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities  are  currently  subject)  applicable  to the  Company  or any of its
Subsidiaries  or by which any  property  or asset of the  Company  or any of its
Subsidiaries  is  bound  or  affected  (except  for  such  conflicts,  defaults,
terminations,  amendments, accelerations,  cancellations and violations as would
not, individually or in the aggregate,  have a Material Adverse Effect).  Except
for the  failure  of the  Company  to  deliver a portion of the shares of Common
Stock  to  the  stockholders  of  Midnight  Auto  Holdings,   Inc.,  a  Michigan
corporation,  neither the Company nor any of its Subsidiaries is in violation of
its Certificate of Incorporation,  By-laws or other organizational documents and
neither the Company nor any of its  Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the Company or any
of its  Subsidiaries in default)  under,  and neither the Company nor any of its
Subsidiaries  has taken any action or failed to take any action  that would give
to others any rights of termination, amendment, acceleration or cancellation of,
any  agreement,  indenture  or  instrument  to which the  Company  or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected,  except for possible defaults as would
not,  individually  or in the aggregate,  have a Material  Adverse  Effect.  The
businesses of the Company and its Subsidiaries, if any, are not being conducted,
and shall not be  conducted  so long as a Buyer owns any of the  Securities,  in
violation of any law, ordinance or regulation of any governmental  entity, which
violation would cause a Material  Adverse  Effect.  Except for the completion of
the Charter Amendment  Actions,  as specifically  contemplated by this Agreement
and as required under the 1933 Act and any applicable state securities laws, the
Company is not  required to obtain any  consent,  authorization  or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for  it to  execute,  deliver  or  perform  any of its  obligations  under  this
Agreement,  the  Registration  Rights  Agreement,  the Notes or the  Warrants in
accordance  with the terms  hereof or thereof or to issue and sell the Notes and
Warrants in accordance with the terms hereof and to issue the Conversion  Shares
upon  conversion  of the Notes  and the  Warrant  Shares  upon  exercise  of the
Warrants.  Except  for the  taking  of the  Charter  Amendment  Actions  and all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding


                                       7
<PAGE>

sentence have been obtained or will be obtained  promptly after Closing effected
on or prior to the date hereof.

                  G. ABSENCE OF CERTAIN CHANGES.  Since December 31, 2005, there
has been no material adverse change and no material  adverse  development in the
assets,  liabilities,  business,  properties,  operations,  financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.

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

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

                  J. NO MATERIALLY ADVERSE  CONTRACTS,  ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter,  corporate or other legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
Material  Adverse Effect.  Neither the Company nor any of its  Subsidiaries is a
party to any  contract  or  agreement  which in the  judgment  of the  Company's
officers has or is expected to have a Material Adverse Effect.

                  K. TAX  STATUS.  Except as set  forth on  SCHEDULE  3(K),  the
Company and each of its  Subsidiaries  has made or filed all federal,  state and
foreign income and all other tax returns,  reports and declarations  required by
any  jurisdiction to which it is subject (unless and only to the extent that the
Company  and each of its  Subsidiaries  has set  aside on its  books  provisions
reasonably  adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental  assessments and charges that are material
in amount, shown or


                                       8
<PAGE>

determined to be due on such  returns,  reports and  declarations,  except those
being  contested  in good  faith  and  has set  aside  on its  books  provisions
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods to which such returns,  reports or declarations  apply. To the Company's
knowledge, there are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction.  The Company has not executed a waiver
with  respect to the  statute  of  limitations  relating  to the  assessment  or
collection of any foreign,  federal,  state or local tax. Except as set forth on
SCHEDULE 3(K),  none of the Company's tax returns is presently  being audited by
any taxing authority.

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

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

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


                                       9
<PAGE>

                  O. NO INTEGRATED  OFFERING.  Except for sales of securities to
the Buyers and affiliates thereof heretofore  consummated,  neither the Company,
nor any of its  affiliates,  nor any person acting on its or their  behalf,  has
directly or indirectly made any offers or sales in any security or solicited any
offers to buy any security under  circumstances that would require  registration
under the 1933 Act of the issuance of the Securities to the Buyers. The issuance
of the  Securities to the Buyers will not be integrated  with any other issuance
of the  Company's  securities  (past,  current or future)  for  purposes  of any
shareholder approval provisions applicable to the Company or its securities.

