Exhibit 10.1 


     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of February 29, 2008 between Fearless International, Inc., a Nevada
      corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

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

     

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

     

    ARTICLE
      I.

    DEFINITIONS

     

    1.1 Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Debentures (as defined herein), and (b) the following terms have the
      meanings set forth 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 405 under the Securities
      Act.
      With
      respect to a Purchaser, any investment fund or managed account that is managed
      on a discretionary basis by the same investment manager as such Purchaser will
      be deemed to be an Affiliate of such Purchaser.

     

    “Board
      of Directors”
means
      the board of directors of the Company.

     

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

     

    “Closing”
means
      the closing of the purchase and sale of the Securities 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.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $0.001 per share, and any other
      class
      of securities into which such securities may hereafter be reclassified or
      changed into.

     

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

     

    “Company
      Counsel”
means
      Hodgson Russ LLP, with offices located at 1540 Broadway, 24th
      Floor,
      New York, NY 10036.

     

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

     

    “Debentures”
means
      the 9% Senior Secured Convertible Debentures due, subject to the terms therein,
      36 months from their date of issuance, issued by the Company to the Purchasers
      hereunder, in the form of Exhibit
      A
      attached
      hereto.

     

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

     

    “Effective
      Date”
means
      the date that the initial Registration Statement filed by the Company pursuant
      to the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Employee
      Benefit Plan”
shall
      have the meaning ascribed to such term by Rule 405 promulgated under the
      Securities Act but without regard to the limitation imposed by paragraph (1)
      (regarding natural persons) of such rule.

     

    “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, and the rules and regulations
      promulgated thereunder.

    


    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or Common Stock Equivalents pursuant
      to any Employee Benefit Plan adopted for such 

     

    
      
        
        

      


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    purpose
      by the Board of Directors or a committee thereof, (b) securities upon the
      exercise or exchange of or conversion of any Securities issued or issuable
      pursuant to the Transaction Documents, (c) securities exercisable or
      exchangeable for or convertible into shares of Common Stock issued and
      outstanding on the date of this Agreement (or issuable as reflected on
Schedule
      3.1(g),
      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,
      exchange or conversion price of such securities (it being understood and agreed
      that adjustments provided by the terms of the agreements existing as of the
      date
      hereof for securities under outstanding agreements will not be deemed included
      in this restriction), (d) securities issued pursuant to acquisitions or
      strategic transactions approved by a majority of the directors disinterested
      in
      the transaction at issue of the Company, provided that any such issuance shall
      only be to a Person which is, itself or through its subsidiaries, an operating
      company 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 and (e) up to an amount of
      Debentures and Warrants equal to the difference between $13,000,000 and the
      aggregate Subscription Amounts hereunder, on the same terms, conditions and
      prices as hereunder, with investors executing definitive agreements for the
      purchase of such securities, including the identical Security Agreement, and
      such transactions having closed on or before the earlier of (i) the Filing
      Date
      (as defined in the Registration Rights Agreement), (ii) the date that the
      Initial Registration Statement (as defined in the Registration Rights Agreement)
      is actually filed with the Commission or (iii) the 45 day anniversary of the
      date hereof.

     

    “FWS”
means
      Feldman Weinstein & Smith 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).

     

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

     

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

     

    “Knowledge”
or
      “Knowledge
      of the Company”
or
      terms of similar import means the conscious awareness of facts by the Senior
      Officers.

     

    “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, other than restrictions imposed by the securities
      laws of any jurisdiction. 

     

    
      
        
        

      


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

     

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

     

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

     

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

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.12. 

     

    “Pay-Off
      Letters”
shall
      mean the Pay-Off Letter in the form of Exhibit
      G
      attached
      hereto.

     

    “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 4.12. 

     

    “Principal
      Amount”
shall
      mean, as to each Purchaser, the amounts set forth below such Purchaser’s
      signature block on the signature pages hereto and next to the heading “Principal
      Amount,” in United States Dollars, which shall equal such Purchaser’s
      Subscription Amount multiplied by 1.0989. 

     

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

     

    “Purchaser”
shall
      have the meaning ascribed to such term in the preamble to this agreement;
provided,
      however,
      that
      notwithstanding anything to the contrary herein, such term shall not include
      any
      Person purchasing or acquiring Securities pursuant to the Registration Statement
      or Rule 144.

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.10.

     

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

     

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

     

    
      
        
        

      


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

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all Warrants and Debentures (including Underlying Shares issuable
      as
      payment of interest), ignoring any conversion or exercise limits set forth
      therein, and assuming that the Conversion Price is at all times on and after
      the
      date of determination 75% of the then Conversion Price on the Trading Day
      immediately prior to the date of determination.

     

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

     

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

     

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

     

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

     

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

    


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

     

    “Senior
      Officers”
means
      (a) Jeffrey Binder, the Company’s Chief Executive Officer, (b) Carol Stephan,
      the Company’s Chief Financial Officer and (c) Charles DeAngelo, the Company’s
      Chief Operations Officer.

     

    “Shares”
means
      the shares of Common Stock issued or issuable to each Purchaser pursuant to
      this
      Agreement.

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but shall not be deemed to include the location and/or reservation of
      borrowable shares of Common Stock). 

     

    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Debentures, Shares and Warrants purchased hereunder as specified below
      such 

     

    
      
        
        

      


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    Purchaser’s
      name on the signature page of this Agreement and next to the heading
“Subscription Amount,” in United States dollars and in immediately available
      funds.

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.12.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.12. 

     

    “Subsidiary”
means
      any subsidiary of the Company as set forth on Schedule
      3.1(a)
      and
      shall, where applicable, include any direct or indirect subsidiary of the
      Company formed or acquired after the date hereof.

     

    “Subsidiary
      Guarantee”
means
      the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor
      of
      the Purchasers, in the form of Exhibit
      F
      attached
      hereto.

     

    “Trading
      Day”
means
      a
      day on which the New York Stock Exchange is open for trading.

     

    “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 Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
      the Security Agreement, the Subsidiary Guarantee, all exhibits and schedules
      thereto and hereto and any other documents or agreements executed in connection
      with the transactions contemplated hereunder.

     

    “Transfer
      Agent”
means
      First Global Stock Transfer, LLC, the current transfer agent of the Company
      with
      a mailing address of 7361 Prairie Falcon Rd., Suite 110, Las Vegas, NV 89128
      and
      a facsimile number of (702) 304-0634, and any successor transfer agent of the
      Company.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Debentures and upon exercise of the Warrants and issued and issuable in
      lieu
      of the cash payment of interest on the Debentures in accordance with the terms
      of the Debentures.

     

    “Variable
      Rate Transaction”
      shall
      have the meaning ascribed to such term in Section 4.13(b).

     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then

     

    
      
        
        

      


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    listed
      or
      quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
      New
      York City time to 4:02 p.m. New York City time); (b)  if the OTC Bulletin
      Board is not a Trading Market, the volume weighted average price of the Common
      Stock for such date (or the nearest preceding date) on the OTC Bulletin Board;
      (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board
      and if prices for the Common Stock are then reported in the “Pink Sheets”
published by 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) in all other cases, the fair market value
      of a share of Common Stock as determined by an independent appraiser selected
      in
      good faith by the Purchasers of a majority in interest of the Securities then
      outstanding and reasonably acceptable to the Company, the fees and expenses
      of
      which shall be paid by the Company.

