Document:

Exhibit 4.4 

WARRANT 

THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”) OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE SECURITIES ACT OR A WRITTEN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION FOR
SUCH SALE, OFFER, TRANSFER OR OTHER ASSIGNMENT IS AVAILABLE UNDER THE SECURITIES ACT AND
SUCH STATE LAWS. THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT SECURED BY SUCH SECURITIES IN A MANNER THAT COMPLIES WITH THE SECURITIES ACT. 

MSO HOLDINGS, INC. 

		
	No. ______	Issue Date: May 9, 2006 

        MSO
Holdings, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for value received, [______________] or its registered assigns (the
“Holder”), is entitled to purchase from the Company a certain number of
shares of capital stock of the Company as set forth in Section 2 of this warrant (such
shares, the “Warrant Shares”). This Warrant may be exercised from time to
time and at any time in whole or in part prior to the Expiration Date and is subject to
the terms and conditions set forth below. 

    1.    
Definitions. As used in this Warrant, the following terms shall have the
               respective definitions set forth in this Section 1. Capitalized
terms                that are used and not defined in this Warrant that are defined in
the Purchase                Agreement (as defined below) shall have the respective
definitions set forth in                the Purchase Agreement.  

        (a)    
               “Action” means any action, suit, inquiry, comment letter,
               notice of violation, proceeding (including any partial proceeding such as
a                deposition) or investigation pending or threatened in writing against or
               affecting the Company, any subsidiary of the Company or any of their
respective                properties before or by any court, arbitrator, governmental or
administrative                agency, regulatory authority (federal, state, county, local
or foreign), stock                market, stock exchange or trading facility.  

        (b)    
               “Additional Shares of Common Stock” shall mean all shares
of                Common Stock issued (or deemed to be issued pursuant to Section 10)
by                the Company after the date of this Warrant, other than Permitted
Securities.  

        (c)    
               “Commission” means the Securities and Exchange
Commission.  

        (d)    
               “Common Stock” means the Company’s common stock, par
value                $0.001 per share.  

        (e)    
               “Convertible Notes” shall have the meaning ascribed to
such                term in the Purchase Agreement.  

        (f)    
               “Convertible Securities” shall mean any evidences of
               indebtedness, shares or other securities directly or indirectly
convertible into                or exchangeable for Common Stock, but excluding Options.  

        (g)    
               “Current Market Value” means the fair market value of the
               shares of Warrant Shares as determined as follows:  

	 	        (i)                   if
the Warrant Shares are traded on a securities exchange or the NASDAQ Stock
               Market, the value shall be deemed to be the average of the closing prices
of the                Warrant Shares on such exchange or market over the five (5) trading
day period                ending three (3) days prior to the date of determination;  

	 	        (ii)                   if
the Warrant Shares are actively traded over-the-counter, the value shall be
               deemed to be the average of the closing prices over the five (5) trading
day                period ending three (3) days prior to the date of determination; or  

	 	        (iii)                   if
there is no active public market for the Warrant Shares, the value shall be
               the fair market value thereof, as determined in good faith by the Board of
               Directors of the Company.  

        (h)    
               “Date of Exercise” means the date on which the Holder
shall                have delivered to Company: (i) the Exercise Notice (with the Warrant
Exercise                Log attached to it), appropriately completed and duly signed and
(ii) the                Exercise Price for the number of Warrant Shares so indicated by
the Holder to be                purchased.  

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

        (j)    
               “Expiration Date” means the third anniversary of the date
of                this Warrant.  

        (k)    
               “Exercise Notice” means the notice attached hereto as Exhibit
A.  

        (l)    
               “Exercise Price” means $0.25, subject to adjustment in
               accordance with Section 10 hereof.  

        (m)    
               “Fundamental Transaction” has the meaning set forth in Section
10(b).  

        (n)    
               “New Warrant” means a new Warrant, in substantially the
form of                this Warrant, issued upon any registration or transfer of this
Warrant.  

        (o)    
               “Options” means rights, options or warrants to subscribe
for,                purchase or otherwise acquire Common Stock or Convertible Securities.  

2 

        (p)    
               “Permitted Securities” shall mean (i) the Convertible
Notes and                Warrants issued or to be issued pursuant to the Purchase
Agreement, (ii) the                shares of capital stock issuable upon conversion of
the Convertible Notes, (iii)                the shares of Common Stock issuable upon
conversion of the Preferred Stock, (iv)                the shares of capital stock
issuable upon exercise of the Warrants ( and any                Common Stock into which
such capital stock is convertible), (v) shares of Common                Stock issuable
upon exercise of warrants outstanding on the date hereof, (vi) up                to
2,305,356 shares of Common Stock (or options, warrants or rights therefor)
               (such number of shares to be calculated net of any repurchases and
cancellations                of such shares by the Company and net of any such expired or
terminated options,                or rights and to be proportionally adjusted to reflect
any stock splits, stock                dividends, recapitalizations or the like) granted,
issued or issuable to                employees, officers, directors, contractors,
consultants or advisers to the                Company pursuant to the Company’s 2004
Equity Incentive Plan, or non-plan                option agreements or other arrangements
approved by the Board of Directors of                the Company; (vii) shares of Common
Stock, or options, warrants or rights to                purchase Common Stock, issued to
financial institutions or lessors in connection                with equipment lease
financing arrangements, real estate leases, credit                arrangements, debt
financings or other similar commercial transactions approved                by the Company’s
Board of Directors; (viii) shares of Common Stock issuable                upon exercise
of options, warrants, convertible securities or rights to purchase                any
securities of the Company outstanding as of the date of this Warrant and any
               securities issuable upon the conversion thereof; (ix) Shares of Common
Stock, or                options, warrants or rights to purchase Common Stock, issued for
consideration                other than cash pursuant to a merger, consolidation,
acquisition or similar                business combination approved by the Board of
Directors; (x) shares of Common                Stock issued or issuable by the Company in
a public offering prior to or in                connection with which all outstanding
shares of the Company’s Preferred                Stock will be converted to Common
Stock; and (xi) warrants or options to                purchase Common Stock or Preferred
Stock issued to independent consultants                and/or non-employee directors
provided that such consultants or directors                provide bona fide services
to the corporation and that each such issuance                is approved by the Board of
Directors.  

        (q)    
               “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.  

        (r)    
               “Preferred Stock” means the Company’s Series A
Convertible                Preferred Stock or Series A-1 Convertible Preferred Stock,
without distinction.  

        (s)    
               “Purchase Agreement” means the Securities Purchase
Agreement                dated as of the date of this Warrant to which the Company and
the original                Holder are parties.  

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

        (u)    
               “Series A Convertible Preferred Stock” means the Company’s
               Series A Convertible Preferred Stock, par value $0.001 per share.  

        (v)    
               “Series A-1 Convertible Preferred Stock” means the
               Company’s Series A-1 Convertible Preferred Stock, par value $0.001
per                share.  

        (w)    
               “Warrant Exercise Log” means the Warrant Exercise Log
attached                to the Exercise Notice.  

        (x)    
               “Warrant Register” means the records to be maintained by
the                Company for the purpose of tracking the registered holder of the
Warrant.  

3 

        (y)    
               “Warrant Shares” means the shares of capital stock
issuable                upon exercise of the Warrants issued pursuant to the Purchase
Agreement.  

    2.    
Warrant Shares. If the Convertible Notes held by the Holder of this Warrant are
               converted into equity securities of the Company in a Qualified Financing
(as                defined in the Convertible Notes) (the “Qualified Equity Securities”),
then the                term “Warrant Shares” means the Qualified Equity
Securities, and this                Warrant shall be exercisable for a number of
Qualified Equity Securities equal                to the outstanding principal balance at
the time of exercise under the Convertible Notes held                by the Holder, divided by the
price per share of the Qualified Equity                Securities. Prior to a Qualified
Financing or if such Convertible Notes are not converted into                Qualified Equity
Securities at the closing of a Qualified Financing, then the                term “Warrant
Shares” means the Series A-1 Preferred Stock of the                Company, and this
Warrant shall be exercisable for a number of shares of Series                A-1
Preferred Stock equal to the outstanding principal balance at the time of
               exercise under the Convertible Notes held by the Holder, divided by $0.25 (as adjusted
in the                same manner as the Exercise Price may be adjusted pursuant to
Section 10                hereof).  

    3.    
Registration of Warrant. The Company shall register this Warrant in the
               Warrant Register, in the name of the record Holder hereof from time to
time. The                Holder agrees that it may not transfer this Warrant as to more
than the number                of Warrant Shares remaining to be exercised as shown on
the most updated Warrant                Exercise Log, and any purported transfer in
excess of such number of Warrant                Shares shall have no effect. The Company
may deem and treat the registered                Holder of this Warrant as the absolute
owner hereof for the purpose of any                exercise hereof or any distribution to
the Holder, and for all other purposes,                absent actual notice to the
contrary.  

    4.    
Registration of Transfers. The Company shall register the transfer of any
               portion of this Warrant in the Warrant Register, upon surrender of this
Warrant,                with the Form of Assignment attached hereto duly completed and
signed, and a                legal opinion as contemplated by the legend on page 1 of
this Warrant, to the                Company at its address specified herein. Upon any
such registration or transfer,                a New Warrant, evidencing the portion of
this Warrant so transferred shall be                issued to the transferee and a New
Warrant evidencing the remaining portion of                this Warrant not so
transferred, if any, shall be issued to the transferring                Holder. The
acceptance of the New Warrant by the transferee thereof shall be                deemed
the acceptance by such transferee of all of the rights and obligations of
               a holder of a Warrant.  

    5.    
Exercise and Duration of Warrant. This Warrant shall be exercisable by
               the registered Holder at any time and from time to time on or after the
date                hereof to and including 6:30 p.m. New York City time on the
Expiration Date. At                6:30 p.m., New York City time, on the Expiration Date,
the portion of this                Warrant not exercised prior thereto shall be and
become void and of no value.                The Company may not call or redeem any
portion of this Warrant without the                consent of the Holder.  

    6.    
Delivery of Warrant Shares.  

        (a)    
               To acquire Warrant Shares under this Warrant, the Holder shall not be
required                to physically surrender this Warrant unless the aggregate number
of Warrant                Shares then represented by this Warrant is being exercised.
Upon delivery of a                written notice, in the form of the Exercise Notice to
the Company (together with                the Warrant Exercise Log attached thereto) at
its address for notice set forth                herein and upon payment of the Exercise
Price multiplied by the number of                Warrant Shares that the Holder intends
to purchase hereunder, the Company shall                promptly (but in no event later
than three (3) business days after the Date of                Exercise) issue and deliver
to the Holder, a certificate representing the number                of Warrant Shares to
which such exercise pertains, which, unless otherwise                required by the
Purchase Agreement, shall be free of restrictive legends.  

4 

        (b)    
               The Company’s obligations to issue and deliver Warrant Shares in
accordance                with the terms hereof are absolute and unconditional,
irrespective of any action                or inaction by the Holder to enforce the same,
any waiver or consent with                respect to any provision hereof, the recovery
of any judgment against any Person                or any action to enforce the same, or
any setoff, counterclaim, recoupment,                limitation or termination, or any
breach or alleged breach by the Holder or any                other Person of any
obligation to the Company or any violation or alleged                violation of law by
the Holder or any other Person, and irrespective of any                other circumstance
which might otherwise limit such obligation of the Company to                the Holder
in connection with the issuance of Warrant Shares. Nothing herein                shall
limit a Holder’s right to pursue any other remedies available to it
               hereunder, at law or in equity including, without limitation, a decree of
               specific performance and/or injunctive relief with respect to the Company’s
               failure to timely deliver certificates representing Warrant Shares upon
exercise                of the Warrant as required pursuant to the terms hereof.  

    7.    
Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon
               exercise of this Warrant shall be made without charge to the Holder for
any                issue or transfer tax, withholding tax, transfer agent fee or other
incidental                tax or expense in respect of the issuance of such certificates,
all of which                taxes and expenses shall be paid by the Company; provided,
however, that the                Company shall not be required to pay any tax which may
be payable in respect of                any transfer involved in the registration of any
certificates for Warrant Shares                in a name other than that of the Holder.
The Holder shall be responsible for all                other tax liability that may arise
as a result of holding or transferring this                Warrant or Warrant Shares upon
exercise hereof.  

    8.    
Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
               destroyed, the Company shall issue or cause to be issued in exchange and
               substitution for and upon cancellation hereof, or in lieu of and
substitution                for this Warrant, a New Warrant, but only upon receipt of
evidence reasonably                satisfactory to the Company of such loss, theft or
destruction and customary and                reasonable indemnity (which shall not
include a surety bond), if requested.                Applicants for a New Warrant under
such circumstances shall also comply with                such other reasonable
regulations and procedures and pay such other reasonable                third-party costs
as the Company may prescribe. If a New Warrant is requested as                a result of
a mutilation of this Warrant, then the Holder shall deliver such                mutilated
Warrant to the Company as a condition precedent to the Company’s
               obligation to issue the New Warrant.  

5 

    9.    
Reservation of Warrant Shares. The Company covenants that it will at all
               times reserve and keep available out of the aggregate of its authorized
but                unissued and otherwise unreserved Common Stock, solely for the purpose
of                enabling it to issue Warrant Shares upon exercise of this Warrant as
herein                provided, the number of Warrant Shares which are then issuable and
deliverable                upon the exercise of this entire Warrant, free from preemptive
rights or any                other contingent purchase rights of persons other than the
Holder (taking into                account the adjustments and restrictions of Section
10); provided,                however, that the Holder acknowledges and agrees that
the Series A-1 Preferred                Stock shall not be authorized or reserved until
such time as the waiting period                applicable to the definitive Information
Statement has expired and the Amended                and Restated Certificate of
Incorporation is filed with the Secretary of State                of the State of
Delaware. If at any time prior to the Expiration Date, the                number of
authorized but unissued Warrant Shares shall not be sufficient to                permit
exercise of this Warrant, the Company will take such corporate action as
               may, in the opinion of its counsel, be necessary to increase its
authorized but                unissued Warrant Shares as shall be sufficient for such
purposes. The Company                covenants that all Warrant Shares so issuable and
deliverable shall, upon                issuance and the payment of the applicable
Exercise Price in accordance with the                terms hereof, be duly and validly
authorized, issued and fully paid and                non-assessable.  

    10.    
Certain Adjustments. The Exercise Price and number of Warrant Shares
               issuable upon exercise of this Warrant are subject to adjustment from time
to                time as set forth in this Section 10.  

        (a)    
Stock Splits and Combinations. If the Company shall at any time or from
               time to time after the date of this Warrant effect a subdivision of the
               outstanding Warrant Shares, the Exercise Price then in effect immediately
before                that subdivision shall be proportionately decreased. If the Company
shall at any                time or from time to time after the date of this Warrant
combine the outstanding                shares of Warrant Shares, the Exercise Price then
in effect immediately before                the combination shall be proportionately
increased. Any adjustment under this                clause shall become effective at the
close of business on the date the                subdivision or combination becomes
effective.  

        (b)    
Fundamental Transactions. If, at any time while this Warrant is
               outstanding, (1) the Company effects any merger or consolidation of the
Company                with or into another Person, (2) the Company effects any sale of
all or                substantially all of its assets in one or a series of related
transactions, (3)                any tender offer or exchange offer (whether by the
Company or another Person) is                completed pursuant to which holders of
Common Stock are permitted to tender or                exchange their shares for other
securities, cash or property, or (4) the Company                effects any
reclassification of the Common Stock or any compulsory share                exchange
pursuant to which the Common Stock is effectively converted into or
               exchanged for other securities, cash or property (each, a “Fundamental
Transaction”), then the Holder shall have the right to purchase and
               receive upon the basis and upon the terms and conditions herein specified
and in                lieu of the Warrant Shares immediately theretofore issuable upon
exercise of the                Warrant, such shares of stock, securities or assets
(including cash) as would                have been issuable or payable with respect to or
in exchange for a number of                Warrant Shares equal to the number of Warrant
Shares immediately theretofore                issuable upon exercise of the Warrant, had
such Fundamental Transaction not                taken place. The terms of any agreement
pursuant to which a Fundamental                Transaction is effected shall include
terms requiring any such successor or                surviving entity and Holder to
comply with the provisions of this Section                10.  

