Exhibit 10.3


    
      

    


    SECURITIES
      PURCHASE AGREEMENT

     

     

    AGREEMENT,
      dated as of December ___, 2006, between Royal Spring Water, Inc. (the “Company”)
      and GCA Strategic Investment Fund Limited (“Purchaser”).

     

    R
      E C I T A L S:

     

    WHEREAS,
      the Company desires to sell and issue to Purchaser, and Purchaser desires to
      purchase from the Company, $1,250,000 aggregate principal amount of the
      Company’s Convertible Note due December ___, 2008 (the “Convertible Note”), with
      terms and conditions as set forth in the form of Convertible Note attached
      hereto as Exhibit A;

     

    WHEREAS,
      the Convertible Note will be convertible into shares of the Company’s common
      stock, par value $.001 per share (the “Common Stock”);

     

    WHEREAS,
      in order to induce the Purchaser to enter into the transactions described in
      this Agreement, the Company desires to issue to the Purchaser warrants to
      purchase shares of Common Stock upon the Closing equal to 500,000 shares of
      Common Stock (as defined herein) in the following increments: (i) 100,000 with
      a
      strike price of $2.00, (ii) 100,000 with a strike price of $3.00, (iii) 100,000
      with a strike price of $4.00, (iv) 100,000 with a strike price of $4.50 and
      (v)
      100,000 with a strike price of $5.00 on the terms and conditions described
      in
      the form of the common stock purchase warrant attached hereto as Exhibit
      F (the “Warrants”), and

     

    WHEREAS,
      Purchaser will have certain registration rights with respect to such shares
      of
      Common Stock issuable as interest under, and upon conversion of, the Convertible
      Note (the “Note Shares”) and upon exercise of the Warrants (the “Warrant
      Shares,” the Note Shares and the Warrant Shares being collectively referred to
      herein as the “Conversion Shares”) as set forth in the Registration Rights
      Agreement in the form attached hereto as Exhibit B;

     

    NOW,
      THEREFORE, in consideration of the foregoing premises and the covenants
      contained herein and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the parties hereto agree as
      follows:

     

    ARTICLE
      I. DEFINITIONS

     

    Section
      1.1 Definitions. The following terms, as used herein, have the
      following meanings:

     

    “Additional
      Shares of Common Stock” has the meaning set forth in Section 11.6.

     

    “Affiliate”
      means, with respect to any Person (the “Subject Person”), (i) any other Person
      (a “Controlling Person”) that directly, or indirectly through one or more
      intermediaries, Controls the Subject Person or (ii) any other Person (other
      than
      the Subject Person or a Consolidated Subsidiary of the Subject Person) which
      is
      Controlled by or is under common Control with a Controlling
      Person.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    “Agreement”
      means this Securities Purchase Agreement, as amended, supplemented or otherwise
      modified from time to time in accordance with its terms.

     

    “Asset
      Sale” has the meaning set forth in Section 8.4.

     

    “Balance
      Sheet Date” has the meaning set forth in Section 4.7.

     

    “Benefit
      Arrangement” means at any time an employee benefit plan within the meaning of
      Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which
      is
      maintained or otherwise contributed to by the Company.

     

    “Benefit
      Plans” has the meaning set forth in Section 4.9(b).

     

    “Business
      Day” means any day except a Saturday, Sunday or other day on which commercial
      banks in the City of New York are authorized or required by law to
      close.

     

    “Capital
      Reorganization” has the meaning set forth in Section 11.5.

     

    “Change
      in Control” means (i) after the date of this Agreement, any person or group of
      persons (within the meaning of Sections 13 and 14 of the Exchange Act and the
      rules and regulations of the Commission relating to such sections) other than
      Purchaser shall have acquired beneficial ownership (within the meaning of Rules
      13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act)
      of
      33a% or more of the outstanding shares of Common Stock of the Company without
      the prior written consent of Purchaser; (ii) any sale or other disposition
      (other than by reason of death or disability) to any Person of more than 75,000
      shares of Common Stock of the Company by any executive officers and/or employee
      directors of the Company without the prior written consent of Purchaser; (iii)
      individuals constituting the Board of Directors of the Company on the date
      hereof (together with any new Directors whose election by such Board of
      Directors or whose nomination for election by the stockholders of the Company
      was approved by a vote of at least 50.1% of the Directors still in office who
      are either Directors as of the date hereof or whose election or nomination
      for
      election was previously so approved), cease for any reason to constitute at
      least two-thirds of the Board of Directors of the Company then in
      office.

     

    “Closing
      Bid Price” shall mean for any security as of any date, the lowest closing bid
      price as reported by Bloomberg, L.P. (“Bloomberg”) on the principal securities
      exchange or trading market where such security is listed or traded or, if the
      foregoing does not apply, the lowest closing bid price of such security in
      the
      over-the-counter market on the electronic bulletin board for such security
      as
      reported by Bloomberg, or, if no lowest trading price is reported for such
      security by Bloomberg, then the average of the bid prices of any market makers
      for such securities as reported in the “Pink Sheets” by the National Quotation
      Bureau, Inc. If the lowest closing bid price cannot be calculated for such
      security on such date on any of the foregoing bases, the lowest closing bid
      price of such security on such date shall be the fair market value as mutually
      determined by Purchaser and the Company for which the calculation of the closing
      bid price requires, and in the absence of such mutual determination, as
      determined by the Board of Directors of the Company in good faith.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Closing
      Date” means the date on which all of the conditions set forth in Sections 6.1
      and 6.2
      shall
      have been satisfied and Convertible Note in the aggregate principal amount
      of
      $1,250,000 are issued by the Company to Purchaser.

     

    “Code”
      means the Internal Revenue Code of 1986, as amended.

     

    “Commission”
      means the Securities and Exchange Commission or any entity succeeding to all
      of
      its material functions.

     

    “Common
      Stock” means common stock, par value $.001 per share, of the
      Company.

     

    “Company”
      means Royal Spring Water, Inc., a California corporation, and its
      successors.

     

    “Company
      Corporate Documents” means the certificate of incorporation and bylaws of the
      Company.

     

    “Consolidated
      Net Worth” means at any date the total shareholder’s equity which would appear
      on a consolidated balance sheet of the Company prepared as of such
      date.

     

    “Consolidated
      Subsidiary” means at any date with respect to any Person or Subsidiary or other
      entity, the accounts of which would be consolidated with those of such Person
      in
      its consolidated financial statements if such statements were prepared as of
      such date.

     

    “Control”
      (including, with correlative meanings, the terms “Controlling,” “Controlled by”
and under “common Control with”), as used with respect to any Person, means the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management and policies of that Person, whether through the
      ownership of voting securities, by contract or otherwise.

     

    “Conversion
      Date” shall mean the date of delivery (including delivery via telecopy) of a
      Notice of Conversion for all or a portion of a Convertible Note by the holder
      thereof to the Company as specified in each Convertible Note.

     

    “Conversion
      Price” has the meaning set forth in the Convertible Note.

     

    “Conversion
      Shares” has the meaning set forth in the Recitals.

     

    “Convertible
      Note” means the Company’s Convertible Note substantially in the form set forth
      as Exhibit A hereto.

     

    “Deadline”
      has the meaning set forth in Section 10.1.

     

    “Debt”
of
      any Person means at any date, without duplication, (i) all obligations of such
      Person for borrowed money, (ii) all obligations of such Person evidenced by
      bonds, notes, or other similar instruments issued by such Person, (iii) all
      obligations of such Person as lessee which (y) are capitalized in accordance
      with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all
reimbursement
      obligations of such Person in respect of letters of credit or other similar
      instruments, (v) all Debt of others secured by a Lien on any asset of such
      Person, whether or not such Debt is otherwise an obligation of such Person
      and
      (vi) all Debt of others Guaranteed by such Person.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Default”
      means any event or condition which constitutes an Event of Default or which
      with
      the giving of notice or lapse of time or both would, unless cured or waived,
      become an Event of Default.

     

    “Default
      Fee” has the meaning set forth in Section 10.4.

     

    “Derivative
      Securities” has the meaning set forth in Section 8.6.

     

    “Discounted
      Equity Offerings” has the meaning set forth in Section 8.6.

     

    “Directors”
      means the individuals then serving on the Board of Directors or similar such
      management council of the Company.

     

    “Environmental
      Laws” means any and all federal, state, local and foreign statutes, laws,
      regulations, ordinances, rules, judgments, orders, decrees, permits,
      concessions, grants, franchises, licenses, agreements or other governmental
      restrictions relating to the environment or to emissions, discharges or releases
      of pollutants, contaminants, petroleum or petroleum products, chemicals or
      industrial, toxic or hazardous substances or wastes into the environment,
      including, without limitation, ambient air, surface water, ground water, or
      land, or otherwise relating to the manufacture, processing, distribution, use,
      treatment, storage, disposal, transport or handling of pollutants, contaminants,
      petroleum or petroleum products, chemicals or industrial, toxic or hazardous
      substances or wastes or the cleanup or other remediation thereof.

     

    “ERISA”
      means the Employee Retirement Income Security Act of 1974, as amended, or any
      successor statute.

     

    “ERISA
      Group” means the Company and each Subsidiary and all members of a controlled
      group of corporation and all trades or businesses (whether or not incorporated)
      under common control which, together with the Company or any Subsidiary, are
      treated as a single employer under the Code.

     

    “Event
      of
      Default” has the meaning set forth in Article XII hereof.

     

    “Exchange
      Act” means the Securities Exchange Act of 1934, as amended.

     

    “Expense
      Reimbursement Fee” has the meaning set forth in Section 13.4.

     

    “Financing”
      means a public or private financing consummated (meaning closing and funding)
      through the issuance of debt or equity securities (or securities convertible
      into or exchangeable for debt or equity securities) of the Company, other than
      Permitted Financings.

     

    “Fixed
      Price(s)” has the meaning set forth in Section 11.1.

     

    “GAAP”
      has the meaning set forth in Section 1.2.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Guarantee”
      by any Person means any obligation, contingent or otherwise, of such Person
      directly or indirectly guaranteeing (whether by virtue of partnership
      arrangements, by agreement to keep well, to purchase assets, goods, securities
      or services, to take-or-pay, or to maintain a minimum net worth, financial
      ratio
      or similar requirements, or otherwise) any Debt of any other Person and, without
      limiting the generality of the foregoing, any obligation, direct or indirect,
      contingent or otherwise, of such Person (i) to purchase or pay (or advance
      or
      supply funds for the purchase or payment of) such Debt or (ii) entered into
      for
      the purpose of assuring in any other manner the holder of such Debt of the
      payment thereof or to protect such holder against loss in respect thereof (in
      whole or in part); provided that the term Guarantee shall not include
      endorsements for collection or deposit in the ordinary course of
      business.  The term Guarantee used as a verb has a corresponding
      meaning.

     

    “Hazardous
      Materials” means any hazardous materials, hazardous wastes, hazardous
      constituents, hazardous or toxic substances or petroleum products (including
      crude oil or any derivative or fraction thereof), defined or regulated as such
      in or under any Environmental Laws.

     

    ‘Intellectual
      Property” has the meaning set forth in Section 4.20.

     

    “Investment”
      means any investment in any Person, whether by means of share purchase,
      partnership interest, capital contribution, loan, time deposit or
      otherwise.

     

    “Lien”
      means any lien, mechanic’s lien, materialmen’s lien, lease, easement, charge,
      encumbrance, mortgage, conditional sale agreement, title retention agreement,
      agreement to sell or convey, option, claim, title imperfection, encroachment
      or
      other survey defect, pledge, restriction, security interest or other adverse
      claim, whether arising by contract or under law or otherwise (including, without
      limitation, any financing lease having substantially the same economic effect
      as
      any of the foregoing, and the filing of any financing statement under the
      Uniform Commercial Code or comparable law of any jurisdiction in respect of
      any
      of the foregoing).

     

    “Listing
      Applications” has the meaning set forth in Section 4.4.

     

    “Majority
      Holders” means (i) as of the Closing Date, Purchaser and (ii) at any time
      thereafter, the holders of more than 50% in aggregate principal amount of the
      Convertible Note outstanding at such time.

     

    “Market
      Price” shall mean the Closing Bid Price of the Common Stock preceding the date
      of determination.

     

    “Material
      Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in
      excess of $100,000.

     

    “Maturity
      Date” shall mean the date of maturity of the Convertible Note.

     

    “Maximum
      Number of Shares” shall mean that percentage that the Company may issue without
      shareholder approval under the applicable rules of the OTC Bulletin Board,
      National Market or equivalent entity then applicable to the Company, of the
      then
      issued and outstanding shares of Common
      Stock of the Company as of the applicable date of determination, or such greater
      number of shares as the stockholders of the Company may have previously
      approved.

     

    "NASD"
      has the meaning set forth in Section 7.10.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    “Nasdaq
      Market” means the Nasdaq Stock Market’s National Market System.

     

    “National
      Market” means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock
      Exchange, Inc. or the American Stock Exchange, Inc..

     

    “Net
      Cash
      Proceeds” means, with respect to any transaction, the total amount of cash
      proceeds received by the Company or any Subsidiary less (i) reasonable
      underwriters’ fees, brokerage commissions, reasonable professional fees and
      other customary out-of-pocket expenses payable in connection with such
      transaction, (ii) in the case of dispositions of assets,

     

    (A)
      actual transfer taxes (but not
      income taxes) payable with respect to such dispositions, and

     

    (B)
      the
      amount of Debt, if any, secured by a Lien on the asset or assets disposed of
      and
      required to be, and actually repaid by the Company or any Subsidiary in
      connection therewith, and any trade payables specifically relating to such
      asset
      or assets sold by the Company or any Subsidiary that are not assumed by the
      purchaser of such asset or assets, and (iii) proceeds of any lien on any
      accounts receivable or any alternative energy project..

    


    “Notice
      of Conversion” means the form to be delivered by a holder of a Convertible Note
      upon conversion of all or a portion thereof to the Company substantially in
      the
      form of Exhibit A to the form of Convertible Note.

     

    “Officer’s
      Certificate” shall mean a certificate executed by the President, chief executive
      officer or chief financial officer of the Company in the form of Exhibit
      C attached hereto.

     

    "OTC
      Bulletin Board" means the over-the-counter bulletin board operated by the
      NASD.

     

    “Other
      Taxes” has the meaning set forth in Section 3.6(b).

     

    “PBGC”
      means the Pension Benefit Guaranty Corporation or any entity succeeding to
      any
      or all of its functions under ERISA.

     

    “Permits”
      means all domestic and foreign licenses, franchises, grants, authorizations,
      permits, easements, variances, exemptions, consents, certificates, orders and
      approvals necessary to own, lease and operate the properties of, and to carry
      on
      the business of the Company and the Subsidiaries.

     

    “Permitted
      Financings” has the meaning set forth in Section 8.6.

     

    “Person”
      means an individual, corporation, partnership, trust, incorporated or
      unincorporated association, joint venture, joint stock Company, government
      (or
      any agency or political subdivision thereof) or other entity of any
      kind.

     

    “Plan”
      means at any time an employee pension benefit plan which is covered by Title
      IV
      of ERISA or subject to the minimum funding standards under the Code and either
      (i) is maintained, or contributed to, by any member of the ERISA group for
      employees of any member of the ERISA group or
      (ii)
      has at any time within the preceding five years been maintained, or contributed
      to, by any Person which was at such time a member of the ERISA group for
      employees of the Person which was at such time a member of the ERISA
      Group.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Purchase
      Price” means the purchase price for the Securities set forth in Section 2.2
      hereof.

     

    “Purchaser”
      means  the entity listed on the signature page hereto and its
      successors and assigns, including holders from time to time of the Convertible
      Note.

     

    “Recourse
      Financing” means Debt of the Company or any Subsidiary which, by its terms, does
      not bar the lender thereof from action against the Company or any Subsidiary,
      as
      borrower or guarantor, if the security value of the project or asset pledged
      in
      respect thereof falls below the amount required to repay such Debt.