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

                  Q.   PERMITS;   COMPLIANCE.   The  Company  and  each  of  its
Subsidiaries   is  in   possession   of   all   material   franchises,   grants,
authorizations,  licenses, permits, easements, variances,  exemptions, consents,
certificates,  approvals  and orders  necessary  to own,  lease and  operate its
properties  and  to  carry  on  its  business  as  it  is  now  being  conducted
(collectively, the "COMPANY PERMITS"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company  Permits.  Neither the Company nor any of its  Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such  conflicts,  defaults or violations  which,  individually or in the
aggregate,  would not reasonably be expected to have a Material  Adverse Effect.
Since  December 31, 2005,  neither the Company nor any of its  Subsidiaries  has
received  any  notification  with  respect to  possible  conflicts,  defaults or
violations  of  applicable  laws,   except  for  notices  relating  to  possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.

                  R. ENVIRONMENTAL MATTERS.

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


                                       10
<PAGE>

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

                        (III) There are no underground storage tanks on or under
any  real  property  owned,  leased  or  used  by  the  Company  or  any  of its
Subsidiaries that are not in compliance with applicable law.

                  S. TITLE TO  PROPERTY.  Except as set forth on SCHEDULE  3(S),
the  Company and its  Subsidiaries  have good and  marketable  title to all real
property and good and  marketable  title to all personal  property owned by them
which is material to the business of the Company and its  Subsidiaries,  in each
case free and clear of all liens and  encumbrances  and, to the knowledge of the
Company,  defects or such as would not have a Material  Adverse  Effect.  To the
knowledge of the Company,  any real property and facilities  held under lease by
the Company and its  Subsidiaries  are held by them under valid,  subsisting and
enforceable  leases with such  exceptions  as would not have a Material  Adverse
Effect.

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

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

                  V. FOREIGN CORRUPT PRACTICES.  Neither the Company, nor any of
its Subsidiaries,  nor any director,  officer,  agent,  employee or other person
acting on behalf of the  Company  or any  Subsidiary  has,  in the course of his
actions  for, or on behalf of, the  Company,  used any  corporate  funds for any
unlawful contribution,  gift,  entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any


                                       11
<PAGE>

foreign or  domestic  government  official  or employee  from  corporate  funds;
violated  or is in  violation  of any  provision  of the  U.S.  Foreign  Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff,  influence
payment,  kickback  or  other  unlawful  payment  to  any  foreign  or  domestic
government official or employee.

                  W.   SOLVENCY.   The  Company  (after  giving  effect  to  the
transactions contemplated by this Agreement) is solvent (I.E., its assets have a
fair  market  value  in  excess  of the  amount  required  to pay  its  probable
liabilities  on its  existing  debts as they become  absolute  and  matured) and
currently  the  Company  has no  information  that would  lead it to  reasonably
conclude  that the Company  would not,  after giving  effect to the  transaction
contemplated by this Agreement,  have the ability to, nor does it intend to take
any action  that would  impair its  ability  to, pay its debts from time to time
incurred in connection therewith as such debts mature.

                  X. NO  INVESTMENT  COMPANY.  The Company is not,  and upon the
issuance and sale of the Securities as  contemplated  by this Agreement will not
be an  "investment  company"  required  to be  registered  under the  Investment
Company Act of 1940 (an "INVESTMENT COMPANY").  The Company is not controlled by
an Investment Company.

                  Y. BREACH OF REPRESENTATIONS AND WARRANTIES BY THE COMPANY. If
the Company breaches any of the  representations or warranties set forth in this
Section  3, and in  addition  to any  other  remedies  available  to the  Buyers
pursuant to this  Agreement,  the Company  shall pay to the Buyers the  Standard
Liquidated  Damages Amount in cash or in shares of Common Stock at the option of
the  Company,  until  such  breach is cured.  If the  Company  elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.