6 

        (c)    
Certain Events. If any change in the outstanding Warrant Shares or any
               other event occurs as to which the other provisions of this Section 10               are
not strictly applicable or if strictly applicable would not fairly protect
               the purchase rights of the Holder of the Warrant in accordance with such
               provisions, then the Board of Directors of the Company shall make an
adjustment                in the number and class of shares available under this Warrant,
the Exercise                Price or the application of such provisions, so as to protect
such purchase                rights as aforesaid. The adjustment shall be such as to give
the Holder of the                Warrant upon exercise for the same aggregate Exercise
Price the total number,                class and kind of shares as he would have owned
had the Warrant been exercised                prior to the event and had the Holder
continued to hold such shares until after                the event requiring adjustment.  

        (d)    
Adjustments to Exercise Price for Certain Dilutive Issuances.  

	 	        (i)    
Deemed Issue of Additional Shares of Common Stock.  

	 	        (A)    
               If the Company at any time or from time to time after the date of this
Warrant                shall issue any Options or Convertible Securities or shall fix a
record date for                the determination of holders of any class of securities
entitled to receive any                such Options or Convertible Securities, then the
maximum number of shares of                Common Stock (as set forth in the instrument
relating thereto, assuming the                satisfaction of any conditions to
exercisability, convertibility or                exchangeability but without regard to
any provision contained therein for a                subsequent adjustment of such
number) issuable upon the exercise of such Options                or, in the case of
Convertible Securities and Options therefor, the conversion                or exchange of
such Convertible Securities, shall be deemed to be Additional                Shares of
Common Stock issued as of the time of such issue or, in case such a                record
date shall have been fixed, as of the close of business on such record
               date.  

	 	        (B)    
               If the terms of any Option or Convertible Security, the issuance of which
               resulted in an adjustment to the Exercise Price pursuant to the terms of
clause (ii) below, are revised (either automatically pursuant to the
               provisions contained therein or as a result of an amendment to such terms)
to                provide for either (1) any increase or decrease in the number of shares
of                Common Stock issuable upon the exercise, conversion or exchange of any
such                Option or Convertible Security or (2) any increase or decrease in the
               consideration payable to the Company upon such exercise, conversion or
exchange,                then, effective upon such increase or decrease becoming
effective, the Exercise                Price computed upon the original issue of such
Option or Convertible Security                (or upon the occurrence of a record date
with respect thereto) shall be                readjusted to such Exercise Price as would
have obtained had such revised terms                been in effect upon the original date
of issuance of such Option or Convertible                Security. Notwithstanding the
foregoing, no adjustment pursuant to this clause (B) shall have the effect of
increasing the Exercise Price to an                amount which exceeds the lower of (i) the
Exercise Price on the original                adjustment date, or (ii) the Exercise
Price that would have resulted from                any issuances of Additional Shares of
Common Stock between the original                adjustment date and such readjustment
date.  

7 

	 	        (C)    
               If the terms of any Option or Convertible Security, the issuance of which
did                not result in an adjustment to the Exercise Price pursuant to the
terms of clause (ii) below (either because the consideration per share of the
               Additional Shares of Common Stock subject thereto was equal to or greater
than                the Exercise Price then in effect, or because such Option or
Convertible                Security was issued before the date of this Warrant), are
revised after the date                of this Warrant (either automatically pursuant to
the provisions contained                therein or as a result of an amendment to such
terms) to provide for either (1)                any increase or decrease in the number of
shares of Common Stock issuable upon                the exercise, conversion or exchange
of any such Option or Convertible Security                or (2) any increase or decrease
in the consideration payable to the Company upon                such exercise, conversion
or exchange, then such Option or Convertible Security,                as so amended, and
the Additional Shares of Common Stock subject thereto shall                be deemed to
have been issued effective upon such increase or decrease becoming
               effective.  

	 	        (D)    
               Upon the expiration or termination of any unexercised Option or
unconverted or                unexchanged Convertible Security which resulted (either
upon its original                issuance or upon a revision of its terms) in an
adjustment to the Exercise Price                pursuant to the terms of clause (ii)
 below, the Exercise Price shall be                readjusted to such Exercise Price
as would have obtained had such Option or                Convertible Security never been
issued.  

	 	        (ii)    
Adjustment of Exercise Price Upon Issuance of Additional Shares of Common
               Stock. In the event the Company shall at any time after the date of
this                Warrant issue Additional Shares of Common Stock (including Additional
Shares of                Common Stock deemed to be issued pursuant to clause (i)  above),
without                consideration or for a consideration per share less than the
applicable Exercise                Price in effect immediately prior to such issue, then
the Exercise Price shall                be reduced, concurrently with such issue, to the
price per share of any such                Additional Shares of Common Stock (including
Additional Shares of Common Stock                deemed to be issued pursuant to clause
(i) above).  

        (e)    
Notice of Corporate Events. If the Company (i) declares a dividend or any
               other distribution of cash, securities or other property in respect of its
               Common Stock, including without limitation any granting of rights or
warrants to                subscribe for or purchase any capital stock of the Company or
any subsidiary of                the Company, (ii) authorizes or approves, enters into
any agreement                contemplating or solicits stockholder approval for any
Fundamental Transaction                or (iii) authorizes the voluntary dissolution,
liquidation or winding up of the                affairs of the Company (but only to the
extent such disclosure would not result                in the dissemination of material,
non-public information to the Holder), then                the Company shall deliver to
the Holder a copy of the press release or similar                public notice utilized
by the Company describing the material terms and                conditions of such
transaction (or if no such public notice is given or does not                contain all
such material terms and conditions, a separate notice containing                such
material terms and conditions), at least twenty (20) calendar days prior to
               the applicable record or effective date on which a Person would need to
hold                Common Stock in order to participate in or vote with respect to any
such                transaction, and the Company will take all steps reasonably necessary
in order                to insure that the Holder is given the practical opportunity to
exercise this                Warrant prior to such time so as to participate in or vote
with respect to such                transaction; provided, however, that
the failure to deliver such                notice or any defect therein shall not affect
the validity of the corporate                action required to be described in such
notice. Notwithstanding the foregoing,                the delivery of the notice
described in this Section 10(e) is not                intended to and shall not
bestow upon the Holder any voting rights whatsoever.  

8 

        (f)    
Dividends. Upon any exercise of this Warrant at a time when there are
               dividends or distributions unpaid as to Warrant Shares and as to which the
               dividend date or other date fixed for payment has passed, then, (i) to the
               fullest extent permitted by law, such unpaid dividends or distributions
shall be                paid by the Company contemporaneously with the exercise of this
Warrant as to                the Warrant Shares issued upon such exercise, and (i) to the
extent payment of                such unpaid dividends or distributions is not legally
permitted, then the                Exercise Price shall be further adjusted by increasing
the number of Warrant                Shares issuable upon exercise of this Warrant to
take into account the value of                such unpaid dividends or other
distributions in determining the amount of                Warrant Shares to be issued
upon exercise of this Warrant.  

        (g)    
Calculations. All calculations under this Section 10 shall be made
               to the nearest cent or the nearest 1/100th of a share, as applicable. The
number                of shares of Common Stock outstanding at any given time shall not
include shares                owned or held by or for the account of the Company, and the
disposition of any                such shares shall be considered an issue or sale of
Common Stock.  

        (h)    
Number of Warrant Shares. Simultaneously with any adjustment to the
               Exercise Price pursuant to this Section 10, the number of Warrant
Shares                that may be purchased upon exercise of this Warrant shall be
increased or                decreased proportionately, so that after such adjustment the
aggregate Exercise                Price payable hereunder for the adjusted number of
Warrant Shares shall be the                same as the aggregate Exercise Price in effect
immediately prior to such                adjustment.  

        (i)    
Certificate as to Adjustments. Upon the occurrence of each adjustment or
               readjustment of the Exercise Price pursuant to this Section 10, the
               Company at its expense shall promptly compute such adjustment or
readjustment in                accordance with the terms hereof and furnish to the Holder
a certificate setting                forth such adjustment or readjustment and showing in
detail the facts upon which                such adjustment or readjustment is based. The
Company shall, upon the written                request at any time of the Holder, furnish
or cause to be furnished to such                holder a similar certificate setting
forth (i) such adjustments and                readjustments, (ii) the Exercise Price then
in effect, and (iii) the number of                Warrant Shares and the amount, if any,
of other property which then would be                received upon the exercise of this
Warrant.  

    11.    
Payment of Exercise Price. The Holder shall pay the Exercise Price in one
               of the following manners:  

        (a)    
Cash Exercise. Payment may be made in cash or by certified or official
               bank check payable to the order of the Company.  

9 

        (b)    
Cashless Exercise. In lieu of payment of the Exercise Price as provided
               in clause (a), the Holder may elect a cashless net exercise. In the case
of such                cashless net exercise, the Holder shall surrender this Warrant for
cancellation                and receive in exchange therefor the full number of duly
authorized, validly                issued, fully paid and nonassessable Warrant Shares as
is computed using the                following formula:  

X = Y * (A – B)
     A  

where: 

	 	         X = 	
     the  number of shares of Warrant  Shares to be issued to the Holder  upon  cashless
 exercise  of                   this Warrant

	 	Y =	 the total number of shares Warrant Shares covered by this Warrant which the Holder has
surrendered at such time for cashless exercise (including both shares to be issued to the
Holder upon cashless exercise of this Warrant and shares to be cancelled as payment
therefor)

	 	         A = 	
     the Current  Market Value as of the business day on which the Holder  surrenders
 this Warrant to                   the Company

	 	  B  =	the Exercise
Price then in effect under this Warrant at the time at which the Holder
surrenders this Warrant to the Company

For purposes of Rule 144 promulgated
under the Securities Act, it is intended, understood and acknowledged that the Warrant
Shares issued in a cashless exercise transaction shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued. 

    12.    No
Fractional Shares. No fractional shares of Warrant Shares will be           issued in
connection with any exercise of this Warrant and in lieu thereof, any
          fractional shares shall be rounded down to the nearest whole.  

    13.    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           specified in
this Section 16 prior to 6:30 p.m. (New York City time) on a           business
day, (b) the next business day after the date of transmission, if such           notice
or communication is delivered via facsimile at the facsimile number           specified
in this Section 13 on a day that is not a business day or later           than
6:30 p.m. (New York City time) on any business day, (c) the business day
          following the date of mailing, if sent by U.S. nationally recognized overnight
          courier service, or (d) upon actual receipt by the party to whom such notice is
          required to be given. The address for such notices and communications shall be
          as follows:  

10 

	 	If to
the Company: 	 MSO Holdings, Inc.
 2333 Waukegan Road, Suite 175
 Bannockburn,
Illinois 60015
 Attn: Chief Executive Officer 
Fax: (847) 267-1728

	 	 If to
a Holder:	 To the address of the Holder on the books and records of the
Company;

or such other address as may be
designated in writing hereafter, in the same manner, by such Person. 

    14.    Warrant
Agent. The Company shall serve as Warrant agent under this           Warrant. Upon
thirty (30) days’ notice to the Holder, the Company may           appoint a new
Warrant agent. Any corporation into which the Company or any new           Warrant agent
may be merged or any corporation resulting from any consolidation           to which the
Company or any new Warrant agent shall be a party or any           corporation to which
the Company or any new Warrant agent transfers           substantially all of its
corporate trust or shareholders services business shall           be a successor Warrant
agent under this Warrant without any further act. Any           such successor Warrant
agent shall promptly cause notice of its succession as           Warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder           at the Holder’s
last address as shown on the Warrant Register.  

    15.    Miscellaneous.  

        (a)              This
Warrant shall be binding on and inure to the benefit of the parties hereto           and
their respective successors and assigns. Subject to the preceding sentence,
          nothing in this Warrant shall be construed to give to any Person other than the
          Company and the Holder any legal or equitable right, remedy or cause of action
          under this. This Warrant may be amended only in writing signed by the Company
          and the Holder and their successors and assigns.  

        (b)              All
questions concerning the construction, validity, enforcement and           interpretation
of this Warrant shall be governed by and construed and enforced           in accordance
with the internal laws of Delaware, without regard to its           conflicts of laws
principles.  

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

        (d)              In
case any one or more of the provisions of this Warrant shall be invalid or
          unenforceable in any respect, the validity and enforceability of the remaining
          terms and provisions of this Warrant shall not in any way be affected or
          impaired thereby and the parties will attempt in good faith to agree upon a
          valid and enforceable provision which shall be a commercially reasonable
          substitute therefor, and upon so agreeing, shall incorporate such substitute
          provision in this Warrant.  

11 

        (e)              Subject
to the provisions of Section 10 hereof, prior to exercise of this
          Warrant, the holder hereof shall not, by reason of by being a holder hereof, be
          entitled to any rights of a stockholder with respect to the Warrant Shares,
          including (without limitation) the right to vote such Warrant Shares, receive
          dividends or other distributions thereon, exercise preemptive rights or be
          notified of stockholder meetings, and such holder shall not be entitled to any
          notice or other communication concerning the business or affairs of the
Company.  

        (f)              This
Warrant may be modified or amended or the provisions hereof waived with the
          written consent of the Company and the Holder.  

[Signatures Follow] 

12 

        IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above. 

		
		MSO HOLDINGS, INC.
		

By:____________________________________
		       Steven Straus
		       Its President

EXHIBIT A 
  EXERCISE
NOTICE 
    MSO HOLDINGS, INC. 
 WARRANT ORIGINALLY ISSUED MAY __, 2006 
   WARRANT NO.
__________ 

        The
 undersigned  hereby  irrevocably  elects  to  purchase   _____________  shares  of
 _________________ pursuant to the above  referenced  Warrant,  and, if such Holder is
not utilizing the cashless  exercise  provision set forth in Section 11(b) of the
Warrant,  encloses herewith  $________ in cash,  certified or official bank check or
checks or other immediately  available funds,  which sum represents the aggregate
 Exercise Price for the number of Warrant  Shares to which this  Exercise  Notice
 relates,  together  with any  applicable  taxes  payable by the undersigned pursuant to
the Warrant. 

        The
undersigned requests that certificates for the Warrant Shares issuable upon this exercise
be issued in the name of ___________________________________. 

		
		PLEASE INSERT SOCIAL SECURITY OR
		TAX IDENTIFICATION NUMBER____________

(Please print name and
address) 

A-1 

Warrant Exercise Log 

	

	Date
	Number of Warrant Shares

Available to be Exercised
	Number of Warrant
Shares Exercised
	Number of Warrant
Shares Remaining to
be Exercised

	

			
	

A-2 

MSO HOLDINGS, INC.
WARRANT ORIGINALLY
ISSUED ______________ __, 2006
WARRANT NO. __________ 

FORM OF ASSIGNMENT 

        [To
be completed and signed only upon transfer of Warrant] 

        FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to purchase
____________ shares of ______________ to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of the Company with full
power of substitution in the premises. 

Dated:_______________,
____ 

		
		_______________________________________
		(Signature must conform in all respects to name of
		holder as specified on the face of the Warrant )
	

	_______________________________________
		Address of Transferee
		
_______________________________________
		
_______________________________________

In the presence of:

_________________________ 

A-3Exhibit 10.12 

SECURITIES PURCHASE
AGREEMENT 

        This
Securities Purchase Agreement (this “Agreement”) is dated as of May 9th,
2006, among MSO Holdings, Inc., a Delaware corporation (the
“Company”), and the investors identified on Exhibit A hereto
(each, an “Investor” and collectively, the “Investors”). 

        WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to Section
4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Investor, and each Investor, severally and not
jointly, desires to purchase from the Company certain 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 the Investors agree as follows: 

ARTICLE I
DEFINITIONS 

        1.1.    Definitions.
In addition to the terms defined elsewhere in this           Agreement, for all purposes
of this Agreement, the following terms shall have           the meanings indicated in
this Section 1.1:  

        “Action”
means any action, suit, inquiry, notice of violation, proceeding (including any partial
proceeding such as a deposition) or investigation pending or threatened in writing against
or affecting the Company, any Subsidiary or any of their respective properties before or
by any court, arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or trading
facility. 

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

        “Aggregate
Investment Amount” means with respect to each Investor, the Aggregate Investment
Amount indicated next to such Investor’s name on Exhibit A. 

