ex4_1.htm


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    Exhibit
4.1

     

    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated
as of April ___, 2008 between Axis Technologies Group, Inc. a Delaware
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 Notes (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, 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 Axelrod, Smith & Kirshbaum, with offices located at 5300 Memorial
Drive, Suite 700, Houston, Texas 77007, fax: 713-552-0202.

     

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

     

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

     

    “EBITDA” for any
period means (a) the Company’s net income for such period determined in
accordance with GAAP consistently applied, plus (b) any interest, taxes,
depreciation and amortization deducted from revenues as expenses in determining
such net income.

     

    “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 options to employees,
officers or directors of the Company pursuant to any existing stock or option
plan duly adopted for such purpose by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, and up to 10 million shares
of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan hereafter duly adopted for such purpose by
a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to directly or indirectly effectively increase
the number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) up to 300,000 shares of Common
Stock in the aggregate as consideration for investor or public relations
services.

     

    “Form 10” means Form
10 prescribed by the Commission under the Exchange Act.


    
      
         


      

      
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    “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).

     

    “IP Security
Agreement” means the Intellectual Property Security Agreement, dated the
date hereof, by the Company in favor of the Purchasers, in the form of Exhibit D attached
hereto, securing the obligations of the Company under the Notes and other
Transaction Documents.

     

    “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.

     

    “Lock Up Agreement”
means each agreement executed and delivered by beneficial owners of Common
Stock, dated the date hereof and in the form of Exhibit E attached
hereto, irrevocably agreeing not to sell or otherwise dispose of any shares of
Common Stock until such time as set forth in such Lock Up
Agreement.

     

    “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.

     

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

     

    “Notes” means the 10%
Senior Secured Convertible Notes due, subject to the terms therein, two (2)
years from their date of issuance, issued by the Company to the Purchasers
hereunder and pursuant to any Second Tranche, in the form of Exhibit A attached
hereto.

     

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

     

    “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.

     

    “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 1.11111111.


    
      
         


      

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

     

    “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 Notes (including Underlying Shares issuable as
payment of interest, and including all Warrants and Notes which may be issued as
part of the Second Tranche), 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.

     

    “Regulation 13D-G”
means Regulation 13D-G promulgated by the Commission pursuant to the Exchange
Act, as such Regulation and the Rules thereunder 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 Regulation.

     

    “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.

     

    “Securities” means the
Notes, the Warrants 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, by the Company in favor of
the Purchasers, in the form of Exhibit C attached
hereto, securing the obligations of the Company under the Notes and other
Transaction Documents.

     

    “Security Documents”
means any and all means any and all security agreements, pledge agreements,
hypothecation agreements, collateral assignments, mortgages, deeds of trust,
control agreements and similar such agreements, executed and delivered by the
Company, any of its Subsidiaries and/or any third party in favor of the
Purchasers pursuant to the Transaction Documents which secures the Company’s
obligations under the Transaction Documents and/or any of the Securities, and
other documents executed, delivered and/or filed by the Company, any of its
Subsidiaries, any third party and/or the Purchasers as permitted or required
under any of the foregoing, including without limitation the Security Agreement
and the IP Security Agreement.


    
      
         


      

      
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    “Shell Company” means
an entity that has (a) no or nominal operations, and (b) either (i) no
or nominal assets, (ii) assets consisting solely of cash and cash equivalents,
or (iii) assets consisting of any amount of cash and cash equivalents and
nominal other assets.

     

    “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 Notes and Warrants purchased hereunder as
specified below such 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 4.13.

     

    “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, in the form attached hereto as Exhibit F, executed
by each Subsidiary in favor of the Purchasers, guaranteeing the Company’s
obligations under the Notes.

     

    “Trading Day” means a
day on which the Nasdaq Capital Market 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 Notes, the Warrants, the Security
Documents, the Lock Up Agreements and all exhibits and schedules thereto and
hereto and any other documents or agreements executed in connection with the
transactions contemplated hereunder.

     

    “Transfer Agent” means
Holiday Stock Transfer, the current transfer agent of the Company with a mailing
address of 2939 North 67th Place,
Suite C, Scottsdale, AZ 85251 and a facsimile number of 480-481-3941, and any
successor transfer agent of the Company.


