Document:

Exhibit 10.3 Employment Agreement

    EMPLOYMENT
      AGREEMENT

    DATED
      AS
      OF August 28, 2006

    BETWEEN
      PAPERFREE MEDICAL SOLUTIONS, INC. AND CRAIG S. BARROW

     

    CRAIG
      S.
      BARROW ("Executive") and PAPERFREE MEDICAL SOLUTIONS, INC. ("Company") hereby
      agree as follows:

     

    1.
      Term.
      The term of Executive's employment by Company under this Agreement (the "Term")
      shall commence on and as of August 28, 2006 for a four-month term ending
      December 27, 2006, and continue thereafter for successive monthly terms (the
      initial four-month term and each one-month term thereafter, collectively the
      "Term"), unless either Company or Executive gives notice to the other at least
      one (1) month in advance of the expiration of the current term that it wishes
      to
      terminate this Agreement, in which event this Agreement shall terminate as
      of
      the end of such term, unless earlier terminated as hereafter
      provided.

     

    2.
      Title
      and Duties. During the Term, Executive shall be employed by Company as Chief
      Financial Officer ("CFO") reporting to the Chief Executive Officer and the
      Board
      of Directors of the Company. Executive shall devote his full-time attention
      and
      energies to the business of the Company; provided, however, that the foregoing
      shall not preclude Executive from engaging in charitable and community affairs,
      or participating as a director of a non competing business company, or managing
      his personal investments. Executive shall perform such duties, which shall
      not
      be inconsistent with his position as CFO of Company, as are assigned to him
      from
      time to time by the Chairmen of the Board of Company and/or the Chief Executive
      Officer, and any other duties undertaken or accepted by Executive consistent
      with his position as Chief Financial Officer of the Company. 

     

    3.
      Salary. Executive shall receive a salary of $12,000 per month during the first
      Term. Executive's salary shall be reviewed at least annually. Salary payments
      shall be made in equal installments in accordance with Company's then prevailing
      payroll policy.

     

    4.
      Stock
      Warrants. Subject to Board approval, Executive shall be granted stock warrants
      (the "Two Million Warrants") to purchase an aggregate of Two Million (2,000,000)
      shares of common stock of the Company. The Two Million Warrants are deemed
      to be
      of record as of January 1, 2007. The Two Million Warrants shall be granted
      in
      accordance with, and subject to the following:

     

    (a)
      The
      exercise price of the Two Million Warrants shall be equal to the closing price
      plus Ten Percent (10%) per share of the common stock of the Company on the
      day
      before this Agreement is executed, delivered, and announced. The Two Million
      Warrants may be exercised at any time after vesting but prior to
      expiration.

     

    (b)
      The
      Two Million Warrants shall be subject to the terms and conditions of the 2004
      Directors, Officers and Consultants Stock Option, Stock Warrant, and Stock
      Award
      Plan; a copy of which is attached hereto and incorporated herein by reference
      as
      Exhibit "A".

     

    (c)
      The
      Two Million Warrants shall vest in such shares according to the following
      schedule:

     

    Tranche
      No. of Shares  Vesting

    -------
      -------------  -------

    1
      1,000,000  
      Immediately upon execution of

    this
      Agreement

    2
      1,000,000  January
      1, 2007

     

    The
      vesting schedule shall be accelerated in the event of a Non-Fault Termination
      (as defined in Section 11).

     

    (d)
      In
      the event there is a Change of Control at any time during the Term, then the
      acceleration of the vesting schedule of the Two Million Warrants and the
      exercisiability of the Two Million Warrants shall be governed by the Plan upon
      such Change of Control.

     

    (e)
      The
      Two Million Warrants shall expire on the earlier of ten years from the date
      of
      grant or the termination date plus two (2) years after termination of
      Executive's employment with Company.

     

    (f)
      In
      the event the outstanding shares of common stock of Company are changed into
      or
      exchanged for a different number or kind of shares or other securities of
      Company or of another corporation by reason of merger, consolidation, other
      reorganization, reclassification, combination of shares, stock split-up or
      stock
      dividend, rights of the Two Million Warrants granted hereunder, the number
      of
      subject shares and the exercise price (and other terms herein relating thereto)
      shall be adjusted appropriately.

     

    5.
      Benefits. Executive shall be entitled to receive the following
      benefits:

     

    (a)
      Health care coverage equivalent to that provided to the Company's other
      executive officers at the Executive’s option subject to the stated Enrollment
      Periods then prevailing.

     

    (b)
      Reimbursement of reasonable living expenses in the Kokomo area to a monthly
      maximum of one thousand two hundred fifty dollars ($1,250) per month; contingent
      on submission of expense report(s) under prevailing policies.

    

    (c)
      Two
      (2) weeks paid vacation each year during the Term. The maximum accrued vacation
      shall be six (6) weeks.

       

    (d)
      The
      Executive shall be treated in the same manner as, and shall be entitled to
      such
      benefits and other perquisites and terms and conditions of employment no less
      favorable than those provided to the most senior officers of the
      Company.

     

    6.
      Reimbursement for Expenses. Executive shall be expected to incur various
      business expenses customarily incurred by persons holding like positions,
      including but not limited to traveling, entertainment and similar expenses,
      all
      of which are to be incurred by Executive in the belief that they will benefit
      the Company. Subject to Company's policy regarding the reimbursement and
      non-reimbursement of such expenses, Company shall reimburse Executive for such
      expenses from time to time, at Executive's request, and Executive shall account
      to Company for such expenses.

     

    7.
      Protection of Company's Interests.

     

    (a)
      During the Term of Executive's employment by Company, Executive will not compete
      in any manner, directly or indirectly, whether as a principal, employee,
      consultant, agent, owner or otherwise, with Company or any affiliate thereof
      except that the foregoing will not prevent Executive from holding at any time
      less that 5% of the outstanding capital stock of any company whose stock is
      publicly traded.

     

    (b)
      To
      the extent permitted by law, all rights worldwide with respect to any and all
      intellectual or other property of any nature produced, created or suggested
      by
      Executive during the Term of his employment or resulting from his service shall
      be deemed to be a work for hire and shall be the sole and exclusive property
      of
      Company. Executive agrees to execute, acknowledge and deliver to Company, at
      Company's request, such further documents as Company finds appropriate to
      evidence Company's rights in such property. Any confidential and/or proprietary
      information of Company or any affiliate thereof (including, without limitation,
      any information relating to the identities, capabilities, compensatory and
      contractual arrangements and/or general personnel data of employees of Company
      and its affiliates) shall not be used by Executive or disclosed or made
      available by Executive to any person except as required in the course of his
      employment, and upon expiration or earlier termination of the term of this
      Agreement, Executive shall return to Company all such information that exists
      in
      written or other physical form (and all copies thereof) under his control.
      Executive agrees to sign the Company's standard form of confidentiality
      agreement contemporaneously with the execution and delivery of this
      Agreement.

     

    8.
      Termination. In addition to any right to terminate under Section 1
      above:

     

    (a)
      Company shall have the right to terminate Executive's employment with Company
      under the following circumstances:

     

    (i)
      Upon
      death of Executive;

     

    (ii)
      Upon
      notice from the Company to Executive in the event of an 

    illness
      or other disability which has totally and permanently

    incapacitated
      him from performing his duties as Executive on a

    substantially
      full-time basis as described in the Company's long

    term
      disability plan;

     

    (iii)
      For
      good cause immediately upon notice from Company. Termination 

    by
      Company of Executive's employment for "good cause" as used in

    this
      Agreement shall mean actual fraud, embezzlement or

    intentional
      misconduct which has caused demonstrable and serious

    injury
      to
      the Company; or

     

    (iv)
      Conviction of a felony or crime of moral turpitude which has 

    caused
      serious injury to the Company.

     

    (b)
      If
      Executive's employment is terminated pursuant to Section 8(a)(iii) or 8(a)(iv)
      above, Executive's rights and Company's obligations hereunder, and all unvested
      stock warrants granted in accordance with this Agreement which have not already
      vested shall forthwith terminate in their entirety, except that, notwithstanding
      the foregoing, (i) the expiration date of any Warrants which have already vested
      in accordance with this Agreement shall be 30 days after the date of termination
      pursuant to Section 9(a).

     

    (c)
      If
      Executive's employment is terminated pursuant to this Section 8 no Termination
      Payment (as defined in Section 10) shall be payable.

     

    9.
      Termination by Executive. Prior to the expiration of the Term, Executive shall
      have the right to terminate his employment under this Agreement upon 10 days'
      notice to Company given within 30 days following the occurrence of any of the
      following events, provided that Company shall have 10 days after the date such
      notice has been given to Company in which to cure the conduct or cause specified
      in such notice:

     

    (a)
      Executive is not elected or retained in accordance with Section 2 as
      CFO;

     

    (b)
      There
      is a significant change in the nature or scope of the Executive's authority,
      powers, functions, duties or responsibilities;

     

    (c)
      There
      is a substantial and continued reduction in the level of support services,
      staff, secretarial and other assistance, office space and accoutrements
      available to a level below that which is reasonably necessary for the
      performance of Executive's duties;

     

    (d)
      Company shall fail to issue stock pursuant to Executive's stock warrants
      provided for herein or shall reduce his salary or shall deny Executive
      eligibility for annual discretionary bonuses, or Company shall fail to make
      any
      compensation payment required hereunder;

     

    (e)
      A
      Change of Control shall occur; and

     

    (f)
      Any
      breach of this agreement by the Company.

     

    10.
      Termination Payment. If a Non-Fault Termination (as defined below) of
      Executive's employment with Company shall occur other than by means of the
      death
      or disability of Executive, Executive shall be entitled to receive a lump sum
      payment equal to double the Executive's monthly salary (Termination Payment).
      The Termination Payment shall be made to Executive not later than 30 days after
      the date of such Non-Fault Termination. "Non-Fault Termination" shall mean
      Executive's employment with Company shall be terminated (i) without cause,
      (ii)
      be reason of death or total and permanent disability pursuant to Section 8(a)(i)
      or (ii) hereof, or (iii) Executive shall validly terminate his employment
      pursuant to Section 9 hereof. Except for Executive's rights under Sections
      5(e),
      5(f) and 6(e), which shall remain in full force and effect after any Non-Fault
      Termination of this Agreement, and for the acceleration of the vesting of the
      Two Million Warrants, the Termination Payment described in this Section 10
      shall
      be Executive's sole and exclusive remedy under this Agreement in the event
      of a
      Non-Fault Termination.

     

    11.
      Assignment. Company may assign this Agreement or all or any part of its rights
      hereunder to any entity that succeeds to all or substantially all of Company's
      assets or that holds, directly or indirectly, all or substantially all of the
      capital stock of Company or that is otherwise a successor in interest to Company
      generally, and this Agreement shall insure to the benefit of, and be binding
      upon, such assignee or successor in interest. This Agreement is personal to
      Executive and Executive may not, without the express written permission of
      Company, assign or pledge any rights or obligations hereunder to any person,
      firm, corporation or other entity.

     

    12.
      No
      Conflict with Prior Agreements. Executive represents and warrants to Company
      that, to the best of his personal knowledge and belief, neither the execution
      and delivery of this Agreement, his commencement of employment hereunder nor
      the
      performance of his duties hereunder conflicts with any contractual commitment
      on
      his part of any third party or violates or interferes with any rights of any
      third party.

