Document:

Exhibit 10

  Exhibit 10.22

  GUARANTEE AGREEMENT

  PFF Bancorp, Inc.

  Dated as of September 16, 2005

  TABLE OF CONTENTS

                                                                                                                                                     
  Page

  ARTICLE I

  

  DEFINITIONS AND INTERPRETATION

  SECTION 1.1      Definitions and
  Interpretation.................................................................................
  1

  ARTICLE II

  

  POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

  SECTION
  2.1      Powers and Duties of the Guarantee
  Trustee.......................................................... 4

  SECTION
  2.2      Certain Rights of the Guarantee
  Trustee................................................................. 5

  SECTION
  2.3      Not Responsible for Recitals or Issuance of
  Guarantee........................................... 7

  SECTION
  2.4      Events of Default;
  Waiver......................................................................................
  7

  SECTION
  2.5      Events of Default;
  Notice.......................................................................................
  8

  ARTICLE III

  

  THE GUARANTEE TRUSTEE

  SECTION
  3.1      The Guarantee Trustee;
  Eligibility...........................................................................
  8

  SECTION
  3.2      Appointment, Removal and Resignation of the
  Guarantee Trustee........................... 9

  ARTICLE IV

  

  GUARANTEE

  SECTION
  4.1     
  Guarantee.............................................................................................................
  9

  SECTION
  4.2      Waiver of Notice and
  Demand............................................................................
  10

  SECTION
  4.3      Obligations Not
  Affected.....................................................................................
  10

  SECTION
  4.4      Rights of
  Holders................................................................................................
  11

  SECTION
  4.5      Guarantee of
  Payment.........................................................................................
  11

  SECTION
  4.6     
  Subrogation........................................................................................................
  11

  SECTION
  4.7      Independent
  Obligations......................................................................................
  12

  SECTION
  4.8     
  Enforcement........................................................................................................
  12

  ARTICLE V

  

  LIMITATION OF TRANSACTIONS; SUBORDINATION

  SECTION
  5.1      Limitation of
  Transactions....................................................................................
  12

  SECTION
  5.2     
  Ranking..............................................................................................................
  13

  i

  

  ARTICLE VI

  

  TERMINATION

  SECTION 6.1     
  Termination.........................................................................................................
  13

  ARTICLE VII

  

  INDEMNIFICATION

  SECTION
  7.1     
  Exculpation.........................................................................................................
  13

  SECTION
  7.2     
  Indemnification....................................................................................................
  14

  SECTION
  7.3      Compensation; Reimbursement of
  Expenses........................................................ 15

  ARTICLE VIII

  

  MISCELLANEOUS

  SECTION
  8.1      Successors and
  Assigns.......................................................................................
  15

  SECTION
  8.2     
  Amendments.......................................................................................................
  16

  SECTION
  8.3     
  Notices...............................................................................................................
  16

  SECTION
  8.4     
  Benefit................................................................................................................
  16

  SECTION
  8.5      Governing
  Law...................................................................................................
  16

  SECTION
  8.6     
  Counterparts.......................................................................................................
  17

  ii

  

 

  GUARANTEE AGREEMENT

          This
  GUARANTEE AGREEMENT (the "Guarantee"), dated as of September 16,
  2005, is executed and delivered by PFF Bancorp, Inc., a savings and loan
  holding company incorporated in the State of Delaware (the
  "Guarantor"), and Wilmington Trust Company, a Delaware banking
  corporation, as trustee (the "Guarantee Trustee"), for the benefit
  of the Holders (as defined herein) from time to time of the Capital Securities
  (as defined herein) of PFF Bancorp Capital Trust II, a Delaware statutory
  trust (the "Issuer"). 

          WHEREAS, pursuant to an Amended
  and Restated Declaration of Trust (the "Declaration"), dated as of
  September 16, 2005, among the trustees named therein of the Issuer, PFF
  Bancorp, Inc., as sponsor, and the Holders from time to time of undivided
  beneficial interests in the assets of the Issuer, the Issuer is issuing on the
  date hereof securities, having an aggregate liquidation amount of $25,000,000,
  designated in the Declaration as MMCapSSM (the "Capital
  Securities"); and

          WHEREAS, as incentive for the
  Holders to purchase the Capital Securities, the Guarantor desires irrevocably
  and unconditionally to agree, to the extent set forth in this Guarantee, to
  pay to the Holders of Capital Securities the Guarantee Payments (as defined
  herein) and to make certain other payments on the terms and conditions set
  forth herein.

          NOW, THEREFORE, in consideration
  of the purchase by each Holder of the Capital Securities, which purchase the
  Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes
  and delivers this Guarantee for the benefit of the Holders.

  

  ARTICLE I

  DEFINITIONS AND INTERPRETATION

  

         SECTION 1.1 Definitions
  and Interpretation.

          In this Guarantee, unless the
  context otherwise requires:

         
  (a)    capitalized terms used in this Guarantee but not defined
  in the preamble above have the respective meanings assigned to them in this
  Section 1.1;

         
  (b)    a term defined anywhere in this Guarantee has the same
  meaning throughout;

         
  (c)    all references to "the Guarantee" or
  "this Guarantee" are to this Guarantee as modified, supplemented or
  amended from time to time;

         
  (d)    all references in this Guarantee to Articles and
  Sections are to Articles and Sections of this Guarantee, unless otherwise
  specified;

         
  (e)    terms defined in the Declaration as of the date of
  execution of this Guarantee have the same meanings when used in this
  Guarantee, unless otherwise defined in this Guarantee or unless the context
  otherwise requires; and

  1

  

         
  (f)    a reference to the singular includes the plural and vice
  versa.

          "Beneficiaries" means
  any Person to whom the Issuer is or hereafter becomes indebted or liable.

          "Common Securities"
  has the meaning specified in the Declaration.

          "Corporate Trust
  Office"  means the office of the Guarantee Trustee at which at any
  particular time its corporate trust business shall be principally
  administered, which at all times shall be located within the United States and
  at the time of the execution of this Guarantee shall be Rodney Square North,
  1100 North Market Street, Wilmington, DE 19890-0001.

          "Covered Person" means
  any Holder of Capital Securities.

          "Debenture Issuer"
  means PFF Bancorp, Inc. or any successor entity resulting from any
  consolidation, amalgamation, merger or other business combination, in its
  capacity as issuer of the Debentures.

          "Debentures" means the
  junior subordinated debentures of the Debenture Issuer that are designated in
  the Indenture as the "Floating Rate Junior Subordinated Debt Securities
  due 2035" and held by the Institutional Trustee (as defined in the
  Declaration) of the Issuer.

          "Event of Default" has
  the meaning set forth in Section 2.4.

          "Guarantee Payments"
  means the following payments or distributions, without duplication, with
  respect to the Capital Securities, to the extent not paid or made by the
  Issuer: (i) any accrued and unpaid Distributions (as defined in the
  Declaration) which are required to be paid on such Capital Securities to the
  extent the Issuer has funds available in the Property Account (as defined in
  the Declaration) therefor at such time, (ii) the price payable upon the
  redemption of any Capital Securities to the extent the Issuer has funds
  available in the Property Account therefor at such time, with respect to any
  Capital Securities that are (1) called for redemption by the Issuer or (2)
  mandatorily redeemed by the Issuer, in each case, in accordance with the terms
  of such Capital Securities, and (iii) upon a voluntary or involuntary
  liquidation, dissolution, winding-up or termination of the Issuer (other than
  in connection with the distribution of Debentures to the Holders of the
  Capital Securities in exchange therefor as provided in the Declaration), the
  lesser of (a) the aggregate of the liquidation amount of the Capital
  Securities and all accrued and unpaid Distributions on the Capital Securities
  to the date of payment, to the extent the Issuer has funds available in the
  Property Account therefor at such time, and (b) the amount of assets of the
  Issuer remaining available for distribution to Holders in liquidation of the
  Issuer after satisfaction of liabilities to creditors of the Issuer as
  required by applicable law (in either case, the "Liquidation
  Distribution").

          "Guarantee Trustee"
  means Wilmington Trust Company, until a Successor Guarantee Trustee has been
  appointed and has accepted such appointment pursuant to the terms of this
  Guarantee and thereafter means each such Successor Guarantee Trustee.

          "Holder" means any
  Person in whose name any Capital Securities are registered on the books and
  records of the Issuer; provided, however, that, in determining
  whether the holders of the requisite percentage  

  2

  

  of Capital Securities have given any request, notice, consent or waiver
  hereunder, "Holder" shall not include the Guarantor or any Affiliate
  of the Guarantor.

          "Indemnified Person"
  means the Guarantee Trustee (including in its individual capacity), any
  Affiliate of the Guarantee Trustee, or any officers, directors, shareholders,
  members, partners, employees, representatives, nominees, custodians or agents
  of the Guarantee Trustee.

          "Indenture" means the
  Indenture, dated as of September 16, 2005, between the Debenture Issuer and
  Wilmington Trust Company, not in its individual capacity but solely as
  trustee, and any indenture supplemental thereto pursuant to which the
  Debentures are to be issued to the Institutional Trustee of the Issuer.

          "Liquidation
  Distribution" has the meaning set forth in the definition of
  "Guarantee Payments" herein.

          "Majority in liquidation
  amount of the Capital Securities" means Holder(s) of outstanding Capital
  Securities, voting together as a class, but separately from the holders of
  Common Securities, of more than 50% of the aggregate liquidation amount
  (including the amount that would be paid upon the redemption, liquidation or
  otherwise on the date upon which the voting percentages are determined, plus
  unpaid Distributions accrued thereon to such date) of all Capital Securities
  then outstanding.

          "Obligations" means
  any costs, expenses or liabilities (but not including liabilities related to
  taxes) of the Issuer, other than obligations of the Issuer to pay to holders
  of any Trust Securities the amounts due such holders pursuant to the terms of
  the Trust Securities.

          "Officer's
  Certificate" means, with respect to any Person, a certificate signed by
  one Authorized Officer of such Person.  Any Officer's Certificate
  delivered with respect to compliance with a condition or covenant provided for
  in this Guarantee shall include:

         
  (a)        a statement that such officer
  signing the Officer's Certificate has read the covenant or condition and the
  definitions relating thereto;

         
  (b)        a brief statement of the nature
  and scope of the examination or investigation undertaken by such officer in
  rendering the Officer's Certificate;

         
  (c)        a statement that such officer
  has made such examination or investigation as, in such officer's opinion, is
  necessary to enable such officer to express an informed opinion as to whether
  or not such covenant or condition has been complied with; and

         
  (d)        a statement as to whether, in
  the opinion of such officer, such condition or covenant has been complied
  with.

          "Person" means a legal
  person, including any individual, corporation, estate, partnership, joint
  venture, association, joint stock company, limited liability company, trust,

  3

  

  unincorporated association, or government or any agency or political
  subdivision thereof, or any other entity of whatever nature.

          "Responsible Officer"
  means, with respect to the Guarantee Trustee, any officer within the Corporate
  Trust Office of the Guarantee Trustee with direct responsibility for the
  administration of any matters relating to this Guarantee, including any vice
  president, any assistant vice president, any secretary, any assistant
  secretary, the treasurer, any assistant treasurer, any trust officer or other
  officer of the Corporate Trust Office of the Guarantee Trustee customarily
  performing functions similar to those performed by any of the above designated
  officers and also means, with respect to a particular corporate trust matter,
  any other officer to whom such matter is referred because of that officer's
  knowledge of and familiarity with the particular subject.

          "Successor Guarantee
  Trustee" means a successor Guarantee Trustee possessing the
  qualifications to act as Guarantee Trustee under Section 3.1.

          "Trust Securities"
  means the Common Securities and the Capital Securities.

  ARTICLE II

  

  POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTE

         
  SECTION 2.1  Powers and
  Duties of the Guarantee Trustee.

         
  (a)    This Guarantee shall be held by the Guarantee Trustee
  for the benefit of the Holders of the Capital Securities, and the Guarantee
  Trustee shall not transfer this Guarantee to any Person except a Holder of
  Capital Securities exercising his or her rights pursuant to Section 4.4 (b) or
  to a Successor Guarantee Trustee on acceptance by such Successor Guarantee
  Trustee of its appointment to act as Successor Guarantee Trustee.  The
  right, title and interest of the Guarantee Trustee shall automatically vest in
  any Successor Guarantee Trustee, and such vesting and cessation of title shall
  be effective whether or not conveyancing documents have been executed and
  delivered pursuant to the appointment of such Successor Guarantee Trustee.

         
  (b)    If an Event of Default actually known to a Responsible
  Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee
  Trustee shall enforce this Guarantee for the benefit of the Holders of the
  Capital Securities.

         
  (c)        The Guarantee Trustee, before
  the occurrence of any Event of Default and after the curing or waiving of all
  Events of Default that may have occurred, shall undertake to perform only such
  duties as are specifically set forth in this Guarantee, and no implied
  covenants shall be read into this Guarantee against the Guarantee
  Trustee.  In case an Event of Default has occurred (that has not been
  cured or waived pursuant to Section 2.4(b)) and is actually known to a
  Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall
  exercise such of the rights and powers vested in it by this Guarantee, and use
  the same degree of care and skill in its exercise thereof, as a prudent person
  would exercise or use under the circumstances in the conduct of his or her own
  affairs.