     

    “Redemption
      Event” has the meaning set forth in Section 3.4.

     

    “Registrable
      Securities” has the meaning set forth in Section 10.4(a).

     

    “Registration
      Statement” has the meaning set forth in Section 10.4(b).

     

    “Registration
      Rights Agreement” means the agreement between the Company and Purchaser dated
      the date hereof substantially in the form set forth in Exhibit B attached
      hereto.

     

    “Reserved
      Amount” has the meaning set forth in Section 7.10(a).

     

    “Restricted
      Payment” means, with respect to any Person, (i) any dividend or other
      distribution on any shares of capital stock of such Person (except dividends
      payable solely in shares of capital stock of the same or junior class of such
      Person and dividends from a wholly-owned direct or indirect Subsidiary of the
      Company to its parent corporation), (ii) any payment on account of the purchase,
      redemption, retirement or acquisition of (a) any shares of such Person’s capital
      stock or (b) any option, warrant or other right to acquire shares of such
      Person’s capital stock or (iii) any loan, or advance or capital contribution to
      any Person (a “Stockholder”) owning any capital stock of such Person other than
      relocation, travel or like advances to officers and employees in the ordinary
      course of business, and other than reasonable compensation as determined by
      the
      Board of Directors.

     

    “Rights
      Offering” has the meaning set forth in Section 11.3.

     

    “Sale
      Event” has the meaning set forth in Section 3.4.

     

    “SEC
      Reports” has the meaning set forth in Section 4.7

     

    “Securities”
      means the Convertible Note, the Warrants and, as applicable, the Conversion
      Shares.

     

    “Securities
      Act” means the Securities Act of 1933, as amended.

     

    “Security
      Agreement” has the meaning set forth in the recitals.

     

    “Share
      Reorganization” has the meaning set forth in Section 11.2.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    “Special
      Distribution” has the meaning set forth in Section 11.4.

     

    “Subsidiary”
      means, with respect to any Person, any corporation or other entity of
      which

    (x)
      a
      majority of the capital stock or other ownership interests having ordinary
      voting power to elect a majority of the Board of Directors or other persons
      performing similar functions are at the time directly or indirectly owned by
      such Person or (y) the results of operations, the assets and the liabilities
      of
      which are consolidated with such Person under GAAP.

     

    “Subsidiary
      Corporate Documents” means the certificates of incorporation and bylaws of each
      Subsidiary.

     

    “Taxes”
      has the meaning set forth in Section 3.6.

     

    “Trading
      Day” shall mean any Business Day in which the OTC Bulletin Board, National
      Market or other automated  quotation system or exchange on which the
      Common Stock is then traded is open for trading for at least four (4)
      hours.

    “Transaction
      Agreements” means this Agreement, the Convertible Note, the Registration Rights
      Agreement, and the other agreements contemplated by this Agreement.

     

    “Transfer”
      means any disposition of Securities that would constitute a sale thereof under
      the Securities Act.

     

    “Unfunded
      Liabilities” means, with respect to any Plan at any time, the amount (if any) by
      which (i) the present value of all benefits under Plan exceeds (ii) the fair
      market value of all Plan assets allocable to such benefits (excluding any
      accrued but unpaid contributions), all determined as of the then most recent
      valuation date for such Plan, but only to the extent that such excess represents
      a potential liability of a member of the ERISA Group to the PBGC or any other
      Person under Title IV of ERISA.

     

    “VWAP”
      shall mean for any security as of any date, the volume weighted average price
      as
      reported by Bloomberg, L.P. (“Bloomberg”) on the principal securities exchange
      or trading market where such security is listed or traded or, if the foregoing
      does not apply, the volume weighted average price of such security in the
      over-the-counter market on the electronic bulletin board for such security
      as
      reported by Bloomberg, or, if no volume weighted average price is reported
      for
      such security by Bloomberg, then the average of the bid prices of any market
      makers for such securities as reported in the “Pink Sheets” by the National
      Quotation Bureau, Inc.  If the volume weighted average price cannot be
      calculated for such security on such date on any of the foregoing bases, the
      volume weighted average price of such security on such date shall be the fair
      market value as mutually determined by Purchaser and the Company for which
      the
      calculation of the volume weighted average price requires, and in the absence
      of
      such mutual determination, as determined by the Board of Directors of the
      Company in good faith.

     

    “Warrant”
      means the Common Stock Purchase Warrants substantially in the form set forth
      in
Exhibit F hereto and issued in the following increments:  (i)
      100,000 with a strike price of $2.00, (ii) 100,000 with a strike price of $3.00,
      (iii) 100,000 with a strike price of $4.00, (iv) 100,000 with a strike price
      of
      $4.50 and (v) 100,000 with a strike price of $5.00.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    Section
      1.2 Accounting Terms and Determinations. Unless otherwise specified
      herein, all accounting terms used herein shall be interpreted, all accounting
      determinations hereunder shall be made, and all financial statements required
      to
      be delivered hereunder shall be prepared, in accordance with generally accepted
      accounting principles as in effect from time to time, applied on a consistent
      basis (except for changes concurred in by the Company’s independent public
      accountants) (“GAAP”). All references to “dollars,” “Dollars” or “$” are to
      United States dollars unless otherwise indicated.

     

    ARTICLE
      II. PURCHASE AND SALE OF SECURITIES

     

    Section
      2.1 Purchase and Sale of Convertible Note.

     

    (a)
      Subject to the terms and conditions
      set forth herein, the Company agrees to issue and sell to Purchaser, and
      Purchaser agrees to purchase from the Company, the Convertible
      Note.

     

    (b)
      Purchaser shall acquire Convertible Note on the Closing Date in an aggregate
      principal amount of One Million Two Hundred Fifty Thousand Dollars
      ($1,250,000.00).

    


    Section
      2.2 Purchase Price. The purchase price for the Convertible Note on the
      Closing Date shall be 95% of the principal amount thereof.  Therefore,
      the aggregate consideration payable by Purchaser to the Company for the
      Convertible Note on the Closing Date shall be One Million One Hundred Eighty
      Seven Thousand Five Hundred Dollars ($1,187,500.00) (the “Purchase
      Price”).

     

    Section
      2.3 Closing and Mechanics of Payment.

     

    (a)
      The Purchase Price shall be paid on
      the Closing Date by wire transfer of immediately available funds on or before
      5:00 p.m. (EST).

     

    (b)
      The
      Convertible Note issued on the Closing Date shall be dated the date
      hereof.

    


    ARTICLE
      III. PAYMENT TERMS OF CONVERTIBLE NOTE

     

    Section
      3.1 Payment of Principal and Interest; Payment Mechanics. The Company
      will pay all amounts due on each Convertible Note by the method and at the
      address specified for such purpose by Purchaser in writing, without the
      presentation or surrender of any Convertible Note or the making of any notation
      thereon, except that upon written request of the Company made concurrently
      with
      or reasonably promptly after payment or prepayment in full of this Convertible
      Note, the holder shall surrender the Convertible Note for cancellation,
      reasonably promptly after any such request, to the Company at its principal
      executive office.  Prior to any sale or other disposition of any
      Convertible Note, the holder thereof will, at its election, either endorse
      thereon the amount of principal paid thereon and
      the
      last date to which interest has been paid thereon or surrender the Convertible
      Note to the Company in exchange for a new Convertible Note or Convertible Notes.
      The Company will afford the benefits of this Section 3.1 to any direct or
      indirect transferee of the Convertible Note purchased under this Agreement
      that
      has made the same agreement relating to this Convertible Note as Purchaser
      has
      in this Section 3.1; provided that such transferee is an “accredited investor”
under Rule 501 of the Securities Act and the transaction is otherwise exempt
      from the registration requirements of the Securities Act and Purchaser provides
      the Company with a legal opinion from counsel in form and substance reasonably
      satisfactory to the Company.

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    Section
      3.2. Intentionally Omitted.

     

    Section
      3.3 Voluntary Prepayment. For so long as no Event of Default shall have
      occurred and is continuing, the Company may, at its option, repay, in whole
      or
      in part, the Convertible Note, per the formula set forth in Section 5.1 of
      Exhibit A hereto, following at least five (5) Business Days prior written
      notice to Purchaser (the expiration of such five (5) Business Day period being
      referred to as the “prepayment date”); provided, however, that if
      such date is not a Business Day, the prepayment date shall be the next Business
      Day thereafter.

     

    Section
      3.4 Mandatory Prepayments.

     

    (a)
      Upon
      (i) the occurrence of a Change in Control of the Company, (ii) a transfer of
      all
      or substantially all of the assets of the Company to any Person in a single
      transaction or series of related transactions, (iii) a consolidation or merger
      of the Company with or into another Person in which the Company is not the
      surviving entity (other than a merger which is effected solely to change the
      jurisdiction of incorporation of the Company and results in a reclassification,
      conversion or exchange of outstanding shares of Common Stock solely into shares
      of Common Stock) (each of items (i), (ii) and (iii)
      being referred to as a “Sale Event”), or (iv) the occurrence of a Registration
      Default which continues uncured for a period of twenty (20) days, then, in
      each
      case, the Company shall, upon request of the Majority Holders, redeem the
      Convertible Note and Warrants.  The redemption price payable upon any
      such redemption shall be the redemption price in Section 5 of the
      Convertible Note and Section 13 of the Warrants, respectively (referred
      to herein as the "Formula Price").

     

    (b)
      At the option of Purchaser, upon
      the consummation of one or more Financings, the Company shall use 25% of the
      Net
      Cash Proceeds therefrom (unless such Net Cash Proceeds from each such Financing
      is less than $250,000) to redeem the Convertible Note.

     

    (c)
      Upon the issuance of the Maximum
      Number of Shares, the receipt by the Company of Notice of Conversion requiring
      the issuance of shares of Common Stock in excess of the Maximum Number of
      Shares, and the failure within 40 days of such issuance to obtain shareholder
      approval, if such approval is required by either the laws of the jurisdiction
      of
      the Company’s incorporation or the rules of any market on which the Company’s
      securities are then traded, to issue additional shares of Common Stock required
      to be issued in connection with such Notices of Conversion (the “Redemption
      Event”), the Company shall redeem the outstanding balance of each Convertible
      Note and Warrant for the Formula Price.

    


    (d)
      In the event that there is an
      insufficient number of authorized, issuable, shares of Common Stock registered
      under the Registration Statement filed by the Company to allow Purchaser to
      fully convert the Convertible Note and exercise all Warrants held by Purchaser
      and sell such shares issued thereon, then the Company shall immediately file
      an
      amendment to the then current Registration Statement to register a sufficient
      number of such shares to convert said Convertible Note and Warrants, provided
      that no such failure is the result of the conduct of the
      Purchaser.  Upon the failure within twenty (20) Trading Days measured
      from the date of filing the Registration Statement to register a sufficient
      number of such shares, the Company shall redeem the outstanding balance of
      each
      Convertible Note and Warrant for the Formula Price.  In addition,
      failure of the Company to register a sufficient number of such shares to fully
      convert said Convertible Note and exercise such Warrants shall be a Registration
      Default under Section 10.4(e) from the date of the Notice of Conversion
      to the date of the earlier of (i) the redemption of the outstanding balance
      of
      the Convertible Note and exercise of all such Warrants or (ii) full conversion
      of the Convertible Note and exercise of all such Warrants.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      3.5 Prepayment Procedures.

     

    (a)
      Any permitted prepayment or
      redemption of the Convertible Note pursuant to Sections 3.3 or 3.4 above shall
      be deemed to be effective and consummated (for purposes of determining the
      Formula Price and the time at which Purchaser shall thereafter not be entitled
      to deliver a Notice of Conversion for the Convertible Note) as
      follows:

     

    (i)
      A prepayment pursuant to Section
      3.3, the “prepayment date” specified therein;

     

    (ii)
      A redemption pursuant to Section
      3.4(a), the date of consummation of the applicable Sale Event;

     

    (iii)
      A redemption pursuant to Section
      3.4(b), three (3) Business Days following the date of consummation of the
      applicable Financing (meaning closing and funding); and

     

    (iv)
      A redemption pursuant to Section
      3.4(c), the date specified in each Convertible Note.

     

    (b)
      On the Maturity Date and on the
      effective date of a repayment or redemption of the Convertible Note as specified
      in Section 3.5(a) above, the Company shall deliver by wire transfer of funds
      the
      repayment/redemption price to Purchaser of the Convertible Note subject to
      redemption.  Should Purchaser not receive payment of any amounts due
      on redemption of its Convertible Note by reason of the Company’s failure to make
      payment at the times prescribed above for any reason, the Company shall pay
      to
      the applicable holder on demand (x) interest on the sums not paid when due
      at an
      annual rate equal to the maximum lawful rate compounded at the end of each
      thirty (30) days, until the applicable holder is paid in full and (y) all costs
      of collection, including, but not limited
      to, reasonable attorneys’ fees and costs, whether or not suit or other formal
      proceedings are instituted.

     

    (c)
      The Company shall select the
      Convertible Note  to be redeemed in any redemption in which not all of
      the Convertible Note  are to be redeemed so that the ratio of the
      Convertible Note of each holder selected for redemption to the total Convertible
      Note owned by that holder shall be the same as the ratio of all such Convertible
      Note selected for redemption bears to the total of all then outstanding
      Convertible Note . Should any Convertible Note required to be redeemed under
      the
      terms hereof not be redeemed solely by reason of limitations imposed by law,
      the
      applicable Convertible Note shall be redeemed on the earliest possible dates
      thereafter to the maximum extent permitted by law.

    


    (d)
      Any Notice of Conversion delivered
      by Purchaser (including delivery via telecopy) to the Company prior to the
      (x)
      Maturity Date or (y) effective date of a voluntary repayment pursuant to Section
      3.3 or a mandatory prepayment pursuant to Section 3.4 as specified in Section
      3.5(a) above), shall be honored by the Company and the conversion of the
      Convertible Note shall be deemed effected on the Conversion Date. In addition,
      between the effective date of a voluntary prepayment pursuant to Section 3.3
      or
      a mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a)
      above and the date the Company is required to deliver the redemption proceeds
      in
      full to Purchaser, Purchaser may deliver a Notice of Conversion to the
      Company.  Such notice will be (x) of no force or effect if the Company
      timely pays the redemption proceeds to Purchaser when due or (y) honored on
      or
      as of the date of the Notice of Conversion if the Company fails to timely pay
      the redemption proceeds to Purchaser when due.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      3.6 Payment of Additional Amounts.

     

    (a)
      Any and all payments by the Company
      hereunder or under the Convertible Note to Purchaser and each “qualified
      assignee” thereof shall be made free and clear of and without deduction or
      withholding for any and all present or future taxes, levies, imposts,
      deductions, charges or withholdings, and all liabilities with respect thereto
      (all such taxes, levies, imposts, deductions, charges, withholdings and
      liabilities being hereinafter referred to as “Taxes”) unless such Taxes are
      required by law or the administration thereof to be deducted or
      withheld.  If the Company shall be required by law or the
      administration thereof to deduct or withhold any Taxes from or in respect of
      any
      sum payable under the Convertible Note (i) the holders of the Convertible Note
      subject to such Taxes shall have the right, but not the obligation, for a period
      of thirty (30)
      days
      commencing upon the day it shall have received written notice from the Company
      that it is required to withhold Taxes to transfer all or any portion of the
      Convertible Note to a qualified assignee to the extent such transfer can be
      effected in accordance with the other provisions of this Agreement and
      applicable law; (ii) the Company shall make such deductions or withholdings;
      (iii) the sum payable shall be increased as may be necessary so that after
      making all required deductions or withholdings
      (including deductions or withholdings applicable to additional amounts paid
      under this Section 3.6) Purchaser receives an amount equal to the sum it would
      have received if no such deduction or withholding had been made; and (iv) the
      Company shall forthwith pay the full amount deducted or withheld to the relevant
      taxation or other authority in accordance with applicable law. A “qualified
      assignee” of a Purchaser is a Person that is organized under the laws of (i) the
      United States or (II) any jurisdiction other than the United States or any
      political subdivision thereof and that (y) represents and warrants to the
      Company that payments of the Company to such assignee under the laws in
      existence on the date of this Agreement would not be subject to any Taxes and
      (z)
      from
      time to time, as and when requested by the Company, executes and delivers to
      the
      Company and the Internal Revenue Service forms, and provides the Company with
      any information necessary to establish such assignee’s continued exemption from
      Taxes under applicable law.

