Document:

EXHIBIT 10.1

                         MFA MORTGAGE INVESTMENTS, INC.
                          2004 EQUITY COMPENSATION PLAN

      1. PURPOSE. The Plan is intended to provide incentives to key employees,
officers, directors and others expected to provide significant services to the
Company, including the employees, officers and directors of the other
Participating Companies, to encourage a proprietary interest in the Company, to
encourage such key employees to remain in the employ of the Company and the
other Participating Companies, to attract new employees with outstanding
qualifications, and to afford additional incentive to others to increase their
efforts in providing significant services to the Company and the other
Participating Companies. In furtherance thereof, the Plan permits awards of
equity-based incentives to key employees, officers and directors of, and certain
other providers of services to, the Company or any other Participating Company.
The Plan is an amendment and complete restatement of the Second Amended and
Restated 1997 Stock Option Plan, which was initially approved by the
stockholders of the Company on December 12, 1997 and which was thereafter
amended as of March 17, 2000 and March 8, 2001.

      2. DEFINITIONS. As used in this Plan, the following definitions apply
(provided that, in the case of capitalized terms used in Agreements to prior
versions of the Plan, which terms have been replaced by capitalized terms
defined herein, the capitalized terms in such Agreements shall, as the context
so requires, have the respective meanings ascribed herein to such replacement
terms):

      "Act" shall mean the Securities Act of 1933, as amended.

      "Agreement" shall mean a written agreement entered into between the
Company and a Grantee pursuant to the Plan.

      "Board" shall mean the Board of Directors of the Company.

      "Cause" shall mean, unless otherwise provided in the Grantee's Agreement,
(i) engaging in (A) willful or gross misconduct or (B) willful or gross neglect,
(ii) repeatedly failing to adhere to the directions of superiors or the Board or
the written policies and practices of the Company, (iii) the commission of a
felony or a crime of moral turpitude, or any crime involving the Company, (iv)
fraud, misappropriation, embezzlement or material or repeated insubordination,
(v) a material breach of the Grantee's employment agreement (if any) with the
Company (other than a termination of employment by the Grantee), or (vi) any
illegal act detrimental to the Company; all as determined by the Committee.

      "Code" shall mean the Internal Revenue Code of 1986, as amended.

      "Committee" shall mean the Compensation Committee of the Company as
appointed by the Board in accordance with Section 4 of the Plan; provided,
however, that the Committee shall at all times consist solely of persons who, at
the time of their appointment, each qualified as a "Non-Employee Director" under
Rule 16b-3(b)(3)(i) promulgated under the Exchange Act and, to the extent that
relief from the limitation of Section 162(m) of the Code is sought, as an
"Outside Director" under Section 1.162-27(e)(3)(i) of the Treasury Regulations.

      "Common Stock" shall mean the Company's common stock, par value $0.01 per
share, either currently existing or authorized hereafter.

      "Company" shall mean MFA Mortgage Investments, Inc., a Maryland
corporation.

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      "DER" shall mean a right awarded under Section 11 of the Plan to receive
(or have credited) the equivalent value (in cash or Shares) of dividends paid on
Common Stock.

      "Disability" shall mean, unless otherwise provided by the Committee in the
Grantee's Agreement, the occurrence of an event which would entitle an employee
of the Company to the payment of disability income under one of the Company's
approved long-term disability income plans or a long-term disability as
determined by the Committee in its absolute discretion pursuant to any other
standard as may be adopted by the Committee.

      "Eligible Persons" shall mean officers, directors and employees of the
Participating Companies and other persons expected to provide significant
services (of a type expressly approved by the Committee as covered services for
these purposes) to one or more of the Participating Companies. For purposes of
the Plan, a consultant, vendor, customer or other provider of significant
services to the Company or any other Participating Company shall be deemed to be
an Eligible Person, but will be eligible to receive Grants (but in no event
Incentive Stock Options), only after a finding by the Committee in its
discretion that the value of the services rendered or to be rendered to the
Participating Company is at least equal to the value of the Grants being
awarded.

      "Employee" shall mean an individual, including an officer of a
Participating Company, who is employed (within the meaning of Code Section 3401
and the regulations thereunder) by the Participating Company.

      "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

      "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Board or the Committee, at which an Option may be exercised.

      "Fair Market Value" shall mean the value of one share of Common Stock,
determined as follows:

      (i)   If the Shares are then listed on a national stock exchange, the
            closing sales price per Share on the exchange for the last preceding
            date on which there was a sale of Shares on such exchange, as
            determined by the Committee.

      (ii)  If the Shares are not then listed on a national stock exchange but
            are then traded on an over-the-counter market, the average of the
            closing bid and asked prices for the Shares in such over-the-counter
            market for the last preceding date on which there was a sale of such
            Shares in such market, as determined by the Committee.

      (iii) If neither (i) nor (ii) applies, such value as the Committee in its
            discretion may in good faith determine. Notwithstanding the
            foregoing, where the Shares are listed or traded, the Committee may
            make discretionary determinations in good faith where the Shares
            have not been traded for 10 trading days.

      "Grant" shall mean the issuance of an Incentive Stock Option,
Non-qualified Stock Option, Restricted Stock, Phantom Share, DER, other
equity-based grant as contemplated herein or any combination thereof as
applicable to an Eligible Person. The Committee will determine the eligibility
of employees, officers, directors and others expected to provide significant
services to the Participating Companies based on, among other factors, the
position and responsibilities of such individuals, the nature and value to the
Participating Company of such individuals' accomplishments and potential
contribution to the success of the Participating Company whether directly or
through its subsidiaries.

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      "Grantee" shall mean an Eligible Person to whom Options, Restricted Stock,
Phantom Shares or DERs are granted hereunder.

      "Incentive Stock Option" shall mean an Option of the type described in
Section 422(b) of the Code issued to an Employee.

      "Non-qualified Stock Option" shall mean an Option not described in Section
422(b) of the Code.

      "Option" shall mean any option, whether an Incentive Stock Option or a
Non-qualified Stock Option, to purchase, at a price and for the term fixed by
the Committee in accordance with the Plan, and subject to such other limitations
and restrictions in the Plan and the applicable Agreement, a number of Shares
determined by the Committee.

      "Optionee" shall mean any Eligible Person to whom an Option is granted, or
the Successors of the Optionee, as the context so requires.

      "Participating Companies" shall mean the Company and any of its
Subsidiaries which with the consent of the Board participates in the Plan.

      "Phantom Share" shall mean a right, pursuant to the Plan, of the Grantee
to payment of the Phantom Share Value.

      "Phantom Share Value," per Phantom Share, shall mean the Fair Market Value
of a Share or, if so provided by the Committee, such Fair Market Value to the
extent in excess of a base value established by the Committee at the time of
grant.

      "Plan" shall mean the Company's 2004 Equity Compensation Plan, as set
forth herein, and as the same may from time to time be amended.

      "Purchase Price" shall mean the Exercise Price times the number of Shares
with respect to which an Option is exercised.

      "Restricted Stock" shall mean an award of Shares that are subject to
restrictions hereunder.

      "Retirement" shall mean, unless otherwise provided by the Committee in the
Grantee's Agreement, the Termination of Service (other than for Cause) of a
Grantee:

      (i) on or after the Grantee's attainment of age 65;

      (ii) on or after the Grantee's attainment of age 55 with five consecutive
years of service with the Participating Companies; or

      (iii) as determined by the Committee in its absolute discretion pursuant
to such other standard as may be adopted by the Committee.

      "Shares" shall mean shares of Common Stock of the Company, adjusted in
accordance with Section 15 of the Plan (if applicable).

      "Subsidiary" shall mean any corporation, partnership or other entity at
least 50% of the economic interest in the equity of which is owned by the
Company or by another subsidiary.

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      "Successors of the Optionee" shall mean the legal representative of the
estate of a deceased Optionee or the person or persons who shall acquire the
right to exercise an Option by bequest or inheritance or by reason of the death
of the Optionee.

      "Termination of Service" shall mean the time when the employee-employer
relationship or directorship, or other service relationship (sufficient to
constitute service as an Eligible Person), between the Grantee and the
Participating Companies is terminated for any reason, with or without Cause,
including, but not limited to, any termination by resignation, discharge, death
or Retirement; provided, however, Termination of Service shall not include a
termination where there is a simultaneous reemployment of the Grantee by a
Participating Company or other continuation of service (sufficient to constitute
service as an Eligible Person) for a Participating Company. The Committee, in
its absolute discretion, shall determine the effects of all matters and
questions relating to Termination of Service, including, but not limited to, the
question of whether any Termination of Service was for Cause and all questions
of whether particular leaves of absence constitute Terminations of Employment.
For this purpose, the service relationship shall be treated as continuing intact
while the Grantee is on military leave, sick leave or other bona fide leave of
absence (to be determined in the discretion of the Committee).

      3. EFFECTIVE DATE. The effective date of this restatement of the Plan
shall be the date on which it is approved by the holders of the requisite
percentage of shares of Common Stock, at a meeting duly called for such purpose.

      4. ADMINISTRATION.

      a. Membership on Committee. The Plan shall be administered by the
Committee appointed by the Board. If no Committee is designated by the Board to
act for those purposes, the full Board shall have the rights and
responsibilities of the Committee hereunder and under the Agreements.

      b. Committee Meetings. The acts of a majority of the members present at
any meeting of the Committee at which a quorum is present, or acts approved in
writing by a majority of the entire Committee, shall be the acts of the
Committee for purposes of the Plan. If and to the extent applicable, no member
of the Committee may act as to matters under the Plan specifically relating to
such member.

      c. Grant of Awards.

      (i)   The Committee shall from time to time at its discretion select the
            Eligible Persons who are to be issued Grants and determine the
            number and type of Grants to be issued under any Agreement to an
            Eligible Person. In particular, the Committee shall (A) determine
            the terms and conditions, not inconsistent with the terms of the
            Plan, of any Grants awarded hereunder (including, but not limited to
            the performance goals and periods applicable to the award of
            Grants); (B) determine the time or times when and the manner and
            condition in which each Option shall be exercisable and the duration
            of the exercise period; and (C) determine or impose other conditions
            to the Grant or exercise of Options under the Plan as it may deem
            appropriate. The Committee may establish such rules, regulations and
            procedures for the administration of the Plan as it deems
            appropriate, determine the extent, if any, to which Options, Phantom
            Shares, Shares (whether or not Shares of Restricted Stock) or DERs
            shall be forfeited (whether or not such forfeiture is expressly
            contemplated hereunder), and take any other actions and make any
            other determinations or decisions that it deems necessary or
            appropriate in connection with the Plan or the administration or
            interpretation thereof. The Committee shall also cause each Option
            to be designated as an Incentive Stock Option or a Non-qualified
            Stock Option,

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            except that no Incentive Stock Options may be granted to an Eligible
            Person who is not an Employee of the Company. The Grantee shall take
            whatever additional actions and execute whatever additional
            documents the Committee may in its reasonable judgment deem
            necessary or advisable in order to carry or effect one or more of
            the obligations or restrictions imposed on the Grantee pursuant to
            the express provisions of the Plan and the Agreement. DERs will be
            exercisable separately or together with Options, and paid in cash or
            other consideration at such times and in accordance with such rules,
            as the Committee shall determine in its discretion. Unless expressly
            provided hereunder, the Committee, with respect to any Grant, may
            exercise its discretion hereunder at the time of the award or
            thereafter. The Committee shall have the right and responsibility to
            interpret the Plan and the interpretation and construction by the
            Committee of any provision of the Plan or of any Grant thereunder,
            including, without limitation, in the event of a dispute, shall be
            final and binding on all Grantees and other persons to the maximum
            extent permitted by law. Without limiting the generality of Section
            23, no member of the Committee shall be liable for any action or
            determination made in good faith with respect to the Plan or any
            Grant hereunder.

      (ii)  Notwithstanding clause (i) of this Section 4(c) and Section 7(a),
            any award under the Plan to an Eligible Person who is a member of
            the Committee shall be made by the full Board, but for these
            purposes the directors of the Corporation who are on the Committee
            shall be required to be recused in respect of such awards and shall
            not be permitted to vote.

      d.    Awards.

      (i)   Agreements. Grants to Eligible Persons shall be evidenced by written
            Agreements in such form as the Committee shall from time to time
            determine. Such Agreements shall comply with and be subject to the
            terms and conditions set forth below.

      (ii)  Number of Shares. Each Grant issued to an Eligible Person shall
            state the number of Shares to which it pertains or which otherwise
            underlie the Grant and shall provide for the adjustment thereof in
            accordance with the provisions of Section 15 hereof.

      (iii) Grants. Subject to the terms and conditions of the Plan and
            consistent with the Company's intention for the Committee to
            exercise the greatest permissible flexibility under Rule 16b-3 under
            the Exchange Act in awarding Grants, the Committee shall have the
            power:

      (1)   to determine from time to time the Grants to be issued to Eligible
            Persons under the Plan and to prescribe the terms and provisions
            (which need not be identical) of Grants issued under the Plan to
            such persons;

      (2)   to construe and interpret the Plan and the Grants thereunder and to
            establish, amend and revoke the rules, regulations and procedures
            established for the administration of the Plan. In this connection,
            the Committee may correct any defect or supply any omission, or
            reconcile any inconsistency in the Plan, in any Agreement, or in any
            related agreements, in the manner and to the extent it shall deem
            necessary or expedient to make the Plan fully effective. All
            decisions and determinations by the Committee in the exercise of
            this power shall be final and binding upon the Participating
            Companies and the Grantees;

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      (3)   to amend any outstanding Grant, subject to Section 17, and to
            accelerate or extend the vesting or exercisability of any Grant and
            to waive conditions or restrictions on any Grants, to the extent it
            shall deem appropriate; and

      (4)   generally to exercise such powers and to perform such acts as are
            deemed necessary or expedient to promote the best interests of the
            Company with respect to the Plan.

      5. PARTICIPATION.

      a. Eligibility. Only Eligible Persons shall be eligible to receive Grants
under the Plan.

      b. Limitation of Ownership. No Grants shall be issued under the Plan to
any person who after such Grant would beneficially own more than 9.8% of the
outstanding shares of Common Stock of the Company, unless the foregoing
restriction is expressly and specifically waived by action of the independent
directors of the Board.

      c. Stock Ownership. For purposes of Section 5(b) above, in determining
stock ownership a Grantee shall be considered as owning the stock owned,
directly or indirectly, by or for his brothers, sisters, spouses, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which any person holds an Option shall be considered to be owned
by such person.

      d. Outstanding Stock. For purposes of Section 5(b) above, "outstanding
shares" shall include all stock actually issued and outstanding immediately
after the issue of the Grant to the Grantee. With respect to the stock ownership
of any Grantee, "outstanding shares" shall include shares authorized for issue
under outstanding Options held by such Grantee, but not options held by any
other person.

      6. STOCK. Subject to adjustments pursuant to Section 15, Grants with
respect to an aggregate of no more than 3,500,000 Shares may be granted under
the Plan (all of which may be issued as Options). Subject to adjustments
pursuant to Section 15, (i) the maximum number of Shares with respect to which
any Options may be granted in any one year to any Grantee shall not exceed
500,000, and (ii) the maximum number of Shares that may underlie Grants, other
than Grants of Options, in any one year to any Grantee shall not exceed 500,000.
Notwithstanding the first sentence of this Section 6, (i) Shares that have been
granted as Restricted Stock or that have been reserved for distribution in
payment for Options or Phantom Shares but are later forfeited or for any other
reason are not payable under the Plan; and (ii) Shares as to which an Option is
granted under the Plan that remains unexercised at the expiration, forfeiture or
other termination of such Option, may be the subject of the issue of further
Grants. Shares of Common Stock issued hereunder may consist, in whole or in
part, of authorized and unissued shares, treasury shares or previously issued
Shares under the Plan. The certificates for Shares issued hereunder may include
any legend which the Committee deems appropriate to reflect any restrictions on
transfer hereunder or under the Agreement, or as the Committee may otherwise
deem appropriate. Shares subject to DERs, other than DERs based directly on the
dividends payable with respect to Shares subject to Options or the dividends
payable on a number of Shares corresponding to the number of Phantom Shares
awarded, shall be subject to the limitation of this Section 6. Notwithstanding
the limitations above in this Section 6, except in the case of Grants intended
to qualify for relief from the limitations of Section 162(m) of the Code, there
shall be no limit on the number of Phantom Shares or DERs to the extent they are
paid out in cash that may be granted under the Plan. If any Phantom Shares or
DERs are paid out in cash, the underlying Shares may again be made the subject
of Grants under the Plan, notwithstanding the first sentence of this Section 6.