     

    13.
      Key
      Man Insurance. Company shall have the right to secure, in its own name or
      otherwise, and at its own expense, life, disability, accident or other insurance
      covering Executive and Executive shall have no right, title or interest in
      or to
      such insurance. Executive shall assist Company in procuring such insurance
      by
      submitting to reasonable examinations and signing such applications and other
      instruments as may be required by the insurance carriers to which applications
      is made for any such insurance.

     

    14.
      Post-Termination Obligation. After the expiration or earlier termination of
      the
      Executive's employment hereunder for any reason whatsoever, Executive shall
      not
      either alone or jointly, with or on behalf of others, either directly or
      indirectly, expressly or implied, whether as principal, partner, agent,
      shareholder, director, employee, consultant or otherwise, at any time during
      a
      period of two years following such expiration or termination, solicit in any
      manner whatsoever the employment or engagement of, either for his own account
      or
      for any other person, firm, company or other entity, any person who is employed
      by Company or any affiliated entity, whether or not such person would commit
      any
      breach of his contract of employment by reason of his leaving the service of
      Company or any affiliated entity.

     

    15.
      Reimbursement of Legal Expenses. Company agrees to reimburse Executive for
      his
      reasonable out-of-pocket legal expenses and costs incurred in connection with
      the negotiation and preparation of this Agreement.

     

    16.
      Entire Agreement, Amendment, Waiver, Etc.

     

    (a)
      This
      Agreement supersedes all prior and/or contemporaneous agreement and/or
      statements, whether written or oral, concerning the terms of Executive's
      employment, and no amendment or modification of this Agreement shall be binding
      unless set forth in writing signed by Company and Executive. No waiver by either
      party of any breach by the other party of any provision or condition of this
      Agreement shall be effective unless in writing and signed by the party effecting
      the waiver, and no such waiver shall be deemed a waiver of any similar or
      dissimilar provision or condition at the same or any prior or subsequent
      time.

     

    (b)
      All
      payments required to be made to Executive hereunder, whether during the term
      of
      his employment hereunder or otherwise, shall be subject to all applicable
      federal, state and local tax withholding laws.

     

    (c)
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Indiana. In the event of any controversy or claim by either party
      hereunder, the prevailing party in any final and legally binding adjudication
      (as to which all periods for the filing of any appeal have expired) with respect
      to such controversy or claim shall be entitled to reimbursement from the losing
      party for reasonable attorney's fees and costs and for all other reasonable
      expenses of such adjudication.

     

    17.
      Notices. All notices that either party is required or may desire to give the
      other shall be in writing and shall be effective (i) upon personal delivery
      or
      (ii) three business days after deposit of the same with the United States Postal
      Service for delivery by certified mail, return receipt requested, addressed
      to
      the party to be given notice as follows:

     

    To
      Company: PaperFree Medical Solutions, Inc.

    121
      West
      Sycamore Street

    Kokomo,
      Indiana 46901

    Attn:
      William Sklar, Chairman

     

    To
      Executive: CRAIG S. BARROW

    4972
      Damascus Dr.

    Ottawa
      Hills, Ohio 43615

    

     

    Either
      party may by written notice designate a different address for giving notices.
      The date of mailing of any such notices shall be deemed to be the date on which
      such notice is given.

     

    18.
      Arbitration. Any dispute arising out of this Agreement shall be determined
      by
      arbitration in Indianapolis, Indiana, under the rules of the American
      Arbitration Association then in effect and judgment upon any award pursuant
      to
      such arbitration may be enforced in any court having jurisdiction thereof,
      provided each of the parties to this Agreement will appoint one person as an
      arbitrator to hear and determine the dispute, and if they are unable to agree,
      then the two arbitrators so chosen will select a third impartial arbitrator
      whose decision will be final and conclusive upon the parties to this Agreement.
      Subject to Section 15(c), the expenses of the arbitration proceedings concluded
      pursuant to this paragraph will be borne by the parties in such proportions
      as
      the arbitrators decide.

     

    19.
      Certain Additional Payments by the Company. Anything in this Agreement to the
      contrary notwithstanding, in the event it shall be determined that any payment,
      award, benefit or distribution by the Company to or for the benefit of the
      Executive would be subject to the excise tax imposed by Section 4999 of the
      Code
      or any corresponding provisions of state or local tax laws as a result of
      payment upon a change of control, or any interest or penalties are incurred
      by
      the Executive with respect to such excise tax (such excise tax, together with
      any such interest and penalties, are hereinafter collectively referred to as
      the
      "Excise Tax"), then the Executive shall be entitled to receive an additional
      payment (a "Gross-Up Payment") in an amount such that after payment by the
      Executive of all taxes (including any interest or penalties imposed with respect
      to such taxes) imposed upon the Gross-Up Payment, the Executive retains an
      amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
      payments.

     

    20.
      Headings. The headings set forth herein are included solely for the purpose
      of
      identification and shall not be used for the purpose of construing the meaning
      of the provisions of this Agreement.

     

     

    IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.

    

    PAPERFREE
      MEDICAL SOLUTIONS, INC.

    

    
      	 /s/ Craig S. Barrow	 /s/ Stephen
              Hawksworth
	
              ________________________

              CRAIG
                S. BARROW

            	
              ________________________

              STEPHEN
                HAWKSWORTH

              PRESIDENT
                & CEOFORM OF SECURITIES PURCHASE AGREEMENT

    Exhibit
      10.01

    

      SECURITIES
        PURCHASE AGREEMENT

       

      This
        SECURITIES PURCHASE AGREEMENT (this “Agreement”)
        is
        dated as of October 31, 2006 and is by and among Forster Drilling Corporation.
        a
        Nevada corporation (the “Company”),
        and
        each investor listed on Exhibit
        A
        hereto
        (each such investor individually, a “Purchaser”
and,
        collectively, the “Purchasers”;
        such
        Purchasers and their transferors are hereinafter individually referred to
        as a
“Holder”
and,
        collectively, the “Holders”).
        

       

      WHEREAS,
        the Company desires to issue and sell to the Purchasers, and the Purchasers
        desire to purchase from the Company, (i) up to $500,000 aggregate principal
        amount of its 12% Convertible Notes due November 1, 2007 (the “Notes”)
        and
        (ii) up to 200,000 shares of Common Stock (“Shares”),
        all
        upon the terms and subject to the conditions set forth in this Agreement;
        

      

      WHEREAS,
        simultaneously with entering into this Agreement, the Company and the Purchasers
        are entering into that certain Registration Rights Agreement, dated as of
        the
        date hereof (the “Registration
        Rights Agreement”)
        attached as Exhibit
        C
        hereto,
        pursuant to which the Company shall register for resale the Conversion Shares
        (as defined below) on the terms set forth therein.

      

      NOW
        THEREFORE, in consideration of the mutual agreements, representations,
        warranties and covenants herein contained, the parties hereto agree as follows:
        

      

      1.  DEFINITIONS

      

      As
        used
        in this Agreement, the following terms shall have the following respective
        meanings: 

       

      “Affiliate”
        means any Person that, directly or indirectly, through one or more
        intermediaries, controls, is controlled by, or is under common control with,
        a
        Person; as such terms are used and construed under Rule 144. 

       

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

       

      “Business
        Day” means any day other than a Saturday, Sunday or a day on which banks and
        trust companies in New York, New York are authorized by law, regulation or
        executive order to remain closed.

       

      “Closing”
        as the has the meaning specified in Section 2.4 hereof.

       

      “Closing
        Date” meads the date on which Closing occurs.

       

      “Closing
        Price” of a single share of Common Stock on any Trading Day shall mean the
        closing sale price per share for the Common Stock (or if no closing sale
        price
        is reported, the average of the bid and ask prices) on such Trading Day on
        the
        principal United States national securities exchange on which the Common
        Stock
        is traded or, if the Common Stock is not listed on a United States national
        stock exchange, as reported by the National Association of Securities Dealers
        Automated Quotation System OTC Bulletin Board (the “Bulletin Board”) or such
        similar quotation system or association, the closing sale price of one share
        of
        Common Stock on Nasdaq, the Bulletin Board or such other quotation system
        or
        association on the last trading day or, if no such closing sale price is
        available, the average of the high bid and the low asked price quoted thereon
        on
        the last trading day..

       

      “Common
        Stock” means the Company’s common stock, par value $0.002 per
        share.

       

      “Conversion
        Shares” means the shares of Common Stock into which the Notes are convertible
        from time to time.

       

      “Environmental
        Protection Laws” means any law, statute or regulation enacted by any
        jurisdiction in connection with or relating to the protection or regulation
        of
        the environment, including, without limitation, those laws, statutes and
        regulations regulating the disposal, removal, production, storing, refining,
        handling, transferring, processing or transporting of hazardous or toxic
        substances, and any orders, decrees or judgments issued by any court of
        competent jurisdiction in connection with any of the foregoing.

       

      
        
          1

        

        
          
          

          
            

          

        

        
          
          

        

      

      “Exchange
        Act” means the Securities Exchange Act of 1934, as amended, and all of the rules
        and regulations promulgated thereunder. 

       

      “Governmental
        Authority” means any: (a) nation, principality, state, commonwealth,
        province, territory, county, municipality, district or other jurisdiction
        of any
        nature; (b) federal, state, local municipal, foreign or other government;
        (c) governmental or quasi governmental authority of any nature (including
        any governmental division, subdivision, department, agency, bureau, branch,
        office, commission, council, board, instrumentality, officer, official,
        representative, organization, unit, body or entity and any court or other
        tribunal); (d) multinational organization or body; or (e) individual,
        entity or body exercising, or entitled to exercise, any executive, legislative,
        judicial, administrative, regulatory, police, military or taxing authority
        or
        power of any nature.

       

      “Indebtedness”
        means, as applied to any Person, all indebtedness for borrowed money, whether
        current or funded, or secured or unsecured.

       

      “Lien”
        means, with respect to any property or asset, any mortgage, lien, pledge,
        charge, security interest or encumbrance of any kind in respect of such property
        or asset, whether or not filed, recorded or otherwise perfected under applicable
        law, other than (a) those resulting from taxes which have not yet become
        delinquent, (b) minor liens and encumbrances that do not materially detract
        from
        the value of the property or materially impair the operations of the Company
        or
        materially interfere with the use of such property or asset or (c) those
        relating to Indebtedness incurred prior to the date hereof and any replacement
        thereof.

       

      “Majority
        Purchasers” means the Holders of 50% of the aggregate outstanding principal
        amount of the Notes.

       

      “Material
        Adverse Effect” means any event, occurrence or development that has had, or that
        could reasonably be expected to have, individually or in the aggregate with
        other events, occurrences or developments, a material adverse effect on the
        assets, liabilities (contingent or otherwise), business, affairs, operations,
        prospects or condition (financial or otherwise) of the Company.

       

      “Person”
        (whether or not capitalized) means an individual, entity, partnership, limited
        liability company, corporation, association, trust, joint venture,
        unincorporated organization, and any government, governmental department
        or
        agency or political subdivision thereof. 

       

      “Registration
        Rights Agreement” has the meaning specified in the third recital
        hereof.

       

      “Rule
        144” means Rule 144 promulgated under the Securities Act and any successor or
        substitute rule, law or provision. 

       

       “SEC”
        means the Securities and Exchange Commission. 

       

      “Securities”
        means the Conversion Shares, Shares and Notes.

       

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

       

      “Shares”
        has the meaning specified in the second recital hereof.

       

      “Trading
        Day” shall mean each day on which the primary securities exchange or quotation
        system that is used to determine the Closing Price is open for trading or
        quotation. 

       

      “Transaction
        Documents” means, collectively, this Agreement, the Notes, and the Registration
        Rights Agreement.