        “Amended
and Restated Certificate of Incorporation” means the Amended and Restated
Certificate of Incorporation of the Company, in the form approved by the Company’s
board of directors and stockholders and attached as Exhibit A hereto. 

        “Applicable
Fraction” means, for each holder of Series A Preferred Stock, a fraction
determined by dividing (a) the aggregate original principal amount of the Convertible
Notes that such holder has legally committed to purchase pursuant to this Agreement as of
the Effective Time, by (b) $2,500,000 multiplied by the fraction equal to the quotient of
(i) the total number of shares of Series A Preferred Stock held by such holder immediately
prior to the Effective Time, and (ii) the total number of shares of Series A Preferred
Stock issued and outstanding immediately prior to the Effective Time. 

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

        “Collateral
Agent” means the Person serving and named as such under the Intercreditor
Agreement for the benefit of the Investors. 

        “Commission”
means the Securities and Exchange Commission. 

        “Common
Stock” means the common stock of the Company, $0.001 par value per share, and any
securities into which such common stock may hereafter be reclassified. 

        “Company
Counsel” means the law firm of Foley & Lardner L.L.P., acting through its San
Diego, California office. 

        “Conversion
Shares” means the shares of capital stock issuable upon conversion of the
Convertible Notes. 

        “Convertible
Notes” means the 10% convertible promissory notes of the Company issuable to the
Investors at the Closings in accordance with Section 2.2 and Section 2.3, in
the principal amount of up to $2.5 million and in the form attached hereto as Exhibit
B which Convertible Notes are convertible into capital stock of the Company in
accordance with their terms. 

        “Disclosure
Schedules” means the schedule of exceptions to the representations and warranties
of the Company contained herein. 

        “Effective
Time” means the effective time of the filing of the Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State. 

        “Escrow
Account” means an escrow account established pursuant to the Escrow Agreement. 

        “Escrow Agreement”
means the Escrow Agreement between the Company and Union Bank (the “Escrow
Agent”) and Commonwealth Associates, L.P., in the form attached hereto as
Exhibit C. 

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

        “First
Closing” has the meaning set forth in Section 2.2. 

        “First Closing
Date” means the Business Day on which all of the conditions set forth in
Sections 5.1 and 5.3 hereof are satisfied, or such other date as the parties
may agree. 

        “First
Closing Investor Deliverables” has the meaning set forth in Section
2.2(b). 

2 

        “First
Closing Company Deliverables” has the meaning set forth in Section 2.2(a). 

        “First Closing
Investment Amount” means, with respect to each Investor, the First Closing
Investment Amount indicated next to such Investor’s name on Exhibit A. 

        “Flow
of Funds Memorandum” means the memorandum to be delivered to the Escrow Agent
advising the Escrow Agent as to the various payments to be made at each applicable
Closing. 

        “GAAP”
means U.S. generally accepted accounting principles. 

        “Going
Dark Transaction” has the meaning set forth in Section 4.3. 

        “Information
Statement” means an information statement filed by the Company with the
Commission pursuant to, and meeting the requirements of, Regulation 14C under the Exchange
Act, which, among other things, provides information to the stockholders of the Company
regarding the stockholder approval by written consent of, and the terms of, the
transactions contemplated herein, including, without limitation, the Amended and Restated
Certificate of Incorporation, the Series A Conversion, the Reverse Split and the Going
Dark Transaction. 

        “Intellectual
Property Rights” has the meaning set forth in Section 3.1(o). 

        “Intercreditor
Agreement” means the Intercreditor Agreement dated as of even date herewith among
the Company and the Collateral Agent. 

        “Lien”
means any lien, charge, encumbrance, security interest, right of first refusal or other
restrictions of any kind. 

        “Material
Adverse Effect” means, as applicable, any of (i) a material and adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a material and
adverse effect on the results of operations, assets, prospects, business or condition
(financial or other) of the Company and the Subsidiaries, taken as a whole, or (iii) an
adverse impairment to the Company’s ability to perform on a timely basis its
obligations under any Transaction Document. 

        “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. 

        “Plan”
means the Company’s 2004 Equity Incentive Plan, as amended, or any other plan adopted
by the Board of Directors of the Company for issuance of incentive stock options and other
stock incentives to Company employees, directors and consultants. 

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

3 

        “Proportionate
Share” means, for each holder of Series A Preferred Stock, the fraction
determined by dividing the total number of shares of Series A Preferred Stock held by such
holder immediately prior to the First Closing by the total number of shares of Series A
Preferred Stock issued and outstanding immediately prior to the First Closing. 

        “Reverse
Split” has the meaning set forth in Section 4.3. 

        “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” has the meaning set forth in Section 3.1(h). 

        “Second
Closing” has the meaning set forth in Section 2.3. 

        “Second Closing
Date” means the Business Day on which all of the conditions set forth in
Sections 5.1, 5.2 and 5.3 hereof are satisfied, or such other date as
the parties may agree. 

        “Second
Closing Deliverables” has the meaning set forth in Section 2.3(a). 

        “Second Closing
Investor Deliverables” has the meaning set forth in Section 2.3(b). 

        “Second
Closing Investment Amount” means, with respect to each Investor, the Second
Investment Amount indicated next to such Investor’s name on Exhibit A. 

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

        “Security
Agreement” means the Security Agreement dated as of even date herewith among the
Company and the Collateral Agent. 

        “Series
A Conversion” has the meaning set forth in Section 4.4. 

        “Series A
Preferred Stock” means the Series A Convertible Preferred Stock, par value $.001
per share, of the Company, which Series A Preferred Stock has the voting powers,
designations, preferences, rights and qualifications set forth in the Amended and Restated
Certificate of Incorporation. 

        “Series
A-1 Preferred Stock” means the Series A-1 Convertible Preferred Stock, par value
$.001 per share, of the Company, which Series A-1 Preferred Stock has the voting powers,
designations, preferences, rights and qualifications set forth in the Amended and Restated
Certificate of Incorporation. 

        “Short
Sales” include, without limitation, all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct
and indirect stock pledges, forward sale contracts, options, puts, calls, short sales,
swaps and similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers. 

4 

        “Subsidiary”
means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation
S-X promulgated by the Commission under the Exchange Act. 

        “Trading
Day” means (i) a day on which the Common Stock is traded on a Trading Market, or
(ii) if the Common Stock is not quoted on any Trading Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the Pink Sheets, LLC (or any
similar organization or agency succeeding to its functions of reporting prices); provided,
that in the event that the Common Stock is not listed or quoted as set forth in (i) and
(ii) hereof, then Trading Day shall mean a Business Day. 

        “Trading
Market” means whichever of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on
which the Common Stock is listed or quoted for trading on the date in question. 

        “Transaction
Documents” means this Agreement, the Security Agreement, the Intercreditor
Agreement, the Warrants, and the Convertible Notes, and any other documents or agreements
executed in connection with the transactions contemplated hereunder. 

        “Warrants”
means the warrants to purchase an amount and kind of capital stock of the Company to be
determined in accordance with the terms of such warrants and issuable to the Investors at
the First Closing in accordance with Section 2.2. 

        “Warrant
Shares” means the shares of capital stock issuable upon exercise of the Warrants. 

ARTICLE II
PURCHASE AND SALE 

        2.1.    Escrow.  

            (a)              Immediately
prior to the execution of this Agreement, the Company, Commonwealth           Associates,
L.P. and the Escrow Agent have established the Escrow Account           pursuant to the
Escrow Agreement; and  

            (b)              Upon
the execution of this Agreement, each Investor will deposit into the Escrow
          Account each Investor’s Aggregate Investment Amount as set forth next to
          such Investor’s name on Exhibit A to this Agreement.  

        2.2.    First
Closing; First Closing Deliveries. At the initial closing of the
          transactions contemplated hereby (the “First Closing”),
subject           to the terms and conditions set forth in this Agreement, including the
          applicable Conditions Precedent to Closing set forth in Article V, the Company
          shall issue and sell to each Investor, and each Investor shall, severally and
          not jointly, purchase from the Company, the Convertible Notes and Warrants for
          each such Investor’s First Closing Investment Amount as set forth next to
          such Investor’s name on Exhibit A hereto. The First Closing shall
          take place at the offices of Company Counsel on the First Closing Date or at
          such other location or time as the parties may agree. In accordance with the
          foregoing, at the First Closing:  

5 

            (a)              the
Company shall deliver to each Investor the following (the “First           Closing Company
Deliverables”):  

                (i)      executed
copies of the Transaction Documents;  

                (ii)     a
Convertible Note, in the principal amount of such Investor’s First           Closing
Investment Amount, registered in the name of such Investor;  

                (iii)    a
Warrant registered in the name of such Investor; and  

            (b)              the
Investors shall deliver to the Company executed copies of the relevant
          Transaction Documents (the “First Closing Investor
          Deliverables”);  

            (c)              the
Escrow Agent shall deliver to the Company at the instruction of the Investor
          Representative and in accordance with the Escrow Agreement the aggregate First
          Closing Investment Amount, less the amounts paid to Company Counsel and counsel
          to the Investors as provided in Section 6.2 hereof, all as set forth in the
Flow           of Funds Memorandum.  

        2.3.    Second
Closing; Second Closing Deliveries. At the second closing of the
          transactions contemplated hereby (the “Second Closing”),
          subject to the terms and conditions set forth in this Agreement, including the
          applicable Conditions Precedent to Closing set forth in Article V, the Company
          shall issue and sell to each Investor, and each Investor shall, severally and
          not jointly, purchase from the Company, the Convertible Notes for each such
          Investor’s Second Closing Investment Amount as set forth next to such
          Investor’s name on Exhibit A hereto. The Second Closing shall take
          place at the offices of Company Counsel on the Second Closing Date or at such
          other location or time as the parties may agree. In accordance with the
          foregoing, at the Second Closing:  

            (a)              the
Company shall deliver to each Investor the following (the “Second
          Closing Company Deliverables”):  

                (i)              a
Convertible Note, in the principal amount of such Investor’s Second
          Closing Investment Amount, registered in the name of such Investor; and  

            (b)              the
Escrow Agent shall deliver to the Company in accordance with the Escrow
          Agreement (the “Second Closing Investor Deliverables”):  

                (i)              the
aggregate Second Closing Investment Amount, less the amounts paid to Company
          Counsel and counsel to the Investors as provided in Section 6.2 hereof, all as
          set forth in the Flow of Funds Memorandum.  

6 

        2.4.    Interim
Closings. At any time prior to the date of the Second Closing,           holders of a
majority-in-interest of the principal amount then outstanding under           the Notes
may by written consent delivered to the Company (each, an “Interim Closing Notice”)
require one or more interim closings           (each, an “Interim Closing”),
subject to the terms and           conditions set forth in this Agreement, including the
applicable Conditions           Precedent to Closing set forth in Article V, at which
time the Company shall           issue and sell to each Investor, and each Investor
shall, severally and not           jointly, purchase from the Company, Convertible Notes
on a pro rata basis in an           aggregate amount identified in the Interim Closing
Notice (in each case, the “Interim Closing Investment Amount”). In no
event shall the           total principal amount under all Convertible Notes issued to
any Investor exceed           the Aggregate Investment Amount for such Investor set forth
on Exhibit A, and in           no event shall any Investor be required to purchase
Convertible Notes under this           Agreement in principal amount that exceeds the
Aggregate Investment Amount for           such Investor set forth on Exhibit A. To the
extent one or more Interim Closings           is conducted pursuant to this Agreement,
then the principal amount of           Convertible Notes to be purchased at the Second
Closing shall be correspondingly           reduced for each Investor by the principal
amount of Convertible Notes purchased           by such Investor in one or more Interim
Closings. Each Interim Closing shall           take place at the offices of Company
Counsel on the Interim Closing Date or at           such other location or time as the
parties may agree. In accordance with the           foregoing, at each Interim Closing:  

            (a)              the
Company shall deliver to each Investor the following (for each Interim           Closing,
the “Interim Closing Company Deliverables”):  

                (i)              a
Convertible Note, in the principal amount of such Investor’s Interim
          Closing Investment Amount, registered in the name of such Investor; and  

            (b)              the
Escrow Agent shall deliver to the Company in accordance with the Escrow
          Agreement (for each Interim Closing, the “Interim Closing
Investor
Deliverables”):  

                (i)              the
aggregate Interim Closing Investment Amount, less the amounts paid to           Company
Counsel as set forth in the Flow of Funds Memorandum.  

        2.5.    Over-Subscription
Warrants. In addition, to the extent any Investor           obligates itself to
purchase Convertible Notes in aggregate principal amount in           excess of such
Investor’s Proportionate Share, then at the First Closing           such Investor
shall be issued an additional warrant (each, an           “Over-Subscription Warrant”)
in the form attached hereto as Exhibit E           to purchase a number of shares of
Series A-1 Convertible Preferred Stock           calculated by in manner reasonably
agreed upon in good faith by the Board of           Directors of the Company and holders
holding a majority in interest of the           Series A Preferred Stock.  

ARTICLE III
REPRESENTATIONS AND
WARRANTIES 

        3.1.    Representations
and Warranties of the Company. Except as set forth on the           Disclosure
Schedules delivered concurrently herewith, the Company hereby makes           the
following representations and warranties to each Investor as of the date           hereof
and as of the applicable Closing Date:  

            (a)    Subsidiaries.
Except as set forth on Schedule 3.1(a), the Company           has no direct or
indirect Subsidiaries. The Company owns, directly or           indirectly, all of the
capital stock of each Subsidiary free and clear of any           and all Liens, and all
the issued and outstanding shares of capital stock of           each Subsidiary are
validly issued and are fully paid, non-assessable and free           of preemptive and
similar rights.  

7 

            (b)    Organization
and Qualification. The Company and each Subsidiary are duly           incorporated,
validly existing and in good standing under the laws of the           jurisdiction of its
incorporation, with the requisite corporate 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           of any of the provisions
of its respective certificate or articles of           incorporation, bylaws or other
organizational or charter documents except where           the violation would not,
individually or in the aggregate, have or reasonably be           expected to result in a
Material Adverse Effect. The Company and each Subsidiary           are duly qualified to
conduct its respective businesses and are in good standing           as a foreign
corporation 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, would not,
individually or in the aggregate, have or reasonably be expected           to result in a
Material Adverse 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           thereunder.
The execution and delivery of each of the Transaction Documents by           the Company
and the consummation by it of the transactions contemplated thereby           have been
duly authorized by all necessary corporate action on the part of the           Company.
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, will constitute the valid and binding obligation of the Company
          enforceable against the Company in accordance with its terms, except as such
          enforceability may be limited by applicable bankruptcy, insolvency,
          reorganization, moratorium, liquidation or similar laws relating to, or
          affecting generally the enforcement of, creditors’ rights and remedies or
          by other equitable principles of general application.  

            (d)    No
Conflicts. The execution, delivery and performance of the Transaction
          Documents by the Company and the consummation by the Company of the
transactions           contemplated 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, or
give to others any rights of           termination, amendment, acceleration or
cancellation (with or without notice,           lapse of time or both) of, any agreement,
credit facility, debt or other           instrument (evidencing a Company or Subsidiary
debt or otherwise) or other           understanding to which the Company or any
Subsidiary is a party or by which any           property or asset of the Company or any
Subsidiary is bound or affected, or           (iii) 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 would
not, individually or in the aggregate,           have or reasonably be expected to result
in a Material Adverse Effect.  

8 

            (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) the filing with the Commission of a preliminary and final Information
          Statement pursuant to Regulation 14C of the Exchange Act and the terms hereto,
          (ii) filings required by state securities laws, (iii) the filing of a Notice of
          Sale of Securities on Form D with the Commission under Regulation D of the
          Securities Act, (iv) the filings required in accordance with Section 4.6 and
(v) those that have been made or obtained prior to the date of this           Agreement.  

            (f)    Issuance
of the Convertible Notes and Warrants. The Convertible Notes and           Warrants
issuable under Section 2.2 and Section 2.3 have been duly
          authorized and, when issued and paid for in accordance with the Transaction
          Documents, will be duly and validly issued, fully paid and nonassessable, and
          free and clear of all Liens. The Warrant Shares have been duly authorized and
          reserved for issuance upon exercise of the Warrants and, when issued against
          payment of the exercise price hereof, in accordance with the terms of the
          Warrants, will be duly and validly issued, fully paid and nonassessable, and
          free and clear of all Liens.  