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      7. TERMS AND CONDITIONS OF OPTIONS.

      a. Initial Awards to Compensation Committee Members. Each member of the
Committee shall automatically be granted a Non-qualified Stock Option to
purchase 5,000 shares of Common Stock and 1,250 DERs upon the date such person
is initially appointed to the Committee, with such terms as may be set forth in
the applicable Agreement. Each Option granted to a Committee member under this
Section 7(a) shall become exercisable commencing one year after the date of
Grant (unless otherwise provided in the applicable Agreement) and shall expire
10 years thereafter. Such Options shall be subject to adjustment as provided in
Section 15; provided that such adjustment and any action by the Board or the
Committee with respect to the Plan and such Options satisfies the requirements
for exemption under Rule 16b-3 under the Exchange Act and does not cause any
member of the Committee to be disqualified as a Non-Employee Director under such
Rule. Notwithstanding the foregoing, the Board may prospectively, from time to
time, discontinue, reduce or increase the amount of any or all of the Grants
otherwise to be made under this Section 7(a).

      b. Each Agreement with an Eligible Person shall state the Exercise Price.
The Exercise Price for any Option shall not be less than the Fair Market Value
on the date of Grant.

      c. Medium and Time of Payment. Except as may otherwise be provided below,
the Purchase Price for each Option granted to an Eligible Person shall be
payable in full in United States dollars upon the exercise of the Option. In the
event the Company determines that it is required to withhold taxes as a result
of the exercise of an Option, as a condition to the exercise thereof, an
Employee may be required to make arrangements satisfactory to the Company to
enable it to satisfy such withholding requirements in accordance with Section
20. If the applicable Agreement so provides, or the Committee otherwise so
permits, the Purchase Price may be paid in one or a combination of the
following:

      (i)   by a certified or bank cashier's check;

      (ii)  by the surrender of shares of Common Stock in good form for
            transfer, owned by the person exercising the Option and having a
            Fair Market Value on the date of exercise equal to the Purchase
            Price, or in any combination of cash and shares of Common Stock, as
            long as the sum of the cash so paid and the Fair Market Value of the
            shares of Common Stock so surrendered equals the Purchase Price;

      (iii) by cancellation of indebtedness owed by the Company to the Grantee;

      (iv)  subject to Section 17(e), by a loan or extension of credit from the
            Company evidenced by a full recourse promissory note executed by the
            Grantee. The interest rate and other terms and conditions of such
            note shall be determined by the Committee (in which case the
            Committee may require that the Grantee pledge his or her Shares to
            the Company for the purpose of securing the payment of such note,
            and in no event shall the stock certificate(s) representing such
            Shares be released to the Grantee until such note shall have been
            paid in full); or

      (v)   by any combination of such methods of payment or any other method
            acceptable to the Committee in its discretion.

Except in the case of Options exercised by certified or bank cashier's check,
the Committee may impose such limitations and prohibitions on the exercise of
Options as it deems appropriate, including, without limitation, any limitation
or prohibition designed to avoid accounting consequences which may result from
the use of Common Stock as payment upon exercise of an Option. Any fractional
shares of

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Common Stock resulting from a Grantee's election that are accepted by the
Company shall in the discretion of the Committee be paid in cash.

      d. Term and Nontransferability of Grants and Options.

      (i)   Each Option under this Section 7 shall state the time or times which
            all or part thereof becomes exercisable, subject to the following
            restrictions.

      (ii)  No Option shall be exercisable except by the Grantee or a transferee
            permitted hereunder.

      (iii) No Option shall be assignable or transferable, except by will or the
            laws of descent and distribution of the state wherein the Grantee is
            domiciled at the time of his death; provided, however, that the
            Committee may (but need not) permit other transfers, where the
            Committee concludes that such transferability (i) does not result in
            accelerated taxation, (ii) does not cause any Option intended to be
            an Incentive Stock Option to fail to be described in Section 422(b)
            of the Code and (iii) is otherwise appropriate and desirable.

      (iv)  No Option shall be exercisable until such time as set forth in the
            applicable Agreement (but in no event after the expiration of such
            Grant).

      (v)   The Committee may not modify, extend or renew any Option granted to
            any Eligible Person unless such modification, extension or renewal
            shall satisfy any and all applicable requirements of Rule 16b-3
            under the Exchange Act. The foregoing notwithstanding, no
            modification of an Option shall, without the consent of the
            Optionee, alter or impair any rights or obligations under any Option
            previously granted.

      e. Termination of Service, Except by Death, Retirement or Disability.
Unless otherwise provided in the applicable Agreement, upon any Termination of
Service for any reason other than his or her death, Retirement or Disability, an
Optionee shall have the right, subject to the restrictions of Section 4(c)
above, to exercise his or her Option at any time within three months after
Termination of Service, but only to the extent that, at the date of Termination
of Service, the Optionee's right to exercise such Option had accrued pursuant to
the terms of the applicable Agreement and had not previously been exercised;
provided, however, that, unless otherwise provided in the applicable Agreement,
if there occurs a Termination of Service by a Participating Company for Cause or
a Termination of Service by the Optionee (other than on account of death,
Retirement or Disability), any Option not exercised in full prior to such
termination shall be canceled.

      f. Death of Optionee. Unless otherwise provided in the applicable
Agreement, if the Optionee of an Option dies while an Eligible Person or within
three months after any Termination of Service other than for Cause or a
Termination of Service by the Optionee (other than on account of death,
Retirement or Disability), and has not fully exercised the Option, then the
Option may be exercised in full, subject to the restrictions of Section 4(c)
above, at anytime within 12 months after the Optionee's death, by the Successor
of the Optionee, but only to the extent that, at the date of death, the
Optionee's right to exercise such Option had accrued and had not been forfeited
pursuant to the terms of the Agreement and had not previously been exercised.

      g. Disability or Retirement of Optionee. Unless otherwise provided in the
Agreement, upon any Termination of Service for reason of his or her Disability
or Retirement, an Optionee shall have the right, subject to the restrictions of
Section 4(c) above, to exercise the Option at any time within 24 months after
Termination of Service, but only to the extent that, at the date of Termination
of Service, the Optionee's

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right to exercise such Option had accrued pursuant to the terms of the
applicable Agreement and had not previously been exercised.

      h. Rights as a Stockholder. An Optionee, a Successor of the Optionee, or
the holder of a DER shall have no rights as a stockholder with respect to any
Shares covered by his or her Grant until, in the case of an Optionee, the date
of the issuance of a stock certificate for such Shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Section 15.

      i. Modification, Extension and Renewal of Option. Within the limitations
of the Plan, and only with respect to Options granted to Eligible Persons, the
Committee may modify, extend or renew outstanding Options or accept the
cancellation of outstanding Options (to the extent not previously exercised) for
the granting of new Options in substitution therefor (but not including
repricings, in the absence of stockholder approval). The Committee may modify,
extend or renew any Option granted to any Eligible Person, unless such
modification, extension or renewal would not satisfy any applicable requirements
of Rule 16b-3 under the Exchange Act. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.

      j. Stock Appreciation Rights. The Committee, in its discretion, may also
permit the Optionee to elect to exercise an Option by receiving Shares, cash or
a combination thereof, in the discretion of the Committee, with an aggregate
Fair Market Value (or, to the extent of payment in cash, in an amount) equal to
the excess of the Fair Market Value of the Shares with respect to which the
Option is being exercised over the aggregate Purchase Price, as determined as of
the day the Option is exercised.

      k. Deferral. The Committee may establish a program under which Optionees
will have Phantom Shares subject to Section 10 credited upon their exercise of
Options, rather than receiving Shares at that time.

      l. Other Provisions. The Agreement authorized under the Plan may contain
such other provisions not inconsistent with the terms of the Plan (including,
without limitation, restrictions upon the exercise of the Option) as the
Committee shall deem advisable.

      8.    SPECIAL RULES FOR INCENTIVE STOCK OPTIONS.

      a. In the case of Incentive Stock Options granted hereunder, the aggregate
Fair Market Value (determined as of the date of the Grant thereof) of the Shares
with respect to which Incentive Stock Options become exercisable by any Optionee
for the first time during any calendar year (under the Plan and all other plans
maintained by the Participating Companies, their parent or Subsidiaries) shall
not exceed $100,000.

      b. In the case of an individual described in Section 422(b)(6) of the Code
(relating to certain 10% owners), the Exercise Price with respect to an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of a
Share on the day the Option is granted and the term of an Incentive Stock Option
shall be no more than five years from the date of grant.

      c. If Shares acquired upon exercise of an Incentive Stock Option are
disposed of in a disqualifying disposition within the meaning of Section 422 of
the Code by an Optionee prior to the expiration of either two years from the
date of grant of such Option or one year from the transfer of Shares to the
Optionee pursuant to the exercise of such Option, or in any other disqualifying
disposition

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within the meaning of Section 422 of the Code, such Optionee shall notify the
Company in writing as soon as practicable thereafter of the date and terms of
such disposition and, if the Company thereupon has a tax-withholding obligation,
shall pay to the Company an amount equal to any withholding tax the Company is
required to pay as a result of the disqualifying disposition.

      9.    PROVISIONS APPLICABLE TO RESTRICTED STOCK.

      a. Vesting Periods. In connection with the grant of Restricted Stock,
whether or not Performance Goals apply thereto, the Committee shall establish
one or more vesting periods with respect to the shares of Restricted Stock
granted, the length of which shall be determined in the discretion of the
Committee. Subject to the provisions of this Section 9, the applicable Agreement
and the other provisions of the Plan, restrictions on Restricted Stock shall
lapse if the Grantee satisfies all applicable employment or other service
requirements through the end of the applicable vesting period.

      b. Grant of Restricted Stock. Subject to the other terms of the Plan, the
Committee may, in its discretion as reflected by the terms of the applicable
Agreement: (i) authorize the granting of Restricted Stock to Eligible Persons;
(ii) provide a specified purchase price for the Restricted Stock (whether or not
the payment of a purchase price is required by any state law applicable to the
Company); (iii) determine the restrictions applicable to Restricted Stock and
(iv) determine or impose other conditions to the grant of Restricted Stock under
the Plan as it may deem appropriate.

      c.    Certificates.

      (i)   Each Grantee of Restricted Stock shall be issued a stock certificate
            in respect of Shares of Restricted Stock awarded under the Plan.
            Such certificate shall be registered in the name of the Grantee.
            Without limiting the generality of Section 6, in addition to any
            legend that might otherwise be required by the Board or the
            Company's charter, bylaws or other applicable documents, the
            certificates for Shares of Restricted Stock issued hereunder may
            include any legend which the Committee deems appropriate to reflect
            any restrictions on transfer hereunder or under the applicable
            Agreement, or as the Committee may otherwise deem appropriate, and,
            without limiting the generality of the foregoing, shall bear a
            legend referring to the terms, conditions, and restrictions
            applicable to such Grant, substantially in the following form:

                  THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
                  STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
                  CONDITIONS (INCLUDING FORFEITURE) OF THE MFA MORTGAGE
                  INVESTMENTS, INC. 2004 EQUITY COMPENSATION PLAN, AND AN
                  AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND MFA
                  MORTGAGE INVESTMENTS, INC. COPIES OF SUCH PLAN AND AWARD
                  AGREEMENT ARE ON FILE IN THE OFFICES OF MFA MORTGAGE
                  INVESTMENTS, INC. AT 350 PARK AVENUE, NEW YORK, NEW YORK
                  10022.

      (ii)  The Committee shall require that the stock certificates evidencing
            such Shares be held in custody by the Company until the restrictions
            hereunder shall have lapsed and that, as a condition of any grant of
            Restricted Stock, the Grantee shall have delivered a stock power,
            endorsed in blank, relating to the stock covered by such Grant. If
            and when such restrictions so lapse, the stock certificates shall be
            delivered by the Company to the Grantee or his or her designee as
            provided in Section 9(d).

                                       10

<PAGE>

      d. Restrictions and Conditions. Unless otherwise provided by the
Committee, the Shares of Restricted Stock awarded pursuant to the Plan shall be
subject to the following restrictions and conditions:

      (i)   Subject to the provisions of the Plan and the applicable Agreement,
            during a period commencing with the date of such Grant and ending on
            the date the period of forfeiture with respect to such Shares
            lapses, the Grantee shall not be permitted voluntarily or
            involuntarily to sell, transfer, pledge, anticipate, alienate,
            encumber or assign Shares of Restricted Stock awarded under the Plan
            (or have such Shares attached or garnished). Subject to the
            provisions of the applicable Agreement and clauses (iii) and (iv)
            below, the period of forfeiture with respect to Shares granted
            hereunder shall lapse as provided in the applicable Agreement.
            Notwithstanding the foregoing, unless otherwise expressly provided
            by the Committee, the period of forfeiture with respect to such
            Shares shall only lapse as to whole Shares.

      (ii)  Except as provided in the foregoing clause (i), below in this clause
            (ii), or in Section 15, the Grantee shall have, in respect of the
            Shares of Restricted Stock, all of the rights of a stockholder of
            the Company, including the right to vote the Shares; provided,
            however, that cash dividends on such Shares shall, unless otherwise
            provided by the Committee in the applicable Agreement, be held by
            the Company (unsegregated as a part of its general assets) until the
            period of forfeiture lapses (and forfeited if the underlying Shares
            are forfeited), and paid over to the Grantee as soon as practicable
            after such period lapses (if not forfeited). Certificates for Shares
            (not subject to restrictions hereunder) shall be delivered to the
            Grantee or his or her designee promptly after, and only after, the
            period of forfeiture shall lapse without forfeiture in respect of
            such Shares of Restricted Stock.

      (iii) Termination of Service, Except by Death, Retirement or Disability.
            Unless otherwise provided in the applicable Agreement, and subject
            to clause (iv) below, if the Grantee has a Termination of Service
            for Cause or by the Grantee for any reason other than his or her
            death, Retirement or Disability, during the applicable period of
            forfeiture, then (A) all Restricted Stock still subject to
            restriction shall thereupon, and with no further action, be
            forfeited by the Grantee, and (B) the Company shall pay to the
            Grantee as soon as practicable (and in no event more than 30 days)
            after such termination an amount equal to the lesser of (x) the
            amount paid by the Grantee for such forfeited Restricted Stock as
            contemplated by Section 9(b), and (y) the Fair Market Value on the
            date of termination of the forfeited Restricted Stock.

      (iv)  Death, Disability or Retirement of Grantee. Unless otherwise
            provided in the applicable Agreement, in the event the Grantee has a
            Termination of Service on account of his or her death, Disability or
            Retirement, or the Grantee has a Termination of Service by the
            Company for any reason other than Cause, during the applicable
            period of forfeiture, then restrictions under the Plan will
            immediately lapse on all Restricted Stock granted to the applicable
            Grantee.

      10.   PROVISIONS APPLICABLE TO PHANTOM SHARES.

      a. Grant of Phantom Shares. Subject to the other terms of the Plan, the
Committee shall, in its discretion as reflected by the terms of the applicable
Agreement: (i) authorize the Granting of Phantom Shares to Eligible Persons and
(ii) determine or impose other conditions to the grant of Phantom Shares under
the Plan as it may deem appropriate.

                                       11

<PAGE>

      b. Term. The Committee may provide in an Agreement that any particular
Phantom Share shall expire at the end of a specified term.

      c.    Vesting.

      (i)   Subject to the provisions of the applicable Agreement and Section
            10(c)(ii), Phantom Shares shall vest as provided in the applicable
            Agreement.

      (ii)  Unless otherwise determined by the Committee at the time of Grant,
            the Phantom Shares granted pursuant to the Plan shall be subject to
            the following vesting conditions:

            (1)   Termination of Service for Cause. Unless otherwise provided in
                  the applicable Agreement and subject to clause (2) below, if
                  the Grantee has a Termination of Service for Cause, all of the
                  Grantee's Phantom Shares (whether or not such Phantom Shares
                  are otherwise vested) shall thereupon, and with no further
                  action, be forfeited by the Grantee and cease to be
                  outstanding, and no payments shall be made with respect to
                  such forfeited Phantom Shares.

            (2)   Termination of Service for Death, Disability or Retirement of
                  Grantee or by the Company for Any Reason Other than Cause.
                  Unless otherwise provided in the applicable Agreement, in the
                  event the Grantee has a Termination of Service on account of
                  his or her death, Disability or Retirement, or the Grantee has
                  a Termination of Service by the Company for any reason other
                  than Cause, all outstanding Phantom Shares granted to such
                  Grantee shall become immediately vested.

            (3)   Except as contemplated above, in the event that a Grantee has
                  a Termination of Service, any and all of the Grantee's Phantom
                  Shares which have not vested prior to or as of such
                  termination shall thereupon, and with no further action, be
                  forfeited and cease to be outstanding, and the Grantee's
                  vested Phantom Shares shall be settled as set forth in Section
                  10(d).

      d.    Settlement of Phantom Shares.

      (i)   Each vested and outstanding Phantom Share shall be settled by the
            transfer to the Grantee of one Share; provided, however, that, the
            Committee at the time of grant (or, in the appropriate case, as
            determined by the Committee, thereafter) may provide that a Phantom
            Share may be settled (A) in cash at the applicable Phantom Share
            Value, (B) in cash or by transfer of Shares as elected by the
            Grantee in accordance with procedures established by the Committee
            or (C) in cash or by transfer of Shares as elected by the Company.

      (ii)  Each Phantom Share shall be settled with a single-sum payment by the
            Company; provided, however, that, with respect to Phantom Shares of
            a Grantee which have a common Settlement Date (as defined below),
            the Committee may permit the Grantee to elect in accordance with
            procedures established by the Committee to receive installment
            payments over a period not to exceed 10 years.

      (iii) (1)   The settlement date with respect to a Grantee is the first
                  day of the month to follow the Grantee's Termination of
                  Service ("Settlement Date"); provided, however, that a Grantee
                  may elect, in accordance with procedures to be adopted

                                       12

<PAGE>

                  by the Committee, that such Settlement Date will be deferred
                  as elected by the Grantee to a time permitted by the Committee
                  under procedures to be established by the Committee. Unless
                  otherwise determined by the Committee, elections under this
                  Section 10(d)(iii)(1) must be made at least six months before,
                  and in the year prior to the year in which, the Settlement
                  Date would occur in the absence of such election.

            (2)   Notwithstanding Section 10(d)(iii)(1), the Committee may
                  provide that distributions of Phantom Shares can be elected at
                  any time in those cases in which the Phantom Share Value is
                  determined by reference to Fair Market Value to the extent in
                  excess of a base value, rather than by reference to unreduced
                  Fair Market Value.

            (3)   Notwithstanding the foregoing, the Settlement Date, if not
                  earlier pursuant to this Section 10(d)(iii), is the date of
                  the Grantee's death.

