Document:

China Gengsheng Minerals, Inc: Exhibit 10.1 - Prepared by TNT Filings Inc.

  

Exhibit 10.1 

Sales Contract 

(English Translation) 

Contract No: JDYT-1008-MM-471 

Buyer: China National Petroleum Group Co.,
Ltd., Jidong Oilfield Company (the "The Buyer") 

Legal Representative: Gou San Quan 

Seller: Zhengzhou Duesail Fracture Proppant
Co. Ltd (the "Seller") 

Legal Representative: Shunqing Zhang 

Place: Yangli Village, Dayugou Town, Gongyi
City, Zhengzhou Henan 

Date: June 24, 2008 

According to the relevant laws and regulations of the
People’s Republic of China, the Buyer and the Seller has entered this contract
(the "Contract") based on the principle of good faith and mutual benefit, and
equivalent non-gratuitous act. The Buyer and the Sellers will be hereafter
referred collectively as the "Parties". 

1. 

The scope of
supply and materials to be provided will be described in the annex (the
"Annex"). 

2. 

This Contract is
a supply and sales contract, any materials or supplies in this Contract shall be
provided and sold by the Seller. 

2.1 

The location of
reserve is the warehouse designated by the Buyer. The Seller shall deliver all
the materials indicated in the Annex to the reserve location upon the
notification of the Buyer. The Seller shall bear all the risks that might occur
during the delivery. 

2.2 

The contents of
materials or supplies to this Contract will be reviewed and altered monthly. The
Seller shall provide the supplies along with the quantities accordingly. 

2.3 

The Seller shall
propose the combination of supplies if the Buyer does not specify the items in
details. The price of the items provided by the Seller shall be decided by
mutual agreement. The Buyer shall be able to find other supplier when the price
consensus cannot be reached. 

3. 

The period of
reserve and sales: This Contract will be valid until December 31, 2008 from the
date of execution. 

4. 

Price and
payment 

4.1 

The contract value will include the supplies fees of supplies to be reserved and
sold, transportation fee, handling fee, and 17% value-added tax. 

4.2 

Time and method of payment: The Buyer will process the payment based on the
receipt of the supplies they have received and used on monthly base. 

4.3 

The adjustment of price: In general, the price of the materials in this Contract
maintains the same during the valid period of this Contract. The Buyer is
eligible to adjust the purchase upon negotiation with the Seller if the
fluctuation of market price occurs. The Buyer is eligible to terminate this
Contract once the negotiation fails. 

4.4 

Any sales occurred from April 17, 2008 to the effective date of this Contract
shall be executed according to the terms of this Contract. 

4.5 

The payment of this Contract will be settled by unit price and the quantities to
be actually ordered. The Buyer will not guarantee the quantities of purchases.

5. 

Packaging 

5.1 

The standard of packaging: based on the general industrial standard. 

5.2 

The requirements of package: Packaging needs to meet the requirement of safety
of delivery and environmental protection with clear packaging instructions.

5.3 

The Seller shall be responsible for all the packaging expenses, excluding other
particular agreement between the Parties. 

5.4 

The Seller shall be responsible for all the damages due to any violations of
packaging requirements or agreement. 

6. 

Delivery 

6.1 

Method of delivery can be determined by the Seller within its discretion.
Loading location is from Yangli Village, Dayugou Town, Gongyi City, Zhengzhou
City, Henan Province. The delivery destination is Jidong Oilfield. The receiver
is the Non-metal Unit of Supply Department at Jidong Oilfield Company. 

6.2 

Transportation fee and related expenses shall be paid by the Seller. 

6.3 

The Seller shall be responsible for all the risks that occur during the delivery
from third parties. 

6.4 

The Buyer shall be responsible for the risks and expenses incurring from the
changes of delivery destination and the receiver. 

7. 

Inspections 

7.1 

The inspection shall be conducted based on the requirements and standards
indicated in this Contract or the requirements of contract law if not specified.

7.2 

The Seller shall be responsible for complimentary replacement and all the
expense due to exchanges if the supplies do not meet the requirements upon
inspection. In such event, the Buyer is eligible to return the supplies. 

7.3 

The Parties agree to respect the evaluation concluded by the technical authority
the Buyer recommends when the disputes of inspection occur. The Seller shall be
responsible for the related expenses if the evaluation concludes that the
supplies do not meet the standard or requirements specified in this Contract.

7.4 

The Buyer shall be responsible for the risks and expenses incurring from the
changes of delivery destination and the receiver. 

8. 

Quality Warranty

8.1 

The Seller shall guarantee to meet the quality standard to this Contract and the
satisfaction of needs on the site for the Buyer. The Seller shall bear life-long
liability for the quality of goods to be provided. 

8.2 

The Seller shall be responsible for providing with goods to be used with
reasonable validity. The Buyer is eligible to request for exchange for the goods
produced expired from the valid periods. 

8.3 

The Seller shall be responsible for all the expenses incurred from inspection or
re-examination due to the quality disqualification. 

9. 

Confidentiality 

9.1 

The Parties shall be fulfilling the obligations of confidentiality in terms of
commercial secrets obtained from this Contract. Without mutual agreement,
neither party can disclose information in any manner to a third party. 

10. 

Technical Services and Training 

11. 

Changes and termination of the Contract 

11.1

This Contract can be changed or terminated under mutual agreement in writing.

11.2 

Either party can terminate the Contract based on the following conditions:

11.2.1 

The Contract cannot be enforced due to force majeure. 

11.2.2 

The Buyer can terminate the Contract when the Seller fails to deliver the
supplies on time as required. 

11.2.3 

The Buyer can terminate the Contract when the Seller fails to provide the
required quality of supplies as agreed. 

11.2.4 

The Buyer can terminate the Contract when the Seller fails to meet the quality
standards and to adopt the alternatives to meet the Buyer’s requirement. 

11.2.5 

The Seller can terminate the Contract when the Buyer declines to receive the
supplies without justifiable reasons. 

11.3 

The Seller shall provide timely and efficient after-sale services. The Buyer is
eligible to terminate the Contract when the Seller fails to provide timely and
efficient after-sale services. 

11.4 

Neither party can enjoy the default indemnity due to the changes or termination
of the Contract. The breaching party shall be responsible for all
responsibilities and economic compensation from the damages it may cause. 

12. 

Default 

12.1 

The Seller shall pay 1% of the total price of the delayed goods each day for the
delay of delivery and be responsible for all related damages it may cause to the
Buyer. 

12.2 

The Seller shall be responsible for all the economic compensation when the
conditions in Sections 11.2.2, 11.2.3, and 11.2.4 hereof occur. 

12.3 

The Seller shall guarantee the goods to be delivered without involvement of
third party’s rights and will be responsible for all the damages if it occurs.

12.4 

Either party shall be liable for violating the terms of Article 9 hereof. 

12.5 

The Seller shall be responsible for all the requirements of safety and
environmental protections during the delivery process. The Seller shall be
liable for all the damages incurring to the Buyer or other third parties due to
any violations of such requirements. 

12.6 

The breaching party shall be liable for all the damages due to the violations.
Each party shall bear its own responsibilities when the violations occur
respectively. 

13. 