     

    “Warrants”
means,
      collectively, the Common Stock purchase warrants delivered to the Purchasers
      at
      the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
      be
      exercisable immediately and have a term of exercise equal to five years, in
      the
      form of Exhibit C
      attached
      hereto.

     

    “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, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and the Purchasers, severally
      and not jointly, agree to purchase, up to an aggregate of $14,285,700 in
      Principal Amount of the Debentures (for an aggregate cash Subscription Amount
      of
      up to $13,000,000). Each Purchaser shall deliver to the Company, via wire
      transfer or a certified check, immediately available funds equal to its
      Subscription Amount and the Company shall deliver to each Purchaser its
      respective Debenture, Shares, and a Warrant, as determined pursuant to Section
      2.2(a), and the Company and each Purchaser shall deliver the other items set
      forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the
      conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
      offices of FWS or such other location as the parties shall mutually agree.
      

     

    2.2  Deliveries.

     

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

     

    
      
        (i)
          this
          Agreement duly executed by the Company;

      

    

     

    (ii) a
      legal
      opinion of Company Counsel, in substantially the form of Exhibit
      D-1
      attached
      hereto; 

     

    
      
        
        

      


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    (iii) a
      legal
      opinion of counsel to Fearless Yachts, LLC, a limited liability company
      organized under the laws of Missouri, in substantially the form of Exhibit
      D-2
      attached
      hereto; 

     

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

     

    (v) a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 100% of such Purchaser’s Principal Amount divided by
      $0.20, with an exercise price equal to $0.25, subject to adjustment therein;
      

     

    (vi) a
      copy of
      the irrevocable instructions to the Transfer Agent instructing the Transfer
      Agent to deliver, on an expedited basis, a certificate evidencing a number
      of
      Shares equal to such Purchaser’s Principal Amount divided by $0.3333333333,
      registered in the name of such Purchaser; 

     

    (vii) the
      Security Agreement, duly executed by the Company and each Subsidiary, along
      with
      all of the Security Documents, including the Subsidiary Guarantee, duly executed
      by the parties thereto; and

     

    (viii) the
      Registration Rights Agreement duly executed by the Company.

     

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

     

    
      
        (i)
          this
          Agreement duly executed by such Purchaser;

      

    

     

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

     

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

     

    (iv) 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 on the Closing Date of the representations
      and
      warranties of the Purchasers contained herein;

     

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

     

    
      
        
        

      


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    (iii) the
      delivery by each Purchaser 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 when made and 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;

     

    (v) an
      executed Pay-Off Letter from each Purchaser who has received cash credit from
      the Company to be applied towards its Subscription Amount in the amount of
      principal and/or interest set forth on Schedule
      2.3
      attached
      hereto;

     

    (vi) written
      confirmation that the off-balance sheet pledge agreement, dated April 13, 2007,
      by and among the Company and Kevin F. Flynn whereby Mr. Flynn pledged $2,080,000
      in a letter of credit to Mellon Bank, has been extended until April 12, 2009;
      and

     

    (vii) from
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission or the Company’s principal Trading Market (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 L.P. 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 Securities at the Closing.

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    
      
        
        

      


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    3.1 Representations
      and Warranties of the Company.
      Except
      as
      set forth in the Disclosure Schedules, which Disclosure Schedules shall be
      deemed a part hereof and shall, without any further specific reference herein
      thereto, qualify any representation or warranty otherwise made herein, 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 of 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, all
      other references to the Subsidiaries or any of them in the Transaction Documents
      shall 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 condition (financial or otherwise) 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 hereunder and thereunder. The
      execution and delivery by the Company of each of the Transaction Documents
      to
      which it is a party and the consummation by it of the transactions contemplated
      hereby and thereby have been duly authorized by all necessary action on the
      part
      of the Company and no further action is required by the Company, the Board
      of
      Directors or the Company’s stockholders in connection therewith other than in
      connection with the Required Approvals. Each Transaction Document to which
      the
      Company is a party has been (or upon delivery will have been) duly executed
      by
      the Company and, when delivered in accordance with the terms hereof and thereof,
      will 

     

    
      
        
        

      


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    constitute
      the valid and binding obligation of the Company enforceable against the Company
      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.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance by the Company of each of the Transaction
      Documents to which it is a party and the consummation by the Company of the
      other transactions contemplated hereby and 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
      4.6,
      (ii) the filing with the Commission of the Registration Statement, (iii) the
      notice and/or application(s) to each applicable Trading Market for the issuance
      and sale of the Securities and the listing of the Underlying Shares for trading
      thereon in the time and manner required thereby, and (iv) the filing of Form
      D
      with the Commission and such filings as are required to be made under applicable
      state securities laws (collectively, the “Required
      Approvals”).

     

    (f) Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Underlying Shares, when issued in accordance with the terms of the

     

    
      
        
        

      


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    Transaction
      Documents, will be 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 Company has reserved from its duly
      authorized capital stock a number of shares of Common Stock for issuance of
      the
      Underlying Shares at least equal to the Required Minimum on the date hereof.
      

     

    (g) Capitalization.
      As of
      the date hereof, the Company has 67,664,197 shares of Common Stock issued and
      outstanding. The capitalization of the Company is as set forth on Schedule
      3.1(g),
      which
Schedule
      3.1(g)
      shall
      also include the number of shares of Common Stock owned beneficially, and of
      record, by, as of the date hereof (i) to the Company’s Knowledge, Affiliates of
      the Company and (ii) the Senior Officers and the members of the Board of
      Directors. Except 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 plans and pursuant to the conversion or
      exercise of Common Stock Equivalents outstanding as of the date of the most
      recently filed periodic report under the Exchange Act. Other than as
      contemplated by the Transaction Documents, 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 transactions contemplated by Schedule
      3.1(g),
      the
      Transaction Documents or as otherwise reflected in the Company’s Annual report
      on Form 10-KSB for the year ended March 31, 2007, as amended, the Company’s
      Quarterly Report on Form 10-QSB for the period ended June 30, 2007, as amended,
      and the Company’s Quarterly Report on Form 10-QSB for the period ended September
      30, 2007, there are no outstanding options, warrants, scrip rights to subscribe
      to, calls or commitments of any character whatsoever relating to, or securities,
      rights or obligations convertible into or exercisable 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. Except as contemplated by Schedule
      3.1(g),
      the
      issuance and sale of the Securities will not obligate the Company to issue
      shares of Common Stock or other securities to any Person (other than the
      Purchasers) and will not result in a right of any holder of Company securities
      to adjust the exercise, conversion, exchange or reset price under any of such
      securities. To the Knowledge of the Company, 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 or others is
      required for the issuance and sale of the Securities. There are no stockholders
      agreements, voting agreements or other similar agreements with respect to the
      Company’s capital stock to which the Company is a party or, to the Knowledge of
      the Company, between or among any of the Company’s stockholders.

     

    
      
        
        

      


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    (h) SEC
      Reports; Financial Statements.
      Since
      December 8, 2006, the Company has filed all reports, schedules, forms,
      statements and other documents required to be filed by the Company under the
      Securities Act and the Exchange Act, and all amendments thereto, including
      pursuant to Section 13(a) or 15(d) thereof (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, as applicable,
      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 the 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 appropriate
      year-end audit adjustments.