    
      
         


      

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

     

    “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 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 the
Common Stock purchase warrants delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, and pursuant to any Second Tranche, in
the form of Exhibit
B attached hereto.

     

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

     

    “Weisman” means Peter
J. Weisman, P.C. with offices located at 153 East 53rd Street,
29th
Floor, New York, New York 10022.

     

    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, in the aggregate, $1,388,888.89 in
principal amount of the Notes.  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 Note 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 Weisman or such other location as the parties shall mutually
agree.


    
      
         


      

      
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    2.2          
 Deliveries.

     

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

     

    (b)   this
Agreement duly executed by the Company;

     

    (c)    a
legal opinion of Company Counsel, in substantially the form of Exhibit G attached
hereto;

     

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

     

    (e)    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 the initial Conversion Price of the Notes, with an exercise price
equal to the initial Conversion Price under the Notes, subject to adjustment
therein, exercisable commencing 6 months and 1 day from the date hereof for a
term of five years;

     

    (f)    
the Security Documents, including without limitation the Security Agreement and
the IP Security Agreement, duly executed by the Company and each
Subsidiary;

     

    (g)    the
Subsidiary Guarantee, duly executed by each Subsidiary of the Company;
and

     

    (h)   
irrevocable Lock Up Agreement(s) duly executed and delivered by each of the
Persons listed on Schedule 3.1(kk) attached hereto.

     

    (i)     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; and

     

    (iii)        the
Security Documents to which each Purchaser is a party and required by law to be
signed by such Party in order to be binding.

     

    
      	
               
      

            	
              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;


    
      
         


      

      
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    (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

     

    (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; and

     

    (v)  
      from the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by the Commission or
Pink Sheets, LLC, 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

     

    3.1          
Representations
and Warranties of the Company.  Except as set forth under the
corresponding section of the disclosure schedules delivered to the Purchasers
concurrently herewith (“Disclosure Schedules”) which Disclosure Schedules shall
be deemed a part hereof, the Company hereby makes the following representations
and warranties 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 this Section 3.1 shall be
disregarded.


    
      
         


      

      
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    (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.  The Company has furnished to
the Purchasers true and correct copies of the Company's Certificate of
Incorporation and the Company's By-Laws, as each is currently in
effect.

     

    (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 of each of the
Transaction Documents by the Company 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 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 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 of the
Transaction Documents by the Company 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 (other than Liens in favor of the
Purchasers), or (iii) subject to the Required Approvals, conflict with or result
in a violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.


    
      
         


      

      
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    (e)    Filings, Consents and
Approvals.  The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.6, (ii) 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, (iii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws, and (iv) filings required under the terms of the Security
Documents (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 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.  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 Affiliates of the Company as of the date
hereof.  Except as set forth on Schedule 3.1(g), the
Company has not issued any capital stock since December 31, 2006, 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 December 31, 2006.  No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents.  Except as a result of the purchase and sale of
the Securities, there are no outstanding options, warrants, 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. 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. 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)    Non-Reporting; Financial
Statements.  The Company is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.  The
financial statements of the Company furnished to the Purchasers for the years
ended December 31, 2005 and December 31, 2006 have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

     

    (i)     Material
Changes.  Since the date of the latest audited financial
statements delivered to the Purchasers, (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending before
the Commission any request for confidential treatment of
information.  Except for the issuance of the Securities contemplated
by this Agreement 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 at the time this representation is made or
deemed made that has not been publicly disclosed at least two Trading Days prior
to the date that this representation is made.

     

    (j)    
Litigation.  Except
as set forth on Schedule 3.1(j),
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty.  There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.


    
      
         


      

      
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    (k)    Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.  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 good.  No
executive officer, to the knowledge of the Company, 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 could not, individually or in the aggregate, reasonably be
expected to 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 notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
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 and contemplated to be conducted,
except where the failure to possess such permits could not reasonably be
expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.


    
      
         


      

      
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    (n)   
Title to
Assets.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for (a) Liens that 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, (b) Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties, and (c) that certain Lien in favor of
Enterprise Bank, N.A. to secure the loan outstanding from such entity in the
amount of approximately $198,000, which loan shall be repaid in full, and such
Lien irrevocably removed, at or prior to Closing.  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.