Force majeure 

13.1

Force majeure
refers to any unforeseeable events including natural disaster such as fire,
earthquake, typhoon, flood and other unpredictable, unavoidable, and
uncontrollable accidents which result in complete or partial failure of
fulfilling the obligations to this Contract. The impacted party from force
majeure or both parties shall not be liable for the default. The impacted party
shall notify the other party the fore majeure within 48 hours after such event
occurs and provide the evidence of force majeure within 3 days. 

13.2 

The impacted
party or both parties shall alleviate the damages from force majeure to the
minimum. 

14. 

Disputes 

14.1

Any dispute
shall be settled through negotiation by both parties. 

14.2 

Either party
shall file the case to the local jurisdiction the contract executed when the
settlement cannot be reached. 

15. 

Effectiveness
and other 

15.1

The Seller must
remove the supplies from the Buyer’s warehouse within three (3) months upon the
Buyer’s notification and shall bear all related costs. 

15.2

The Buyer is
eligible to adjust and reaffirm the scope and quantities of orders depending on
the demands and the supply performance of the Seller. 

15.3 

This contract
shall become effective as of the date when the legal representatives from both
parties sign and affix the company seal to this Contract. 

15.4 

The Contract can
be supplemented through mutual negotiation as part of this Contract (the
"Supplements"). 

15.5 

The attachment
and supplements are considered as party of the Contract with the same legal
validity. This Contract will supersede if differences exists between attachments
and the Supplements will supersede if differences exists between the Supplements
and this Contract. 

15.6 

This Contract
will be duplicated 7 copies, the Buyer will hold 6 copies and the Seller holds
one copy. 

	The Buyer	The Seller
	Company: China
    National Petroleum Group Co., Ltd.,	Company: Zhengzhou
    Duesail Fracture Proppant Co. Ltd
	Legal representative:
    /s/ Zhao, Su San	Legal representative:
    /s/ Fei, Yin Biao
	Company Seal	Company Seal
	Address: Guangmingxi
    Li Xinhua W. Avenue Tanshan City	Address: Yangli
    Village Dayugou Town Gongyi City
	China 063000	Zhengzhou City Henan
    China 451271

Annex 

Description of Materials Categories 

	
    No.	
    ITEM	
    Quality

    Standard	
    Quantity	
    Unit	
    Unit

    price	 
	
    1	
    Medium Density-High Strength Fracture Proppants Density
    >=1.65g/m3 <= 1.8g/m3 0.425-0.82 mm 52MP Breaking
    ratio < 5	
    SY/T5108-2006	
    2000	
    tons	
    2130	
    (RMB4,260,000)
	
    2	
    High Density-High Strength Fracture Proppants Density
    >=1.8g/m3 <=1.8g/m3 0.425-0.82 mm 69MP Breaking ratio
    < 5	
    SY/T5108-2006	
    2000	
    tons	
    2980	
    (RMB5,960,000)Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "Agreement") is dated as of
June 25, 2008 between CDEX Inc. a Nevada corporation (the "Company"), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").

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

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

                                   ARTICLE I.
                                   DEFINITIONS

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

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

                  "Affiliate" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person, as such terms are used in and
         construed under Rule 405 under the Securities Act. With respect to a
         Purchaser, any investment fund or managed account that is managed on a
         discretionary basis by the same investment manager as such Purchaser
         will be deemed to be an Affiliate of such Purchaser.

                  "Board of Directors" means the board of directors of the
         Company.

                  "Business Day" means any day except any Saturday, any Sunday,
         any day which is a federal legal holiday in the United States or any
         day on which banking institutions in the State of New York are
         authorized or required by law or other governmental action to close.

                  "Closing" shall have the meaning ascribed to such term in
         Section 2.1.

                  "Closing Date" shall have the meaning ascribed to such term in
         Section 2.1.

                  "Closing Date" means the Trading Day when all of the
         Transaction Documents have been executed and delivered by the
         applicable parties thereto, and all conditions precedent to (i) the

<PAGE>

         Purchasers' obligations to pay the Subscription Amount and (ii) the
         Company's obligations to deliver the Securities, have been satisfied or
         waived.

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock of the Company, par
         value $0.005 per share, and any other class of securities into which
         such securities may hereafter be reclassified or changed into.

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

                  "Contingent Obligation" means, as to any Person, any direct or
         indirect liability, contingent or otherwise, of that Person with
         respect to any indebtedness, lease, dividend or other obligation of
         another Person if the primary purpose or intent of such other Person
         incurring such liability, or the primary effect thereof, is to provide
         assurance to the obligee of such liability that such liability will be
         paid or discharged, or that any agreements relating thereto will be
         complied with, or that the holders of such liability will be protected
         (in whole or in part) against loss with respect thereto.

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

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

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

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

                  "Exempt Issuance" means the issuance of (a) shares of Common
         Stock or options to employees, officers or directors of the Company
         pursuant to any stock or option plan duly adopted for such purpose by a
         majority of the non-employee members of the Board of Directors or a
         majority of the members of a committee of non-employee directors
         established for such purpose, (b) securities upon the exercise or
         exchange of or conversion of any Securities issued hereunder and/or
         other securities exercisable or exchangeable for or convertible into
         shares of Common Stock issued and outstanding on the date of this
         Agreement, provided that such securities have not been amended since
         the date of this Agreement to directly or indirectly effectively
         increase the number of such securities or to decrease the exercise,
         exchange or conversion price of such securities, and (c) shares of
         Common Stock or options to any Consultant (as defined below) of the
         Company, provided that any such issuances or sales to Consultants must
         be reasonable consideration for the services rendered by such
         Consultants and shall not exceed more than 300,000 shares of Common
         Stock (as appropriately and equitably adjusted for any stock splits,
         stock combinations and similar events) to all Consultants in the

                                       2
<PAGE>

         aggregate under any circumstances. "Consultant" shall mean any natural
         person providing bona fide services to the Company which are not in
         connection with the offer or sale of securities in a capital raising
         transaction and which do not directly or indirectly promote or maintain
         a market for the Company's securities.

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

                  "Initial Closing" shall have the meaning ascribed to such term
         in Section 2.1.

                  "Indebtedness" of any Person means (a) all indebtedness for
         borrowed money, (b) all obligations issued, undertaken or assumed as
         the deferred purchase price of property or services, except for trade
         payables entered into in the ordinary course of business, (c) all
         obligations in respect of letters of credit, surety bonds, bankers
         acceptances or similar instruments (including without limitation all
         reimbursement or payment obligations with respect thereto), (d) all
         obligations evidenced by Note, bonds, debentures or similar
         instruments, including without limitation obligations so evidenced
         incurred in connection with the acquisition of property, assets or
         businesses, (e) all indebtedness created or arising under any
         conditional sale or other title retention agreement, or incurred as
         financing, in either case with respect to any property or assets
         acquired with the proceeds of such indebtedness (even if the rights and
         remedies of the seller or bank under such agreement in the event of
         default are limited to repossession or sale of such property), (f) all
         monetary obligations under any leasing or similar arrangement which is
         classified as a "capital lease" under GAAP, and (g) all Contingent
         Obligations in respect of Indebtedness of others of the kinds referred
         to in clauses (a) through (f) above.

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

                  "knowledge" means, when used in reference to the Company, the
         knowledge of the directors, corporate officers (including without
         limitation any individuals designated as chief financial officer, chief
         operating officer and similar designations of the Company) and the
         general counsel of the Company, assuming such persons shall have made
         inquiry that is customary and reasonably appropriate under the
         circumstances to which reference is made.