     

    (b)
      The Company shall forthwith pay any
      present or future stamp or documentary taxes or any other excise or property
      taxes, charges or similar levies (all such taxes, charges and levies hereinafter
      referred to as “Other Taxes”) which arise from any payment made under any of the
      Transaction Agreements or from the execution, delivery or registration of,
      or
      otherwise with respect to, this Agreement other than Taxes payable solely as
      a
      result of the transfer from Purchaser to a Person of any Security.

    


    (c)
      The Company shall indemnify
      Purchaser, or qualified assignee, for the full amount of Taxes or Other Taxes
      (including, without limitation, any Taxes or Other Taxes imposed by any
      jurisdiction on amounts payable under this Section 3.6) paid by Purchaser,
      or
      qualified assignee, and any liability (including penalties, interest and
      expenses) arising therefrom or with respect thereto, whether or not such Taxes
      or Other Taxes were correctly or legally asserted. Payment under this
      indemnification shall be made within 30 days from the date Purchaser or assignee
      makes written demand therefor.

     

    (d)
      Within 30 days after the date of any payment of Taxes, the Company will furnish
      to Purchaser the original or a certified copy of a receipt evidencing payment
      thereof.

     

    (e)
      Purchaser shall provide to the
      Company a form W-8, stating that it is a non-U.S. person, together with any
      additional tax forms which may be required under the Code, as amended after
      the
      date hereof, to allow interest payments to be made to it without
      deduction.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      IV. REPRESENTATIONS AND WARRANTIES

     

    The
      Company represents and warrants to Purchaser, as of the Closing Date, the
      following:

     

    Section
      4.1 Organization and Qualification. The Company and each Subsidiary is
      a corporation (or other legal entity) duly organized, validly existing and
      in
      good standing under the laws of its jurisdiction of incorporation, with full
      power and authority to own, lease, use and operate its properties and to carry
      on its business as and where now owned, leased, used, operated and conducted.
      The Company is qualified to conduct business as a foreign corporation and is
      in
      good standing in every jurisdiction in which the nature of the business
      conducted by it makes such qualification necessary, except where such failure
      would not have a Material Adverse Effect. A “Material Adverse Effect” means any
      material adverse effect on the operations, results of operations, properties,
      assets or condition (financial or otherwise) of the Company or the Company
      and
      its Subsidiaries, taken as a whole, or on the transactions contemplated hereby
      or by the agreements or instruments to be entered into in connection
      herewith.

     

    Section
      4.2 Authorization and Execution.

     

    (a)
      The Company has all requisite
      corporate power and authority to enter into and perform each Transaction
      Agreement and to consummate the transactions contemplated hereby and thereby
      and
      to issue the Securities in accordance with the terms hereof and
      thereof.

     

    (b)
      The execution, delivery and
      performance by the Company of each Transaction Agreement and the issuance by
      the
      Company of the Securities have been duly and validly authorized and no further
      consent or authorization of the Company, its Board of Directors or its
      shareholders is required.

     

    (c)
      This Agreement has been duly
      executed and delivered by the Company.

     

    (d)
      This Agreement constitutes, and
      upon execution and delivery thereof by the Company, each of the Transaction
      Agreements will constitute, a valid and binding agreement of the Company, in
      each case enforceable against the Company in accordance with its respective
      terms.

    


    Section
      4.3 Capitalization . As of the date hereof, the authorized, issued and
      outstanding capital stock of the Company is as set forth on Schedule 4.3
      hereto and except as set forth on Schedule 4.3 no other shares of capital
      stock of the Company will be outstanding as of the Closing Date. All of such
      outstanding shares of capital stock are, or upon issuance will be, duly
      authorized, validly issued, fully paid and nonassessable. No shares of capital
      stock of the Company are subject to preemptive rights or similar rights of
      the
      stockholders of the Company or any liens or encumbrances imposed through the
      actions or failure to act of the Company. Other than as set forth on Schedule
      4.3 hereto, as of the date hereof, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, and (ii) there are no agreements or arrangements
      under which the Company or any of its Subsidiaries are obligated to register
      the
      sale of any of its or their securities under the Securities Act (except pursuant
      to the Registration Rights Agreement) and (iii)
      there are no anti-dilution or price adjustment provisions contained in any
      security issued by the Company (or in any agreement providing rights to security
      holders) that will be triggered by the issuance of the Convertible Note or
      Conversion Shares. The Company has furnished to Purchaser true and correct
      copies of the Company’s Corporate Documents, and the terms of all securities
      convertible into or exercisable for Common Stock and the material rights of
      the
      holders thereof in respect thereto.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      4.4 Governmental Authorization. To the Company’s knowledge, the
      execution and delivery by the Company of the Transaction Agreements does not
      and
      will not, the issuance and sale by the Company of the Securities does not and
      will not, and the consummation of the transactions contemplated hereby and
      by
      the other Transaction Agreements will not, require any action by or in respect
      of, or filing with, any governmental body, agency or governmental official
      except (a) such actions or filings that have been undertaken or made prior
      to
      the date hereof and that will be in full force and effect (or as
      to  which all applicable waiting periods have expired) on and as of
      the date hereof or which are not required to be filed on or prior to the Closing
      Date, (b) such actions or filings that, if not obtained, would not result in
      a
      Material Adverse Effect, and (c) the filing of a “Form D” as described in
      Section 7.13 below.

     

    Section
      4.5 Issuance of Shares. Upon conversion in accordance with the terms of
      the Convertible Note, the Conversion Shares shall be duly and validly issued
      and
      outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens
      and charges with respect to issuance and shall not be subject to preemptive
      rights or similar rights of any other stockholders of the
      Company.  Assuming the representations and warranties of Purchaser
      herein are true and correct in all material respects, each of the Securities
      will have been issued in material compliance with all applicable U.S. federal
      and state securities laws. The Company understands and acknowledges that, in
      certain circumstances, the issuance of Conversion Shares could dilute the
      ownership interests of other stockholders of the Company.  The Company
      further acknowledges that its obligation to issue Conversion Shares upon
      conversion of the Convertible Note is absolute and unconditional regardless
      of
      the dilutive effect that such issuance may have on the ownership interests
      of
      other stockholders of the Company.

     

    Section
      4.6 No Conflicts. The execution and delivery by the Company of the
      Transaction Agreements to which it is a party did not and will not, the issuance
      and sale by the Company of the Securities did not and will not and the
      consummation of the transactions contemplated hereby and by the other
      Transaction Agreements will not, contravene or constitute a default under or
      violation of (i) any provision of applicable law or regulation, (ii) the Company
      Corporate Documents, (iii) any agreement, judgment, injunction, order, decree
      or
      other instrument binding upon the Company or any Subsidiary or any of their
      respective assets, or result in the creation or imposition of any Lien on any
      asset of the Company or any Subsidiary. The Company and each Subsidiary is
      in
      compliance with and conforms to all statutes, laws, ordinances, rules,
      regulations, orders, restrictions and all other legal requirements of any
      domestic or foreign government or any instrumentality thereof having
      jurisdiction over the conduct of its businesses or the ownership of its
      properties, except where such failure would not have a Material Adverse
      Effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      4.7 Financial Information. Since January 1, 2006, the Company has
      timely filed all forms, reports and documents with the Commission required
      to be
      filed by it under the Exchange Act through the date hereof (all of the foregoing
      filed prior to the date hereof and all exhibits included therein and financial
      statements and schedules thereto and documents (other than exhibits)
      incorporated by reference therein, being referred to herein collectively as
      the
“SEC Reports”). The Company has delivered or made available to each Purchaser
      true and complete copies of the SEC Reports, except for such exhibits and
      incorporated documents.  Such SEC Reports, at the time filed, complied
      in all material respects with the requirements of the Exchange Act and the
      rules
      and regulations of the Commission thereunder applicable to such SEC Reports.
      None of the SEC Reports, including without limitation, any financial statements
      or schedules included therein, contains any untrue statement of a material
      fact
      or omits to state a material fact necessary to in order to make the statements
      made, in light of the circumstances under which they were made, not
      misleading.  There have been no material adverse changes in the
      Company’s business, properties, results of operations, condition (financial or
      otherwise) or prospects since the date of the Company’s most recent Report on
      Form 10-K for the years ended December 31, 2004 and December 31, 2005,
      respectively, which have not been disclosed in the Company’s SEC Reports or to
      the Purchaser in writing.  The audited and unaudited consolidated
      balance sheets of the Company and its Subsidiaries contained in the SEC Reports,
      and the related consolidated statements of income, changes in stockholders’
equity and changes in cash flows for the periods then ended, including the
      footnotes thereto, except as indicated therein, (i)
      complied in all material respects with applicable accounting requirements and
      the published rules and regulations of the Commission with respect thereto
      and
      (ii) have been prepared in accordance with GAAP consistently applied throughout
      the periods indicated, except that the unaudited financial statements do not
      contain notes and may be subject to normal audit adjustments and normal annual
      adjustments.  Such financial statements fairly present the financial
      condition of the Company and its Subsidiaries at the dates indicated and the
      consolidated results of their operations and cash flows for the periods then
      ended and, except as indicated therein, reflect all claims against and all
      Debts
      and liabilities of the Company and its Subsidiaries, fixed or contingent. Since
      December 31, 2000 (the “Balance Sheet Date”), except as disclosed in the SEC
      Reports, there has been (x) no material adverse change in the assets or
      liabilities, or in the business or condition, financial or otherwise, or in
      the
      results of operations or prospects, of the Company and its Subsidiaries, whether
      as a result of any legislative or regulatory change, revocation of any license
      or rights to do business, fire, explosion, accident, casualty,
      labor trouble, flood, drought, riot, storm, condemnation, act of God, public
      force or otherwise and (y) no material adverse change in the assets or
      liabilities, or in the business or condition, financial or otherwise, or in
      the
      results of operations or prospects, of the Company and its subsidiaries except
      in the ordinary course of business; and no fact or condition exists or is
      contemplated or threatened which might cause such a change in the
      future.

     

    Section
      4.8 Litigation.  To the knowledge of the Company, except as
      set forth on Schedule 4.8, there is no action, suit or proceeding pending
      or threatened against the Company or any Subsidiary, before any court or
      arbitrator or any gov to the knowledge of the Company governmental body, agency
      or official in which there is a reasonable possibility of an adverse decision
      which could materially adversely affect the business, condition (financial
      or
      otherwise), operations, performance, properties or prospects of the Company
      or
      which challenges the validity of any Transaction Agreements.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      4.9 Compliance with ERISA and other Benefit Plans.

     

    (a)
      Each member of the ERISA Group has
      fulfilled its obligations under the minimum funding standards of ERISA and
      the
      Code with respect to each Plan and is in compliance in all material respects
      with the presently applicable provisions of ERISA and the Code with respect
      to
      each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
      funding standard under Section 412 of the Code in respect of any Plan, (ii)
      failed to make any required contribution or payment to any Plan or Multiemployer
      Plan or in respect of any Benefit Arrangement, or made any amendment to any
      Plan
      or Benefit Arrangement, which as resulted or could result in the imposition
      of a
      Lien or the posting of a bond or other security under ERISA or the Code or
      (iii)
      incurred any liability under Title IV of ERISA other than a liability to the
      PBGC for premiums under Section 4007 of ERISA.

     

    (b)
      The
      benefit plans not covered under clause (a) above (including profit sharing,
      deferred compensation, stock option, employee stock purchase, bonus, retirement,
      health or insurance plans, collectively the “Benefit Plans”) relating to the
      employees of the Company are duly registered where required by, and are in
      good
      standing in all material respects under, all applicable laws. All required
      employer and employee contributions and premiums under the Benefit Plans to
      the
      date hereof have been made, the respective fund or funds established under
      the
      Benefit Plans are funded in accordance with applicable laws, and no past service
      funding liabilities exist thereunder.

     

    (c)
      No Benefit Plans have any unfunded
      liabilities, either on a “going concern” or “winding up” basis and determined in
      accordance with all applicable laws and actuarial practices and using actuarial
      assumptions and methods that are reasonable in the circumstances.  No
      event has occurred and no condition exists with respect to any Benefit Plans
      that has resulted or could reasonably be expected to result in any pension
      plan
      having its registration revoked or wound up (in whole or in part) or refused
      for
      the purposes of any applicable laws or being placed under the administration
      of
      any relevant pension benefits regulatory authority or being required to pay
      any
      taxes or penalties (in any material amounts) under any applicable
      laws.

    


    Section
      4.10 Environmental Matters. The costs and liabilities associated with
      Environmental Laws (including the cost of compliance therewith) are unlikely
      to
      have a material adverse effect on the business, condition (financial or
      otherwise), operations, performance, properties or prospects of the Company
      or
      any Subsidiary.  Each of the Company and the Subsidiaries conducts its
      businesses in compliance in all material respects with all applicable
      Environmental Laws.

     

    Section
      4.11 Taxes. All United States federal, state, county, municipality,
      local or foreign income tax returns and all other material tax returns
      (including foreign tax returns) which are required
      to be filed by or on behalf of the Company and each Subsidiary have been filed
      and all material taxes due pursuant to such returns or pursuant to any
      assessment received by the Company and each Subsidiary have been paid except
      those being disputed in good faith and for which adequate reserves have been
      established. The charges, accruals and reserves on the books of the Company
      and
      each Subsidiary in respect of taxes and other governmental charges have been
      established in accordance with GAAP.

     

    Section
      4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no Subsidiaries or other direct or
      indirect Investment in any Person, and the Company is not a party to any
      partnership, management, shareholders’ or joint venture or similar
      agreement.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    Section
      4.13 Not an Investment Company. Neither the Company nor any Subsidiary
      is an “Investment Company” within the meaning of Investment Company Act of 1940,
      as amended.

     

    Section
      4.14 Full Disclosure. The information heretofore furnished by the
      Company to Purchaser for purposes of or in connection with this Agreement or
      any
      transaction contemplated hereby does not, and all such information hereafter
      furnished by the Company or any Subsidiary to Purchaser will not (in each case
      taken together and on the date as of which such information is furnished),
      contain any untrue statement of a material fact or omit to state a material
      fact
      necessary in order to make the statements contained therein, in the light of
      the
      circumstances under which they are made, not misleading.

     

    Section
      4.15 No Solicitation; No Integration with Other Offerings. No form of
      general solicitation or general advertising was used by the Company or, to
      the
      best of its actual knowledge, any other Person acting on behalf of the Company,
      in connection with the offer and sale of the Securities. Neither the Company,
      nor, to its knowledge, any Person acting on behalf of the Company, has, either
      directly or indirectly, sold or offered for sale to any Person (other than
      Purchaser) any of the Securities or, within the six months prior to the date
      hereof, any other similar security of the Company except as contemplated by
      this
      Agreement, and the Company represents that neither itself nor any Person
      authorized to act on its behalf (except that the Company makes no representation
      as to Purchaser and their Affiliates) will sell or offer for sale any such
      security to, or solicit any offers to buy any such security from, or otherwise
      approach or negotiate in respect thereof with, any Person or Persons so as
      thereby to cause the issuance or sale of any of the Securities to be in
      violation of any of the provisions of Section 5 of the Securities
      Act.