      (iv)  Notwithstanding any other provision of the Plan, a Grantee may
            receive any amounts to be paid in installments as provided in
            Section 10(d)(ii) or deferred by the Grantee as provided in Section
            10(d)(iii) in the event of an "Unforeseeable Emergency." For these
            purposes, an "Unforeseeable Emergency," as determined by the
            Committee in its sole discretion, is a severe financial hardship to
            the Grantee resulting from a sudden and unexpected illness or
            accident of the Grantee or "dependent," as defined in Section 152(a)
            of the Code, of the Grantee, loss of the Grantee's property due to
            casualty, or other similar extraordinary and unforeseeable
            circumstances arising as a result of events beyond the control of
            the Grantee. The circumstances that will constitute an Unforeseeable
            Emergency will depend upon the facts of each case, but, in any case,
            payment may not be made to the extent that such hardship is or may
            be relieved:

            (1)   through reimbursement or compensation by insurance or
                  otherwise;

            (2)   by liquidation of the Grantee's assets, to the extent the
                  liquidation of such assets would not itself cause severe
                  financial hardship; or

            (3)   by future cessation of the making of additional deferrals
                  under Section 10(d)(ii) and (iii).

                  Without limitation, the need to send a Grantee's child to
                  college or the desire to purchase a home shall not constitute
                  an Unforeseeable Emergency. Distributions of amounts because
                  of an Unforeseeable Emergency shall be permitted to the extent
                  reasonably needed to satisfy the emergency need.

      e.    Other Phantom Share Provisions.

      (i)   Rights to payments with respect to Phantom Shares granted under the
            Plan shall not be subject in any manner to anticipation, alienation,
            sale, transfer, assignment, pledge, encumbrance, attachment,
            garnishment, levy, execution, or other legal or equitable process,
            either voluntary or involuntary; and any attempt to anticipate,
            alienate, sell, transfer, assign, pledge, encumber, attach or
            garnish, or levy or execute on any right to payments or other
            benefits payable hereunder, shall be void.

                                       13

<PAGE>

      (ii)  A Grantee may designate in writing, on forms to be prescribed by the
            Committee, a beneficiary or beneficiaries to receive any payments
            payable after his or her death and may amend or revoke such
            designation at any time. If no beneficiary designation is in effect
            at the time of a Grantee's death, payments hereunder shall be made
            to the Grantee's estate. If a Grantee with a vested Phantom Share
            dies, such Phantom Share shall be settled and the Phantom Share
            Value in respect of such Phantom Shares paid, and any payments
            deferred pursuant to an election under Section 10(d)(iii) shall be
            accelerated and paid, as soon as practicable (but no later than 60
            days) after the date of death to such Grantee's beneficiary or
            estate, as applicable.

      (iii) The Committee may establish a program under which distributions with
            respect to Phantom Shares may be deferred for periods in addition to
            those otherwise contemplated by the foregoing provisions of this
            Section 10. Such program may include, without limitation, provisions
            for the crediting of earnings and losses on unpaid amounts and, if
            permitted by the Committee, provisions under which Grantees may
            select from among hypothetical investment alternatives for such
            deferred amounts in accordance with procedures established by the
            Committee.

      (iv)  Notwithstanding any other provision of this Section 10, any
            fractional Phantom Share will be paid out in cash at the Phantom
            Share Value as of the Settlement Date.

      (v)   No Phantom Share shall give any Grantee any rights with respect to
            Shares or any ownership interest in the Company. Except as may be
            provided in accordance with Section 11, no provision of the Plan
            shall be interpreted to confer upon any Grantee of a Phantom Share
            any voting, dividend or derivative or other similar rights with
            respect to any Phantom Share.

      f.    Claims Procedures.

      (i)   The Grantee, or his beneficiary hereunder or authorized
            representative, may file a claim for payments with respect to
            Phantom Shares under the Plan by written communication to the
            Committee or its designee. A claim is not considered filed until
            such communication is actually received. Within 90 days (or, if
            special circumstances require an extension of time for processing,
            180 days, in which case notice of such special circumstances should
            be provided within the initial 90-day period) after the filing of
            the claim, the Committee will either:

            (1)   approve the claim and take appropriate steps for satisfaction
                  of the claim; or

            (2)   if the claim is wholly or partially denied, advise the
                  claimant of such denial by furnishing to him or her a written
                  notice of such denial setting forth (A) the specific reason or
                  reasons for the denial; (B) specific reference to pertinent
                  provisions of the Plan on which the denial is based and, if
                  the denial is based in whole or in part on any rule of
                  construction or interpretation adopted by the Committee, a
                  reference to such rule, a copy of which shall be provided to
                  the claimant; (C) a description of any additional material or
                  information necessary for the claimant to perfect the claim
                  and an explanation of the reasons why such material or
                  information is necessary; and (D) a reference to this Section
                  10(f) as the provision setting forth the claims procedure
                  under the Plan.

                                       14

<PAGE>

            (ii)  The claimant may request a review of any denial of his or her
                  claim by written application to the Committee within 60 days
                  after receipt of the notice of denial of such claim. Within 60
                  days (or, if special circumstances require an extension of
                  time for processing, 120 days, in which case notice of such
                  special circumstances should be provided within the initial
                  60-day period) after receipt of written application for
                  review, the Committee will provide the claimant with its
                  decision in writing, including, if the claimant's claim is not
                  approved, specific reasons for the decision and specific
                  references to the Plan provisions on which the decision is
                  based.

      11. PROVISIONS APPLICABLE TO DIVIDEND EQUIVALENT RIGHTS.

      a. Grant of DERs. Subject to the other terms of the Plan (including,
without limitation, Section 7(a)), the Committee shall, in its discretion as
reflected by the terms of the Agreements, authorize the granting of DERs to
Eligible Persons based on the dividends declared on Common Stock, to be credited
as of the dividend payment dates, during the period between the date a Grant is
issued, and the date such Grant is exercised, vests or expires, as determined by
the Committee. Such DERs shall be converted to cash or additional Shares by such
formula and at such time and subject to such limitation as may be determined by
the Committee. With respect to DERs granted with respect to Options intended to
be qualified performance-based compensation for purposes of Section 162(m) of
the Code, such DERs shall be payable regardless of whether such Option is
exercised. If a DER is granted in respect of another Grant hereunder, then,
unless otherwise stated in the Agreement, or, in the appropriate case, as
determined by the Committee, in no event shall the DER be in effect for a period
beyond the time during which the applicable related portion of the underlying
Grant has been exercised or otherwise settled, or has expired, been forfeited or
otherwise lapsed, as applicable.

      b.    Certain Terms.

      (i)   The term of a DER shall be set by the Committee in its discretion.

      (ii)  Payment of the amount determined in accordance with Section 11(a)
            shall be in cash, in Common Stock or a combination of the both, as
            determined by the Committee at the time of grant.

      c. Other Types of DERs. The Committee may establish a program under which
DERs of a type whether or not described in the foregoing provisions of this
Section 11 may be granted to Eligible Persons. For example, without limitation,
the Committee may grant a DER in respect of each Share subject to an Option or
with respect to a Phantom Share, which right would consist of the right (subject
to Section 11(d)) to receive a cash payment in an amount equal to the dividend
distributions paid on a Share from time to time.

      d.    Deferral.

      (i)   The Committee may establish a program under which Grantees (i) will
            have Phantom Shares credited, subject to the terms of Sections 10(d)
            and 10(e) as though directly applicable with respect thereto, upon
            the granting of DERs, or (ii) will have payments with respect to
            DERs deferred.

      (ii)  The Committee may establish a program under which distributions with
            respect to DERs may be deferred. Such program may include, without
            limitation, provisions for the crediting of earnings and losses on
            unpaid amounts, and, if permitted by the Committee, provisions under
            which Grantees may select from among hypothetical investment

                                       15

<PAGE>

            alternatives for such deferred amounts in accordance with procedures
            established by the Committee.

      12. OTHER STOCK-BASED AWARDS. The Board shall have the right to issue
other Grants based upon the Common Stock having such terms and conditions as the
Board may determine, including, without limitation, the grant of Shares based
upon certain conditions, and the grant of securities convertible into Common
Stock.

      13. PERFORMANCE GOALS. The Committee, in its discretion, shall in the case
of Grants (including, in particular, Grants other than Options) intended to
qualify for an exception from the limitation imposed by Section 162(m) of the
Code ("Performance-Based Grants") (i) establish one or more performance goals
("Performance Goals") as a precondition to the issue of Grants, and (ii)
provide, in connection with the establishment of the Performance Goals, for
predetermined Grants to those Grantees (who continue to meet all applicable
eligibility requirements) with respect to whom the applicable Performance Goals
are satisfied. The Performance Goals shall be based upon the criteria set forth
in Exhibit A hereto which is hereby incorporated herein by reference as though
set forth in full. The Performance Goals shall be established in a timely
fashion such that they are considered preestablished for purposes of the rules
governing performance-based compensation under Section 162(m) of the Code. Prior
to the award of Restricted Stock hereunder, the Committee shall have certified
that any applicable Performance Goals, and other material terms of the Grant,
have been satisfied. Performance Goals which do not satisfy the foregoing
provisions of this Section 13 may be established by the Committee with respect
to Grants not intended to qualify for an exception from the limitations imposed
by Section 162(m) of the Code.

      14. TERM OF PLAN. Grants may be granted pursuant to the Plan until the
expiration of 10 years from the effective date of the Plan.

      15. RECAPITALIZATION AND CHANGES OF CONTROL.

      a. Subject to any required action by stockholders and to the specific
provisions of Section 16, if (i) the Company shall at any time be involved in a
merger, consolidation, dissolution, liquidation, reorganization, exchange of
shares, sale of all or substantially all of the assets or stock of the Company
or a transaction similar thereto, (ii) any stock dividend, stock split, reverse
stock split, stock combination, reclassification, recapitalization or other
similar change in the capital structure of the Company, or any distribution to
holders of Common Stock other than cash dividends, shall occur or (iii) any
other event shall occur which in the judgment of the Committee necessitates
action by way of adjusting the terms of the outstanding Grants, then:

            (1)   the maximum aggregate number of Shares which may be made
                  subject to Options and DERs under the Plan, the maximum
                  aggregate number and kind of Shares of Restricted Stock that
                  may be granted under the Plan, the maximum aggregate number of
                  Phantom Shares and other Grants which may be granted under the
                  Plan may be appropriately adjusted by the Committee in its
                  discretion; and

            (2)   the Committee shall take any such action as in its discretion
                  shall be necessary to maintain each Grantees' rights hereunder
                  (including under their applicable Agreements) so that they
                  are, in their respective Options, Phantom Shares and DERs,
                  substantially proportionate to the rights existing in such
                  Options, Phantom Shares and DERs prior to such event,
                  including, without limitation, adjustments in (A) the number
                  of Options, Phantom Shares and DERs (and other Grants

                                       16

<PAGE>

                  under Section 12) granted, (B) the number and kind of shares
                  or other property to be distributed in respect of Options,
                  Phantom Shares and DERs (and other Grants under Section 12, as
                  applicable, (C) the Exercise Price, Purchase Price and Phantom
                  Share Value, and (D) performance-based criteria established in
                  connection with Grants (to the extent consistent with Section
                  162(m) of the Code, as applicable); provided that, in the
                  discretion of the Committee, the foregoing clause (D) may also
                  be applied in the case of any event relating to a Subsidiary
                  if the event would have been covered under this Section 15(a)
                  had the event related to the Company.

To the extent that such action shall include an increase or decrease in the
number of Shares subject to all outstanding Grants, the number of Shares
available under Section 6 above shall be increased or decreased, as the case may
be, proportionately.

      b. Any Shares or other securities distributed to a Grantee with respect to
Restricted Stock or otherwise issued in substitution of Restricted Stock
pursuant to this Section 15 shall be subject to the restrictions and
requirements imposed by Section 9, including depositing the certificates
therefor with the Company together with a stock power and bearing a legend as
provided in Section 9(c)(i).

      c. If the Company shall be consolidated or merged with another corporation
or other entity, each Grantee who has received Restricted Stock that is then
subject to restrictions imposed by Section 9(d) may be required to deposit with
the successor corporation the certificates for the stock or securities or the
other property that the Grantee is entitled to receive by reason of ownership of
Restricted Stock in a manner consistent with Section 9(c)(ii), and such stock,
securities or other property shall become subject to the restrictions and
requirements imposed by Section 9(d), and the certificates therefor or other
evidence thereof shall bear a legend similar in form and substance to the legend
set forth in Section 9(c)(i).

      d. The judgment of the Committee with respect to any matter referred to in
this Section 15 shall be conclusive and binding upon each Grantee without the
need for any amendment to the Plan.

      e. Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, the rights under any
outstanding Grant shall pertain and apply to the securities to which a holder of
the number of Shares subject to the Grant would have been entitled. In the event
of a merger or consolidation in which the Company is not the surviving
corporation, the date of exercisability of each outstanding Option and settling
of each Phantom Share or, as applicable, other Grant under Section 12, shall be
accelerated to a date prior to such merger or consolidation, unless the
agreement of merger or consolidation provides for the assumption of the Grant by
the successor to the Company.

      f. To the extent that the foregoing adjustment related to securities of
the Company, such adjustments shall be made by the Committee, whose
determination shall be conclusive and binding on all persons.

      g. Except as expressly provided in this Section 15, a Grantee shall have
no rights by reason of subdivision or consolidation of shares of stock of any
class, the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
Shares subject to a Grant or the Exercise Price of Shares subject to an Option.

                                       17

<PAGE>

      h. Grants made pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business assets.

      i. Upon the occurrence of a Change of Control:

      (i)   The Committee as constituted immediately before the Change of
            Control may make such adjustments as it, in its discretion,
            determines are necessary or appropriate in light of the Change of
            Control (including, without limitation, the substitution of stock
            other than stock of the Company as the stock optioned hereunder, and
            the acceleration of the exercisability of the Options and settling
            of each Phantom Share or, as applicable, other Grant under Section
            12), provided that the Committee determines that such adjustments do
            not have a substantial adverse economic impact on the Grantee as
            determined at the time of the adjustments.

      (ii)  All restrictions and conditions on each DER shall automatically
            lapse and all Grants under the Plan shall be deemed fully vested.

      (iii) Notwithstanding the provisions of Section 10, the Settlement Date
            for Phantom Shares shall be the date of such Change of Control and
            all amounts due with respect to Phantom Shares to a Grantee
            hereunder shall be paid as soon as practicable (but in no event more
            than 30 days) after such Change of Control, unless such Grantee
            elects otherwise in accordance with procedures established by the
            Committee.

      j. "Change of Control" shall mean the occurrence of any one of the
      following events:

      (i)   any "person," as such term is used in Sections 13(d) and 14(d) of
            the Exchange Act(other than the Company, any of its affiliates or
            any trustee, fiduciary or other person or entity holding securities
            under any employee benefit plan or trust of the Company or any of
            its affiliates and, with respect to any particular Eligible
            Employee, other than such Eligible Employee) together with all
            "affiliates" and "associates" (as such terms are defined in Rule
            12b-2 under the Exchange Act) of such person, shall become the
            "beneficial owner" (as such term is defined in Rule 13d-3 under the
            Exchange Act), directly or indirectly, of securities of the Company
            representing 30% or more of either (A) the combined voting power of
            the Company's then outstanding securities having the right to vote
            in an election of the Board ("voting securities") or (B) the then
            outstanding Shares (in either such case other than as a result of an
            acquisition of securities directly from the Company); or

      (ii)  persons who, as of the effective date of the Plan, constitute the
            Board (the "Incumbent Directors") cease for any reason, including,
            without limitation, as a result of a tender offer, proxy contest,
            merger or similar transaction, to constitute at least a majority of
            the Board, provided that any person becoming a member of the Board
            subsequent to the effective date whose election or nomination for
            election was approved and/or ratified by a vote of at least a
            majority of the Incumbent Directors shall, for purposes of the Plan,
            be considered an Incumbent Director; or

      (iii) there shall occur (A) any consolidation or merger of the Company or
            any Subsidiary where the stockholders of the Company, immediately
            prior to the consolidation or merger, would not, immediately after
            the consolidation or merger, beneficially own (as such term is
            defined in Rule 13d-3 under the Exchange Act), directly or
            indirectly, shares

                                       18

<PAGE>

            representing in the aggregate 50% or more of the voting securities
            of the corporation issuing cash or securities in the consolidation
            or merger (or of its ultimate parent corporation, if any), (B) any
            sale, lease, exchange or other transfer (in one transaction or a
            series of transactions contemplated or arranged by any party as a
            single plan) of all or substantially all of the assets of the
            Company or (C) any plan or proposal for the liquidation or
            dissolution of the Company.

            Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Shares or other voting securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 30% or more
of the Shares then outstanding or (y) the proportionate voting power
represented by the voting securities beneficially owned by any person to 30% or
more of the combined voting power of all then outstanding voting securities;
provided, however, that, if any person referred to in clause (x) or (y) of this
sentence shall thereafter become the beneficial owner of any additional Shares
or other voting securities(other than pursuant to a stock split, stock dividend,
or similar transaction), then a "Change of Control" shall be deemed to have
occurred for purposes of this subsection (j).

      16. EFFECT OF CERTAIN TRANSACTIONS. In the case of (i) the dissolution or
liquidation of the Company, (ii) a merger, consolidation, reorganization or
other business combination in which the Company is acquired by another entity or
in which the Company is not the surviving entity, or (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or substantially
all of the assets of the Company, the Plan and the Grants issued hereunder shall
terminate upon the effectiveness of any such transaction or event, unless
provision is made in connection with such transaction for the assumption of
Grants theretofore granted, or the substitution for such Grants of new Grants,
by the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and the per share exercise prices, as provided in
Section 15. In the event of such termination, all outstanding Options and Grants
shall be exercisable in full for at least fifteen days prior to the date of such
termination whether or not otherwise exercisable during such period.