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

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

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

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

                                       3
<PAGE>

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

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

                  "MFN Transaction" shall have the meaning ascribed to such term
         in Section 4.12(b).

                  "Net Short Sale" by any Purchaser shall mean a sale of Common
         Stock by such Purchaser that is marked as a short sale and that is made
         at a time when there is no equivalent offsetting long position in
         Common Stock held by such Purchaser, where an "equivalent offsetting
         long position" includes all shares of Common Stock held by such
         Purchaser and all underlying shares of Common Stock which are issuable
         upon conversion, exercise or exchange of convertible securities,
         warrants, options or other rights to subscribe for or to purchase or
         exchange for shares of Common Stock.

                  "Notes" means the 12% Senior Convertible Notes due, subject to
         the terms therein, two (2) years from their date of issuance, issued by
         the Company to the Purchasers hereunder, in the form of Exhibit A
         attached hereto.

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

                  "Principal Amount" shall mean, as to each Purchaser, the
         amounts set forth below such Purchaser's signature block on the
         signature pages hereto and next to the heading "Principal Amount," in
         United States Dollars, which shall equal such Purchaser's Subscription
         Amount multiplied by 1.08695652.

                  "Proceeding" means an action, claim, suit, investigation or
         proceeding (including, without limitation, an informal investigation or
         partial proceeding, such as a deposition), by a governmental authority
         or agency or self-regulatory organization.

                  "Purchaser Party" shall have the meaning ascribed to such term
         in Section 4.10.

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

                  "Required Minimum" means, as of any date, the maximum
         aggregate number of shares of Common Stock then issued or potentially
         issuable in the future pursuant to the Transaction Documents, including
         any Underlying Shares issuable upon exercise or conversion in full of
         all Warrants and Notes (including Underlying Shares issuable as payment
         of interest), ignoring any conversion or exercise limits set forth
         therein, and assuming that the Conversion Price is at all times on and
         after the date of determination 85% of the then Conversion Price on the
         Trading Day immediately prior to the date of determination.

                                       4
<PAGE>

                  "Regulation 13D-G" means Regulation 13D-G promulgated by the
         Commission pursuant to the Exchange Act, as such Regulation and the
         Rules thereunder may be amended from time to time, or any similar rule
         or regulation hereafter adopted by the Commission having substantially
         the same effect as such Regulation.

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

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

                  "Securities" means the Notes, the Warrants and the Underlying
         Shares.

                  "Securities Act" means the Securities Act of 1933, as amended,
         and the rules and regulations promulgated thereunder.

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

                  "Short Sales" means all "short sales" as defined in Rule 200
         of Regulation SHO under the Exchange Act (but shall not be deemed to
         include the location and/or reservation of borrowable shares of Common
         Stock).

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

                  "Subsequent Closing" shall have the meaning ascribed to such
         term in Section 2.1.

                  "Subsequent Financing" shall have the meaning ascribed to such
         term in Section 4.12.

                  "Subsidiary" means any subsidiary of the Company as set forth
         on Schedule 3.1 (a) and shall, where applicable, include any direct or
         indirect subsidiary of the Company formed or acquired after the date
         hereof.

                  "Trading Day" means a day on which the OTC Bulletin Board is
         open for trading.

                  "Trading Market" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: the American Stock Exchange, the Nasdaq Capital Market, the
         Nasdaq Global Market, the Nasdaq Global Select Market, the New York
         Stock Exchange or the OTC Bulletin Board.

                                       5
<PAGE>

                  "Transaction Documents" means this Agreement, the Notes, the
         Warrants, the Lock Up Agreements and all exhibits and schedules thereto
         and hereto and any other documents or agreements executed in connection
         with the transactions contemplated hereunder.

                  "Transfer Agent" means The Nevada Agency and Trust Company,
         the current transfer agent of the Company with a mailing address of 50
         West Liberty Street, Suite 880, Reno, Nevada 89501, Attn: Mary Ramsey,
         and a facsimile number of (775) 322 5623 and a telephone number of
         (775) 322-0626 and any successor transfer agent of the Company.

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

                  "Variable Rate Transaction" shall have the meaning ascribed to
         such term in Section 4.12(b).

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the Trading Market on which the Common Stock is then listed or
         quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30
         a.m. New York City time to 4:02 p.m. New York City time); (b) if the
         Common Stock is not then listed or quoted on the OTC Bulletin Board and
         if prices for the Common Stock are then reported in the "Pink Sheets"
         published by Pink Sheets, LLC (or a similar organization or agency
         succeeding to its functions of reporting prices), the most recent bid
         price per share of the Common Stock so reported; or (c) in all other
         cases, the fair market value of a share of Common Stock as determined
         by an independent appraiser selected in good faith by the Purchasers of
         a majority-in-interest of the Securities then outstanding and
         reasonably acceptable to the Company, the fees and expenses of which
         shall be paid by the Company.

                  "Warrants" means the Common Stock purchase warrants delivered
         to the Purchasers at the Closing in accordance with Section 2.2(a)
         hereof in the form of Exhibit B attached hereto.

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

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

                                   ARTICLE II.
                                PURCHASE AND SALE

                                       6
<PAGE>

         2.1 Closing. The purchase and sale of the Notes shall take place in one
or more closings. The first closing ("Initial Closing") shall take place on or
about the date hereof (the date of the Initial Closing and each Subsequent
Closing, a "Closing Date"), at the offices of Weisman or at such other location
or time or on such other date mutually agreed upon by the Company and all of the
Purchasers, subject to the conditions precedent for a Closing as set forth in
Section 2.3, and to each party's obligations hereunder having been satisfied or
waived. All subsequent closings (each a "Subsequent Closing") shall take place
within 30 days of the date of the Initial Closing, subject to the conditions
precedent for a Closing as set forth in Section 2.3 and to each party's
obligations hereunder having been satisfied or waived. The Initial Closing and
each Subsequent Closing shall constitute a "Closing" for purposes of this
Agreement. Upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, in the aggregate, between $1,000,000 and
$2,500,000 in principal amount of the Notes. On each Closing Date, each
Purchaser participating in a Closing shall deliver to the Company, via wire
transfer or a certified check, immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its
respective Note and a Warrant, as determined pursuant to Section 2.2(a), and the
Company and each Purchaser shall deliver the other items set forth in Section
2.2 deliverable at a Closing.

         2.2   Deliveries.

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

                           (i) this Agreement duly executed by the Company;

                           (ii) a legal opinion of Company counsel in form and
                  substance reasonably acceptable to the Purchasers;

                           (iii) a Note with a principal amount equal to such
                  Purchaser's Principal Amount, registered in the name of such
                  Purchaser, and a Conversion Price of $0.30 per share, subject
                  to adjustment therein;

                           (iv) a Warrant, registered in the name of such
                  Purchaser to purchase up to a number of shares of Common Stock
                  equal to 75% of such Purchaser's Principal Amount divided by
                  the initial Conversion Price of the Notes, with an exercise
                  price equal to $0.375 per share, subject to adjustment
                  therein, for a term of five years; and

                           (v) irrevocable Lock Up Agreement(s) duly executed
                  and delivered by the chief executive officer, chief financial
                  officer and chief operating officer of the Company and each
                  director of the Company who has either stock in the Company,
                  or Convertible Securities that will vest within six (6) months
                  of the closing date.