       

      
        
          2

        

        
          
          

          
            

          

        

        
          
          

        

      

      2.  GENERAL

      

      2.1.  Authorization
        of Notes.
        The
        Company has authorized the issue and sale of the Notes, a form of which is
        attached as Exhibit
        B.

      

      2.2.  Sale
        and Purchase of Notes.
        Subject
        to the terms and conditions of this Agreement, the Company will issue and
        sell
        to each Purchaser, and each Purchaser will purchase from the Company, on
        the
        Closing Date, Notes in the principal amount specified opposite such Purchaser’s
        name in Exhibit
        A.
        Each
        Purchaser’s obligations hereunder are several and not joint obligations and no
        Purchaser shall have any obligation hereunder or any liability to any Person
        for
        the performance or non-performance by any other Purchaser
        hereunder.

      

      2.3.  Issuance
        of Shares.
        Subject
        to and upon the terms and conditions set forth in this Agreement, the Company
        agrees to issue to each Purchaser Shares equal to the amount set forth next
        to
        each Purchasers name on Exhibit A.

      

      2.4.  Closing.
        The
        sale and purchase of the Notes and Shares to be purchased hereunder shall
        occur
        at the offices of Brewer & Pritchard PC, 3 Riverway, 18th
        Floor,
        Houston, Texas, on the date hereof (the “Closing”).
        At
        the Closing, the Company will deliver to each Purchaser (i) the Notes to
        be
        purchased by such Purchaser in the form of a single Note dated the Closing
        Date
        and registered in such Purchaser’s name (or in the name of its nominee), against
        delivery by such Purchaser to the Company or its order of the aggregate amount
        of the purchase price therefor, which may be paid by immediately available
        funds
        by wire transfer for the account of the Company designated by the Company
        for
        receipt of such wire transfer, and (ii) the Shares, in accordance with Section
        2.3.

      

      3.  REPRESENTATIONS
        AND WARRANTIES OF THE COMPANY

      

      The
        Company hereby represents and warrants to each Purchaser, as of the date
        hereof
        and except as set forth on the disclosure schedule furnished by the Company
        to
        each Purchaser (the “Disclosure
        Schedule”)
        attached hereto, as follows: 

       

      3.1.  Incorporation.
        The
        Company is a corporation duly organized, validly existing and in good standing
        under the laws of the State of Nevada and the Subsidiaries’ are each a
        corporation or other entity duly organized, validly existing and in good
        standing under the laws of the jurisdiction of their respective incorporation
        and have all requisite corporate power and authority to carry on their business
        as now conducted and to own their properties. Except as set forth in
Schedule
        3.1
        to the
        Disclosure Schedule, both the Company and the Subsidiaries are in good standing
        as a foreign corporation or other entity in each jurisdiction in which the
        nature of the business conducted or the character of the property owned by
        it
        makes such qualification necessary, except where the failure to be so qualified
        would not result in a Material Adverse Effect. Except as set forth in
Schedule
        3.1
        to the
        Disclosure Schedule, each of the Company and the Subsidiaries has all requisite
        corporate power and authority to carry on its business as now conducted and
        to
        carry out the transactions contemplated hereby. Neither the Company nor
        Subsidiaries are in violation of any of the provisions of its Articles of
        Incorporation (or other charter document) or By-laws. 

      

      3.2.  Capitalization. 

      

      a.  The
        authorized capital stock of the Company consists of (i) 200,000,000 shares
        of
        Common Stock, of which 43,351,021 shares were outstanding as of the date
        hereof,
        and (ii) 12,500,000 shares of preferred stock of which 5,835 shares were
        outstanding as of the date hereof. All shares of the Company’s issued and
        outstanding capital stock have been duly authorized, are validly issued and
        outstanding, and are fully paid and nonassessable. Except as set forth in
        Schedule
        3.2
        to the
        Disclosure Schedule, there are no existing options, warrants, calls, preemptive
        (or similar) rights, subscriptions or other rights, agreements, arrangements
        or
        commitments of any character obligating the Company to issue, transfer or
        sell,
        or cause to be issued, transferred or sold, any shares of the capital stock
        of
        the Company or other equity interests in the Company or any securities
        convertible into or exchangeable for such shares of capital stock or other
        equity interests, including the Securities, and there are no outstanding
        contractual obligations of the Company to repurchase, redeem or otherwise
        acquire any shares of its capital stock or other equity interests. The issuance
        and sale of the Securities will not obligate the Company to issue or sell,
        pursuant to any pre-emptive right or otherwise, shares of Common Stock or
        other
        securities to any Person (other than the Purchasers) and will not result
        in a
        right of any holder of Company securities to adjust the exercise, conversion,
        exchange or reset price under such securities. 

      

      
        
          3

        

        
          
          

          
            

          

        

        
          
          

        

      

      b.  The
        Company owns all of the issued and outstanding shares of the common stock
        of the
        Subsidiaries. No shares of preferred stock of any of the Subsidiaries are
        issued
        and outstanding. There are no existing options, warrants, calls, preemptive
        (or
        similar) rights, subscriptions or other rights, agreements, arrangements
        or
        commitments of any character obligating the Subsidiaries to issue, transfer
        or
        sell, or cause to be issued, transferred or sold, any shares of the capital
        stock of the Subsidiaries or other equity interests in the Subsidiaries or
        any
        securities convertible into or exchangeable for such shares of capital stock
        or
        other equity interests and there are no outstanding contractual obligations
        of
        the Subsidiaries to repurchase, redeem or otherwise acquire any shares of
        its
        capital stock or other equity interests.

      

      3.3.  Registration
        Rights.
        Except
        for the Registration Rights Agreement and as set forth on Schedule
        3.3
        of the
        Disclosure Schedules, the Company has not granted or agreed to grant to any
        Person any right (including “piggy-back” and demand registration rights) to have
        any capital stock or other securities of the Company registered with the
        SEC or
        any other government authority. 

      

      3.4.  Authorization.
        All
        corporate action on the part of the Company, its officers and directors
        necessary for the authorization, execution, delivery and performance of this
        Agreement and the Transaction Documents and the consummation of the transactions
        contemplated herein and therein has been taken. When executed and delivered
        by
        the Company, each of this Agreement and the Transaction Documents shall
        constitute a legal, valid and binding obligation of the Company, enforceable
        against the Company in accordance with its terms, except as such may be limited
        by bankruptcy, insolvency, reorganization or other laws affecting creditors’
rights generally and by general equitable principles. The Company has all
        requisite corporate power and authority to enter into this Agreement and
        the
        Transaction Documents and to carry out and perform its obligations under
        their
        respective terms. 

      

      3.5.  Valid
        Issuance of the Shares.
        The
        Conversion Shares and the Shares have been duly authorized, and the Conversion
        Shares and the Shares, upon issuance pursuant to the terms hereof will be
        validly issued, fully paid and nonassessable and not subject to any
        encumbrances, preemptive rights or any other similar contractual rights of
        the
        stockholders of the Company or any other Person. The Company has reserved
        from
        its duly authorized capital stock the number of shares of Common Stock issuable
        upon execution of this Agreement and upon conversion in full of the
        Notes.

      

      3.6.   Company
        Documents.
        The
        Company’s Form 8-K filed with the SEC on June 22, 2006 and the Quarterly Reports
        on Form 10-QSB as filed with the SEC on July 25, 2006 and October 23, 2006
        (together, the “Company
        Documents”)
        complied in all material respects with the requirements
        of the Exchange Act, and the rules and regulations promulgated thereunder.
        The
        financial statements in the Company Documents (the “Financial
        Statements”)
        (i)
        comply in all material respects with applicable accounting requirements and
        the
        rules and regulations of the SEC with respect thereto in effect at the time
        of
        filing, (ii) have been prepared in accordance with United States generally
        accepted accounting principles applied on a consistent basis during the periods
        covered thereby, and (iii) present fairly, in all material respects, the
        financial position of the Company and the Subsidiaries and the results of
        operations and cash flows as of the date and for the periods indicated therein.
        The Company Documents and Financial Statements do not contain any untrue
        statement of a material fact or omit to state a material fact required to
        be
        stated therein or necessary to make the statements made therein, in light
        of the
        circumstances under which they were made, not misleading. All material
        agreements to which the Company is a party or to which the property or assets
        of
        the Company are subject are included as part of or specifically identified
        in
        the Company Documents to the extent required by the rules and regulations
        of the
        SEC as in effect at the time of filing. 

      

      
        
          4

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.7.  Consents.
        Except
        for the filing and effectiveness of any registration statement required to
        be
        filed by the Company under the Securities Act pursuant to the terms of the
        Registration Rights Agreement, any required state “blue sky” law filings and in
        Form D filings with the SEC in connection with the transactions contemplated
        hereunder or under the Transaction Documents, all consents, approvals, orders
        and authorizations required on the part of the Company in connection with
        the
        execution or delivery of, or the performance of the obligations under, this
        Agreement and the Transaction Documents, and the consummation of the
        transactions contemplated herein and therein, have been obtained and will
        be
        effective as of the date hereof. The execution and delivery by the Company
        of
        this Agreement and the Transaction Documents, the consummation of the
        transactions contemplated herein and therein, and the issuance of the Conversion
        Shares and the Shares do not require the consent or approval of the stockholders
        of, or any lender to, the Company. 

      

      3.8.  No
        Conflict;
        Compliance
        with Laws.
        

      

      a.  The
        execution, delivery and performance by the Company of this Agreement and
        the
        Transaction Documents, and the consummation of the transactions contemplated
        hereby and thereby, including the issuance of the Notes, the Conversion Shares,
        and the Shares do not and will not (i) conflict with or violate any provision
        of
        the Article of Incorporation (or other charter documents) or By-laws of the
        Company or the Subsidiaries, (ii) breach, conflict with or result in any
        violation of or default (or an event that with notice or lapse of time or
        both
        would become a default) under, or give rise to a right of termination,
        amendment, acceleration or cancellation (with or without notice or lapse
        of
        time, or both) of any obligation, contract, commitment, lease, agreement,
        mortgage, note, bond, Agreement or other instrument or obligation to which
        the
        Company or the Subsidiaries is a party or by which they or any of their
        properties or assets are bound, or (iii) result in a violation of any statute,
        law, rule, regulation, order, ordinance or restriction applicable to the
        Company, the Subsidiaries or any of their properties or assets, or any judgment,
        writ, injunction or decree of any court, judicial or quasi-judicial tribunal
        applicable to the Company, the Subsidiaries or any of their properties or
        assets. 

      

      b.  Neither
        the Company nor the Subsidiaries (i) is in default under or in violation
        of (and
        no event has occurred that has not been waived that, with notice or lapse
        of
        time or both, would result in a default by the Company or the Subsidiaries),
        nor
        has the Company or the Subsidiaries received written notice of a claim that
        it
        is in default under or that it is in violation of, any indenture, loan or
        credit
        agreement or any other agreement or instrument to which it is a party or
        by
        which it or any of its properties or assets is bound (whether or not such
        default or violation has been waived), or (ii) is in violation of any statute,
        rule or regulation of any governmental authority, including without limitation
        all foreign, federal, state and local laws relating to taxes, environmental
        protection, occupational health and safety, product quality and safety and
        employment and labor matters, except in each case as does not, and could
        not,
        reasonably be expected to have, individually or in the aggregate, a Material
        Adverse Effect.