      17. SECURITIES LAW REQUIREMENTS.

      a. Legality of Issuance. The issuance of any Shares pursuant to Grants
under the Plan and the issuance of any Grant shall be contingent upon the
following:

      (i)   the obligation of the Company to sell Shares with respect to Grants
            issued under the Plan shall be subject to all applicable laws, rules
            and regulations, including all applicable federal and state
            securities laws, and the obtaining of all such approvals by
            governmental agencies as may be deemed necessary or appropriate by
            the Committee;

      (ii)  the Committee may make such changes to the Plan as may be necessary
            or appropriate to comply with the rules and regulations of any
            government authority or to obtain tax benefits applicable to stock
            options; and

      (iii) each grant of Options, Restricted Stock, Phantom Shares (or issuance
            of Shares in respect thereof) or DERs (or issuance of Shares in
            respect thereof), or other Grant under Section 12 (or issuance of
            Shares in respect thereof), is subject to the requirement that, if
            at any time the Committee determines, in its discretion, that the
            listing, registration or qualification of Shares issuable pursuant
            to the Plan is required by any securities exchange or under any
            state or federal law, or the consent or approval of any

                                       19

<PAGE>

            governmental regulatory body is necessary or desirable as a
            condition of, or in connection with, the issuance of Options, Shares
            of Restricted Stock, Phantom Shares, DERs, other Grants or other
            Shares, no payment shall be made, or Phantom Shares or Shares issued
            or grant of Restricted Stock or other Grant made, in whole or in
            part, unless listing, registration, qualification, consent or
            approval has been effected or obtained free of any conditions in a
            manner acceptable to the Committee.

      b. Restrictions on Transfer. Regardless of whether the offering and sale
of Shares under the Plan has been registered under the Act or has been
registered or qualified under the securities laws of any state, the Company may
impose restrictions on the sale, pledge or other transfer of such Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and its counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Act, the
securities laws of any state or any other law. In the event that the sale of
Shares under the Plan is not registered under the Act but an exemption is
available which requires an investment representation or other representation,
each Grantee shall be required to represent that such Shares are being acquired
for investment, and not with a view to the sale or distribution thereof, and to
make such other representations as are deemed necessary or appropriate by the
Company and its counsel. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 17 shall be
conclusive and binding on all persons. Without limiting the generality of
Section 6, stock certificates evidencing Shares acquired under the Plan pursuant
to an unregistered transaction shall bear a restrictive legend, substantially in
the following form, and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:

         "THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH
         SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE
         ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR
         THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER
         TO COMPLY WITH THE ACT."

      c. Registration or Qualification of Securities. The Company may, but shall
not be obligated to, register or qualify the issuance of Grants and/or the sale
of Shares under the Act or any other applicable law. The Company shall not be
obligated to take any affirmative action in order to cause the issuance of
Grants or the sale of Shares under the Plan to comply with any law.

      d. Exchange of Certificates. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
the Plan is no longer required, the holder of such certificate shall be entitled
to exchange such certificate for a certificate representing the same number of
Shares but lacking such legend.

      e. Certain Loans. Notwithstanding any other provision of the Plan, the
Company shall not be required to take or permit any action under the Plan or any
Agreement which, in the good-faith determination of the Company, would result in
a material risk of a violation by the Company of Section 13(k) of the Exchange
Act.

      18. AMENDMENT OF THE PLAN. The Board may from time to time, with respect
to any Shares at the time not subject to Grants, suspend or discontinue the Plan
or revise or amend it in any respect whatsoever. The Board may amend the Plan as
it shall deem advisable, except that no amendment may adversely affect a Grantee
with respect to Grants previously granted unless such amendments are in
connection with compliance with applicable laws; provided, however, that the
Board may not make any amendment in the Plan that would, if such amendment were
not approved by the holders of the Common

                                       20

<PAGE>

Stock, cause the Plan to fail to comply with any requirement of applicable law
or regulation, or of any applicable exchange or similar rule, unless and until
the approval of the holders of such Common Stock is obtained.

      19. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to the exercise of an Option, the sale of
Restricted Stock or in connection with other Grants under the Plan will be used
for general corporate purposes.

      20. TAX WITHHOLDING. Each Grantee shall, no later than the date as of
which the value of any Grant first becomes includable in the gross income of the
Grantee for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Company regarding payment of any federal, state
or local taxes of any kind that are required by law to be withheld with respect
to such income. A Grantee may elect to have such tax withholding satisfied, in
whole or in part, by (i) authorizing the Company to withhold a number of Shares
to be issued pursuant to a Grant equal to the Fair Market Value as of the date
withholding is effected that would satisfy the withholding amount due, (ii)
transferring to the Company Shares owned by the Grantee with a Fair Market Value
equal to the amount of the required withholding tax, or (iii) in the case of a
Grantee who is an Employee of the Company at the time such withholding is
effected, by withholding from the Grantee's cash compensation. Notwithstanding
anything contained in the Plan to the contrary, the Grantee's satisfaction of
any tax-withholding requirements imposed by the Committee shall be a condition
precedent to the Company's obligation as may otherwise by provided hereunder to
provide Shares to the Grantee, and the failure of the Grantee to satisfy such
requirements with respect to a Grant shall cause such Grant to be forfeited.

      21. NOTICES. All notices under the Plan shall be in writing, and if to the
Company, shall be delivered to the Board or mailed to its principal office,
addressed to the attention of the Board; and if to the Grantee, shall be
delivered personally or mailed to the Grantee at the address appearing in the
records of the Participating Company. Such addresses may be changed at any time
by written notice to the other party given in accordance with this Section 21.

      22. RIGHTS TO EMPLOYMENT OR OTHER SERVICE. Nothing in the Plan or in any
Grant issued pursuant to the Plan shall confer on any individual any right to
continue in the employ or other service of the Participating Company (if
applicable) or interfere in any way with the right of the Participating Company
and its stockholders to terminate the individual's employment or other service
at any time.

      23. EXCULPATION AND INDEMNIFICATION. To the maximum extent permitted by
law, the Company shall indemnify and hold harmless the members of the Board and
the members of the Committee from and against any and all liabilities, costs and
expenses incurred by such persons as a result of any act or omission to act in
connection with the performance of such person's duties, responsibilities and
obligations under the Plan, other than such liabilities, costs and expenses as
may result from the gross negligence, bad faith, willful misconduct or criminal
acts of such persons.

      24. NO FUND CREATED. Any and all payments hereunder to any Grantee under
the Plan shall be made from the general funds of the Company (or, if applicable,
a Participating Company), no special or separate fund shall be established or
other segregation of assets made to assure such payments, and the Phantom Shares
(including for purposes of this Section 24 any accounts established to
facilitate the implementation of Section 10(d)(iii)) and any other similar
devices issued hereunder to account for Plan obligations do not constitute
Common Stock and shall not be treated as (or as giving rise to) property or as a
trust fund of any kind; provided, however, that the Company (or a Participating
Company) may establish a mere bookkeeping reserve to meet its obligations
hereunder or a trust or other funding vehicle that would not cause the Plan to
be deemed to be funded for tax purposes or for purposes of Title I of the

                                       21

<PAGE>

Employee Retirement Income Security Act of 1974, as amended. The obligations of
the Company (or, if applicable, a Participating Company) under the Plan are
unsecured and constitute a mere promise by the Company (or, if applicable, a
Participating Company) to make benefit payments in the future and, to the extent
that any person acquires a right to receive payments under the Plan from the
Company (or, if applicable, a Participating Company), such right shall be no
greater than the right of a general unsecured creditor of the Company (or, if
applicable, a Participating Company). Without limiting the foregoing, Phantom
Shares and any other similar devices issued hereunder to account for Plan
obligations are solely a device for the measurement and determination of the
amounts to be paid to a Grantee under the Plan, and each Grantee's right in the
Phantom Shares and any such other devices is limited to the right to receive
payment, if any, as may herein be provided.

      25. NO FIDUCIARY RELATIONSHIP. Nothing contained in the Plan (including
without limitation Section 10(e)(iii)), and no action taken pursuant to the
provisions of the Plan, shall create or shall be construed to create a trust of
any kind, or a fiduciary relationship between the Company, the Participating
Companies, or their officers or the Committee, on the one hand, and the Grantee,
the Company, the Participating Companies or any other person or entity, on the
other.

      26. CAPTIONS. The use of captions in the Plan is for convenience. The
captions are not intended to provide substantive rights.

      27. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY THE LAWS OF MARYLAND,
WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.

      28. EXECUTION. The Company has caused the Plan to be executed in the name
and on behalf of the Company by an officer of the Company thereunto duly
authorized as of this 30th day of March, 2004.

                                        MFA MORTGAGE INVESTMENTS, INC.,
                                        a Maryland corporation

                                        By: /s/ Stewart Zimmerman
                                           -------------------------------------
                                        Name:  Stewart Zimmerman
                                        Title: Chairman of the Board, Chief
                                               Executive Officer and President

                                       22

<PAGE>

                                    EXHIBIT A

                              PERFORMANCE CRITERIA

      Performance-Based Grants intended to qualify as "performance based"
compensation under Section 162(m) of the Code, may be payable upon the
attainment of objective performance goals that are established by the Committee
and relate to one or more Performance Criteria, in each case on specified date
or over any period, up to 10 years, as determined by the Committee. Performance
Criteria may be based on the achievement of the specified levels of performance
under one or more of the measures set out below relative to the performance of
one or more other corporations or indices.

      "Performance Criteria" means the following business criteria (or any
combination thereof) with respect to one or more of the Company, any
Participating Company or any division or operating unit thereof:

      i.)     pre-tax income,

      ii.)    after-tax income,

      iii.)   net income (meaning net income as reflected in the Company's
              financial reports for the applicable period, on an aggregate,
              diluted and/or per share basis),

      iv.)    operating income,

      v.)     cash flow,

      vi.)    earnings per share,

      vii.)   return on equity,

      viii.)  return on invested capital or assets,

      ix.)    cash and/or funds available for distribution,

      x.)     appreciation in the fair market value of the Common Stock,

      xi.)    return on investment,

      xii.)   total return to stockholders (meaning the aggregate Common Stock
              price appreciation and dividends paid (assuming full
              reinvestment of dividends) during the applicable period),

      xiii.)  net earnings growth,

      xiv.)   stock appreciation (meaning an increase in the price or value of
              the Common Stock after the date of grant of an award and during
              the applicable period),

      xv.)    related return ratios,

      xvi.)   increase in revenues,

                                      A-1

<PAGE>

      xvii.)  the Company's published ranking against its peer group of real
              estate investment trusts based on total stockholder return,

      xviii.) net earnings,

      xix.)   changes (or the absence of changes) in the per share or
              aggregate market price of the Company's Common Stock,

      xx.)    number of securities sold,

      xxi.)   earnings before any one or more of the following items:
              interest, taxes, depreciation or amortization for the applicable
              period, as reflected in the Company's financial reports for the
              applicable period, and

      xxii.)  total revenue growth (meaning the increase in total revenues
              after the date of grant of an award and during the applicable
              period, as reflected in the Company's financial reports for the
              applicable period).

      Except as otherwise expressly provided, all financial terms are used as
defined under Generally Accepted Accounting Principles ("GAAP") and all
determinations shall be made in accordance with GAAP, as applied by the Company
in the preparation of its periodic reports to stockholders.

      To the extent permitted by Section 162(m) of the Code, unless the
Committee provides otherwise at the time of establishing the performance goals,
for each fiscal year of the Company, the Committee may provide for objectively
determinable adjustments, as determined in accordance with GAAP, to any of the
Performance Criteria described above for one or more of the items of gain, loss,
profit or expense: (A) determined to be extraordinary or unusual in nature or
infrequent in occurrence, (B) related to the disposal of a segment of a
business, (C) related to a change in accounting principle under GAAP, (D)
related to discontinued operations that do not qualify as a segment of a
business under GAAP, and (E) attributable to the business operations of any
entity acquired by the Company during the fiscal year.

                                      A-2Exhibit 10.1
                                                                  EXECUTION COPY
                         COMMON STOCK PURCHASE AGREEMENT

     COMMON STOCK  PURCHASE  AGREEMENT (the  "Agreement"),  dated as of July 20,
2004 by and between  MILLENIUM  HOLDING GROUP,  INC., a Nevada  corporation (the
"Company"),  and FUSION  CAPITAL  FUND II, LLC, an  Illinois  limited  liability
company (the "Buyer").  Capitalized  terms used herein and not otherwise defined
herein are defined in Section 10 hereof.

                                    WHEREAS:

     Subject  to the  terms and  conditions  set  forth in this  Agreement,  the
Company  wishes  to sell to the  Buyer,  and the  Buyer  wishes  to buy from the
Company,  up to Fifteen Million Dollars  ($15,000,000)  of the Company's  common
stock,  par value  $0.05 per share (the  "Common  Stock").  The shares of Common
Stock to be purchased hereunder are referred to herein as the "Purchase Shares."
In addition,  as set forth in Section 1(g) hereof,  the Company may, in its sole
discretion,  at any time after the date hereof and until 30 days after such date
as the Available Amount is equal to $0, deliver an irrevocable written notice to
the Buyer  stating that the Company  elects to enter into a second  Common Stock
Purchase Agreement with the Buyer for the purchase of an additional Five Million
Dollars ($5,000,000) of Common Stock.

     NOW THEREFORE, the Company and the Buyer hereby agree as follows:

     1. PURCHASE OF COMMON STOCK.

     Subject to the terms and conditions set forth in Sections 6, 7 and 9 below,
the Company  hereby agrees to sell to the Buyer,  and the Buyer hereby agrees to
purchase from the Company, shares of Common Stock as follows:

     (a)  COMMENCEMENT  OF PURCHASES OF COMMON  STOCK.  The purchase and sale of
Common Stock  hereunder  shall  commence  (the  "Commencement")  within five (5)
Trading Days following the date of satisfaction (or waiver) of the conditions to
the  Commencement  set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and Buyer) (the date of such Commencement, the
"Commencement Date").

     (b) BUYER'S PURCHASE RIGHTS AND OBLIGATIONS. Subject to the Company's right
to suspend  purchases under Section  1(d)(ii)  hereof,  the Buyer shall purchase
shares of Common Stock on each  Trading Day during each Monthly  Period equal to
the Daily Purchase Amount (as defined in Section 1(c)(i)) at the Purchase Price.
Within one (1) Trading Day of receipt of Purchase Shares, the Buyer shall pay to
the Company an amount equal to the Purchase Amount with respect to such Purchase
Shares as full payment for the purchase of the Purchase Shares so received.  The
Company  shall not  issue  any  fraction  of a share of  Common  Stock  upon any
purchase. All shares of Common Stock (including fractions thereof) issuable upon
a purchase under this Agreement  shall be aggregated for purposes of determining
whether the  purchase  would  result in the issuance of a fraction of a share of
Common  Stock.  If, after the  aforementioned  aggregation,  the issuance  would
result in the  issuance  of a fraction of a share of Common  Stock,  the Company
shall round such  fraction of a share of Common  Stock up or down to the nearest
whole share.  All  payments  made under this  Agreement  shall be made in lawful
money of the United States of America by check or wire  transfer of  immediately
available  funds to such account as the Company may from time to time  designate

                                       1
<PAGE>
by written notice in accordance with the provisions of this Agreement.  Whenever
any amount  expressed to be due by the terms of this Agreement is due on any day
that is not a Trading Day, the same shall instead be due on the next  succeeding
day which is a Trading Day.

     (c) THE DAILY PURCHASE AMOUNT;  COMPANY'S RIGHT TO DECREASE OR INCREASE THE
DAILY PURCHASE AMOUNT.

          (i) THE DAILY PURCHASE AMOUNT. As used herein the term "Original Daily
     Purchase  Amount"  shall mean Twenty Five  Thousand  Dollars  ($25,000) per
     Trading Day. As used herein,  the term "Daily  Purchase  Amount" shall mean
     initially  Twenty Five Thousand  Dollars  ($25,000) per Trading Day,  which
     amount may be  increased or  decreased  from time to time  pursuant to this
     Section 1(c).

          (ii)  COMPANY'S  RIGHT TO  DECREASE  THE DAILY  PURCHASE  AMOUNT.  The
     Company  shall  always have the right at any time to decrease the amount of
     the Daily Purchase  Amount by delivering  written notice (a "Daily Purchase
     Amount  Decrease  Notice") to the Buyer which notice shall  specify the new
     Daily  Purchase  Amount.  The decrease in the Daily  Purchase  Amount shall
     become  effective  one Trading Day after  receipt by the Buyer of the Daily
     Purchase  Amount Decrease  Notice.  Any purchases by the Buyer which have a
     Purchase  Date on or prior to the first (1st)  Trading Day after receipt by
     the Buyer of a Daily Purchase Amount Decrease Notice must be honored by the
     Company as otherwise  provided  herein.  The decrease in the Daily Purchase
     Amount  shall  remain in effect  until the Company  delivers to the Buyer a
     Daily Purchase Amount Increase Notice (as defined below).