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

                                       7
<PAGE>

                           (i) this Agreement duly executed by such Purchaser;
                  and

                           (ii) such Purchaser's Subscription Amount by wire
                  transfer to the account as specified in writing by the
                  Company.

         2.3 Closing Conditions.

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

                           (i) the accuracy in all material respects on the
                  Closing Date of the representations and warranties of the
                  Purchasers contained herein;

                           (ii) all obligations, covenants and agreements of
                  each Purchaser required to be performed at or prior to the
                  Closing Date shall have been performed; and

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

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

                           (i) the accuracy in all material respects when made
                  and on the Closing Date of the representations and warranties
                  of the Company contained herein;

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

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

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

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

                                       8
<PAGE>

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 Representations and Warranties of the Company. Except as disclosed
in the SEC Reports filed after January 1, 2008 but at least 5 Business Days
before the date hereof and except as set forth under the corresponding section
of the disclosure schedules delivered to the Purchasers concurrently herewith
("Disclosure Schedules") which Disclosure Schedules shall be deemed a part
hereof, the Company hereby makes the following representations and warranties to
each Purchaser:

                  (a) Subsidiaries. All of the direct and indirect subsidiaries
         of the Company are set forth on Schedule 3.1(a) (whether or not
         disclosed in SEC Reports). The Company owns, directly or indirectly,
         all of the capital stock or other equity interests of each Subsidiary
         free and clear of any Liens, and all of the issued and outstanding
         shares of capital stock of each Subsidiary are validly issued and are
         fully paid, non-assessable and free of preemptive and similar rights to
         subscribe for or purchase securities. If the Company has no
         subsidiaries, all other references to the Subsidiaries or any of them
         in this Section 3.1 shall be disregarded.

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

                  (c) Authorization; Enforcement. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations hereunder and thereunder. The
         execution and delivery of each of the Transaction Documents by the
         Company and the consummation by it of the transactions contemplated

                                       9
<PAGE>

         hereby and thereby have been duly authorized by all necessary action on
         the part of the Company and no further action is required by the
         Company, the Board of Directors or the Company's stockholders in
         connection therewith other than in connection with the Required
         Approvals. Each Transaction Document has been (or upon delivery will
         have been) duly executed by the Company and, when delivered in
         accordance with the terms hereof and thereof, will constitute the valid
         and binding obligation of the Company enforceable against the Company
         in accordance with its terms, except (i) as limited by general
         equitable principles and applicable bankruptcy, insolvency,
         reorganization, moratorium and other laws of general application
         affecting enforcement of creditors' rights generally, (ii) as limited
         by laws relating to the availability of specific performance,
         injunctive relief or other equitable remedies and (iii) insofar as
         indemnification and contribution provisions may be limited by
         applicable law.

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

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

                  (f) Issuance of the Securities. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         applicable Transaction Documents, will be duly and validly issued,
         fully paid and nonassessable, free and clear of all Liens imposed

                                       10
<PAGE>

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

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

                  (h) SEC Reports; Financial Statements. The Company has filed
         all reports, schedules, forms, statements and other documents required
         to be filed by the Company under the Securities Act and the Exchange
         Act, including pursuant to Section 13(a) or 15 (d) thereof, for the two
         years preceding the date hereof (or such shorter period as the Company
         was required by law or regulation to file such material) (the foregoing
         materials, including the exhibits thereto and documents incorporated by
         reference therein, being collectively referred to herein as the "SEC

                                       11
<PAGE>

         Reports") on a timely basis or has received a valid extension of such
         time of filing and has filed any such SEC Reports prior to the
         expiration of any such extension. As of their respective dates, the SEC
         Reports complied in all material respects with the requirements of the
         Securities Act and the Exchange Act, as applicable (to the Company's
         knowledge with respect to applicable Commission interpretations), and
         none of the SEC Reports, when filed, contained any untrue statement of
         a material fact or omitted to state a material fact required to be
         stated therein or necessary in order to make the statements therein, in
         the light of the circumstances under which they were made, not
         misleading. The financial statements of the Company included in the SEC
         Reports comply in all material respects with applicable accounting
         requirements and the rules and regulations of the Commission with
         respect thereto as in effect at the time of filing. Such financial
         statements have been prepared in accordance with United States
         generally accepted accounting principles applied on a consistent basis
         during the periods involved ("GAAP"), except as may be otherwise
         specified in such financial statements or the notes thereto and except
         that unaudited financial statements may not contain all footnotes
         required by GAAP, and fairly present in all material respects the
         financial position of the Company and its consolidated Subsidiaries as
         of and for the dates thereof and the results of operations and cash
         flows for the periods then ended, subject, in the case of unaudited
         statements, to normal, immaterial, year-end audit adjustments.

                  (i) Material Changes. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         specifically disclosed in a subsequent SEC Report filed prior to the
         date hereof and for operating losses incurred in the ordinary course of
         business consistent with past losses, (i) there has been no event,
         occurrence or development that has had or that could reasonably be
         expected to result in a Material Adverse Effect, (ii) the Company has
         not incurred any liabilities (contingent or otherwise) other than (A)
         trade payables and accrued expenses incurred in the ordinary course of
         business consistent with past practice and (B) liabilities not required
         to be reflected in the Company's financial statements pursuant to GAAP
         or disclosed in filings made with the Commission, (iii) the Company has
         not altered its method of accounting, (iv) the Company has not declared
         or made any dividend or distribution of cash or other property to its
         stockholders or purchased, redeemed or made any agreements to purchase
         or redeem any shares of its capital stock and (v) the Company has not
         issued any equity securities to any officer, director or Affiliate,
         except pursuant to existing Company stock option plans or existing
         agreements disclosed in the SEC Reports. The Company does not have
         pending before the Commission any request for confidential treatment of
         information. Except for the issuance of the Securities contemplated by
         this Agreement or as set forth on Schedule 3.1(i), no event, liability
         or development has occurred or exists with respect to the Company or
         its Subsidiaries or their respective business, properties, operations
         or financial condition, that would be required to be disclosed by the
         Company under applicable securities laws at the time this
         representation is made or deemed made that has not been publicly
         disclosed at least two Trading Days prior to the date that this
         representation is made.

                  (j) Litigation. There is no action, suit, inquiry, notice of
         violation, proceeding or investigation pending or, to the knowledge of
         the Company, threatened against or affecting the Company, any
         Subsidiary or any of their respective properties before or by any

                                       12
<PAGE>

         court, arbitrator, governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively, an
         "Action") which (i) adversely affects or challenges the legality,
         validity or enforceability of any of the Transaction Documents or the
         Securities or (ii) could, if there were an unfavorable decision, have
         or reasonably be expected to result in a Material Adverse Effect.
         Neither the Company nor any Subsidiary, nor, to the knowledge of the
         Company, any director or officer thereof, is or has been the subject of
         any Action involving a claim of violation of or liability under federal
         or state securities laws or a claim of breach of fiduciary duty. There
         has not been, and to the knowledge of the Company, there is not pending
         or contemplated, any investigation by the Commission involving the
         Company or any current or former director or officer of the Company.
         The Commission has not issued any stop order or other order suspending
         the effectiveness of any registration statement filed by the Company or
         any Subsidiary under the Exchange Act or the Securities Act.