     

    (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 necessary or
material for use in connection with their respective businesses as currently
conducted and contemplated to be conducted and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company nor any Subsidiary has received
a notice (written or otherwise) that any of the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     

    (p)    Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged.  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.  None of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $10,000
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 stock
option plan of the Company.


    
      
         


      

      
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    (r)     [Intentionally
Omitted.]

     

    (s)    Certain
Fees.  Except as set forth on 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 Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the Pink
Sheets or any Trading Market.

     

    (u)    Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act of 1940, as
amended.

     

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

     

    (w)   Listing and Maintenance
Requirements.  The Common Stock is eligible to be traded on the
Pink Sheets, and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the trading or quotation
of the Common Stock on the Pink Sheets, nor has the Company received any
notification that Pink Sheets LLC is contemplating terminating such trading or
quotation.

     

    (x)    Application of Takeover
Protections.  The Company does not have in place and is not
subject to any anti-takeover provisions (including without limitation control
share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar agreement or provision) under the
Company’s certificate of incorporation 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.


    
      
         


      

      
        14

        
          

        

      

      
         


      

    


    (y)    Disclosure.  Except
with respect to the material terms and conditions of 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. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
(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 the Pink Sheets or any Trading Market on which any of the
securities of the Company are listed or designated.

     

    (aa)  Solvency.  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 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.  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.  Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.


    
      
         


      

      
        15

        
          

        

      

      
         


      

    


    (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.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

    (ee)  Accountants.  The
Company’s accounting firm is Carver Moquist & O’Connor, LLC.  To
the knowledge and belief of the Company, such accounting firm (i) is a
registered public accounting firm as required by the Exchange Act and (ii) shall
express its opinion with respect to the financial statements to be included in
the Company’s Annual Report for the year ending December 31, 2007.

     

    (ff)   Seniority.  As
of the Closing Date, no Indebtedness or other claim against the Company is
senior to the Notes 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) and 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 not aware of any circumstances with
respect to its accountants which could affect the Company’s ability to perform
any of its obligations under any of the Transaction Documents.


    
      
         


      

      
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    (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 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.  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.


    
      
         


      

      
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    (kk)  Significant
Shareholders.    Except for those Persons set forth
on Schedule 3.1(kk) attached hereto, no Person has any direct or indirect
beneficial ownership (as determined in accordance with Regulation 13D-G) of
shares of Common Stock which exceeds in the aggregate (together with other
Persons which would constitute a “group” under Regulation 13D-G) 5% of the total
number of outstanding shares of Common Stock as of the date hereof and the
Closing Date, including without limitation as a result of any Person’s
beneficial interest in a trust. For purposes of the calculations under this
paragraph, any limitations on beneficial ownership contained in any instrument
directly or indirectly convertible, exchangeable or exercisable into or for
Common Stock shall be ignored and any such instruments shall be deemed to be
currently convertible, exchangeable or exercisable in full.

     

    (ll)    No “Shell”.  To
the Company’s knowledge, the Company is not and has not at any time previously
been a Shell Company.

     

    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 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 any registration statement filed under the Securities
Act 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.


    
      
         


      

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

     

    (d)    Experience of Such
Purchaser.  Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.

     

    (e)    General
Solicitation.  Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

     

    (f)    
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 substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act.  As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement.


    
      
         


      

      
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    (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.  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, 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 a registration statement filed under the Securities
Act, the preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.

     

    (c)    Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
covering the resale of such security is effective under the Securities Act, or
(ii) if such Underlying Shares are eligible for resale under Rule 144, or (iii)
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).  If required by the Transfer Agent to effect the
removal of the legend hereunder, the Company shall cause its counsel to issue a
legal opinion to the Transfer Agent promptly after the date on which the
applicable holder of Underlying Shares may sell such securities pursuant to Rule
144.  If all or any portion of a Note 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 Underlying
Shares may be sold under Rule 144 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 Underlying Shares shall be issued free of all legends.  The
Company agrees that 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 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.  Certificates for Underlying Shares subject to
legend removal hereunder shall 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.


    
      
         


      

      
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    (d)    In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the 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), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the 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 Rule 144 or the
registration 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 filed under the
Securities Act, 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 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.