     

    (i) Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as disclosed in a subsequent SEC Report filed prior to the
      date
      hereof, (i) there has been no event, occurrence or development that, to the
      Knowledge of the Company, 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 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 or director, except pursuant to existing
      Company Employee Benefit Plans or agreements or instruments issued in connection
      therewith. The Company does not have pending before the Commission any request
      for confidential treatment of information. To the Knowledge of the Company,
      except for the issuance of the Securities contemplated by the Transaction
      Documents or as set forth on Schedule
      3.1(i),
      no
      event, liability or development has occurred or exists with respect to the
      Company or its Subsidiaries or their respective business, properties, operations
      or financial condition, that would be required to be disclosed by the Company
      under applicable securities laws 

     

    
      
        
        

      


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    at
      the
      time this representation is made or deemed made that has not been publicly
      disclosed at least one Trading Day prior to the date that this representation
      is
      made.

     

    (j) Litigation.
      There
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the Knowledge of the Company, threatened in writing 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) would, 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
      executive officer thereof, is or has been, during the five years preceding
      the
      date of this Agreement, 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, during
      the five years preceding the date of this Agreement, there has not been nor
      is
      there 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. 

     

    (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. None of the Company’s or its
      Subsidiaries’ employees is a member of a union that relates to such employee’s
      relationship with the Company or such Subsidiary, and neither the Company nor
      any of its Subsidiaries is a party to a collective bargaining agreement, and
      the
      Company and its Subsidiaries believe that their relationships with their
      employees are satisfactory. To the Knowledge of the Company, no executive
      officer, is, or is now expected to be, in violation of any material term of
      any
      employment contract, confidentiality, disclosure or proprietary information
      agreement or non-competition agreement, or any other contract or agreement
      or
      any restrictive covenant in favor of any third party, and the continued
      employment of each such executive officer does not subject the Company or any
      of
      its Subsidiaries to any liability with respect to any of the foregoing matters.
      The Company and its Subsidiaries are in compliance with all U.S. federal, state,
      local and foreign laws and regulations relating to employment and employment
      practices, terms and conditions of employment and wages and hours, except where
      the failure to be in compliance would not, individually or in the aggregate,
      have 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 written notice of a 

     

    
      
        
        

      


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    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
      and all such laws that affect the environment, except in each case as could
      not
      have or reasonably be expected to result in 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 currently
      conducted as described in the SEC Reports, except where the failure to possess
      such permits would not 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.
      Neither
      the Company nor any of the Subsidiaries own any real property. Except as set
      forth on Schedule
      3.1(n),
      the
      Company and the Subsidiaries have good and marketable title in all personal
      property owned by them that are currently used in 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
      with which the Company and the Subsidiaries are in compliance, except where
      the
      failure to be in compliance would not, individually or in the aggregate, have
      a
      Material Adverse Effect. 

     

    (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,
      trade secrets, inventions, copyrights, licenses and other intellectual property
      rights and similar rights described in the SEC Reports as necessary or material
      for use in connection with their respective businesses and which the failure
      to
      so have would have a Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received any written notice that
      any
      of the Intellectual Property Rights 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. The Company and its Subsidiaries have
      taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of all of their trade secrets, except where failure to do so would not,
      individually or in the aggregate, have a Material Adverse Effect.

     

    
      
        
        

      


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    (p) Insurance.
      Except
      as set forth on Schedule
      3.1(p),
      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. 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 economic
      interest or is an officer, director, trustee or partner, in each case in excess
      of $60,000 other than for (i) payment of salary or consulting fees for services
      rendered, (ii) reimbursement for expenses incurred on behalf of the Company
      and
      (iii) other employee benefits, including stock option agreements under any
      Employee Benefit Plan.

     

    (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. To the extent
      required by applicable law, 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 information required to be disclosed by the Company in the
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms. The Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls 

     

    
      
        
        

      


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    and
      procedures based on their evaluations as of the Evaluation Date. Since the
      Evaluation Date, there have been no changes in the Company’s internal control
      over financial reporting (as such term is defined in the Exchange Act) that
      has
      materially affected, or is reasonably likely to materially affect, the Company’s
      internal control over financial reporting.

     

    (s) Certain
      Fees.
      Except
      as set forth in Schedule
      3.1(s),
      no
      brokerage or finder’s fees or commissions are or will be payable by the Company
      to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by the Transaction Documents. 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 the Transaction
      Documents. 

     

    (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 Warrants, Debentures and Shares issuable pursuant
      to
      this Agreement by the Company to the Purchasers. The issuance and sale of the
      Securities hereunder does not contravene the rules and regulations of the
      Trading Market.

     

    (u) Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an Affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended;
provided,
      however,
      the
      term Affiliate in this Section 3.1(u) shall not include any Purchaser upon
      the
      date of this Agreement. 

     

    (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
      Common Stock is registered pursuant to Section 12(b) or 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, since December 8,
      2006, any notification that the Commission is contemplating terminating such
      registration. The Company has not, since December 8, 2006, 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
      in all material respects with the listing and maintenance requirements of its
      Trading Market.

     

    (x) Application
      of Takeover Protections.
      The
      Company and the Board of Directors have taken all necessary action, if any,
      in
      order to render inapplicable any 

     

    
      
        
        

      


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    control
      share acquisition, business combination, poison pill (including any distribution
      under a rights agreement) or other similar anti-takeover provision under the
      Company’s certificate of incorporation (or similar charter documents) or the
      laws of its state of incorporation that is or could become applicable to the
      Purchasers as a result of the Purchasers and the Company fulfilling their
      obligations or exercising their rights under the Transaction Documents,
      including without limitation as a result of the Company’s issuance of the
      Securities and the Purchasers’ ownership of the Securities.

     

    (y) Disclosure.
      Except
      with respect to the information provided to the Purchaser in connection with
      the
      transactions contemplated by the Transaction Documents, the Company confirms
      that neither it nor any other Person acting on its behalf has provided any
      of
      the Purchasers or their agents or counsel with any information that it believes
      constitutes or might constitute material, nonpublic information. The Company
      understands and confirms that the Purchasers will rely on the foregoing
      representation in effecting transactions in securities of the Company. All
      disclosure furnished by or on behalf of the Company to the Purchasers regarding
      the Company, its business and the transactions contemplated hereby, including
      the Disclosure Schedules to this Agreement, is true and correct and does 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 press releases
      disseminated by the Company during the twelve months preceding the date of
      this
      Agreement taken as a whole do not contain any untrue statement of a material
      fact or omit 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 and when 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.
      Except
      as set forth on Schedule
      3.1(z),
      assuming the accuracy of the Purchasers’ representations and warranties set
      forth in Section 3.2, neither the Company, nor to its Knowledge, 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
      (i) the Securities Act which would require the registration of any such
      securities under the Securities Act, or (ii) any applicable shareholder approval
      provisions of any Trading Market on which any of the securities of the Company
      are listed or designated. 