            (g)    Capitalization.
The capitalization of the Company immediately prior to           the First Closing Date
is set forth on Schedule 3.1(g). As of the First           Closing Date and after
giving effect to the automatic conversion of the           applicable number of shares of
Series A Preferred Stock into Series A-1           Preferred Stock, the number of shares
and type of all authorized, issued and           outstanding capital stock of the
Company, and all shares of Common Stock           reserved for issuance under the Company’s
Plan and such other option and           incentive plans as may currently exist, is
specified in Schedule 3.1(g).           Except as specified in Schedule 3.1(g),
as of the Closing Date, 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 specified in
Schedule 3.1(g), there are no           outstanding options, warrants,
subscription rights, rights to subscribe to,           calls or commitments of any
character whatsoever relating to, or securities,           rights or obligations
convertible into or exchangeable for, or giving any Person           any right to
subscribe for or acquire, any shares of capital stock of the           Company, or
contracts, commitments, understandings or arrangements by which the           Company or
any Subsidiary is or may become bound to issue additional shares of           capital
stock of the Company, or securities or rights convertible or           exchangeable into
shares of capital stock of the Company. Except as specified in Schedule 3.1(g),
the issue and sale of the Convertible Notes and Warrants           will not, immediately
or with the passage of time, obligate the Company to issue           shares of capital
stock of the Company or other securities to any Person (other           than the
Investors) and will not result in a right of any holder of Company           securities
to adjust the exercise, conversion, exchange or reset price under           such
securities.  

9 

            (h)    SEC
Reports. In connection with the sale of the Convertible Notes and           Warrants,
the Company has made available its reports required filed by the           Company under
the Exchange Act since January 1, (the foregoing materials and all           amendments
thereto being collectively referred to herein as the “SEC           Reports”).
The Company has filed all SEC Reports required to be filed           by it under the
Securities Act and the Exchange Act, including pursuant to           Section 13(a) or
15(d) thereof, on a timely basis or has timely filed 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 as
to form in all material respects with (i) the requirements of the           Securities
Act and the Exchange Act and the rules and regulations of the           Commission
promulgated thereunder, including, without limitation, the           requirements of the
provisions of such statutes, rules and regulations enacted           and adopted as part
of the Sarbanes-Oxley Act of 2002, as amended, and (ii) any           SEC comments
received or otherwise conveyed to the Company with respect to any           previously
filed SEC Reports. In addition, none of the SEC Reports, as of their           respective
dates, contained any untrue statement of a material fact or omitted           to state a
material fact required to be stated therein or necessary in order to           make the
statements therein, in light of the circumstances under which they were           made,
not misleading. 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 GAAP applied on a consistent basis during the           periods involved,
except as may be otherwise specified in such financial           statements or the notes
thereto, 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. The Company has received no notification           of any violation or
enforcement action from the Commission or any court,           arbitrator, governmental
or other administrative agency, regulatory authority           (federal, state, county,
local or foreign), stock market, stock exchange or           trading facility.  

            (i)    Material
Changes. Since the date of the latest audited financial           statements included
within the SEC Reports, except as specifically disclosed in           the SEC Reports or
in Schedule 3.1(j), (i) there has been no event,           occurrence or
development that has had or that would 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, accrued           expenses and
other liabilities incurred in the ordinary course of business           consistent with
past practice and (B) liabilities not required to be reflected           in the Company’s
financial statements pursuant to GAAP or required to be           disclosed in filings
made with the Commission, (iii) the Company has not altered           its method of
accounting or the identity of its auditors, (iv) the Company has           not declared
or made any dividend or distribution of cash or other property to           its
shareholders 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 Plans.  

            (j)    Litigation.
There is no Action which (i) adversely affects or challenges           the legality,
validity or enforceability of any of the Transaction Documents or           the
Convertible Notes and Warrants or (ii) except as specifically disclosed in           the
Disclosure Schedule, would, if there were an unfavorable decision with           respect
thereto, individually or in the aggregate, have or reasonably be           expected to
result in a Material Adverse Effect.  

            (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.  

10 

            (l)    Compliance.
Neither the Company nor any Subsidiary (i) is in default           under or in violation,
in any material respect, 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 written notice of a claim that it is in default under           or that it is in
violation, in any material respect, of any indenture, loan or           credit agreement
or any other agreement or instrument to which it is a party or           by which it or
any of its properties is bound (whether or not such default or           violation has
been waived), (ii) is or has been in violation, in any material           respect, of any
order of any court, arbitrator or governmental body applicable           to the Company
or such Subsidiary, as appropriate, or (iii) is in violation, in           any material
respect, of any statute, rule or regulation of any governmental           authority,
including without limitation all foreign, federal, state and local           laws
relating to taxes, environmental protection, occupational health and           safety,
product quality and safety and employment and labor matters applicable           to the
Company or such Subsidiary, as appropriate.  

            (m)    Regulatory
Permits. Except as disclosed in the Disclosure Materials, 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, except where the           failure to
possess such permits would not, individually or in the aggregate,           have or
reasonably be expected to result in a Material Adverse Effect, and           neither the
Company nor any Subsidiary has received any written notice of           proceedings
relating to the revocation or material modification of any such           permits.  

            (n)    Title
to Assets. The Company and the Subsidiaries have good and           marketable title
in fee simple to all real property owned by them that is           material to their
respective businesses and good and marketable title in all           personal property
owned by them that is material to their respective businesses,           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. Any
real property and facilities held under lease by the Company           and the
Subsidiaries are held by them under valid, subsisting and enforceable           leases of
which the Company and the Subsidiaries are in compliance, except as           would not,
individually or in the aggregate, have or reasonably be expected to           result in a
Material Adverse Effect.  

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

            (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. The Company has no reason to believe that it will           not
be able to renew its and the Subsidiaries’ 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 on terms consistent with
          market for the Company’s and such Subsidiaries’ respective lines of
          business.  

11 

            (q)    Transactions
With Affiliates and Employees. Except as set forth in the           SEC Reports, none
of the officers or directors of the Company and, to the           knowledge of the
Company, none of the employees of the Company is presently a           party to any
transaction with the Company or any Subsidiary (other than for           services as
employees, officers and directors), including any contract,           agreement or other
arrangement providing for the furnishing of services to or           by, providing for
rental of real or personal property to or from, or otherwise           requiring payments
to or from any officer, director or such employee or, to the           knowledge of the
Company, any entity in which any officer, director, or any such           employee has a
substantial interest or is an officer, director, trustee or           partner, that is
required to be disclosed in the SEC Reports.  

            (r)    Certain
Fees. No brokerage or finder’s fees or commissions are or           will be
payable by the Company to any broker, financial advisor or consultant,           finder,
placement agent, investment banker, bank or other Person with respect to           the
transactions contemplated by this Agreement. The Investors shall have no
          obligation with respect to any fees or with respect to any claims (other than
          such fees or commissions owed by an Investor pursuant to written agreements
          executed by such Investor which fees or commissions shall be the sole
          responsibility of such Investor) made by or on behalf of other Persons for fees
          of a type contemplated in this Section that may be due in connection with the
          transactions contemplated by this Agreement.  

            (s)    Certain
Registration Matters. Assuming the accuracy of the           Investors’ representations
and warranties set forth in Sections 3.2(b)-(e),           no registration under the
Securities Act is required for the offer and sale of           the Convertible Notes and
Warrants by the Company to the Investors under the           Transaction Documents. The
Company has not granted or agreed to grant to any           Person any rights (including
“piggy-back” registration rights) to have           any securities of the
Company registered with the Commission or any other           governmental authority that
have not been satisfied.  

            (t)    Investment
Company. The Company is not, and is not an Affiliate of, and           immediately
following the Closing will not have become, an “investment           company” within
the meaning of the Investment Company Act of 1940, as           amended.  

            (u)    No
Additional Agreements. The Company does not have any agreement or
          understanding with any Investor with respect to the transactions contemplated
by           the Transaction Documents other than as specified in the Transaction
Documents.  

            (v)    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.  

12 

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

            (x)    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.  

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

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

            (a)    Organization;
Authority. Such Investor is an entity duly organized,           validly existing and
in good standing under the laws of the jurisdiction of its           organization with
the requisite corporate or partnership power and authority to           enter into and to
consummate the transactions contemplated by the applicable           Transaction
Documents and otherwise to carry out its obligations thereunder. The           execution,
delivery and performance by such Investor of the transactions           contemplated by
this Agreement has been duly authorized by all necessary           corporate or, if such
Investor is not a corporation, such partnership, limited           liability company or
other applicable like action, on the part of such Investor.           Each of this
Agreement and the Escrow Agreement has been duly executed by such           Investor, and
when delivered by such Investor in accordance with the terms           hereof, will
constitute the valid and legally binding obligation of such           Investor,
enforceable against it in accordance with its terms, except as such
          enforceability may be limited by applicable bankruptcy, insolvency,
          reorganization, moratorium, liquidation or similar laws relating to, or
          affecting generally the enforcement of, creditors’ rights and remedies or
          by other equitable principles of general application.  

13 

            (b)    Investment
Intent. Such Investor is acquiring the Convertible Notes and           Warrants as
principal for its own account for investment purposes only and not           with a view
to or for distributing or reselling such Convertible Notes and           Warrants or any
part thereof, without prejudice, however, to such           Investor’s right at all
times to sell or otherwise dispose of all or any           part of such Convertible Notes
and Warrants in compliance with applicable           federal and state securities laws.
Subject to the immediately preceding           sentence, nothing contained herein shall
be deemed a representation or warranty           by such Investor to hold the Convertible
Notes and Warrants for any period of           time. Such Investor is acquiring the
Convertible Notes and Warrants hereunder in           the ordinary course of its
business. Such Investor does not have any agreement           or understanding, directly
or indirectly, with any Person to distribute any of           the Convertible Notes and
Warrants.  

            (c)    Investor
Status. At the time such Investor was offered the Convertible           Notes and
Warrants, it was, and at the date hereof it is, (i) knowledgeable,
          sophisticated and experienced in making, and qualified to make, decisions with
          respect to investments in securities representing an investment decision
similar           to that involved in the purchase of the Convertible Notes and Warrants,
          including investments in securities issued by the Company and comparable
          entities, and has had the opportunity to request, receive, review and consider
          all information it deemed relevant in making an informed decision to purchase
          the Convertible Notes and Warrants; and (ii) an “accredited investor”          as
defined in Rule 501(a) under the Securities Act. Such Investor is not a
          registered broker-dealer under Section 15 of the Exchange Act.  

            (d)    General
Solicitation. Such Investor is not purchasing the Convertible           Notes and
Warrants as a result of any advertisement, article, notice or other
          communication regarding the Convertible Notes and Warrants 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.  

            (e)    Access
to Information. Such Investor acknowledges that it has access to           the SEC
Reports and has been afforded (i) the opportunity to ask such questions           as it
has deemed necessary of, and to receive answers from, authorized
          representatives of the Company concerning the terms and conditions of the
          offering of the Convertible Notes and Warrants; (ii) access to information
about           the Company and the Subsidiaries and their respective financial
condition,           results of operations, business, properties, management and
prospects sufficient           to enable it to evaluate its investment; and (iii) the
opportunity to obtain           such additional information that the Company possesses or
can acquire without           unreasonable effort or expense that is necessary to make an
informed investment           decision with respect to the investment.  

            (f)    Certain
Trading Activities. Such Investor has not directly or indirectly,           nor has
any Person acting on behalf of or pursuant to any understanding with           such
Investor, engaged in any transactions in the securities of the Company
          (including, without limitations, any Short Sales involving the Company’s
          securities) since the earlier to occur of (i) the time that such Investor was
          first contacted by the Company regarding the purchase of the Company’s
          Convertible Notes and Warrants and (ii) the 30th day prior to the date of this
          Agreement. Such Investor covenants that neither it nor any Person acting on its
          behalf or pursuant to any understanding with it will engage in any transactions
          in the securities of the Company (including Short Sales) prior to the time that
          the transactions contemplated by this Agreement are publicly disclosed. Neither
          such Investor (including its Affiliates), nor any Person acting on behalf of or
          pursuant to any understanding with such Investor, holds a short position,
          directly or indirectly, in any shares of the Common Stock.  

14 

            (g)    Reliance
on Investor Representations. Such Investor understands that the           Convertible
Notes and Warrants are being offered and sold to it in reliance upon           specific
exemptions from the registration requirements of the Securities Act and           the
rules and regulations promulgated thereunder, and state securities laws and
          that the Company is relying upon the truth and accuracy of, and the
          Investor’s compliance with, the representations, warranties, agreements,
          acknowledgements and understandings of the Investor set forth herein in order
to           determine the availability of such exemptions and the eligibility of the
          Investor to acquire the Convertible Notes and Warrants. Under such laws and
          rules and regulations the Convertible Notes and Warrants may be resold without
          registration under the Securities Act only in certain limited circumstances.
The           Investor represents that it is familiar with Rule 144 under the Securities
Act,           as presently in effect, and understands the resale limitations.  

            (h)    Risks
of Investment. Such Investor understands that its investment in the
          Convertible Notes and Warrants involves a significant degree of risk, including
          a risk of total loss of the Investor’s investment, and the Investor has
          full cognizance of and understands all of the risk factors related to the
          Investor’s purchase of the Convertible Notes and Warrants, including, but
          not limited to, those set forth under the caption “Risk Factors” in
          the SEC Reports. The Investor understands that the market price of the Common
          Stock has been volatile and that no representation is being made as to the
          future value of the Common Stock. The Investor has the knowledge and experience
          in financial and business matters as to be capable of evaluating the merits and
          risks of an investment in the Convertible Notes and Warrants and has the
ability           to bear the economic risks of an investment in the Convertible Notes
and           Warrants.  

            (i)    No
Approvals. Such Investor understands that no United States federal or           state
agency or any other government or governmental agency has passed upon or           made
any recommendation or endorsement of the Convertible Notes and Warrants.  

            (j)    Location
of Offices. Such Investors principal executive offices are in           the
jurisdiction set forth immediately below the Investor’s name on the
          signature pages hereto.  

            (k)    Independent
Investment Decision. Such Investor has independently           evaluated the merits
of its decision to purchase Convertible Notes and Warrants           pursuant to the
Transaction Documents, and such Investor confirms that it has           not relied on the
advice of any other Investor’s business and/or legal           counsel in making
such decision.  

The Company acknowledges and agrees
that no Investor has made or makes any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2. 

ARTICLE IV
OTHER AGREEMENTS OF
THE PARTIES 

        4.1.              Transfer
Restrictions.  

15 

            (a)              The
Convertible Notes, Warrants, Conversion Shares and Warrant Shares issuable           upon
the conversion or exercise thereof (and any shares issuable upon conversion           of
such Conversion Shares or Warrant Shares), respectively, may only be disposed
          of in compliance with state and federal securities laws. In connection with any
          transfer related to such securities other than pursuant to an effective
          registration statement, the Company may require the transferor thereof to
          provide to the Company an opinion of counsel selected by the transferor, 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.  

            (b)              Certificates
evidencing the Convertible Notes and Warrants, and the Conversion           Shares and
Warrant Shares issuable upon the conversion or exercise thereof (and           any shares
issuable upon conversion of such Conversion Shares or Warrant Shares)           will
contain the following legend:  

	 	
THESE
SECURITIES HAVE 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 AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT SECURED BY SUCH SECURITIES.  

        4.2.    Use
of Proceeds. The Company will use the net proceeds from the sale of           the
Convertible Notes and Warrants for working capital and general corporate
          purposes.  

        4.3.    The
Reverse Split and “Going Dark” Transaction. The parties
          acknowledge and agree that in connection with the transactions contemplated by
          this Agreement, the Company intends to undertake a reverse stock split for the
          purpose of reducing the number of registered holders of its common stock (the
          “Reverse Split”) to enable it to cease being a company
          obligated to make reports to the Commission under the Securities and Exchange
          Act by filing a Form 15 with the Commission as contemplated by Section 12g-4 of
          the Exchange Act by which the Company would cease to be a reporting company
          under the Exchange Act (the “Going Dark Transaction”).  

        4.4.    Pro
Rata Participation. Each holder of the Company’s Series A           Preferred
Stock shall have the right to purchase an original principal amount of           Notes
equal to such holder’s Proportionate Share of $2,500,000.  