       

      3.9.  Brokers
        or Finders.
        Other
        than the fee (the “Broker
        Fee”)
        the
        Company will pay to Tejas Securities Group, Inc. (“Tejas”)
        upon
        the Closing in an amount set forth on Schedule
        3.9
        to the
        Disclosure Schedule, neither the Company nor the Subsidiaries has dealt with
        any
        broker or finder in connection with the transactions contemplated by this
        Agreement or the Transaction Documents, and neither the Company nor the
        Subsidiaries has incurred, or shall incur, directly or indirectly, any liability
        for any brokerage or finders’ fees or agents’ commissions or any similar charges
        in connection with this Agreement or the Transaction Documents, or any
        transaction contemplated hereby or thereby. 

      

      3.10.  Absence
        of Litigation.
        Except
        as set forth on Schedule
        3.10
        of the
        Disclosure Schedules, there are no pending or, to the Company’s knowledge,
        threatened actions, suits, claims, proceedings or investigations against
        or
        involving the Company or the Subsidiaries. 

      

      
        
          5

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.11.  No
        Undisclosed Liabilities; Indebtedness.
        Since
        August 31, 2006, the Company and the Subsidiaries have incurred no material
        liabilities or obligations, whether known or unknown, asserted or unasserted,
        fixed or contingent, accrued or unaccrued, matured or unmatured, liquidated
        or
        unliquidated, or otherwise, other than liabilities or obligations arising
        in the
        ordinary course of business other than as set forth on Schedule
        3.11
        of the
        Disclosure Schedules. Except for indebtedness reflected in the Financial
        Statements and on Schedule
        3.11
        of the
        Disclosure Schedules, the Company has no indebtedness outstanding as of the
        date
        hereof. The Financial Statements include appropriate reserves for liabilities
        of
        the Subsidiaries as of August 31, 2006. The Company has not been notified
        that
        it is in default with respect to any outstanding indebtedness or any instrument
        relating thereto. 

      

      3.12.  Contracts.
        Each of
        the Company’s and the Subsidiaries’ material contracts, agreements, instruments
        and other documents are legal, valid, binding and in full force and effect
        and
        are enforceable by the Company and the Subsidiaries, as applicable, in
        accordance with their respective terms, except as such may be limited by
        bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights
        generally and by general equitable principles.

      

      3.13.  Title
        to Assets.
        Both
        the Company and the Subsidiaries has good and marketable title to all real
        and
        personal property owned by it that is material to the business of the Company
        or
        the Subsidiaries, in each case free and clear of all Liens, except those,
        if
        any, reflected in the Financial Statements or incurred in the ordinary course
        of
        business. Any real property and facilities held under lease by the Company
        or
        the Subsidiaries are held by it or them under valid, subsisting and enforceable
        leases (subject to laws of general application relating to bankruptcy,
        insolvency, reorganization, or other similar laws affecting creditors’ rights
        generally and other equitable remedies) with which the Company and the
        Subsidiaries are in compliance in all material respects. 

      

      3.14.  Labor
        Relations.
        No
        labor or employment dispute exists or, to the knowledge of the Company or
        the
        Subsidiaries, is imminent or threatened, with respect to any of the employees
        or
        consultants of the Company or the Subsidiaries that has, or could reasonably
        be
        expected to have, individually or in the aggregate, a Material Adverse Effect.
        

      

      3.15.  Intellectual
        Property.
        The
        Company is the sole and exclusive owner of, or has the exclusive right to
        use,
        all right, title and interest in and to all material foreign and domestic
        patents, patent rights, trademarks, service marks, trade names, brands,
        copyrights (whether or not registered and, if applicable, including pending
        applications for registration) and other proprietary rights or information,
        owned or used by the Company (collectively, the “Rights”),
        and
        in and to each material invention, software, trade secret, and technology
        used
        by the Company or the Subsidiaries (the Rights and such other items, the
        “Intellectual
        Property”),
        and,
        to the Company’s knowledge, the Company owns and has the right to use the same,
        free and clear of any claim or conflict with the rights of others (subject
        to
        the provisions of any applicable license agreement). There have been no written
        claims made against the Company or the Subsidiaries asserting the invalidity,
        abuse, misuse, or unenforceability of any of the Intellectual Property, and,
        to
        the Company’s knowledge, there are no reasonable grounds for any such claims.

      

      3.16.  Subsidiaries;
        Joint Ventures.
        Except
        for the entities set for on Schedule
        3.16
        of the
        Disclosure Schedule (the “Subsidiaries”),
        the
        Company has no other subsidiaries and (i) does not otherwise own or control,
        directly or indirectly, any other Person and (ii) does not hold equity
        interests, directly or indirectly, in any other Person. Except as described
        in
        the Company Documents, the Company is not a participant in any joint venture,
        partnership, or similar arrangement material to its business. 

      

      3.17.  Taxes.
        The
        Company and the Subsidiaries have filed (or has had filed on its behalf),
        will
        timely file or will cause to be timely filed, or has timely filed for an
        extension of the time to file, all Tax Returns (as defined below) required
        by
        applicable law to be filed by it or them prior to or as of the date hereof,
        and
        such Tax Returns are, or will be at the time of filing, true, correct and
        complete in all material respects. Each of the Company and the Subsidiaries
        have
        paid (or has had paid on its behalf) or, where payment is not yet due, has
        established (or has had established on its behalf and for its sole benefit
        and
        recourse) or will establish or cause to be established in accordance with
        United
        States generally accepted accounting principles on or before the date hereof
        an
        adequate accrual for the payment of, all material Taxes (as defined below)
        due
        with respect to any period ending prior to or as of the date hereof.
“Taxes”
shall
        mean any and all taxes, charges, fees, levies or other assessments, including
        income, gross receipts, excise, real or personal property, sales, withholding,
        social security, retirement, unemployment, occupation, use, goods and services,
        license, value added, capital, net worth, payroll, profits, franchise, transfer
        and recording taxes, fees and charges, and any other taxes, assessment or
        similar charges imposed by the Internal Revenue Service or any taxing authority
        (whether state, county, local or foreign) (each, a “Taxing
        Authority”),
        including any interest, fines, penalties or additional amounts attributable
        to
        or imposed upon any such taxes or other assessments. “Tax
        Return”
shall
        mean any report, return, document, declaration or other information or filing
        required to be supplied to any Taxing Authority, including information returns,
        any documents with respect to accompanying payments of estimated Taxes, or
        with
        respect to or accompanying requests for extensions of time in which to file
        any
        such return, report, document, declaration or other information. There are
        no
        claims or assessments pending against the Company or the Subsidiaries for
        any
        material alleged deficiency in any Tax, and neither the Company nor the
        Subsidiaries has been notified in writing of any material proposed Tax claims
        or
        assessments against the Company or the Subsidiaries. No Tax Return of the
        Company or the Subsidiaries is or has been the subject of an examination
        by a
        Taxing Authority. Each of the Company and the Subsidiaries has withheld from
        each payment made to any of its past or present employees, officers and
        directors, and any other person, the amount of all material Taxes and other
        deductions required to be withheld therefrom and paid the same to the proper
        Taxing Authority within the time required by law. 

      

      
        
          6

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.18.  Pensions
        and Benefits.
        

      

      a.  Schedule
        3.18(a)
        to the
        Disclosure Schedule contains a true and complete list of each “employee benefit
        plan” within the meaning of Section 3(3) of the United States Employee
        Retirement Income Security Act of 1974, as amended (“ERISA”),
        including, without limitation, multiemployer plans within the meaning of
        Section
        3(37) of ERISA, and all retirement, profit sharing, stock option, stock bonus,
        stock purchase, severance, fringe benefit, deferred compensation, and other
        employee benefit programs, plans, or arrangements, whether or not subject
        to
        ERISA, under which (i) any current or former directors, officers, employees
        or
        consultants of the Company has any present or future right to benefits and
        which
        are contributed to, sponsored by or maintained by the Company or the
        Subsidiaries, or (ii) the Company or the Subsidiaries has any present or
        future
        liability. All such programs, plans, or arrangements shall be collectively
        referred to as the “Company
        Plans.”
Each
        Company Plan is included as part of or specifically identified in the Company
        Documents to the extent required by the rules and regulations of the SEC
        as in
        effect at the time of filing. 

      

      b.  (i) Each
        Company Plan has been established and administered in all material respects
        in
        accordance with its terms and in compliance with the applicable provisions
        of
        ERISA, the Internal Revenue Code of 1986, as amended (the “Code”),
        and
        other applicable laws, rules and regulations; (ii) each Company Plan which
        is
        intended to be qualified within the meaning of Section 401(a) of the Code
        is so
        qualified and has received a favorable determination letter as to its
        qualification (or if maintained pursuant to a prototype form of instrument
        the
        sponsor thereof has received a favorable opinion letter as to its
        qualification), and to the Company’s knowledge nothing has occurred, whether by
        action or failure to act, that could reasonably be expected to cause the
        loss of
        such qualification; and (iii) no Company Plan provides retiree health or
        life
        insurance benefits (whether or not insured), and neither the Company nor
        the
        Subsidiaries have any obligations to provide any such retiree benefits other
        than as required pursuant to Section 4980B of the Code or other applicable
        law.

      

      c.  No
        Company Plan is a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA
        or a plan subject to the minimum funding requirements of Section 302 or ERISA
        or
        Section 412 of the Code or Title IV of ERISA, and neither the Company, the
        Subsidiaries, nor any member of their Controlled Group has any liability
        or
        obligation in respect of, any such multiemployer plan or plan. With respect
        to
        any Company
        Plan and to the Company’s knowledge, (i) no actions, suits or claims (other than
        routine claims for benefits in the ordinary course) are pending or threatened,
        and (ii) no administrative investigation, audit or other administrative
        proceeding by the Department of Labor, the Internal Revenue Service or other
        governmental agencies are pending, threatened or in progress. 

      

      
        
          7

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.19.  Private
        Placement; Communications with Purchasers.
        Neither
        the Company nor any Person acting on the Company’s behalf has sold or offered to
        sell or solicited any offer to buy the Notes, the Conversion Shares, or the
        Shares by means of any form of general solicitation or advertising. Neither
        the
        Company nor any of its Affiliates nor any person acting on the Company’s behalf
        has, directly or indirectly, at any time within the past six (6) months,
        made
        any offer or sale of any security or solicitation of any offer to buy any
        security under circumstances that would (i) eliminate the availability of
        the
        exemption from registration under Regulation D under the Securities Act in
        connection with the sale or issuance of the Securities as contemplated hereby
        or
        (ii) cause the offering or issuance of the Securities pursuant to this Agreement
        or any of the Transaction Documents to be integrated with a prior offerings
        by
        the Company for purposes of any applicable law, regulation or stockholder
        approval provision. Neither the Company nor the Subsidiary is, or is an
        Affiliate of, an “investment company” within the meaning of the Investment
        Company Act of 1940, as amended. No consent, license, permit, waiver, approval
        or authorization of, or designation, declaration, registration or filing
        with,
        the SEC or any state securities regulatory authority is required in connection
        with the offer, sale, issuance or delivery of the Securities other than the
        possible filing of Form D with the SEC or any blue sky filings. The Company
        does
        not have any agreement or understanding with any Purchaser with respect to
        the
        transactions contemplated by this Agreement or the Registration Rights
        Agreement, other than as specified in this Agreement or the Registration
        Rights
        Agreement. 