  4

  

         
  (d)    No provision of this Guarantee shall be construed to
  relieve the Guarantee Trustee from liability for its own negligent action, its
  own negligent failure to act, or its own willful misconduct or bad faith,
  except that:

                 
  (i)    prior to the occurrence of any Event of Default and
  after the curing or waiving of all Events of Default that may have occurred:

                         
  (A)    the duties and obligations of the Guarantee Trustee
  shall be determined solely by the express provisions of this Guarantee, and
  the Guarantee Trustee shall not be liable except for the performance of such
  duties and obligations as are specifically set forth in this Guarantee, and no
  implied covenants or obligations shall be read into this Guarantee against the
  Guarantee Trustee; and

                         
  (B)    in the absence of bad faith on the part of the Guarantee
  Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the
  statements and the correctness of the opinions expressed therein, upon any
  certificates or opinions furnished to the Guarantee Trustee and conforming to
  the requirements of this Guarantee; but in the case of any such certificates
  or opinions furnished to the Guarantee Trustee, the Guarantee Trustee shall be
  under a duty to examine the same to determine whether or not on their face
  they conform to the requirements of this Guarantee;

             
  (ii)    the Guarantee Trustee shall not be liable for any error
  of judgment made in good faith by a Responsible Officer of the Guarantee
  Trustee, unless it shall be proved that such Responsible Officer of the
  Guarantee Trustee or the Guarantee Trustee was negligent in ascertaining the
  pertinent facts upon which such judgment was made;

             
  (iii)    the Guarantee Trustee shall not be liable with respect
  to any action taken or omitted to be taken by it in good faith in accordance
  with the written direction of the Holders of a Majority in liquidation amount
  of the Capital Securities relating to the time, method and place of conducting
  any proceeding for any remedy available to the Guarantee Trustee, or
  exercising any trust or power conferred upon the Guarantee Trustee under this
  Guarantee; and

             
  (iv)    no provision of this Guarantee shall require the
  Guarantee Trustee to expend or risk its own funds or otherwise incur personal
  financial liability in the performance of any of its duties or in the exercise
  of any of its rights or powers, if the Guarantee Trustee shall have reasonable
  grounds for believing that the repayment of such funds is not reasonably
  assured to it under the terms of this Guarantee, or security and indemnity,
  reasonably satisfactory to the Guarantee Trustee, against such risk or
  liability is not reasonably assured to it.

         SECTION 2.2  Certain
  Rights of the Guarantee Trustee.

         
  (a)    Subject to the provisions of Section 2.1:

  5

  

             
  (i)    The Guarantee Trustee may conclusively rely, and shall
  be fully protected in acting or refraining from acting upon, any resolution,
  certificate, statement, instrument, opinion, report, notice, request,
  direction, consent, order, bond, debenture, note, other evidence of
  indebtedness or other paper or document believed by it to be genuine and to
  have been signed, sent or presented by the proper party or parties.

             
  (ii)    Any direction or act of the Guarantor contemplated by
  this Guarantee shall be sufficiently evidenced by an Officer's Certificate.

             
  (iii)    Whenever, in the administration of this Guarantee, the
  Guarantee Trustee shall deem it desirable that a matter be proved or
  established before taking, suffering or omitting any action hereunder, the
  Guarantee Trustee (unless other evidence is herein specifically prescribed)
  may, in the absence of bad faith on its part, request and conclusively rely
  upon an Officer's Certificate of the Guarantor which, upon receipt of such
  request, shall be promptly delivered by the Guarantor.

             
  (iv)    The Guarantee Trustee shall have no duty to see to any
  recording, filing or registration of any instrument or other writing (or any
  rerecording, refiling or reregistration thereof).

             
  (v)    The Guarantee Trustee may consult with counsel of its
  selection, and the advice or opinion of such counsel with respect to legal
  matters shall be full and complete authorization and protection in respect of
  any action taken, suffered or omitted by it hereunder in good faith and in
  accordance with such advice or opinion.  Such counsel may be counsel to
  the Guarantor or any of its Affiliates and may include any of its
  employees.  The Guarantee Trustee shall have the right at any time to
  seek instructions concerning the administration of this Guarantee from any
  court of competent jurisdiction.

             
  (vi)    The Guarantee Trustee shall be under no obligation to
  exercise any of the rights or powers vested in it by this Guarantee at the
  request or direction of any Holder, unless such Holder shall have provided to
  the Guarantee Trustee such security and indemnity, reasonably satisfactory to
  the Guarantee Trustee, against the costs, expenses (including attorneys' fees
  and expenses and the expenses of the Guarantee Trustee's agents, nominees or
  custodians) and liabilities that might be incurred by it in complying with
  such request or direction, including such reasonable advances as may be
  requested by the Guarantee Trustee; provided, however, that nothing contained
  in this Section 2.2(a)(vi) shall be taken to relieve the Guarantee Trustee,
  upon the occurrence of an Event of Default, of its obligation to exercise the
  rights and powers vested in it by this Guarantee.

             
  (viii)    The Guarantee Trustee shall not be bound to make any
  investigation into the facts or matters stated in any resolution, certificate,
  statement, instrument, opinion, report, notice, request, direction, consent,
  order, bond, debenture, note, other evidence of indebtedness or other paper or
  document, but the Guarantee Trustee, in its discretion, may make such further
  inquiry or investigation into such facts or matters as it may see fit.

  6

  

             
  (viii)    The Guarantee Trustee may execute any of the trusts
  or powers hereunder or perform any duties hereunder either directly or by or
  through agents, nominees, custodians or attorneys, and the Guarantee Trustee
  shall not be responsible for any misconduct or negligence on the part of any
  agent or attorney appointed with due care by it hereunder.

             
  (ix)    Any action taken by the Guarantee Trustee or its agents
  hereunder shall bind the Holders of the Capital Securities, and the signature
  of the Guarantee Trustee or its agents alone shall be sufficient and effective
  to perform any such action.  No third party shall be required to inquire
  as to the authority of the Guarantee Trustee to so act or as to its compliance
  with any of the terms and provisions of this Guarantee, both of which shall be
  conclusively evidenced by the Guarantee Trustee's or its agent's taking such
  action.

             
  (x)    Whenever in the administration of this Guarantee the
  Guarantee Trustee shall deem it desirable to receive instructions with respect
  to enforcing any remedy or right or taking any other action hereunder, the
  Guarantee Trustee (A) may request instructions from the Holders of a Majority
  in liquidation amount of the Capital Securities, (B) may refrain from
  enforcing such remedy or right or taking such other action until such
  instructions are received and (C) shall be protected in conclusively relying
  on or acting in accordance with such instructions.

             
  (xi)    The Guarantee Trustee shall not be liable for any
  action taken, suffered, or omitted to be taken by it in good faith and
  reasonably believed by it to be authorized or within the discretion or rights
  or powers conferred upon it by this Guarantee.

          (b)    No
  provision of this Guarantee shall be deemed to impose any duty or obligation
  on the Guarantee Trustee to perform any act or acts or exercise any right,
  power, duty or obligation conferred or imposed on it, in any jurisdiction in
  which it shall be illegal or in which the Guarantee Trustee shall be
  unqualified or incompetent in accordance with applicable law to perform any
  such act or acts or to exercise any such right, power, duty or
  obligation.  No permissive power or authority available to the Guarantee
  Trustee shall be construed to be a duty.

          SECTION 2.3 
  Not Responsible for Recitals
  or Issuance of Guarantee.

          The recitals
  contained in this Guarantee shall be taken as the statements of the Guarantor,
  and the Guarantee Trustee does not assume any responsibility for their
  correctness.  The Guarantee Trustee makes no representation as to the
  validity or sufficiency of this Guarantee.

          SECTION 2.4 
  Events of Default; Waiver.

         
  (a)    An "Event of Default" under this Guarantee
  will occur upon the failure of the Guarantor to perform any of its payment or
  other obligations hereunder.

         
  (b)    The Holders of a Majority in liquidation amount of the
  Capital Securities may, voting or consenting as a class, on behalf of the
  Holders of all of the Capital Securities, waive any past Event of Default and
  its

  7 

  

  consequences.  Upon such waiver, any such Event of
  Default shall cease to exist, and shall be deemed to have been cured, for
  every purpose of this Guarantee, but no such waiver shall extend to any
  subsequent or other default or Event of Default or impair any right consequent
  thereon.

          SECTION 2.5  Events
  of Default; Notice.

         
  (a)    The Guarantee Trustee shall, within 90 days after the
  occurrence of an Event of Default, transmit by mail, first class postage
  prepaid, to the Holders of the Capital Securities, notices of all Events of
  Default actually known to a Responsible Officer of the Guarantee Trustee,
  unless such defaults have been cured before the giving of such notice,
  provided, however, that the Guarantee Trustee shall be protected in
  withholding such notice if and so long as a Responsible Officer of the
  Guarantee Trustee in good faith determines that the withholding of such notice
  is in the interests of the Holders of the Capital Securities.

         
  (b)    The Guarantee Trustee shall not be charged with
  knowledge of any Event of Default unless the Guarantee Trustee shall have
  received written notice thereof from the Guarantor or a Holder of the Capital
  Securities, or a Responsible Officer of the Guarantee Trustee charged with the
  administration of this Guarantee shall have actual knowledge thereof.

  ARTICLE III

  

  THE GUARANTEE TRUSTEE

          SECTION
  3.1 The Guarantee Trustee;
  Eligibility.

         
  (a)    There shall at all times be a Guarantee Trustee which
  shall:

                 
  (i)    not be an Affiliate of the Guarantor; and

                 
  (ii)    be a corporation or national association organized and
  doing business under the laws of the United States of America or any state
  thereof or of the District of Columbia, or Person authorized under such laws
  to exercise corporate trust powers, having a combined capital and surplus of
  at least 50 million U.S. dollars ($50,000,000), and subject to supervision or
  examination by federal, state or District of Columbia authority.  If such
  corporation or national association publishes reports of condition at least
  annually, pursuant to law or to the requirements of the supervising or
  examining authority referred to above, then, for the purposes of this Section
  3.1(a)(ii), the combined capital and surplus of such corporation or national
  association shall be deemed to be its combined capital and surplus as set
  forth in its most recent report of condition so published.

         
  (b)    If at any time the Guarantee Trustee shall cease to be
  eligible to so act under Section 3.1(a), the Guarantee Trustee shall
  immediately resign in the manner and with the effect set forth in Section
  3.2(c).

         
  (c)    If the Guarantee Trustee has or shall acquire any
  "conflicting interest" within the meaning of Section 310(b) of the
  Trust Indenture Act, the Guarantee Trustee shall either eliminate such
  interest or resign to the extent and in the manner provided by, and subject
  to, this Guarantee.

  8

  

          SECTION 3.2  Appointment,
  Removal and Resignation of the Guarantee Trustee.

         
  (a)    Subject to Section 3.2(b), the Guarantee Trustee may be
  appointed or removed without cause at any time by the Guarantor except during
  an Event of Default.

         
  (b)    The Guarantee Trustee shall not be removed in accordance
  with Section 3.2(a) until a Successor Guarantee Trustee has been appointed and
  has accepted such appointment by written instrument executed by such Successor
  Guarantee Trustee and delivered to the Guarantor.

         
  (c)    The Guarantee Trustee appointed to office shall hold
  office until a Successor Guarantee Trustee shall have been appointed or until
  its removal or resignation.  The Guarantee Trustee may resign from office
  (without need for prior or subsequent accounting) by an instrument in writing
  executed by the Guarantee Trustee and delivered to the Guarantor, which
  resignation shall not take effect until a Successor Guarantee Trustee has been
  appointed and has accepted such appointment by an instrument in writing
  executed by such Successor Guarantee Trustee and delivered to the Guarantor
  and the resigning Guarantee Trustee.

         
  (d)    If no Successor Guarantee Trustee shall have been
  appointed and accepted appointment as provided in this Section 3.2 within 60
  days after delivery of an instrument of removal or resignation, the Guarantee
  Trustee resigning or being removed may petition any court of competent
  jurisdiction for appointment of a Successor Guarantee Trustee.  Such
  court may thereupon, after prescribing such notice, if any, as it may deem
  proper, appoint a Successor Guarantee Trustee.

         
  (e)    No Guarantee Trustee shall be liable for the acts or
  omissions to act of any Successor Guarantee Trustee.

         
  (f)    Upon termination of this Guarantee or removal or
  resignation of the Guarantee Trustee pursuant to this Section 3.2, the
  Guarantor shall pay to the Guarantee Trustee all amounts owing to the
  Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such
  termination, removal or resignation.

  ARTICLE IV

  

  GUARANTEE

          SECTION 4.1 
  Guarantee.

         
  (a)    The Guarantor irrevocably and unconditionally agrees to
  pay in full to the Holders the Guarantee Payments (without duplication of
  amounts theretofore paid by the Issuer), as and when due, regardless of any
  defense (except defense of payment by the Issuer), right of set-off or
  counterclaim that the Issuer may have or assert.  The Guarantor's
  obligation to make a Guarantee Payment may be satisfied by direct payment of
  the required amounts by the Guarantor to the Holders or by causing the Issuer
  to pay such amounts to the Holders.

  9

  

         
  (b)    The Guarantor hereby also agrees to assume any and all
  Obligations of the Issuer and in the event any such Obligation is not so
  assumed, subject to the terms and conditions hereof, the Guarantor hereby
  irrevocably and unconditionally guarantees to each Beneficiary the full
  payment, when and as due, of any and all Obligations to such
  Beneficiaries.  This Guarantee is intended to be for the Beneficiaries
  who have received notice hereof.

          SECTION 4.2 
  Waiver of Notice and Demand.

          The Guarantor
  hereby waives notice of acceptance of this Guarantee and of any liability to
  which it applies or may apply, presentment, demand for payment, any right to
  require a proceeding first against the Issuer or any other Person before
  proceeding against the Guarantor, protest, notice of nonpayment, notice of
  dishonor, notice of redemption and all other notices and demands.

          SECTION 4.3 
  Obligations Not Affected.

          The obligations,
  covenants, agreements and duties of the Guarantor under this Guarantee shall
  in no way be affected or impaired by reason of the happening from time to time
  of any of the following:

         
  (a)    the release or waiver, by operation of law or otherwise,
  of the performance or observance by the Issuer of any express or implied
  agreement, covenant, term or condition relating to the Capital Securities to
  be performed or observed by the Issuer;

         
  (b)    the extension of time for the payment by the Issuer of
  all or any portion of the Distributions, the price payable upon the redemption
  of the Capital Securities, the Liquidation Distribution or any other sums
  payable under the terms of the Capital Securities or the extension of time for
  the performance of any other obligation under, arising out of, or in
  connection with, the Capital Securities (other than an extension of time for
  the payment of the Distributions, the price payable upon the redemption of the
  Capital Securities, the Liquidation Distribution or other sums payable that
  results from the extension of any interest payment period on the Debentures);

         
  (c)    any failure, omission, delay or lack of diligence on the
  part of the Holders to enforce, assert or exercise any right, privilege, power
  or remedy conferred on the Holders pursuant to the terms of the Capital
  Securities, or any action on the part of the Issuer granting indulgence or
  extension of any kind;

         
  (d)    the voluntary or involuntary liquidation, dissolution,
  sale of any collateral, receivership, insolvency, bankruptcy, assignment for
  the benefit of creditors, reorganization, arrangement, composition or
  readjustment of debt of, or other similar proceedings affecting, the Issuer or
  any of the assets of the Issuer;

         
  (e)    any invalidity of, or defect or deficiency in, the
  Capital Securities;

         
  (f)    the settlement or compromise of any obligation
  guaranteed hereby or hereby incurred; or

  10

  

         
  (g)    any other circumstance whatsoever that might otherwise
  constitute a legal or equitable discharge or defense of a guarantor, it being
  the intent of this Section 4.3 that the obligations of the Guarantor hereunder
  shall be absolute and unconditional under any and all circumstances.