16 

        4.5.    Automatic
Conversion to Series A-1 Preferred Stock. As of the Effective           Time, and as
provided in the Amended and Restated Certificate of Incorporation,           that number
equal to the Applicable Fraction (rounded down to the nearest whole           share) of
the shares of Series A Preferred Stock held by each holder of Series A
          Convertible Preferred Stock that has purchased one or more of the Convertible
          Notes shall automatically convert into the Corporation’s Series A-1
          Convertible Preferred Stock (as hereinafter defined) at a ratio of 3.66972
          shares of Series A-1 Convertible Preferred Stock for each such share of Series
A           Convertible Preferred Stock so converted (the “Series A
          Conversion”).  

        4.6.    Information
Statement. As soon as practicable following the First           Closing, the Company
shall prepare and file with the Commission the preliminary           Information
Statement and will use its best efforts to respond to any comments           of the
Commission related thereto. Promptly upon notification from the           Commission that
it has no further comments, the Company will use its best           efforts to file the
definitive Information Statement with the Commission.           Promptly upon the
completion of the waiting period required by Regulation 14C of           the Exchange Act
with respect to the Information Statement, and no later than           fifteen business
days following such completion, the Company will effect the           Reverse Split and
the Series A Conversion by filing the Amended and Restated           Certificate of
Incorporation and will effect the Going Dark Transaction by           filing Exchange Act
Form 15 with the Commission.  

        4.7.    Amendment
to Stockholders Agreement. Concurrent with the First Closing,           the Amended
and Restated Stockholders Agreement will be amended by the form of           Amendment
No. 2 to Amended and Restated Stockholders Agreement in the form           attached
hereto as Exhibit F.  

ARTICLE V
CONDITIONS PRECEDENT
TO CLOSINGS 

        5.1.    Conditions
          Precedent to the Obligations of the Investors to Close. The obligation of
          each Investor to acquire the Convertible Notes and Warrants at the First
Closing           and the Convertible Notes at the Second Closing and/or any Interim
Closing (the           “First Closing,” “Second Closing” and
any           “Interim Closing” are referred to individually as a
          “Closing” and together as the “Closings”) is
          subject to the satisfaction or waiver by such Investor, at or before each such
          Closing, of each of the following conditions:  

            (a)    Representations
and Warranties. The representations and warranties of the           Company contained
herein shall be true and correct in all material respects as           of the date when
made and as of the Closing as though made on and as of such           date.  

            (b)    Performance.
The Company shall have performed, satisfied and complied in           all material
respects with all covenants, agreements and conditions required by           the
Transaction Documents to be performed, satisfied or complied with by it at           or
prior to the Closing.  

            (c)    No
Injunction. No statute, rule, regulation, executive order, decree,           ruling
or injunction shall have been enacted, entered, promulgated or endorsed           by any
court or governmental authority of competent jurisdiction that prohibits           the
consummation of any of the transactions contemplated by the Transaction
          Documents.  

17 

            (d)    Adverse
Changes. Since the date of execution of this Agreement, no event           or series
of events shall have occurred that has resulted in or reasonably would           be
expected to result in a Material Adverse Effect (the parties agreeing that a
          decrease in stock price alone shall not be deemed such an event).  

            (e)    Officer’s
Certificate. The Company shall have delivered to the           Investors a
certificate executed by a duly authorized officer of the Company           certifying
that (i) the representations and warranties of the Company contained           herein are
true and correct in all material respects as of the date when made           and as of
the Closing as though made on and as of such date, (ii) the Company           has
performed, satisfied and complied in all material respects with all           covenants,
agreements and conditions required by the Transaction Documents to be
          performed, satisfied or complied with by it at or prior to the Closing and
(iii)           the items referenced in Sections 5.1(c)-(d) have been satisfied.  

            (f)    Company
Deliverables. With respect to the First Closing, the Company           shall have
delivered the First Closing Company Deliverables in accordance with Section 2.2.
With respect to the Second Closing, the Company shall have           delivered the Second
Closing Deliverables in accordance with Section 2.3.           With respect to any
Interim Closing, the Company shall have delivered the           Interim Closing Company
Deliverables in accordance with Section 2.4.  

            (g)    Board
and Shareholder Approval of Amendment and Restatement of Certificate of
          Incorporation. The board of directors of the Company shall have adopted,
          declared the advisability of, and recommended that the stockholders of the
          Company vote in favor of the Amended and Restated Certificate of Incorporation,
          the Series A Conversion, the Reverse Split and the Going Dark Transaction, and
          the Stockholders of the Company shall have approved by written consent the
          Amended and Restated Certificate of Incorporation, the Series A Conversion, the
          Reverse Split and the Going Dark Transaction.  

            (h)    Investment
Amount. The Aggregate Investment Amount to be invested by all           the Investors
pursuant to this Agreement shall total at least $2,000,000 but           shall not exceed
$2,500,000 (in each case excluding any investment amount           attributed to Al
Henry).  

            (i)    Stockholder
Agreement. The Amended and Restated Stockholders Agreement           dated July 30,
2004 by and among the Company, MSO Medical, Inc. and various           investors shall
have been amended as set forth on Exhibit F hereto.  

            (j)    Approval
of CEO. The Investors shall have approved the person appointed           as the
Company’s Chief Executive Officer.  

        5.2.    Additional
Second Closing Conditions. The obligation of each Investor to           acquire
Convertible Notes at the Second Closing is also subject to the           satisfaction or
waiver by such Investor, at or before the Second Closing of the           following
conditions: (i) the Company having entered into a binding agreement           with
Horizon Blue Cross Blue Shield on or before December 31, 2006, or (ii) the
          closing of a merger, acquisition or sale of assets or other business
combination           with WISH Holdings on or before December 31, 2006 and that is
approved by the           Company’s Board of Directors.  

18 

        5.3.    Conditions
Precedent to the Obligations of the Company to Close. The           obligation of the
Company to sell the Convertible Notes and Warrants at the           Closings is subject
to the satisfaction or waiver by the Company, at or before           each Closing, of
each of the following conditions:  

            (a)    Representations
and Warranties. The representations and warranties of           each Investor
contained herein shall be true and correct in all material           respects as of the
date when made and as of the applicable Closing Date as           though made on and as
of such date;  

            (b)    Performance.
Each Investor shall have performed, satisfied and complied           in all material
respects with all covenants, agreements and conditions required           by the
Transaction Documents to be performed, satisfied or complied with by such
          Investor at or prior to the Closing;  

            (c)    No
Injunction. No statute, rule, regulation, executive order, decree,           ruling
or injunction shall have been enacted, entered, promulgated or endorsed           by any
court or governmental authority of competent jurisdiction that prohibits           the
consummation of any of the transactions contemplated by the Transaction
          Documents; and  

            (d)    Investor
Deliverables. With respect to the First Closing, the Company           shall have
received the First Closing Investor Deliverables in accordance with Section 2.2.
With respect to the Second Closing, the Company shall have           received the Second
Closing Investor Deliverables in accordance with Section           2.3. With
respect to any Interim Closing, the Company shall have received           the Interim
Closing Investor Deliverables in accordance with Section 2.4.  

ARTICLE VI
MISCELLANEOUS 

        6.1.    Investor
Representative. Each Investor hereby appoints and constitutes           Commonwealth
Associates, L.P. as its “Investor Representative” to           exercise the
powers on behalf of such Investor set forth in this Section 6.1,           and
Commonwealth Associates, L.P. hereby accepts such appointment. In the event           of
the dissolution, resignation or inability to act of Commonwealth Associates,
          L.P., a majority-in-interest of the Investors shall appoint a replacement
          Investor Representative on behalf of all Investors with all the powers of its,
          his or her predecessor. Each Investor, by execution of this Agreement, hereby
          constitutes and appoints Investor Representative its, his or her true and
lawful           attorney in fact, with full power in its, his or her name and it, his or
her           behalf: (i) to act on behalf of such Investor in connection with the
obligations           of the Investor Representative set forth in the Escrow Agreement
and to instruct           the Escrow Agent to disburse funds and to deliver fully
executed documents to           the Company at the First Closing, Second Closing and any
Interim Closing, (ii)           to give and receive notices on behalf of the Investor
with respect to the           foregoing, and (iii) in general, to do all things and to
perform all acts,           including, without limitation, executing and delivering the
Escrow Agreement and           other agreements, certificates, receipts, instructions and
other instruments           contemplated or deemed advisable in connection with the
Escrow Agreement. This           power of attorney, and all authority hereby conferred,
is granted in           consideration of the mutual covenants and agreements made herein
and shall be           irrevocable and shall not be terminated by any act of any Investor
or by           operation of law, whether by merger, dissolution or liquidation of any
Investor,           by the death or incapacity of any Investor or by the occurrence of
any other           event. All action taken by the Investor Representative hereunder
shall be final           and binding upon each Investor. Each Investor agrees, jointly
and severally, to           hold Investor Representative free and harmless from any and
all loss, damage or           liability that they or any one of them, may sustain as a
result of any action           taken in good faith by Investor Representative hereunder.  

19 

        6.2.    Fees
and Expenses. The Company shall pay the fees and expenses of the           advisers,
counsel, accountants and other experts, if any, and all other expenses           incurred
by any party incident to the negotiation, preparation, execution,           delivery and
performance of the Transaction Documents. The Company shall pay all           stamp and
other taxes and duties levied in connection with the sale of the           Convertible
Notes and Warrants.  

        6.3.    Counsel
for Investors. The Company shall pay all costs and expenses that           it incurs
with respect to the negotiation, execution, delivery and performance           of the
Agreement; provided, however, that the Company shall, at each           Closing,
reimburse the Investors for the reasonable fees of and expenses of           Miller,
Canfield, Paddock and Stone, P.L.C., as counsel to the Investors.
          Notwithstanding anything set forth above or elsewhere in this Agreement to the
          contrary, the Investors shall not be required to submit any documentation with
          regard to the fees and expenses of such special counsel to the extent such
          documentation would violate the attorney-client or attorney work product
          privileges; provided, however, that, in any case, the Company shall be
          entitled to invoices that at least indicate the time spent and the rate or
rates           applicable to such time as a condition of performance of its
reimbursement           obligation hereunder.  

        6.4.    Attorneys’ Fees.
In the event that any suit or action is instituted           by the Investors to enforce
any provision in this Agreement or any of the other           Transaction Documents, the
Investors shall be entitled to recover from the           Company all fees, costs and
expenses of enforcing any right of the Investors           under or with respect to this
Agreement or any of the other Transaction           Documents, including without
limitation, such reasonable fees and expenses of           attorneys and accountants,
which shall include, without limitation, all fees,           costs and expenses of
appeals.  

        6.5.    Titles
and Subtitles. The titles of the sections and subsections of the           Agreement
are for convenience of reference only and are not to be considered in
          construing this Agreement.  

        6.6.    Broker’s
Fees. Each party hereto represents and warrants that no           agent, broker,
investment banker, person or firm acting on behalf of or under           the authority of
such party hereto is or will be entitled to any broker’s           or finder’s
fee or any other commission directly or indirectly in           connection with the
transactions contemplated herein. Each party hereto further           agrees to indemnify
each other party for any claims, losses or expenses incurred           by such other
party as a result of the representation in this Section being           untrue.  

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

20 

        6.8.    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 (provided the sender           receives a
machine-generated confirmation of successful transmission) at the           facsimile
number specified in this Section prior to 5:30 p.m. (New York City           time) on a
Trading Day, (b) the next Trading Day after the date of transmission,           if such
notice or communication is delivered via facsimile at the facsimile           number
specified in this Section on a day that is not a Trading Day or later           than 5:30
p.m. (New York City time) on any Trading Day, (c) the Trading Day           following the
date of mailing, if sent by U.S. nationally recognized overnight           courier
service, or (d) upon actual receipt by the party to whom such notice is
          required to be given. The address for such notices and communications shall be
          as follows:  

	 	If to
the Company:	 MSO Holdings, Inc.
2333 Waukegan Road, Suite 175
Bannockburn, Illinois
                    60015
Attn: Chief Executive Officer
Facsimile: (847) 267-1728

	 	 With a
copy to: 	 Foley & Lardner LLP
 402
W. Broadway, 23rd Floor
San Diego, California 92101
Attn: Kenneth D. Polin, Esq.

Facsimile: (619) 234-3510

	 	 If to
an Investor: 	 To the address set forth under such Investor's name on the
signature pages hereof;

	 	 With a
copy to: 	 Miller, Canfield, Paddock and Stone, P.L.C.

101 North Main Street, 7th Floor
Ann Arbor, Michigan 48104
Attn: David N. Parsigian, Esq.
Facsimile: (734)
747-7147

or such other address as may be
designated in writing hereafter, in the same manner, by such Person. 

        6.9.    Amendments;
Waivers; No Additional Consideration. No provision of this           Agreement may be
waived or amended except in a written instrument signed by the           Company and the
Investors representing a majority of the aggregate Investment           Amount received
by the Company in connection with this Agreement. No waiver of           any default with
respect to any provision, condition or requirement of this           Agreement shall be
deemed to be a continuing waiver in the future or a waiver of           any subsequent
default or a waiver of any other provision, condition or           requirement hereof,
nor shall any delay or omission of either party to exercise           any right hereunder
in any manner impair the exercise of any such right. No           consideration shall be
offered or paid to any Investor to amend or consent to a           waiver or modification
of any provision of any Transaction Document unless the           same consideration is
also offered to all Investors who then hold Convertible           Notes or Warrants or
underlying shares thereof.  

21 

        6.10.    Construction.
The headings herein are for convenience only, do not           constitute a part of this
Agreement and shall not be deemed to limit or affect           any of the provisions
hereof. The language used in this Agreement will be deemed           to be the language
chosen by the parties and their counsel to express their           mutual intent, and no
rules of strict construction will be applied against any           party. This Agreement
shall be construed as if drafted jointly by the parties,           and no presumption or
burden of proof shall arise favoring or disfavoring any           party by virtue of the
authorship of any provisions of this Agreement or any of           the Transaction
Documents.  

        6.11.    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 the Investors. Any Investor may assign any           or all of its
rights under this Agreement to any Person to whom such Investor           assigns or
transfers any securities issued in connection herewith, provided such
          transferee agrees in writing to be bound, with respect to the transferred
          securities, by the provisions hereof that apply to the Investors.  

        6.12.    Governing
Law. All questions concerning the construction, validity,           enforcement and
interpretation of this Agreement shall be governed by and           construed and
enforced in accordance with the internal laws of the State of           Delaware, without
regard to the principles of conflicts of law thereof. Service           of any process,
summons, notice or document by mail to such party’s address           set forth on
the signature pages hereto shall be effective service of process           for any suit,
action or other proceeding brought in any such court.  

        6.13.    Survival.
The representations, warranties, agreements and covenants           contained herein
shall survive the Closing and the delivery of the Convertible           Notes and
Warrants for a period of one (1) year thereafter, after which time           they shall
expire and be of no further force or effect.  

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

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

22 

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

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

        6.18.    Independent
Nature of Investors’ Obligations and Rights. The           obligations of each
Investor under any Transaction Document are several and not           joint with the
obligations of any other Investor, and no Investor shall be           responsible in any
way for the performance of the obligations of any other           Investor under any
Transaction Document. The decision of each Investor to           purchase Convertible
Notes and Warrants pursuant to the Transaction Documents           has been made by such
Investor independently of any other Investor. Nothing           contained herein or in
any Transaction Document, and no action taken by any           Investor pursuant thereto,
shall be deemed to constitute the Investors as a           partnership, an association, a
joint venture or any other kind of entity, or           create a presumption that the
Investors 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
Investor acknowledges that no other Investor has           acted as agent for such
Investor in connection with making its investment           hereunder and that no
Investor will be acting as agent of such Investor in           connection with monitoring
its investment in the Convertible Notes and Warrants           or enforcing its rights
under the Transaction Documents. Each Investor 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 Investor to           be joined as an
additional party in any proceeding for such purpose. The Company           acknowledges
that each of the Investors has been provided with the same           Transaction
Documents for the purpose of closing a transaction with multiple           Investors and
not because it was required or requested to do so by any Investor.  