     

    Section
      4.16 Permits. (a) Each of the Company and its Subsidiaries has all
      material Permits; (b) all such Permits are in full force and effect, and each
      of
      the Company and its Subsidiaries has fulfilled and performed all material
      obligations with respect to such Permits; (c) no event has occurred which
      allows, or after notice of lapse of time would allow, revocation or termination
      by the issuer thereof or which results in any other material impairment of
      the
      rights of the holder of any such Permit; and (d) the Company has no reason
      to
      believe that any governmental body or agency is considering limiting, suspending
      or revoking any such Permit.

     

    Section
      4.17 Leases. Except as set forth on Schedule 4.17, neither the
      Company nor any Subsidiary is a party to any capital lease obligation with
      a
      value greater than $100,000 or to any operating lease with an aggregate annual
      rental greater than $100,000 during the life of such lease.

     

    Section
      4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There are
      no liabilities of the Company or any Subsidiary of any kind whatsoever, whether
      accrued, contingent, absolute, determined, determinable or otherwise, and there
      is no existing condition, situation or set of circumstances which would
      reasonably be expected to result in such a liability, other than (i) those
      liabilities provided for in the financial statements delivered pursuant to
      Section 4.7 and (ii) other undisclosed
      liabilities which, individually or in the aggregate, would not have a Material
      Adverse Effect.

     

    Section
      4.19 Public Utility Holding Company. Neither the Company nor any
      Subsidiary is, or will be upon issuance and sale of the Securities and the
      use
      of the proceeds described herein, subject to regulation under the Public Utility
      Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
      Commerce Act or to any federal or state statute or regulation limiting its
      ability to issue and perform its obligations under any Transaction
      Agreement.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    Section
      4.20 Intellectual Property Rights. Each of the Company and its
      Subsidiaries owns, or is licensed under, and has the rights to use, all material
      patents, trademarks, trade names, copyrights, technology, know-how and processes
      (collectively, “Intellectual Property”) used in, or necessary for the conduct of
      its business; no claims have been asserted by any Person to the use of any
      such
      Intellectual Property or challenging or questioning the validity or
      effectiveness of any license or agreement related thereto.  To the
      best of Company’s and its Subsidiaries’ knowledge, there is no valid basis for
      any such claim and the use of such Intellectual Property by the Company and
      its
      Subsidiaries will not infringe upon the rights of any Person.

     

    Section
      4.21 Insurance. The Company and its Subsidiaries maintain, with those
      insurance companies listed on Schedule 4.21, insurance in at least such
      amounts and against such risks such that any uninsured loss would not have
      a
      Material Adverse Effect. All insurance coverages of the Company and its
      Subsidiaries are in full force and effect and there are no past due premiums
      in
      respect of any such insurance.

     

    Section
      4.22 Title to Properties. The Company and its Subsidiaries have good
      and marketable title to all their respective properties free and clear of all
      Liens.

     

    Section
      4.23 Internal Accounting Controls. The Company and each of its
      Subsidiaries maintain a system of internal accounting controls sufficient,
      in
      the judgment of the Company’s Board of Directors, to provide reasonable
      assurance that (i) transactions are executed in accordance with managements’
general or specific authorizations, (ii) transactions are recorded as necessary
      to permit preparation of financial statements in conformity with GAAP and to
      maintain asset accountability, (iii) access to assets is permitted only in
      accordance with management’s general or specific authorization, and (iv) the
      recorded accountability for assets is compared with the existing assets at
      reasonable intervals and appropriate action is taken with respect to any
      differences.

     

    Section
      4.24 Subsidiaries. Except for the directly and indirectly owned
      subsidiaries of the Company as set forth on Schedule 4.24 (the
“Subsidiaries”), the Company does not own or hold any shares of stock or any
      other security or interest in any other equity, or any rights to acquire any
      such security or interest. Except for the Subsidiaries disclosed on Schedule
      4.24, the Company has never had any subsidiary corporation of which the
      securities having a majority of voting power in electing the board of directors
      or representing a majority of the economic interests were, at the time as of
      which any determination was made, owned by the Company either directly or
      indirectly. The number of authorized, issued and outstanding shares of capital
      stock of the Subsidiaries is as set forth on Schedule 4.24. All
      outstanding shares of the Subsidiaries capital stock are validly issued, fully
      paid and nonassessable,
      are free from, and were not issued in violation of any preemptive rights, and
      are owned of record and beneficially by the Company.

     

    Section
      4.25 Foreign Practices. Neither the Company nor any of its Subsidiaries
      nor, to the Company’s knowledge, any employee or agent of the Company or any
      Subsidiary has made any payments of funds of the Company or Subsidiary, or
      received or retained any funds, in each case in violation of any law, rule
      or
      regulation.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    ARTICLE
      V. REPRESENTATIONS AND WARRANTIES OF PURCHASER

     

    Section
      5.1 Purchaser. Purchaser hereby represents and warrants to the Company
      that:

     

    (a)
      Purchaser is an “accredited
      investor” within the meaning of Rule 501(a) under the Securities Act and the
      Securities to be acquired by it pursuant to this Agreement are being acquired
      for its own account, for investment purposes, and, as of the date hereof, not
      with a view toward, or for sale in connection with, any distribution thereof
      except in compliance with applicable United States federal and state securities
      law; provided that the disposition of Purchaser’s property shall at all times be
      and remain within its control;

     

    (b)
      the execution, delivery and
      performance of this Agreement and the purchase of the Securities pursuant
      thereto are within Purchaser’s corporate or partnership powers, as applicable,
      and have been duly and validly authorized by all requisite corporate or
      partnership action;

     

    (c)
      this Agreement has been duly
      executed and delivered by Purchaser;

     

    (d)
      the execution and delivery by
      Purchaser of the Transaction Agreements to which it is a party does not, and
      the
      consummation of the transactions contemplated hereby and thereby will not,
      contravene or constitute a default under or violation of (i) any provision
      of
      applicable law or regulation, or (ii) any agreement, judgment, injunction,
      order, decree or other instrument binding upon Purchaser;

     

    (e)
      Purchaser understands that the
      Securities have not been registered under the Securities Act and may not be
      transferred or sold except as specified in this Agreement or the remaining
      Transaction Agreements;

     

    (f)
      this Agreement constitutes a valid
      and binding agreement of Purchaser enforceable in accordance with its terms,
      subject to (i) applicable bankruptcy, insolvency or similar laws affecting
      the
      enforceability of creditors rights generally and (ii) equitable principles
      of
      general applicability;

     

    (g)
      Purchaser has such knowledge and
      experience in financial and business matters so as to be capable of evaluating
      the merits and risks of its investment in the Securities and Purchaser is
      capable of bearing the economic risks of such investment;

     

    (h)
      Purchaser is knowledgeable,
      sophisticated and experienced in business and financial matters; Purchaser
      has
      previously invested in securities similar to the Securities and fully
      understands the limitations on transfer described herein; Purchaser has been
      afforded access to information about the Company and the financial condition,
      results of operations, property, management and prospects of the Company
      sufficient to enable it to evaluate its investment in the Securities; Purchaser
      has been afforded the opportunity to ask such questions as it has deemed
      necessary of, and to receive answers from, representatives of the Company
      concerning the terms and conditions of the offering of the Securities and the
      merits and the risks of investing in the Securities; and Purchaser has been
      afforded the opportunity to obtain such additional information which the Company
      possesses or can acquire that is necessary to verify the accuracy and
      completeness of the information given to Purchaser concerning the
      Company.  The foregoing does not in any way relieve the Company of its
      representations and other undertakings hereunder, and shall not limit
      Purchaser’s ability to rely thereon;

    


    (i)
      no part of the source of funds used
      by Purchaser to acquire the Securities constitutes assets allocated to any
      separate account maintained by Purchaser in which any employee benefit plan
      (or
      its related trust) has any interest;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (j)
      no
      form of general advertising was received by the Purchaser or any other person
      acting on behalf of the Purchaser; and

    


    (k)
      Purchaser is a corporation organized under the laws of Bermuda.

     

    ARTICLE
      VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES

     

    Section
      6.1 Conditions Precedent to Purchaser’s Obligations to Purchase. The
      obligation of Purchaser hereunder to purchase the Convertible Note at the
      Closing is subject to the satisfaction, on or before the Closing Date, of each
      of the following conditions, provided that these conditions are for Purchaser’s
      sole benefit and may be waived by Purchaser at any time in its sole
      discretion:

     

    (a)
      The Company shall have duly
      executed this Agreement, the Warrant, the Mortgages and the Registration Rights
      Agreement and delivered the same to Purchaser;

     

    (b)
      The Company shall have delivered to
      Purchaser duly executed Convertible Note in accordance with Section 2.3
      hereof;

     

    (c)
      The representations and warranties
      of the Company contained in each Transaction Agreement shall be true and correct
      in all material respects as of the date when made and as of the Closing Date
      as
      though made at such time (except for representations and warranties that speak
      as of a specified date) and the Company shall have performed, satisfied and
      complied with all covenants, agreements and conditions required by such
      Transaction Agreements to be performed, satisfied or complied with by it at
      or
      prior to the Closing Date. Purchaser shall have received an Officer’s
      Certificate executed by the chief executive officer of the Company, dated as
      of
      the Closing Date, to the foregoing effect and as to such other matters as may
      be
      reasonably requested by Purchaser, including but not limited to certificates
      with respect to the Company Corporate Documents, resolutions relating to the
      transactions contemplated hereby and the incumbencies of certain officers and
      Directors of the Company.  The form of such certificate is attached
      hereto as Exhibit C;

     

    (d)
      The Company shall have received all
      governmental, Board of Directors, shareholders and third party consents and
      approvals necessary or desirable in connection with the issuance and sale of
      the
      Securities and the consummation of the transactions contemplated by the
      Transaction Agreements;

     

    (e)
      All applicable waiting periods in
      respect to the issuance and sale of the Securities shall have expired without
      any action having been taken by any competent authority that could restrain,
      prevent or impose any materially adverse conditions thereon or that could seek
      or threaten any of the foregoing;

     

    (f)
      No law or regulation shall have
      been imposed or enacted that, in the judgment of Purchaser, could adversely
      affect the transactions set forth herein or in the other Transaction Agreements,
      and no law or regulation shall have been proposed that in the reasonable
      judgment of Purchaser could reasonably have any such effect;

     

    (g)
      Purchaser shall have received an
      opinion, dated the Closing Date, of counsel to the Company, in form and
      substance satisfactory to Purchaser;

     

    (h)
      All fees and expenses due and
      payable by the Company on or prior to the Closing Date shall have been
      paid;


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (i)
      The Company Corporate Documents and
      the Subsidiary Corporate Documents, if any, shall be in full force and effect
      and no term or condition thereof shall have been amended, waived or otherwise
      modified without the prior written consent of Purchaser;

     

    (j)
      There shall have occurred no
      material adverse change in the business, condition (financial or otherwise),
      operations, performance, properties or prospects of the Company or any
      Subsidiary since January 1, 2006;

     

    (k)
      To the Company’s knowledge, there
      shall exist no action, suit, investigation, litigation or proceeding pending
      or
      threatened in any court or before any arbitrator or governmental instrumentality
      that challenges the validity of or purports to affect this Agreement or any
      other Transaction Agreement, or other transaction contemplated hereby or thereby
      or that could reasonably be expected to have a Material Adverse Effect, or
      any
      material adverse effect on the enforceability of the Transaction Agreements
      or
      the Securities or the rights of the holders of the Securities or Purchaser
      hereunder;

     

    (l)
      Purchaser shall have confirmed the
      receipt of the Convertible Note  to be issued, duly executed by the
      Company in the denominations and registered in the name of
      Purchaser;

     

    (m)
      Immediately before and after the
      Closing Date, no Default or Event of Default shall have occurred and be
      continuing;

     

    (n)
      Purchaser shall have received all
      other opinions, resolutions, certificates, instruments, agreements or other
      documents as they shall reasonably request;

    


    (o)
      Company shall have delivered to Purchaser the Use of Proceeds Schedule
7.8.

     

    Section
      6.2 Conditions to the Company’s Obligations. The obligations of the
      Company to issue and sell the Securities to Purchaser pursuant to this Agreement
      are subject to the satisfaction, at or prior to any Closing Date, of the
      following conditions:

     

    (a)
      The representations and warranties
      of Purchaser contained herein shall be true and correct in all material respects
      on the Closing Date and Purchaser shall have performed and complied in all
      material respects with all agreements required by this Agreement to be performed
      or complied with by Purchaser at or prior to the Closing Date;

     

    (b)
      The issue and sale of the
      Securities by the Company shall not be prohibited by any applicable law, court
      order or governmental regulation;

     

    (c)
      Receipt by the Company of duly
      executed counterparts of this Agreement and the Registration Rights Agreement
      signed by Purchaser;

     

    (d)
      The Company shall have received
      payment of the Purchase Price, less the Expense Reimbursement Fee.

    


    ARTICLE
      VII. AFFIRMATIVE COVENANTS

     

    The
      Company hereby agrees that, from and after the date hereof for so long as any
      Convertible Note remains outstanding and for the benefit of
      Purchaser:

     

    Section
      7.1 Information. The Company will deliver to each holder of the
      Convertible Note:

     

    (a)
      within two (2) days after any
      officer of the Company obtains knowledge of a Default or Event of Default,
      or
      that any Person has given any notice or taken any action with respect to a
      claimed Default
      hereunder, a certificate of the chief financial officer of the Company setting
      forth the details thereof and the action which the Company is taking or proposed
      to take with respect thereto;

    


    (b)
      promptly upon the mailing thereof
      to the shareholders of the Company generally, copies of all financial
      statements, reports and proxy statements so mailed and any other document
      generally distributed to shareholders;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)
      at
      least two (2) Business Days prior to the consummation of any Financing or other
      event requiring a repayment of the Convertible Note under Section 3.4, notice
      thereof together with a summary of all material terms thereof and copies of
      all
      documents and instruments associated therewith;

     

    (d)
      notice promptly upon the occurrence
      of any event by which the Reserved Amount becomes less than the sum of (i)
      1.5
      times the maximum number of Conversion Shares issuable pursuant to the
      Transaction Agreements; and

     

    (e)
      promptly following knowledge of the
      commencement thereof, notice and a description in reasonable detail of any
      litigation or proceeding to which the Company or any Subsidiary is a party
      in
      which the amount involved is $100,000 or more and not covered by insurance
      or in
      which injunctive or similar relief is sought.

    


    Section
      7.2 Payment of Obligations. The Company will, and will cause each
      Subsidiary to, pay and discharge, at or before maturity, all their respective
      material obligations, including, without limitation, tax liabilities, except
      where the same may be contested in good faith by appropriate proceedings and
      will maintain, in accordance with GAAP, appropriate reserves for the accrual
      of
      any of the same.

     

    Section
      7.3 Maintenance of Property; Insurance. The Company will, and will
      cause each Subsidiary to, keep all property useful and necessary in its business
      in good working order and condition, ordinary wear and tear excepted. In
      addition, the Company and each Subsidiary will maintain insurance in at least
      such amounts and against such risks as it has insured against as of the Closing
      Date.

     

    Section
      7.4 Maintenance of Existence. The Company will, and will cause each
      Subsidiary to, continue to engage in business of the same general type as now
      conducted by the Company and such Subsidiaries, and will preserve, renew and
      keep in full force and effect its respective corporate existence and their
      respective material rights, privileges and franchises necessary or desirable
      in
      the normal conduct of business.