                  (k) Labor Relations. No material labor dispute exists or, to
         the knowledge of the Company, is imminent with respect to any of the
         employees of the Company which could reasonably be expected to result
         in a Material Adverse Effect. None of the Company's or its
         Subsidiaries' employees is a member of a union that relates to such
         employee's relationship with the Company or such Subsidiary, and
         neither the Company nor any of its Subsidiaries is a party to a
         collective bargaining agreement, and the Company and its Subsidiaries
         believe that their relationships with their employees are good. No
         executive officer, to the knowledge of the Company, is, or is now
         expected to be, in violation of any material term of any employment
         contract, confidentiality, disclosure or proprietary information
         agreement or non-competition agreement, or any other contract or
         agreement or any restrictive covenant in favor of any third party, and
         the continued employment of each such executive officer does not
         subject the Company or any of its Subsidiaries to any liability with
         respect to any of the foregoing matters. To the Company's knowledge the
         Company and its Subsidiaries are in compliance with all U.S. federal,
         state, local and foreign laws and regulations relating to employment
         and employment practices, terms and conditions of employment and wages
         and hours, except where the failure to be in compliance could not,
         individually or in the aggregate, reasonably be expected to have a
         Material Adverse Effect.

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

                                       13
<PAGE>

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

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

                  (o) Patents and Trademarks. The Company and the Subsidiaries
         have, or have rights to use, all patents, patent applications,
         trademarks, trademark applications, service marks, trade names, trade
         secrets, inventions, copyrights, licenses and other intellectual
         property rights and similar rights necessary or material for use in
         connection with their respective businesses as currently conducted and
         contemplated to be conducted as described in the SEC Reports and which
         the failure to so have could have a Material Adverse Effect
         (collectively, the "Intellectual Property Rights"). Neither the Company
         nor any Subsidiary has received a notice (written or otherwise) that
         any of the Intellectual Property Rights used by the Company or any
         Subsidiary violates or infringes upon the rights of any Person, except
         as set forth on Schedule 3.1(o). To the knowledge of the Company, all
         such Intellectual Property Rights are enforceable and there is no
         existing infringement by another Person of any of the Intellectual
         Property Rights. The Company and its Subsidiaries have taken reasonable
         security measures to protect the secrecy, confidentiality and value of
         all of their intellectual properties, except where failure to do so
         could not, individually or in the aggregate, reasonably be expected to
         have a Material Adverse Effect. The Company has duly and properly filed
         or caused to be filed with the United States Patent and Trademark
         Office (the "PTO") and applicable foreign and international patent
         authorities all patent applications owned by the Company (the "Company
         Patent Applications"). To the knowledge of the Company, the Company has
         complied with the PTO's duty of candor and disclosure for the Company
         Patent Applications and has made no material misrepresentation in the
         Company Patent Applications. The Company is not aware of any
         information material to a determination of patentability regarding the
         Company Patent Applications not called to the attention of the PTO or
         similar foreign authority. The Company is not aware of any information
         not called to the attention of the PTO or similar foreign authority
         that would preclude the grant of a patent for the Company Patent
         Applications. The Company has no knowledge of any information that

                                       14
<PAGE>

         would preclude the Company from having clear title to the Company
         Patent Applications.

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

                  (q) Transactions with Affiliates and Employees. Except as
         provided in Schedule 3.1(q), none of the officers or directors of the
         Company and, to the knowledge of the Company, none of the employees of
         the Company is presently a party to any transaction with the Company or
         any Subsidiary (other than for services as employees, officers and
         directors), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any officer, director or such employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner, in each case in excess of $10,000 other
         than for (i) payment of salary or consulting fees for services
         rendered, (ii) reimbursement for expenses incurred on behalf of the
         Company and (iii) other employee benefits, including stock option
         agreements under any stock option plan of the Company.

                  (r) Sarbanes-Oxley; Internal Accounting Controls. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are applicable to it as a small business issuer as of the
         Closing Date. The Company and the Subsidiaries maintain a system of
         internal accounting controls designed to provide reasonable assurance
         that (i) transactions are executed in accordance with management's
         general or specific authorizations, (ii) transactions are recorded as
         necessary to permit preparation of financial statements in conformity
         with GAAP and to maintain asset accountability, (iii) access to assets
         is permitted only in accordance with management's general or specific
         authorization, and (iv) the recorded accountability for assets is
         compared with the existing assets at reasonable intervals and
         appropriate action is taken with respect to any differences. A control
         system, no matter how well conceived and operated, can provide only
         reasonable, not absolute, assurance that the objectives of the control
         system will be met. The design and operation of a control system must
         reflect the fact that there are resource limitations and the benefit of
         the controls must be considered relative to their costs. The Company
         has established disclosure controls and procedures (as defined in
         Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
         designed such disclosure controls and procedures to ensure that
         information required to be disclosed by the Company in the reports it
         files or submits under the Exchange Act is recorded, processed,
         summarized and reported, within the time periods specified in the
         Commission's rules and forms. The Company's certifying officers have

                                       15
<PAGE>

         evaluated the effectiveness of the Company's disclosure controls and
         procedures as of the end of the period covered by the Company's most
         recently filed periodic report under the Exchange Act (such date, the
         "Evaluation Date"). The Company presented in its most recently filed
         periodic report under the Exchange Act the conclusions of the
         certifying officers about the effectiveness of the disclosure controls
         and procedures based on their evaluations as of the Evaluation Date.
         Since the Evaluation Date, there have been no changes in the Company's
         internal control over financial reporting (as such term is defined in
         the Exchange Act) that has materially affected, or is reasonably likely
         to materially affect, the Company's internal control over financial
         reporting.

                  (s) Certain Fees. The Purchasers shall have no obligation with
         respect to any commission, broker's fee, finder's fee or similar fee to
         any broker, financial advisor, consultant, finder, placement agent,
         investment banker, bank or other Person in connection with or resulting
         from the Securities Purchase Agreement or the Transactions by reason of
         any agreement of or action taken by the Company.

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

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

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

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

                  (x) Application of Takeover Protections. As reflected in
         Schedule 3.1 (x), the Company does not have in place and is not subject
         to any anti-takeover provisions (including without limitation control
         share acquisition, business combination, poison pill (including any
         distribution under a rights agreement) or other similar agreement or

                                       16
<PAGE>

         provision) under the Company's certificate of incorporation or the laws
         of its state of incorporation that is or could become applicable to the
         Purchasers as a result of the Purchasers and the Company fulfilling
         their obligations or exercising their rights under the Transaction
         Documents, including without limitation as a result of the Company's
         issuance of the Securities and the Purchasers' ownership of the
         Securities.

                  (y) Disclosure. Except with respect to the material terms and
         conditions of the transactions contemplated by the Transaction
         Documents, the Company confirms that neither it nor any other Person
         acting on its behalf has provided any of the Purchasers or their agents
         or counsel with any information that it believes constitutes or might
         constitute material, nonpublic information which will not be either
         publicly disclosed or no longer constitute material non-public
         information on or prior to the date which is three (3) months following
         the Initial Closing. The Company understands and confirms that the
         Purchasers will rely on the foregoing representation in effecting
         transactions in securities of the Company. All disclosure furnished by
         or on behalf of the Company to the Purchasers regarding the Company,
         its business and the transactions contemplated hereby, including the
         Disclosure Schedules to this Agreement, is true and correct and does
         not contain any untrue statement of a material fact or omit to state
         any material fact necessary in order to make the statements made
         therein, in light of the circumstances under which they were made, not
         misleading. The press releases disseminated by the Company during the
         twelve months preceding the date of this Agreement taken as a whole do
         not contain any untrue statement of a material fact or omit to state a
         material fact required to be stated therein or necessary in order to
         make the statements therein, in light of the circumstances under which
         they were made and when made, not misleading. The Company acknowledges
         and agrees that no Purchaser makes or has made any representations or
         warranties with respect to the transactions contemplated hereby other
         than those specifically set forth in Section 3.2 hereof.