     

    (aa) Solvency.
      Except
      as set forth on Schedule
      3.1(aa),
      based
      on the consolidated 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, to the Company’s Knowledge, (i) the fair saleable
      value of the Company’s assets exceeds the amount that will be required to be
      paid on or in respect of the 

     

    
      
        
        

      


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    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 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
      liabilities when such amounts are required to be paid. Except as set forth
      on
Schedule
      3.1(aa),
      the
      Company does not intend to incur debts beyond its ability to pay such debts
      as
      they mature (taking into account the timing and amounts of cash to be payable
      on
      or in respect of its debt). The Company has no Knowledge of any facts or
      circumstances which lead it to believe that it will file for reorganization
      or
      liquidation under the bankruptcy or reorganization laws of any jurisdiction
      within one year from the Closing Date. Schedule
      3.1(aa)
      sets
      forth as of the date hereof 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”
means
      (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. Except
      as
      set forth on Schedule
      3.1(aa),
      neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

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

     

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

     

    (dd) Foreign
      Corrupt Practices.
      Since
      December 8, 2006, neither the Company, nor to the Knowledge of the Company,
      any
      agent or other person acting on behalf of the Company, violated in any material
      respect any provision of the Foreign Corrupt Practices Act of 1977, as
      amended.

     

    
      
        
        

      


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    (ee) Accountants.
      The
      Company’s accounting firm is Kempisty & Company. To the Company’s Knowledge,
      such accounting firm is a registered public accounting firm as required by
      the
      Exchange Act. The Company expects that such accounting firm will express its
      opinion with respect to the financial statements to be included in the Company’s
      Annual Report on Form 10-KSB for the year ending March 31, 2008. 

     

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

     

    (gg) No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company and the Company is current with
      respect to any fees owed to its accountants and lawyers which could affect
      the
      Company’s ability to perform any of its obligations under any of the Transaction
      Documents.

     

    (hh) Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. 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 the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities. The Company
      further represents to each Purchaser that the Company’s decision to enter into
      this Agreement and the other Transaction Documents has been based solely on
      the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    (ii) Acknowledgment
      Regarding Purchasers’ Trading Activity.
      Notwithstanding anything in this Agreement or elsewhere herein to the contrary
      (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged
      by the Company that (i) none of the Purchasers has been asked to agree by the
      Company, 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) past or future open market or other transactions by any Purchaser,
      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) any Purchaser, and counter-parties in
“derivative” transactions to which any such 

     

    
      
        
        

      


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    Purchaser
      is a party, directly or indirectly, may presently have a “short” position in the
      Common Stock, and (iv) each Purchaser shall not be deemed to have any
      affiliation with or control over any arm’s length counter-party in any
“derivative” transaction merely as a result of being a counter-party to such
      transaction. The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Underlying Shares deliverable with respect to Securities
      are being determined and (b) such hedging activities (if any) could reduce
      the
      value of the existing stockholders' equity interests in the Company at and
      after
      the time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

    (jj) Regulation
      M Compliance. 
      The Company has not, and to its Knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      securities of the Company or (iii) paid or agreed to pay to any Person any
      compensation for soliciting another to purchase any other securities of the
      Company, other than, in the case of clauses (ii) and (iii), compensation paid
      to
      the Company’s placement agent in connection with the placement of the
      Securities.

     

    (kk) Senior
      Officers.
      The
      Company represents and warrants that the Senior Officers are the only officers
      of the Company as of the date hereof.

     

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

     

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

     

    
      
        
        

      


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    availability
      of specific performance, injunctive relief or other equitable remedies and
      (iii)
      insofar as indemnification and contribution provisions may be limited by
      applicable law.

     

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

     

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

     

    (d) Experience
      of Such Purchaser; Opportunity to Obtain Information.
      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. Such Purchaser acknowledges that (i) it has had the right to request
      copies of any documents, records and books pertaining to the transactions
      contemplated hereby and the Company, (ii) such documents, records and books
      which the undersigned requested have been made available for inspection by
      the
      Purchaser and its representative, and (iii) it has had a reasonable opportunity
      to ask questions of and receive answers from a person or persons acting on
      behalf of the Company concerning the Company and all such questions have been
      answered to the full satisfaction of the Purchaser. 

     

    (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.

     

    
      
        
        

      


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    (f) Residence.
      The
      office or offices of such Purchaser in which its investment decision was made
      is
      located at the address or addresses of such Purchaser set forth on the signature
      page hereto. 

     

    (g) Rule
      144.
      Subject
      to the recently adopted amendments to Rule 144 by the Commission, such Purchaser
      acknowledges and agrees that the Securities are “restricted securities” as
      defined in Rule 144 promulgated under the Securities Act as in effect from
      time
      to time and must be held indefinitely unless they are subsequently registered
      under the Securities Act or an exemption from such registration is available.
      Such Purchaser has been advised or is aware of the provisions of Rule 144,
      which
      permits limited resale of shares purchased in a private placement subject to
      the
      satisfaction of certain conditions, including, among other things: the
      availability of certain current public information about the Company, the resale
      occurring following the required holding period under Rule 144 and the number
      of
      shares being sold during any three-month period not exceeding specified
      limitations. 

     

    (h) Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than consummating the transactions contemplated hereunder, 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 purchases or sales,
      including Short Sales, of the securities of the Company during the period
      commencing from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person representing the Company setting forth the material
      terms of the transactions contemplated hereunder until the date hereof
(“Discussion
      Time”).
      Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the representation set forth above shall only apply
      with respect to the portion of assets managed by the portfolio manager that
      made
      the investment decision to purchase the Securities covered by this Agreement.
      Other than to other Persons party to this Agreement, such Purchaser has
      maintained the confidentiality of all disclosures made to it in connection
      with
      this transaction (including the existence and terms of this
      transaction).

     

    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 

     

    
      
        
        

      


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    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 the Registration
      Rights 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,
      of a legend on any of the Securities in the following form:

     

    [NEITHER]
      THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
      [CONVERTIBLE]] HAS [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 FORM AND SUBSTANCE OF WHICH SHALL BE
      REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE
      UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION
      WITH
      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
      SECURITIES.

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and the Registration Rights Agreement and, if required under the terms of such
      arrangement, such Purchaser may transfer pledged or secured Securities to the
      pledgees or secured parties. Such a pledge or transfer would not be subject
      to
      approval of the Company and no legal opinion of legal counsel of the pledgee,
      secured party or pledgor shall be required in connection therewith. Further,
      no
      notice shall be required of such pledge. At the appropriate Purchaser’s expense,
      the Company will execute and deliver such reasonable documentation as a pledgee
      or secured party of Securities may reasonably request in connection with a
      pledge or transfer of the Securities, including, if the Securities are subject
      to registration pursuant to the Registration Rights Agreement, the preparation
      and filing of any required prospectus supplement under Rule 424(b)(3) under
      the
      Securities Act or other applicable provision of the Securities Act to
      appropriately amend the list of Selling Stockholders thereunder.

     

    
      
        
        

      


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

    


    (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 Underlying Shares (based on the VWAP of the Common
      Stock on the date such Securities are submitted to the Transfer Agent) delivered
      for removal of the restrictive legend and subject to Section 4.1(c), $5 per
      Trading Day (increasing to $10 per Trading Day 5 Trading Days after such damages
      have begun to accrue) for each Trading Day after the second Trading Day
      following Legend Removal Date until such certificate is delivered without a
      legend. Nothing herein shall limit such Purchaser’s right to pursue actual
      damages for the Company’s failure to deliver certificates representing any
      Securities as required by the Transaction Documents, and such Purchaser shall
      have the right to pursue all remedies available to it at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief.

     

    (e) Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      such
      Purchaser will sell any Securities pursuant to either the registration


     

    
      
        
        

      


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    requirements
      of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein, and acknowledges 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 upon this
      understanding.