           (iii)  COMPANY'S  RIGHT TO INCREASE THE DAILY  PURCHASE  AMOUNT.  The
     Company  shall  have the right (but not the  obligation)  to  increase  the
     amount  of the  Daily  Purchase  Amount  in  accordance  with the terms and
     conditions set forth in this Section 1(c)(iii) by delivering written notice
     to the Buyer stating the new amount of the Daily Purchase  Amount (a "Daily
     Purchase Amount Increase Notice").  A Daily Purchase Amount Increase Notice
     shall be effective  five (5) Trading Days after  receipt by the Buyer.  The
     Company  shall  always have the right at any time to increase the amount of
     the Daily Purchase  Amount up to the Original Daily Purchase  Amount.  With
     respect to increases in the Daily Purchase  Amount above the Original Daily
     Purchase  Amount,  as the market price for the Common Stock  increases  the
     Company  shall  have the  right  from  time to time to  increase  the Daily
     Purchase  Amount as follows.  For every $0.25  increase in Threshold  Price
     above  $1.50  (subject  to  equitable  adjustment  for any  reorganization,
     recapitalization,   non-cash   dividend,   stock  split  or  other  similar
     transaction),  the  Company  shall  have the  right to  increase  the Daily
     Purchase  Amount by up to an  additional  $2,500 in excess of the  Original
     Daily  Purchase  Amount.  "Threshold  Price" for purposes  hereof means the
     lowest  Sale Price of the  Common  Stock  during  the five (5)  consecutive
     Trading Days  immediately  prior to the  submission to the Buyer of a Daily
     Purchase Amount  Increase  Notice (subject to equitable  adjustment for any
     reorganization,  recapitalization,  non-cash dividend, stock split or other
     similar  transaction).  For example,  if the Threshold Price is $1.75,  the
     Company shall have the right to increase the Daily Purchase Amount to up to
     $27,500 in the  aggregate.  If the  Threshold  Price is $2.50,  the Company
     shall have the right to increase the Daily Purchase Amount to up to $35,000
     in the aggregate.  Any increase in the amount of the Daily Purchase  Amount
     shall  continue  in  effect  until  the  delivery  to the  Buyer of a Daily
     Purchase Amount Decrease Notice. However, if at any time during any Trading
     Day the Sale Price of the Common  Stock is below the  applicable  Threshold
     Price,  such  increase in the Daily  Purchase  Amount shall be void and the
     Buyer's  obligations  to buy  Purchase  Shares  hereunder  in excess of the

                                       2
<PAGE>
     applicable  maximum Daily Purchase Amount shall be terminated.  Thereafter,
     the Company  shall again have the right to increase the amount of the Daily
     Purchase  Amount as set forth  herein by delivery  of a new Daily  Purchase
     Amount  Increase Notice only if the Sale Price of the Common Stock is above
     the applicable Threshold Price on each of five (5) consecutive Trading Days
     immediately prior to such new Daily Purchase Amount Increase Notice.

     (d) LIMITATIONS ON PURCHASES.

          (i) LIMITATION ON BENEFICIAL  OWNERSHIP.  The Company shall not effect
     any sale under  this  Agreement  and the Buyer  shall not have the right to
     purchase  shares of Common  Stock under this  Agreement  to the extent that
     after giving effect to such purchase the Buyer together with its affiliates
     would  beneficially own in excess of 4.9% of the outstanding  shares of the
     Common Stock following such purchase.  For purposes  hereof,  the number of
     shares of Common Stock  beneficially  owned by the Buyer and its affiliates
     or  acquired  by the Buyer and its  affiliates,  as the case may be,  shall
     include the number of shares of Common Stock issuable in connection  with a
     purchase under this Agreement  with respect to which the  determination  is
     being made,  but shall  exclude the number of shares of Common  Stock which
     would be issuable  upon (1) a purchase of the  remaining  Available  Amount
     which has not been  submitted for purchase,  and (2) exercise or conversion
     of the  unexercised or unconverted  portion of any other  securities of the
     Company  (including,   without  limitation,  any  warrants)  subject  to  a
     limitation on conversion or exercise analogous to the limitation  contained
     herein  beneficially  owned by the  Buyer and its  affiliates.  If the 4.9%
     limitation  is ever  reached the Company  shall have the option to increase
     such  limitation  to 9.9% by  delivery  of  written  notice  to the  Buyer.
     Thereafter, if the 9.9% limitation is ever reached this shall not affect or
     limit the Buyer's  obligation  to  purchase  the Daily  Purchase  Amount as
     otherwise provided in this Agreement.  Specifically,  even though the Buyer
     may not  receive  additional  shares of Common  Stock in the event that the
     9.9% limitation is ever reached, the Buyer is still obligated to pay to the
     Company  the  Daily  Purchase  Amount  on  each  Trading  Day as  otherwise
     obligated  under this  Agreement,  e.g.  no Event of Default (as defined in
     Section 9 hereof) has  occurred,  nor any event which,  after notice and/or
     lapse of time, would become an Event of Default.  Under such circumstances,
     the Buyer would have the right to acquire additional shares of Common Stock
     in the future only at such time as its ownership  subsequently  become less
     than the 9.9% limitation.  For purposes of this Section, in determining the
     number of  outstanding  shares  of  Common  Stock the Buyer may rely on the
     number  of  outstanding  shares  of Common  Stock as  reflected  in (1) the
     Company's  most  recent  Form 10-Q or Form 10-K,  as the case may be, (2) a
     more recent  public  announcement  by the Company or (3) any other  written
     communication by the Company or its Transfer Agent setting forth the number
     of shares of Common Stock outstanding.  Upon the reasonable written or oral
     request of the Buyer,  the Company  shall  promptly  confirm  orally and in
     writing to the Buyer the number of shares of Common Stock then outstanding.
     In any case,  the number of  outstanding  shares of Common  Stock  shall be
     determined after giving effect to any purchases under this Agreement by the
     Buyer  since  the date as of which  such  number of  outstanding  shares of
     Common  Stock was  reported.  Except as  otherwise  set forth  herein,  for
     purposes of this Section 1(d)(i),  beneficial ownership shall be determined
     in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
     amended.

          (ii)  COMPANY'S  RIGHT TO SUSPEND  PURCHASES.  The Company may, at any
     time,  give written  notice (a "Purchase  Suspension  Notice") to the Buyer
     suspending  purchases of Purchase Shares by the Buyer under this Agreement.
     The Purchase  Suspension  Notice shall be effective only for purchases that
     have a Purchase  Date later than one (1) Trading  Day after  receipt of the

                                       3
<PAGE>
     Purchase Suspension Notice by the Buyer. Any purchase by the Buyer that has
     a Purchase Date on or prior to the first (1st) Trading Day after receipt by
     the Buyer of a Purchase  Suspension Notice from the Company must be honored
     by the Company as otherwise provided herein. Such purchase suspension shall
     continue in effect  until a revocation  in writing by the  Company,  at its
     sole discretion.  So long as a Purchase Suspension Notice is in effect, the
     Buyer shall not be  obligated  to  purchase  any  Purchase  Shares from the
     Company under Section 1 of this Agreement.

          (iii)  PURCHASE  PRICE FLOOR.  The Company  shall not affect any sales
     under  this  Agreement  and the  Buyer  shall  not have the  right  nor the
     obligation  to purchase  any Purchase  Shares  under this  Agreement on any
     Trading Day where the Purchase  Price for any purchases of Purchase  Shares
     would be less than the Floor Price.

     (e) RECORDS OF  PURCHASES.  The Buyer and the Company  shall each  maintain
records  showing the remaining  Available  Amount at any give time and the dates
and  Purchase  Amounts  for each  purchase  or  shall  use  such  other  method,
reasonably satisfactory to the Buyer and the Company.

     (f) TAXES.  The Company  shall pay any and all  transfer,  stamp or similar
taxes that may be payable  with  respect to the  issuance  and  delivery  of any
shares of Common Stock to the Buyer made under this Agreement.

     (g) OPTION FOR SECOND TRANCHE; SECOND COMMON STOCK PURCHASE AGREEMENT.  The
Company may, in its sole discretion, at any time after the date hereof and until
30 days  after  such date as the  Available  Amount is equal to $0 or during the
Twenty  consecutive  Trading Days after the Maturity Date beginning on the first
Trading Day after the Maturity  Date (the  "Second  Tranche  Expiration  Date"),
deliver an irrevocable written notice (the "Second Tranche Notice") to the Buyer
stating  that the  Company  elects  to enter  into an  additional  Common  Stock
Purchase Agreement (the "Second Common Stock Purchase Agreement") with the Buyer
for the purchase of Five  Million  Dollars  ($5,000,000)  of  additional  Common
Stock.  It is agreed and  acknowledged  by the parties hereto that entering into
the Second Common Stock Purchase Agreement shall be at the option of the Company
in its sole  discretion  until such time as the Company shall have delivered the
Second  Tranche  Notice to the Buyer.  The Buyer shall not be obligated to enter
into the Second Common Stock Purchase Agreement unless the Company has delivered
the Second  Tranche  Notice prior to the Second  Tranche  Expiration  Date.  The
Second  Common  Stock  Purchase  Agreement  may not be  entered  into  until the
aggregate  Available  Amount under this  Agreement is fully used to buy Purchase
Shares  hereunder  or during  the  twenty  consecutive  Trading  Days  after the
Maturity Date beginning on the first Trading Day after the Maturity  Date.  Upon
delivery of the Second  Tranche  Notice to the Buyer prior to the Second Tranche
Expiration  Date, the Buyer and the Company shall be obligated to enter into the
Second Common Stock Purchase Agreement no later than the date that is 10 Trading
Days after the Second Tranche Expiration Date. If the Buyer and the Company have
not entered into the Second Common Stock Purchase  Agreement by the date that is
10 Trading Days after the Second Tranche Expiration Date, the Buyer shall not be
obligated to enter into such  additional  Common Stock Purchase  Agreement.  The
terms and conditions of the Second Common Stock Purchase  Agreement  shall be in
form and  substance  identical  in all  respects  to this  Agreement,  provided,
however,  that for purposes of the Second Common Stock Purchase Agreement,  this
Section 1(g) shall be omitted and the number of  Commitment  Shares to be issued
by the  Company to the Buyer  shall be equal to 1/3 of the  aggregate  number of
Commitment  Shares  issued under this  Agreement and the Maturity Date under the
Second Common Stock Purchase Agreement shall be proportionately adjusted.

                                       4
<PAGE>
     2. BUYER'S REPRESENTATIONS AND WARRANTIES.

     The Buyer represents and warrants to the Company that as of the date hereof
and as of the Commencement Date:

     (a)  INVESTMENT  PURPOSE.  The Buyer is entering  into this  Agreement  and
acquiring  the  Commitment  Shares,  (as defined in Section 4(f)  hereof)  (this
Agreement and the Commitment  Shares are collectively  referred to herein as the
"Securities"),  for its own  account  for  investment  only  and not with a view
towards,  or for resale in  connection  with,  the public  sale or  distribution
thereof;  provided however, by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific term.

     (b) ACCREDITED  INVESTOR STATUS.  The Buyer is an "accredited  investor" as
that term is defined in Rule 501(a)(3) of Regulation D.

     (c) RELIANCE ON EXEMPTIONS.  The Buyer  understands that the Securities are
being  offered  and  sold to it in  reliance  on  specific  exemptions  from the
registration requirements of United States federal and state securities laws and
that the  Company  is relying  in part upon the truth and  accuracy  of, and the
Buyer's   compliance   with,  the   representations,   warranties,   agreements,
acknowledgments  and  understandings  of the Buyer set forth  herein in order to
determine the  availability  of such exemptions and the eligibility of the Buyer
to acquire the Securities.

     (d) INFORMATION.  The Buyer has been furnished with all materials  relating
to the business,  finances and operations of the Company and materials  relating
to the offer and sale of the Securities that have been  reasonably  requested by
the Buyer,  including,  without  limitation,  the SEC  Documents  (as defined in
Section  3(f)  hereof).  The  Buyer  understands  that  its  investment  in  the
Securities  involves  a high  degree of risk.  The Buyer (i) is able to bear the
economic risk of an investment in the  Securities  including a total loss,  (ii)
has such knowledge and  experience in financial and business  matters that it is
capable of  evaluating  the merits and risks of the proposed  investment  in the
Securities  and (iii) has had an  opportunity  to ask  questions  of and receive
answers from the officers of the Company concerning the financial  condition and
business of the  Company  and others  matters  related to an  investment  in the
Securities.  Neither such  inquiries nor any other due diligence  investigations
conducted by the Buyer or its representatives  shall modify, amend or affect the
Buyer's right to rely on the Company's  representations and warranties contained
in Section 3 below. The Buyer has sought such  accounting,  legal and tax advice
as it has  considered  necessary to make an informed  investment  decision  with
respect to its acquisition of the Securities.

     (e) NO GOVERNMENTAL  REVIEW.  The Buyer  understands  that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed on or made any  recommendation  or  endorsement  of the Securities or the
fairness  or  suitability  of the  investment  in the  Securities  nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Securities.

     (f) TRANSFER OR RESALE.  The Buyer  understands  that except as provided in
the Registration  Rights Agreement (as defined in Section 4(a) hereof):  (i) the
Securities have not been and are not being  registered under the 1933 Act or any
state  securities  laws,  and may not be offered  for sale,  sold,  assigned  or
transferred  unless (A) subsequently  registered  thereunder or (B) an exemption
exists  permitting such Securities to be sold,  assigned or transferred  without
such registration;  (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance  with the terms of Rule 144 and further,  if Rule
144 is not applicable, any resale of the Securities under circumstances in which

                                       5
<PAGE>
the seller (or the person  through whom the sale is made) may be deemed to be an
underwriter  (as that term is  defined in the 1933 Act) may  require  compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder;  and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.

     (g)  VALIDITY;  ENFORCEMENT.  This  Agreement  has been  duly  and  validly
authorized,  executed  and  delivered  on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable  against the Buyer in accordance with
its terms,  subject as to enforceability to general  principles of equity and to
applicable bankruptcy, insolvency,  reorganization,  moratorium, liquidation and
other  similar laws  relating to, or affecting  generally,  the  enforcement  of
applicable creditors' rights and remedies.

     (h) RESIDENCY. The Buyer is a resident of the State of Illinois.

     (i) NO PRIOR  SHORT  SELLING.  The Buyer  represents  and  warrants  to the
Company  that at no time  prior  to the  date of this  Agreement  has any of the
Buyer, its agents,  representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) "short sale" (as such term is
defined  in Rule  3b-3 of the 1934  Act) of the  Common  Stock  or (ii)  hedging
transaction,  which  establishes a net short position with respect to the Common
Stock.

     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to the Buyer (including representations
and  warranties  regarding  the  Target  Company  assuming  consummation  of the
contemplated  merger with the Company)  that as of the date hereof and as of the
Commencement Date:

     (a)  ORGANIZATION  AND  QUALIFICATION.  The Company and its  "Subsidiaries"
(which for  purposes of this  Agreement  means any entity in which the  Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar  equity  interests)  are  corporations  duly organized and validly
existing in good standing under the laws of the  jurisdiction  in which they are
incorporated,  and have the requisite corporate power and authority to own their
properties  and to carry on their business as now being  conducted.  Each of the
Company and its  Subsidiaries  is duly qualified as a foreign  corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business  conducted by it makes such qualification
necessary,  except to the extent  that the failure to be so  qualified  or be in
good  standing  could not  reasonably  be  expected  to have a Material  Adverse
Effect. As used in this Agreement,  "Material Adverse Effect" means any material
adverse  effect on any of: (i) the  business,  properties,  assets,  operations,
results  of   operations   or  financial   condition  of  the  Company  and  its
Subsidiaries,  if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations  under the Transaction  Documents (as defined
in Section 3(b) hereof).  The Company has no Subsidiaries except as set forth on
Schedule 3(a).

     (b) AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the requisite
corporate  power and authority to enter into and perform its  obligations  under
this  Agreement,  the  Registration  Rights  Agreement  and  each  of the  other
agreements  entered  into by the parties on the  Commencement  Date and attached
hereto  as  exhibits  to  this   Agreement   (collectively,   the   "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof,  (ii) the  execution and delivery of the  Transaction  Documents by the
Company and the consummation by it of the transactions  contemplated  hereby and
thereby, including without limitation, the issuance of the Commitment Shares and

                                       6
<PAGE>
the  reservation  for issuance and the issuance of the Purchase  Shares issuable
under  this  Agreement,  have been duly  authorized  by the  Company's  Board of
Directors and no further  consent or  authorization  is required by the Company,
its Board of Directors or its  shareholders,  (iii) this Agreement has been, and
each other Transaction Document shall be on the Commencement Date, duly executed
and delivered by the Company and (iv) this Agreement constitutes, and each other
Transaction  Document  upon  its  execution  on  behalf  of the  Company,  shall
constitute, the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general  principles of equity or applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the  enforcement of creditors'  rights and remedies.  The
Board of Directors of the Company has approved  the  resolutions  (the  "Signing
Resolutions")  substantially  in the form as set forth as EXHIBIT  C-1  attached
hereto to authorize this Agreement and the transactions contemplated hereby. The
Signing  Resolutions  are  valid,  in full  forth and  effect  and have not been
modified or  supplemented in any respect other than by the resolutions set forth
in EXHIBIT C-2 attached hereto regarding the registration  statement referred to
in Section 4 hereof.  The Company has  delivered to the Buyer a true and correct
copy of a unanimous written consent adopting the Signing Resolutions executed by
all of the members of the Board of Directors of the Company.  No other approvals
or consents of the Company's Board of Directors and/or shareholders is necessary
under  applicable  laws and the Company's  Certificate of  Incorporation  and/or
Bylaws to authorize the  execution and delivery of this  Agreement or any of the
transactions contemplated hereby, including, but not limited to, the issuance of
the Commitment Shares and the issuance of the Purchase Shares.