                  (z) No Integrated Offering. Assuming the accuracy of the
         Purchasers' representations and warranties set forth in Section 3.2,
         neither the Company, nor any of its Affiliates, nor any Person acting
         on its or their behalf has, directly or indirectly, made any offers or
         sales of any security or solicited any offers to buy any security,
         under circumstances that would cause this offering of the Securities to
         be integrated with prior offerings by the Company for purposes of (i)
         the Securities Act which would require the registration of any such
         securities under the Securities Act, or (ii) any applicable shareholder
         approval provisions of the OTC Bulletin Board or any Trading Market on
         which any of the securities of the Company are listed or designated.

                  (aa) Solvency. Based on the consolidated financial condition
         of the Company as of the Closing Date after giving effect to the
         receipt by the Company of the proceeds from the sale of the Securities
         hereunder, the Company is solvent. The Company does not intend to incur
         debts beyond its ability to pay such debts as they mature (taking into
         account the timing and amounts of cash to be payable on or in respect
         of its debt). The Company has no knowledge of any facts or
         circumstances which lead it to believe that it will file for
         reorganization or liquidation under the bankruptcy or reorganization
         laws of any jurisdiction within one year from the Closing Date.
         Schedule 3.1(aa) sets forth as of the date hereof all outstanding
         secured and unsecured Indebtedness of the Company or any Subsidiary,

                                       17
<PAGE>

         or for which the Company or any Subsidiary has commitments, in excess
         of $25,000 (whether or not disclosed in SEC Reports).

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

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

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

                  (ee) Accountants. The Company's accounting firm is S.E. Clark
         & Company, P.C. To the knowledge and belief of the Company, such
         accounting firm (i) is a registered public accounting firm as required
         by the Exchange Act and (ii) shall express its opinion with respect to
         the financial statements to be included in the Company's Annual Report
         for the year ending October 31, 2008.

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

                  (gg) No Disagreements with Accountants and Lawyers. There are
         no disagreements of any kind presently existing, or reasonably
         anticipated by the Company to arise, between the Company and the
         accountants and lawyers formerly or presently employed by the Company,
         and the Company is not aware of any circumstances with respect to its
         accountants or lawyers which could affect the Company's ability to
         perform any of its obligations under any of the Transaction Documents.

                                       18
<PAGE>

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

                  (ii) Acknowledgment Regarding Purchasers' Trading Activity.
         Notwithstanding anything in this Agreement or elsewhere herein to the
         contrary (except for Sections 3.2(f) and 4.14 hereof), it is understood
         and acknowledged by the Company that (i) none of the Purchasers has
         been asked to agree by the Company, nor has any Purchaser agreed, to
         desist from purchasing or selling, long and/or short, securities of the
         Company, or "derivative" securities based on securities issued by the
         Company or to hold the Securities for any specified term, (ii) past or
         future open market or other transactions by any Purchaser, specifically
         including, without limitation, Short Sales or "derivative"
         transactions, before or after the closing of this or future private
         placement transactions, may negatively impact the market price of the
         Company's publicly-traded securities, (iii) any Purchaser, and
         counter-parties in "derivative" transactions to which any such
         Purchaser is a party, directly or indirectly, may presently have a
         "short" position in the Common Stock, and (iv) each Purchaser shall not
         be deemed to have any affiliation with or control over any arm's length
         counter-party in any "derivative" transaction. The Company further
         understands and acknowledges that (a) one or more Purchasers may engage
         in hedging activities at various times during the period that the
         Securities are outstanding, including, without limitation, during the
         periods that the value of the Underlying Shares deliverable with
         respect to Securities are being determined and (b) such hedging
         activities (if any) could reduce the value of the existing
         stockholders' equity interests in the Company at and after the time
         that the hedging activities are being conducted. The Company
         acknowledges that such aforementioned hedging activities do not
         constitute a breach of any of the Transaction Documents.

                  (jj) Regulation M Compliance. The Company has not, and to its
         knowledge no one acting on its behalf has, (i) taken, directly or
         indirectly, any action designed to cause or to result in the
         stabilization or manipulation of the price of any security of the
         Company to facilitate the sale or resale of any of the Securities, (ii)
         sold, bid for, purchased, or paid any compensation for soliciting
         purchases of, any of the securities of the Company during any
         restricted period (as defined in Regulation M adopted by the
         Commission), or (iii) paid or agreed to pay to any Person any
         compensation for soliciting another to purchase any other securities of
         the Company, other than, in the case of clauses (ii) and (iii),
         compensation paid to the Company's placement agents in connection with
         the placement of Company securities.

                                       19
<PAGE>

                  (kk) No "Shell". To the Company's knowledge, the Company is
         not and has not at any time previously been a Shell Company.

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

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

                  (b) Own Account. Such Purchaser understands that the
         Securities are "restricted securities" and have not been registered
         under the Securities Act or any applicable state securities law and is
         acquiring the Securities as principal for its own account and not with
         a view to or for distributing or reselling such Securities or any part
         thereof in violation of the Securities Act or any applicable state
         securities law, has no present intention of distributing any of such
         Securities in violation of the Securities Act or any applicable state
         securities law and has no direct or indirect arrangement or
         understandings with any other persons to distribute or regarding the
         distribution of such Securities (this representation and warranty not
         limiting such Purchaser's right to sell the Securities pursuant to any
         registration statement filed under the Securities Act or otherwise in
         compliance with applicable federal and state securities laws) in
         violation of the Securities Act or any applicable state securities law.
         Such Purchaser is acquiring the Securities hereunder in the ordinary
         course of its business.

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

                  (d) Experience of Such Purchaser. Such Purchaser, either alone
         or together with its representatives, has such knowledge,
         sophistication and experience in business and financial matters so as

                                       20
<PAGE>

         to be capable of evaluating the merits and risks of the prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an investment in the Securities and, at the present time, is able to
         afford a complete loss of such investment.

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

                  (f) Short Sales and Confidentiality Prior To The Date Hereof.
         Other than consummating the transactions contemplated hereunder, such
         Purchaser has not directly or indirectly, nor has any Person acting on
         behalf of or pursuant to any understanding with such Purchaser,
         executed any purchases or sales, including Short Sales, of the
         securities of the Company (i) during the period commencing from the
         time that such Purchaser first received a term sheet (written or oral)
         from the Company or any other Person representing the Company setting
         forth the material terms of the transactions contemplated hereunder
         until the date hereof ("Discussion Time"), and (ii) during the 2month
         period immediately preceding the Discussion Time. Notwithstanding the
         foregoing, in the case of a Purchaser that is a multi-managed
         investment vehicle whereby separate portfolio managers manage separate
         portions of such Purchaser's assets and the portfolio managers have no
         direct knowledge of the investment decisions made by the portfolio
         managers managing other portions of such Purchaser's assets, the
         representation set forth above shall only apply with respect to the
         portion of assets managed by the portfolio manager that made the
         investment decision to purchase the Securities covered by this
         Agreement. Other than to other Persons party to this Agreement, such
         Purchaser has maintained the confidentiality of all disclosures made to
         it in connection with this transaction (including the existence and
         terms of this transaction).