        6.19.    Limitation
of Liability. Notwithstanding anything herein to the contrary,           the Company
acknowledges and agrees that the liability of an Investor arising           directly or
indirectly, under any Transaction Document of any and every nature           whatsoever
shall be satisfied solely out of the assets of such Investor, and           that no
trustee, officer, other investment vehicle or any other Affiliate of           such
Investor or any investor, shareholder or holder of shares of beneficial
          interest of such a Investor shall be personally liable for any liabilities of
          such Investor.  

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOLLOW] 

23 

        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. 

		
		MSO HOLDINGS, INC.
		

By: /s/ Steven Straus
		       Name: Steven Straus
		       Title: President
		

COMMONWEALTH ASSOCIATES, L.P.
		(as Investor Representative only)
		

By: /s/ Robert A. O'Sullivan
		       Name: Robert A. O'Sullivan
		       Title: CEO/President

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOR INVESTORS FOLLOW] 

        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. 

	Name of Investor
	Address for Notice

	
Richard Schoninger	25 Columbus Circle, Apt. 69
		New York, New York 10019
	By: /s/ Richard Schoninger	
	       Name: Richard Schoninger	
	

Bruce S. Schonbraun	The Schonbraun McCannGroup LLP
		Attn: Bruce Schonbraun
	By: /s/ Bruce S. Schonbraun	101 Eisenhower Pky
	       Name: Bruce S. Schonbraun	Roseland, NJ 07068
		Facsmile: (973) 228-3005
	

Richard O. Ullman	1200 Route 46 West
		Clifton, New Jersey 07013
	By: /s/ Richard O. Ullman	Facsimile No.: (973) 574-2404
	       Name: Richard O. Ullman	
	

Tim Ostrowski	1525 Sequoia Trail
		Glenview, Illinois 60025
	By: /s/ Tim Ostrowski	Facsimile No.: (847) 729-1746
	       Name: Tim Ostrowski	
	

Frank Bonvino	2506 Sandycreek Drive
		Westlake Village, California 91361
	By: /s/ Frank Bonvino	Facsimile No.: (818) 889-4064
	       Name: Frank Bonvino	
	

Terrence L. Mealy	Commonwealth Associates
		Attn: Bonnie Giusto
	By: /s/ Terrence L. Mealy	830 Third Avenue, 8th Floor
	       Name: Terrence L. Mealy	New York, New York 10022

	Name of Investor
	Address for Notice

		
	
New England Partners Capital, LP	New England Partners Capital, LP
		Attention: John Rousseau
	By: /s/ John Rousseau	One Boston Place, Suite 3630
	       Name: John Rousseau	Boston, Massachusetts 02108
	       Title: President	Facsimile No.: (617) 624-8416
	

LBJ Holdings LLC	LBJ Holdings, LLC
	By: HSP Group, Inc. (Its Manager)	c/o Hsp Group Inc.
		Attention: Lanie Valonitne
	By: /s/ Brian Putiker	3366 N. Torrey Pines Court, Suite 210
	       Name: Brian Putiker	La Jolla, California 92037
	       Title: Vice President	Facsimile No.: (858) 657-9031
	

RMC Capital LLC	Commonwealth Associates
		Attn: Bonnie Giusto
	By: /s/  Michael Acks	830 Third Avenue, 8th Floor
	       Name: Michael Acks	New York, New York 10022
	       Title: President	
	

Morgan Investors X	Morgan Investors X
		c/o: Jess S. Morgan & Co., Inc.
	By: /s/ Gary Levenstein	Attention: Gary L. Levenstein
	       Name: Gary Levenstein	16830 Ventura Blvd., Suite 411
	       Title: President – Investment Division	Encino, California 91436
		Facsimile No.: (818) 783-2175
	

Seneca Health Partners LP I	Seneca Health Partners LP I
	By: Seneca Partners LP, LLC	Attention: Rajesh Kothari
		300 Park Street, Suite 400
	By: /s/ Rajesh Kothari	Birmingham, Michigan 48009
	       Name: Rajesh Kothari	Facsimile No.: (248) 723-6651
	       Title: Secretary	
	

Albert Henry	1265 Loch Lane
		Lane Forest, IL 60045
	By: /s/ Albert Henry	Facsimile: (847) 735-9976
	       Name: Albert Henry	

2 

	Name of Investor
	Address for Notice

		
	
Echo Capital Growth Corporation	Echo Capital Growth Corporation
		Attention: Paul Hill
	By: /s/ Paul J. Hill	2000-1874 Scarth Street
	       Name: Paul J. Hill	Regina, SK S4P4B3
	       Title: President	Facsimile No.: (306) 302-7599
	

Harvard Developments Inc.	
	By: /s/  Arden Giesbrocht	Harvard Developments, Inc.
	       Name: Arden Giesbrocht	Attention: Tina Svedahl
	       Title: Controller	2000-1874 Scarth Street
		Regina, SK S4P4B3
	By: /s/ Terry Downie	Facsimile No.: (306) 522-4571
	       Name: Terry Downie	
	       Title: Vice President, Finance	
	

Ricky C. Sandler	Eminence Capital, LLC
		Attention: Ricky Sandler
	By: /s/ Ricky C. Sandler	65 East 55th Street, 25th Floor
	       Name: Ricky C. Sandler	New York, New York 10022
		Facsimile No.: (212) 418-2140
	

Shea Ventures, LLC	Shea Ventures, LLC
		Attention: Ed Shea
	By: /s/ Edmund H. Shea, Jr.	655 Brea Canyon Road
	       Name: Edmund H. Shea, Jr.	Walnut, California 91789
	       Title: Manager	Facsimile No.: (909) 869-0840
	

CLK, LLC	CLK, Inc.
		Attention: Craig L. Krumwiede
	By: /s/ Craig L. Krumwiede	17700 North Pacesetter Way
	       Name: Craig L. Krumwiede	Scottsdale, Arizona 85255
	       Title: President	Facsimile No.: (480) 348-8976
	

Albin F. Moschner	600 Northcroft Court
		Lake Forrest, Illinois 60045
	By: /s/ Albin F. Moschner	Facsimile No.: (847) 615-1053
	       Name: Albin F. Moschner	

3 

	Name of Investor
	Address for Notice

		
	
Mark Kubow	20743 W. High Ridge Drive
		Kildeer, Illinois 60047
	By: /s/ Mark Kubow	Facsimile No.: (312) 577-0441
	       Name: Mark Kubow	
	

Angelo J. Bufalino	95 E. North Avenue
		Lake Forrest, Illinois 60045
	By: /s/ Angelo J. Bufalino	Facsimile No.: (312) 609-5005
	       Name: Angelo J. Bufalino	
	

Christopher Perry	830 Hill Road
		Winnetka, Illinois 60093
	By: /s/ Christopher Perry	Facsimile No.: (312) 873-7301
	      Name: Christopher Perry	
	

Steven C. Straus	57 E. Laurel Ave
		Lake Forest, IL 60045
	By: /s/ Steven C. Straus	
	       Name: Steven C. Straus	

4 

EXHIBIT A
SCHEDULE OF INVESTORS 

	

	Name	First

Closing

Investment

Amount	Second

Closing

Investment

Amount	Aggregate

Investment

Amount	Number of Shares of

Series A-1 Preferred
Stock Issued Upon

Conversion of Series
A Preferred Stock	Number of Shares of

Series A Preferred
Stock Remaining
	

	

	Richard Schoninger	
$16,965	
$37,265	
$54,230	
1,000,003	
0
	

	Bruce S. Schonbraun	
$13,585	
$29,799	
$43,384	
800,003	
0
	

	Richard Ullman	
$50,895	
$111,795	
$162,690	
3,000,000	
0
	

	Tim Ostrowski	
$3,380	
$7,466	
$10,846	
200,000	
0
	

	Frank Bonvino	
$6,825	
$14,867	
$21,692	
400,000	
0
	

	Terrence L. Mealy	
$16,965	
$37,265	
$54,230	
999,996	
0
	

	New England Partners
Capital, LP	

$101,855	

$223,525	

$325,380	

6,000,000	

0
	

	LBJ Holdings, LLC	
$6,825	
$14,867	
$21,692	
399,996	
0
	

	RMC Capital	
$33,930	
$74,530	
$108,460	
1,999,998	
0
	

	Morgan Investors X	
$33,930	
$74,530	
$108,460	
1,999,998	
0
	

	Seneca Health Partners LP I	
$54,340	
$119,196	
$173,536	
3,200,000	
0
	

	Albert Henry	
$44,205	
$97,045	
$141,250	--	--
	

	Echo Capital Growth	
$33,930	
$74,530	
$108,460	
1,999,998	
0
	

	Harvard Developments, Inc.	
$64,480	
$141,579	
$206,059	
3,800,003	
0
	

	Ricky Sandler	
$3,380	
$7,466	
$10,846	
199,997	
0
	

	Shea Ventures, LLC	
$169,715	
$372,585	
$542,300	
10,000,013	
0
	

	CLK, Inc.	
$3,380	
$7,466	
$10,846	
199,997	
0
	

	Al Moschner	
$13,585	
$29,799	
$43,384	
800,003	
0
	

	Mark Kubow	
$8,450	
$18,665	
$27,115	
500,000	
0
	

	Angelo Bufalino	
$3,380	
$7,466	
$10,846	
200,000	
0
	

	Chris Perry	
$6,825	
$14,867	
$21,692	
400,000	
0
	

	Steve Straus	
$3,380	
$7,466	
$10,846	
200,000	
0
	

	Total	
$694,205	
$1,524,039	
$2,218,244	
18,300,011	

	

A-1 

EXHIBIT B
AMENDED
AND RESTATED
CERTIFICATE OF INCORPORATION

As Attached. 

B-1 

AMENDED AND RESTATED 

CERTIFICATE OF
INCORPORATION OF
MSO HOLDINGS, INC. 

a Delaware Corporation 

        Steven
Straus hereby certifies that: 

        ONE:
The date of the filing of the original Certificate of Incorporation of this Corporation
with the Secretary of State of the State of Delaware was November 19, 2004. 

        TWO:
 He is the duly elected President of MSO Holdings, Inc., a Delaware corporation. 

        THREE:
 The Amended and Restated  Certificate  of  Incorporation  of this  Corporation  is
hereby  further amended and restated as follows: 

ARTICLE I  

        The
name of this corporation is MSO Holdings, Inc. (the “Corporation”). 

ARTICLE II  

        The address
of the registered office of this Corporation in the State of Delaware is 2711 Centerville
Road, Suite 400, City of Wilmington 19808, County of New Castle, and the name of the
registered agent of the Corporation in the State of Delaware is Corporation Service
Corporation. 

ARTICLE III  

        The
purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law
(“DGCL”). 

ARTICLE IV  

        (A)    Classes
of Stock. The Corporation is authorized to issue           two classes of
stock to be designated, respectively, “Common Stock”          and “Preferred
Stock.” The total number of shares which the           Corporation is authorized to
issue is Two Hundred Fifteen Million (215,000,000)           shares, each with a par
value of $0.001 per share. One Hundred Twenty Million           (120,000,000) shares
shall be Common Stock and Ninety-Five Million (95,000,000)           shares shall be
Preferred Stock.  

        (B)    Reverse
Stock Split. Upon this Amended and Restated           Certificate of
Incorporation becoming effective pursuant to the General           Corporation Law of the
State of Delaware (the “Effective Time”), each           two hundred (200)
shares of the Common Stock issued and outstanding immediately           prior to the
Effective Time will be and are automatically reclassified as and           converted
(without any further act) into one (1) fully-paid and nonassessable           share of
Common Stock, par value $.001 per share, of the Corporation; provided,           however,
that no fractional shares of common stock of the Corporation shall be           issued
and in lieu of any fractional share of common stock of the Corporation           which
any stockholder would otherwise be entitled to receive pursuant hereto,           such
stockholder shall be entitled to receive from the Corporation an amount of           cash
equal to the fair market value (as determined in accordance with Article
          IV(C)(2)(c)(ii) below) of one (1) share of Common Stock at the Effective Time
          multiplied by the fractional share that would otherwise be issued to any such
          stockholder.  

        (C)    Conversion
of Series A Convertible Preferred Stock to Series A-1           Convertible Preferred
Stock.  

            1.    Automatic
Conversion. At the Effective Time, that number           equal to the
Applicable Fraction (as hereinafter defined) (rounded down to the           nearest whole
share) of the shares of Series A Convertible Preferred Stock (as           hereinafter
defined) held by each holder of Series A Convertible Preferred Stock           that has
purchased one or more of the Corporation’s Secured Convertible           Promissory
Notes issued by the Corporation as of the Effective Time pursuant to           that
certain Securities Purchase Agreement, dated as of May 8th, 2006
          (each a “Note” and, collectively, the “Notes”), shall
          automatically convert into the Corporation’s Series A-1 Convertible
          Preferred Stock (as hereinafter defined) at a ratio of 3.66972 shares of Series
          A-1 Convertible Preferred Stock for each such share of Series A Convertible
          Preferred Stock so converted, each having the rights and privileges prescribed
          herein. For this purpose, the term “Applicable Fraction” means, for
          each such holder, a fraction determined by dividing (a) the aggregate original
          principal amount of the Notes that such holder has legally committed to
purchase           pursuant to the Purchase Agreement as of the Effective Time, by (b)
$2,500,000           multiplied by the fraction equal to the quotient of (i) the total
number of           shares of Series A Convertible Preferred Stock held by such holder
immediately           prior to the Effective Time, and (ii) the total number of shares of
Series A           Convertible Preferred Stock issued and outstanding immediately prior
to the           Effective Time. No such conversion shall occur with respect to shares of
Series           A Convertible Preferred Stock held by any holder of Series A Convertible
          Preferred Shares that has not purchased a Note.  

            2.    Mechanics
of Conversion. The Corporation shall send to all           holders of
record of Series A Convertible Preferred Stock that also are holders           of the
Notes (the “Eligible Holders”), written notice of the Effective           Time
and the place designated for mandatory conversion of all such shares of           Series
A Convertible Preferred Stock held by the Eligible Holders. The           Corporation
need not send such notice in advance of the occurrence of the           Effective Time.
Upon receipt of such notice, each Eligible Holder shall           surrender his, her or
its certificate or certificates for all shares of Series A           Convertible
Preferred Stock held by such Eligible Holder (or, if such holder           alleges that
such certificate has been lost, stolen or destroyed, a lost           certificate
affidavit and agreement reasonably acceptable to the Corporation to           indemnify
the Corporation against any claim that may be made against the           Corporation on
account of the alleged loss, theft or destruction of such           certificate) to the
Corporation at the place designated in such notice, and           shall thereafter
receive certificates for the number of shares of Series A-1           Convertible
Preferred Stock to which such Eligible Holder is entitled pursuant           to this
Article IV(C). At the Effective Time, the applicable number of shares of           Series
A Preferred held by the Eligible Holders shall be deemed to have been           converted
into shares of Series A-1 Convertible Preferred Stock, which such           shares of
Series A-1 Convertible Preferred Stock shall be deemed to be           outstanding of
record, and all rights with respect to the Series A Convertible           Preferred Stock
so converted, including the rights, if any, to receive notices           and vote (other
than as a holder of Series A-1 Convertible Preferred Stock),           will terminate,
except only the rights of the holders thereof, upon surrender of           their
certificate or certificates (or lost certificate affidavit and agreement)
          therefor, to receive the items provided for in the last sentence of this
Article           IV(C)2. If so required by the Corporation, certificates of Series A
Convertible           Preferred Stock surrendered for conversion shall be endorsed or
accompanied by           written instrument or instruments of transfer, in form
satisfactory to the           Corporation, duly executed by the registered holder or by
his, her or its           attorney duly authorized in writing. As soon as practicable
after the Effective           Time and the surrender of the certificate or certificates
(or lost certificate           affidavit and agreement) for Series A Convertible
Preferred Stock, the           Corporation shall issue and deliver to such holder, or to
his, her or its           nominees, a certificate or certificates for the number of full
shares of Series           A-1 Convertible Preferred Stock issuable on such conversion in
accordance with           the provisions hereof, together with cash as provided below in
lieu of any           fraction of a share of Common Stock otherwise issuable upon such
conversion. No           fractional shares shall be issued upon the conversion of any
shares of Series A           Convertible Preferred Stock into Series A-1 Convertible
Preferred Stock, and the           number of shares of Series A-1 Convertible Preferred
Stock to be issued upon           such conversion shall be rounded up to the nearest
whole share.  