     (c) CAPITALIZATION.  As of the date hereof, the authorized capital stock of
the Company  consists of (i) 50,000,000  shares of Common Stock,  of which as of
the date hereof,  17,160,467  shares are issued and  outstanding,  0 are held as
treasury  shares,  10,000,000shares  are reserved  for issuance  pursuant to the
Company's stock option plans of which only approximately 9,412,242 shares remain
available  for future grants and 0 shares are issuable and reserved for issuance
pursuant  to  securities  (other  than  stock  options  issued  pursuant  to the
Company's stock option plans)  exercisable or  exchangeable  for, or convertible
into,  shares of Common  Stock and (ii)  3,000,000  shares of  Preferred  Stock,
$0.001 par value with a $0 per share liquidation preference,  of which as of the
date hereof 0 shares are issued and outstanding.  All of such outstanding shares
have  been,  or upon  issuance  will be,  validly  issued and are fully paid and
nonassessable.  Except  as  disclosed  in  Schedule  3(c),  (i) no shares of the
Company's  capital stock are subject to  preemptive  rights or any other similar
rights or any liens or encumbrances  suffered or permitted by the Company,  (ii)
there  are no  outstanding  debt  securities,  (iii)  there  are no  outstanding
options,  warrants,  scrip,  rights to subscribe to, calls or commitments of any
character  whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments,  understandings  or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its  Subsidiaries is obligated to register the
sale of any of their  securities  under the 1933 Act  (except  the  Registration
Rights Agreement), (v) there are no outstanding securities or instruments of the
Company or any of its  Subsidiaries  which  contain  any  redemption  or similar
provisions,  and  there  are  no  contracts,   commitments,   understandings  or
arrangements  by which the Company or any of its  Subsidiaries  is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing  anti-dilution or similar provisions
that will be triggered by the  issuance of the  Securities  as described in this
Agreement and (vii) the Company does not have any stock  appreciation  rights or

                                       7
<PAGE>
"phantom  stock"  plans or  agreements  or any similar  plan or  agreement.  The
Company  has  furnished  to the Buyer true and correct  copies of the  Company's
Certificate  of  Incorporation,  as amended  and as in effect on the date hereof
(the "Certificate of Incorporation"),  and the Company's By-laws, as amended and
as in effect on the date hereof (the  "By-laws"),  and summaries of the terms of
all securities  convertible  into or exercisable  for Common Stock,  if any, and
copies of any documents containing the material rights of the holders thereof in
respect thereto.

     (d) ISSUANCE OF SECURITIES. The Commitment Shares have been duly authorized
and, upon issuance in accordance  with the terms hereof,  the Commitment  Shares
shall be (i) validly issued,  fully paid and  non-assessable  and (ii) free from
all taxes, liens and charges with respect to the issue thereof. 5,000,000 shares
of Common  Stock  have been duly  authorized  and  reserved  for  issuance  upon
purchase under this Agreement.  Upon issuance and payment therefor in accordance
with the terms and conditions of this  Agreement,  the Purchase  Shares shall be
validly issued,  fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue  thereof,  with the holders being  entitled to
all rights accorded to a holder of Common Stock.

     (e) NO  CONFLICTS.  Except as disclosed in Schedule  3(e),  the  execution,
delivery and  performance  of the  Transaction  Documents by the Company and the
consummation by the Company of the transactions  contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase  Shares)  will not (i)  result in a  violation  of the  Certificate  of
Incorporation,  any Certificate of  Designations,  Preferences and Rights of any
outstanding  series of  preferred  stock of the  Company or the  By-laws or (ii)
conflict  with,  or constitute a default (or an event which with notice or lapse
of time or both would become a default)  under,  or give to others any rights of
termination,   amendment,   acceleration  or  cancellation  of,  any  agreement,
indenture or  instrument  to which the Company or any of its  Subsidiaries  is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree  (including  federal and state  securities  laws and  regulations and the
rules and regulations of the Principal  Market  applicable to the Company or any
of its  Subsidiaries) or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected, except in the case of conflicts, defaults
and  violations  under clause (ii),  which could not  reasonably  be expected to
result in a Material  Adverse  Effect.  Except as  disclosed  in Schedule  3(e),
neither the Company nor its  Subsidiaries  is in  violation of any term of or in
default under its Certificate of Incorporation,  any Certificate of Designation,
Preferences  and  Rights of any  outstanding  series of  preferred  stock of the
Company or By-laws or their  organizational  charter or  by-laws,  respectively.
Except as  disclosed  in  Schedule  3(e),  neither  the  Company  nor any of its
Subsidiaries  is in violation of any term of or is in default under any material
contract, agreement, mortgage,  indebtedness,  indenture,  instrument, judgment,
decree or order or any statute,  rule or regulation applicable to the Company or
its  Subsidiaries,  except for possible  conflicts,  defaults,  terminations  or
amendments  which could not  reasonably  be expected to have a Material  Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted,  in violation of any law,  ordinance,  regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required  under the 1933 Act or applicable  state  securities  laws,  the
Company is not  required to obtain any  consent,  authorization  or order of, or
make any filing or registration  with, any court or  governmental  agency or any
regulatory  or  self-regulatory  agency in order for it to  execute,  deliver or
perform  any  of its  obligations  under  or  contemplated  by  the  Transaction
Documents in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents,  authorizations,  orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence shall
be obtained or effected on or prior to the Commencement  Date.  Except as listed
in Schedule  3(e),  since  January 1, 2003,  the Company  has not  received  nor

                                       8
<PAGE>
delivered any notices or  correspondence  from or to the Principal  Market.  The
Principal  Market  has not  commenced  any  delisting  proceedings  against  the
Company.

     (f) SEC DOCUMENTS;  FINANCIAL  STATEMENTS.  Except as disclosed in Schedule
3(f),  since  January  1,  2003,  the  Company  has  timely  filed all  reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing  filed prior to the date
hereof and all exhibits included therein and financial  statements and schedules
thereto and  documents  incorporated  by  reference  therein  being  hereinafter
referred to as the "SEC  Documents").  As of their  respective  dates (except as
they have been correctly  amended),  the SEC Documents  complied in all material
respects with the  requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents,  and none of the
SEC Documents, at the time they were filed with the SEC (except as they may have
been properly  amended),  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 light of the circumstances under which
they were made, not  misleading.  As of their  respective  dates (except as they
have been properly amended), the financial statements of the Company included in
the SEC Documents  complied as to form in all material  respects with applicable
accounting  requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally  accepted  accounting  principles,  consistently  applied,  during the
periods  involved  (except (i) as may be otherwise  indicated in such  financial
statements  or the  notes  thereto  or (ii) in the  case  of  unaudited  interim
statements,  to the extent they may exclude  footnotes  or may be  condensed  or
summary  statements)  and fairly present in all material  respects the financial
position  of  the  Company  as of the  dates  thereof  and  the  results  of its
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited statements, to normal year-end audit adjustments). Except as listed in
Schedule  3(f), the Company has received no notices or  correspondence  from the
SEC since January 1, 2003. The SEC has not commenced any enforcement proceedings
against the Company or any of its subsidiaries.

     (g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g), since
March 31,  2004,  there has been no  material  adverse  change in the  business,
properties,  operations,  financial  condition or results of  operations  of the
Company or its  Subsidiaries.  The Company has not taken any steps, and does not
currently  expect  to  take  any  steps,  to  seek  protection  pursuant  to any
Bankruptcy  Law  nor  does  the  Company  or any of its  Subsidiaries  have  any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings.  The Company is financially solvent and is
generally able to pay its debts as they become due.

     (h) ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or
investigation  before  or  by  any  court,  public  board,   government  agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its  Subsidiaries,  threatened  against or affecting the Company,  the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, which
could reasonably be expected to have a Material Adverse Effect. A description of
each action, suit, proceeding,  inquiry or investigation before or by any court,
public board, government agency,  self-regulatory organization or body which, as
of the date of this  Agreement,  is pending or threatened in writing  against or
affecting the Company, the Common Stock or any of the Company's  Subsidiaries or
any of the  Company's or the  Company's  Subsidiaries'  officers or directors in
their capacities as such, is set forth in Schedule 3(h).

     (i) ACKNOWLEDGMENT  REGARDING BUYER'S STATUS. The Company  acknowledges and
agrees that the Buyer is acting solely in the capacity of arm's length purchaser
with respect to the  Transaction  Documents  and the  transactions  contemplated

                                       9
<PAGE>
hereby and  thereby.  The  Company  further  acknowledges  that the Buyer is not
acting as a  financial  advisor or  fiduciary  of the Company (or in any similar
capacity)  with  respect  to the  Transaction  Documents  and  the  transactions
contemplated  hereby and thereby and any advice given by the Buyer or any of its
representatives  or agents in connection with the Transaction  Documents and the
transactions contemplated hereby and thereby is merely incidental to the Buyer's
purchase of the Securities. The Company further represents to the Buyer that the
Company's decision to enter into the Transaction Documents has been based solely
on the  independent  evaluation  by the  Company  and  its  representatives  and
advisors.

     (j)  NO  GENERAL  SOLICITATION.   Neither  the  Company,  nor  any  of  its
affiliates,  nor any person  acting on its or their  behalf,  has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation  D under  the 1933 Act) in  connection  with the offer or sale of the
Securities.

      (k) INTELLECTUAL  PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all material trademarks, trade names,
service  marks,  service mark  registrations,  service  names,  patents,  patent
rights,    copyrights,    inventions,    licenses,    approvals,    governmental
authorizations,  trade secrets and rights  necessary to conduct their respective
businesses as now conducted.  Except as set forth on Schedule 3(k),  none of the
Company's  material  trademarks,   trade  names,  service  marks,  service  mark
registrations,  service names, patents, patent rights,  copyrights,  inventions,
licenses,   approvals,   government  authorizations,   trade  secrets  or  other
intellectual  property  rights have expired or terminated,  or, by the terms and
conditions thereof,  could expire or terminate within two years from the date of
this  Agreement.  The Company and its  Subsidiaries do not have any knowledge of
any infringement by the Company or its  Subsidiaries of any material  trademark,
trade name rights, patents,  patent rights,  copyrights,  inventions,  licenses,
service names, service marks, service mark registrations,  trade secret or other
similar  rights of others,  or of any such  development  of similar or identical
trade  secrets or technical  information  by others and,  except as set forth on
Schedule  3(k),  there is no claim,  action or proceeding  being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its  Subsidiaries  regarding  trademark,  trade name,  patents,  patent  rights,
invention,  copyright,  license,  service  names,  service  marks,  service mark
registrations,  trade secret or other  infringement,  which could  reasonably be
expected to have a Material Adverse Effect.

     (l)  ENVIRONMENTAL  LAWS.  The  Company  and  its  Subsidiaries  (i) are in
compliance with any and all applicable  foreign,  federal,  state and local laws
and  regulations  relating to the  protection  of human  health and safety,  the
environment  or  hazardous  or  toxic   substances  or  wastes,   pollutants  or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable  Environmental Laws to conduct
their  respective  businesses  and  (iii) are in  compliance  with all terms and
conditions of any such permit, license or approval, except where, in each of the
three  foregoing  clauses,  the  failure to so comply  could not  reasonably  be
expected to have, individually or in the aggregate, a Material Adverse Effect.

     (m) TITLE. The Company and its Subsidiaries  have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property  owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except  such as are  described  in  Schedule  3(m) or such as do not  materially
affect the value of such  property  and do not  interfere  with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities  held under lease by the Company and any of its
Subsidiaries  are held by them under valid,  subsisting and  enforceable  leases
with such  exceptions as are not material and do not interfere with the use made
and proposed to be made of such  property  and  buildings by the Company and its
Subsidiaries.

                                       10
<PAGE>
     (n)  INSURANCE.  The  Company and each of its  Subsidiaries  are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  Subsidiaries  are
engaged.  Neither  the  Company  nor any such  Subsidiary  has been  refused any
insurance  coverage  sought or applied  for and neither the Company nor any such
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 at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its Subsidiaries, taken as a whole.

     (o)  REGULATORY  PERMITS.  The  Company  and its  Subsidiaries  possess all
material  certificates,  authorizations  and permits  issued by the  appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  and neither the  Company  nor any such  Subsidiary  has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

     (p) TAX  STATUS.  Except as set forth on  Schedule  3(p)  with  respect  to
federal income tax returns, the Company and each of its Subsidiaries has made or
filed all federal and state income and all other  material tax returns,  reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its  Subsidiaries  has set aside
on its books  provisions  reasonably  adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental  assessments and
charges  that are  material  in amount,  shown or  determined  to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and has set aside on its books provision  reasonably adequate for the payment of
all taxes for periods  subsequent to the periods to which such returns,  reports
or declarations  apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any  jurisdiction,  and the officers of the
Company know of no basis for any such claim.

     (q) TRANSACTIONS WITH AFFILIATES.  Except as set forth on Schedule 3(q) and
other than the grant or exercise of stock  options  disclosed on Schedule  3(c),
none of the  officers,  directors,  or  employees  of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in
which any  officer,  director,  or any such  employee  has an  interest or is an
officer, director, trustee or partner.

     (r)  APPLICATION  OF  TAKEOVER  PROTECTIONS.  The  Company and its board of
directors have taken or will take prior to the  Commencement  Date 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  Certificate of
Incorporation  or the laws of the state of its  incorporation  which is or could
become  applicable to the Buyer as a result of the transactions  contemplated by
this Agreement,  including,  without  limitation,  the Company's issuance of the
Securities and the Buyer's ownership of the Securities.

     (s)  FOREIGN  CORRUPT  PRACTICES.  Neither  the  Company,  nor  any  of its
Subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the  Company or any of its  Subsidiaries  has, in the course of its

                                       11
<PAGE>
actions  for, or on behalf of, the  Company,  used any  corporate  funds for any
unlawful contribution,  gift,  entertainment or other unlawful expenses relating
to  political  activity;  made any direct or  indirect  unlawful  payment to any
foreign or  domestic  government  official  or employee  from  corporate  funds;
violated  or is in  violation  of any  provision  of the  U.S.  Foreign  Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe,  rebate,  payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

     4. COVENANTS.

     (a)  FILING  OF  REGISTRATION  STATEMENT.  The  Company  shall  as  soon as
practicable  but in no event  later than 40 days from the date hereof file a new
registration  statement  covering the sale of the Commitment Shares and at least
5,000,000  Purchase  Shares in  accordance  with the  terms of the  Registration
Rights Agreement between the Company and the Buyer,  dated as of the date hereof
("Registration Rights Agreement.").

     (b) BLUE SKY. The Company shall take such action,  if any, as is reasonably
necessary in order to obtain an exemption for or to qualify (i) the initial sale
of the  Commitment  Shares  and any  Purchase  Shares  to the Buyer  under  this
Agreement  and (ii) any  subsequent  resale  of the  Commitment  Shares  and any
Purchase Shares by the Buyer, in each case, under applicable securities or "Blue
Sky" laws of the states of the  United  States in such  states as is  reasonably
requested by the Buyer from time to time, and shall provide evidence of any such
action so taken to the Buyer.

     (c) NO VARIABLE  PRICED  FINANCING.  Other than pursuant to this Agreement,
the Company  agrees that  beginning on the date of this  Agreement and ending on
the date of termination of this Agreement (as provided in Section 11(k) hereof),
neither the Company nor any of its Subsidiaries shall, without the prior written
consent of the Buyer,  contract  for any equity  financing  (including  any debt
financing  with an equity  component)  or issue  any  equity  securities  of the
Company or any Subsidiary or securities  convertible or exchangeable into or for
equity  securities of the Company or any Subsidiary  (including  debt securities
with an  equity  component)  which,  in any  case  (i) are  convertible  into or
exchangeable  for an  indeterminate  number of shares of common stock,  (ii) are
convertible  into or exchangeable  for Common Stock at a price which varies with
the market price of the Common Stock,  (iii) directly or indirectly  provide for
any "re-set" or adjustment of the purchase  price,  conversion  rate or exercise
price  after the  issuance of the  security,  or (iv)  contain any  "make-whole"
provision  based upon,  directly or  indirectly,  the market price of the Common
Stock after the issuance of the security,  in each case,  other than  reasonable
and customary  anti-dilution  adjustments for issuance of shares of Common Stock
at a price which is below the market price of the Common Stock.

     (d) LISTING.  The Company shall  promptly  secure the listing of all of the
Purchase Shares and Commitment Shares upon each national securities exchange and
automated  quotation  system, if any, upon which shares of Common Stock are then
listed (subject to official  notice of issuance) and shall maintain,  so long as
any other  shares of Common  Stock shall be so listed,  such listing of all such
securities  from  time to time  issuable  under  the  terms  of the  Transaction
Documents.  The Company  shall  maintain the Common  Stock's  authorization  for
quotation  on  the  Principal  Market.  Neither  the  Company  nor  any  of  its
Subsidiaries  shall take any action that would be reasonably  expected to result
in the delisting or suspension of the Common Stock on the Principal Market.  The
Company shall  promptly,  and in no event later than the following  Trading Day,
provide to the Buyer copies of any notices it receives from the Principal Market
regarding  the  continued  eligibility  of the Common  Stock for listing on such

                                       12
<PAGE>
automated  quotation  system or securities  exchange.  The Company shall pay all
fees and expenses in  connection  with  satisfying  its  obligations  under this
Section.

     (e)  LIMITATION ON SHORT SALES AND HEDGING  TRANSACTIONS.  The Buyer agrees
that  beginning  on the  date  of  this  Agreement  and  ending  on the  date of
termination of this  Agreement as provided in Section  11(k),  the Buyer and its
agents,  representatives and affiliates shall not in any manner whatsoever enter
into or effect,  directly or  indirectly,  any (i) "short sale" (as such term is
defined  in Rule  3b-3 of the 1934  Act) of the  Common  Stock  or (ii)  hedging
transaction,  which  establishes a net short position with respect to the Common
Stock.