          There shall be no
  obligation of the Holders to give notice to, or obtain consent of, the
  Guarantor with respect to the happening of any of the foregoing.

          SECTION 4.4 
  Rights of Holders.

         
  (a)    The Holders of a Majority in liquidation amount of the
  Capital Securities have the right to direct the time, method and place of
  conducting any proceeding for any remedy available to the Guarantee Trustee in
  respect of this Guarantee or to direct the exercise of any trust or power
  conferred upon the Guarantee Trustee under this Guarantee; provided, however,
  that (subject to Sections 2.1 and 2.2) the Guarantee Trustee shall have the
  right to decline to follow any such direction if the Guarantee Trustee shall
  determine that the actions so directed would be unjustly prejudicial to the
  Holders not taking part in such direction or if the Guarantee Trustee being
  advised by legal counsel determines that the action or proceeding so directed
  may not lawfully be taken or if the Guarantee Trustee in good faith by its
  board of directors or trustees, executive committee or a trust committee of
  directors or trustees and/or Responsible Officers shall determine that the
  action or proceeding so directed would involve the Guarantee Trustee in
  personal liability.

         
  (b)    Any Holder of Capital Securities may institute a legal
  proceeding directly against the Guarantor to enforce the Guarantee Trustee's
  rights under this Guarantee, without first instituting a legal proceeding
  against the Issuer, the Guarantee Trustee or any other Person.  The
  Guarantor waives any right or remedy to require that any such action be
  brought first against the Issuer, the Guarantee Trustee or any other Person
  before so proceeding directly against the Guarantor.

          SECTION 4.5 
  Guarantee of Payment.

          This Guarantee
  creates a guarantee of payment and not of collection.

          SECTION 4.6  Subrogation.

          The Guarantor
  shall be subrogated to all (if any) rights of the Holders of Capital
  Securities against the Issuer in respect of any amounts paid to such Holders
  by the Guarantor under this Guarantee; provided, however, that the Guarantor
  shall not (except to the extent required by applicable provisions of law) be
  entitled to enforce or exercise any right that it may acquire by way of
  subrogation or any indemnity, reimbursement or other agreement, in all cases
  as a result of payment under this Guarantee, if, after giving effect to any
  such payment, any amounts are due and unpaid under this Guarantee.  If
  any amount shall be paid to the Guarantor in violation of the preceding
  sentence, the Guarantor agrees to hold such amount in trust for the Holders
  and to pay over such amount to the Holders.

  11

  

          SECTION 4.7 
  Independent Obligations.

          The Guarantor
  acknowledges that its obligations hereunder are independent of the obligations
  of the Issuer with respect to the Capital Securities and that the Guarantor
  shall be liable as principal and as debtor hereunder to make Guarantee
  Payments pursuant to the terms of this Guarantee notwithstanding the
  occurrence of any event referred to in subsections (a) through (g), inclusive,
  of Section 4.3 hereof.

          SECTION 4.8  Enforcement.

          A Beneficiary may
  enforce the Obligations of the Guarantor contained in Section 4.1(b) directly
  against the Guarantor, and the Guarantor waives any right or remedy to require
  that any action be brought against the Issuer or any other person or entity
  before proceeding against the Guarantor.

          The Guarantor
  shall be subrogated to all rights (if any) of any Beneficiary against the
  Issuer in respect of any amounts paid to the Beneficiaries by the Guarantor
  under this Guarantee; provided, however, that the Guarantor shall not (except
  to the extent required by applicable provisions of law) be entitled to enforce
  or exercise any rights that it may acquire by way of subrogation or any
  indemnity, reimbursement or other agreement, in all cases as a result of
  payment under this Guarantee, if, after giving effect to such payment, any
  amounts are due and unpaid under this Guarantee.  If any amount shall be
  paid to the Guarantor in violation of the preceding sentence, the Guarantor
  agrees to hold such amount in trust for the Beneficiaries and to pay over such
  amount to the Beneficiaries.

  ARTICLE V

  

  LIMITATION OF TRANSACTIONS; SUBORDINATION

          SECTION 5.1 
  Limitation of Transactions.

          So long as any
  Capital Securities remain outstanding, if (a) there shall have occurred and be
  continuing an Event of Default or (b) Debenture Issuer shall have selected an
  Extension Period as provided in the Indenture and such period, or any
  extension thereof, shall have commenced and be continuing, then the Guarantor
  may not (x) declare or pay any dividends or distributions on, or redeem,
  purchase, acquire, or make a liquidation payment with respect to, any of the
  Guarantor's capital stock, (y) make any payment of principal of or interest or
  premium, if any, on or repay, repurchase or redeem any debt securities of the
  Guarantor that rank in all respects pari passu with or junior in
  interest to the Debentures or (z) make any payment under any guarantees of the
  Guarantor that rank in all respects pari passu with or junior in
  interest to this Guarantee (other than (i) repurchases, redemptions or other
  acquisitions of shares of capital stock of the Guarantor (A) in connection
  with any employment contract, benefit plan or other similar arrangement with
  or for the benefit of one or more employees, officers, directors, or
  consultants, (B) in connection with a dividend reinvestment or stockholder
  stock purchase plan or (C) in connection with the issuance of capital stock of
  the Guarantor (or securities convertible into or exercisable for such capital
  stock), as consideration in an acquisition transaction entered into prior to
  the occurrence of the Event of Default or the

  12

  

  applicable Extension Period, (ii) as a result of any
  exchange or conversion of any class or series of the Guarantor's capital stock
  (or any capital stock of a subsidiary of the Guarantor) for any class or
  series of the Guarantor's capital stock or of any class or series of the
  Guarantor's indebtedness for any class or series of the Guarantor's capital
  stock, (iii) the purchase of fractional interests in shares of the Guarantor's
  capital stock pursuant to the conversion or exchange provisions of such
  capital stock or the security being converted or exchanged, (iv) any
  declaration of a dividend in connection with any stockholder's rights plan, or
  the issuance of rights, stock or other property under any stockholder's rights
  plan, or the redemption or repurchase of rights pursuant thereto, or (v) any
  dividend in the form of stock, warrants, options or other rights where the
  dividend stock or the stock issuable upon exercise of such warrants, options
  or other rights is the same stock as that on which the dividend is being paid
  or ranks pari passu with or junior in interest to such stock).

          SECTION 5.2 
  Ranking.

          This Guarantee
  will constitute an unsecured obligation of the Guarantor and will rank
  subordinate and junior in right of payment to all present and future Senior
  Indebtedness (as defined in the Indenture) of the Guarantor.  By their
  acceptance thereof, each Holder of Capital Securities agrees to the foregoing
  provisions of this Guarantee and the other terms set forth herein.

  ARTICLE VI

  

  TERMINATION

          SECTION 6.1 
  Termination.

          This Guarantee
  shall terminate as to the Capital Securities (i) upon full payment of the
  price payable upon redemption of all Capital Securities then outstanding, (ii)
  upon the distribution of all of the Debentures to the Holders of all of the
  Capital Securities or (iii) upon full payment of the amounts payable in
  accordance with the Declaration upon dissolution of the Issuer.  This
  Guarantee will continue to be effective or will be reinstated, as the case may
  be, if at any time any Holder of Capital Securities must restore payment of
  any sums paid under the Capital Securities or under this Guarantee.

  ARTICLE VII

  

  INDEMNIFICATION

          SECTION 7.1 
  Exculpation.

         
  (a)    No Indemnified Person shall be liable, responsible or
  accountable in damages or otherwise to the Guarantor or any Covered Person for
  any loss, damage or claim incurred by reason of any act or omission of such
  Indemnified Person in good faith in accordance with this Guarantee and in a
  manner that such Indemnified Person reasonably believed to be within the scope
  of the authority conferred on such Indemnified Person by this Guarantee or by
  law, except that an Indemnified Person shall be liable for any such loss,

  13

  

  damage or claim incurred by reason of such Indemnified
  Person's negligence, willful misconduct or bad faith with respect to such acts
  or omissions.

         
  (b)    An Indemnified Person shall be fully protected in
  relying in good faith upon the records of the Issuer or the Guarantor and upon
  such information, opinions, reports or statements presented to the Issuer or
  the Guarantor by any Person as to matters the Indemnified Person reasonably
  believes are within such other Person's professional or expert competence and
  who, if selected by such Indemnified Person, has been selected with reasonable
  care by such Indemnified Person, including information, opinions, reports or
  statements as to the value and amount of the assets, liabilities, profits,
  losses, or any other facts pertinent to the existence and amount of assets
  from which Distributions to Holders of Capital Securities might properly be
  paid.

          SECTION
  7.2    Indemnification.

         
  (a)    The Guarantor agrees to indemnify each Indemnified
  Person for, and to hold each Indemnified Person harmless against, any and all
  loss, liability, damage, claim or expense incurred without negligence, willful
  misconduct or bad faith on the part of the Indemnified Person, arising out of
  or in connection with the acceptance or administration of the trust or trusts
  hereunder, including but not limited to the costs and expenses (including
  reasonable legal fees and expenses) of the Indemnified Person defending itself
  against, or investigating, any claim or liability in connection with the
  exercise or performance of any of the Indemnified Person's powers or duties
  hereunder.  The obligation to indemnify as set forth in this Section 7.2
  shall survive the resignation or removal of the Guarantee Trustee and the
  termination of this Guarantee.

         
  (b)    Promptly after receipt by an Indemnified Person under
  this Section 7.2 of notice of the commencement of any action, such Indemnified
  Person will, if a claim in respect thereof is to be made against the Guarantor
  under this Section 7.2, notify the Guarantor in writing of the commencement
  thereof; but the failure so to notify the Guarantor (i) will not relieve the
  Guarantor from liability under paragraph (a) above unless and to the extent
  that the Guarantor did not otherwise learn of such action and such failure
  results in the forfeiture by the Guarantor of substantial rights and defenses
  and (ii) will not, in any event, relieve the Guarantor from any obligations to
  any Indemnified Person other than the indemnification obligation provided in
  paragraph (a) above.  The Guarantor shall be entitled to appoint counsel
  of the Guarantor's choice at the Guarantor's expense to represent the
  Indemnified Person in any action for which indemnification is sought (in which
  case the Guarantor shall not thereafter be responsible for the fees and
  expenses of any separate counsel retained by the Indemnified Person or Persons
  except as set forth below); provided, however, that such counsel shall be
  satisfactory to the Indemnified Person.  Notwithstanding the Guarantor's
  election to appoint counsel to represent the Indemnified Person in any action,
  the Indemnified Person shall have the right to employ separate counsel
  (including local counsel), and the Guarantor shall bear the reasonable fees,
  costs and expenses of such separate counsel, if (i) the use of counsel chosen
  by the Guarantor to represent the Indemnified Person would present such
  counsel with a conflict of interest, (ii) the actual or potential defendants
  in, or targets of, any such action include both the Indemnified Person and the
  Guarantor and the Indemnified Person shall have reasonably concluded that
  there may be legal defenses available to it and/or

  14

  

  other Indemnified Persons which are different from or
  additional to those available to the Guarantor, (iii) the Guarantor shall not
  have employed counsel satisfactory to the Indemnified Person to represent the
  Indemnified Person within a reasonable time after notice of the institution of
  such action or (iv) the Guarantor shall authorize the Indemnified Person to
  employ separate counsel at the expense of the Guarantor.  The Guarantor
  will not, without the prior written consent of the Indemnified Persons, settle
  or compromise or consent to the entry of any judgment with respect to any
  pending or threatened claim, action, suit or proceeding in respect of which
  indemnification or contribution may be sought hereunder (whether or not the
  Indemnified Persons are actual or potential parties to such claim or action)
  unless such settlement, compromise or consent includes an unconditional
  release of each Indemnified Person from all liability arising out of such
  claim, action, suit or proceeding.

          SECTION 7.3 
  Compensation; Reimbursement of
  Expenses.

          The Guarantor
  agrees:

         
  (a)    to pay to the Guarantee Trustee from time to time such
  compensation for all services rendered by it hereunder as the parties shall
  agree to from time to time (which compensation shall not be limited by any
  provision of law in regard to the compensation of a trustee of an express
  trust); and

         
  (b)    except as otherwise expressly provided herein, to
  reimburse the Guarantee Trustee upon request for all reasonable expenses,
  disbursements and advances incurred or made by it in accordance with any
  provision of this Guarantee (including the reasonable compensation and the
  expenses and disbursements of its agents and counsel), except any such
  expense, disbursement or advance as may be attributable to the negligence,
  willful misconduct or bad faith of the Guarantee Trustee.

  The provisions of this Section 7.3 shall survive the
  resignation or removal of the Guarantee Trustee and the termination of this
  Guarantee.

  ARTICLE VIII

  

  MISCELLANEOUS

          SECTION 8.1 
  Successors and Assigns.

          All guarantees
  and agreements contained in this Guarantee shall bind the successors, assigns,
  receivers, trustees and representatives of the Guarantor and shall inure to
  the benefit of the Holders of the Capital Securities then outstanding. 
  Except in connection with any merger or consolidation of the Guarantor with or
  into another entity or any sale, transfer or lease of the Guarantor's assets
  to another entity, in each case to the extent permitted under the Indenture,
  the Guarantor may not assign its rights or delegate its obligations under this
  Guarantee without the prior approval of the Holders of a Majority in
  liquidation amount of the Capital Securities.

  15

  

          SECTION 8.2  Amendments.