      

      3.20.  Material
        Changes.
        Except
        as set forth on Schedule
        3.20
        of the
        Disclosure Schedule, since August 31, 2006, the Company has conducted its
        business only in the ordinary course, consistent with past practice, and
        since
        such date there has not occurred: 

      

      a.  a
        Material Adverse Effect;

      

      b.  any
        amendments or changes in the charter documents or by-laws of the Company
        or the
        Subsidiaries: 

      

      c.  
        any of
        the following:

      	i.  	
              incurrence,
                assumption or guarantee by the Company or the Subsidiaries of any
                debt for
                borrowed money other than (1) equipment leases made in the ordinary
                course
                of business, consistent with past practice and (2) any such incurrence,
                assumption or guarantee with respect to an amount of $50,000 or less
                that
                has been disclosed in the Company Documents;

            

      	ii.  	
              An
                issuance or sale of any securities convertible into or exchangeable
                for
                securities of the Company other than to directors, employees and
                consultants;

            

      	iii.  	
              issuance
                or sale of options or other rights to acquire from the Company or
                the
                Subsidiaries, directly or indirectly, securities of the Company or
                any
                securities convertible into or exchangeable for any such securities,
                other
                than options issued to directors, employees and consultants in the
                ordinary course of business, consistent with past practices;
                

            

      	iv.  	
              issuance
                or sale of any stock, bond or other corporate security other than
                equity
                securities to directors, employees and consultants pursuant to existing
                equity compensation or stock purchase plans of the
                Company;

            

      	v.  	
              declaration
                or making of any payment or distribution to stockholders or purchase
                or
                redemption of any share of its capital stock or other security other
                than
                to or from directors, officers and employees of the Company or the
                Subsidiaries as compensation for or in connection with services rendered
                to the Company or the Subsidiaries (as applicable) or for reimbursement
                of
                expenses incurred on behalf of the Company or the Subsidiaries (as
                applicable);

            

      	vi.  	
              sale,
                assignment or transfer of any of its intangible assets except in
                the
                ordinary course of business, consistent with past practice, or
                cancellation of any debt or claim except in the ordinary course of
                business, consistent with past practice;

            

      	vii.  	
              any
                waiver of any right of substantial value whether or not in the ordinary
                course of business; 

            

      	viii.  	
              any
                material change in officer compensation;
                or

            

      	ix.  	
              any
                other commitment (contingent or otherwise) to do any of the
                foregoing;

            

      

      
        
          8

        

        
          
          

          
            

          

        

        
          
          

        

      

      d.  any
        creation, sufferance or assumption by the Company or of the Subsidiaries
        of any
        Lien on any asset or any making of any loan, advance or capital contribution
        to
        or investment in any Person, in an aggregate amount which exceeds $50,000
        outstanding at any time;

      

      e.  any
        entry
        into, amendment of, relinquishment, termination or non-renewal by the Company
        or
        the Subsidiaries of any material contract, license, lease, transaction,
        commitment or other right or obligation, other than in the ordinary course
        of
        business, consistent with past practice; or 

      

      f.  
        any
        transfer or grant of a material right with respect to the intellectual property
        owned or licensed by the Company or the Subsidiaries, except as among the
        Company and the Subsidiaries.

      

      3.21.  Regulatory
        Permits.
        Except
        as set forth on Schedule
        3.1
        to the
        Disclosure Schedule, the Company and the Subsidiaries possess all certificates,
        approvals, authorizations and permits issued by the appropriate federal,
        state,
        local or foreign regulatory authorities necessary to conduct their businesses
        as
        described in the Company Documents, except where the failure to possess such
        permits does not, and could not have, individually or in the aggregate, a
        Material Adverse Effect (the “Material
        Permits”),
        and
        the Company has not received any written notice of proceedings relating to
        the
        revocation or modification of any Material Permits except as described in
        the
        Company Documents. 

      

      3.22.  Transactions
        with Affiliates and Employees.
        Except
        as set forth in the Company Documents, none of the officers or directors
        of the
        Company or the Subsidiaries and, to the knowledge of the Company and
        Subsidiaries, none of the employees of the Company or Subsidiaries, is presently
        a party to any transaction or agreement with the Company or the Subsidiaries,
        as
        applicable (other than for services as employees, officers and directors)
        exceeding $60,000, including any contract, agreement or other arrangement
        providing for the furnishing of services to or by, providing for rental of
        real
        or personal property to or from, or otherwise requiring payments to or from
        any
        officer, director or such employee or, to the knowledge of the Company and
        Subsidiaries, any entity in which any officer, director, or any such employee
        has a substantial interest or is an officer, director, agent or partner.
        

      

      3.23.  Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary for the business in which the Company and the Subsidiaries
        are
        engaged. The Company has no reason to believe that it will not be able to
        renew
        existing insurance coverage for itself and the Subsidiaries as and when such
        coverage expires or to obtain similar coverage from similar insurers as may
        be
        necessary or appropriate to continue business. 

      

      3.24.  Internal
        Accounting Controls.
        The
        Company maintains a system of internal accounting controls sufficient to
        provide
        reasonable assurance that (i) transactions are executed in accordance with
        management’s general or specific authorizations; (ii) transactions are recorded
        as necessary to permit preparation of financial statements in conformity
        with
        United States generally accepted accounting principles and to maintain asset
        accountability; (iii) access to assets is permitted only in accordance with
        management’s general or specific authorizations; (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;
        and
        (v) the Company is otherwise in compliance with the Securities Act, the Exchange
        Act and all other rules and regulations promulgated by the SEC and applicable
        to
        the Company, including such rules and regulations to implement the
        Sarbanes-Oxley Act of 2002, as amended. 

      

      
        
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      3.25.  Solvency.
        (i) The
        fair saleable value of the Company’s assets exceeds the amount that will be
        required to be paid on or in respect of the Company’s existing debts and other
        liabilities (including known and contingent liabilities) as they mature;
        (ii)
        the Company’s assets do not constitute unreasonably small capital to carry on
        its business for the current fiscal year as now conducted and as proposed
        to be
        conducted, including its capital needs taking into account the particular
        capital requirements of the business conducted by the Company, projected
        capital
        requirements and capital availability thereof; and (iii) the current cash
        flow
        of the Company, together with the proceeds the Company would receive were
        it to
        liquidate all of its assets, after taking into account all anticipated uses
        of
        the cash, would be sufficient to pay all amounts on or in respect of its
        debts
        when such amounts are required to be paid. The Company has no present intention
        to incur debts beyond its ability to pay such debts as they mature (taking
        into
        account the timing and amounts of cash to be payable on or in respect of
        its
        debt). 

      

      3.26.  Environmental
        Compliance.

      

      a.  Compliance.
        Each of
        the Company and the Subsidiaries are in compliance with all Environmental
        Protection Laws in effect in each jurisdiction where it is currently doing
        business and no material expenditures will be required in order to comply
        with
        any Environmental Protection Law. 

      

      b.  Liability.
        Neither
        the Company nor the Subsidiaries is subject to any liability under any
        Environmental Protection Law that, in the aggregate for all such liabilities,
        would reasonably be expected to have a Material Adverse Effect.

      

      c.  Notices.
        Neither
        the Company nor the Subsidiaries has received any:

      

      	i.  	
              notice
                from any Governmental Authority by which any of its currently or
                previously owned or leased properties has been identified in any
                manner by
                any Governmental Authority as a hazardous substance disposal or removal
                site, “Super Fund” clean-up site, or candidate for removal or closure
                pursuant to any Environmental Protection
                Law,

            

      	ii.  	
              notice
                of any Lien arising under or in connection with any Environmental
                Protection Law that has attached to any revenues of, or to, any of
                its
                currently or previously owned or leased properties,
                or

            

      	iii.  	
              communication,
                written or oral, from any Governmental Authority concerning any action
                or
                omission in connection with its currently or previously owned or
                leased
                properties resulting in the release of any hazardous substance resulting
                in any violation of any Environmental Protection Law, in each case
                where
                the effect of which, in the aggregate for all such notices and
                communications, would reasonably be expected to have a Material Adverse
                Effect.

            

      

      3.27.  Ranking
        of Notes.
        The
        Notes are unsecured indebtedness and are not subordinate in right to any
        secured
        indebtedness of the Company.
        

      

      3.28.  Disclosure.
        Neither
        the Company nor, to the Company’s knowledge, any other Person acting on its
        behalf and at the direction of the Company, has provided to any Purchaser
        or its
        agents or counsel any information that in the Company’s reasonable judgment, at
        the time such information was furnished, constitutes material, non-public
        information. The Company understands and confirms that each Purchaser will
        rely
        on the representations and covenants contained herein in effecting the
        transactions contemplated by this Agreement and the Transaction Documents,
        and
        in the securities of the Company after the Closing. All disclosure provided
        to
        the Purchasers regarding the Company, its business and the transactions
        contemplated hereby, including the Schedules to this Agreement furnished
        by or
        on behalf of the Company, taken as a whole is true and correct and does not
        contain any untrue statement of material fact or omit to state any material
        fact
        necessary in order to make the statements made therein, in the light of the
        circumstances under which they were made, not misleading. No event or
        circumstance has occurred or information exists with respect to the Company
        or
        the Subsidiaries or its or their business, properties, prospects, operations
        or
        financial conditions, which, under applicable law, rule or regulation, requires
        public disclosure or announcement by the Company but which has not been so
        publicly announced or disclosed. The Company acknowledges and agrees that
        no
        Purchaser makes or has made any representations or warranties with respect
        to
        the transactions contemplated hereby other than those specifically set forth
        in
        Section 4. 

      

      
        
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      4.  REPRESENTATIONS
        AND WARRANTIES OF THE PURCHASERS.

      

      Each
        Purchaser represents and warrants, severally (as to itself) and not jointly,
        to
        the Company as follows:

      4.1.  Organization
        and Existence.
        Such
        Purchaser is either an individual or a validly existing corporation, limited
        partnership or limited liability company and has all requisite corporate,
        partnership or limited liability company power and authority to invest in
        the
        Securities pursuant to this Agreement.

      

      4.2.  Authorization.
        All
        action on the part of such Purchaser and, if applicable, its officers,
        directors, managers, members, shareholders and/or partners necessary for
        the
        authorization, execution, delivery and performance of this Agreement and
        the
        Registration Rights Agreement, and the consummation of the transactions
        contemplated herein and therein, has been taken. When executed and delivered,
        each of this Agreement and the Registration Rights Agreement will constitute
        the
        legal, valid and binding obligation of such Purchaser, enforceable against
        such
        Purchaser in accordance with its terms, except as such may be limited by
        bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights
        generally and by general equitable principles. Such Purchaser has all requisite
        corporate power and authority to enter into each of this Agreement and the
        Registration Rights Agreement, and to carry out and perform its obligations
        under the terms of hereof and thereof. 

      

      4.3.  Purchase
        Entirely for Own Account.
        The
        Securities to be received by such Purchaser hereunder will be acquired for
        such
        Purchaser’s own account, not as nominee or agent, and not with a view to the
        resale or distribution of any part thereof in violation of the Securities
        Act,
        and such Purchaser has no present intention of selling, granting any
        participation in, or otherwise distributing the same in violation of the
        Securities Act without prejudice, however, to such Purchaser’s right at all
        times to sell or otherwise dispose of all or any part of such Securities
        in
        compliance with applicable federal and state securities laws.
        Nothing
        contained herein shall be deemed a representation or warranty by such Purchaser
        to hold the Securities for any period of time. Such Purchaser is not a
        broker-dealer registered with the SEC under the Exchange Act or an entity
        engaged in a business that would require it to be so registered. 

      

      4.4.  Investor
        Status; Etc.
        Such
        Purchaser certifies and represents to the Company that it is an “accredited
        investor” as defined in Rule 501 of Regulation D promulgated under the
        Securities Act and was not organized for the purpose of acquiring any of
        the
        Shares and the Shares. Such Purchaser’s financial condition is such that it is
        able to bear the risk of holding the Shares for an indefinite period of time
        and
        the risk of loss of its entire investment. Such Purchaser has sufficient
        knowledge and experience in investing in companies similar to the Company
        so as
        to be able to evaluate the risks and merits of its investment in the Company.
        