     (f)  ISSUANCE  OF  COMMITMENT  SHARES;  LIMITATION  ON SALES OF  COMMITMENT
SHARES.  The Company shall issue to the Buyer a number of shares of Common Stock
(the "Commitment  Shares") equal to $1,050,000  divided by the "Commitment Share
Dollar Value".  The "Commitment Share Dollar Value" shall be equal to the lesser
of: (i) the average of the Closing  Sale Prices of the Common  Stock for the ten
(10)  consecutive  Trading  Days prior to June 9, 2004,  (ii) the average of the
Closing  Sale Prices of the Common  Stock for the ten (10)  consecutive  Trading
Days  beginning on the Trading Day  immediately  after the  consummation  of the
acquisition by the Company  ("Acquisition  Date") of that certain device company
("Target Company") disclosed in the Term Sheet between the Buyer and the Company
dated as of June 7, 2004 and (iii) the average of the Closing Sale prices of the
Common  stock for the ten (10)  consecutive  Trading  Days  prior to the  second
Trading Day immediately prior to the Commencement  Date. The Company shall issue
to the  Buyer  on the  date  hereof a number  of  Commitment  Shares  based on a
"Commitment  Share Dollar  Value" shall equal to the average of the Closing Sale
Prices of the Common  Stock for the ten (10)  consecutive  Trading Days prior to
June 9, 2004, and shall issue additional  Commitment Shares to the Buyer, to the
extent  required  under this Section 4(f), on each of the 11th Trading Day after
the Acquisition  Date and on or prior to the  Commencement  Date. The Commitment
Shares  shall  be  subject  to  equitable  adjustment  for  any  reorganization,
recapitalization,  non-cash dividend,  stock split or other similar transaction.
The  Commitment  Shares  shall be issued in  certificated  form and  (subject to
Section 5 hereof) shall bear the following restrictive legend:

       "THE  SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
       REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS  AMENDED,  OR
       APPLICABLE  STATE  SECURITIES  LAWS.  THE  SECURITIES  HAVE  BEEN
       ACQUIRED FOR  INVESTMENT  AND MAY NOT BE OFFERED FOR SALE,  SOLD,
       TRANSFERRED   OR  ASSIGNED   IN  THE  ABSENCE  OF  AN   EFFECTIVE
       REGISTRATION  STATEMENT FOR THE  SECURITIES  UNDER THE SECURITIES
       ACT OF 1933, AS AMENDED,  OR APPLICABLE STATE SECURITIES LAWS, OR
       AN  OPINION  OF  BUYER'S  COUNSEL,  IN  A  CUSTOMARY  FORM,  THAT
       REGISTRATION  IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE  STATE
       SECURITIES  LAWS OR UNLESS  SOLD  PURSUANT TO RULE 144 UNDER SAID
       ACT."

     The Buyer agrees that the Buyer shall not  transfer or sell the  Commitment
Shares until the earlier of 600 Trading Days (30 Monthly  Periods) from the date
hereof  or the date on which  this  Agreement  has  been  terminated,  provided,
however,  that such  restrictions  shall not apply:  (i) in connection  with any
transfers  to or  among  affiliates  (as  defined  in the  1934  Act),  (ii)  in
connection  with any  pledge  in  connection  with a bona  fide  loan or  margin
account,  (iii) in the event that the  Commencement  does not occur on or before
October 31,  2004,  due to the failure of the Company to satisfy the  conditions
set forth in Section 7 or (iv) if an Event of Default has occurred, or any event
which,  after  notice  and/or  lapse of time,  would become an Event of Default,
including any failure by the Company to timely issue Purchase  Shares under this

                                       13
<PAGE>
Agreement.  Notwithstanding  the  forgoing,  the Buyer may  transfer  Commitment
Shares to a third  party in order to  settle a sale made by the Buyer  where the
Buyer  reasonably  expects the Company to deliver  Purchase  Shares to the Buyer
under  this  Agreement  so long as the  Buyer  maintains  ownership  of the same
overall number of shares of Common Stock by "replacing" the Commitment Shares so
transferred with Purchase Shares when the Purchase Shares are actually issued by
the Company to the Buyer.

     (g) DUE DILIGENCE. The Buyer shall have the right, from time to time as the
Buyer may reasonably deem  appropriate,  to perform  reasonable due diligence on
the Company  during  normal  business  hours.  The Company and its  officers and
employees shall provide  information and reasonably  cooperate with the Buyer in
connection  with any reasonable  request by the Buyer related to the Buyer's due
diligence of the Company,  including,  but not limited to, any such request made
by the Buyer in  connection  with (i) the filing of the  registration  statement
described  in Section 4(a) hereof and (ii) the  Commencement.  Each party hereto
agrees not to disclose any  Confidential  Information  of the other party to any
third party and shall not use the Confidential Information for any purpose other
than in connection  with, or in furtherance  of, the  transactions  contemplated
hereby. Each party hereto  acknowledges that the Confidential  Information shall
remain the  property of the  disclosing  party and agrees that it shall take all
reasonable  measures  to protect  the  secrecy of any  Confidential  Information
disclosed by the other party.

     5. TRANSFER AGENT INSTRUCTIONS.

     Immediately upon the execution of this Agreement, the Company shall deliver
to the  Transfer  Agent a letter in the form as set forth as  EXHIBIT E attached
hereto with respect to the issuance of the Commitment Shares and shall deliver a
letter in substantially equivalent form with respect to the issuance, if any, of
such additional  Commitment Shares as may be required under Section 4(f) on each
of the 11th Trading Day after the Acquisition Date and immediately  prior to the
Commencement  Date.  On the  Commencement  Date,  the  Company  shall  cause any
restrictive  legend on the  Commitment  Shares  and the  shares of Common  Stock
issued to the Buyer upon signing  that certain Term Sheet  between the Buyer and
the  Company and dated as of June 7, 2004 (the  "Signing  Shares") to be removed
and all of the Purchase Shares to be issued under this Agreement shall be issued
without any restrictive legend. The Company shall issue irrevocable instructions
to the Transfer  Agent,  and any subsequent  transfer  agent,  to issue Purchase
Shares  in the name of the  Buyer  for the  Purchase  Shares  (the  "Irrevocable
Transfer  Agent  Instructions").  The  Company  warrants  to the  Buyer  that no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this  Section  5, will be given by the  Company  to the  Transfer  Agent with
respect to the Purchase  Shares and that the Commitment  Shares,  Signing Shares
and the Purchase Shares shall otherwise be freely  transferable on the books and
records of the Company as and to the extent  provided in this  Agreement and the
Registration  Rights Agreement  subject to the provisions of Section 4(f) in the
case of the Commitment Shares.

     6.   CONDITIONS TO THE COMPANY'S  OBLIGATION TO COMMENCE SALES OF SHARES OF
          COMMON STOCK.

     The  obligation of the Company  hereunder to commence sales of the Purchase
Shares is subject to the satisfaction of each of the following  conditions on or
before  the  Commencement  Date  (the  date  that  sales  begin)  and once  such
conditions  have  been  initially  satisfied,  there  shall  not be any  ongoing
obligation  to satisfy such  conditions  after the  Commencement  has  occurred;
provided that these  conditions  are for the  Company's  sole benefit and may be
waived by the Company at any time in its sole  discretion by providing the Buyer
with prior written notice thereof:

                                       14
<PAGE>
     (a) The Buyer shall have  executed  each of the  Transaction  Documents and
delivered the same to the Company.

     (b) Subject to the Company's  compliance  with Section 4(a), a registration
statement covering the sale of all of the Commitment Shares,  Signing Shares and
at least 5,000,000  Purchase Shares shall have been declared effective under the
1933 Act by the SEC and no stop order with respect to the Registration Statement
shall be pending or threatened by the SEC.

     (c) The  representations  and  warranties  of the  Buyer  shall be true and
correct  in  all  material  respects  as of the  date  when  made  and as of the
Commencement  Date as though made at that time (except for  representations  and
warranties  that  speak  as of a  specific  date),  and  the  Buyer  shall  have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by the Buyer at or prior to the Commencement Date.

     7.   CONDITIONS TO THE BUYER'S  OBLIGATION TO COMMENCE  PURCHASES OF SHARES
          OF COMMON STOCK.

     The obligation of the Buyer to commence  purchases of Purchase Shares under
this  Agreement  is  subject  to the  satisfaction  of  each  of  the  following
conditions  on or before the  Commencement  Date (the date that sales begin) and
once such  conditions  have been  initially  satisfied,  there  shall not be any
ongoing  obligation  to  satisfy  such  conditions  after the  Commencement  has
occurred;  provided that these  conditions  are for the Buyer's sole benefit and
may be waived by the Buyer at any time in its sole  discretion  by providing the
Company with prior written notice thereof:

     (a) The Company shall have executed each of the  Transaction  Documents and
delivered the same to the Buyer.

     (b) The Company shall have issued to the Buyer all of the Commitment Shares
required  under  Section  4(f) and shall have removed the  restrictive  transfer
legend  from the  certificate  representing  the  Commitment  Shares and Signing
Shares.

     (c) The Common Stock shall be  authorized  for  quotation on the  Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the  Principal  Market and the  Purchase  Shares and the
Commitment Shares shall be approved for listing upon the Principal Market.

     (d) The Buyer  shall have  received  the  opinions of the  Company's  legal
counsel dated as of the Commencement Date substantially in the form of EXHIBIT A
attached hereto.

     (e) The  representations  and  warranties  of the Company shall be true and
correct  in all  material  respects  (except  to the  extent  that  any of  such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such  representations  and warranties  shall be true and
correct  without further  qualification)  as of the date when made and as of the
Commencement  Date as though made at that time (except for  representations  and
warranties  that  speak  as of a  specific  date)  and the  Company  shall  have
performed, satisfied and complied with the covenants,  agreements and conditions
required by the  Transaction  Documents to be  performed,  satisfied or complied
with by the Company at or prior to the  Commencement  Date. The Buyer shall have

                                       15
<PAGE>
received a  certificate,  executed by the CEO,  President or CFO of the Company,
dated as of the Commencement  Date, to the foregoing effect in the form attached
hereto as EXHIBIT B.

     (f) The Board of Directors of the Company shall have adopted resolutions in
the form  attached  hereto as EXHIBIT C which  shall be in full force and effect
without any amendment or supplement thereto as of the Commencement Date.

     (g) As of the Commencement Date, the Company shall have reserved out of its
authorized  and  unissued  Common  Stock,  solely for the  purpose of  effecting
purchases of Purchase  Shares  hereunder,  at least  5,000,000  shares of Common
Stock.

     (h) The Irrevocable Transfer Agent Instructions,  in form acceptable to the
Buyer shall have been  delivered to and  acknowledged  in writing by the Company
and the Company's Transfer Agent.

     (i) The Company shall have delivered to the Buyer a certificate  evidencing
the incorporation and good standing of the Company in the State of Nevada issued
by the  Secretary  of State of the State of Nevada as of a date  within ten (10)
Trading Days of the Commencement Date.

     (j) The Company shall have  delivered to the Buyer a certified  copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Nevada within ten (10) Trading Days of the Commencement Date.

     (k) The Company shall have delivered to the Buyer a secretary's certificate
executed by the Secretary of the Company,  dated as of the Commencement Date, in
the form attached hereto as EXHIBIT D.

     (l) A  registration  statement  covering the sale of all of the  Commitment
Shares,  Signing Shares and at least  5,000,000  Purchase Shares shall have been
declared  effective under the 1933 Act by the SEC and no stop order with respect
to the  registration  statement  shall be pending or  threatened by the SEC. The
Company  shall  have  prepared  and  delivered  to the  Buyer  a  final  form of
prospectus  to be  used  by the  Buyer  in  connection  with  any  sales  of any
Commitment Shares, Signing Shares or any Purchase Shares. The Company shall have
made all  filings  under  all  applicable  federal  and  state  securities  laws
necessary to consummate  the issuance of the Commitment  Shares,  Signing Shares
and the Purchase Shares pursuant to this Agreement in compliance with such laws.

     (m) No Event of Default has  occurred,  or any event  which,  after  notice
and/or lapse of time, would become an Event of Default has occurred.

     (n) On or  prior to the  Commencement  Date,  the  Company  shall  take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in  order  to  render  inapplicable  any  control  share  acquisition,  business
combination,  shareholder rights plan or poison pill (including any distribution
under a rights  agreement) or other similar  anti-takeover  provision  under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could  become  applicable  to the  Buyer as a result  of the  transactions
contemplated by this Agreement,  including,  without  limitation,  the Company's
issuance of the Securities and the Buyer's ownership of the Securities.

     (o) The  Company  shall  have  provided  the  Buyer  with  the  information
requested by the Buyer in connection with its due diligence  requests made prior
to, or in connection  with, the  Commencement,  in accordance  with the terms of
Section 4(g) hereof.

                                       16
<PAGE>
     8. INDEMNIFICATION.

     In consideration  of the Buyer's  execution and delivery of the Transaction
Documents and acquiring the  Securities  hereunder and in addition to all of the
Company's other obligations under the Transaction  Documents,  the Company shall
defend,  protect,  indemnify  and  hold  harmless  the  Buyer  and  all  of  its
affiliates,  shareholders, officers, directors, employees and direct or indirect
investors  and any of the  foregoing  person's  agents or other  representatives
(including,   without   limitation,   those  retained  in  connection  with  the
transactions contemplated by this Agreement)  (collectively,  the "Indemnitees")
from and against any and all actions,  causes of action, suits, claims,  losses,
costs,  penalties,  fees,  liabilities  and damages,  and expenses in connection
therewith  (irrespective of whether any such Indemnitee is a party to the action
for  which  indemnification  hereunder  is  sought),  and  including  reasonable
attorneys' fees and disbursements (the "Indemnified  Liabilities"),  incurred by
any  Indemnitee  as a result  of,  or  arising  out of, or  relating  to (a) any
misrepresentation  or  breach  of any  representation  or  warranty  made by the
Company in the  Transaction  Documents or any other  certificate,  instrument or
document  contemplated  hereby  or  thereby,  (b) any  breach  of any  covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action,  suit or claim brought or made against such  Indemnitee
and arising out of or resulting  from the  execution,  delivery,  performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby,  other than with respect to Indemnified
Liabilities  which  directly and primarily  result from the gross  negligence or
willful  misconduct  of  the  Indemnitee.  To  the  extent  that  the  foregoing
undertaking  by the Company  may be  unenforceable  for any reason,  the Company
shall make the maximum  contribution to the payment and  satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.

     9. EVENTS OF DEFAULT.

     An "Event of Default"  shall be deemed to have  occurred at any time as any
of the following events occurs:

     (a) while any registration statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
such  registration   statement  lapses  for  any  reason   (including,   without
limitation,  the  issuance of a stop order) or is  unavailable  to the Buyer for
sale of all of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the  Registration  Rights  Agreement,
and such lapse or unavailability  continues for a period of ten (10) consecutive
Trading  Days or for more than an  aggregate  of thirty (30) Trading Days in any
365-day period;

     (b) the suspension from trading or failure of the Common Stock to be listed
on the Principal Market for a period of three (3) consecutive Trading Days;

     (c) the delisting of the Company's Common Stock from the Principal  Market,
provided,  however, that the Common Stock is not immediately  thereafter trading
on the New York Stock Exchange,  the Nasdaq National Market, the Nasdaq SmallCap
Market, the Nasdaq OTC Bulletin Board or the American Stock Exchange;

     (d) the  failure  for any reason by the  Transfer  Agent to issue  Purchase
Shares to the Buyer within five (5) Trading Days after the  applicable  Purchase
Date which the Buyer is entitled to receive;

                                       17
<PAGE>
     (e) the Company breaches any  representation,  warranty,  covenant or other
term or  condition  under any  Transaction  Document if such breach could have a
Material Adverse Effect and except,  in the case of a breach of a covenant which
is reasonably  curable,  only if such breach  continues for a period of at least
ten (10) Trading Days;

     (f) any payment default under any contract  whatsoever or any  acceleration
prior to maturity of any mortgage, indenture, contract or instrument under which
there  may  be  issued  or by  which  there  may be  secured  or  evidenced  any
indebtedness  for  money  borrowed  by the  Company  or for money  borrowed  the
repayment of which is guaranteed by the Company,  whether such  indebtedness  or
guarantee now exists or shall be created  hereafter,  which, with respect to any
such  payment  default  or  acceleration  prior to  maturity,  is in  excess  of
$1,000,000;

     (g) if any Person commences a proceeding against the Company pursuant to or
within the meaning of any Bankruptcy Law;

     (h) if the Company pursuant to or within the meaning of any Bankruptcy Law;
(A) commences a voluntary case, (B) consents to the entry of an order for relief
against  it in an  involuntary  case,  (C)  consents  to  the  appointment  of a
Custodian of it or for all or  substantially  all of its  property,  (D) makes a
general assignment for the benefit of its creditors,  (E) becomes insolvent,  or
(F) is generally unable to pay its debts as the same become due; or

     (i) a court of competent  jurisdiction  enters an order or decree under any
Bankruptcy  Law that (A) is for relief  against  the  Company in an  involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.

In addition  to any other  rights and  remedies  under  applicable  law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default  has  occurred  and is  continuing,  or if any event
which, after notice and/or lapse of time, would become an Event of Default,  has
occurred  and is  continuing,  or so long as the  Purchase  Price is  below  the
Purchase Price Floor, the Buyer shall not be obligated to purchase any shares of
Common Stock under this  Agreement.  If pursuant to or within the meaning of any
Bankruptcy Law, the Company commences a voluntary case or any Person commences a
proceeding  against the Company, a Custodian is appointed for the Company or for
all or  substantially  all of its  property,  or the  Company  makes  a  general
assignment for the benefit of its creditors,  (any of which would be an Event of
Default as described  in Sections  9(g),  9(h) and 9(i)  hereof) this  Agreement
shall  automatically  terminate  without any liability or payment to the Company
without  further  action or notice by any Person.  No such  termination  of this
Agreement  under  Section  11(k)(i)  shall  affect the  Company's or the Buyer's
obligations  under this  Agreement  with  respect to pending  purchases  and the
Company and the Buyer shall complete their  respective  obligations with respect
to any pending purchases under this Agreement.

     10. CERTAIN DEFINED TERMS.

     For  purposes  of this  Agreement,  the  following  terms  shall  have  the
following meanings:

     (a) "1933 Act" means the Securities Act of 1933, as amended.