          Except with
  respect to any changes that do not adversely affect the powers, preferences,
  rights or interests of Holders of the Capital Securities in any material
  respect (in which case no approval of Holders will be required), this
  Guarantee may be amended only with the prior approval of the Holders of a
  Majority in liquidation amount of the Capital Securities.  The provisions
  of the Declaration with respect to amendments thereof shall apply equally with
  respect to amendments of the Guarantee.

          SECTION 8.3 
  Notices.

          All notices
  provided for in this Guarantee shall be in writing, duly signed by the party
  giving such notice, and shall be delivered, telecopied or mailed by first
  class mail, as follows:

         
  (a)    if given to the Guarantee Trustee, at the Guarantee
  Trustee's mailing address set forth below (or such other address as the
  Guarantee Trustee may give notice of to the Holders of the Capital
  Securities): Wilmington Trust Company, Rodney Square North, 1100 North Market
  Street, Wilmington, Delaware 19890-0001, Attention: Corporate Capital Markets,
  Telecopy: 302-636-4140, Telephone:  302-651-1000;

         
  (b)    if given to the Guarantor, at the Guarantor's mailing
  address set forth below (or such other address as the Guarantor may give
  notice of to the Holders of the Capital Securities and to the Guarantee
  Trustee): PFF Bancorp, Inc., 350 South Garey Avenue, Pomona, California 91766,
  Attention: Gregory C. Talbott, Telecopy: 909 620-0296, Telephone: 909
  623-2323; or

         
  (c)    if given to any Holder of the Capital Securities, at the
  address set forth on the books and records of the Issuer.

          All such notices
  shall be deemed to have been given when received in person, telecopied with
  receipt confirmed, or mailed by first class mail, postage prepaid, except that
  if a notice or other document is refused delivery or cannot be delivered
  because of a changed address of which no notice was given, such notice or
  other document shall be deemed to have been delivered on the date of such
  refusal or inability to deliver.

          SECTION 8.4  Benefit.

          This Guarantee is
  solely for the benefit of the Holders of the Capital Securities and, subject
  to Section 2.1(a), is not separately transferable from the Capital Securities.

          SECTION 8.5  Governing
  Law.

  THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN
  ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT
  OF LAW PRINCIPLES OF SAID STATE OTHER THAN SECTION 5-1401 OF THE NEW YORK
  GENERAL OBLIGATIONS LAW.

  16

  

          SECTION 8.6  Counterparts.

          This Guarantee
  may contain more than one counterpart of the signature page and this Guarantee
  may be executed by the affixing of the signature of the Guarantor and the
  Guarantee Trustee to any of such counterpart signature pages.  All of
  such counterpart signature pages shall be read as though one, and they shall
  have the same force and effect as though all of the signers had signed a
  single signature page.

   
  
17

  

          THIS GUARANTEE is executed as of
  the day and year first above written.

                                                             
  PFF Bancorp, Inc.,

                                                             
  as Guarantor

                                                             
  By: /s/ Gregory C. Talbott     

                                                                 
  Name:  Gregory C. Talbott

                                                                 
  Title:  Executive Vice President,

                                                                          
  Chief Financial Officer and Treasurer

   

                                                             
  WILMINGTON TRUST COMPANY,

                                                             
  as Guarantee Trustee

                                                             
  By: /s/ Geoffrey J. Lewis     

                                                                 
  Name: Geoffrey J. Lewis

                                                                 
  Title:  Financial Services Officer

   

   

  18Fellows 8k Exhibit 4.1

    

      Exhibit
        4.1

      

       

      SECURITIES
        PURCHASE AGREEMENT

      

      This
        Securities Purchase Agreement (this “Agreement”)
        is
        dated as of September 21, 2005 among Fellows Energy Ltd., a Nevada corporation
        (the “Company”),
        and
        each purchaser identified on the signature pages hereto (each, including
        its
        successors and assigns, a “Purchaser”
        and
        collectively the “Purchasers”).

      

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

      

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

      

      ARTICLE
        I.

      DEFINITIONS

      

      1.1 Definitions.
        In
        addition to the terms defined elsewhere in this Agreement: (a) capitalized
        terms
        that are not otherwise defined herein have the meanings given to such terms
        in
        the Debentures (as defined herein), and (b) the following terms have the
        meanings indicated in this Section 1.1:

      

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

      

      “Affiliate”
        means
        any Person that, directly or indirectly through one or more intermediaries,
        controls or is controlled by or is under common control with a Person, as
        such
        terms are used in and construed under Rule 144 under the Securities
        Act.
        With
        respect to a Purchaser, any investment fund or managed account that is managed
        on a discretionary basis by the same investment manager as such Purchaser
        will
        be deemed to be an Affiliate of such Purchaser.

      

      “Closing”
        means
        the closing of the purchase and sale of the Securities pursuant to Section
        2.1.

      

      “Closing
        Date”
        means
        the Trading Day when all of the Transaction Documents have been executed
        and
        delivered by the applicable parties thereto, and all conditions precedent
        to (i)
        the Purchasers’ obligations to pay the Subscription Amount and (ii) the
        Company’s obligations to deliver the Securities have been satisfied or
        waived.

      

      “Closing
        Price”
        means
        on any particular date (a) the last reported closing bid price per
        share of
        Common Stock on such date on the Trading Market (as reported by Bloomberg
        L.P.
        at 4:15 PM (New York time), or (b) if there is no such price on such date,
        then
        the closing bid price on the Trading Market on the date nearest preceding
        such
        date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
        bid price for regular session trading on such day), or (c) if the
        Common
        Stock is not then listed or quoted on the Trading Market and if prices for
        the
        Common Stock are then reported in the “pink sheets” published by the Pink
        Sheets, LLC (or a similar organization or agency succeeding to its functions
        of
        reporting prices), the most recent bid price per share of the Common Stock
        so
        reported, or (d) if the shares of Common Stock are not then publicly
        traded
        the fair market value of a share of Common Stock as determined by a qualified
        independent appraiser selected in good faith by the Purchasers of a majority
        in
        interest of the outstanding principal amount of the Debentures.

       

       

      
 

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      “Commission”
        means
        the Securities and Exchange Commission.

      

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

      

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

      

      “Company
        Counsel”
        means
        Sichenzia Ross Friedman Ference LLP.

      

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

       

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

      

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

      

      “Escrow
        Agent”
        shall
        have the meaning set forth in the Escrow Agreement.

      

      “Escrow
        Agreement”
        shall
        mean the Escrow Agreement in substantially the form of Exhibit
        E
        hereto
        executed and delivered contemporaneously with this Agreement. 

       

       

      
 

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “Evaluation
        Date”
        shall
        have the meaning ascribed to such term in Section 3.1(r). 

      

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

      

      “Exempt
        Issuance”
        means
        the issuance of (a) shares of Common Stock or options to employees, officers
        or
        directors of the Company pursuant to any stock or option plan duly adopted
        by
        the Board of Directors of the Company, (b) securities upon the exercise or
        exchange of or conversion of any Securities issued hereunder and/or securities
        exercisable or exchangeable for or convertible into shares of Common Stock
        issued and outstanding on the date of this Agreement, provided that such
        securities have not been amended since the date of this Agreement to increase
        the number of such securities or to decrease the exercise, exchange or
        conversion price of any such securities, and (c) securities issued pursuant
        to
        acquisitions or strategic transactions, provided any such issuance shall
        only be
        to a Person which is, itself or through its subsidiaries, an operating company
        in a business synergistic with the business of the Company and in which the
        Company receives benefits in addition to the investment of funds, but shall
        not
        include a transaction in which the Company is issuing securities primarily
        for
        the purpose of raising capital or to an entity whose primary business is
        investing in securities.

      

      

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

      

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

      

      “Legend
        Removal Date”
        shall
        have the meaning ascribed to such term in Section 4.1(c). 

      

      “Liens”
        means a
        lien, charge, security interest, encumbrance, right of first refusal, preemptive
        right or other restriction. 

      

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

      

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

      

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

      

      “Participation
        Maximum”
        shall
        have the meaning ascribed to such term in Section 4.13. 

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

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

      

      “Pre-Notice”
        shall
        have the meaning ascribed to such term in Section 4.13. 

      

      “Principal
        Amount”
        shall
        mean, as to each Purchaser, the amounts set forth below such Purchaser’s
        signature block on the signature pages hereto and next to the heading “Principal
        Amount”, in United States Dollars, which shall equal such Purchaser’s
        Subscription Amount multiplied by 1.429.

      

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

      

      “Purchaser
        Party”
        shall
        have the meaning ascribed to such term in Section 4.11.

      

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

      

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

      

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

      

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

      

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

      

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

      

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

       

       

      
 

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

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

      

      “Short
        Sales”
        shall
        include all “short sales” as defined in Rule 200 of Regulation SHO under the
        Exchange Act.

      

      “Subscription
        Amount”means,
        as
        to each Purchaser, the aggregate amount
        to be
        paid for Debentures and Warrants purchased hereunder as specified below such
        Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount”, in United States Dollars and in immediately available
        funds.

      

      “Subsequent
        Financing”
        shall
        have the meaning ascribed to such term in Section 4.13.

      

      “Subsequent
        Financing Notice”
        shall
        have the meaning ascribed to such term in Section 4.13.

      

      “Subsidiary”
        means
        any subsidiary of the Company as set forth on Schedule
        3.1(a).

      

      “Trading
        Day”
        means a
        day on which the Common Stock is traded on a Trading Market.

      

      “Trading
        Market”
        means
        the following markets or exchanges on which the Common Stock is listed or
        quoted
        for trading on the date in question: the Nasdaq SmallCap Market, the American
        Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
        the
        OTC Bulletin Board.

      

      “Transaction
        Documents”
        means
        this Agreement, the Debentures, the Warrants, the Escrow Agreement, the
        Registration Rights Agreement and any other documents or agreements executed
        in
        connection with the transactions contemplated hereunder.

      

      “Underlying
        Shares”
        means
        the shares of Common Stock issued and issuable upon conversion of the Debentures
        and upon exercise of the Warrants.

      

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

      

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

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      

      ARTICLE
        II.

      PURCHASE
        AND SALE

      

      2.1 Closing.
        On the
        Closing Date, upon the terms and subject to the conditions set forth herein,
        concurrent with the execution and delivery of this Agreement by the parties
        hereto, the Company agrees to sell, and each Purchaser agrees to purchase
        in the
        aggregate, severally and not jointly, up to $4,287,000.00 principal amount
        of
        the Debentures. Each Purchaser shall deliver to the Company via wire transfer
        or
        a certified check immediately available funds equal to their Subscription
        Amount
        and the Company shall deliver to each Purchaser their respective Debenture
        and
        Warrants as determined pursuant to Section 2.2(a) and the other items set
        forth
        in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions
        set
        forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of
        the
        Escrow Agent, or such other location as the parties shall mutually
        agree.

      

      2.2  Deliveries

      .

      

      
        	 	
                a)

              	
                On
                  the Closing Date, the Company shall deliver or cause to be delivered
                  to
                  the Escrow Agent with respect to each Purchaser the
                  following:

              

      

      

      
        	 	
                (i)

              	
                this
                  Agreement duly executed by the
                  Company;

              

      

      

      
        	 	
                (ii)

              	
                a
                  legal opinion of Company Counsel, in the form of Exhibit
                  D
                  attached hereto; 

              

      

      

      
        	 	
                (iii)

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

              

      

      

      
        	 	
                (iv)

              	
                a
                  Warrant registered in the name of such Purchaser to purchase up
                  to a
                  number of shares of Common Stock equal to 50% of such Purchaser’s
                  Principal Amount divided by the Conversion Price, with an exercise
                  price
                  equal to 110% of the Closing Bid Price on the day prior to the
                  Closing
                  Date,
                  subject to adjustment therein;

              

      

      

      
        	 	
                (v)

              	
                the
                  Escrow Agreement duly executed by the Company;
                  and

              

      

      

      
        	 	
                (vi)

              	
                the
                  Registration Rights Agreement duly executed by the
                  Company.

              

      

      

      
        	 	
                b)

              	
                On
                  the Closing Date, each Purchaser shall deliver or cause to be delivered
                  to
                  the Escrow Agent the following: 

              

      

      

      
        	 	
                (i)

              	
                this
                  Agreement duly executed by such
                  Purchaser;

              

      

      

      
        	 	
                (ii)

              	
                such
                  Purchaser’s Subscription Amount by wire transfer to the account of the
                  Escrow Agent; 

              

      

      

      
        	 	
                (iii)

              	
                the
                  Escrow Agreement duly executed by such Purchaser;
                  and

              

      

       

       

      
 

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      
        	 	
                (iv)

              	
                the
                  Registration Rights Agreement duly executed by such
                  Purchaser.

              

      

      

      2.3 Closing
        Conditions. 

      

      
        	 	
                a)

              	
                The
                  obligations of the Company hereunder in connection with the Closing
                  are
                  subject to the following conditions being
                  met:

              

      

      

      
        	 	
                (i)

              	
                the
                  accuracy in all material respects when made and on the Closing
                  Date of the
                  representations and warranties of the Purchasers contained
                  herein;

              

      

      

      
        	 	
                (ii)

              	
                all
                  obligations, covenants and agreements of the Purchasers required
                  to be
                  performed at or prior to the Closing Date shall have been performed;
                  and

              

      

      

      
        	 	
                (iii)

              	
                the
                  delivery by the Purchasers of the items set forth in Section 2.2(b)
                  of
                  this Agreement.