     

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

     

    4.3 Furnishing
      of Information.
      Until
      the earliest of the time that (i) no Purchaser owns Securities or (ii) the
      Warrants have expired, the Company covenants use to commercially reasonable
      efforts 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 use commercially reasonable efforts to 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, to the extent required from
      time to time to enable such Person to sell such Securities without registration
      under the Securities Act within the requirements of the exemption provided
      by
      Rule 144.

     

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

     

    4.5 Conversion
      and Exercise Procedures.
      The
      form of Notice of Exercise included in the Warrants and the form of Notice
      of
      Conversion included in the Debentures set
      forth
      the totality of the procedures required of the Purchasers in order to exercise
      the Warrants or convert the Debentures. No additional legal opinion or other
      information or instructions shall be required of the Purchasers to exercise
      their Warrants or convert their Debentures. 

     

    4.6 Securities
      Laws Disclosure; Publicity.
      The
      Company shall (a) by 8:30 AM (New York City time) on the Trading Day following
      the date hereof issue a press release and (b) by 8:30 AM (New York City time)
      on
      the third Trading Day following the date hereof, issue a 

     

    
      
        
        

      


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    Current
      Report on Form 8-K disclosing the material terms of the transactions
      contemplated hereby and attaching the Transaction Documents as exhibits thereto.
      The Company and each Purchaser shall consult with each other in issuing any
      other press releases with respect to the transactions contemplated hereby,
      and
      neither the Company nor any Purchaser shall issue any such press release or
      otherwise make any such public statement without the prior consent of the
      Company, with respect to any press release of any Purchaser, or without the
      prior consent of each Purchaser, with respect to any press release of the
      Company, which consent shall not unreasonably be withheld or delayed, 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 (A) any registration statement contemplated
      by
      the Registration Rights Agreement and (B) the filing of final Transaction
      Documents (including signature pages thereto) with the Commission 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 this clause (ii).

     

    4.7 Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, with the consent of the
      Company, any other Person, that any Purchaser is an “Acquiring Person” under any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or similar anti-takeover 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.

     

    4.8 Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      after the date hereof, 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 covenant in
      effecting transactions in securities of the Company.

     

    4.9 Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      4.9
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for general working capital purposes, including, but not limited
      to,
      repayment of existing bridge loans, and funding production, and shall not use
      such proceeds for (a) 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), (b) the redemption of any Common Stock or Common Stock Equivalents
      or
      (c) the settlement of any outstanding litigation.

     

    
      
        
        

      


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    4.10 Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.10, the Company will indemnify and hold
      each
      Purchaser and its directors, officers, shareholders, members, partners,
      employees and agents (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title), each Person who controls such Purchaser (within the meaning of
      Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
      directors, officers, shareholders, agents, members, partners or employees (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles notwithstanding a lack of such title or any other title) of such
      controlling person (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 in any
      capacity, 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 reasonably
      acceptable to the Purchaser Party. 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, in which case the
      Company shall be responsible for the reasonable fees and expenses of no more
      than one such separate counsel. 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 such
      Purchaser Party in this Agreement or in the other Transaction
      Documents.

     

    4.11 Reservation
      and Listing of Securities.

     

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

     

    
      
        
        

      


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    (b) If,
      on
      any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than the Required Minimum on such date, then
      the
      Board of Directors shall use commercially reasonable efforts to amend the
      Company’s certificate or articles of incorporation to increase the number of
      authorized but unissued shares of Common Stock to at least the Required Minimum
      at such time, as soon as possible and in any event not later than the 75th
      day
      after such date.

     

    (c) The
      Company shall, if applicable: (i) in the time and manner required by the
      principal Trading Market, prepare and file with such Trading Market an
      additional shares listing application covering a number of shares of Common
      Stock at least equal to the Required Minimum on the date of such application,
      (ii) take all steps necessary to cause such shares of Common Stock to be
      approved for listing on such Trading Market as soon as possible thereafter,
      (iii) provide to the Purchasers evidence of such listing, and (iv) maintain
      the
      listing of such Common Stock on any date at least equal to the Required Minimum
      on such date on such Trading Market or another Trading Market. 

     

    4.12 Participation
      in Future Financing.
      

     

    (a) From
      the
      date hereof until such time as no Purchaser holds any of the Debentures, upon
      any issuance by the Company or any of its Subsidiaries of Common Stock or Common
      Stock Equivalents (a “Subsequent
      Financing”),
      each
      Purchaser shall have the right to participate in up to an amount of the
      Subsequent Financing equal to 75% of the Subsequent Financing (the “Participation
      Maximum”)
      on the
      same terms, conditions and price provided for in the Subsequent Financing.
      

     

    (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 and the Person or Persons through or with whom such
      Subsequent Financing is proposed to be effected and shall include a term sheet
      or similar document relating thereto as an attachment. 

     

    (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
      5th
      Trading
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate. 

     

    
      
        
        

      


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    (d) If
      by
      5:30 p.m. (New York City time) on the 5th
      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 with the Persons
      set forth in the Subsequent Financing Notice. 

     

    (e) If
      by
      5:30 p.m. (New York City time) on the 5th
      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 its Pro Rata Portion (as defined
      below) of the Participation Maximum.  “Pro
      Rata Portion”
means
      the ratio of (x) the Subscription Amount of Securities purchased on the Closing
      Date by a Purchaser participating under this Section 4.12 and (y) the sum of
      the
      aggregate Subscription Amounts of Securities purchased on the Closing Date
      by
      all Purchasers participating under this Section 4.12 plus the aggregate
      subscription amounts of investors party to securities purchase agreement(s)
      contemplated by clause (e) in the definition of Exempt Issuance that are
      participating in such Subsequent Financing pursuant to participation rights
      granted to such investors under such agreements that are substantially similar
      to this Section 4.12.

     

    (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 4.12, 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 4.12 shall not apply in respect of (i) an Exempt
      Issuance or (ii) an underwritten public offering of Common Stock.

     

    4.13 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 4.13 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 Underlying 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.
“Variable
      Rate Transaction”
means
      a
      transaction in which the Company issues or sells (i) any debt 

     

    
      
        
        

      


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    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
      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.
      

     

    (c) Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance. 

     

    4.14 Equal
      Treatment of Purchasers.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. Further, the Company shall not make any payment of
      principal or interest on the Debentures in amounts which are disproportionate
      to
      the respective principal amounts outstanding on the Debentures at any applicable
      time. For clarification purposes, this provision constitutes a separate right
      granted to each Purchaser by the Company and negotiated separately by each
      Purchaser, and is intended for the Company to treat 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.

     

    4.15 Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section
      4.6. 
      Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.6, such Purchaser will
      maintain the confidentiality of the existence and terms of this transaction
      and
      the information included in the Disclosure Schedules.  Each Purchaser
      severally and not jointly with any other Purchaser understands and acknowledges,
      and agrees, to act in a manner that will not violate the positions of the
      Commission as set forth in Item 65, Section A, of the Manual of Publicly
      Available Telephone Interpretations, dated July 1997, compiled by the Office
      of
      Chief Counsel, Division of Corporation Finance. 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 4.6.  Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser’s assets and the portfolio managers have no direct knowledge of the
      investment 

     

    
      
        
        

      


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    decisions
      made by the portfolio managers managing other portions of such Purchaser’s
      assets, the covenant set forth above shall only apply with respect to the
      portion of assets managed by the portfolio manager that made the investment
      decision to purchase the Securities covered by this Agreement.