2 

            3.    Effect
of Conversion. All shares of Series A Convertible           Preferred
Stock converted to Series A-1 Convertible Preferred Stock as provided           in this
Section shall, from and after the Effective Time, no longer be deemed to           be
outstanding and, notwithstanding the failure of the Eligible Holder or           Eligible
Holders thereof to surrender the certificates for such shares on or           prior to
such time, all rights with respect to such shares shall immediately           cease and
terminate at the Effective Time, except only the right of the Eligible           Holders
to receive shares of Series A-1 Convertible Preferred Stock in exchange
          therefor. Such converted shares of Series A Convertible Preferred Stock shall
be           retired and cancelled and may not be reissued as shares of such series, and
the           Corporation may thereafter take such appropriate action (without the need
for           stockholder action) as may be necessary to reduce the authorized number of
          shares of Series A Convertible Preferred Stock accordingly. Upon the occurrence
          of such automatic conversion of the Series A Convertible Preferred Stock, the
          Eligible Holders shall surrender the certificates representing such shares at
          the office of the Corporation or any transfer agent for the Series A
Convertible           Preferred Stock. Thereupon, there shall be issued and delivered to
such Eligible           Holder promptly at such office and in its name as shown on such
surrendered           certificate or certificates, a certificate or certificates for the
number of           shares of Series A-1 Convertible Preferred Stock into which the
shares of           Series A Convertible Preferred Stock so surrendered were
convertible as of           the Effective Time.  

        (D)    Rights,
Preferences and Restrictions of Preferred Stock.           The Preferred
Stock authorized by this Amended and Restated Certificate of           Incorporation (the
“Certificate”) may be issued from time to           time in one or more
series. The first series of Preferred Stock shall be           designated “Series
A Convertible Preferred Stock” and shall           consist of Two Million One
Hundred Twenty Five Thousand Five Hundred (2,125,500)           shares. The rights,
preferences, privileges, and restrictions granted to and           imposed on the Series
A Convertible Preferred Stock are as set forth below in           this Article IV(C). The
second series of Preferred Stock shall be designated           “Series A-1
Convertible Preferred Stock” and shall consist of Seventy           Eight Million
Three Hundred Thousand and Five (78,300,005) shares. The rights,           preferences,
privileges, and restrictions granted to and imposed on the Series           A-1
Convertible Preferred Stock are as set forth below in this Article IV (C).  

3 

            1.    Dividends.
Holders of the Series A Convertible Preferred           Stock and Series A-1 Convertible
Preferred Stock shall not be entitled to any           preference over the holders of the
Common Stock with respect to dividends.  

            2.    Liquidation.  

                (a)    Series
A-1 Preference. In the event of any liquidation,           dissolution or
winding up of the Corporation, either voluntary or involuntary,           the holders of
the Series A-1 Convertible Preferred Stock shall be entitled to           receive, prior
and in preference to any distribution of any of the assets of the           Corporation
(or payment of any other consideration) to the holders of the Series           A
Convertible Preferred Stock of Common Stock by reason of their ownership
          thereof, an amount per share equal to $0.25 per share (as adjusted for stock
          splits, stock dividends, reclassifications and the like), plus any accrued but
          unpaid dividends on such share, for each share of Series A-1 Convertible
          Preferred Stock then held by them from the assets of the Corporation legally
          available for distribution. If, upon the occurrence of such event, the assets
          and funds thus distributed among the holders of the Series A-1 Convertible
          Preferred Stock shall be insufficient to permit the payment to such holders of
          the full aforesaid preferential amounts, then the entire assets and funds of
the           Corporation legally available for distribution shall be distributed ratably
          among the holders of the Series A-1 Convertible Preferred Stock in proportion
to           the preferential amount each such holder is otherwise entitled to receive.  

                (b)    Remaining
Assets. Upon the completion of the distributions           (or payments of
any other consideration) required by Section 2(a) above, the           remaining assets
of the Corporation legally available for distribution (or the           remaining amounts
to be paid) to stockholders shall be distributed (or paid)           among the holders of
the Series A-1 Convertible Preferred Stock, Series A           Convertible Preferred
Stock and the Common Stock pro rata based on the number of           shares of Common
Stock then held by each holder (assuming conversion of all such           Preferred Stock
into Common Stock at the then applicable Conversion Price           determined pursuant
to Section 4(a) below).  

                (c)    Certain
Acquisitions.  

                    (i)    Deemed
Liquidation. For purposes of this Certificate, a           liquidation,
dissolution, or winding up of the Corporation shall be deemed to be           occasioned
by, or to include, (A) the acquisition of the Corporation by another           entity by
means of any transaction or series of related transactions (including,           without
limitation, any reorganization, merger or consolidation, but excluding           any
merger effected exclusively for the purpose of changing the domicile of the
          Corporation); or (B) a sale, license, assignment or other disposition of all or
          substantially all of the assets of the Corporation intended to be a disposition
          of the Corporation’s business ((A) and (B) collectively referred to as a
          “Liquidation Transaction”); unless, in the case of clause (A)
          or (B) the Corporation’s stockholders of record as constituted immediately
          prior to such acquisition or sale will, immediately after such acquisition or
          sale (by virtue of securities issued as consideration for the Corporation’s
          acquisition or sale or otherwise) hold at least 50% of the voting power of the
          surviving or acquiring entity.  

4 

                    (ii)    Valuation
of Consideration. In the event of a deemed           liquidation as
described in Section 2(c)(i) above, if the consideration received           by the
Corporation or stockholders is other than cash, its value will be deemed           its
fair market value, as mutually determined by the Corporation and the holders           of
at least a majority of the voting power of all then outstanding shares of
          Series A-1 Convertible Preferred Stock. Any securities shall be valued as
          follows:  

                        (A)              Securities
not subject to investment letter or other similar restrictions on           free
marketability:  

                           (1)              If
traded on a securities exchange or The Nasdaq Stock Market           (“Nasdaq”),
the value shall be deemed to be the average of the           closing prices of the
securities on such exchange or Nasdaq over the thirty (30)           day period ending
three (3) days prior to the closing of the Liquidation           Transaction;  

                           (2)              If
actively traded over-the-counter, the value shall be deemed to be the average
          of the closing prices of the securities on such exchange over the thirty (30)
          day period ending three (3) days prior to the closing of the Liquidation
          Transaction; and  

                           (3)              If
there is no active public market, the value shall be the fair market value
          thereof, as determined in good faith by the Board of Directors.  

                        (B)              The
method of valuation of securities subject to investment letter or other
          restrictions on free marketability (other than restrictions arising solely by
          virtue of a stockholder’s status as an affiliate or former affiliate)
shall           be to make an appropriate discount from the market value determined as
specified           above in Section 2(c)(ii)(A) to reflect the approximate fair market
value           thereof, as determined in good faith by the Board of Directors.  

                    (iii)    Notice
of Liquidation Transaction. The Corporation shall           give each
holder of record of Series A-1 Convertible Preferred Stock written           notice of
any impending Liquidation Transaction not later than ten (10) days           prior to the
stockholders’ meeting called to approve such Liquidation           Transaction, or
ten (10) days prior to the closing of such Liquidation           Transaction, whichever
is earlier, and shall also notify such holders in writing           of the final approval
of such Liquidation Transaction. The first of such notices           shall describe the
material terms and conditions of the impending Liquidation           Transaction and the
provisions of this Section 2, and the Corporation shall           thereafter give such
holders prompt notice of any material changes. Unless such           notice requirements
are waived, the Liquidation Transaction shall not take place           sooner than ten
(10) days after the Corporation has given the first notice           provided for herein
or sooner than ten (10) days after the Corporation has given           notice of any
material changes provided for herein. Notwithstanding the other           provisions of
this Certificate, all notice periods or requirements in this           Certificate may be
shortened or waived, either before or after the action for           which notice is
required, upon the written consent of the holders of a majority           of the voting
power of the outstanding shares of Preferred Stock that are           entitled to such
notice rights.  

5 

                    (iv)    Effect
of Noncompliance. In the event the requirements of           this Section
2(d) are not complied with, the Corporation shall forthwith either           cause the
closing of the Liquidation Transaction to be postponed until the           requirements
of this Section 2 have been complied with, or cancel such           Liquidation
Transaction, in which event the rights, preferences, privileges and
          restrictions of the holders of Series A-1 Convertible Preferred Stock shall
          revert to and be the same as such rights, preferences, privileges and
          restrictions existing immediately prior to the date of the first notice
referred           to in Section 2(c)(iii).  

            3.    Redemption.
The Corporation shall be obligated to redeem           the Series A-1 Convertible
Preferred Stock as follows:  

                (a)              Beginning
on March 24, 2008 (the “Initial Redemption Date”),           and
continuing thereafter, upon the delivery to the Corporation of a written
          request of the holders of at least a majority of the then outstanding shares of
          Series A-1 Convertible Preferred Stock (a “Redemption           Request”),
the Corporation shall redeem, from any source of funds           legally available
therefor, all shares of Series A-1 Convertible Preferred Stock           from all holders
of Series A-1 Convertible Preferred Stock, provided that           immediately
following such redemption, the Corporation shall have outstanding           one or more
shares of one or more classes or series of stock, which share, or           shares
together, shall have full voting rights; provided, further,           that
the Corporation shall not be required under this Section 3(a) to redeem           from
any particular holder of Series A-1 Convertible Preferred Stock, in           connection
with a redemption requested after the Initial Redemption Date but           before the
first anniversary of the Initial Redemption Date, a number of shares           of Series
A-1 Convertible Preferred Stock greater than fifty percent (50%) of           the
aggregate number of shares of Series A-1 Convertible Preferred Stock held by
          such holder immediately prior to such redemption. The Corporation shall effect
          such redemptions not later than ninety (90) days following the date on which
the           Corporation shall have received the Redemption Request (the “Redemption
          Date”) by paying in cash in exchange for the shares of Series A-1
          Convertible Preferred Stock to be redeemed an amount per share (as adjusted for
          any stock split, stock division or consolidation) equal to the greater of (x)
          $0.25 for each such share of Series A-1 Convertible Preferred Stock, or (y) the
          fair market value (as determined by an independent appraiser selected by the
          Corporation and the holders of a majority of the then outstanding shares of
          Series A-1 Convertible Preferred Stock) for each such share of Series A-1
          Convertible Preferred Stock, in each case, plus any accrued but unpaid
dividends           on such shares. The total amount to be paid for the Series A-1
Convertible           Preferred Stock is hereinafter referred to as the “Redemption
          Price.” 

                (b)              At
least thirty (30) days but no more than sixty (60) days prior to the           Redemption
Date, the Corporation shall send a notice (a “Redemption           Notice”)
to all holders of Series A-1 Convertible Preferred Stock           setting forth (A) the
Redemption Price for the shares to be redeemed; (B) the           Redemption Date; and
(C) the place at which such holders may obtain payment of           the Redemption Price
upon surrender of their share certificates. If the           Corporation does not have
sufficient funds legally available to redeem all           sharers to be redeemed at the
Redemption Date, then it shall redeem such shares           pro rata (based on the
portion of the aggregate Redemption Price payable to           them) to the extent
possible and in such event, each holder of such shares of           Series A-1
Convertible Preferred Stock that are entitled to be redeemed but are           not so
redeemed (the Unredeemed Shares”) shall exchange such           Unredeemed
Shares of Series A-1 Convertible Preferred Stock for a promissory           note having a
term of one (1) year (each a “Redemption Note”)           and
collectively the “Redemption Notes”) in the aggregate
          principal amount equal to the aggregate Redemption Price for such holder’s
          Unredeemed Shares, issued in favor of the holder(s) thereof by the Corporation,
          and bearing simple interest at a rate equal to 8% per annum. At any time
          thereafter when additional funds of the Corporation are legally available for
          repayment of such notes, such funds will immediately be used to ratably repay
          the principal and interest owing pursuant to such notes.  

6 

                (c)              On
or prior to the Redemption Date, the Corporation shall deposit the Redemption
          Price of all shares to be redeemed with a bank or trust company, as a trust
          fund, with irrevocable instructions and authority to the bank or trust company
          to pay, on and after the Redemption Date, the Redemption Price of the shares to
          their respective holders upon the surrender of their share certificates. Any
          moneys deposited by the Corporation pursuant to this Section 3 for the
          redemption of shares thereafter converted into shares of Common Stock pursuant
          to Section 4 hereof prior to the Redemption Date shall be returned to the
          Corporation forthwith upon such conversion. The balance of any funds deposited
          by the Corporation pursuant to this Section 3 remaining unclaimed at the
          expiration of one (1) year following the Redemption Date shall be returned to
          the Corporation promptly upon its written request.  

                (d)              On
or after such Redemption Date, each holder of shares of Series A-1           Convertible
Preferred Stock to be redeemed shall surrender such holder’s           certificates
representing such shares to the Corporation in the manner and at           the place
designated in the Redemption Notice, and thereupon the Redemption           Price of such
shares shall be payable to the order of the person whose name           appears on such
certificate or certificates as the owner thereof and each           surrendered
certificate shall be canceled. In the event less than all the shares
          represented by such certificates are redeemed, Redemption Notices shall be
          issued representing the unredeemed shares. From and after the Redemption Date,
          unless there have been a default in payment of the Redemption Price or the
          Corporation has not issued the Redemption Notes, all rights of the holder of
          such redeemed shares of Series A-1 Convertible Preferred Stock (except the
right           to receive the Redemption Price without interest upon surrender of their
          certificates or to have the Redemption Notes repaid), shall cease and terminate
          with respect to such redeemed shares and such shares of Series A-1 Convertible
          Preferred Stock shall be cancelled and shall not be entitled to any of the
          rights and preferences provided herein.  

            4.    Conversion.
The holders of the Series A Convertible           Preferred Stock and Series A-1
Convertible Preferred Stock shall have conversion           rights as follows (the “Conversion
Rights”):  

                (a)    Right
to Convert.  

                    (i)              Subject
to Section 4(c), each share of Series A Convertible Preferred Stock           shall be
convertible, at the option of the holder thereof, at any time after the           date of
issuance of such share, at the office of the Corporation or any transfer           agent
for such stock, into such number of fully paid and nonassessable shares of
          Common Stock as is determined by dividing $0.9174 by the Conversion Price
          applicable to such share, determined as hereafter provided, in effect on the
          date the certificate is surrendered for conversion. The initial Conversion
Price           per share shall be $0.9174 for shares of Series A Convertible Preferred
Stock.           Such initial Conversion Price shall be subject to adjustment as set
forth in           Section 4(d) below. In addition, the Corporation shall immediately
prior to the           voluntary conversion of any Series A Convertible Preferred Stock,
in full           satisfaction of any dividend on any such share of Series A Convertible
Preferred           Stock that may be declared and remain unpaid prior to such
conversion, issue to           the holder of such Series A Convertible Preferred Stock an
additional number of           shares of Series A Convertible Preferred Stock determined
by dividing the           aggregate amount of the cash value of the dividends
attributable to the Series A           Convertible Preferred Stock being converted by
$0.9174.  

7 

                    (ii)              Subject
to Section 4(c), each share of Series A-1 Convertible Preferred Stock           shall be
convertible, at the option of the holder thereof, at any time after the           date of
issuance of such share, at the office of the Corporation or any transfer           agent
for such stock, into such number of fully paid and nonassessable shares of
          Common Stock as is determined by dividing $0.25 by the Conversion Price
          applicable to such share, determined as hereafter provided, in effect on the
          date the certificate is surrendered for conversion. The initial Conversion
Price           per share shall be $0.25 for shares of Series A-1 Convertible Preferred
Stock.           Such initial Conversion Price shall be subject to adjustment as set
forth in           Section 4(d) below. In addition, the Corporation shall immediately
prior to the           voluntary conversion of any Series A-1 Convertible Preferred
Stock, in full           satisfaction of any dividend on any such share of Series A-1
Convertible           Preferred Stock that may be declared and remain unpaid prior to
such conversion,           issue to the holder of such Series A-1 Convertible Preferred
Stock an additional           number of shares of Series A-1 Convertible Preferred Stock
determined by           dividing the aggregate amount of the cash value of the dividends
attributable to           the Series A-1 Convertible Preferred Stock being converted by
$0.25.  