              

      

      

      
        	 	
                b)

              	
                The
                  respective obligations of the Purchasers hereunder in connection
                  with the
                  Closing are subject to the following conditions being
                  met:

              

      

      

      
        	 	
                (i)

              	
                the
                  accuracy in all material respects on the Closing Date of the
                  representations and warranties of the Company contained
                  herein;

              

      

      

      
        	 	
                (ii)

              	
                all
                  obligations, covenants and agreements of the Company required to
                  be
                  performed at or prior to the Closing Date shall have been performed;
                  

              

      

      

      
        	 	
                (iii)

              	
                the
                  delivery by the Company of the items set forth in Section 2.2(a)
                  of this
                  Agreement; 

              

      

      

      
        	 	
                (iv)

              	
                there
                  shall have been no Material Adverse Effect with respect to the
                  Company
                  since the date hereof; and

              

      

      

      
        	 	
                (v)

              	
                from
                  the date hereof to the Closing Date, trading in the Common Stock
                  shall not
                  have been suspended by the Commission (except for any suspension
                  of
                  trading of limited duration agreed to by the Company, which suspension
                  shall be terminated prior to the Closing), and, at any time prior
                  to the
                  Closing Date, trading in securities generally as reported by Bloomberg
                  Financial Markets shall not have been suspended or limited, or
                  minimum
                  prices shall not have been established on securities whose trades
                  are
                  reported by such service, or on any Trading Market, nor shall a
                  banking
                  moratorium have been declared either by the United States or New
                  York
                  State authorities nor shall there have occurred any material outbreak
                  or
                  escalation of hostilities or other national or international calamity
                  of
                  such magnitude in its effect on, or any material adverse change
                  in, any
                  financial market which, in each case, in the reasonable judgment
                  of each
                  Purchaser, makes it impracticable or inadvisable to purchase the
                  Debentures at the Closing.

              

      

       

       

      
 

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      ARTICLE
        III.

      REPRESENTATIONS
        AND WARRANTIES

      

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

      

      (a) Subsidiaries.
        All of
        the direct and indirect subsidiaries of the Company are set forth on
Schedule
        3.1(a).
        The
        Company owns, directly or indirectly, all of the capital stock or other equity
        interests of each Subsidiary free and clear of any Liens, and all the issued
        and
        outstanding shares of capital stock of each Subsidiary are validly issued
        and
        are fully paid, non-assessable and free of preemptive and similar rights
        to
        subscribe for or purchase securities. If the Company has no subsidiaries,
        then
        references in the Transaction Documents to the Subsidiaries will be
        disregarded.

      

      (b) Organization
        and Qualification.
        The
        Company and each of the Subsidiaries is an entity duly incorporated or otherwise
        organized, validly existing and in good standing under the laws of the
        jurisdiction of its incorporation or organization (as applicable), with the
        requisite power and authority to own and use its properties and assets and
        to
        carry on its business as currently conducted. Neither the Company nor any
        Subsidiary is in violation or default of any of the provisions of its respective
        certificate or articles of incorporation, bylaws or other organizational
        or
        charter documents. Each of the Company and the Subsidiaries is duly qualified
        to
        conduct business and is in good standing as a foreign corporation or other
        entity in each jurisdiction in which the nature of the business conducted
        or
        property owned by it makes such qualification necessary, except where the
        failure to be so qualified or in good standing, as the case may be, could
        not
        have or reasonably be expected to result in (i) a material adverse effect
        on the
        legality, validity or enforceability of any Transaction Document, (ii) a
        material adverse effect on the results of operations, assets, business,
        prospects or condition (financial or otherwise) of the Company and the
        Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
        Company’s ability to perform in any material respect on a timely basis its
        obligations under any Transaction Document (any of (i), (ii) or (iii), a
        “Material
        Adverse Effect”)
        and no
        Proceeding has been instituted in any such jurisdiction revoking, limiting
        or
        curtailing or seeking to revoke, limit or curtail such power and authority
        or
        qualification.

       

      
 

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      (c) Authorization;
        Enforcement.
        The
        Company has the requisite corporate power and authority to enter into and
        to
        consummate the transactions contemplated by each of the Transaction Documents
        and otherwise to carry out its obligations hereunder and thereunder. The
        execution and delivery of each of the Transaction Documents by the Company
        and
        the consummation by it of the transactions contemplated thereby have been
        duly
        authorized by all necessary action on the part of the Company and no further
        action is required by the Company, its board of directors or its stockholders
        in
        connection therewith other than in connection with the Required Approvals.
        Each
        Transaction Document has been (or upon delivery will have been) duly executed
        by
        the Company and, when delivered in accordance with the terms hereof and thereof,
        will constitute the valid and binding obligation of the Company enforceable
        against the Company in accordance with its terms except (i) as limited by
        applicable bankruptcy, insolvency, reorganization, moratorium and other laws
        of
        general application affecting enforcement of creditors’ rights generally and
        (ii) as limited by laws relating to the availability of specific performance,
        injunctive relief or other equitable remedies.

      

      (d) No
        Conflicts.
        The
        execution, delivery and performance of the Transaction Documents by the Company
        and the consummation by the Company of the other transactions contemplated
        hereby and thereby do not and will not: (i) conflict with or violate any
        provision of the Company’s or any Subsidiary’s certificate or articles of
        incorporation, bylaws or other organizational or charter documents, or (ii)
        conflict with, or constitute a default (or an event that with notice or lapse
        of
        time or both would become a default) under, result in the creation of any
        Lien
        upon any of the properties or assets of the Company or any Subsidiary, or
        give
        to others any rights of termination, amendment, acceleration or cancellation
        (with or without notice, lapse of time or both) of, any agreement, credit
        facility, debt or other instrument (evidencing a Company or Subsidiary debt
        or
        otherwise) or other understanding to which the Company or any Subsidiary
        is a
        party or by which any property or asset of the Company or any Subsidiary
        is
        bound or affected, or (iii) subject to the Required Approvals, conflict with
        or
        result in a violation of any law, rule, regulation, order, judgment, injunction,
        decree or other restriction of any court or governmental authority to which
        the
        Company or a Subsidiary is subject (including federal and state securities
        laws
        and regulations), or by which any property or asset of the Company or a
        Subsidiary is bound or affected; except in the case of each of clauses (ii)
        and
        (iii), such as could not have or reasonably be expected to result in a Material
        Adverse Effect.

      

      (e) Filings,
        Consents and Approvals.
        The
        Company is not required to obtain any consent, waiver, authorization or order
        of, give any notice to, or make any filing or registration with, any court
        or
        other federal, state, local or other governmental authority or other Person
        in
        connection with the execution, delivery and performance by the Company of
        the
        Transaction Documents, other than (i) filings required pursuant to Section
        4.6,
        (ii) the filing with the Commission of the Registration Statement, (iii)
        the
        notice and/or application(s) to each applicable Trading Market for the issuance
        and sale of the Debentures and Warrants and the listing of the Underlying
        Shares
        for trading thereon in the time and manner required thereby, and (iv) the
        filing
        of Form D with the Commission and such filings as are required to be made
        under
        applicable state securities laws (collectively, the “Required
        Approvals”).

       

       

      
 

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (f) Issuance
        of the Securities.
        The
        Securities are duly authorized and, when issued and paid for in accordance
        with
        the applicable Transaction Documents, will be duly and validly issued, fully
        paid and nonassessable, free and clear of all Liens imposed by the Company
        other
        than restrictions on transfer provided for in the Transaction Documents.
        The
        Underlying Shares, when issued in accordance with the terms of the Transaction
        Documents, will be validly issued, fully paid and nonassessable, free and
        clear
        of all Liens imposed by the Company. The Company has reserved from its duly
        authorized capital stock a number of shares of Common Stock for issuance
        of the
        Underlying Shares at least equal to the Required Minimum on the date hereof.
        

      

      (g) Capitalization.
        The
        capitalization of the Company is as set forth on Schedule
        3.1(g).
        The
        Company has not issued any capital stock since its most
        recently filed periodic report under the Exchange Act,
        other
        than pursuant to the exercise of employee stock options under the Company’s
        stock option plans, the issuance of shares of Common Stock to employees pursuant
        to the Company’s employee stock purchase plan and pursuant to the conversion or
        exercise of outstanding Common Stock Equivalents. No Person has any right
        of
        first refusal, preemptive right, right of participation, or any similar right
        to
        participate in the transactions contemplated by the Transaction Documents.
        Except as a result of the purchase and sale of the Securities, there are
        no
        outstanding options, warrants, script rights to subscribe to, calls or
        commitments of any character whatsoever relating to, or securities, rights
        or
        obligations convertible into or exercisable or exchangeable for, or giving
        any
        Person any right to subscribe for or acquire, any shares of Common Stock,
        or
        contracts, commitments, understandings or arrangements by which the Company
        or
        any Subsidiary is or may become bound to issue additional shares of Common
        Stock
        or Common Stock Equivalents. The issuance and sale of the Securities will
        not
        obligate the Company to issue shares of Common Stock or other securities
        to any
        Person (other than the Purchasers) and will not result in a right of any
        holder
        of Company securities to adjust the exercise, conversion, exchange or reset
        price under such securities. All of the outstanding shares of capital stock
        of
        the Company are validly issued, fully paid and nonassessable, have been issued
        in compliance with all federal and state securities laws, and none of such
        outstanding shares was issued in violation of any preemptive rights or similar
        rights to subscribe for or purchase securities. No further approval or
        authorization of any stockholder, the Board of Directors of the Company or
        others is required for the issuance and sale of the Securities. There are
        no
        stockholders agreements, voting agreements or other similar agreements with
        respect to the Company’s capital stock to which the Company is a party or, to
        the knowledge of the Company, between or among any of the Company’s
        stockholders.

      

      (h) SEC
        Reports; Financial Statements.
        The
        Company has filed all reports, schedules, forms, statements and other documents
        required to be filed by it under the Securities Act and the Exchange Act,
        including pursuant to Section 13(a) or 15(d) thereof, for the two years
        preceding the date hereof (or such shorter period as the Company was required
        by
        law to file such material) (the foregoing materials, including the exhibits
        thereto and documents incorporated by reference therein, being collectively
        referred to herein as the “SEC
        Reports”)
        on a
        timely basis or has received a valid extension of such time of filing and
        has
        filed any such SEC Reports prior to the expiration of any such extension.
        As of
        their respective dates, the SEC Reports complied in all material respects
        with
        the requirements of the Securities Act and the Exchange Act and the rules
        and
        regulations of the Commission promulgated thereunder, and none of the SEC
        Reports, when filed, contained any untrue statement of a material fact or
        omitted to state a material fact required to be stated therein or necessary
        in
        order to make the statements therein, in the light of the circumstances under
        which they were made, not misleading. The financial statements of the Company
        included in the SEC Reports comply in all material respects with applicable
        accounting requirements and the rules and regulations of the Commission with
        respect thereto as in effect at the time of filing. Such financial statements
        have been prepared in accordance with United States generally accepted
        accounting principles applied on a consistent basis during the periods involved
        (“GAAP”),
        except as may be otherwise specified in such financial statements or the
        notes
        thereto and except that unaudited financial statements may not contain all
        footnotes required by GAAP, and fairly present in all material respects the
        financial position of the Company and its consolidated subsidiaries as of
        and
        for the dates thereof and the results of operations and cash flows for the
        periods then ended, subject, in the case of unaudited statements, to normal,
        immaterial, year-end audit adjustments.

       

      
 

      
        
          
          

        

        
          10

          
            

          

        

         

      

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

      

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

      

      (k) Labor
        Relations.
        No
        material labor dispute exists or, to the knowledge of the Company, is imminent
        with respect to any of the employees of the Company which could reasonably
        be
        expected to result in a Material Adverse Effect.

      

      (l) Compliance.
        Neither
        the Company nor any Subsidiary (i) is in default under or in violation of
        (and
        no event has occurred that has not been waived that, with notice or lapse
        of
        time or both, would result in a default by the Company or any Subsidiary
        under),
        nor has the Company or any Subsidiary received notice of a claim that it
        is in
        default under or that it is in violation of, any indenture, loan or credit
        agreement or any other agreement or instrument to which it is a party or
        by
        which it or any of its properties is bound (whether or not such default or
        violation has been waived), (ii) is in violation of any order of any court,
        arbitrator or governmental body, or (iii) is or has been in violation of
        any
        statute, rule or regulation of any governmental authority, including without
        limitation all foreign, federal, state and local laws applicable to its business
        except in each case as could not have a Material Adverse Effect.

      

      (m) Regulatory
        Permits.
        The
        Company and the Subsidiaries possess all certificates, authorizations and
        permits issued by the appropriate federal, state, local or foreign regulatory
        authorities necessary to conduct their respective businesses as described
        in the
        SEC Reports, except where the failure to possess such permits could not have
        or
        reasonably be expected to result in a Material Adverse Effect (“Material
        Permits”),
        and
        neither the Company nor any Subsidiary has received any notice of proceedings
        relating to the revocation or modification of any Material Permit.

      

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      (n) Title
        to Assets.
        The
        Company and the Subsidiaries have good and marketable title in fee simple
        to all
        real property owned by them that is material to the business of the Company
        and
        the Subsidiaries and good and marketable title in all personal property owned
        by
        them that is material to the business of the Company and the Subsidiaries,
        in
        each case free and clear of all Liens, except for Liens as do not materially
        affect the value of such property and do not materially interfere with the
        use
        made and proposed to be made of such property by the Company and the
        Subsidiaries and Liens for the payment of federal, state or other taxes,
        the
        payment of which is neither delinquent nor subject to penalties. Any real
        property and facilities held under lease by the Company and the Subsidiaries
        are
        held by them under valid, subsisting and enforceable leases of which the
        Company
        and the Subsidiaries are in compliance.

      

      (o) Patents
        and Trademarks.
        The
        Company and the Subsidiaries have, or have rights to use, all patents, patent
        applications, trademarks, trademark applications, service marks, trade names,
        copyrights, licenses and other similar rights necessary or material for use
        in
        connection with their respective businesses as described in the SEC Reports
        and
        which the failure to so have could have a Material Adverse Effect (collectively,
        the “Intellectual
        Property Rights”).
        Neither the Company nor any Subsidiary has received a written notice that
        the
        Intellectual Property Rights used by the Company or any Subsidiary violates
        or
        infringes upon the rights of any Person. To the knowledge of the Company,
        all
        such Intellectual Property Rights are enforceable and there is no existing
        infringement by another Person of any of the Intellectual Property Rights
        of
        others.

      

      (p) Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary in the businesses in which the Company and the Subsidiaries
        are
        engaged, including, but not limited to, directors and officers insurance
        coverage at least equal to the aggregate Subscription Amount. To the best
        knowledge of the Company, such insurance contracts and policies are accurate
        and
        complete. Neither the Company nor any Subsidiary has any reason to believe
        that
        it will not be able to renew its existing insurance coverage as and when
        such
        coverage expires or to obtain similar coverage from similar insurers as may
        be
        necessary to continue its business without a significant increase in
        cost.