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1   Transfer Restrictions.

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

                                       21
<PAGE>

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

         [NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
         [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE
         SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
         STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
         ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
         AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
         REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
         APPLICABLE STATE SECURITIES LAWS. THIS SECURITY [AND THE SECURITIES
         ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED
         IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
         SUCH SECURITIES.

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

                  (c) Certificates evidencing the Underlying Shares shall not
         contain any legend (including the legend set forth in Section 4.1(b)
         hereof): (i) while a registration statement covering the resale of such
         security is effective under the Securities Act, or (ii) if such
         Underlying Shares are eligible for resale under Rule 144, or (iii) if
         such legend is not required under applicable requirements of the
         Securities Act (including judicial interpretations and pronouncements
         issued by the staff of the Commission). If required by the Transfer
         Agent to effect the removal of the legend hereunder, the Company shall
         cause its counsel to issue a legal opinion to the Transfer Agent
         promptly after the date on which the applicable holder of Underlying
         Shares may sell such securities pursuant to Rule 144. If all or any
         portion of a Note or Warrant is converted or exercised (as applicable)
         at a time when there is an effective registration statement to cover

                                       22
<PAGE>

         the resale of the Underlying Shares, or if such Underlying Shares may
         be sold under Rule 144 or if such legend is not otherwise required
         under applicable requirements of the Securities Act (including judicial
         interpretations and pronouncements issued by the staff of the
         Commission) then such Underlying Shares shall be issued free of all
         legends. The Company agrees that at such time as such legend is no
         longer required under this Section 4.1 (c), it will, no later than
         three Trading Days following the delivery by a Purchaser to the Company
         or the Transfer Agent of a certificate representing Underlying Shares,
         as applicable, issued with a restrictive legend, together with any
         reasonably required certifications to document compliance with Rule 144
         and any required documentation in the event such certificate is to be
         delivered in the name of a Person other than the record holder of such
         Underlying Shares (such third Trading Day, the "Legend Removal Date"),
         deliver or cause to be delivered to such Purchaser a certificate
         representing such shares that is free from all restrictive and other
         legends. The Company may not make any notation on its records or give
         instructions to the Transfer Agent that enlarge the restrictions on
         transfer set forth in this Section. Certificates for Underlying Shares
         subject to legend removal hereunder shall be transmitted by the
         Transfer Agent to the Purchaser by crediting the account of the
         Purchaser's prime broker with the Depository Trust Company System as
         directed by such Purchaser, or if the Company is not a participant in
         DTC's DWAC program, then by other available means, provided that the
         Company shall use its best efforts to participate in such DWAC program.

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

                  (e) Each Purchaser, severally and not jointly with the other
         Purchasers, agrees that such Purchaser will sell any Securities
         pursuant to either Rule 144 or the registration requirements of the
         Securities Act, including any applicable prospectus delivery
         requirements, or an exemption therefrom, and that if Securities are
         sold pursuant to a registration statement filed under the Securities
         Act, they will be sold in compliance with the plan of distribution set
         forth therein, and acknowledges that the removal of the restrictive
         legend from certificates representing Securities as set forth in this
         Section 4.1 is predicated upon the Company's reliance upon this
         understanding.

         4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying

                                       23
<PAGE>

Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

         4.3 Furnishing of Information. Until the earliest of the time that (i)
Purchaser no longer owns Securities or (ii) the Warrants have expired, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act even if the Company
is not then subject to the reporting requirements of the Exchange Act. As long
as Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchaser and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144. So
long as any Securities are outstanding, the Company shall cause itself to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and timely file all reports required to be filed thereunder.

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

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

         4.6 Securities Laws Disclosure; Publicity. The Company shall, within
two (2) Trading Days following the date hereof, issue a Current Report on Form
8-K disclosing the material terms of the transactions contemplated hereby and
attaching the Transaction Documents as exhibits thereto. The Company and each
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the

                                       24
<PAGE>

foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
(A) any registration statement filed under the Securities Act covering the
resale of the Securities, and (B) the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (ii) to the extent
such disclosure is required by law or Trading Market regulations, in which case
the Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (ii).

         4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.

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

         4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for (a)
the satisfaction of any portion of the Company's debt (other than payment of
trade payables in the ordinary course of the Company's business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents,
(c) the settlement of any outstanding litigation, or (d) making any investments
in securities or otherwise purchasing any equity or debt securities, including
without limitation purchasing any corporate, governmental, municipal or
auction-rate bonds or other debts instruments (whether at auction, in the open
market or otherwise), any commercial or chattel paper, or any certificates of
deposit, or investing in any money market or mutual funds, without the prior
written consent of a majority in-interest of the Purchasers. The Purchasers
hereby consent to depositing funds in interest type bearing accounts at the
Company's bank until the funds are used as provided above and in Schedule 4.9.

         4.10 Indemnification of Purchasers. Subject to the provisions of this
Section 4.10, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a

                                       25
<PAGE>

lack of such title or any other title) of such controlling person (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
Party in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not a Purchaser Party or an Affiliate of such
a Purchaser Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser's representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such counsel to the Company and such Purchaser, a
reasonable probability of a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents.

         4.11 Reservation and Listing of Securities.

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

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

                                       26
<PAGE>

                  (c) The Company shall apply for, to the extent necessary, and
         cause all Underlying Shares to be listed, quoted and traded on the OTC
         Bulletin Board promptly following the Closing Date. The Company shall
         (i) if applicable in the time and manner required by the OTC Bulletin
         Board, prepare and file with such market an additional shares listing
         application covering a number of shares of Common Stock at least equal
         to the Required Minimum on the date of such application, (ii) take all
         steps necessary to cause such shares of Common Stock to be approved for
         listing on such market as soon as possible thereafter, (iii) provide to
         the Purchaser evidence of such listing, and (iv) maintain the listing
         or quoting of the Company's Common Stock on the OTC Bulletin Board or
         another Trading Market so long as the Purchaser holds any Securities,
         including without limitation the Underlying Shares on any date at least
         equal to the Required Minimum on such date.

         4.12 Subsequent Equity Sales.

                  (a) From the date hereof until the date which is six months
         following the Closing Date, neither the Company nor any Subsidiary
         shall issue shares of Common Stock or Common Stock Equivalents
         ("Subsequent Financing") without the prior written consent of
         Purchasers holding 69% of the outstanding principal amount of Notes.

                  (b) From the date hereof until such time as no Purchaser holds
         any of the Securities, the Company shall be prohibited from effecting
         or entering into an agreement to effect any Subsequent Financing
         involving a Variable Rate Transaction or MFN Transaction. "Variable
         Rate Transaction" means a transaction in which the Company issues or
         sells (i) any debt or equity securities that are convertible into,
         exchangeable or exercisable for, or include the right to receive
         additional shares of Common Stock either (A) at a conversion, exercise
         or exchange rate or other price that is based upon and/or varies with
         the trading prices of or quotations for the shares of Common Stock at
         any time after the initial issuance of such debt or equity securities,
         or (B) with a conversion, exercise or exchange price that is subject to
         being reset at some future date after the initial issuance of such debt
         or equity security or upon the occurrence of specified or contingent
         events directly or indirectly related to the business of the Company or
         the market for the Common Stock or (ii) enters into any agreement,
         including, but not limited to, an equity line of credit, whereby the
         Company may sell securities at a future determined price. "MFN
         Transaction" means a transaction in which the Company issues or sells
         any securities to an investor in one or a series of related capital
         raising transactions which grants to such investor the right to receive
         additional securities or better terms based in some manner upon future
         sales or issuances of Common Stock or Common Stock Equivalents on terms
         more favorable than those granted to such investor in such capital
         raising transaction(s).