      

      4.5.  Securities
        Not Registered.
        Such
        Purchaser understands that the Securities have not been registered under
        the
        Securities Act, by reason of their issuance by the Company in a transaction
        exempt from the registration requirements of the Securities Act, and that
        the
        Securities must continue to be held by such Purchaser unless a subsequent
        disposition thereof is registered under the Securities Act or is exempt from
        such registration. Such Purchaser understands that the exemptions from
        registration afforded by Rule 144 (the provisions of which are known to it)
        promulgated under the Securities Act depend on the satisfaction of various
        conditions, and that, if applicable, Rule 144 may afford the basis for sales
        only in limited amounts. 

      

      4.6.  No
        Conflict.
        The
        execution and delivery of this Agreement and the Registration Rights Agreement
        by such Purchaser, and the consummation of the transactions contemplated
        hereby
        and thereby, will not conflict with or result in any violation of or default
        by
        such Purchaser (with or without notice or lapse of time, or both) under any
        provision of the organizational documents of such Purchaser. 

      

      
        
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      4.7.  Brokers.
        Such
        Purchaser has not retained, utilized or been represented by any broker or
        finder
        in connection with the transactions contemplated by this Agreement.

      

      4.8.  Consents.
        All
        consents, approvals, orders and authorizations required on the part of such
        Purchaser in connection with the execution, delivery or performance of this
        Agreement and the consummation of the transactions contemplated herein have
        been
        obtained and are effective as of the date hereof. 

      

      4.9.  Disclosure
        of Information.
        Such
        Purchaser believes it has received all the information it considers necessary
        or
        appropriate for deciding whether to purchase the Securities. Such Purchaser
        further represents that it has had an opportunity to ask questions and receive
        answers from the Company regarding the terms and conditions of the offering
        of
        the Securities and the business, properties, prospects and financial condition
        of the Company. Such Purchaser acknowledges that it relied solely on this
        Purchase Agreement and the Company Filings and is not relying upon any other
        written representations in making the decision to enter into the offering
        of the
        Securities. 

      

      4.10.  No
        General Advertisement.
        Such
        Purchaser did not learn of the investment in the Securities as a result of
        any
        public advertisement, article, notice or other communication regarding the
        Securities published in any newspaper, magazine or similar media or broadcast
        over television, radio or internet or presented at any seminar or other general
        advertisement.

      

      4.11.  Prohibited
        Transactions.
        During
        the last thirty (30) days prior to the date hereof, neither such Purchaser
        nor
        any Affiliate of such Purchaser which (x) had knowledge of the transactions
        contemplated hereby, (y) has or shares discretion relating to such Purchaser’s
        investments or trading or information concerning such Purchaser’s investments,
        including in respect of the Securities, or (z) is subject to such Purchaser’s
        review or input concerning such Affiliate’s investments or trading
        (collectively, “Trading Affiliates”) has, directly or indirectly, effected or
        agreed to effect any short sale, whether or not against the box, established
        any
“put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with
        respect to the Common Stock, granted any other right (including, without
        limitation, any put or call option) with respect to the Common Stock or with
        respect to any security that includes, relates to or derived any significant
        part of its value from the Common Stock or otherwise sought to hedge its
        position in the Securities (each, a “Prohibited Transaction”). Prior to the
        termination of this Agreement, such Purchaser shall not, and shall cause
        its
        Trading Affiliates not to, engage, directly or indirectly, in a Prohibited
        Transaction. Such Purchaser acknowledges that the representations, warranties
        and covenants contained in this Section 4.11 are being made for the benefit
        of
        the Purchasers as well as the Company and that each of the other Purchasers
        shall have an independent right to assert any claims against such Purchaser
        arising out of any breach or violation of the provisions of this Section
        4.11.

      

      4.12.  Patriot
        Act.
        Neither
        such Purchaser nor any of its Affiliates has been designated, and is not
        owned
        or controlled, by a “suspected terrorist” as defined in Executive Order 13224.
        None of the cash used to fund the Notes has been derived from, any activity
        that
        could cause the Company to be in violation of the United States Bank Secrecy
        Act, the United States International Money Laundering Control Act of 1986
        or the
        United States International Money Laundering Abatement and Anti-Terrorist
        Financing Act of 2001.

      

      

      

      
        
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      5.  CONDITIONS
        PRECEDENT

      

      5.1.  Conditions
        to the Obligation of the Purchasers to Consummate the Closing.
        The
        obligation of each Purchaser to consummate at the Closing the purchase and
        payment for the Notes and Shares to be purchased by such Purchaser is subject
        to
        the satisfaction (or waiver by such Purchaser) of the following conditions
        precedent: 

      

      a.  The
        representations and warranties of the Company contained herein shall be true
        and
        correct on and as of the date hereof. The Company shall have performed or
        complied with all obligations and conditions herein required to be performed
        or
        complied with by the Company on or prior to the date hereof.

      

      b.  No
        proceeding challenging this Agreement or the Transaction Documents, or the
        transactions contemplated hereby or thereby, or seeking to prohibit, alter,
        prevent or materially delay the Closing, shall have been instituted before
        any
        court, arbitrator or governmental body, agency or official or shall be pending
        against or involving the Company. 

      

      c.  The
        sale
        of the Notes (and the issuance of the Conversion Shares) and the issuance
        of the
        Shares to the Purchasers shall not be prohibited by any law, rule, governmental
        order or regulation. All necessary consents, approvals, licenses, permits,
        orders and authorizations of, or registrations, declarations and filings
        with,
        any governmental or administrative agency or of or with any other Person
        with
        respect to any of the transactions contemplated hereby shall have been duly
        obtained or made and shall be in full force and effect. 

      

      d.  All
        instruments and corporate proceedings of the Company in connection with the
        transactions contemplated by this Agreement and the Transaction Documents
        shall
        be satisfactory in form and substance to such Purchaser, and such Purchaser
        shall have received copies (executed or certified, as may be appropriate)
        of all
        documents which any Purchaser may have reasonably requested in connection
        with
        such transactions. 

      

      e.  Such
        Purchaser shall have received from Brewer & Pritchard PC, counsel to the
        Company, an opinion addressed to such Purchaser, dated the Closing Date and
        substantially in the form of Exhibit
        D
        hereto.

      

      f.  The
        Registration Rights Agreement shall have been executed and delivered to such
        Purchaser by the Company. 

      

      g.  Such
        Purchaser shall have received from the Company an original Note, in each
        case in
        the original principal amount set forth opposite such Purchaser’s name on
Exhibit
        A
        hereto.

      

      h.  The
        Company shall have delivered, in form and substance satisfactory to such
        Purchaser, a certificate dated the Closing Date and signed by the secretary
        or
        another appropriate executive officer of the Company, certifying (i) that
        attached copies of the Articles of Incorporation, the By-Laws and resolutions
        of
        the Board approving this Agreement and the Transaction Documents are all
        true,
        complete and correct and remain in full force and effect as of the date hereof,
        and (ii) as to the incumbency and specimen signature of each officer of the
        Company executing this Agreement, the Transaction Documents and any other
        document delivered in connection herewith on behalf of the Company.

      

      i.  The
        Company shall have delivered, a certificate signed by the Company’s chief
        executive officer certifying that (i) the representations and warranties
        of the
        Company contained in Section 3 hereof are true and correct in all respects
        on
        the Closing Date and (ii) the Company has performed and complied with all
        of the
        agreements and conditions set forth or contemplated herein that are required
        to
        be performed or complied with by the Company on or before the Closing Date.
        

      

      
        
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      5.2.  Conditions
        to the Obligation of the Company to Consummate the Closing.
        The
        obligation of the Company to consummate the Closing and to issue and sell
        the
        Notes and the Shares to any Purchaser at the Closing is subject to the
        satisfaction of the following conditions precedent: 

      

      a.  The
        representations and warranties of such Purchaser contained herein shall be
        true
        and correct in all respects on and as of the Closing Date. 

      

      b.  The
        Registration Rights Agreement shall have been executed and delivered by such
        Purchaser.

      

      c.  Such
        Purchaser shall have performed all obligations and conditions herein required
        to
        be performed or complied with by such Purchaser on or prior to the Closing
        Date.

      

      d.  No
        proceeding challenging this Agreement or the Transaction Documents, or the
        transactions contemplated hereby or thereby, or seeking to prohibit, alter,
        prevent or materially delay the Closing, shall have been instituted before
        any
        court, arbitrator or governmental body, agency or official or shall be pending
        against or involving such Purchaser. 

      

      e.  The
        sale
        of the Notes (and the issuance of the Conversion Shares) and the issuance
        of the
        Shares by the Company shall not be prohibited by any law, rule, governmental
        order or regulation. All necessary consents, approvals, licenses, permits,
        orders and authorizations of, or registrations, declarations and filings
        with,
        any governmental or administrative agency or of any other Person with respect
        to
        any of the transactions contemplated hereby shall have been duly obtained
        or
        made and shall be in full force and effect. 

      

      f.  All
        instruments and corporate proceedings in connection with the transactions
        contemplated by this Agreement to be consummated at the Closing shall be
        satisfactory in form and substance to the Company, and the Company shall
        have
        received counterpart originals, or certified or other copies of all documents,
        including without limitation records of corporate or other proceedings, which
        it
        may have reasonably requested in connection therewith. 

      

      6.  CERTAIN
        COVENANTS AND AGREEMENTS.

      

      6.1.  Existence.
        The
        Company will do or cause to be done all things necessary to preserve and
        keep in
        full force and effect the corporate existence of the Company and the
        Subsidiaries, and their respective rights (charter and statutory) and
        franchises, except to the extent that the Board shall determine that the
        failure
        to do so would not have a Material Adverse Effect; provided,
        however,
        that
        the Company shall not be required to preserve any right or franchise if the
        Board shall determine that the preservation thereof is no longer desirable
        in
        the conduct of the business of the Company and that the loss thereof is not
        disadvantageous in any material respect to the Holders.

      

      6.2.  Payment
        of Taxes and Other Claims.
        The
        Company will pay or discharge or cause to be paid or discharged, before the
        same
        shall become delinquent, (a) all Taxes, assessments and governmental charges
        levied or imposed upon it or the Subsidiaries or upon the income, profits
        or
        property of the Company or the Subsidiaries, and (b) all lawful claims for
        labor, materials and supplies which, if unpaid, might by law become a Lien
        upon
        the property of the Company or the Subsidiaries and have a Material Adverse
        Effect; provided,
        however,
        that
        the Company shall not be required to pay or discharge or cause to be paid
        or
        discharged any such Tax, assessment, charge or claim whose amount, applicability
        or validity is being contested in good faith by appropriate
        proceedings.