      

      (q) Transactions
        With Affiliates and Employees.
        Except
        as set forth in the SEC Reports, none of the officers or directors of the
        Company and, to the knowledge of the Company, none of the employees of the
        Company is presently a party to any transaction with the Company or any
        Subsidiary (other than for services as employees, officers and directors),
        including any contract, agreement or other arrangement providing for the
        furnishing of services to or by, providing for rental of real or personal
        property to or from, or otherwise requiring payments to or from any officer,
        director or such employee or, to the knowledge of the Company, any entity
        in
        which any officer, director, or any such employee has a substantial interest
        or
        is an officer, director, trustee or partner, in each case in excess of $60,000
        other than (i) for payment of salary or consulting fees for services rendered,
        (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
        for
        other employee benefits, including stock option agreements under any stock
        option plan of the Company.

      

      (r) Sarbanes-Oxley;
        Internal Accounting Controls.
        The
        Company is in material compliance with all provisions of the Sarbanes-Oxley
        Act
        of 2002 which are applicable to it as of the Closing Date. The
        Company and the Subsidiaries maintain a system of internal accounting controls
        sufficient to provide reasonable assurance that (i) transactions are executed
        in
        accordance with management’s general or specific authorizations, (ii)
        transactions are recorded as necessary to permit preparation of financial
        statements in conformity with GAAP and to maintain asset accountability,
        (iii)
        access to assets is permitted only in accordance with management’s general or
        specific authorization, and (iv) the recorded accountability for assets is
        compared with the existing assets at reasonable intervals and appropriate
        action
        is taken with respect to any differences. The Company has established disclosure
        controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
        15d-15(e)) for the Company and designed such disclosure controls and procedures
        to ensure that material information relating to the Company, including its
        Subsidiaries, is made known to the certifying officers by others within those
        entities, particularly during the period in which the Company’s most recently
        filed periodic report under the Exchange Act, as the case may be, is being
        prepared. The Company’s certifying officers have evaluated the effectiveness of
        the Company’s controls and procedures as of the date prior to the filing date of
        the most recently filed periodic report under the Exchange Act (such date,
        the
“Evaluation
        Date”).
        The
        Company presented in its most recently filed periodic report under the Exchange
        Act the conclusions of the certifying officers about the effectiveness of
        the
        disclosure controls and procedures based on their evaluations as of the
        Evaluation Date. Since the Evaluation Date, there have been no significant
        changes in the Company’s internal controls (as such term is defined in Item
        307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of
        the
        Company, in other factors that could significantly affect the Company’s internal
        controls.

      

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      (s) Certain
        Fees.
        No
        brokerage or finder’s fees or commissions are or will be payable by the Company
        to any broker, financial advisor or consultant, finder, placement agent,
        investment banker, bank or other Person with respect to the transactions
        contemplated by the
        Transaction Documents.
        The
        Purchasers shall have no obligation with respect to any fees or with respect
        to
        any claims made by or on behalf of other Persons for fees of a type contemplated
        in this Section that may be due in connection with the transactions contemplated
        by the
        Transaction Documents.
        

      

      (t) Private
        Placement.
        Assuming the accuracy of the Purchasers representations and warranties set
        forth
        in Section 3.2, no registration under the Securities Act is required for
        the
        offer and sale of the Securities by the Company to the Purchasers as
        contemplated hereby. The issuance and sale of the Securities hereunder does
        not
        contravene the rules and regulations of the Trading Market.

      

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

       

      
      

      (v) Registration
        Rights.
        Other
        than each of the Purchasers, no Person has any right to cause the Company
        to
        effect the registration under the Securities Act of any securities of the
        Company.

      

      (w) Listing
        and Maintenance Requirements.
        The
        Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
        Act, and the Company has taken no action designed to, or which to its knowledge
        is likely to have the effect of, terminating the registration of the Common
        Stock under the Exchange Act nor has the Company received any notification
        that
        the Commission is contemplating terminating such registration. The Company
        has
        not, in the 12 months preceding the date hereof, received notice from any
        Trading Market on which the Common Stock is or has been listed or quoted
        to the
        effect that the Company is not in compliance with the listing or maintenance
        requirements of such Trading Market. The Company is, and has no reason to
        believe that it will not in the foreseeable future continue to be, in compliance
        with all such listing and maintenance requirements.

      

      (x) Application
        of Takeover Protections.
        The
        Company and its Board of Directors have taken all necessary action, if any,
        in
        order to render inapplicable any control share acquisition, business
        combination, poison pill (including any distribution under a rights agreement)
        or other similar anti-takeover provision under the Company’s Certificate of
        Incorporation (or similar charter documents) or the laws of its state of
        incorporation that is or could become applicable to the Purchasers as a result
        of the Purchasers and the Company fulfilling their obligations or exercising
        their rights under the Transaction Documents, including without limitation
        as a
        result of the Company’s issuance of the Securities and the Purchasers’ ownership
        of the Securities.

      

      (y) Disclosure.
        The
        Company confirms that neither it nor any other Person acting on its behalf
        has
        provided any of the Purchasers or their agents or counsel with any information
        that constitutes or might constitute material, nonpublic information. The
        Company understands and confirms that the Purchasers will rely on the foregoing
        representations and covenants in effecting transactions in securities of
        the
        Company. All disclosure provided to the Purchasers regarding the Company,
        its
        business and the transactions contemplated hereby, including the Disclosure
        Schedules to this Agreement, furnished by or on behalf of the Company with
        respect to the representations and warranties made herein are true and correct
        with respect to such representations and warranties and do not contain any
        untrue statement of a material fact or omit to state any material fact necessary
        in order to make the statements made therein, in light of the circumstances
        under which they were made, not misleading. The Company acknowledges and
        agrees
        that no Purchaser makes or has made any representations or warranties with
        respect to the transactions contemplated hereby other than those specifically
        set forth in Section 3.2 hereof.

      

      (z) No
        Integrated Offering.
        Assuming
        the accuracy of the Purchasers’ representations and warranties set forth in
        Section 3.2, neither the Company, nor any of its affiliates, nor any Person
        acting on its or their behalf has, directly or indirectly, made any offers
        or
        sales of any security or solicited any offers to buy any security, under
        circumstances that would cause this offering of the Securities to be integrated
        with prior offerings by the Company for purposes of the Securities Act or
        any
        applicable shareholder approval provisions, including, without limitation,
        under
        the rules and regulations of any Trading Market on which any of the securities
        of the Company are listed or designated.

      

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      (aa) Solvency.
        Based
        on the financial condition of the Company as of the Closing Date after giving
        effect to the receipt by the Company of the proceeds from the sale of the
        Securities hereunder, (i) the Company’s fair saleable value of its assets
        exceeds the amount that will be required to be paid on or in respect of the
        Company’s existing debts and other liabilities (including known contingent
        liabilities) as they mature; (ii) the Company’s assets do not constitute
        unreasonably small capital to carry on its business 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, and projected capital requirements and capital
        availability thereof; and (iii) the current cash flow of the Company, together
        with the proceeds the Company would receive, were it to liquidate all of
        its
        assets, after taking into account all anticipated uses of the cash, would
        be
        sufficient to pay all amounts on or in respect of its debt when such amounts
        are
        required to be paid. The Company does not intend to incur debts beyond its
        ability to pay such debts as they mature (taking into account the timing
        and
        amounts of cash to be payable on or in respect of its debt). The Company
        has no
        knowledge of any facts or circumstances which lead it to believe that it
        will
        file for reorganization or liquidation under the bankruptcy or reorganization
        laws of any jurisdiction within one year from the Closing Date. The SEC Reports
        set forth as of the dates thereof all outstanding secured and unsecured
        Indebtedness of the Company or any Subsidiary, or for which the Company or
        any
        Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
        shall
        mean (a) any liabilities for borrowed money or amounts owed in excess of
        $50,000
        (other than trade accounts payable incurred in the ordinary course of business),
        (b) all guaranties, endorsements and other contingent obligations in respect
        of
        Indebtedness of others, whether or not the same are or should be reflected
        in
        the Company’s balance sheet (or the notes thereto), except guaranties by
        endorsement of negotiable instruments for deposit or collection or similar
        transactions in the ordinary course of business; and (c) the present value
        of
        any lease payments
        in excess of $50,000 due under leases required to be capitalized in accordance
        with GAAP. Neither
        the Company nor any Subsidiary is in default with respect to any
        Indebtedness.

      

      (bb) Form
        S-3 Eligibility. The
        Company is eligible to register the resale of the Underlying Shares for resale
        by the Purchaser on Form S-3 promulgated under the Securities Act.

      

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

      

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

      

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

      

      (ff) Accountants.
        The
        Company’s accountants are set forth on Schedule
        3.1(ff)
        of the
        Disclosure Schedule. To the knowledge of the Company, such accountants, who
        the
        Company expects will express their opinion with respect to the financial
        statements to be included in the Company’s Annual Report on Form 10-KSB for the
        year ended December 31, 2004 are a registered public accounting firm as required
        by the Securities Act.

      

      (gg) Seniority.
        As of
        the Closing Date, no indebtedness or other equity of the Company is senior
        to
        the Debentures in right of payment, whether with respect to interest or upon
        liquidation or dissolution, or otherwise, other than indebtedness secured
        by
        purchase money security interests (which is senior only as to underlying
        assets
        covered thereby) and capital lease obligations (which is senior only as to
        the
        property covered thereby).

      

      (hh) No
        Disagreements with Accountants and Lawyers.
        There
        are no disagreements of any kind presently existing, or reasonably anticipated
        by the Company to arise, between the accountants and lawyers formerly or
        presently employed by the Company and the Company is current with respect
        to any
        fees owed to its accountants and lawyers.

      

      (ii) Acknowledgment
        Regarding Purchasers’ Purchase of Securities.
        The
        Company acknowledges and agrees that each of the Purchasers is acting solely
        in
        the capacity of an arm’s length purchaser with respect to the Transaction
        Documents and the transactions contemplated hereby. The Company further
        acknowledges that no Purchaser is acting as a financial advisor or fiduciary
        of
        the Company (or in any similar capacity) with respect to this Agreement and
        the
        transactions contemplated hereby and any advice given by any Purchaser or
        any of
        their respective representatives or agents in connection with this Agreement
        and
        the transactions contemplated hereby is merely incidental to the Purchasers’
        purchase of the Securities. The Company further represents to each Purchaser
        that the Company’s decision to enter into this Agreement has been based solely
        on the independent evaluation of the transactions contemplated hereby by
        the
        Company and its representatives.

      

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      (jj) Acknowledgement
        Regarding Purchasers’ Trading Activity.
        Anything in this Agreement or elsewhere herein to the contrary notwithstanding
        (except for Section 4.16 hereof), it is understood and agreed by the Company
        (i)
        that none of the Purchasers have been asked to agree, nor has any Purchaser
        agreed, to desist from purchasing or selling, long and/or short, securities
        of
        the Company, or “derivative” securities based on securities issued by the
        Company or to hold the Securities for any specified term; (ii) that past
        or
        future open market or other transactions by any Purchaser, including Short
        Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
        placement transactions, may negatively impact the market price of the Company’s
        publicly-traded securities; (iii) that any Purchaser, and counter parties
        in
“derivative” transactions to which any such Purchaser is a party, directly or
        indirectly, presently may have a “short” position in the Common Stock, and (iv)
        that each Purchaser shall not be deemed to have any affiliation with or control
        over any arm’s length counter-party in any “derivative” transaction.
The
        Company further understands and acknowledges that (a) one or more Purchasers
        may
        engage in hedging activities at various times during the period that the
        Securities are outstanding, including, without limitation, during the periods
        that the value of the Underlying Shares deliverable with respect to Securities
        are being determined and (b) such hedging activities (if any) could reduce
        the
        value of the existing stockholders' equity interests in the Company at and
        after
        the time that the hedging activities are being conducted.  The Company
        acknowledges that such aforementioned hedging activities do not constitute
        a
        breach of any of the Transaction Documents.

      

      (kk) Manipulation
        of Price. 
        The Company has not, and to its knowledge no one acting on its behalf has,
        (i)
        taken, directly or indirectly, any action designed to cause or to result
        in the
        stabilization or manipulation of the price of any security of the Company
        to
        facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
        purchased, or, paid any compensation for soliciting purchases of, any of
        the
        Securities (other than for the placement agent’s placement of the Securities),
        or (iii) paid or agreed to pay to any person any compensation for soliciting
        another to purchase any other securities of the Company.

      

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

      

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

      

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

      

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

      

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

      

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

       

      
      

      (f) Short
        Sales and Confidentiality Prior To The Date Hereof.
        Other
        than the transaction contemplated hereunder, such Purchaser has not directly
        or
        indirectly, nor has any Person acting on behalf of or pursuant to any
        understanding with such Purchaser, executed any disposition, including Short
        Sales (but not including the location and/or reservation of borrowable shares
        of
        Common Stock), in the securities of the Company during the period
        commencing from
        the time
        that such Purchaser first received a term sheet from the Company or any other
        Person setting forth the material terms of the transactions contemplated
        hereunder until the date hereof (“Discussion
        Time”).
        Notwithstanding
        the foregoing, in the case of a Purchaser that is a multi-managed investment
        vehicle whereby separate portfolio managers manage separate portions of such
        Purchaser's assets and the portfolio managers have no direct knowledge of
        the
        investment decisions made by the portfolio managers managing other portions
        of
        such Purchaser's assets, the representation set forth above shall only apply
        with respect to the portion of assets managed by the portfolio manager that
        made
        the investment decision to purchase the Securities covered by this Agreement.
        Other than to other Persons party to this Agreement, such Purchaser has
        maintained the confidentiality of all disclosures made to it in connection
        with
        this transaction (including the existence and terms of this
        transaction).

      

      The
        Company acknowledges and agrees that each Purchaser does not make or has
        not
        made any representations or warranties with respect to the transactions
        contemplated hereby other than those specifically set forth in this Section
        3.2.

      

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      ARTICLE
        IV.