     

    4.16 Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof, promptly upon request
      of any Purchaser. The Company shall take such action as the Company shall
      reasonably determine is necessary in order to obtain an exemption for, or to
      qualify the Securities for, sale to the Purchasers at the Closing under
      applicable securities or “Blue Sky” laws of the states of the United States, and
      shall provide evidence of such actions promptly upon request of any
      Purchaser.

     

    4.17 Capital
      Changes.
      Until
      the one year anniversary of the Effective Date, except as otherwise required
      by
      Section 4.19 of this Agreement, 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 principal amount
      outstanding of the Debentures.

     

    4.18 Insurance.
      Within
      15 days from the date hereof, the Company and each Subsidiary agree to be
      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
      $5,000,000.

     

    4.19 Reverse
      Split.
      Notwithstanding anything to the contrary herein (including Section 4.17 hereof)
      or in the Transaction Documents, no later than the six month anniversary of
      the
      date hereof, the Company shall effect a reverse stock split of not less than
      four for one (i.e. four or more shares will be converted into one share) of
      the
      issued and outstanding Common Stock (the “Reverse
      Stock Split”).

     

    4.20 Board
      of Director Appointments / Full-Time Chief Financial Officer.
      No
      later than the nine month anniversary of the date of hereof, the Board of
      Directors shall appoint two new independent directors to the Board of Directors
      (the “New
      Directors”).
      The
      Board of Directors shall not exceed a total of seven directors following the
      appointment of the New Directors. Each of the New Directors shall (a) have
      audit
      committee experience and experience and knowledge of the industry of the
      Company, and (b) satisfy the independence requirements set forth in NASDAQ
      Rule
      4200. The Board of Directors has authority to appoint the New Directors pursuant
      to Article II of the Company’s By-Laws. In addition, no later than the earlier
      of (a) the 30th
      day
      following the date the Company actually files its Annual Report on Form 10-KSB
      for the fiscal year ending March 31, 2008 and (b) July 31, 2008, the Company
      shall retain a full-time chief financial officer who shall have experience
      as a
      chief financial officer for a public company. 

     

    ARTICLE
      V.

    MISCELLANEOUS

     

    
      
        
        

      


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    5.1 Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before March ___, 2008;
      provided,
      however,
      that
      such termination will not affect the right of any party to sue for any breach
      by
      the other party (or parties).

     

    5.2 Fees
      and Expenses.
      At the
      Closing, the Company has agreed to reimburse Midsummer Capital, LLC
      (“Midsummer”)
      the
      non-accountable sum of $30,000, for its legal fees and expenses, $12,500 of
      which has been paid prior to the Closing. The Company shall deliver to each
      Purchaser, prior to the Closing, a completed and executed copy of the Closing
      Statement attached hereto as Annex
      A.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities to the
      Purchasers.

     

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

     

    5.4 Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a 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, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and the Purchasers of at least 60% in interest of the Securities still
      held by Purchasers or, in the case of a waiver, by the party against whom
      enforcement of any such waived provision 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 any party to exercise any right hereunder in
      any
      manner impair the exercise of any such right.

     

    
      
        
        

      


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    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.

     

    5.7 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of each Purchaser (other than by merger). 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 that such transferee agrees in
      writing to be bound, with respect to the transferred Securities, by the
      provisions of the Transaction Documents that apply to the
“Purchasers.”

     

    5.8 No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.10.

     

    5.9 Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of the Transaction Documents shall be governed by and construed and enforced
      in
      accordance with the internal laws of the State of New York, without regard
      to
      the principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
      transactions contemplated by this Agreement and any other Transaction Documents
      (whether brought against a party hereto or its respective affiliates, directors,
      officers, shareholders, employees or agents) shall be commenced exclusively
      in
      the state and federal courts sitting in the City of New York. Each party hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of New York, borough of Manhattan for the
      adjudication of any dispute hereunder or in connection herewith or with any
      transaction contemplated hereby or discussed herein (including with respect
      to
      the enforcement of any of the Transaction Documents), and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is improper or is an 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 other
      manner permitted by law. 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 reasonable attorneys’ fees and other costs and expenses incurred with the
      investigation, preparation and prosecution of such action or
      proceeding.

     

    5.10 Survival.
      The
      representations and warranties shall survive the Closing and the delivery of
      the
      Securities for the applicable statute of limitations.

     

    
      
        
        

      


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    5.11 Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.

     

    5.12 Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    5.13 Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) any of the other Transaction Documents, whenever any
      Purchaser exercises a right, election, demand or option under a Transaction
      Document and the Company does not timely perform its related obligations within
      the periods therein provided, then such Purchaser may rescind or withdraw,
      in
      its sole discretion from time to time upon written notice to the Company, any
      relevant notice, demand or election in whole or in part without prejudice to
      its
      future actions and rights; provided,
      however,
      in the
      case of a rescission of a conversion of a Debenture or exercise of a Warrant,
      the Purchaser shall be required to return any shares of Common Stock delivered
      in connection with any such rescinded conversion or exercise
      notice.

     

    5.14 Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof (in the case of mutilation),
      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. The applicant for a new certificate or instrument under
      such circumstances shall also pay any reasonable third-party costs (including
      customary indemnity) associated with the issuance of such replacement
      Securities.

     

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

     

    
      
        
        

      


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    not
      to
      assert in any action for specific performance of any such obligation the defense
      that a remedy at law would be adequate. 

     

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

     

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

     

    5.18 Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other 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 

     

    
      
        
        

      


        36

        
          


        

      

      
        
        

      

    
     

    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 FWS.
      FWS
      does not represent all of the Purchasers but only Midsummer. The Company has
      elected to provide all Purchasers with the same terms and Transaction Documents
      for the convenience of the Company and not because it was required or requested
      to do so by the Purchasers.

     

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

     

    5.20 Saturdays,
      Sundays, Holidays, etc. If
      the
      last or appointed day for the taking of any action or the expiration of any
      right required or granted herein shall not be a Business Day, then such action
      may be taken or such right may be exercised on the next succeeding Business
      Day.

     

    5.21 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.

     

    5.22 Waiver
      of Jury Trial.
      In any action, suit or proceeding in any jurisdiction brought by any party
      against any other party, the parties each knowingly and intentionally, to the
      greatest extent permitted by applicable law, hereby absolutely, unconditionally,
      irrevocably and expressly waives forever trial by jury.

     

    (Signature
      Pages Follow)

     

    
      
        
        

      


        37

        
          


        

      

      
        
        

      

    
     

    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.

     

    
      	
              FEARLESS
                INTERNATIONAL, INC.  

            	 
	 	 
	 	 
	
              By:

            	 
	
              Address
                for Notice:

            
	 	
              Name:
                Jeffrey Binder

              Title:
                Chief Executive Officer

            	
              972
                Lincoln Road

              Suite
                200

              Miami,
                FL 33139

              Attention:
                Chief Executive Officer

              Fax:
                305.674.1311

            


    

    


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

    


    Hodgson
      Russ LLP

    1540
      Broadway

    24th
      Floor

    New
      York,
      NY 10036

    Fax:
      212.751.0928

    Attention:
      Jeffrey Rinde

    


    And

    


    Gregory
      E. Schwartz, Esq.