            4. COVENANTS.

                  A. BEST  EFFORTS.  The parties shall use their best efforts to
satisfy timely each of the conditions  agreed to thereby  described in Section 6
and 7 of this Agreement.

                  B. FORM D; BLUE SKY LAWS.  The Company agrees to file a Form D
with  respect to the  Securities  as  required  under  Regulation  D and to make
available a copy thereof to each Buyer promptly  after such filing.  The Company
shall,  on, before or promptly  after the Closing Date,  take such action as the
Company shall  reasonably  determine is necessary to qualify the  Securities for
sale to the Buyers under applicable  securities or "blue sky" laws of the states
of the United States (or to obtain an exemption  from such  qualification),  and
shall make  available  evidence  of any such action so taken to each Buyer on or
prior to the Closing Date.

                  C. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM
S-1. The Company  represents  and warrants that it shall use its best efforts to
meet the requirements for the use of Form S-3 (or if the Company is not eligible
for the use of Form S-3 as of the Filing  Date (as  defined in the  Registration
Rights Agreement),  the Company may use the form of registration for which it is
eligible  at  that  time)  for  registration  of the  sale by the  Buyer  of the
Registrable  Securities (as defined in the Registration  Rights  Agreement).  So
long as any Buyer beneficially owns any of the Securities, the Company shall use
its best  efforts to timely file all  reports  required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not


                                       12
<PAGE>

terminate  its status as an issuer  required to file reports  under the 1934 Act
even if the 1934 Act or the rules and regulations  thereunder  would permit such
termination.  The Company  further  agrees that it shall use its best efforts to
file all reports  required  to be filed by the Company  with the SEC in a timely
manner so as to become eligible, and thereafter to maintain its eligibility, for
the use of Form S-3.  The Company  shall issue a press  release  describing  the
materials  terms of the transaction  contemplated  hereby as soon as practicable
following  the Closing Date but in no event more than five (5) business  days of
the Closing  Date,  which press  release shall be subject to prior review by the
Buyers.  The Company  agrees that such press release shall not disclose the name
of the Buyers unless  expressly  consented to in writing by the Buyers or unless
required by applicable  law or  regulation,  and then only to the extent of such
requirement.

                  D. USE OF PROCEEDS.  The Company  shall use the proceeds  from
the sale of the Notes and the Warrants for general working capital  purposes and
shall  not,  directly  or  indirectly,  use  such  proceeds  for any  loan to or
investment  in any other  corporation,  partnership,  enterprise or other person
(except  in  connection   with  its  currently   existing   direct  or  indirect
Subsidiaries.

                  E.  FUTURE  OFFERINGS.  Subject  to the  exceptions  described
below,   the  Company  will  not,   without  the  prior  written  consent  of  a
majority-in-interest  of the Buyers, not to be unreasonably withheld,  negotiate
or contract with any party to obtain additional equity financing (including debt
financing  with an equity  component)  that  involves (A) the issuance of Common
Stock at a  discount  to the  market  price of the  Common  Stock on the date of
issuance  (taking  into  account the value of any warrants or options to acquire
Common Stock issued in connection  therewith) or (B) the issuance of convertible
securities that are convertible into an indeterminate number of shares of Common
Stock or (C) the issuance of warrants  during the period (the "LOCK-UP  PERIOD")
beginning on the Closing Date and ending on the later of (i) two hundred seventy
(270) days from the Closing Date and (ii) one hundred eighty (180) days from the
date  the  Registration   Statement  (as  defined  in  the  Registration  Rights
Agreement)  is declared  effective  (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below, the Company
will not conduct any equity financing  (including debt with an equity component)
("FUTURE  OFFERINGS") during the period beginning on the Closing Date and ending
two (2) years  after the end of the  Lock-up  Period  unless it shall have first
delivered to each Buyer, at least twenty (20) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection  therewith,  and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the  aggregate  principal  amount of
Notes purchased by it hereunder bears to the aggregate principal amount of Notes
purchased  hereunder) of the securities  being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding  sentence are collectively  referred to as
the "CAPITAL RAISING  LIMITATIONS").  In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the notice
to the Buyers concerning the proposed Future Offering, the Company shall deliver
a new notice to each Buyer  describing  the amended terms and  conditions of the
proposed Future Offering and each Buyer  thereafter  shall have an option during
the fifteen  (15) day period  following  delivery of such new notice to purchase
its pro  rata  share  of the  securities  being  offered  on the  same  terms as
contemplated by such proposed Future Offering, as amended. The