     (b)   "Available   Amount"  means   initially   Fifteen   Million   Dollars
($15,000,000)  in the  aggregate  which  amount shall be reduced by the Purchase
Amount each time the Buyer purchases  shares of Common Stock pursuant to Section
1 hereof.

                                       18
<PAGE>
     (c)  "Bankruptcy  Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.

     (d) "Closing Sale Price" means,  for any security as of any date,  the last
closing  trade price for such  security on the  Principal  Market as reported by
Bloomberg,  or, if the Principal Market is not the principal securities exchange
or trading  market  for such  security,  the last  closing  trade  price of such
security  on the  principal  securities  exchange or trading  market  where such
security is listed or traded as reported by Bloomberg.

     (e) "Confidential  Information"  means any information  disclosed by either
party to the other party, either directly or indirectly,  in writing,  orally or
by inspection of tangible objects  (including,  without  limitation,  documents,
prototypes,   samples,   plant   and   equipment),   which  is   designated   as
"Confidential,"   "Proprietary"   or  some  similar   designation.   Information
communicated  orally  shall  be  considered  Confidential  Information  if  such
information is confirmed in writing as being Confidential Information within ten
(10) business days after the initial  disclosure.  Confidential  Information may
also  include  information  disclosed to a  disclosing  party by third  parties.
Confidential  Information shall not, however,  include any information which (i)
was publicly  known and made  generally  available in the public domain prior to
the time of disclosure by the disclosing  party; (ii) becomes publicly known and
made  generally  available  after  disclosure  by the  disclosing  party  to the
receiving party through no action or inaction of the receiving  party;  (iii) is
already in the  possession of the  receiving  party at the time of disclosure by
the  disclosing  party as shown  by the  receiving  party's  files  and  records
immediately  prior to the time of disclosure;  (iv) is obtained by the receiving
party from a third party without a breach of such third party's  obligations  of
confidentiality;  (v) is independently  developed by the receiving party without
use of or reference to the disclosing party's Confidential Information, as shown
by documents and other competent  evidence in the receiving party's  possession;
or (vi) is required by law to be disclosed by the receiving party, provided that
the receiving  party gives the  disclosing  party prompt  written notice of such
requirement  prior to such  disclosure  and  assistance  in  obtaining  an order
protecting the information from public disclosure.

     (f)  "Custodian"  means any  receiver,  trustee,  assignee,  liquidator  or
similar official under any Bankruptcy Law.

     (g) "Floor Price" means initially  $2.50,  which amount may be increased or
decreased from time to time as provided below,  except that in no case shall the
Floor Price be less than $0.25.  The Company may at any time give written notice
(a "Floor Price Change Notice") to the Buyer  increasing or decreasing the Floor
Price.  The Floor Price Change Notice shall be effective only for purchases that
have a Purchase  Date later than one (1) Trading Day after  receipt of the Floor
Price Change Notice by the Buyer.  Any purchase by the Buyer that has a Purchase
Date on or prior to the first  Trading Day after receipt of a Floor Price Change
Notice from the Company  must be honored by the  Company as  otherwise  provided
herein. The Floor Price shall be appropriately  adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction.

     (h)  "Maturity  Date" means the date that is 600  Trading  Days (30 Monthly
Periods) from the Commencement Date.

     (i) "Monthly Period" means each successive 20 Trading Day period commencing
with the Commencement Date.

                                       19
<PAGE>
     (j) "Person" means an individual or entity including any limited  liability
company,  a  partnership,   a  joint  venture,   a  corporation,   a  trust,  an
unincorporated  organization  and a  government  or  any  department  or  agency
thereof.

     (k)  "Principal  Market"  means the Nasdaq  OTC  Bulletin  Board;  provided
however,  that in the event the Company's  Common Stock is ever listed or traded
on the Nasdaq National Market,  the Nasdaq SmallCap  Market,  the New York Stock
Exchange or the American Stock Exchange,  than the "Principal Market" shall mean
such other market or exchange on which the Company's Common Stock is then listed
or traded.

     (l)  "Purchase  Amount"  means the  portion of the  Available  Amount to be
purchased by the Buyer pursuant to Section 1 hereof.

     (m) "Purchase Date" means the actual date that the Buyer is to buy Purchase
Shares pursuant to Section 1 hereof.

     (n) "Purchase  Price" means, as of any date of  determination  the lower of
the (A) the lowest Sale Price of the Common Stock on such date of  determination
and (B) the  arithmetic  average of the three (3) lowest Closing Sale Prices for
the Common Stock during the Twelve (12)  consecutive  Trading Days ending on the
Trading  Day   immediately   preceding  such  date  of   determination   (to  be
appropriately  adjusted  for  any  reorganization,   recapitalization,  non-cash
dividend, stock split or other similar transaction).

     (o) "Sale Price"  means,  for any security as of any date,  any trade price
for such security on the Principal  Market as reported by Bloomberg,  or, if the
Principal Market is not the principal  securities exchange or trading market for
such  security,  the trade price of such  security on the  principal  securities
exchange or trading  market where such  security is listed or traded as reported
by Bloomberg.

     (p) "SEC" means the United States Securities and Exchange Commission.

     (q) "Transfer  Agent" means the transfer  agent of the Company as set forth
in Section 11(f) hereof or such other person who is then serving as the transfer
agent for the Company in respect of the Common Stock.

     (r) "Trading Day" means any day on which the  Principal  Market is open for
customary trading.

     11. MISCELLANEOUS.

     (a) GOVERNING  LAW;  JURISDICTION;  JURY TRIAL.  The corporate  laws of the
State of Nevada shall govern all issues  concerning  the relative  rights of the
Company and its shareholders.  All other questions  concerning the construction,
validity,  enforcement  and  interpretation  of this  Agreement  and  the  other
Transaction  Documents  shall be governed by the  internal  laws of the State of
Illinois,  without  giving  effect  to any  choice  of law  or  conflict  of law
provision or rule (whether of the State of Illinois or any other  jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of  Illinois.  Each party  hereby  irrevocably  submits  to the  exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the  adjudication  of any  dispute  hereunder  or under  the  other  Transaction
Documents  or in  connection  herewith  or  therewith,  or with any  transaction
contemplated  hereby or discussed herein,  and hereby  irrevocably  waives,  and

                                       20
<PAGE>
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  brought in an  inconvenient  forum or that the venue of such
suit,  action or proceeding is improper.  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  to such  party at the
address for such 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. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION
OF ANY  DISPUTE  HEREUNDER  OR IN  CONNECTION  HEREWITH  OR ARISING  OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

     (b)  COUNTERPARTS.  This Agreement may be executed in two or more identical
counterparts,  all of which 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;  provided  that a facsimile  signature  shall be
considered  due execution  and shall be binding upon the signatory  thereto with
the same force and effect as if the signature were an original,  not a facsimile
signature.

     (c)  HEADINGS.  The  headings  of this  Agreement  are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

     (d)  SEVERABILITY.  If any provision of this Agreement  shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction  or the  validity  or  enforceability  of  any  provision  of  this
Agreement in any other jurisdiction.

     (e)  ENTIRE  AGREEMENT;  AMENDMENTS.  With  the  exception  of  the  Mutual
Nondisclosure  Agreement  between  the  parties  dated as of June 1, 2004,  this
Agreement  supersedes  all other  prior oral or written  agreements  between the
Buyer,  the Company,  their  affiliates  and persons acting on their behalf with
respect  to  the  matters  discussed  herein,  and  this  Agreement,  the  other
Transaction  Documents and the instruments  referenced herein contain the entire
understanding  of the parties  with  respect to the matters  covered  herein and
therein and,  except as  specifically  set forth herein or therein,  neither the
Company  nor  the  Buyer  makes  any  representation,   warranty,   covenant  or
undertaking with respect to such matters.  No provision of this Agreement may be
amended  other than by an  instrument  in writing  signed by the Company and the
Buyer,  and no  provision  hereof may be waived other than by an  instrument  in
writing signed by the party against whom enforcement is sought.

     (f)  NOTICES.  Any  notices,  consents,  waivers  or  other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be deemed  to have  been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending party);  or (iii) one Trading Day after deposit with
a  nationally  recognized  overnight  delivery  service,  in each case  properly
addressed to the party to receive the same. The addresses and facsimile  numbers
for such communications shall be:

                                       21
<PAGE>
     If to the Company:
          Millenium Holding Group, Inc.
          12 Winding Road
          Henderson, Nevada 89052
          Telephone: 702-492-7721
          Facsimile: 702-492-7728
          Attention: Richard Ham, Chief Executive Officer

     With a copy to:
          Carl P. Ranno
          2816 E. Windrose Drive
          Phoenix, Arizona 85032
          Telephone: 602-493-0369
          Facsimile: 602-493-5119
          Attention: Carl P. Ranno

     If to the Buyer:
          Fusion Capital Fund II, LLC
          222 Merchandise Mart Plaza, Suite 9-112
          Chicago, IL 60654
          Telephone: 312-644-6644
          Facsimile: 312-644-6244
          Attention: Steven G. Martin

     If to the Transfer Agent:
          Computershare Trust Company, Inc.
          350 Indiana Street, Suite 800
          Golden, Colorado 80401
          Telephone: 303-262-0600
          Facsimile: 303-262-0700
          Attention: Legal Transfer Department

or at such other address and/or facsimile number and/or to the attention of such
other person as the  recipient  party has  specified by written  notice given to
each other  party  three (3)  Trading  Days prior to the  effectiveness  of such
change.  Written  confirmation  of receipt  (A) given by the  recipient  of such
notice,   consent,   waiver  or  other   communication,   (B)   mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally  recognized
overnight  delivery service,  shall be rebuttable  evidence of personal service,
receipt by facsimile or receipt from a nationally  recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.

     (g) SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and inure
to the benefit of the parties and their respective  successors and assigns.  The
Company shall not assign this Agreement or any rights or  obligations  hereunder
without  the  prior  written  consent  of the  Buyer,  including  by  merger  or
consolidation.  The Buyer may not assign its  rights or  obligations  under this
Agreement.

     (h) NO THIRD  PARTY  BENEFICIARIES.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

                                       22
<PAGE>
     (i) PUBLICITY.  The Buyer shall have the right to approve  before  issuance
any press  releases or any other public  disclosure  (including any filings with
the  SEC)  with  respect  to the  transactions  contemplated  hereby;  provided,
however,  that the Company shall be entitled,  without the prior approval of the
Buyer,  to make any press  release or other  public  disclosure  (including  any
filings  with the SEC) with  respect  to such  transactions  as is  required  by
applicable  law and  regulations  (although  the Buyer shall be consulted by the
Company in  connection  with any such press  release or other public  disclosure
prior to its release and shall be provided with a copy thereof).

     (j) FURTHER  ASSURANCES.  Each party shall do and  perform,  or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

     (k) TERMINATION. This Agreement may be terminated only as follows:

          (i) By the  Buyer  any time an Event of  Default  exists  without  any
     liability or payment to the Company.  However, if pursuant to or within the
     meaning of any  Bankruptcy  Law, the Company  commences a voluntary case or
     any Person  commences a  proceeding  against the  Company,  a Custodian  is
     appointed for the Company or for all or substantially  all of its property,
     or the Company makes a general assignment for the benefit of its creditors,
     (any of which would be an Event of Default as described  in Sections  9(g),
     9(h) and 9(i) hereof) this Agreement shall automatically  terminate without
     any liability or payment to the Company without further action or notice by
     any  Person.  No such  termination  of this  Agreement  under this  Section
     11(k)(i) shall affect the Company's or the Buyer's  obligations  under this
     Agreement  with respect to pending  purchases and the Company and the Buyer
     shall complete  their  respective  obligations  with respect to any pending
     purchases under this Agreement.

          (ii) In the event that the Commencement  shall not have occurred,  the
     Company shall have the option to terminate this Agreement for any reason or
     for no reason without liability of any party to any other party.

          (iii) In the event that the Commencement shall not have occurred on or
     before  October 31, 2004,  due to the failure to satisfy the conditions set
     forth in Sections 6 and 7 above with respect to the  Commencement  (and the
     nonbreaching party's failure to waive such unsatisfied  condition(s)),  the
     nonbreaching party shall have the option to terminate this Agreement at the
     close of business on such date or thereafter without liability of any party
     to any other party.

          (iv) If by the Maturity Date  (including any extension  thereof by the
     Company pursuant to Section 10(g) hereof),  for any reason or for no reason
     the full  Available  Amount under this  Agreement has not been purchased as
     provided  for in  Section 1 of this  Agreement,  by the Buyer  without  any
     liability or payment to the Company.

          (v) At any time after the  Commencement  Date,  the Company shall have
     the option to terminate  this  Agreement for any reason or for no reason by
     delivering notice (a "Company Termination Notice") to the Buyer electing to

                                       23
<PAGE>
     terminate this Agreement without any liability or payment to the Buyer. The
     Company Termination Notice shall not be effective until one (1) Trading Day
     after it has been received by the Buyer.

          (vi) This Agreement shall automatically terminate on the date that the
     Company sells and the Buyer purchases the full Available Amount as provided
     herein, without any action or notice on the part of any party.

          (vii) By the Buyer at any time after  October 31,  2004,  in the event
     the acquisition of the Target Company has not been fully consummated.

Except as set forth in  Sections  11(k)(i)  (in  respect  of an Event of Default
under  Sections  9(g),  9(h) and 9(i)) and  11(k)(vi),  any  termination of this
Agreement  pursuant to this  Section  11(k) shall be effected by written  notice
from the Company to the Buyer, or the Buyer to the Company,  as the case may be,
setting forth the basis for the  termination  hereof.  The  representations  and
warranties  of the Company and the Buyer  contained  in Sections 2 and 3 hereof,
the indemnification  provisions set forth in Section 8 hereof and the agreements
and  covenants  set forth in Section  1(g) and  Section  11,  shall  survive the
Commencement  and any  termination  of this  Agreement.  No  termination of this
Agreement  shall  affect the  Company's  or the Buyer's  obligations  under this
Agreement with respect to pending  purchases and the Company and the Buyer shall
complete  their  respective  obligations  with respect to any pending  purchases
under this Agreement.

     (l) NO FINANCIAL  ADVISOR,  PLACEMENT AGENT,  BROKER OR FINDER. The Company
represents  and  warrants  to the Buyer that it has not  engaged  any  financial
advisor,  placement agent,  broker or finder in connection with the transactions
contemplated  hereby.  The Buyer  represents and warrants to the Company that it
has not engaged any  financial  advisor,  placement  agent,  broker or finder in
connection  with the  transactions  contemplated  hereby.  The Company  shall be
responsible for the payment of any fees or commissions, if any, of any financial
advisor,  placement  agent,  broker or finder  relating to or arising out of the
transactions  contemplated  hereby.  The Company  shall pay,  and hold the Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses)  arising in connection with any such
claim.

     (m) NO STRICT  CONSTRUCTION.  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.

     (n)  REMEDIES,  OTHER  OBLIGATIONS,  BREACHES AND  INJUNCTIVE  RELIEF.  The
Buyer's remedies  provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement,  at law or in
equity  (including  a decree of specific  performance  and/or  other  injunctive
relief),  no remedy of the Buyer  contained  herein  shall be deemed a waiver of
compliance  with the  provisions  giving rise to such remedy and nothing  herein
shall limit the Buyer's  right to pursue  actual  damages for any failure by the
Company to comply with the terms of this  Agreement.  The  Company  acknowledges
that a breach by it of its obligations  hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate.  The
Company  therefore  agrees that,  in the event of any such breach or  threatened
breach,  the  Buyer  shall be  entitled,  in  addition  to all  other  available
remedies,  to an  injunction  restraining  any breach,  without the necessity of
showing economic loss and without any bond or other security being required.

     (o)  CHANGES  TO THE  TERMS  OF  THIS  AGREEMENT.  This  Agreement  and any
provision  hereof may only be amended by an instrument in writing  signed by the

                                       24
<PAGE>
Company and the Buyer. The term "Agreement" and all reference  thereto,  as used
throughout this instrument,  shall mean this instrument as originally  executed,
or if later amended or supplemented, then as so amended or supplemented.

     (p) ENFORCEMENT COSTS. If: (i) this Agreement is placed by the Buyer in the
hands of an attorney  for  enforcement  or is enforced by the Buyer  through any
legal proceeding;  or (ii) an attorney is retained to represent the Buyer in any
bankruptcy,   reorganization,   receivership  or  other  proceedings   affecting
creditors'  rights  and  involving  a claim  under this  Agreement;  or (iii) an
attorney is retained to represent the Buyer in any other proceedings  whatsoever
in connection with this  Agreement,  then the Company shall pay to the Buyer, as
incurred by the Buyer,  all reasonable costs and expenses  including  attorneys'
fees  incurred in  connection  therewith,  in addition to all other  amounts due
hereunder.

     (q) FAILURE OR INDULGENCE  NOT WAIVER.  No failure or delay in the exercise
of any power,  right or privilege  hereunder  shall operate as a waiver thereof,
nor shall any single or partial  exercise of any such power,  right or privilege
preclude  other or  further  exercise  thereof or of any other  right,  power or
privilege.

                                   * * * * *

                                       25
<PAGE>
     IN WITNESS WHEREOF, the Buyer and the Company have caused this Common Stock
Purchase Agreement to be duly executed as of the date first written above.

                                THE COMPANY:

                                MILLENIUM HOLDING GROUP, INC.

                                By: /s/ Richard L. Ham
                                   ---------------------------
                                Name:  Richard L. Ham
                                Title: President

                                BUYER:

                                FUSION CAPITAL FUND II, LLC
                                BY: FUSION CAPITAL PARTNERS, LLC
                                BY: ROCKLEDGE CAPITAL CORPORATION

                                By: /s/ Josh Scheinfeld
                                   ---------------------------
                                Name:  Josh Scheinfeld
                                Title: President

                                       26

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