    Schwartz
      Zweben & Slingbaum LLP

    3876
      Sheridan Street

    Hollywood,
      Florida 33021

    Fax:
      954.966.2566 

    


    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      


        38

        
          


        

      

      
        
        

      

    

    [PURCHASER
      SIGNATURE PAGES TO FRLE SECURITIES PURCHASE AGREEMENT]

    


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

     

    Name
      of
      Purchaser: ________________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      __________________________________

     

    Name
      of
      Authorized Signatory:
      ____________________________________________________

     

    Title
      of
      Authorized Signatory:
      _____________________________________________________

     

    Email
      Address of Purchaser:
      ________________________________________________

     

    Facsimile
      Number of Purchaser:
      ________________________________________________

    


    Address
      for Notice of Purchaser:

    


    


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

    


    


    Subscription
      Amount (Cash Consideration): _____________

    


    Subscription
      Amount (Consideration In Kind): _____________

    


    Principal
      Amount (Subscription
      Amount x 1.0989):
      ________________

    


    Shares:
      _________________________

    


    Warrant
      Shares: _________________

    


    Place
      of
      Jurisdiction: _____________

    


    EIN
      Number: ___________________

     

    
      
        
        

      


        39

        
          


        

      

      
        
        

      

    
     

    [SIGNATURE
      PAGES CONTINUE]

    


    
      
        
        

      


        40

        
          


        

      

      
        
        

      

    

    Schedule
      2.3 –
      Pay-Off Letters

    


    
      	
              Name
                of Prior

              Noteholder

            	
              Principal

              Amount
                Applied

              to
                Rollover

            	
              Principal

              Amount –

              Outstanding

            	
              Interest
                Applied

              to
                Rollover

            	
              Interest
                -

              Outstanding

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 


    

     

    
      
        
        

      


        41

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

    


    Schedule
      3.1 a - Subsidiaries

    


    Subsidiaries
      of Fearless International, Inc.

    


    Fearless
      Yachts, LLC., a wholly owned subsidiary

     

    
      
        
        

      


        42

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

    Schedule
      3.1 g - Capitalization

    


    
      	 	 	
               as of 1/31/08 

            	 
	
              
                TOTAL
                  ISSUED AND OUTSTANDING SHARES
                  OF COMMON STOCK

              

            	 	 	
              67,664,197
                

            	 
	 	 	 	 	 
	
              INSIDERS
                AND AFFILIATES* (INCLUDED IN TOTAL
                OUTSTANDING)

            	 	 	 	 
	
              Jeffrey
                Binder, CEO

            	 	 	
              5,499,900
                

            	 
	
              Jeffrey
                Binder, CEO**

            	 	 	
              2,497,500
                

            	 
	
              Chuck
                DeAngelo, COO

            	 	 	
              2,497,500
                

            	 
	
              Carol
                Stephan, CFO

            	 	 	
              220,000
                

            	 
	
              TOTAL
                INSIDERS AND AFFILIATES

            	 	 	
              10,714,900
                

            	 


    

     

    *5%
      or more shareholders. 

    **In
      the name Jemj Financial Services 

    


    The
      Company’s consolidated financial statements included in its quarterly report on
      Form 10-QSB for the period ending September 30, 2007 (the “Report”), noted that:
“There is an off-balance sheet pledge agreement that the Company entered into
      on
      April 13, 2007, whereby Kevin F. Flynn pledged $2,080,000 in a letter of credit
      to Mellon. The Company agreed to pay Kevin F. Flynn interest at a per annum
      rate
      equal to 15% of the face amount of the agreement. The Company issued warrants
      to
      acquire 2.1 million shares in connection with the pledge. 

    


    In
      connection with the extension of the pledge (the “Extension”), (i) the exercise
      price of such warrants will be reduced to $0.25 and (ii) the Company will also
      issue to the pledgor additional warrants to acquire 2.1 million shares of common
      stock at an exercise price of $0.25 per share in consideration of the agreement
      being extended for one year. 

    


    Note
      3 of
      the Report stated: “All purchasers under the Securities Purchase Agreement also
      acquired a warrant to purchase common stock of the Company. These warrants
      will
      entitle each holder thereof to purchase a presently indeterminate number of
      shares of common stock of the Company at an exercise price, subject to
      adjustment, that is also presently indeterminate.” The Company intends to issue
      warrants to such purchasers to acquire an aggregate of up to 9 million shares
      of
      common stock, with an exercise price of $0.25 per share. 

    


    The
      Company, in consideration of receiving a bridge loan of $200,000, has agreed
      to
      issue 1.2 million shares of common stock to the lenders thereof. This loan
      is to
      be repaid from the proceeds of this transaction.

    


    Pursuant
      to an agreement with Global Hunter Securities, LLC and Ardent Advisors, LLC
      (collectively, the “Advisor”), we may be obligated to issue up to 10% of the
      aggregate 

     

    
      
        
        

      


        43

        
          


        

      

      
        
        

      

    
     

    number
      of
      shares of common stock (or warrants) issued or issuable pursuant to the
      Transaction Documents. Such fee is payable, in thew Advisor’s sole discretion,
      in shares of common stock or warrants. Such agreement further provides that
      such
      securities will have the same registration rights as are applicable to the
      securities issued pursuant to the Transaction Documents. Global also has a
      right
      of first refusal with respect to certain Company financings.

    Securities
      Purchase Agreement

    


    Schedule
      3.1 i - Material Changes

    


    The
      Company’s consolidated financial statements included in its quarterly report on
      Form 10-QSB for the period ending September 30, 2007 (the “Report”), noted that:
“There is an off-balance sheet pledge agreement that the Company entered into
      on
      April 13, 2007, whereby Kevin F. Flynn pledged $2,080,000 in a letter of credit
      to Mellon. The Company agreed to pay Kevin F. Flynn interest at a per annum
      rate
      equal to 15% of the face amount of the agreement. The Company issued warrants
      to
      acquire 2.1 million shares in connection with the pledge. 

    


    In
      connection with the extension of the pledge (the “Extension”), (i) the exercise
      price of such warrants will be reduced to $0.25 and (ii) the Company will also
      issue to the pledgor additional warrants to acquire 2.1 million shares of common
      stock at an exercise price of $0.25 per share in consideration of the agreement
      being extended for one year. 

    


    Note
      3 of
      the Report stated: “All purchasers under the Securities Purchase Agreement also
      acquired a warrant to purchase common stock of the Company. These warrants
      will
      entitle each holder thereof to purchase a presently indeterminate number of
      shares of common stock of the Company at an exercise price, subject to
      adjustment, that is also presently indeterminate.” The Company intends to issue
      warrants to such purchasers to acquire an aggregate of up to 9 million shares
      of
      common stock, with an exercise price of $0.25 per share. 

    


    The
      Company, in consideration of receiving a bridge loan of $200,000, has agreed
      to
      issue 1.2 million shares of common stock to the lenders thereof. This loan
      is to
      be repaid from the proceeds of this transaction.

     

    
      
        
        

      


        44

        
          


        

      

      
        
        

      

    

    Securities
      Purchase Agreement

    


    Schedule
      3.1 n - Title to Assets

    


    The
      Company does not own any real property. The Company, along with its wholly
      owned
      subsidiary, hold title to all assets, free and clear of all liens, except as
      noted in Schedule B of the Security Agreement.

    


    The
      Company and the Subsidiaries have contractual rights pursuant to which they
      are
      entitled to use intellectual property rights which rights may not be marketable
      or transferable to another person.