     

    Section
      7.5 Compliance with Laws. The Company will, and will cause each
      Subsidiary to, comply, in all material respects, with all federal, state,
      municipal, local or foreign applicable laws, ordinances, rules, regulations,
      municipal by-laws, codes and requirements of governmental authorities
      (including, without limitation, Environmental Laws and ERISA and the rules
      and
      regulations thereunder) except (i) where compliance therewith is contested
      in
      good faith by appropriate proceedings or (ii) where non-compliance therewith
      could not reasonably be expected, in the aggregate, to have a material adverse
      effect on the business, condition (financial or otherwise), operations,
      performance, properties or prospects of the Company or such
      Subsidiary.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      7.6 Inspection of Property, Books and Records. The Company will, and
      will cause each Subsidiary to, keep proper books of record and account in which
      full, true and correct entries shall be made of all dealings and transactions
      in
      relation to their respective businesses and activities; and will permit, during
      normal business hours, Purchaser’ Representative or an affiliate thereof, as
      representatives of Purchaser, to visit and inspect any of their respective
      properties, upon reasonable prior notice, to examine and make abstracts from
      any
      of their respective books and records and to discuss their respective affairs,
      finances and accounts with their respective executive officers and independent
      public accountants (and by this provision the Company authorizes its independent
      public accountants to disclose and discuss with Purchaser the affairs, finances
      and accounts of the Company and its Subsidiaries in the presence of a
      representative of the Company; provided, however, that such discussions will
      not
      result in any unreasonable expense to the Company, without Company consent),
      all
      at such reasonable times.

     

    Section
      7.7 Investment Company Act. Provided that Purchaser is not any of the
      following described entities, the Company will not be or become an open-end
      investment trust, unit investment trust or face-amount certificate company
      that
      is or is required to be registered under Section 8 of the Investment Company
      Act
      of 1940, as amended.

     

    Section
      7.8 Use of Proceeds. The proceeds from the issuance and sale of the
      Convertible Note by the Company shall be used in accordance with Schedule
      7.8 attached hereto. None of the proceeds from the issuance and sale of the
      Convertible Note by the Company pursuant to this Agreement will be used directly
      or indirectly for the purpose, whether immediate, incidental or ultimate, of
      purchasing or carrying any “margin stock” within the meaning of Regulation G of
      the Board of Governors of the Federal Reserve System.

     

    Section
      7.9 Compliance with Terms and Conditions of Material Contracts. The
      Company will, and will cause each Subsidiary to, comply, in all respects, with
      all terms and conditions of all material contracts to which it is
      subject.

     

    Section
      7.10 Reserved Shares.

     

    (a)
      The
      Company shall at all times have authorized, and reserved for the purpose of
      issuance, a sufficient number of shares of Common Stock to provide for the
      full
      conversion of the outstanding Convertible Note and issuance of the Conversion
      Shares (based on the conversion price of the Convertible Note in effect from
      time to time) (the “Reserved Amount”). The Company shall not reduce the Reserved
      Amount without the prior written consent of Purchaser. With respect to all
      Securities which contain an indeterminate number of shares of Common Stock
      issuable in connection therewith (such as the Convertible Note), the Company
      shall include in the Reserve Amount, no less than two (2) times the number
      of
      shares that is then actually issuable upon conversion or exercise of such
      Securities. If at any time the number of shares of Common Stock authorized
      and
      reserved for issuance is below the number of Conversion Shares issued or
      issuable upon conversion of the Convertible Note, the Company will promptly
      take
      all corporate action necessary to authorize and reserve a sufficient number
      of
      shares, including, without limitation, either (x) calling a special meeting
      of
      shareholders to authorize additional shares, in the case of an insufficient
      number of authorized shares or (y) in lieu thereof, consummating
      the immediate repurchase of the Convertible Note contemplated in Sections 3.4(c)
      hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      7.11 Transfer Agent Instructions. Upon receipt of a Notice of
      Conversion or Notice of Exercise, as applicable, the Company shall immediately
      direct the Company's transfer agent to issue certificates, registered in the
      name of Purchaser or its nominee, for the Conversion Shares, in such amounts
      as
      specified from time to time by Purchaser to the Company upon proper conversion
      of the Convertible Note. Upon conversion of any Convertible Note in accordance
      with their terms, the Company will, and will use its best lawful efforts to
      cause its transfer agent to, issue one or more certificates representing shares
      of Common Stock in such name or names and in such denominations specified by
      a
      Purchaser in a Notice of Conversion. As long as the Registration Statement
      contemplated by the Registration Rights Agreement shall remain effective, the
      shares of Common Stock issuable upon conversion of any Convertible Note shall
      be
      issued to any transferee of such shares from Purchaser without any restrictive
      legend upon appropriate evidence of transfer in compliance with the Securities
      Act and the rules and regulations of the Commission; provided that for so long
      as the Registration Statement is effective, no opinion of counsel will be
      required to effect any such transfer. The Company further warrants and agrees
      that no instructions other than these instructions have been or will be given
      to
      its transfer agent. Nothing in this Section 7.11 shall affect in any way a
      Purchaser’s obligation to comply with all securities laws applicable to
      Purchaser upon resale of such shares of Common Stock, including any prospectus
      delivery requirements.

     

    Section
      7.12 Maintenance of Reporting Status; Supplemental Information. So long
      as any of the Securities are outstanding, the Company shall timely file all
      reports required to be filed with the Commission pursuant to the Exchange
      Act.  The Company shall not terminate its status as an issuer required
      to file reports under the Exchange Act, even if the Exchange Act or the rules
      and regulations thereunder would permit such termination.  If at
      anytime the Company is not subject to the requirements of Section 13 or 15(d)
      of
      the Exchange Act, the Company will promptly furnish at its expense, upon
      request, for the benefit of the holders from time to time of Securities, and
      prospective purchasers of Securities, information satisfying the information
      requirements of Rule 144 under the Securities Act.

     

    Section
      7.13 Form D; Blue Sky Laws. The Company agrees to file a “Form D” with
      respect to the Securities as required under Regulation D of the Securities
      Act
      and to provide a copy thereof to Purchaser promptly after such
      filing.  The Company shall, on or before the Closing Date, take such
      action as the Company shall reasonably determine is necessary to qualify the
      Securities for sale, if required, to Purchaser at the Closing pursuant to this
      Agreement under applicable securities or “blue sky” laws of the states of the
      United States (or to obtain an exemption from such qualification), and shall
      provide evidence of any such action so taken to Purchaser on or prior to the
      Closing Date.

     

    ARTICLE
      VIII. NEGATIVE COVENANTS

     

    The
      Company hereby agrees that after the date hereof for so long as any Convertible
      Note remains outstanding and for the benefit of Purchaser:

     

    Section
      8.1 Limitations on Debt or Other Liabilities. Neither the Company nor
      any Subsidiary will create, incur, assume or suffer to exist (at any time after
      the Closing Date, after giving effect to the application of the proceeds of
      the
      issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted
      Financing, (y) Debt incurred in connection with equipment leases to which the
      Company or its Subsidiaries are a party incurred in the ordinary course of
      business; and (z) Debt incurred in connection with trade accounts payable,
      imbalances and refunds arising in the ordinary course of business and (ii)
      any
      equity securities (including Derivative Securities) (other than those securities
      that are issuable (x) under or pursuant to stock option plans, warrants or
      other
      rights programs that exist as of the date hereof, (z) in connection with the
      acquisition (including by merger) of a business or of assets otherwise permitted
      under this Agreement), unless the Company complies with the mandatory prepayment
      terms of Section 3.4(b) hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      8.2 Transactions with Affiliates. The Company and each Subsidiary will
      not, directly or indirectly, pay any funds to or for the account of, make any
      investment (whether by acquisition or stock or indebtedness, by loan, advance,
      transfer of property, guarantee or other agreement to pay, purchase or service,
      directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or
      otherwise dispose of any assets, tangible or intangible, to, or participate
      in,
      or effect any transaction in connection with any joint enterprise or other
      joint
      arrangement with, any Affiliate, except, (1) pursuant to those agreements
      specifically identified on Schedule 8.2 attached hereto (with a copy of
      such agreements annexed to such Schedule 8.2) or hereafter entered into
      with the prior written consent of Purchaser and (2) on terms to the Company
      or
      such Subsidiary no less favorable than terms that could be obtained by the
      Company or such Subsidiary from a Person that is not an Affiliate of the Company
      upon negotiation at arms’ length, as determined in good faith by the Board of
      Directors of the Company; provided that no determination of the Board of
      Directors shall be required with respect to any such transactions entered into
      in the ordinary course of business.

     

    Section
      8.3 Merger or Consolidation. The Company will not, in a single
      transaction or a series of related transactions (i) consolidate with or merge
      with or into any other Person, or (ii) permit any other Person to consolidate
      with or merge into it, unless the Company shall be the survivor of such merger
      or consolidation and (x) immediately before and immediately after given effect
      to such transaction (including any indebtedness incurred or anticipated to
      be
      incurred in connection with the transaction), no Default or Event of Default
      shall have occurred and be continuing; and (y) the Company has delivered to
      Purchaser an Officer’s Certificate stating that such consolidation, merger or
      transfer complies with this Agreement, and that all conditions precedent in
      this
      Agreement relating to such transaction have been satisfied.

     

    Section
      8.4 Limitation on Asset Sales. Neither the Company nor any Subsidiary
      will consummate an Asset Sale of material assets of the Company or any
      Subsidiary without the prior written consent of Purchaser, which consent shall
      not be unreasonably withheld.  As used herein, “Asset Sale” means any
      sale, lease, transfer or other disposition (or series of related sales, leases,
      transfers or dispositions) or sales of capital stock of a Subsidiary (other
      than
      directors’ qualifying shares), property or other assets (each referred to for
      the purpose of this definition as a “disposition”), including any disposition by
      means of a merger, consolidation or similar transaction other than a disposition
      of property or assets at fair market value in the ordinary course of
      business.

     

     

    Section
      8.5 Restrictions on Certain Amendments. Neither the Company nor any
      Subsidiary will waive any provision of, amend, or suffer to be amended, any
      provision of such entity’s existing Debt, any material contract or agreement,
      any Company Corporate Document or Subsidiary Corporate Document if such
      amendment, in the Company’s reasonable judgment, would materially adversely
      affect Purchaser or the holders of the Securities without the prior written
      consent of Purchaser.

     

    Section
      8.6 Restrictions on Issuances of Securities.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    (a)
      In addition to and not in lieu of
      the covenant specified in Section 8.1 above:

     

    (1)
      From
      the Closing Date and continuing until 180 days following the date on which
      the
      Registration Statement becomes effective, the Company agrees that it will not
      issue any of its equity securities (or securities convertible into or
      exchangeable or exercisable for equity securities (the “Derivative Securities”))
      on terms that allow a holder thereof to acquire such equity securities (or
      Derivative Securities) at a discount to the Market Price of the Common Stock
      at
      the time of issuance or, in the case of Derivative Securities, at a conversion
      price based on any formula (other than standard anti-dilution provisions) based
      on the Market Price on a date later than the date of issuance which is below
      the
      Market Price on the date of issuance (each such event, a “Discounted Equity
      Offering”) other than (i) borrowings under conventional credit facilities
      existing as of the date hereof, (ii) stock issued or credit facilities to be
      established in connection with acquisitions, (iii) equity securities or
      Derivative Securities in connection with employee and director stock option
      and
      stock purchase plans and (iv) securities issued under the Convertible Note
      or
      Warrants. In addition, the Company shall not issue any equity securities in
      connection with a strategic alliance entered into by the Company unless such
      securities are the subject of a one year statutory or contractual hold period
      or, if not subject to such a hold period, unless the Purchaser has fully
      converted all outstanding Convertible Note and exercised all
      Warrants.  As used herein, “discount” shall include, but not be
      limited to, (i) any warrant, right or other security granted or offered in
      connection with such issuance which, on the applicable date of grant, is offered
      with an exercise or conversion price, as the case may be, at less than the
      then
      current Market Price of the Common Stock or, if such security has an exercise
      or
      conversion price based on any formula (other than standard anti-dilution
      provisions) based on the Market Price on a date later than the date of issuance,
      then at a price below the Market Price on such date of exercise or conversion,
      as the case may be, or (ii) any commissions, fees or other allowances paid
      in
      connection with such issuances (other than customary underwriter or placement
      agent commissions, fees or allowances).  For the purposes of
      determining the Market Price at which Common Stock is acquired under this
      Section, normal underwriting commissions and placement fees (including
underwriters’
      warrants) shall be excluded. Notwithstanding the foregoing, the Company may
      enter into the following types of transactions (collectively referred to as
      "Permitted Financings"):  (1) "permanent financing" transactions,
      which would include any form of debt or equity financing (other than an
      underwritten offering), which is followed by a reduction of the said financing
      commitment to zero and payment of all related fees and expenses; (2) "project
      financing" which provide for the issuance of recourse debt instruments in
      connection with the operation of the Company's business as presently conducted
      or as proposed to be conducted; (3) an underwritten offering of Common Stock,
      provided that such offering provides for the registration of the Conversion
      Shares if the Registration Statement has not been declared effective; (4) any
      non-convertible financings solely for alternative fuel projects that do not
      create a direct obligation to the Company or involve the issuance of Company
      debt or
      equity; and (5) other financing transactions specifically consented to in
      writing by the Purchaser.

    


    (2)
      The 180-day restrictive period set
      forth in paragraph (1) of this Section 8.6(a) shall be increased by one day
      for
      each day a Registration Default has occurred and not been cured by the
      Company.

     

    (b)
      Until such time as all of the
      Convertible Note has been either redeemed or converted into Conversion Shares
      in
      full, the Company agrees it will not issue any of its equity securities (or
      Derivative Securities), unless any shares of Common Stock issued or issuable
      in
      connection therewith are “restricted securities.” As used herein “restricted
      securities” shall mean securities which may not be sold prior to twelve (12)
      months following the date of issuance of such securities by virtue of
      contractual restrictions imposed by the Company or otherwise.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      8.7 Limitation on Stock Repurchases. Except as otherwise set forth in
      the Convertible Note and the Warrants, the Company shall not, without the
      written consent of the Majority Holders, redeem, repurchase or otherwise acquire
      (whether for cash or in exchange for property or other securities or otherwise)
      any shares of capital stock of the Company or any warrants, rights or options
      to
      purchase or acquire any such shares.

     

    Section
      8.8 Limitation on Sales By Officers and Employee Directors. For a
      period of 180 days following the date the Registration Statement is declared
      effective by the Commission, no executive officer or a employee director of
      the
      Company shall, individually, sell or otherwise dispose of (other than by reason
      of death or disability) to any Person an amount of Common stock greater than
      that allowed by Rule 144, promulgated under the Securities Act.

     

    ARTICLE
      IX. RESTRICTIVE LEGENDS

     

    Section
      9.1 Restrictions on Transfer. From and after their respective dates of
      issuance, none of the Securities shall be transferable except upon the
      conditions specified in this Article IX, which conditions are intended to ensure
      compliance with the provisions of the Securities Act in respect of the Transfer
      of any of such Securities or any interest therein.  Purchaser will use
      its best efforts to cause any proposed transferee of any Securities held by
      it
      to agree to take and hold such Securities subject to the provisions and upon
      the
      conditions specified in this Article IX.

     

    Section
      9.2 Legends. The Conversion Shares, upon resale by the Purchaser
      pursuant to the Registration Statement, shall be freely tradeable and
      unrestricted.

     

    Section
      9.3 Notice of Proposed Transfers. Prior to any proposed Transfer of the
      Securities (other than a Transfer (i) registered or exempt from registration
      under the Securities Act, (ii) to an affiliate of a Purchaser which is an
“accredited investor” within the meaning of Rule 501(a) under the Securities
      Act, provided that any such transferee shall agree to be bound by the terms
      of
      this Agreement and the Registration Rights Agreement, or (iii) to be made in
      reliance on Rule 144 under the Securities Act), the holder thereof shall give
      written notice to the Company of such holder’s intention to effect such
      Transfer, setting forth the manner and circumstances of the proposed Transfer,
      which shall be accompanied by (a) an opinion of counsel reasonably acceptable
      to
      the Company, confirming that such transfer is in compliance with and does not
      give rise to a violation of the Securities Act, (B) representation letters
      in
      form and substance reasonably satisfactory to the Company to ensure compliance
      with the provisions of the Securities Act and (C) letters in form and substance
      reasonably
      satisfactory to the Company from each such transferee stating such transferee’s
      agreement to be bound by the terms of this Agreement and the Registration Rights
      Agreement.  Such proposed Transfer may be effected only if the Company
      shall have received such notice of transfer, opinion of counsel, representation
      letters and other letters referred to in the immediately preceding sentence,
      whereupon the holder of such Securities shall be entitled to Transfer such
      Securities in accordance with the terms of the notice delivered by the holder
      to
      the Company.