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

                                       27
<PAGE>

                  (d) Notwithstanding the foregoing, this Section 4.12 shall not
         apply in respect of an Exempt Issuance, except that other than
         transactions listed on Schedule 3.1(q) no Variable Rate Transaction or
         MFN Transaction shall be an Exempt Issuance.

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

         4.14 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with it will (a) execute any Short Sales during the period commencing at the
Discussion Time and ending three months after Closing Date or (b) execute any
Net Short Sales at any time the Notes are outstanding. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Disclosure Schedules. Notwithstanding the foregoing,
except as otherwise set forth herein no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of or discussion regarding the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets relative
to the Company, the covenant set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.

         4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.

         4.16 Piggy-Back Registration. If the Company shall determine to prepare
and file with the Commission a registration statement, prior to the time when
the Underlying Shares could be sold pursuant to Rule 144, relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities (other than on Form S-4 or Form S-8 (each as

                                       28
<PAGE>

promulgated under the Securities Act) or its then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), then the Company shall send to each Purchaser
written notice of such determination and, if within seven (7) Business Days
after receipt of such notice, any such Purchaser shall so request in writing
(which request shall specify the Underlying Shares intended to be disposed of by
the Purchaser), the Company will cause the registration under the Securities Act
of all Underlying Shares which the Company has been so requested to register by
the Purchaser, to the extent required to permit the disposition of such
Underlying Shares so to be registered. The Company shall include in such
registration statement all or any part of such Underlying Shares such Purchaser
requests to be registered; provided, however, that the Company shall not be
required to register any Underlying Shares pursuant to this Section that are
eligible for sale pursuant to Rule 144 of the Securities Act. In the case of an
underwritten public offering, if the managing underwriter(s) or underwriter(s)
should reasonably object to the inclusion of the Underlying Shares in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Underlying
Shares would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Underlying Shares of the
Purchasers, then (x) the number of Underlying Shares of the Purchasers included
in such registration statement shall be reduced pro-rata among such Purchasers
(based upon the number of Underlying Shares requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Underlying Shares, or (y) none of the
Underlying Shares of the Purchasers shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Underlying Shares; provided, however, that if
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Underlying Shares intended to be offered by the Purchasers than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company). The Company shall keep such Registration Statement
continuously effective under the Securities Act until such date as is the
earlier of (x) the date when all Underlying Shares covered by such Registration
Statement have been sold or (y) the date on which all Underlying Shares may be
sold without any restriction pursuant to Rule 144 as determined by the counsel
to the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect. In connection with any registration of Underlying
Shares pursuant to this Section, the Company and the Purchaser participating in
such registration shall enter into a registration rights agreement containing
customary and reasonable provisions regarding the registration of securities.

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

         4.18 Insurance. So long as any Securities remain outstanding, the
Company and its Subsidiaries shall maintain in full force and effect insurance

                                       29
<PAGE>

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

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 Termination. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Initial Closing has not been consummated on
or before June 30, 2008 and all Subsequent Closings have not been consummated on
or before July 30, 2008; provided, however, that such termination will not
affect the right of any party to sue for any breach by the other party (or
parties).

         5.2 Fees and Expenses. At the Initial Closing, the Company has agreed
to reimburse Gemini Strategies, LLC and/or Gemini Master Fund Ltd.
(collectively, "Gemini") the nonaccountable sum of $25,000 for its legal fees
and expenses, $5,000 of which has been paid prior to the Closing. Accordingly,
in lieu of the foregoing payments, the aggregate amount that Gemini is to pay
for the Securities at the Initial Closing shall be reduced by $20,000. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchasers.

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

         5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto, or email to the email address
set forth in the signature pages attached hereto, prior to 5:30 p.m. (New York
City time) on a Trading Day, with electronic confirmation of such delivery, (b)
the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto, or email to the email address set forth in
the signature pages attached hereto, on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, with electronic

                                       30
<PAGE>

confirmation of such delivery, (c) the second Business Day following the date of
mailing, if sent by regular mail, or the date on which such notice or
communication is deposited with a nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address, fax number and email address for such notices and
communications shall be as set forth on the signature pages attached hereto.

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

         5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

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

         5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.10.

         5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any

                                       31
<PAGE>

such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other
reasonable costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

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

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

         5.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

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

         5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution

                                       32
<PAGE>

therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

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

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

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

                                       33
<PAGE>

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

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

         5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

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

         5.22 Waiver of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.

                            (Signature Pages Follow)

                                       34
<PAGE>

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

CDEX INC.                                           Address for Notice:
                                                    -------------------
                                                    CDEX Inc.
                                                    Attn: Malcolm H.Philips. Jr.
                                                    4555 South Palo Verde Road
                                                    Suite 123
                                                    Tucson. AZ 85714
By: M H Philips. Jr.                                Fax: 520-514-6394
---------------------------                         Email: mphilips@cdex-inc.com
    Name: M H Philips. Jr.
    Title: CEO

With a copy to (which shall not constitute notice): CDEX Inc.
                                                    Attn: Ramai Alvarez
                                                    4555 South Palo Verde Road
                                                    Suite 123
                                                    Tucson, AZ 85714
                                                    Fax 520-514-6394
                                                    Email: ralvarez@cdcx-inc.com

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOWS]

                                       35
<PAGE>

        [PURCHASER SIGNATURE PAGES TO CEXI SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser:  GEMINI MASTER FUND, LTD.
                    By: GEMINI STRATEGIES, LLC, as investment manager

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

Name of Authorized Signatory: Steven Winters

Title of Authorized Signatory: President

Email Address of Purchaser: steve@geministrategies.com

Facsimile Number of Purchaser: (858) 509-8808

Address for Notice of Purchaser:

c/o Gemini Strategies, LLC                  with copy to
135 Liverpool Drive, Suite C                Peter J. Weisman, P.C.
Cardiff, CA 92007                           153 East 53rd Street, 29th Floor
Attn: Steven Winters                        New York, NY 10022
Fax: (858) 509-8808                         Fax: (212) 433-1361
Email: steve@geministrategies.com           Email: pweisman@pweisman.com

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

Subscription Amount: $1,000,000

Principal Amount (Subscription Amount multiplied by 1.08695652): $1,086,956.52

Warrant Shares: 2,717,391

                                       36
<PAGE>

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

Name of Purchaser: _____________________________________________________________

Signature of Authorized Signatory of Purchaser: ________________________________

Name of Authorized Signatory: __________________________________________________

Title of Authorized Signatory: _________________________________________________

Email Address of Purchaser: ____________________________________________________

Facsimile Number of Purchaser: _________________________________________________

Address for Notice of Purchaser:

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

Subscription Amount: $_______________

Principal Amount (Subscription Amount multiplied by 1.08695652): $______________

Warrant Shares: __________________

                                       37

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