     

    
      
        
        

      


        45

        
          


        

      

      
        
        

      

    

    Securities
      Purchase Agreement

    


    Schedule
      3.1 p - Insurance

    


    The
      Company is insured by insurers of recognized financial responsibility against
      losses and risks as are prudent and customary in the business.
      We
      have
      acquired D & O coverage with an effective date of February 4,
      2008.

     

    
      
        
        

      


        46

        
          


        

      

      
        
        

      

    

    Securities
      Purchase Agreement

    


    Schedule
      3.1 s - Certain Fees

    


    The
      Company has a placement agreement with Global Hunter Securities and Ardent
      Advisors for providing certain services including capital raising and placement
      services.

     

    
      
        
        

      


        47

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

    


    Schedule
      3.1.v

    


    The
      Company has not entered into any agreement granting any registration rights
      with
      respect to any of its securities except as noted below.

    


    Note
      3 of
      the Company’s Quarterly Report on Form 10-QSB for the period ended September 30,
      2007 states:

    


    “The
      warrants have a Registration Rights Agreement which requires the Company to
      use
      commercially reasonable efforts to effect the registration of the registerable
      securities sold. There is no provision for liquidated damages in the event
      the
      securities are not registered.”

    


    It
      is
      anticipated that in connection with the issuance of up to 9 million warrants
      as
      described in Schedule 3.1 (g) of the Securities Purchase Agreement, the above
      referenced Registration Rights Agreement will be terminated.

     

    
      
        
        

      


        48

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

    


    Schedule
      3.1 z - Integrated Offerings

    


    None

     

    
      
        
        

      


        49

        
          


        

      

      
        
        

      

    
    
Securities
      Purchase Agreement

    


    Schedule
      3.1 aa - Schedule of Indebtedness

    


    Based
      on
      the consolidated 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 fair saleable value of the Company’s 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 as now conducted and as
      proposed to be conducted during the twelve months following the Closing Date,
      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, during the twelve months following the Closing Date, would be
      sufficient to pay all amounts on or in respect of its liabilities when such
      amounts are required to be paid.

     

    
      
        
        

      


        50

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

    Schedule
      3.1 aa

    


    Schedule
      of Indebtedness excluding Trade Accounts Payable

    As
      of January 31, 2008

     

    
      Bridge
        Loan

       

    

    
      	
              Investor

            	 	
              
                Principal

                Amount**

              

            	 
	
              Investor

            	 	 	
              50,000.00
                

            	 
	
              Investor

            	 	 	
              50,000.00
                

            	 
	
              Investor

            	 	 	
              25,000.00
                

            	 
	
              Investor

            	 	 	
              25,000.00
                

            	 
	
              Investor

            	 	 	
              25,000.00
                

            	 
	
              Investor

            	 	 	
              79,667.00
                

            	 
	
              Investor

            	 	 	
              100,000.00
                

            	 
	
              Investor

            	 	 	
              50,000.00
                

            	 
	
              Investor

            	 	 	
              100,000.00
                

            	 
	
              Investor

            	 	 	
              50,000.00
                

            	 
	
              Investor

            	 	 	
              25,000.00
                

            	 
	
              Investor

            	 	 	
              25,000.00
                

            	 
	
              Investor

            	 	 	
              200,000.00
                

            	 
	
              Investor

            	 	 	
              100,000.00
                

            	 
	
              Investor

            	 	 	
              93,259.05
                

            	 
	
              Investor

            	 	 	
              75,000.00
                

            	 
	
              Investor

            	 	 	
              500,000.00
                

            	 
	 	 	 	 	 
	 	 	 	
              1,572,926.05
                

            	 
	 	 	 	 	 
	
              Accrued
                Interest on Bridge Loan Per
                Diem Interest 786.46

            	 	 	
              403,350.80
                

            	 
	 	 	 	 	 
	
              Line
                of Credit, Mellon*

            	 	 	
              2,073,301.00
                

            	 
	
              Interest
                to K. Flynn on

            	 	 	
              209,429.00
                

            	 
	
              Collateral
                for Mellon Per
                Diem Interest 854.79

            	 	 	 	 
	 	 	 	 	 
	
              Short
                Term Loan, Due 03/15/08

            	 	 	
              720,000.00
                

            	 
	
              Short
                Term Loan, Due 03/05/08

            	 	 	
              200,000.00
                

            	 
	
              Short
                Term Loans, payble on demand

            	 	 	
              100,000.00
                

            	 


    

    


    *The
      interest rate on the note is subject to change from time to time based on
      changes in an index which is the rate announced from time to time by Mellon
      as
      its Prime Rate. The interest rate for the period ended January 31, 2008 was
      6.5%. Interest is payable on a monthly basis. 

    **Some
      of the investors may agree to roll all or a portion of the sums due them as
      an
      investment into the financing contemplated by the Securities
      Purchase Agreements

     

    
      
        
        

      


        51

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

    


    Schedule
      3.1 ff - Indebtedness or other claims senior to the Debentures

    


    $720,000
      Short Term Bridge Loan, Secured Promissory Note*

    


    *Note:
      To
      be paid off upon closing

     

    
      
        
        

      


        52

        
          


        

      

      
        
        

      

    
     

    Securities
      Purchase Agreement

     

    Schedule
      4.9 

    


    
      	
              Gross
                Proceeds Raised

            	 	
              $

            	
              5,650,000.00

            	 
	 	 	 	 	 
	
              Deal
                Expenses*

            	 	
              $

            	
              (300,000.00

            	
              )

            
	
              Bridge
                Loan

            	 	
              $

            	
              (1,572,926.00

            	
              )

            
	
              LH/Midsummer
                Bridge 

            	 	
              $

            	
              (720,000.00

            	
              )

            
	
              Midsummer
                Fees

            	 	
              $

            	
              (17,500.00

            	
              )

            
	
              Last
                Bridge Loan

            	 	
              $

            	
              (200,000.00

            	
              )

            
	
              Accrued
                Interest

            	 	
              $

            	
              (403,350.00

            	
              )

            
	
              Legal
                Expenses

            	 	
              $

            	
              (150,000.00

            	
              )

            
	
              LOC
                Repayment

            	 	
              $

            	
              (650,000.00

            	
              )

            
	
              Other
                Debt (Kevin Flynn)

            	 	
              $

            	
              (294,000.00

            	
              )

            
	
              Porsche
                Design Fees

            	 	
              $

            	
              (280,000.00

            	
              )

            
	
              General
                Design Fees

            	 	
              $

            	
              (50,000.00

            	
              )

            
	
              44'
                Tooling

            	 	
              $

            	
              (150,000.00

            	
              )

            
	
              44'
                Prototype

            	 	
              $

            	
              (500,000.00

            	
              )

            
	
              68'
                Tooling

            	 	
              $

            	
              (500,000.00

            	
              )

            
	 	 	 	 	 
	
              Subtotal
                Use of Proceeds

            	 	
              $

            	
              (5,787,776.00

            	
              )

            
	 	 	 	 	 
	
              Rollover
                from Prior Bridge

            	 	
              $

            	
              205,000.00

            	 
	 	 	 	 	 
	
              Additional
                  Working Capital

            	 	
              $

            	
              67,224.00

            	 


    

    


    *Such
      sum
      represents 50% of the cash commission to be paid to the advisors with the
      balance to be paid in cash in one year.

     

    
      
        
        

      


        53