      OTHER
        AGREEMENTS OF THE PARTIES

      

      4.1 Transfer
        Restrictions.

      

      (a) The
        Securities may only be disposed of in compliance with state and federal
        securities laws. In connection with any transfer of Securities other than
        pursuant to an effective registration statement or Rule 144, to the Company
        or
        to an affiliate of a Purchaser or in connection with a pledge as contemplated
        in
        Section 4.1(b), the Company may require the transferor thereof to provide
        to the
        Company an opinion of counsel selected by the transferor and reasonably
        acceptable to the Company, the form and substance of which opinion shall
        be
        reasonably satisfactory to the Company, to the effect that such transfer
        does
        not require registration of such transferred Securities under the Securities
        Act. As a condition of transfer, any such transferee shall agree in writing
        to
        be bound by the terms of this Agreement and shall have the rights of a Purchaser
        under this Agreement and the Registration Rights Agreement.

      

      (b) The
        Purchasers agree to the imprinting, so long as is required by this Section
        4.1(b), of a legend on any of the Securities in the following form:

      

      [NEITHER]
        THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
        [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
        EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
        UPON
        AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
        (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
        TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
        TO
        AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
        REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
        APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
        TO
        THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
        ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
        EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
        MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

      

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

      

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

      

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      (d) In
        addition to such Purchaser’s other available remedies, the Company shall pay to
        a Purchaser, in cash, as partial liquidated damages and not as a penalty,
        for
        each $1,000 of Underlying Shares (based on the Closing Price of the Common
        Stock
        on the date such Securities are submitted to the Company’s transfer agent)
        delivered for removal of the restrictive legend and subject to Section 4.1(c),
        $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after
        such
        damages have begun to accrue) for each Trading Day after the Legend Removal
        Date
        until such certificate is delivered without a legend. Nothing herein shall
        limit
        such Purchaser’s right to pursue actual damages for the Company’s failure to
        deliver certificates representing any Securities as required by the Transaction
        Documents, and such Purchaser shall have the right to pursue all remedies
        available to it at law or in equity including, without limitation, a decree
        of
        specific performance and/or injunctive relief.

      

      (e) Each
        Purchaser, severally and not jointly with the other Purchasers, agrees that
        the
        removal of the restrictive legend from certificates representing Securities
        as
        set forth in this Section 4.1 is predicated upon the Company’s reliance that the
        Purchaser will sell any Securities pursuant to either the registration
        requirements of the Securities Act, including any applicable prospectus delivery
        requirements, or an exemption therefrom.

      

      (f) Until
        the
        one year anniversary of the Effective Date, the Company shall not undertake
        a
        reverse or forward stock split or reclassification of the Common Stock without
        the prior written consent of the Purchasers holding a majority in Principal
        Amount outstanding of the Debentures.

      

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

      

      4.3 Furnishing
        of Information.
        As long
        as any Purchaser owns Securities, the Company covenants to timely file (or
        obtain extensions in respect thereof and file within the applicable grace
        period) all reports required to be filed by the Company after the date hereof
        pursuant to the Exchange Act. As long as any Purchaser owns Securities, if
        the
        Company is not required to file reports pursuant to the Exchange Act, it
        will
        prepare and furnish to the Purchasers and make publicly available in accordance
        with Rule 144(c) such information as is required for the Purchasers to sell
        the
        Securities under Rule 144. The Company further covenants that it will take
        such
        further action as any holder of Securities may reasonably request, all to
        the
        extent required from time to time to enable such Person to sell such Securities
        without registration under the Securities Act within the limitation of the
        exemptions provided by Rule 144.

      

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

      

      4.5 Conversion
        and Exercise Procedures.
        The
        form of Notice of Exercise included in the Warrants and the form of Notice
        of
        Conversion included in the Debentures set
        forth
        the totality of the procedures required of the Purchasers in order to exercise
        the Warrants or convert the Debentures. No additional legal opinion or other
        information or instructions shall be required of the Purchasers to exercise
        their Warrants or convert their Debentures. The Company shall honor exercises
        of
        the Warrants and conversions of the Debentures and shall deliver Underlying
        Shares in accordance with the terms, conditions and time periods set forth
        in
        the Transaction Documents.

      

      4.6 Securities
        Laws Disclosure; Publicity.
        The
        Company shall, by 8:30 a.m. Eastern time on the Trading Day following the
        date
        hereof, issue a Current Report on Form 8-K, reasonably acceptable to each
        Purchaser disclosing the material terms of the transactions contemplated
        hereby,
        and shall attach the Transaction Documents thereto. The Company and each
        Purchaser shall consult with each other in issuing any other press releases
        with
        respect to the transactions contemplated hereby, and neither the Company
        nor any
        Purchaser shall issue any such press release or otherwise make any such public
        statement without the prior consent of the Company, with respect to any press
        release of any Purchaser, or without the prior consent of each Purchaser,
        with
        respect to any press release of the Company, which consent shall not
        unreasonably be withheld, except if such disclosure is required by law, in
        which
        case the disclosing party shall promptly provide the other party with prior
        notice of such public statement or communication. Notwithstanding the foregoing,
        the Company shall not publicly disclose the name of any Purchaser, or include
        the name of any Purchaser in any filing with the Commission or any regulatory
        agency or Trading Market, without the prior written consent of such Purchaser,
        except (i) as required by federal securities law in connection with the
        registration statement contemplated by the Registration Rights Agreement
        and
        (ii) to the extent such disclosure is required by law or Trading Market
        regulations, in which case the Company shall provide the Purchasers with
        prior
        notice of such disclosure permitted under subclause (i) or (ii).

      

      
        
          
          

        

        
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      4.7 Shareholder
        Rights Plan.
        No
        claim will be made or enforced by the Company or, to the knowledge of the
        Company, any other Person that any Purchaser is an “Acquiring Person” under any
        shareholder rights plan or similar plan or arrangement in effect or hereafter
        adopted by the Company, or that any Purchaser could be deemed to trigger
        the
        provisions of any such plan or arrangement, by virtue of receiving Securities
        under the Transaction Documents or under any other agreement between the
        Company
        and the Purchasers. The Company shall conduct its business in a manner so
        that
        it will not become subject to the Investment Company Act.

      

      4.8 Non-Public
        Information.
        The
        Company covenants and agrees that neither it nor any other Person acting
        on its
        behalf will provide any Purchaser or its agents or counsel with any information
        that the Company believes constitutes material non-public information, unless
        prior thereto such Purchaser shall have executed a written agreement regarding
        the confidentiality and use of such information. The Company understands
        and
        confirms that each Purchaser shall be relying on the foregoing representations
        in effecting transactions in securities of the Company.

      

      4.9 Use
        of
        Proceeds.
        Except
        as set forth on Schedule
        4.9
        attached
        hereto, the Company shall use the net proceeds from the sale of the Securities
        hereunder for working capital purposes and not for the satisfaction of any
        portion of the Company’s debt (other than payment of trade payables in the
        ordinary course of the Company’s business and prior practices), to redeem any
        Common Stock or Common Stock Equivalents or to settle any outstanding
        litigation.

      

      4.10 Reimbursement.
        If any
        Purchaser becomes involved in any capacity in any Proceeding by or against
        any
        Person who is a stockholder of the Company (except as a result of sales,
        pledges, margin sales and similar transactions by such Purchaser to or with
        any
        current stockholder), solely as a result of such Purchaser’s acquisition of the
        Securities under this Agreement, the Company will reimburse such Purchaser
        for
        its reasonable legal and other expenses (including the cost of any investigation
        preparation and travel in connection therewith) incurred in connection
        therewith, as such expenses are incurred. The reimbursement obligations of
        the
        Company under this paragraph shall be in addition to any liability which
        the
        Company may otherwise have, shall extend upon the same terms and conditions
        to
        any Affiliates of the Purchasers who are actually named in such action,
        proceeding or investigation, and partners, directors, agents, employees and
        controlling persons (if any), as the case may be, of the Purchasers and any
        such
        Affiliate, and shall be binding upon and inure to the benefit of any successors,
        assigns, heirs and personal representatives of the Company, the Purchasers
        and
        any such Affiliate and any such Person. The Company also agrees that neither
        the
        Purchasers nor any such Affiliates, partners, directors, agents, employees
        or
        controlling persons shall have any liability to the Company or any Person
        asserting claims on behalf of or in right of the Company solely as a result
        of
        acquiring the Securities under this Agreement.

      

      
        
          
          

        

        
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      4.11 Indemnification
        of Purchasers.
        Subject
        to the provisions of this Section 4.11, the Company will indemnify and hold
        the
        Purchasers and their directors, officers, shareholders, members, partners,
        employees and agents (each, a “Purchaser
        Party”)
        harmless from any and all losses, liabilities, obligations, claims,
        contingencies, damages, costs and expenses, including all judgments, amounts
        paid in settlements, court costs and reasonable attorneys’ fees and costs of
        investigation that any such Purchaser Party may suffer or incur as a result
        of
        or relating to (a) any breach of any of the representations, warranties,
        covenants or agreements made by the Company in this Agreement or in the other
        Transaction Documents or (b) any action instituted against a Purchaser, or
        any
        of them or their respective Affiliates, by any stockholder of the Company
        who is
        not an Affiliate of such Purchaser, with respect to any of the transactions
        contemplated by the Transaction Documents (unless such action is based upon
        a
        breach of such Purchaser’s representations, warranties or covenants under the
        Transaction Documents or any agreements or understandings such Purchaser
        may
        have with any such stockholder or any violations by the Purchaser of state
        or
        federal securities laws or any conduct by such Purchaser which constitutes
        fraud, gross negligence, willful misconduct or malfeasance). If any action
        shall
        be brought against any Purchaser Party in respect of which indemnity may
        be
        sought pursuant to this Agreement, such Purchaser Party shall promptly notify
        the Company in writing, and the Company shall have the right to assume the
        defense thereof with counsel of its own choosing. Any Purchaser Party shall
        have
        the right to employ separate counsel in any such action and participate in
        the
        defense thereof, but the fees and expenses of such counsel shall be at the
        expense of such Purchaser Party except to the extent that (i) the employment
        thereof has been specifically authorized by the Company in writing, (ii)
        the
        Company has failed after a reasonable period of time to assume such defense
        and
        to employ counsel or (iii) in such action there is, in the reasonable opinion
        of
        such separate counsel, a material conflict on any material issue between
        the
        position of the Company and the position of such Purchaser Party. The Company
        will not be liable to any Purchaser Party under this Agreement (i) for any
        settlement by a Purchaser Party effected without the Company’s prior written
        consent, which shall not be unreasonably withheld or delayed; or (ii) to
        the
        extent, but only to the extent that a loss, claim, damage or liability is
        attributable to any Purchaser Party’s breach of any of the representations,
        warranties, covenants or agreements made by the Purchasers in this Agreement
        or
        in the other Transaction Documents.

      

      4.12 Reservation
        and Listing of Securities.

      

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

      

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

      

      
        
          
          

        

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

      

      4.13 Participation
        in Future Financing.
        

      

      (a) From
        the
        date hereof until the date that is the 12 month anniversary of the Effective
        Date, upon any financing by the Company or any of its Subsidiaries of Common
        Stock or Common Stock Equivalents (a “Subsequent
        Financing”),
        such
        Purchaser shall have the right to participate in the Subsequent Financing
        in an
        amount equal to up to 100% of the Subsequent Financing (the “Participation
        Maximum”).
        

      

      (b) At
        least
        5 Trading Days prior to the closing of the Subsequent Financing, the Company
        shall deliver to each Purchaser a written notice of its intention to effect
        a
        Subsequent Financing (“Pre-Notice”),
        which
        Pre-Notice shall ask such Purchaser if it wants to review the details of
        such
        financing (such additional notice, a “Subsequent
        Financing Notice”).
        Upon
        the request of a Purchaser, and only upon a request by such Purchaser, for
        a
        Subsequent Financing Notice, the Company shall promptly, but no later than
        1
        Trading Day after such request, deliver a Subsequent Financing Notice to
        such
        Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
        the proposed terms of such Subsequent Financing, the amount of proceeds intended
        to be raised thereunder, the Person with whom such Subsequent Financing is
        proposed to be effected, and attached to which shall be a term sheet or similar
        document relating thereto. 

      

      (c) Any
        Purchaser desiring to participate in such Subsequent Financing must provide
        written notice to the Company by not later than 5:30 p.m. (New York City
        time)
        on the 5th
        Trading
        Day after all of the Purchasers have received the Pre-Notice that the Purchaser
        is willing to participate in the Subsequent Financing, the amount of the
        Purchaser’s participation, and that the Purchaser has such funds ready, willing
        and available for investment on the terms set forth in the Subsequent Financing
        Notice. If the Company receives no notice from a Purchaser as of such
        5th
        Trading
        Day, such Purchaser shall be deemed to have notified the Company that it
        does
        not elect to participate. 

      

      (d) If
        by
        5:30 p.m. (New York City time) on the 5th
        Trading
        Day after all of the Purchasers have received the Pre-Notice, notifications
        by
        the Purchasers of their willingness to participate in the Subsequent Financing
        (or to cause their designees to participate) is, in the aggregate, less than
        the
        total amount of the Subsequent Financing, then the Company may effect the
        remaining portion of such Subsequent Financing on the terms and to the Persons
        set forth in the Subsequent Financing Notice. 

      

      
        
          
          

        

        
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      (e) If
        by
        5:30 p.m. (New York City time) on the 5th
        Trading
        Day after all of the Purchasers have received the Pre-Notice, the Company
        receives responses to a Subsequent Financing Notice from Purchasers seeking
        to
        purchase more than the aggregate amount of the Participation Maximum, each
        such
        Purchaser shall have the right to purchase the greater of (a) their Pro Rata
        Portion (as defined below) of the Participation Maximum and (b) the difference
        between the Participation Maximum and the aggregate amount of participation
        by
        all other Purchasers.  “Pro
        Rata Portion”
        is the
        ratio of (x) the Subscription Amount of Securities purchased on the Closing
        Date
        by a Purchaser participating under this Section 4.13 and (y) the sum of the
        aggregate Subscription Amounts of Securities purchased on the Closing Date
        by
        all Purchasers participating under this Section 4.13.

      

      (f) The
        Company must provide the Purchasers with a second Subsequent Financing Notice,
        and the Purchasers will again have the right of participation set forth above
        in
        this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
        Financing Notice is not consummated for any reason on the terms set forth
        in
        such Subsequent Financing Notice within 60 Trading Days after the date of
        the
        initial Subsequent Financing Notice. 