    
      
         


      

      
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    4.3           Furnishing of
Information.  The Company shall file a Form 10 to register the
Common Stock under the Exchange Act on or prior July 15, 2008.  At all
times after June 30, 2008 until such time as no Purchaser owns any Securities,
the Company shall cause itself to be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act and timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed thereunder.  Without limiting the foregoing, as
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Securities under Rule
144.  The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, 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 Notes set forth the totality
of the procedures required of the Purchasers in order to exercise the Warrants
or convert the Notes.  No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Notes.  The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.

     

    4.6           Securities Laws Disclosure;
Publicity.  The Company shall, by 8:30 a.m. (New York City
time) on the Trading Day following the date hereof, issue a press release
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 filed under the Securities Act covering the resale of the Securities,
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).


    
      
         


      

      
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    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 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 working capital purposes 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 and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents,
(c) the settlement of any outstanding litigation, or (d) making any investments
in securities or otherwise purchasing any equity or debt securities, including
without limitation purchasing any corporate, governmental or municipal bonds or
other debts instruments (whether at auction, in the open market or otherwise),
any commercial or chattel paper, or any certificates of deposit, or investing in
any money market or mutual funds.

     

    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.


    
      
         


      

      
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              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 be
required to fulfill its obligations in full under the Transaction
Documents.

     

    (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 apply for and use its best efforts to cause its shares of Common
Stock to be listed, quoted and traded on a Trading Market prior to December 31,
2008, and upon such listing or quotation the Company shall (1) take all steps
necessary to cause the Underlying Shares to be approved for listing on such
Trading Market at such time or as soon as possible thereafter, (2) provide to
the Purchasers evidence of such listing, and (3) maintain such listing on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market.  Prior to such listing, quoting and
trading, the Company shall, if applicable (i) in the time and manner required by
the Pink Sheets operated by Pink Sheets, LLC, prepare and file with such 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 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 market or a Trading Market.


    
      
         


      

      
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              4.12

            	
              [Intentionally
      Omitted.]

            


    

     

    
      	
               
      

            	
              4.13

            	
              Subsequent Equity
      Sales.

            


    

     

    (a)    From
the date hereof until the date which is six months following the Closing Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock or
Common Stock Equivalents without the prior written consent of the
Purchasers.

     

    (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 financing by it or any of its Subsidiaries by the issuance of Common
Stock, Common Stock Equivalents or Indebtedness (“Subsequent
Financing”) involving a Variable Rate Transaction or MFN
Transaction.  “Variable Rate
Transaction” means a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security 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.  “MFN Transaction”
means a transaction in which the Company issues or sells any securities to an
investor in one or a series of related capital raising transactions which grants
to such investor the right to receive additional securities or better terms
based in some manner upon future sales or issuances of Common Stock or Common
Stock Equivalents on terms more favorable than those granted to such investor in
such capital raising transaction(s).

     

    (c)    From
the date hereof until such time as no Purchaser holds any of the Securities, in
the event the Company issues or sells any shares of Common Stock or Common Stock
Equivalents or amends the transaction documents relating to any sale or issuance
of Common Stock or Common Stock Equivalents, if a Purchaser reasonably believes
that any of the terms and conditions thereunder are more favorable to such
investors as the terms and conditions granted under the Transaction Documents,
upon notice to the Company by such Purchaser the Company shall amend the terms
of this transaction and the Transaction Documents so as to give the Purchasers
the benefit of such more favorable terms or conditions.


    
      
         


      

      
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    (d)    Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction or MFN 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 Notes in amounts which are
disproportionate to the respective principal amounts outstanding on the Notes 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.  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 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

            	
              [Intentionally
      Omitted.]

            


    


    
      
         


      

      
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              4.18

            	
              Registration.

            


    

     

    (a)     Demand
Registration.  Without limiting any other remedies available to
any Purchaser hereunder, at law, in equity or otherwise, in the event that after
October 15, 2008 it is determined that the Company is or has at any time
previously been a Shell Company (or that counsel to the Company will not issue a
legal opinion to the Transfer Agent that it may deliver unlegended freely
tradable Underlying Shares to the Purchaser under Rule 144, due to the fact that
the Company was or may have been a Shell Company), then the Company shall (a)
within 30 days following demand by any Purchaser, prepare and file with the
Commission a registration statement registering the resale by the Purchasers of
all Underlying Shares under the Securities Act, and (b) cause such registration
statement to be declared effective by the Commission as promptly as possible
thereafter (but no later than 90 days after such filing).