                                       13
<PAGE>

foregoing  sentence  shall  apply to  successive  amendments  to the  terms  and
conditions of any proposed  Future  Offering.  The Capital  Raising  Limitations
shall not apply to any  transaction  involving  (i) issuances of securities in a
firm commitment  underwritten  public offering  (excluding a continuous offering
pursuant  to Rule 415 under the 1933 Act) or (ii)  issuances  of  securities  as
consideration  for  a  merger,  consolidation  or  purchase  of  assets,  or  in
connection with any strategic  partnership or joint venture (the primary purpose
of which is not to raise equity capital),  or in connection with the disposition
or  acquisition  of a business,  product or license by the Company.  The Capital
Raising  Limitations  also shall not apply to the  issuance of  securities  upon
exercise or conversion of the Company's  options,  warrants or other convertible
securities  outstanding  as of the date  hereof  or to the  grant of  additional
options or warrants, or the issuance of additional securities, under any Company
stock  option or  restricted  stock plan  approved  by the  shareholders  of the
Company.

                  F.  EXPENSES.  At the  Closing,  the Company  shall  reimburse
Buyers  for  expenses  incurred  by them in  connection  with  the  negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements  to be  executed in  connection  herewith  ("DOCUMENTS"),  including,
without  limitation,  attorneys' and  consultants'  fees and expenses,  transfer
agent fees, fees for stock quotation  services,  fees relating to any amendments
or  modifications  of the  Documents or any consents or waivers of provisions in
the Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of  restructuring  the  transactions  contemplated  by the Documents in an
amount not to exceed  $30,000.  When  possible,  the Company must pay these fees
directly, otherwise the Company must make immediate payment for reimbursement to
the Buyers for all fees and  expenses  immediately  upon  written  notice by the
Buyer or the  submission  of an invoice by the Buyer.  If the  Company  fails to
reimburse the Buyer in full within three (3) business days of the written notice
or  submission  of invoice by the Buyer,  the Company  shall pay interest on the
total amount of fees to be reimbursed at a rate of 15% per annum.

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

                  H.  AUTHORIZATION  AND  RESERVATION OF SHARES.  Subject to the
Stockholder  Approval  (as defined in Section  4(l)),  the Company  shall at all
times have  authorized,  and reserved for the purpose of issuance,  a sufficient
number of shares of Common Stock to provide for the full  conversion or exercise
of the outstanding  Notes and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection  therewith  (based on the  Conversion  Price of the
Notes or  Exercise  Price of the  Warrants  in effect  from time to time) and as
otherwise  required  by the Notes.  The  Company  shall not reduce the number of
shares of Common  Stock  reserved  for  issuance  upon  conversion  of Notes and
exercise of the Warrants without the consent of each Buyer. The Company shall at
all times maintain the number of shares of Common Stock so reserved for issuance
at an amount ("RESERVED AMOUNT") equal to