      

      6.3.  Transfer
        of Securities.
        Each
        Purchaser agrees severally (as to itself only) and not jointly that it shall
        not
        sell, assign, pledge, transfer or otherwise dispose of or encumber any of
        the
        Notes, the Conversion Shares or the Shares, except (a) pursuant to an effective
        registration statement under the Securities Act, (b) to an Affiliate (so
        long as
        such Affiliate agrees to be bound by the terms and provisions of this Agreement
        as if, and to the fullest extent as, such Purchaser), or (c) pursuant to
        an
        available exemption from registration under the Securities Act (including
        sales
        permitted pursuant to Rule 144) and applicable state securities laws and,
        if
        requested by the Company, upon delivery by such Purchaser of either an opinion
        of counsel of such Purchaser reasonably satisfactory to the Company to the
        effect that the proposed transfer is exempt from or does not require
        registration under the Securities Act and applicable state securities laws
        or a
        representation letter of such Purchaser reasonably satisfactory to the Company
        setting forth a factual basis for concluding that such proposed transfer
        is
        exempt from or does not require registration under the Securities Act and
        applicable state securities laws. Any transfer or purported transfer of the
        Notes in violation of this Section 6.3 shall be void. The Company shall not
        register any transfer of the Notes in violation of this Section 6.3. The
        Company
        may, and may instruct any transfer agent for the Company, to place such stop
        transfer orders as may be required on the transfer books of the Company in
        order
        to ensure compliance with the provisions of this Section 6.3. 

      

      
        
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      6.4.  Legends

      a.  To
        the
        extent applicable, each certificate or other document evidencing the Notes,
        the
        Conversion Shares and the Shares shall be endorsed with the legend set forth
        below, and each Purchaser covenants that, except to the extent such restrictions
        are waived by the Company, it shall not transfer the shares represented by
        any
        such certificate without complying with the restrictions on transfer described
        in this Agreement and the legends endorsed on such certificate: 

      

      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE
        ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT
        TO AN
        AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, REGISTRATION
        UNDER
        SAID ACT.” 

       

      b.  Upon
        the
        earlier of (i) registration for resale pursuant to the Registration Rights
        Agreement or (ii) Rule 144(k) becoming available the Company shall (A) deliver
        to the transfer agent for the Common Stock (the “Transfer Agent”) irrevocable
        instructions that the Transfer Agent shall reissue a certificate representing
        shares of Common Stock without legends upon receipt by such Transfer Agent
        of
        the legended certificates for such shares, together with either (1) a customary
        representation by the Purchaser that Rule 144(k) applies to the shares of
        Common
        Stock represented thereby or (2) a statement by the Purchaser that such
        Purchaser has sold the shares of Common Stock represented thereby in accordance
        with the Plan of Distribution contained in the Registration Statement and,
        if
        applicable, in accordance with any prospectus delivery requirements, and
        (B)
        cause its counsel to deliver to the Transfer Agent one or more blanket opinions
        to the effect that the removal of such legends in such circumstances may
        be
        effected under the Securities Act. 

      

      6.5.   Publicity.
        Except
        to the extent required by applicable laws, rules, regulations or stock exchange
        requirements, neither (a) the Company, the Subsidiaries or any of their
        Affiliates nor (b) any Purchaser or any of its Affiliates shall, without
        the
        written consent of the other, make any public announcement or issue any press
        release with respect to the transactions contemplated by this Agreement.
        In no
        event will either (a) the Company, the Subsidiaries or any of their Affiliates
        or (b) any Purchaser or any of its Affiliates make any public announcement
        or
        issue any press release with respect to the transactions contemplated by
        this
        Agreement without consulting with the other party and giving the other party
        a
        reasonable opportunity to review and, to the extent such party is specially
        named in such announcement or press release, approve, the content of such
        public
        announcement or press release. The Company shall, on or before 8:30 a.m.,
        New York City Time, within one (1) Business Day after the date of this
        Agreement, issue a press release (the “Press Release”) disclosing all material
        terms of the transactions contemplated hereby. On or before 8:30 a.m., New
        York
        City Time, within one (1) Business Day following the Closing Date, the Company
        shall file a Current Report on Form 8-K describing the terms of the transactions
        contemplated by the Transaction Documents in the form required by the Exchange
        Act, and attaching the material Transaction Documents (including this Agreement
        and all schedules and exhibits to this Agreement) as exhibits to such filing
        (including all attachments, the “8-K Filing”).

      

      
        
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      6.6.  Filing
        of Information.
        The
        Company covenants to use its best efforts to timely file (or obtain extensions
        in respect thereof and file within the applicable grace period) all reports
        required to be filed by the Company pursuant to all applicable securities
        laws,
        including the Exchange Act. At any time if the Company is not required to
        file
        reports pursuant to such laws, it will prepare and furnish to the Purchasers
        and
        make publicly available in accordance with paragraph (c) of Rule 144 such
        information as is required for the Purchasers to sell the Notes, the Conversion
        Shares and the Shares under Rule 144. The Company further covenants that
        it will
        take such further action as any holder of the Notes, the Conversion Shares
        or
        Shares may reasonably request to satisfy the provisions of Rule 144 applicable
        to the issuer of securities relating to transactions for the sale of securities
        pursuant to Rule 144.

       

      6.7.  Integration.
        The
        Company shall not sell, offer for sale or solicit offers to buy or otherwise
        negotiate in respect of any security (as defined in Section 2 of the Securities
        Act) that would be integrated with the offer or sale of the Notes in a manner
        that would require the registration under the Securities Act of the sale
        of the
        Notes, the Conversion Shares or Shares to the Purchasers.

      

      6.8.  Reservation
        of Common Stock for Issuance.
        The
        Company agrees to reserve from its duly authorized capital stock the total
        number of shares of Common Stock issuable upon execution of this Agreement
        and
        upon conversion of the Notes.

      

      6.9.  Required
        Approvals.
        As
        promptly as practicable after the date of this Agreement, the Company shall
        make, or cause to be made, all filings permitted to be made post-closing
        with
        any governmental or administrative agency or any other Person necessary to
        consummate the transactions contemplated hereby.

      

      6.10.
        Use
        of
        Proceeds.
        The
        proceeds from the sale of the Notes may be used for building a rig in Odessa,
        Texas and other general corporate purposes, including the payment of all
        expenses incurred in connection with the offering of the Notes, and will
        not be
        used for repayment of debt.

      

      6.11.
        Placement
        Agent Fees and Arrangements.
        The
        Company shall not amend or change its fee and expense reimbursement arrangements
        with Tejas Securities Group, Inc. or its affiliates without the consent of
        a
        majority in interest of the Holders.

      

      7.  INDEMNIFICATION.

      

      7.1.  Indemnification. The
        Company agrees to indemnify and hold harmless each Purchaser and its Affiliates
        and their respective directors, officers, employees and agents from and against
        any and all losses, claims, damages, liabilities and expenses (including
        without
        limitation reasonable attorney fees and disbursements and other expenses
        incurred in connection with investigating, preparing or defending any action,
        claim or proceeding, pending or threatened and the costs of enforcement thereof)
        (collectively, “Losses”) to which such Person may become subject as a result of
        any breach of representation, warranty, covenant or agreement made by or
        to be
        performed on the part of the Company under the Transaction Documents, and
        will
        reimburse any such Person for all such amounts as they are incurred by such
        Person.

      

      7.2.  Conduct
        of Indemnification Proceedings. Promptly
        after receipt by any Person (the “Indemnified
        Person”) of notice of any demand, claim or circumstances which would or might
        give rise to a claim or the commencement of any action, proceeding or
        investigation in respect of which indemnity may be sought pursuant to Section
        7.2, such Indemnified Person shall promptly notify the Company in writing
        and
        the Company shall assume the defense thereof, including the employment of
        counsel reasonably satisfactory to such Indemnified Person, and shall assume
        the
        payment of all fees and expenses; provided,
        however, that
        the
        failure of any Indemnified Person so to notify the Company shall not relieve
        the
        Company of its obligations hereunder except to the extent that the Company
        is
        materially prejudiced by such failure to notify. In any such proceeding,
        any
        Indemnified Person shall have the right to retain its own counsel, but the
        fees
        and expenses of such counsel shall be at the expense of such Indemnified
        Person
        unless: (i) the Company and the Indemnified Person shall have mutually agreed
        to
        the retention of such counsel; or (ii) in the reasonable judgment of counsel
        to
        such Indemnified Person representation of both parties by the same counsel
        would
        be inappropriate due to actual or potential differing interests between them.
        The Company shall not be liable for any settlement of any proceeding effected
        without its written consent, which consent shall not be unreasonably withheld,
        but if settled with such consent, or if there be a final judgment for the
        plaintiff, the Company shall indemnify and hold harmless such Indemnified
        Person
        from and against any loss or liability (to the extent stated above) by reason
        of
        such settlement or judgment. Without the prior written consent of the
        Indemnified Person, which consent shall not be unreasonably withheld, the
        Company shall not effect any settlement of any pending or threatened proceeding
        in respect of which any Indemnified Person is or could have been a party
        and
        indemnity could have been sought hereunder by such Indemnified Party, unless
        such settlement includes an unconditional release of such Indemnified Person
        from all liability arising out of such proceeding.

       

      
        
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      8.  CONVERSION

      

      8.1.  Conversion
        Privilege, Conversion Price.
        Subject
        to and upon compliance with the provisions of this Section 8, at the option
        of
        the Holder thereof, any Note may be converted at any time after the date
        hereof
        into that number of fully paid and non-assessable shares of Common Stock
        obtained by dividing the amount of principal and/or interest of the Notes
        surrendered for conversion by $2.00 (the “Conversion Price”). Notwithstanding
        the foregoing, no Notes will be convertible into shares of Common Stock to
        the
        extent that such conversion will result in the Holder (together with its
        Affiliates) owning, holding or beneficially owning more than 9.99% of the
        Common
        Stock (the “Ownership Limit”),
        and
        at any time, and from time to time, if the Holder (together with its Affiliates)
        owns, holds or beneficially owns a percentage less than the Ownership Limit,
        then such Notes shall then be convertible into shares of Common Stock pursuant
        to this Section 8 to the extent that it would not result in the Holder (together
        with its Affiliates) owning, holding or beneficially owning more than the
        Ownership Limit.

      

      8.2.  Exercise
        of Conversion Privilege.
        In
        order to exercise the conversion privilege with respect to any Note, the
        Holder
        of any Note to be converted shall surrender such Note, duly endorsed or assigned
        to the Company or in blank, at any office or agency maintained by the Company
        pursuant to this Agreement, accompanied by (a) written notice to the Company
        stating that the Holder elects to convert such Note or, if less than the
        entire
        principal amount thereof is to be converted, the portion thereof to be
        converted, (b) the funds, if any, required by this Section, and (c) if Common
        Stock or any portion of such Note not to be converted are to be issued in
        the
        name of a Person other than the Holder thereof, the name of the Person in
        which
        to issue such Common Stock or portion of the Note and the transfer taxes,
        if
        any, required to be paid by the Holder pursuant to this Agreement. 

      

      a.  As
        promptly as practicable after satisfaction of the requirements for conversion
        set forth above, the Company shall issue and shall deliver to such Holder
        a
        certificate or certificates for the number of full shares of Common Stock
        issuable upon the conversion of such Note or portion thereof in accordance
        with
        the provisions of this Section and a check or cash in respect of any fractional
        interest in respect of a share of Common Stock arising upon such conversion,
        as
        provided in Section 8.3. In case any Note of a denomination shall be surrendered
        for partial conversion, the Company shall execute and deliver to the Holder
        of
        the Note so surrendered, without charge, a new Note or Notes in authorized
        denominations in an aggregate principal amount equal to the unconverted portion
        of the surrendered Note.

      

      b.  Each
        conversion shall be deemed to have been effected as to any such Note (or
        portion
        thereof) on the date on which the requirements set forth above in this Section
        8.2 have been satisfied as to such Note (or portion thereof), and the Person
        in
        whose name any certificate or certificates for shares of Common Stock issuable
        upon such conversion shall be deemed to have become on said date the holder
        of
        record of the shares represented thereby; provided
        however
        that any
        such surrender on any date when the stock transfer books of the Company shall
        be
        closed shall constitute the Person in whose name the certificates are to
        be
        issued as the record holder thereof for all purposes on the next succeeding
        day
        on which such stock transfer books are open, but such conversion shall be
        at the
        Conversion Price in effect on the date upon which such Note shall be
        surrendered.