     

    (b)    Piggy-Back
Registration If the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or its then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans), then the Company shall send to each Purchaser written notice of
such determination and, if within seven (7) Business Days after receipt of such
notice, any such Purchaser shall so request in writing (which request shall
specify the Underlying Shares intended to be disposed of by the Purchaser), the
Company will cause the registration under the Securities Act of all Underlying
Shares which the Company has been so requested to register by the Purchaser, to
the extent required to permit the disposition of such Underlying Shares so to be
registered.  The Company shall include in such registration statement
all or any part of such Underlying Shares such Purchaser requests to be
registered; provided, however, that the Company shall not be required to
register any Underlying Shares pursuant to this Section that are eligible for
sale pursuant to Rule 144 of the Securities Act.  In the case of an
underwritten public offering, if the managing underwriter(s) or underwriter(s)
should reasonably object to the inclusion of the Underlying Shares in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Underlying
Shares would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Underlying Shares of the
Purchasers, then (x) the number of Underlying Shares of the Purchasers included
in such registration statement shall be reduced pro-rata among such Purchasers
(based upon the number of Underlying Shares requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Underlying Shares, or (y) none of the
Underlying Shares of the Purchasers shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Underlying Shares; provided, however, that if
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Underlying Shares intended to be offered by the Purchasers than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company).


    
      
         


      

      
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    (c)   
Registration Rights
Agreement.  The Company shall keep any registration statement
filed pursuant to this Section 4.18 continuously effective under the Securities
Act until such date as is the earlier of (x) the date when all Underlying Shares
covered by such Registration Statement have been sold or (y) the date on which
all Underlying Shares may be sold without any restriction pursuant to Rule 144
as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect.  In
connection with any registration of Underlying Shares pursuant to this Section,
promptly following any demand or request by any Purchaser hereunder, the Company
and the Purchasers shall enter into a registration rights agreement containing
customary and reasonable provisions regarding the registration of securities
(including reasonable liquidated damages provisions).

     

    4.19       
 Lock-Up
Agreements.  The Company shall enforce the provisions of the
Lock-Up Agreements and shall place or cause to be placed “stop orders” on its
books to prevent any transfer of shares of Common Stock or other securities of
the Company in violation of the Lock-Up Agreements.  The Company
agrees not to take any action or allow any act to be taken which would be
inconsistent with the Lock-Up Agreements nor amend or terminate any Lock-Up
Agreement without the consent of the Purchasers.

     

    4.20          Security.  The
Company’s and any Subsidiaries’ obligations under the Notes and other
Transaction Documents shall be secured by all the assets of the Company and its
Subsidiaries as set forth in the Security Documents.  As of the
Closing, the Purchasers shall be granted a security interest in all the assets
of the Company, including without limitation all of its Intellectual Property
Rights and its ownership of any and all Subsidiaries, and in the assets of any
such Subsidiaries, to be memorialized in the Security Documents.  The
Company shall execute such other agreements, documents and financing statements
reasonably requested by Purchasers, which will be filed at the Company’s expense
with the applicable jurisdictions and authorities.  The Company shall
also execute all such documents reasonably necessary in the opinion of the
Purchasers to memorialize and further protect the security interests described
herein.  The Purchasers may appoint a collateral agent to represent
them collectively in connection with the security interests being granted to the
Purchasers.

     

    4.21          Additional
Guarantors.   The Company shall cause each of its
Subsidiaries formed or acquired on or after the date hereof to execute and
deliver to the Purchasers a Subsidiary Guarantee and a Security Agreement in
conformity with those executed and delivered at Closing.

     

    4.22        
Insurance.  So
long as any Securities remain outstanding, the Company and its Subsidiaries
shall maintain in full force and effect insurance reasonably believed by the
Company to be adequate coverage (a) on all assets and activities, covering
property loss or damage and loss of income by fire or other hazards or casualty,
and (b) against all liabilities, claims and risks for which it is customary for
companies similarly situated to the Company to insure, including without
limitation applicable product liability insurance, required workmen’s
compensation insurance, and other insurance covering injury or damage to persons
or property, but excluding directors and officers insurance
coverage.  The Company shall promptly furnish or cause to be furnished
evidence of such insurance to each Purchaser so requesting same, in form and
substance reasonably satisfactory to such Purchaser.