                                       14
<PAGE>

no less than two (2) times the number that is then  actually  issuable upon full
conversion  of the  Notes  and  upon  exercise  of the  Warrants  (based  on the
Conversion  Price of the Notes or the  Exercise  Price of the Warrants in effect
from  time to  time).  If at any time the  number  of  shares  of  Common  Stock
authorized and reserved for issuance ("AUTHORIZED AND RESERVED SHARES") is below
the  Reserved  Amount,  the Company  will  promptly  take all  corporate  action
necessary to authorize  and reserve a  sufficient  number of shares,  including,
without  limitation,  calling a special  meeting of  shareholders  to  authorize
additional shares to meet the Company's  obligations under this Section 4(h), in
the case of an  insufficient  number of authorized  shares,  obtain  shareholder
approval  of an  increase in such  authorized  number of shares,  and voting the
management  shares of the  Company  in favor of an  increase  in the  authorized
shares  of the  Company  to  ensure  that the  number  of  authorized  shares is
sufficient  to meet the  Reserved  Amount.  If the Company  fails to obtain such
shareholder  approval  within  sixty (60) days  following  the date on which the
number of Reserved  Amount  exceeds the  Authorized  and  Reserved  Shares,  the
Company shall pay to the Buyers the Standard  Liquidated Damages Amount, in cash
or in shares of Common  Stock at the option of each Buyer.  If a Buyer elects to
be paid the Standard  Liquidated  Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.  In order
to ensure that the Company has authorized a sufficient  amount of shares to meet
the  Reserved  Amount at all times,  the Company  shall use its best  efforts to
deliver  to a  representative  for the  Buyers at the end of every  month a list
detailing  (1) the  current  amount  of shares  authorized  by the  Company  and
reserved for the Buyers;  and (2) amount of shares  issuable upon  conversion of
the Notes and upon  exercise of the Warrants and as payment of interest  accrued
on the Notes for one year. If the Company fails to provide such list within five
(5) business  days of having  received a written  demand  therefor,  the Company
shall pay the Standard Liquidated Damages Amount, in cash or in shares of Common
Stock at the  option of the  Buyer,  until the list is  delivered.  If the Buyer
elects to be paid the  Standard  Liquidated  Damages  Amount in shares of Common
Stock,  such  shares  shall be  issued  at the  Conversion  Price at the time of
payment.

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

                  J. CORPORATE  EXISTENCE.  So long as a Buyer beneficially owns
any Notes or Warrants,  the Company shall  maintain its corporate  existence and
shall not sell all or


                                       15
<PAGE>

substantially  all of the Company's  assets,  except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor  entity in such transaction (i) assumes the Company's
obligations  hereunder and under the agreements and instruments  entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

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

                  L.  STOCKHOLDER  APPROVAL.  The  Company  shall  use its  best
efforts to file an  information  statement with the SEC no later than sixty (60)
days from the  Closing  Date and use its best  efforts to obtain,  no later than
sixty  (60)  days  from  the  Closing  Date,  such  approvals  of the  Company's
stockholders  as may be  required  to issue all of the  shares  of Common  Stock
issuable upon conversion or exercise of, or otherwise with respect to, the Notes
and the Warrants in accordance with Delaware law, either through a reverse stock
split of the Common Stock or an increase in authorized capital (the "STOCKHOLDER
APPROVAL").  The Company  shall furnish to a  representative  for the Buyers and
their legal counsel  promptly (but in no event less than two (2) business  days)
before the same is filed with the SEC, one copy of the information statement and
any  amendment  thereto,  and shall  deliver to each Buyer  promptly each letter
written by or on behalf of the  Company to the SEC or the staff of the SEC,  and
each item of  correspondence  from the SEC or the staff of the SEC, in each case
relating to such  information  statement  (other than any portion  thereof which
contains  information for which the Company has sought confidential  treatment).
The Company will promptly respond to any and all comments  received from the SEC
(which  comments shall  promptly be made  available to each Buyer).  The Company
shall comply with the filing and disclosure requirements of Section 14 under the
1934 Act in connection with the Stockholder Approval. The Company represents and
warrants that its Board of Directors has approved the proposal  contemplated  by
this Section 4(l) and shall indicate such approval in the information  statement
used in connection with the Stockholder Approval.

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

            5. TRANSFER AGENT INSTRUCTIONS.  The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee,  for the  Conversion  Shares and Warrant Shares in
such  amounts as  specified  from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the "IRREVOCABLE TRANSFER AGENT  INSTRUCTIONS").  Prior to registration
of the  Conversion  Shares and Warrant  Shares under the 1933 Act or the date on
which the Conversion Shares and Warrant Shares may be sold pursuant


                                       16
<PAGE>

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

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

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

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

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


                                       17
<PAGE>

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

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

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

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

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

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

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

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

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


                                       18
<PAGE>

            8. GOVERNING LAW; MISCELLANEOUS.

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

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

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

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

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


                                       19
<PAGE>

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

                  If to the Company:

                           Midnight Auto Holdings, Inc.
                           3872 Rochester Road
                           Troy, MI 48083
                           Attention: Chief Executive Officer
                           Telephone:
                           Facsimile: 586-783-1367

                  With a copy to:

                           Reitler Brown & Rosenblatt LLP
                           800 Third Avenue, 21st Floor
                           New York, NY  10022
                           Attention: Robert Steven Brown, Esq.
                           Telephone: 212-209-3014
                           Facsimile: 212-371-5500

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

                  With copy to:

                           Ballard Spahr Andrews & Ingersoll, LLP
                           1735 Market Street
                           51st Floor
                           Philadelphia, Pennsylvania  19103
                           Attention: Gerald J. Guarcini, Esq.
                           Telephone: 215-864-8625
                           Facsimile: 215-864-8999
                           Email: guarcini@ballardspahr.com

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

                  G.  SUCCESSORS AND ASSIGNS.  This  Agreement  shall be binding
upon and inure to the benefit of the parties and their  successors  and assigns.
Neither the Company nor any Buyer shall  assign this  Agreement or any rights or
obligations   hereunder   without  the  prior  written  consent  of  the  other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer


                                       20
<PAGE>

may assign its rights  hereunder to any person who is an  "Accredited  Investor"
that purchases Securities in a private transaction from a Buyer or to any of its
"affiliates," as that term is defined under the 1934 Act, without the consent of
the Company.

                  H. THIRD PARTY  BENEFICIARIES.  This Agreement is intended for
the benefit of the parties hereto and their respective  permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

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

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

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

                  L. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language  chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

                  M. REMEDIES.  The Company  acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Company  acknowledges  that the  remedy at law for a breach  of its  obligations
under this Agreement will be inadequate and agrees,  in the event of a breach or
threatened  breach by the Company of the provisions of this Agreement,  that the
Buyers shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or  injunctions  restraining,  preventing or curing any breach of this Agreement
and to enforce specifically the


                                       21
<PAGE>

terms and provisions hereof,  without the necessity of showing economic loss and
without any bond or other security being required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       22
<PAGE>

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

MIDNIGHT AUTO HOLDINGS, INC.

/s/ Nicholas Cocco
----------------------------
Nicholas Cocco
Chief Executive Officer


AJW PARTNERS, LLC
By: SMS Group, LLC

/s/ Corey S. Ribotsky
----------------------------
Corey S. Ribotsky
Manager

RESIDENCE: Delaware

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile: (516) 739-7115
         Telephone: (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:                             $
         Number of Warrants:
         Aggregate Remaining Purchase Price (after
         accounting for any principal of Bridge Note):                    $


                                       23
<PAGE>

AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC

/s/ Corey S. Ribotsky
---------------------------------
Corey S. Ribotsky
Manager

RESIDENCE: Cayman Islands

ADDRESS: AJW Offshore, Ltd.
         P.O. Box 32021 SMB
         Grand Cayman, Cayman Island, B.W.I.

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:                            $
         Number of Warrants:
         Aggregate Remaining Purchase Price (after
         accounting for any principal of Bridge Note):                   $


                                       24
<PAGE>

AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC

/s/ Corey S. Ribotsky
--------------------------------
Corey S. Ribotsky
Manager

RESIDENCE: New York

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile: (516) 739-7115
         Telephone: (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:                          $
         Number of Warrants:
         Aggregate Remaining Purchase Price (after
         accounting for any principal of Bridge Note):                 $


                                       25
<PAGE>

NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By:  First Street Manager II, LLP

/s/ Corey S. Ribotsky
--------------------------------
Corey S. Ribotsky
Manager

RESIDENCE: New York

ADDRESS: 1044 Northern Boulevard
         Suite 302
         Roslyn, New York  11576
         Facsimile: (516) 739-7115
         Telephone: (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

         Aggregate Principal Amount of Notes:                          $
         Number of Warrants:
         Aggregate Remaining Purchase Price (after
         accounting for any principal of Bridge Note):                 $


                                       26