      

      
        
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      8.3.  Fractions
        of Shares.
        No
        fractional shares of Common Stock shall be issued upon conversion of Notes.
        If
        more than one Note shall be surrendered for conversion at one time by the
        same
        Holder, the number of full shares that shall be issuable upon conversion
        thereof
        shall be computed on the basis of the aggregate principal amount of the Notes
        (or specified portions thereof) so surrendered. Instead of any fractional
        share
        of Common Stock that would otherwise be issuable upon conversion of any Note
        (or
        specified portions thereof), the Company shall pay a cash adjustment in respect
        of such fraction in an amount equal to the same fraction of the Closing Price
        per share of the Common Stock at the close of business on the Trading Day
        immediately preceding such day.

      

      8.4.  Adjustment
        of Conversion Price.
        The
        Conversion Price in effect shall be subject to adjustment from time to time
        as
        follows:

      

      a.  Stock
        Splits, Dividends and Combinations.
        In the
        event that the Company shall at any time subdivide the outstanding shares
        of
        Common Stock, or shall pay or make a dividend or distribution on any class
        of
        capital stock of the Company in Common Stock, the Conversion Price in effect
        immediately prior to such subdivision or the issuance of such dividend shall
        be
        proportionately decreased, and in case the Company shall at any time combine
        the
        outstanding shares of Common Stock, the Conversion Price in effect immediately
        prior to such combination shall be proportionately increased, effective at
        the
        close of business on the date of such subdivision, dividend or combination,
        as
        the case may be.

       

      b.  Non-Cash
        Dividends, Stock Purchase Rights, Capital Reorganization.
        In the
        event:

       

       

      	i.  	
              that
                the Company shall take a record of the holders of its Common Stock
                for the
                purpose of entitling them to receive a dividend, or any other
                distribution, payable otherwise than in cash;
                or

            

       

       

      	ii.  	
              that
                the Company shall take a record of the holders of its Common Stock
                for the
                purpose of entitling them to subscribe for or purchase any shares
                of stock
                of any class or other securities, or to receive any other
                rights;

            

       

       

      then,
        and
        in any such case, provision shall be made so that the Holders shall be entitled,
        upon conversion, to receive the number and kind of securities of other property
        of the Company, or successor corporation, to which such Holder would have
        been
        entitled to receive had he converted immediately prior to such event.

       

      8.5.   Notice
        of Certain Corporate Action.
        The
        Company shall provided the Holders notice if the shares of Common Stock are
        subdivided or combined into a greater or smaller number of shares of Common
        Stock, or if a dividend is paid on the Common Stock in shares of Common
        Stock.

      

      8.6.  Taxes
        on Conversions.
        The
        Holder will pay any and all Taxes that may be payable in respect of the issue
        or
        delivery of shares of Common Stock on conversion of Notes pursuant hereto.
        The
        Company shall not be required to pay any Tax that may be payable in respect
        of
        any transfer involved in the issue and delivery of shares of Common Stock
        in a
        name other than that of the Holder of the Notes to be converted, and no such
        issue or delivery shall be made unless and until the Person requesting such
        issue has paid to the Company the amount of any such Tax, or has established
        to
        the satisfaction of the Company that such Tax has been paid. 

      

      8.7.  Cancellation
        of Converted Notes.
        All
        Notes delivered for conversion shall be delivered to the Company to be cancelled
        upon such conversion. 

      

      8.8.  Provisions
        in Case of Reclassification, Consolidation, Merger or Sale of
        Assets.
        In the
        event that the Company shall be a party to any transaction (including any
        (i)
        recapitalization or reclassification of the Common Stock (other than a change
        in
        par value, or from par value to no par value, or from no par value to par
        value,
        or as a result of a subdivision or combination of the Common Stock), (ii)
        any
        consolidation of the Company with, or merger of the Company into, any other
        Person, any merger of another Person into the Company (other than a merger
        that
        does not result in a reclassification, conversion, exchange or cancellation
        of
        outstanding shares of Common Stock of the Company), (iii) any sale or transfer
        of all or substantially all of the assets of the Company or (iv) any compulsory
        share exchange) pursuant to which the Common Stock is converted into the
        right
        to receive other securities, cash or other property, then lawful provision
        shall
        be made as part of the terms of such transaction whereby the Holder of each
        Note
        shall have the right thereafter to convert such Note only into (subject to
        funds
        being legally available for such purpose under applicable law at the time
        of
        such conversion) the kind and amount of securities, cash and other property
        receivable upon such transaction by a holder of the number of shares of Common
        Stock into which such Note might have been converted immediately prior to
        such
        transaction. The Company or the Person formed by such consolidation or resulting
        from such merger or that acquired such assets or that acquired the Company’s
        shares of Common Stock, as the case may be, shall expressly assume these
        obligations.

      

      
        
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      9.  MISCELLANEOUS
        PROVISIONS.

      

      9.1.  Rights
        Cumulative.
        Each
        and all of the various rights, powers and remedies of the parties shall be
        considered to be cumulative with and in addition to any other rights, powers
        and
        remedies which such parties may have at law or in equity in the event of
        the
        breach of any of the terms of this Agreement. The exercise or partial exercise
        of any right, power or remedy shall neither constitute the exclusive election
        thereof nor the waiver of any other right, power or remedy available to such
        party. 

      

      9.2.  Pronouns.
        All
        pronouns or any variation thereof shall be deemed to refer to the masculine,
        feminine or neuter, singular or plural, as the identity of the person, persons,
        entity or entities may require. 

      

      9.3.  Any
        notices, reports or other correspondence (hereinafter collectively referred
        to
        as “correspondence”) required or permitted to be given hereunder shall be given
        in writing and shall be deemed given if sent by certified or registered mail
        (return receipt requested), overnight courier or telecopy (with confirmation
        of
        receipt), or delivered by hand to the party to whom such correspondence is
        required or permitted to be given hereunder. An electronic communication
        (“Electronic
        Notice”)
        shall
        be deemed written notice for purposes of this Section 9.3 if sent with return
        receipt requested to the electronic mail address specified by the receiving
        party either in this Section 9.3 or on Exhibit
        A
        hereto.
        Electronic Notice shall be deemed received at the time the party sending
        Electronic Notice receives verification of receipt by the receiving
        party.

      

      a.  All
        correspondence to the Company shall be addressed as follows:

      

      Forster
        Drilling Corporation

      6371
        Richmond Avenue, Suite 265

      Houston,
        Texas 77057

      Fax:
        (713) 266-8024

      Email: wst@forsterdrilling.com

       

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

       

      Brewer
        & Pritchard PC

      3
        Riverway, Suite 1800

      Houston,
        Texas77056

      Attention:
        Thomas Pritchard

      Fax:
        (713) 659-5302

      Email:
        tpritchard@bplaw.com

      

      
        
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      b.  All
        correspondence to the Purchasers shall be addressed pursuant to the contact
        information set forth on Exhibit
        A attached
        hereto.

      

      c.  Any
        entity may change the address to which correspondence to it is to be addressed
        by notification as provided for herein. 

      

      9.4.  Captions.
        The
        captions and paragraph headings of this Agreement are solely for the convenience
        of reference and shall not affect its interpretation. 

      

      9.5.  Severability.
        Should
        any part or provision of this Agreement be held unenforceable or in conflict
        with the applicable laws or regulations of any jurisdiction, the invalid
        or
        unenforceable part or provisions shall be replaced with a provision which
        accomplishes, to the extent possible, the original business purpose of such
        part
        or provision in a valid and enforceable manner, and the remainder of this
        Agreement shall remain binding upon the parties hereto. 

      

      9.6.  Governing
        Law.
        This
        Agreement shall be governed by and construed and enforced in accordance with
        the
        laws of the State of Texas, as such laws are applied to contracts entered
        into
        and wholly to be performed within the State of Texas and without giving effect
        to any principles of conflicts or choice of law that would result in the
        application of the laws of any other jurisdiction. 

      

      9.7.  Waiver.
        No
        waiver of any term, provision or condition of this Agreement, whether by
        conduct
        or otherwise, in any one or more instances, shall be deemed to be, or be
        construed as, a further or continuing waiver of any such term, provision
        or
        condition or as a waiver of any other term, provision or condition of this
        Agreement. 

      

      9.8.  Assignment.
        The
        rights and obligations of any party hereto shall inure to the benefit of
        and
        shall be binding upon the authorized successors and permitted assigns of
        such
        party. The Company may not assign this Agreement or any rights or obligations
        hereunder without the prior written consent of Purchasers who hold a majority
        of
        the principal amount of all Notes then outstanding (the “Majority
        Purchasers”).
        Each
        Purchaser may assign or transfer any or all of its rights under this Agreement
        to any Person provided that such assignee or transferee agrees in writing
        to be
        bound, with respect to the transferred Notes, by the provisions hereof that
        apply to such assigning or transferring Purchaser; whereupon such assignee
        or
        transferee shall be deemed to be a “Purchaser”
for
        all
        purposes of this Agreement. 

      

      9.9.  Survival.
        The
        respective representations and warranties given by the parties hereto shall
        survive the Closing Date and the consummation of the transactions contemplated
        herein for a period of time equal to the time for which indemnification may
        be
        sought hereunder, without regard to any investigation made by any party.
        The
        respective covenants and agreements agreed to by a party hereto shall survive
        the Closing Date and the consummation of the transactions contemplated herein
        in
        accordance with their respective terms and conditions. 

      

      9.10.  Entire
        Agreement.
        This
        Agreement constitutes the entire agreement between the parties hereto respecting
        the subject matter hereof and supersedes all prior agreements, negotiations,
        understandings, representations and statements respecting the subject matter
        hereof, whether written or oral. 

      

      9.11.  Amendments.
        Any
        amendment, supplement or modification of or to any provision of this Agreement,
        any waiver of any provisions of this Agreement shall be effective only if
        made
        or given in writing and signed by the Company and the Majority Purchasers;
        provided that any amendment, supplement, modification or waiver that is
        materially and disproportionately adverse to any particular Purchaser (as
        compared to all Purchasers as a group) shall require the consent of such
        Purchaser.

      

      
        
          20

        

        
          
          

          
            

          

        

        
          
          

        

      

      9.12.  No
        Third Party Rights.
        This
        Agreement is intended solely for the benefit of the parties hereto and is
        not
        intended to confer any benefits upon, or create any rights in favor of, any
        Person (including, without limitation, any stockholder or debt holder of
        the
        Company) other than the parties hereto; provided, that each of the Purchaser
        Indemnitees that are not Purchasers are entitled to all rights and benefits
        as
        third party beneficiaries of Section 7 of this Agreement. 

      

      9.13.  Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which shall
        be
        deemed an original, but all of which together shall constitute one and the
        same
        document. The parties hereto confirm that any facsimile copy of another party’s
        executed counterpart of this Agreement (or its signature page thereof) will
        be
        deemed to be an executed original thereof. 

       

       

      IN
        WITNESS WHEREOF, the parties hereto have executed this Securities Purchase
        Agreement as of the day and year first above written. 

       

      FORSTER
        DRILLING CORPORATION

       

      

      By:     

      Name:     

      Title:      

       

       

      PURCHASERS:

      

      

      

       

      By:     

      Name:     

      Title:      

       

      

      

      
        
          21

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