     

    ARTICLE
      X. ADDITIONAL AGREEMENTS AMONG THE PARTIES

     

    Section
      10.1 Liquidated Damages.

    
       

      
        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    

     

    (a)
      The
      Company shall cause its transfer agent to, issue and deliver shares of Common
      Stock consistent with Section 7.11 hereof within three (3) Trading Days after
      delivery of a Notice of Conversion, as applicable (the “Deadline”) to Purchaser
      (or any party receiving Securities by transfer from Purchaser) at the address
      of
      Purchaser set forth in the Notice of Conversion. The Company understands that
      a
      delay in the issuance of such certificates after the Deadline could result
      in
      economic loss to Purchaser.

     

    (b)
      Without in any way limiting
      Purchaser’s right to pursue other remedies, including actual damages and/or
      equitable relief, the Company agrees that if delivery of the Conversion Shares
      is more than one (1) Business Day after the Deadline (other than a failure
      due
      to the circumstances described in Section 4.3 of the Convertible Note,
      whichfailure
      shall be governed by such Section) the Company shall pay to Purchaser, as
      liquidated damages and not as a penalty, $500 for each $100,000 of Convertible
      Note then outstanding per day in cash, for each of the first ten (10) days
      beyond the Deadline, and $1,000 for each $100,000 of Convertible Note then
      outstanding per day in cash for each day thereafter that the Company fails
      to
      deliver such Common Stock.  Such cash amount shall be paid to
      Purchaser by the last day of the calendar week following the week in which
      it
      has accrued or, at the option of Purchaser (by written notice to the Company
      by
      the first day of the week following the week in which it has accrued), shall
      be
      added to the principal amount of the Convertible Note (if then outstanding)
      payable to Purchaser, in which event interest shall accrue thereon in accordance
      with the terms of the Convertible Note and such additional principal amount
      shall be convertible into Common Stock in accordance with the terms of the
      Convertible Note.

     

    Section
      10.2 Conversion Notice. The Company agrees that, in addition to any
      other remedies which may be available to Purchaser, including, but not limited
      to, the remedies available under Section 10.1, in the event the Company fails
      for any reason (other than as a result of actions taken by a Purchaser in breach
      of this Agreement) to effect delivery to a Purchaser of certificates with or
      without restrictive legends as contemplated by Article IX representing the
      shares of Common Stock on or prior to the Deadline after conversion of any
      Convertible Note, Purchaser will be entitled, if prior to the delivery of such
      certificates, to revoke the Notice of Conversion by delivering a notice to
      such
      effect to the Company whereupon the Company and Purchaser shall each be restored
      to their respective positions immediately prior to delivery of such Notice
      of
      Conversion.

     

    Section
      10.3 Conversion Limit. Notwithstanding the conversion rights under the
      Convertible Note, unless Purchaser delivers a waiver in accordance with the
      last
      sentence in this Section, in no event shall Purchaser be entitled to convert
      any
      portion of the Convertible Note, in excess of that portion of the Convertible
      Note, as applicable, of which the sum of (i) the number of shares of Common
      Stock beneficially owned by Purchaser and its Affiliates (other than shares
      of
      Common Stock which may be deemed beneficially owned through the ownership of
      the
      unconverted portion of the Convertible Note or other Derivative Securities
      convertible into or exchangeable for shares of Common
      Stock which contain a limitation similar to that set forth in this Section
      10.3), and (ii) the number of shares of Common Stock issuable upon the
      conversion of the portion of the Convertible Note with respect to which this
      determination is being made, would result in beneficial ownership by Purchaser
      and its Affiliates of more than 4.99% of the outstanding shares of Common
      Stock.  For purposes of Section 10.3(i) beneficial ownership shall be
      determined in accordance with Rule 13d-3 of the Exchange Act and Regulations
      13
      D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing
      limitation shall not apply and shall be of no further force or effect (i)
      immediately preceding and upon the occurrence of any voluntary or mandatory
      redemption or repayment transaction described herein or in the Convertible
      Note,
      (ii) immediately preceding and upon any Sale Event, (iii) on the Maturity Date
      or (iv) following the occurrence of any Event of Default which is not cured
      for
      a period of ten (10) calendar days.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      10.4 Registration Rights.

     

    (a)
      The Company shall grant Purchaser
      registration rights covering the Conversion Shares (the “Registrable
      Securities”) on the terms set forth in the Registration Rights Agreement and
      herein.

     

    (b)
      The Company shall prepare and file
      on or before the 30th day following
      the
      Closing Date (the “Filing Date”), a registration statement or amendment thereto
      (the “Registration Statement”) to register no less than 3,000,000 shares of
      Common Stock covering the resale of the Registrable Securities with the
      Commission.  In the event the Company fails to file the Registration
      Statement by the Filing Date for any reason other than Purchaser’s failure to
      provide information requested by the Company for the completion and filing
      of
      the Registration Statement, the Company shall pay to Purchaser as liquidated
      damages (and not as a penalty) one percent (1%) of the then outstanding
      principal amount of Convertible Note per day until the Registration Statement
      is
      filed with the Commission.  The Company shall use its best efforts to
      cause the Registration Statement to be declared effective by the Commission
      or
      the earlier of (i) 60 days following the Closing Date, (ii) ten days following
      the receipt of a “No Review” Letter from the Commission or (iii) the first
      Business Day following the day the Commission determines the Registration
      Statement eligible to be declared effective (the “Required Effectiveness Date”).
      The Company shall pay all expenses of registration (other than underwriting
      fees
      and discounts, if any, in respect of Registrable Securities offered and sold
      under the registration statement by Purchaser).  The Company agrees to
      file an initial written response to the Commission within ten calender days
      of
      receipt of any comments by  the Commission relating to the
      Registration Statement.

     

    (c)
      If the Registration
      Statement  is not declared effective by the Commission by the Required
      Effectiveness Date, the Company shall pay to Purchaser, as liquidated damages
      (and not as a penalty), an amount equal to 2% of the outstanding principal
      amount of the Convertible Note, prorated, for each 30 day period the
      Registration Statement is not declared effective by the
      Commission.  In the event the Company fails to obtain a valid
      registration statement by the 360th day following the Closing Date, the Company
      will redeem the Convertible Note and the Warrants as set forth in Section 5
      of
      the Convertible Note and Section 13 of the Warrants,
      respectively.  Additionally, the Company will grant to Purchaser
      certain piggyback registration rights in the event the Company proposes to
      effect a registered offering of Common Stock or warrants or both prior to the
      filing of the Registration Statement referenced above.

    


    (d)
      Any such liquidated damages shall
      be paid in cash by the Company to Purchaser by wire transfer in immediately
      available funds on the last day of each calendar week following the event
      requiring its payment.

     

    (e)
      If, following the declaration of
      effectiveness of the Registration Statement, such registration statement (or
      any
      prospectus or supplemental prospectus contained therein)
      shall cease to be effective for any reason (including but not limited to the
      occurrence of any event that results in any prospectus or supplemental
      prospectus containing an untrue statement of a material fact or omitting a
      material fact required to be stated therein or necessary in order to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading), the Company fails to file required amendments to the
      Registration Statement in order to allow the Purchaser to resell the Conversion
      Shares pursuant to the Registration Statement as unrestricted, unlegended,
      freely tradeable shares of Common Stock, or if for any reason there are
      insufficient shares of such shares of Common Stock registered under the then
      current Registration Statement to effect full conversion of the Convertible
      Note
      or exercise of the Warrants (a "Registration Default"), the Company shall
      immediately take all necessary steps to cause the Registration Statement to
      be
      amended or supplemented so as to cure such Registration Default. Failure to
      cure
      a Registration Default within ten (10) Business Days shall result in the Company
      paying to Purchaser liquidated damages at the rate of one percent (1%) of the
      outstanding principal amount of Convertible Note for each 30 day period
      (prorated), the Registration Default remains uncured.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XI. ADJUSTMENT OF FIXED PRICE

     

    Section
      11.1 Reorganization. The Conversion Price (the “Fixed Price”) shall be
      adjusted, as applicable, as hereafter provided.

     

    Section
      11.2 Share Reorganization. If and whenever the Company
      shall:

     

    (i)
      subdivide the outstanding shares of
      Common Stock into a greater number of shares;

     

    (ii)
      consolidate the outstanding shares
      of Common Stock into a smaller number of shares;

    


    (iii)
      issue Common Stock or securities convertible into or exchangeable for shares
      of
      Common Stock as a stock dividend to all or substantially all the holders of
      Common Stock; or

     

    (iv)
      make
      a distribution on the outstanding Common Stock to all or substantially all
      the
      holders of Common Stock payable in Common Stock or securities convertible into
      or exchangeable for Common Stock; any
      of
      such events being herein called a “Share Reorganization,” then in each such case
      the applicable Fixed Price shall be adjusted, effective immediately after the
      record date at which the holders of Common Stock are determined for the purposes
      of the Share Reorganization or, if no record date is fixed, the effective date
      of the Share Reorganization, by multiplying the applicable Fixed Price in effect
      on such record or effective date, as the case may be, by a fraction of
      which:

     

    (i)
      the numerator shall be the number
      of shares of Common Stock outstanding on such record or effective
      date (without giving effect to the transaction); and

    


    (ii)
      the denominator shall be the
      number of shares of Common Stock outstanding after giving effect to such Share
      Reorganization, including, in the case of a distribution of securities
      convertible into or exchangeable for shares of Common Stock, the number of
      shares of Common Stock that would have been outstanding if such securities
      had
      been converted into or exchanged for Common Stock on such record or effective
      date.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      11.3 Rights Offering. If and whenever the Company shall issue to all or
      substantially all the holders of Common Stock, rights, options or warrants
      under
      which such holders are entitled, during a period expiring not more than 45
      days
      after the record date of such issue, to subscribe for or purchase Common Stock
      (or Derivative Securities), at a price per share (or, in the case of securities
      convertible into or exchangeable for Common Stock, at an exchange or conversion
      price per share at the date of issue of such securities) of less than 95% of
      the
      Market Price of the Common Stock on such record date (any such event being
      herein called a “Rights Offering”), then in each such case the applicable Fixed
      Price shall be adjusted, effective immediately after the record date at which
      holders of Common Stock are determined for the purposes of the Rights Offering,
      by multiplying the applicable Fixed Price in effect on such record date by
      a
      fraction of which:

     

    (i)
      the
      numerator shall be the sum of:

     

    (i)
      the
      number of shares of Common Stock outstanding on such record date;
      and

     

    (ii)
      a number obtained by
      dividing:

     

    (A)
      either,

    


    (x)
      the product of the total number of
      shares of Common Stock so offered for subscription or purchase and the price
      at
      which such shares are so offered, or

     

    (y)
      the product of the maximum number
      of shares of Common Stock into or for which the convertible or exchangeable
      securities so offered for subscription or purchase may be converted or exchanged
      and the conversion or exchange price of such securities, or, as the case may
      be,
      by

     

    (B)
      the Market Price of the Common
      Stock on such record date; and

     

    (ii)
      the denominator shall be the sum
      of:

     

    
      (i)      
        the
        number of shares of Common Stock outstanding on such record date; and

       

      (ii)      
        the
        number of shares of Common Stock so offered for subscription or
purchase
        (or, in the case of Derivative Securities, the maximum number of shares of
        Common
        Stock for or into which the securities so offered for subscription or purchase
        may
        be
        converted or exchanged).

    

     

    To
      the
      extent that such rights, options or warrants are not exercised prior to the
      expiry time thereof, the applicable Fixed Price shall be readjusted effective
      immediately after such expiry time to the applicable Fixed Price which would
      then have been in effect upon the number of shares of Common Stock (or
      Derivative Securities) actually delivered upon the exercise of such rights,
      options or warrants.

     

    Section
      11.4 Special Distribution. If and whenever the Company shall issue or
      distribute to all or substantially all the holders of Common Stock:

     

    (i)
      shares of the Company of any class,
      other than Common Stock;

     

    (ii)
      rights, options or warrants;
      or

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    (iii)
      any
      other assets (excluding cash dividends and equivalent dividends in shares paid
      in lieu of cash dividends in the ordinary course); and
      if
      such issuance or distribution does not constitute a Share Reorganization or
      a
      Rights Offering (any such event being herein called a “Special Distribution”),
      then in each such case the applicable Fixed Price shall be adjusted, effective
      immediately after the record date at which the holders of Common Stock are
      determined for purposes of the Special Distribution, by multiplying the
      applicable Fixed Price in effect on such record date by a fraction of
      which:

     

    (i)
      the
      numerator shall be the difference between:

     

    (A)
      the product of the number of shares
      of Common Stock outstanding on such record date and the Market Price of the
      Common Stock on such date; and

     

    (B)
      the fair market value, as
      determined by the Directors (whose determination shall be conclusive), to the
      holders of Common Stock of the shares, rights, options, warrants, evidences
      of
      indebtedness or other assets issued or distributed in the Special Distribution
      (net of any consideration paid therefor by the holders of Common Stock),
      and

     

    (ii)
      the denominator shall be the
      product of the number of shares of Common Stock outstanding on such record
      date
      and the Market Price of the Common Stock on such date.

     

    Section
      11.5 Capital
      Reorganization. If and whenever there shall occur:

     

    (i)
      a reclassification or redesignation
      of the shares of Common Stock or any change of the shares of Common Stock into
      other shares, other than in a Share Reorganization;

     

    (ii)
      a consolidation, merger or
      amalgamation of the Company with, or into another body corporate;
      or

    


    (iii)
      the
      transfer of all or substantially all of the assets of the Company to another
      body corporate; (any
      such
      event being herein called a “Capital Reorganization”), then in each such case
      the holder who exercises the right to convert Convertible Note after the
      effective date of such Capital Reorganization shall be entitled to receive
      and
      shall accept, upon the exercise of such right, in lieu of the number of shares
      of Common Stock to which such holder was theretofore entitled upon the exercise
      of the conversion privilege, the aggregate number of shares or other securities
      or property of the Company or of the body corporate resulting from such Capital
      Reorganization that such holder would have been entitled to receive as a result
      of such Capital Reorganization if, on the effective date thereof, such holders
      had been the holder of the number of shares of Common Stock to which such holder
      was theretofore entitled upon conversion; provided, however, that no such
      Capital Reorganization shall be consummated in effect unless all necessary
      steps
      shall have been taken so that such
      holders shall thereafter be entitled to receive such number of shares or other
      securities of the Company or of the body corporate resulting from such Capital
      Reorganization, subject to adjustment thereafter in accordance with provisions
      the same, as nearly as may be possible, as those contained above.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      11.6 Purchase Price Adjustments. In case at any time and from time to
      time the Company shall issue any shares of Common Stock or Derivative Securities
      convertible or exercisable for shares of Common Stock (the number of shares
      so
      issued, or issuable upon conversion or exercise of such Derivative Securities,
      as applicable, being referred to as “Additional Shares of Common Stock”) for
      consideration less than the then Market Price at the date of issuance of such
      shares of Common Stock or such Derivative Securities, in each such case the
      Conversion Price shall, concurrently with such issuance, be adjusted by
      multiplying the Conversion Price immediately prior to such event by a fraction:
      (i) the numerator of which shall be the number of shares of Common Stock
      outstanding immediately prior to the issuance of such Additional Shares of
      Common Stock plus the number of shares of Common Stock that the aggregate
      consideration received by the Company for the total number of such Additional
      Shares of Common Stock so issued would purchase at the Market Price and (ii)
      the
      denominator of which shall be the number of shares of Common Stock outstanding
      immediately prior to the issuance of Additional Shares of Common Stock plus
      the
      number of such Additional Shares of Common Stock so issued or sold.