    
      
         


      

      
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    ARTICLE
V.

    MISCELLANEOUS

     

    5.1          
Termination.  This
Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations
hereunder only and without any effect whatsoever on the obligations between the
Company and the other Purchasers, by written notice to the other parties, if the
Closing has not been consummated on or before April 30, 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
Gemini Strategies, LLC and/or Gemini Master Fund Ltd. (collectively, “Gemini”) the
non-accountable sum of $35,000 for its legal fees and expenses, $5,000 of which
has been paid prior to the Closing.  Accordingly, in lieu of the
foregoing payments, the aggregate amount that Gemini is to pay for the
Securities at the Closing shall be reduced by $30,000 in lieu
thereof.  In addition, the Company shall reimburse Gemini and the
Purchasers for estimated UCC searches and filing fees, fees and expenses of any
local or third party patent and trademark counsel engaged by Purchasers in
connection with the security interests granted to the Purchasers, which will be
payable on the Closing Date out of funds otherwise deliverable by Gemini for its
Subscription Amount hereunder.  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.  Gemini’s actual out-of pocket expenses
in connection with the transactions contemplated hereby shall be payable
regardless of whether the Closing occurs (subject to the maximum amount set
forth above).

     

    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 third
Trading Day following the date of mailing, if sent by regular mail, or (d) the
Trading Day following the date on which such notice or communication is
deposited with a nationally recognized overnight courier service.  The
address for such notices and communications shall be as set forth on the
signature pages attached hereto.


    
      
         


      

      
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    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 67% 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,
provided that no amendment affecting the Collateral (as defined in the Security
Documents) or the security interest granted in the Security Documents may be
effected without the prior written consent of all the Purchasers.  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.

     

    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.


    
      
         


      

      
        30

        
          

        

      

      
         


      

    


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

     

    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” or other document image
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” or other document image
format data file 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 Note 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.


    
      
         


      

      
        31

        
          

        

      

      
         


      

    


    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 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
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 Weisman.  Weisman does
not represent all of the Purchasers but only Gemini.  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.


    
      
         


      

      
        32

        
          

        

      

      
         


      

    


    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)


    
      
         


      

      
        33

        
          

        

      

      
         


      

    


    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.

     

    
      	
              AXIS
      TECHNOLOGIES GROUP, INC.

            	 	
              Address for
      Notice:

            
	 
      	 
      	 	
              2055
      S Folsom Street

            
	 
      	 
      	 	
              Lincoln,
      NE 68522

            
	
              By:

            	 /s/
      Jim Erickson	 	
              Fax:
      866-458-9881

            
	 
      	
              Name:

            	 	 
      
	 
      	
              Title:

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

            


    

    


    


    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGES FOR PURCHASERS FOLLOWS]


    
      
         


      

      
        34

        
          

        

      

      
         


      

    


    [PURCHASER
SIGNATURE PAGES TO AXTG 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:

            	 	
              GEMINI
      MASTER FUND, LTD.

            
	 
      	 	
              By:
      GEMINI STRATEGIES, LLC, as investment
manager

            


    

    


    Signature of Authorized Signatory of
Purchaser:  /s/ Steven
Winters

     

    Name of
Authorized Signatory: Steven Winters

     

    Title of
Authorized Signatory: President

     

    Email
Address of Purchaser: steve@geministrategies.com

     

    Facsimile
Number of Purchaser: (858) 509-8808

     

    Address
for Notice of Purchaser:

    


    
      	
              c/o
      Gemini Strategies, LLC

            	
              with
      copy to

            
	
              135
      Liverpool Drive, Suite C

            	
              Peter
      J. Weisman, P.C.

            
	
               Cardiff,
      CA  92007

            	
              153
      East 53rd
      Street, 29th
      Floor

            
	
              Attn:  Steven
      Winters

            	
              New
      York, NY  10022

            
	
              Fax:
      (858) 509-8808

            	
              Fax:
      (212) 433-1361

            
	
              Email:  steve@geministrategies.com

            	
              Email:  pweisman@pweisman.com

            


    

    


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

    


    


    Subscription
Amount: $1,250,000

    


    Principal
Amount (Subscription Amount multiplied by 1.11111111):
$1,388,888.89

    


    Warrant
Shares: 5,341,880

     

     

     35