      

      (g) Notwithstanding
        the foregoing, this Section 4.13 shall not apply in respect of an Exempt
        Issuance.

      

      4.14 Subsequent
        Equity Sales.
        

      

      (a) From
        the
        date hereof until 90 days after the Effective Date, neither the Company nor
        any
        Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
        provided,
        however,
        the 90
        day period set forth in this Section 4.14 shall be extended for the number
        of
        Trading Days during such period in which (i) trading in the Common Stock
        is
        suspended by any Trading Market, or (ii) following the Effective Date, the
        Registration Statement is not effective or the prospectus included in the
        Registration Statement may not be used by the Purchasers for the resale of
        the
        Underlying Shares. 

      

      (b) From
        the
        date hereof until such time as no Purchaser holds any of the Debentures,
        the
        Company shall be prohibited from effecting or entering into an agreement
        to
        effect any Subsequent Financing involving a “Variable Rate Transaction”. The
        term “Variable
        Rate Transaction”
        shall
        mean a transaction in which the Company issues or sells (i) any debt or equity
        securities that are convertible into, exchangeable or exercisable for, or
        include the right to receive additional shares of Common Stock either (A)
        at a
        conversion, exercise or exchange rate or other price that is based upon and/or
        varies with the trading prices of or quotations for the shares of Common
        Stock
        at any time after the initial issuance of such debt or equity securities,
        or (B)
        with a conversion, exercise or exchange price that is subject to being reset
        at
        some future date after the initial issuance of such debt or equity security
        or
        upon the occurrence of specified or contingent events directly or indirectly
        related to the business of the Company or the market for the Common Stock
        or
        (ii) enters into any agreement, including, but not limited to, an equity
        line of
        credit, whereby the Company may sell securities at a future determined price.
        

      

      
        
          
          

        

        
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      (c) Notwithstanding
        the foregoing, this Section 4.14 shall not apply in respect of an Exempt
        Issuance, except that no Variable Rate Transaction shall be an Exempt
        Issuance. 

      

      4.15 Equal
        Treatment of Purchasers.
        No
        consideration shall be offered or paid to any person to amend or consent
        to a
        waiver or modification of any provision of any of the Transaction Documents
        unless the same consideration is also offered to all of the parties to the
        Transaction Documents. Further, the Company shall not make any payment of
        principal on the Debentures in amounts which are disproportionate to the
        respective Principal Amounts outstanding on the Debentures at any applicable
        time. For clarification purposes, this provision constitutes a separate right
        granted to each Purchaser by the Company and negotiated separately by each
        Purchaser, and is intended for the Company to treat the Purchasers as a class
        and shall not in any way be construed as the Purchasers acting in concert
        or as
        a group with respect to the purchase, disposition or voting of Securities
        or
        otherwise.

      

      4.16 Short
        Sales and Confidentiality After The Date Hereof.
        Each
        Purchaser severally and not jointly with the other Purchasers covenants that
        neither it nor any affiliates acting on its behalf or pursuant to any
        understanding with it will execute any Short Sales during the period after
        the
        Discussion Time and ending at the time that the transactions contemplated
        by
        this Agreement are first publicly announced as described in Section 4.6.
        Each
        Purchaser, severally and not jointly with the other Purchasers, covenants
        that
        until such time as the transactions contemplated by this Agreement are publicly
        disclosed by the Company as described in Section 4.6, such Purchaser will
        maintain, the confidentiality of all disclosures made to it in connection
        with
        this transaction (including the existence and terms of this transaction).
        Each
        Purchaser understands and acknowledges, severally and not jointly with any
        other
        Purchaser, that the Commission currently takes the position that coverage
        of
        short sales of shares of the Common Stock “against the box” prior to the
        Effective Date of the Registration Statement with the Securities is a violation
        of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
        Section A, of the Manual of Publicly Available Telephone Interpretations,
        dated
        July 1997, compiled by the Office of Chief Counsel, Division of Corporation
        Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
        warranty or covenant hereby that it will not engage in Short Sales in
        the
        securities of the Company after the time that the transactions contemplated
        by
        this Agreement are first publicly announced as described in Section 4.6.
        Notwithstanding the foregoing, in the case of a Purchaser that is a
        multi-managed investment vehicle whereby separate portfolio managers manage
        separate portions of such Purchaser's assets and the portfolio managers have
        no
        direct knowledge of the investment decisions made by the portfolio managers
        managing other portions of such Purchaser's assets, the covenant set forth
        above
        shall only apply with respect to the portion of assets managed by the portfolio
        manager that made the investment decision to purchase the Securities covered
        by
        this Agreement.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      

      ARTICLE
        V.

      MISCELLANEOUS

      

      5.1 Termination. 
        This Agreement may be terminated by any Purchaser, as to such Purchaser’s
        obligations hereunder only and without any effect whatsoever on the obligations
        between the Company and the other Purchasers, by written notice to the other
        parties, if the Closing has not been consummated on or before September 20,
        2005; provided,
        however,
        that no
        such termination will affect the right of any party to sue for any breach
        by the
        other party (or parties).

      

      5.2 Fees
        and Expenses.
        Except
        as expressly set forth in the Transaction Documents to the contrary, each
        party
        shall pay the fees and expenses of its advisers, counsel, accountants and
        other
        experts, if any, and all other expenses incurred by such party incident to
        the
        negotiation, preparation, execution, delivery and performance of this Agreement.
        The Company shall pay all transfer agent fees, stamp taxes and other taxes
        and
        duties levied in connection with the delivery of any Securities.

      

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

      

      5.4 Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or communication
        is delivered via facsimile at the facsimile number set forth on the signature
        pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
        Day,
        (b) the next Trading Day after the date of transmission, if such notice or
        communication is delivered via facsimile at the facsimile number set forth
        on
        the signature pages attached hereto on a day that is not a Trading Day or
        later
        than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
        Trading
        Day following the date of mailing, if sent by U.S. nationally recognized
        overnight courier service, or (d) upon actual receipt by the party to whom
        such
        notice is required to be given. The address for such notices and communications
        shall be as set forth on the signature pages attached hereto.

      

      5.5 Amendments;
        Waivers.
        No
        provision of this Agreement may be waived or amended except in a written
        instrument signed, in the case of an amendment, by the Company and each
        Purchaser or, in the case of a waiver, by the party against whom enforcement
        of
        any such waiver is sought. No waiver of any default with respect to any
        provision, condition or requirement of this Agreement shall be deemed to
        be a
        continuing waiver in the future or a waiver of any subsequent default or
        a
        waiver of any other provision, condition or requirement hereof, nor shall
        any
        delay or omission of either party to exercise any right hereunder in any
        manner
        impair the exercise of any such right.

      

      
        
          
          

        

        
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      5.6 Headings.
        The
        headings herein are for convenience only, do not constitute a part of this
        Agreement and shall not be deemed to limit or affect any of the provisions
        hereof. The language used in this Agreement will be deemed to be the language
        chosen by the parties to express their mutual intent, and no rules of strict
        construction will be applied against any party.

      

      5.7 Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties and
        their successors and permitted assigns. The Company may not assign this
        Agreement or any rights or obligations hereunder without the prior written
        consent of each Purchaser. Any Purchaser may assign any or all of its rights
        under this Agreement to any Person to whom such Purchaser assigns or transfers
        any Securities, provided such transferee agrees in writing to be bound, with
        respect to the transferred Securities, by the provisions hereof that apply
        to
        the “Purchasers”.

      

      5.8 No
        Third-Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        successors and permitted assigns and is not for the benefit of, nor may any
        provision hereof be enforced by, any other Person, except as otherwise set
        forth
        in Section 4.11.

      

      5.9 Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of the Transaction Documents shall be governed by and construed and enforced
        in
        accordance with the internal laws of the State of New York, without regard
        to
        the principles of conflicts of law thereof. Each party agrees that all legal
        proceedings concerning the interpretations, enforcement and defense of the
        transactions contemplated by this Agreement and any other Transaction Documents
        (whether brought against a party hereto or its respective affiliates, directors,
        officers, shareholders, employees or agents) shall be commenced exclusively
        in
        the state and federal courts sitting in the City of New York. Each party
        hereby
        irrevocably submits to the exclusive jurisdiction of the state and federal
        courts sitting in the City of New York, borough of Manhattan for the
        adjudication of any dispute hereunder or in connection herewith or with any
        transaction contemplated hereby or discussed herein (including with respect
        to
        the enforcement of any of the Transaction Documents), and hereby irrevocably
        waives, and agrees not to assert in any suit, action or proceeding, any claim
        that it is not personally subject to the jurisdiction of any such court,
        that
        such suit, action or proceeding is improper or inconvenient venue for such
        proceeding. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof via registered or certified mail or overnight delivery
        (with evidence of delivery) to such party at the address in effect for notices
        to it under this Agreement and agrees that such service shall constitute
        good
        and sufficient service of process and notice thereof. Nothing contained herein
        shall be deemed to limit in any way any right to serve process in any manner
        permitted by law. The parties hereby waive all rights to a trial by jury.
        If
        either party shall commence an action or proceeding to enforce any provisions
        of
        the Transaction Documents, then the prevailing party in such action or
        proceeding shall be reimbursed by the other party for its attorneys’ fees and
        other costs and expenses incurred with the investigation, preparation and
        prosecution of such action or proceeding.

      

      
        
          
          

        

        
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      5.10 Survival.
        The
        representations and warranties contained herein shall survive the Closing
        and
        the delivery, exercise and/or conversion of the Securities, as applicable
        for
        the applicable statue of limitations.

      

      5.11 Execution.
        This
        Agreement may be executed in two or more counterparts, all of which when
        taken
        together shall be considered one and the same agreement and shall become
        effective when counterparts have been signed by each party and delivered
        to the
        other party, it being understood that both parties need not sign the same
        counterpart. In the event that any signature is delivered by facsimile
        transmission, such signature shall create a valid and binding obligation
        of the
        party executing (or on whose behalf such signature is executed) with the
        same
        force and effect as if such facsimile signature page were an original
        thereof.

      

      5.12 Severability.
        If any
        provision of this Agreement is held to be invalid or unenforceable in any
        respect, the validity and enforceability of the remaining terms and provisions
        of this Agreement shall not in any way be affected or impaired thereby and
        the
        parties will attempt to agree upon a valid and enforceable provision that
        is a
        reasonable substitute therefor, and upon so agreeing, shall incorporate such
        substitute provision in this Agreement.

      

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

      

      5.14 Replacement
        of Securities.
        If any
        certificate or instrument evidencing any Securities is mutilated, lost, stolen
        or destroyed, the Company shall issue or cause to be issued in exchange and
        substitution for and upon cancellation thereof, or in lieu of and substitution
        therefor, a new certificate or instrument, but only upon receipt of evidence
        reasonably satisfactory to the Company of such loss, theft or destruction
        and
        customary and reasonable indemnity, if requested. The applicants for a new
        certificate or instrument under such circumstances shall also pay any reasonable
        third-party costs associated with the issuance of such replacement
        Securities.

      

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

      

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

      

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

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

      

      5.18 Independent
        Nature of Purchasers’ Obligations and Rights.
        The
        obligations of each Purchaser under any Transaction Document are several
        and not
        joint with the obligations of any other Purchaser, and no Purchaser shall
        be
        responsible in any way for the performance of the obligations of any other
        Purchaser under any Transaction Document. Nothing contained herein or in
        any
        Transaction Document, and no action taken by any Purchaser pursuant thereto,
        shall be deemed to constitute the Purchasers as a partnership, an association,
        a
        joint venture or any other kind of entity, or create a presumption that the
        Purchasers are in any way acting in concert or as a group with respect to
        such
        obligations or the transactions contemplated by the Transaction Documents.
        Each
        Purchaser shall be entitled to independently protect and enforce its rights,
        including without limitation the rights arising out of this Agreement or
        out of
        the other Transaction Documents, and it shall not be necessary for any other
        Purchaser to be joined as an additional party in any proceeding for such
        purpose. Each Purchaser has been represented by its own separate legal counsel
        in their review and negotiation of the Transaction Documents. For reasons
        of
        administrative convenience only, Purchasers and their respective counsel
        have
        chosen to communicate with the Company through Sichenzia Ross Friedman Ference
        LLP. 

      

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

      

      5.20 Construction.
        The
        parties agree that each of them and/or their respective counsel has reviewed
        and
        had an opportunity to revise the Transaction Documents and, therefore, the
        normal rule of construction to the effect that any ambiguities are to be
        resolved against the drafting party shall not be employed in the interpretation
        of the Transaction Documents or any amendments hereto.

      

      (Signature
        Pages Follow)

      

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

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

      
        	
                 

                FELLOWS
                  ENERGY LTD.

                 

              	
                Address
                  for Notice:

              
	
                By:__________________________________________

                Name:

                Title:

              	
                370
                  Interlocken Boulevard, Suite 400, Broomfield, CO 80021

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

                 

                Marc
                  Ross

                Darrin
                  M. Ocasio

                Sichenzia
                  Ross Friedman Ference LLP

                1065
                  Avenue of the Americas, 21st
                  flr.

                New
                  York, NY 10018

                 

                 

              	 

      

      

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGE FOR PURCHASER FOLLOWS]

      

      

      
        
          
             

            

          

          
          

        

        
          27

          
            

          

        

        
          
          

        

      

      [PURCHASER
        SIGNATURE PAGES TO FLWE SECURITIES PURCHASE AGREEMENT]

      

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

      

      

      Name
        of
        Purchaser:
        ______________________________________________________________

      Signature
        of Authorized Signatory of Purchaser:
        _______________________________________

      Name
        of
        Authorized Signatory:
        _____________________________________________________

      Title
        of
        Authorized Signatory:
        ______________________________________________________

      Email
        Address of
        Purchaser:________________________________________________________

      

      Address
        for Notice of Purchaser:

      

      

      

      

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

      

      

      

      

      

      Subscription
        Amount:

      Principal
        Amount: (1.429
        multiplied by the Subscription Amount)

      Warrant
        Shares:

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]

      

      [SIGNATURE
        PAGES CONTINUE]

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