     

    Section
      11.7 Adjustment Rules. The following rules and procedures shall be
      applicable to adjustments made in this Article XI:

     

    (a)
      no adjustment in the applicable
      Fixed Price shall be required unless such adjustment would result in a change
      of
      at least 1% in the applicable Fixed Price then in effect, provided, however,
      that any adjustments which, but for the provisions of this clause would
      otherwise have been required to be made, shall be carried forward and taken
      into
      account in any subsequent adjustment;

     

    (b)
      if any event occurs of the type
      contemplated by the adjustment provisions of this Article XI but not expressly
      provided for by such provisions, the Company will give notice of such event
      as
      provided herein, and the Company’s board of directors will make an appropriate
      adjustment in the Fixed Price so that the rights of the holders of the
      applicable Security shall not be diminished by such event; and

     

    (c)
      if a dispute shall at any time
      arise with respect to any adjustment of the applicable Fixed Price, such dispute
      shall be conclusively determined by the auditors of the Company or, if they
      are
      unable or unwilling to act, by a firm of independent chartered accountants
      selected by the Directors and any such determination shall be binding upon
      the
      Company and Purchaser.

    


    Section
      11.8 Certificate as to Adjustment. The Company shall from time to time
      promptly after the occurrence of any event which requires an adjustment in
      the
      applicable Fixed Price deliver to Purchaser a certificate specifying the nature
      of the event requiring the adjustment, the amount of the adjustment necessitated
      thereby, the applicable Fixed Price after giving effect to such adjustment
      and
      setting forth, in reasonable detail, the method of calculation and the facts
      upon which such calculation is based.

     

    Section
      11.9 Notice to Holders. If the Company shall fix a record date
      for:

     

    (a)
      any Share Reorganization (other
      than the subdivision of outstanding Common Stock into a greater number of shares
      or the consolidation of outstanding Common Stock into a smaller number of
      shares),

     

    (b)
      any Rights Offering,

     

    (c)
      any Special
      Distribution,

     

    (d)
      any Capital Reorganization (other
      than a reclassification or redesignation of the Common Stock into other
      shares),

     

    (e)
      Sale Event; or

     

    (f)
      any cash dividend, the
      Company shall, not less than 10 days prior to such record date or, if no record
      date is fixed, prior to the effective date of such event, give to Purchaser
      notice of the particulars of the proposed event or the extent that such
      particulars have been determined at the time of giving the notice.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XII. EVENTS OF DEFAULT

     

    Section
      12.1 Events of Default.  If one or more of the following
      events (each an “Event of Default”) shall have occurred and be
      continuing:

     

    (a)
      failure by the Company to pay or
      repay when due, all or any part of the principal on any of the Convertible
      Note
      (whether by virtue of the agreements specified in this Agreement or the
      Convertible Note);

     

    (b)
      failure by the Company to pay (i)
      within five (5) Business Days of the due date thereof any interest on any
      Convertible Note or (ii) within five (5) Business Days following the delivery
      of
      notice to the Company of any fees or any other amount payable (not otherwise
      referred to in (a) above or this clause (b)) by the Company under this Agreement
      or any other Transaction Agreement;

     

    (c)
      failure by the Company to timely comply with the requirements of Section
7.11
      or
      10.1 hereof, which failure is not cured within five (5) Business Days of such
      failure;

     

    (d)
      failure on the part of the Company
      to observe or perform any covenant contained in Section 7.10 or Article VIII
      of
      this Agreement;

     

    (e)
      failure on the part of the Company to observe or perform any covenant or
      agreement contained in any Transaction Agreement (other than those covered
      by
      clauses (a), (b), (c) or (d) above) for 30 days from the date of such
      occurrence;

     

    (f)
      the trading in the Common Stock
      shall have been suspended by the Commission, the OTC Bulletin Board or any
      market on which the securities of the Company are then traded (except for any
      suspension of trading of limited duration solely to permit dissemination of
      material information regarding the Company and except if, at the time there
      is
      any suspension on any market, the Common Stock is then listed and approved
      for
      trading on another market within ten (10) Trading Days thereof);

     

    (g)
      the Company shall have its Common
      Stock delisted from the OTC Bulletin Board for at least ten (10) consecutive
      Trading Days and is unable to obtain a listing on the OTC Bulletin Board within
      such ten (10) Trading Days;

     

    (h)
      the Registration Statement shall
      not have been declared effective by the Commission by the Required Effectiveness
      Date, or such effectiveness shall not be maintained for the Registration
      Maintenance Period, in each case which results in the Company incurring
      liquidated damages or a default fee for a period in excess of 10
      days;

    


    (i)
      the Company or any Subsidiary has
      commenced a voluntary case or other proceeding seeking liquidation, winding-up,
      reorganization or other relief with respect to itself or its debts under any
      bankruptcy, insolvency, moratorium or other similar law now or hereafter in
      effect or seeking the appointment of a trustee, receiver, liquidator, custodian
      or other similar official of it or any substantial part of its property, or
      has
      consented to any such relief or to the appointment of or taking possession
      by
      any such official in an involuntary case or other proceeding commenced against
      it, or has made a general assignment for the benefit of creditors, or has failed
      generally to pay its debts as they become due, or has taken any corporate action
      to authorize any of the foregoing;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (j)
      an
      involuntary case or other proceeding has been commenced against the Company
      or
      any Subsidiary seeking liquidation, winding-up, reorganization or other relief
      with respect to it or its debts under any bankruptcy, insolvency, moratorium
      or
      other similar law now or hereafter in effect or seeking the appointment of
      a
      trustee, receiver, liquidator, custodian or other similar official of it or
      any
      substantial part of its property, and such involuntary case or other proceeding
      shall remain undismissed and unstayed for a period of 60 days, or an order
      for
      relief has been entered against the Company or any Subsidiary under the federal
      bankruptcy laws as now or hereafter in effect;

     

    (k)
      default in any provision (including
      payment) or any agreement governing the terms of any Debt of the Company or
      any
      Subsidiary in excess of $500,000, which has not been cured within any applicable
      period of grace associated therewith;

     

    (l)
      judgments or orders for the payment
      of money which in the aggregate at any one time exceed $1,000,000 and are not
      covered by insurance have been rendered against the Company or any Subsidiary
      by
      a court of competent jurisdiction and such judgments or orders shall continue
      unsatisfied and unstayed for a period of 60 days;

     

    (m)
      any representation, warranty,
      certification or statement made by the Company in any Transaction Agreement
      or
      which is contained in any certificate, document or financial or other statement
      furnished at any time under or in connection with any Transaction Agreement
      shall prove to have been untrue in any material respect when made;
      or

     

    (n)
      any transfer directly or indirectly
      (whether by cash, property, guarantee or other agreement to pay or service)
      on
      any amounts outstanding to or originating as loans to the Company from officers,
      directors or shareholders for so long as any Note remains
      outstanding.

     

    then,
      and
      in every such occurrence, Purchaser may, with respect to an Event of Default
      specified in paragraphs (a) or (b), and the Majority Holders may, with respect
      to any other Event of Default, by notice to the Company, declare the Convertible
      Note to be, and the Convertible Note shall thereon become immediately due and
      payable; provided that in the case of any of the Events of Default
      specified in paragraph (i) or (j) above with respect to the Company or any
      Subsidiary, then, without any notice to the Company or any other act by
      Purchaser, the entire amount of the Convertible Note shall become immediately
      due and payable, provided, further, if any Event of Default has
      occurred and is continuing, and irrespective of whether any Convertible Note
      has
      been declared immediately due and payable hereunder, any Purchaser of
      Convertible Note may proceed to protect and enforce the rights of Purchaser
      by
      an action at law, suit in equity or other appropriate proceeding, whether for
      the specific performance of any agreement contained herein or in any Convertible
      Note, or for an injunction against a violation of any of the terms hereof or
      thereof, or in aid of the exercise of any power granted hereby or thereby or
      by
      law or otherwise, and provided further, in the case of any Event of
      Default, the amount declared due and payable on the Convertible Note shall
      be
      the Formula Price thereof.

     

    Section
      12.2 Powers and Remedies Cumulative. No right or remedy herein
      conferred upon or reserved to Purchaser is intended to be exclusive of any
      other
      right or remedy, and every right and remedy shall, to the extent permitted
      by
      law, be cumulative and in addition to every other right and remedy given
      hereunder or now hereafter existing at law or in equity or otherwise. The
      assertion or employment of any right or remedy hereunder, or otherwise, shall
      not prevent the concurrent assertion or employment of any other appropriate
      right or remedy. Every power and remedy given by the Convertible Note or by
      law
      may be exercised from time to time, and as often as shall be deemed expedient,
      by Purchaser.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    ARTICLE
      XIII. MISCELLANEOUS

     

    Section
      13.1 Notices. All notices, demands and other communications to any
      party hereunder shall be in writing (including telecopier or similar writing)
      and shall be given to such party at its address set forth on the signature
      pages
      hereof, or such other address as such party may hereafter specify for the
      purpose to the other parties.  Each such notice, demand or other
      communication shall be effective (i) if given by telecopy, when such telecopy
      is
      transmitted to the telecopy number specified on the signature page hereof,
      (ii)
      if given by mail, four days after such communication is deposited in the mail
      with first class postage prepaid, addressed as aforesaid or (iii) if given
      by
      any other means, when delivered at the address specified in or pursuant to
      this
      Section.

     

    Section
      13.2 No Waivers; Amendments.

     

    (a)
      No failure or delay on the part of
      any party in exercising any right, power or remedy hereunder shall operate
      as a
      waiver thereof, nor shall any single or partial exercise of any such right,
      power or remedy preclude any other or further exercise thereof or the exercise
      of any other right, power or remedy.

     

    (b)
      Any provision of this Agreement may
      be amended, supplemented or waived if, but only if, such amendment, supplement
      or waiver is in writing and is signed by the Company and the Majority Holders;
      provided, that without the consent of each holder of any Convertible Note
      affected thereby, an amendment or waiver may not (a) reduce the aggregate
      principal amount of Convertible Note whose holders must consent to an amendment
      or waiver, (b) reduce the rate or extend the time for payment of interest on
      any
      Convertible Note, (c) reduce the principal amount of or extend the stated
      maturity of any Convertible Note or (d) make any Convertible Note payable in
      money or property other than as stated in such Convertible Note. In determining
      whether the holders of the requisite principal amount of Convertible Note have
      concurred in any direction, consent, or waiver as provided in any Transaction
      Agreement, Convertible Note which are owned by the Company or any other obligor
      on or guarantor of the Convertible Note, or by any Person Controlling,
      Controlled by, or under common Control with any of the foregoing, shall be
      disregarded and deemed not to be outstanding for the purpose of any such
      determination; and provided further that no such amendment, supplement or
      waiver which affects the rights of Purchaser and their affiliates otherwise
      than
      solely in their capacities as holders of Convertible Note shall be effective
      with respect to them without their prior written consent.

     

    Section
      13.3 Indemnification.

     

    (a)
      The Company agrees to indemnify and
      hold harmless Purchaser, its Affiliates, and each Person, if any, who controls
      Purchaser, or any of its Affiliates, within the meaning of the Securities Act
      or
      the Exchange Act (each, a “Controlling Person”), and the respective partners,
      agents, employees, officers and Directors of Purchaser, their Affiliates and
      any
      such Controlling Person (each an “Indemnified Party”) and collectively, the
“Indemnified Parties”), from and against any and all losses, claims, damages,
      liabilities and expenses (including, without limitation and as incurred,
      reasonable costs of investigating, preparing or defending any such claim or
      action, whether or not such Indemnified Party is a party thereto, provided
      that
      the Company shall not be obligated to advance such costs to any Indemnified
      Party other than Purchaser unless it has received from such Indemnified Party
      an
      undertaking to repay to the Company the costs so advanced if it should be
      determined by final judgment of a court of competent jurisdiction that such
      Indemnified Party was not entitled to indemnification hereunder with respect
      to
      such costs) which may be incurred by such Indemnified Party in connection with
      any investigative, administrative or judicial proceeding brought or threatened
      that relates to or arises out of, or is in connection with any activities
      contemplated by any Transaction Agreement or any other services rendered in
      connection herewith; provided that the Company will not be responsible
      for any claims, liabilities, losses, damages or expenses that (i) are determined
      by final judgment of a court of competent jurisdiction to result from such
      Indemnified Party’s gross negligence, willful misconduct or bad faith and (ii)
      not in excess of the amount of funds actually received by the Company pursuant
      to this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)
      If
      any action shall be brought against an Indemnified Party with respect to which
      indemnity may be sought against the Company under this Agreement, such
      Indemnified Party shall promptly notify the Company in writing and the Company,
      at its option, may, assume the defense thereof, including the employment of
      counsel reasonably satisfactory to such Indemnified Party and payment of all
      reasonable fees and expenses. The failure to so notify the Company shall not
      affect any obligations the Company may have to such Indemnified Party under
      this
      Agreement or otherwise unless the Company is materially adversely affected
      by
      such failure.  Such Indemnified Party shall have the right to employ
      separate counsel in such action and participate in the defense thereof, but
      the
      fees and expenses of such counsel shall be at the expense of such Indemnified
      Party, unless (i) the Company has failed to assume the defense and employ
      counsel or (ii) the named parties to any such action (including any impleaded
      parties) include such Indemnified Party and the Company, and such Indemnified
      Party shall have been advised by counsel that there may be one or more legal
      defenses available to it which are different from or additional to those
      available to the Company, in which case, if such Indemnified Party notifies
      the
      Company in writing that it elects to employ separate counsel at the expense
      of
      the Company, the Company shall not have the right to assume the defense of
      such
      action or proceeding on behalf of such Indemnified Party, provided,
however, that the Company shall not, in connection with any one such
      action or proceeding or separate but substantially similar or related actions
      or
      proceedings in the same jurisdiction arising out of the same general allegations
      or circumstances, be responsible hereunder for the reasonable fees and expenses
      of more than one such firm of separate counsel, in addition to any local
      counsel, which counsel shall be designated by the Company and subject to
      approval by the Purchaser.  The Company shall not be liable for any
      settlement of any such action effected without the written consent of the
      Company (which shall not be unreasonably withheld) and the Company agrees to
      indemnify and hold harmless each Indemnified Party from and against any loss
      or
      liability by reason of settlement of any action effected with the consent of
      the
      Company. In addition, the Company will not, without the prior written consent
      of
      Purchaser, settle or compromise or consent to the entry of any judgment in
      or
      otherwise seek to terminate any pending or threatened action, claim, suit or
      proceeding in respect to which indemnification or contribution may be sought
      hereunder (whether or not any Indemnified Party is a party thereto) unless
      such
      settlement, compromise, consent or termination includes an express unconditional
      release of Purchaser and the other Indemnified Parties, satisfactory in form
      and
      substance to Purchaser, from all liability arising out of such action, claim,
      suit or proceeding.

    


    (c)
      If for any reason the foregoing
      indemnity is unavailable (otherwise than pursuant to the express terms of such
      indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party
      harmless, then in lieu of indemnifying such Indemnified Party, the Company
      shall
      contribute to the amount paid or payable by such Indemnified Party as a result
      of such claims, liabilities, losses, damages, or expenses (i) in such proportion
      as is appropriate to reflect the relative benefits received by the Company
      on
      the one hand and by Purchaser on the other from the transactions contemplated
      by
      this Agreement
      or (ii) if the allocation provided by clause (i) is not permitted under
      applicable law, in such proportion as is appropriate to reflect not only the
      relative benefits received by the Company on the one hand and Purchaser on
      the
      other, but also the relative fault of the Company and Purchaser as well as
      any
      other relevant equitable considerations. Notwithstanding the provisions of
      this
      Section 13.3, the aggregate contribution of all Indemnified Parties shall not
      exceed the amount of interest and fees actually received by Purchaser pursuant
      to this Agreement.  It is hereby further agreed that the relative
      benefits to the Company on the one hand and Purchaser on the other with respect
      to the transactions contemplated hereby shall be determined by reference to,
      among other things, whether any untrue or alleged untrue statement of material
      fact or the omission or alleged omission to state a material fact related to
      information supplied by the Company or by Purchaser and the parties’ relative
      intent, knowledge, access to information and opportunity to correct or prevent
      such statement or omission.  No Person guilty of fraudulent
      misrepresentation (within the meaning of Section 11(f) of the Securities Act)
      shall be entitled to contribution from any Person who was not guilty of such
      fraudulent misrepresentation.

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    (d)
      The indemnification, contribution
      and expense reimbursement obligations set forth in this Section 13.3 (i) shall
      be in addition to any liability the Company may have to any Indemnified Party
      at
      common law or otherwise; (ii) shall survive the termination of this Agreement
      and the other Transaction Agreements and the payment in full of the Convertible
      Note and (iii) shall remain operative and in full force and effect regardless
      of
      any investigation made by or on behalf of Purchaser or any other Indemnified
      Party.

     

    Section
      13.4 Expenses: Documentary Taxes. The Company has incurred an
      application fee equal to 2.5% of the principal amount of the Convertible Note
      which shall be payable to Global Capital Advisors, LLC (“GCA”) on the Closing
      Date. In addition, the Company agrees to pay to GCA, on the Closing Date, a
      fee
      equal to $25,000.00 (the “Out of Pocket Fee”) in full satisfaction of all
      obligations of the Company to Purchaser and its agents in connection with the
      negotiation and preparation of the Transaction Agreements, relevant due
      diligence, and fees and disbursements of legal counsel.  In addition,
      the Company agrees to pay any and all stamp, transfer and other similar taxes,
      assessments or charges payable in connection with the execution and delivery
      of
      any Transaction Agreement or the issuance of the Securities to Purchaser,
      excluding their assigns.

     

    Section
      13.5 Payment. The Company agrees that, so long as Purchaser shall own
      any Convertible Note purchased by it from the Company hereunder, the Company
      will make payments to Purchaser of all amounts due thereon by wire transfer
      by
      4:00 P.M. (E.S.T.) pursuant to those instructions provided by
      Purchaser.

     

    Section
      13.6 Successors and Assigns. This Agreement shall be binding upon the
      Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its
      rights or obligations under this Agreement to any other Person without the
      prior
      written consent of the Majority Holders. All provisions hereunder purporting
      to
      give rights to Purchaser and its affiliates or to holders of Securities are
      for
      the express benefit of such Persons and their successors and
      assigns.

     

    Section
      13.7 Brokers. Except for Redrock Trading Partners, LLC, (the
“Brokers”), the Company represents and warrants that it has not employed any
      broker, finder, financial advisor or investment banker who would be entitled
      to
      any brokerage, finder’s or other fee or commission payable by the Company or
      Purchaser in connection with the sale of the Securities. The Company represents
      and warrants that it is solely responsible for any fees due
      Brokers.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      13.8 California Law; Submission to Jurisdiction; Waiver of Jury Trial;
      Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
      WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.  EACH PARTY
      HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
      DISTRICT COURT FOR THE STATE OF CALIFORNIA AND OF ANY FEDERAL DISTRICT COURT
      SITTING IN CALIFORNIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
      OR
      RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
      HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
      WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
      PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
      BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY
      TO
      THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
      PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
      POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN
      SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER
      PERMITTED BY LAW.  EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY
      JURY.

     

    Section
      13.9 Entire Agreement. This Agreement, the Exhibits or Schedules
      hereto, which include, but are not limited to the Convertible Note and the
      Registration Rights Agreement, set forth the entire agreement and understanding
      of the parties relating to the subject matter hereof and supersedes all prior
      and contemporaneous agreements, negotiations and understandings between the
      parties, both oral and written relating to the subject matter hereof. The terms
      and conditions of all Exhibits and Schedules to this Agreement are incorporated
      herein by this reference and shall constitute part of this Agreement as is
      fully
      set forth herein.

     

    Section
      13.10 Survival; Severability. The representations, warranties,
      covenants and agreements of the parties hereto shall survive the Closing
      hereunder. In the event that any provision of this Agreement becomes or is
      declared by a court of competent jurisdiction to be illegal, unenforceable
      or
      void, this Agreement shall continue in full force and effect without said
      provision; provided that such severability shall be ineffective if it materially
      changes the economic benefit of this Agreement
      to any party.

     

    Section
      13.11 Title and Subtitles.  The titles and subtitles used in
      this Agreement are used for convenience only and are not to be considered in
      construing or interpreting this Agreement.

     

    Section
      13.12 Reporting Entity for the Common Stock. The reporting entity
      relied upon for the determination of the trading price or trading volume of
      the
      Common Stock on any given Trading Day for the purposes of this Agreement and
      all
      Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
      consent of the Purchaser and the Company shall be required to employ any other
      reporting entity.

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    Section
      13.13 Publicity.  The Company and the Purchaser shall consult
      with each other in issuing any press releases or otherwise making public
      statements with respect to the transactions contemplated hereby and no party
      shall issue any such press release or otherwise make any such public statement
      without the prior written consent of the other parties, which consent shall
      not
      be unreasonably withheld or delayed, except that no prior consent shall be
      required if such disclosure is required by law, in which such case the
      disclosing party shall provide the other parties with prior notice of such
      public statement.  Notwithstanding the foregoing, the Company shall
      not publicly disclose the name of Purchaser without the prior written consent
      of
      Purchaser, except to the extent required by law, in which case the Company
      shall
      provide Purchaser with prior written notice of such public
      disclosure.

     

    [signature
      page follows]

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be
      duly executed by their respective authorized officers, as of the date first
      above written.

    

      
        	 	
                Royal
                  Spring Water, Inc. 

              
	 	 
	 	 
	 	
                By:
                  Name: Alex Hazan Title: President 

              
	 	 	 
	 	 	 
	 	
                Address:

              	
                Royal
                  Spring Water, Inc. 14553 Delano Street Suite 217 Van Nuys, CA 91411
                  

              
	 	 	 
	 	 	
                Fax:
                  Tel.: 

              
	 	 
	 	 
	 	 
	 	
                GCA
                  STRATEGIC INVESTMENT FUND LIMITED 

              
	 	 
	 	 
	 	
                By:
                  Name: Lewis N. Lester Title: Director 

              
	 	 	 
	 	
                Address:

              	
                c/o
                  Prime Management Limited Mechanics Building 12 Church Street Hamilton
                  HM
                  II, Bermuda 

              
	 	 	 
	 	 	
                Fax:
                  441-295-3926 Tel.: 441-295-0329


              


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

     

    


     

    
      	
              ARTICLE
                I. DEFINITIONS

            	
              1

            
	
              Section
                1.1 Definitions

            	
              1

            
	
              Section
                1.2 Accounting Terms and Determinations

            	
              9

            
	 	 
	
              ARTICLE
                II. PURCHASE AND SALE OF SECURITIES

            	
              10

            
	
              Section
                2.1 Purchase and Sale of Convertible Note

            	
              10

            
	
              Section
                2.2 Purchase Price

            	
              10

            
	
              Section
                2.3 Closing and Mechanics of Payment

            	
              10

            
	 	 
	
              ARTICLE
                III. PAYMENT TERMS OF CONVERTIBLE NOTE

            	
              10

            
	
              Section
                3.1 Payment of Principal and Interest; Payment
                Mechanics

            	
              10

            
	
              Section
                3.2

            	
              11

            
	
              Section
                3.3 Voluntary Prepayment

            	
              11

            
	
              Section
                3.4 Mandatory Prepayments

            	
              11

            
	
              Section
                3.5 Prepayment Procedures

            	
              12

            
	
              Section
                3.6 Payment of Additional Amounts

            	
              13

            
	 	 
	
              ARTICLE
                IV. REPRESENTATIONS AND WARRANTIES

            	
              15

            
	
              Section
                4.1 Organization and Qualification

            	
              15

            
	
              Section
                4.2 Authorization and Execution

            	
              15

            
	
              Section
                4.3 Capitalization

            	
              16

            
	
              Section
                4.4 Governmental Authorization

            	
              16

            
	
              Section
                4.5 Issuance of Shares

            	
              16

            
	
              Section
                4.6 No Conflicts

            	
              17

            
	
              Section
                4.7 Financial Information

            	
              17

            
	
              Section
                4.8 Litigation

            	
              18

            
	
              Section
                4.9 Compliance with ERISA and other Benefit Plans

            	
              18

            
	
              Section
                4.10 Environmental Matters

            	
              19

            
	
              Section
                4.11 Taxes

            	
              19

            
	
              Section
                4.12 Investments, Joint Ventures

            	
              19

            
	
              Section
                4.13 Not an Investment Company

            	
              19

            
	
              Section
                4.14 Full Disclosure

            	
              19

            
	
              Section
                4.15 No Solicitation; No Integration with Other
                Offerings

            	
              19

            
	
              Section
                4.16 Permits

            	
              20

            
	
              Section
                4.17 Leases

            	
              20

            
	
              Section
                4.18 Absence of Any Undisclosed Liabilities or Capital
                Calls

            	
              20

            
	
              Section
                4.19 Public Utility Holding Company

            	
              20

            
	
              Section
                4.20 Intellectual Property Rights

            	
              20

            
	
              Section
                4.21 Insurance

            	
              21

            
	
              Section
                4.22 Title to Properties

            	
              21

            
	
              Section
                4.23 Internal Accounting Controls

            	
              21

            
	
              Section
                4.24 Subsidiaries

            	
              21

            
	
              Section
                4.25 Foreign Practices

            	
              21

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ARTICLE
                V. REPRESENTATIONS AND WARRANTIES OF PURCHASER

            	
              22

            
	
              Section
                5.1 Purchaser

            	
              22

            
	 	 
	
              ARTICLE
                VI. CONDITIONS PRECEDENT TO PURCHASE OF
                SECURITIES

            	
              23

            
	
              Section
                6.1 Conditions Precedent to Purchaser’s Obligations to
                Purchase

            	
              23

            
	
              Section
                6.2 Conditions to the Company’s Obligations

            	
              25

            
	 	 
	
              ARTICLE
                VII. AFFIRMATIVE COVENANTS

            	
              25

            
	
              Section
                7.1 Information

            	
              26

            
	
              Section
                7.2 Payment of Obligations

            	
              26

            
	
              Section
                7.3 Maintenance of Property; Insurance

            	
              26

            
	
              Section
                7.4 Maintenance of Existence

            	
              26

            
	
              Section
                7.5 Compliance with Laws

            	
              27

            
	
              Section
                7.6 Inspection of Property, Books and Records

            	
              27

            
	
              Section
                7.7 Investment Company Act

            	
              27

            
	
              Section
                7.8 Use of Proceeds

            	
              27

            
	
              Section
                7.9 Compliance with Terms and Conditions of Material
                Contracts

            	
              27

            
	
              Section
                7.10 Reserved Shares

            	
              28

            
	
              Section
                7.11 Transfer Agent Instructions

            	
              28

            
	
              Section
                7.12 Maintenance of Reporting Status; Supplemental
                Information

            	
              28

            
	
              Section
                7.13 Form D; Blue Sky Laws

            	
              29

            
	 	 
	
              ARTICLE
                VIII. NEGATIVE COVENANTS

            	
              29

            
	
              Section
                8.1 Limitations on Debt or Other Liabilities

            	
              29

            
	
              Section
                8.2 Transactions with Affiliates

            	
              29

            
	
              Section
                8.3 Merger or Consolidation

            	
              30

            
	
              Section
                8.4 Limitation on Asset Sales

            	
              30

            
	
              Section
                8.5 Restrictions on Certain Amendments

            	
              30

            
	
              Section
                8.6 Restrictions on Issuances of Securities

            	
              30

            
	
              Section
                8.7 Limitation on Stock Repurchases

            	
              32

            
	
              Section
                8.8 Limitation on Sales By Officers and Employee
                Directors

            	
              32

            
	 	 
	
              ARTICLE
                IX. RESTRICTIVE LEGENDS

            	
              32

            
	
              Section
                9.1 Restrictions on Transfer

            	
              32

            
	
              Section
                9.2 Legends

            	
              32

            
	
              Section
                9.3 Notice of Proposed Transfers

            	
              32

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ARTICLE
                X. ADDITIONAL AGREEMENTS AMONG THE PARTIES

            	
              33

            
	
              Section
                10.1 Liquidated Damages

            	
              33

            
	
              Section
                10.2 Conversion Notice

            	
              34

            
	
              Section
                10.3 Conversion Limit

            	
              34

            
	
              Section
                10.4 Registration Rights

            	
              34

            
	 	 
	
              ARTICLE
                XI. ADJUSTMENT OF FIXED PRICE

            	
              36

            
	
              Section
                11.1 Reorganization

            	
              .36

            
	
              Section
                11.2 Share Reorganization

            	
              36

            
	
              Section
                11.3 Rights Offering

            	
              37

            
	
              Section
                11.4 Special Distribution

            	
              38

            
	
              Section
                11.5 Capital Reorganization

            	
              38

            
	
              Section
                11.6 Purchase Price Adjustments

            	
              39

            
	
              Section
                11.7 Adjustment Rules

            	
              39

            
	
              Section
                11.8 Certificate as to Adjustment

            	
              40

            
	
              Section
                11.9 Notice to Holders

            	
              40

            
	 	 
	
              ARTICLE
                XII. EVENTS OF DEFAULT

            	
              41

            
	
              Section
                12.1 Events of Default.

            	
              41

            
	
              Section
                12.2 Powers and Remedies Cumulative

            	
              43

            
	 	 
	
              ARTICLE
                XIII. MISCELLANEOUS

            	
              43

            
	
              Section
                13.1 Notices

            	
              43

            
	
              Section
                13.2 No Waivers; Amendments

            	
              43

            
	
              Section
                13.3 Indemnification

            	
              44

            
	
              Section
                13.4 Expenses: Documentary Taxes

            	
              46

            
	
              Section
                13.5 Payment

            	
              46

            
	
              Section
                13.6 Successors and Assigns

            	
              46

            
	
              Section
                13.7 Brokers

            	
              47

            
	
              Section
                13.8 California Law; Submission to Jurisdiction; Waiver of Jury
                Trial;Appointment of Agent

            	
              47

            
	
              Section
                13.9 Entire Agreement

            	
              47

            
	
              Section
                13.10 Survival; Severability.

            	
              47

            
	
              Section
                13.11 Title and Subtitles

            	
              48

            
	
              Section
                13.12 Reporting Entity for the Common Stock.

            	
              48

            
	
              Section
                13.13 Publicity.

            	
              48

            


    

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    LIST
      OF SCHEDULES

     

    Schedule
      4.3 Capitalization Schedule 4.7 Financial Information Schedule 4.8 Litigation
      Schedule 4.12 Investments, Joint Ventures Schedule 4.17 Leases Schedule 4.21
      List of Insurance Companies Schedule 4.24 Subsidiaries Schedule 7.8 Use of
      Proceeds Schedule 8.2 Transactions with Affiliates

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    LIST
      OF EXHIBITS

     

    Exhibit
      A
      Form of Convertible Note Exhibit B Form of Registration Rights Agreement Exhibit
      C Form of Officer’s Certificate Exhibit D Form of Solvency Certificate Exhibit E
      Form of Escrow Agreement Exhibit F Form of Common Stock Purchase
      Warrant

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SECURITIES
      PURCHASE AGREEMENT

    
 

    dated
      as of

     

    December
      ___, 2006

     

    by
      and between

     

    Royal
      Spring Water, Inc.

     

     

    as
      the Issuer,

     

    and

     

    GCA
      Strategic Investment Fund Limited