                (b)    Automatic
Conversion. Each share of Series A Convertible           Preferred Stock
and Series A-1 Convertible Preferred Stock shall automatically           be converted
into shares of Common Stock at the applicable Conversion Price at           the time in
effect for such share immediately upon the earlier of (i) except as           provided
below in Section 4(c), the Corporation’s sale of its Common Stock           in a
firm commitment underwritten public offering pursuant to a registration
          statement under the Securities Act of 1933, as amended (the “Securities
          Act”), which results in aggregate cash proceeds to the Corporation of
          at least $25,000,000 (net of underwriting discounts and commissions), or (ii)
          the date specified by written consent or agreement of the holders of a majority
          of the then outstanding shares of Series A-1 Convertible Preferred Stock,
voting           together as a class. In addition, the Corporation shall immediately
prior to the           automatic conversion of any Preferred Stock, in full satisfaction
of any           dividend on any such share of Preferred Stock that may be declared and
remain           unpaid prior to such conversion, issue to the holder of such Preferred
Stock an           additional number of shares of Common Stock determined by dividing the
aggregate           amount of the cash value of the dividends attributable to the
Preferred Stock           being converted by the applicable, then-effective Conversion
Price.  

                (c)    Mechanics
of Conversion. Before any holder of Preferred           Stock shall be
entitled to convert such Preferred Stock into shares of Common           Stock, the
holder shall surrender the certificate or certificates therefor, duly           endorsed,
at the office of the Corporation or of any transfer agent for such           series of
Preferred Stock, and shall give written notice to the Corporation at           its
principal corporate office, of the election to convert the same and shall           state
therein the name or names in which the certificate or certificates for           shares
of Common Stock are to be issued. The Corporation shall, as soon as           practicable
thereafter, issue and deliver at such office to such holder of           Preferred Stock,
or to the nominee or nominees of such holder, a certificate or           certificates for
the number of shares of Common Stock to which such holder shall           be entitled as
aforesaid. Such conversion shall be deemed to have been made           immediately prior
to the close of business on the date of such surrender of the           shares of such
series of Preferred Stock to be converted, and the person or           persons entitled
to receive the shares of Common Stock issuable upon such           conversion shall be
treated for all purposes as the record holder or holders of           such shares of
Common Stock as of such date. If the conversion is in connection           with an
underwritten public offering of securities registered pursuant to the
          Securities Act, the conversion may, at the option of any holder tendering such
          Preferred Stock for conversion, be conditioned upon the closing with the
          underwriters of the sale of securities pursuant to such offering, in which
event           any persons entitled to receive Common Stock upon conversion of such
Preferred           Stock shall not be deemed to have converted such Preferred Stock
until           immediately prior to the closing of such sale of securities.  

8 

                (d)    Conversion
Price Adjustments of Preferred Stock for Certain Dilutive           Issuances, Splits and
Combinations. The Conversion Price of the           Series A Convertible
Preferred Stock and Series A-1 Convertible Preferred Stock           shall be subject to
adjustment from time to time as follows:  

                    (i)    Issuance
of Additional Stock below Series A-1 Conversion           Price.  

                        (A)    Adjustment
in Conversion Price of Series A-1 Convertible Preferred           Stock.
If the Corporation should issue, at any time after the           date upon which any of
the Notes are issued (the “Original Issue           Date”), any
Additional Stock (as defined below) without consideration           or for a
consideration per share less than the Conversion Price for such Series           A-1
Convertible Preferred Stock in effect immediately prior to the issuance of           such
Additional Stock, the Conversion Price for the Series A-1 Convertible           Preferred
Stock in effect immediately prior to each such issuance shall           automatically be
adjusted to a price equal to the price at which such Additional           Stock is being
issued. Notwithstanding the foregoing, such adjustment to the           Conversion Price
of the Series A-1 Convertible Preferred Stock may be waived by           the holders of
at least majority-in-interest of the Series A-1 Convertible           Preferred Stock
then outstanding.  

                        (B)    Definition
of “Additional Stock”. For purposes of           this Section
4(d)(i), “Additional Stock” shall mean any shares           of Common
Stock issued (or deemed to have been issued pursuant to Section           4(d)(i)(E)) by
the Corporation after the Original Issue Date) other than:  

                            (1)              Shares
of Common Stock issued or issuable pursuant to stock dividends, stock           splits,
dividends or similar transactions, contemplated by Article IV, Sections           (B) and
(C) hereof and as described in Section 4(d)(ii) hereof;  

                            (2)              Up
to 2,305,356 shares of Common Stock (or options, warrants or rights therefor)
          (such number of shares to be calculated net of any repurchases and
cancellations           of such shares by the Corporation and net of any such expired or
terminated           options, or rights and to be proportionally adjusted to reflect any
stock           splits, stock dividends, recapitalizations or the like) granted, issued
or           issuable to employees, officers, directors, contractors, consultants or
advisers           to the Corporation pursuant to the Corporation’s 2004 Equity
Incentive           Plan, or non-plan option agreements or other arrangements approved by
the Board           of Directors of the Corporation;  

9 

                            (3)              Shares
of Common Stock, or options, warrants or rights to purchase Common Stock,
          issued to financial institutions or lessors in connection with equipment lease
          financing arrangements, real estate leases, credit arrangements, debt
financings           or other similar commercial transactions approved by the Board of
Directors;  

                            (4)              Shares
of Common Stock issuable upon exercise of options, warrants, convertible
          securities or rights to purchase any securities of the Corporation outstanding
          as of the date of this Certificate and any securities issuable upon the
          conversion thereof;  

                            (5)              Shares
of Common Stock, or options, warrants or rights to purchase Common Stock,
          issued for consideration other than cash pursuant to a merger, consolidation,
          acquisition or similar business combination approved by the Board of Directors;  

                            (6)              Shares
of Common Stock issued or issuable upon conversion of the Preferred           Stock;  

                            (7)              Shares
of Common Stock issued or issuable by the Corporation in a public           offering
prior to or in connection with which all outstanding shares of           Preferred Stock
will be converted to Common Stock; and  

                            (8)              Warrants
or options to purchase Common Stock or Preferred Stock issued to           independent
consultants and/or non-employee directors provided that such           consultants or
directors provide bona fide services to the corporation           and that each
such issuance is approved by the Board of Directors.  

                        (C)    No
Fractional Adjustments. No adjustment of the Conversion           Price
for the Preferred Stock shall be made in an amount less than one cent per
          share, provided that any adjustments which are not required to be made by
reason           of this sentence shall be carried forward and shall be either taken into
account           in any subsequent adjustment made prior to three years from the date of
the           event giving rise to the adjustment being carried forward, or shall be made
at           the end of three years from the date of the event giving rise to the
adjustment           being carried forward.  

                        (D)    Determination
of Consideration. In the case of the issuance           of Common Stock
for cash, the consideration shall be deemed to be the amount of           cash paid
therefor before deducting any reasonable discounts, commissions or           other
expenses allowed, paid or incurred by the Corporation for any underwriting           or
otherwise in connection with the issuance and sale thereof. In the case of           the
issuance of the Common Stock for a consideration in whole or in part other           than
cash, the consideration other than cash shall be deemed to be the fair           value
thereof as mutually determined by the Board of Directors and the holders           of at
least a majority of the voting power of all then outstanding shares of           Series
A-1 Convertible Preferred Stock (voting as a separate class),           irrespective of
any accounting treatment.  

10 

                        (E)    Deemed
Issuances of Common Stock. In the case of the           issuance (whether
before, on or after the Original Issue Date) of securities or           rights
convertible into, or entitling the holder thereof to receive directly or
          indirectly, additional shares of Common Stock (the “Common Stock
          Equivalents”), the following provisions shall apply for all purposes
of           this Section 4(d)(i):  

                            (1)              The
aggregate maximum number of shares of Common Stock deliverable upon           conversion,
exchange or exercise (assuming the satisfaction of any conditions to
          convertibility, exchangeability or exercisability, including, without
          limitation, the passage of time, but without taking into account potential
          antidilution adjustments) of any Common Stock Equivalents and subsequent
          conversion, exchange or exercise thereof shall be deemed to have been issued at
          the time such securities were issued or such Common Stock Equivalents were
          issued and for a consideration equal to the consideration, if any, received by
          the Corporation for any such securities and related Common Stock Equivalents
          (excluding any cash received on account of accrued interest or accrued
          dividends), plus the minimum additional consideration, if any, to be received
by           the Corporation (without taking into account potential antidilution
adjustments)           upon the conversion, exchange or exercise of any Common Stock
Equivalents (the           consideration in each case to be determined in the manner
provided in Section           4(d)(i)(D).  

                            (2)              In
the event of any change in the number of shares of Common Stock deliverable           or
in the consideration payable to the Corporation upon conversion, exchange or
          exercise of any Common Stock Equivalents, other than a change resulting from
the           antidilution provisions thereof, the Conversion Price of any of the Series
A-1           Convertible Preferred Stock, to the extent in any way affected by or
computed           using such Common Stock Equivalents, shall be recomputed to reflect
such change,           but no further adjustment shall be made for the actual issuance of
Common Stock           or any payment of such consideration upon the conversion, exchange
or exercise           of such Common Stock Equivalents.  

                            (3)              Upon
the termination or expiration of the convertibility, exchangeability or
          exercisability of any Common Stock Equivalents, the Conversion Price of any of
          the Series A-1 Convertible Preferred Stock, to the extent in any way affected
by           or computed using such Common Stock Equivalents, shall be recomputed to
reflect           the issuance of only the number of shares of Common Stock (and Common
Stock           Equivalents that remain convertible, exchangeable or exercisable)
actually           issued upon the conversion, exchange or exercise of such Common Stock
          Equivalents.  

                            (4)              The
number of shares of Common Stock deemed issued and the consideration deemed
          paid therefor pursuant to Section 4(d)(i)(E)(1) shall be appropriately adjusted
          to reflect any change, termination or expiration of the type described in
either           Section 4(d)(i)(E)(2) or 4(d)(i)(E)(3).  

                        (F)    No
Increased Conversion Price. Notwithstanding any other           provisions
of this Section (4)(d)(i), except to the limited extent provided for           in
Sections 4(d)(i)(E)(2) and 4(d)(i)(E)(3), no adjustment of the Conversion           Price
pursuant to this Section 4(d)(i) shall have the effect of increasing the
          Conversion Price above the Conversion Price in effect immediately prior to such
          adjustment.  

11 

                    (ii)    Stock
Splits and Dividends. In the event the Corporation           should at any
time after the Original Issue Date fix a record date for the           effectuation of a
split or subdivision of the outstanding shares of Common Stock           or the
determination of holders of Common Stock entitled to receive a dividend           or
other distribution payable in additional shares of Common Stock or Common           Stock
Equivalents without payment of any consideration by such holder for the
          additional shares of Common Stock or the Common Stock Equivalents (including
the           additional shares of Common Stock issuable upon conversion or exercise
thereof),           then, as of such record date (or the date of such dividend
distribution, split           or subdivision if no record date is fixed), the Conversion
Price of the Series A           Convertible Preferred Stock and the Series A-1
Convertible Preferred Stock shall           be appropriately decreased so that the number
of shares of Common Stock issuable           on conversion of each share of such series
shall be increased in proportion to           such increase of the aggregate of shares of
Common Stock outstanding and those           issuable with respect to such Common Stock
Equivalents with the number of shares           issuable with respect to Common Stock
Equivalents determined from time to time           in the manner provided for deemed
issuances in Section 4(d)(i)(E).  

                    (iii)    Reverse
Stock Splits. If the number of shares of Common           Stock
outstanding at any time after the Original Issue Date is decreased by a
          combination of the outstanding shares of Common Stock, then, following the
          record date of such combination, the Conversion Price for the Series A
          Convertible Preferred Stock and the Series A-1 Convertible Preferred Stock
shall           be appropriately increased so that the number of shares of Common Stock
issuable           on conversion of each share of such series shall be decreased in
proportion to           such decrease in outstanding shares.  

                (e)    Other
Distributions. In the event the Corporation shall           declare a
distribution payable in securities of other persons, evidences of           indebtedness
issued by the Corporation or other persons, assets (excluding cash           dividends)
or options or rights not referred to in Section 4(d)(i) or 4(d)(ii),           then, in
each such case for the purpose of this Section 4(e), the holders of           Series A
Convertible Preferred Stock and the Series A-1 Convertible Preferred           Stock, as
the case may be, shall be entitled to a proportionate share of any           such
distribution as though they were the holders of the number of shares of           Common
Stock of the Corporation into which their shares of Preferred Stock are
          convertible as of the record date fixed for the determination of the holders of
          Common Stock of the Corporation entitled to receive such distribution.  

                (f)    Recapitalizations.
If at any time or from time to time           there shall be a recapitalization of the
Common Stock (other than a subdivision,           combination or merger or sale of assets
transaction provided for elsewhere in           this Section 4 or in Section 2) provision
shall be made so that the holders of           the Series A Convertible Preferred Stock
and the Series A-1 Convertible           Preferred Stock, as the case may be, shall
thereafter be entitled to receive           upon conversion of such Preferred Stock the
number of shares of stock or other           securities or property of the Corporation or
otherwise, to which a holder of           Common Stock deliverable upon conversion would
have been entitled on such           recapitalization. In any such case, appropriate
adjustment shall be made in the           application of the provisions of this Section 4
with respect to the rights of           the holders of such Preferred Stock after the
recapitalization to the end that           the provisions of this Section 4 (including
adjustment of the Conversion Price           then in effect and the number of shares of
Common Stock issuable upon conversion           of such Preferred Stock) shall be
applicable after that event and be as nearly           equivalent as practicable.  

12 

                (g)    No
Fractional Shares and Certificate as to Adjustments.  

                    (i)              No
fractional shares shall be issued upon the conversion of any share or shares           of
Preferred Stock, and the number of shares of Common Stock to be issued shall           be
rounded up to the nearest whole share. The number of shares issuable upon           such
conversion shall be determined on the basis of the total number of shares           of
Preferred Stock the holder is at the time converting into Common Stock and           the
number of shares of Common Stock issuable upon such aggregate conversion.  

                    (ii)              Upon
the occurrence of each adjustment or readjustment of the Conversion Price           of
Series A Convertible Preferred Stock or Series A-1 Convertible Preferred           Stock,
as the case may be, pursuant to this Section 4, the Corporation, at its
          expense, shall promptly compute such adjustment or readjustment in accordance
          with the terms hereof and prepare and furnish to each holder of such Preferred
          Stock a certificate setting forth such adjustment or readjustment and showing
in           detail the facts upon which such adjustment or readjustment is based. The
          Corporation shall, upon the written request at any time of any holder of
          Preferred Stock, furnish or cause to be furnished to such holder a like
          certificate setting forth (A) such adjustment and readjustment, (B) the
          Conversion Price for such series of Preferred Stock at the time in effect, and
          (C) the number of shares of Common Stock and the amount, if any, of other
          property which at the time would be received upon the conversion of a share of
          such series of Preferred Stock.  

                (h)    Notices
of Record Date. In the event of any taking by the           Corporation of
a record of the holders of any class of securities for the           purpose of
determining the holders thereof who are entitled to receive any           dividend (other
than a cash dividend) or other distribution, any right to           subscribe for,
purchase or otherwise acquire any shares of stock of any class or           any other
securities or property, or to receive any other right, the Corporation           shall
mail to each holder of Series A Convertible Preferred Stock, at least ten           (10)
days prior to the date specified therein, a notice specifying the date on           which
any such record is to be taken for the purpose of such dividend,           distribution
or right, and the amount and character of such dividend,           distribution or right.  

                (i)    Reservation
of Stock Issuable Upon Conversion. The           Corporation shall at all
times reserve and keep available out of its authorized           but unissued shares of
Common Stock, solely for the purpose of effecting the           conversion of the shares
of Preferred Stock, such number of its shares of Common           Stock as shall from
time to time be sufficient to effect the conversion of all           outstanding shares
of each series of Preferred Stock; and if at any time the           number of authorized
but unissued shares of Common Stock shall not be sufficient           to effect the
conversion of all then outstanding shares of such series of           Preferred Stock, in
addition to such other remedies as shall be available to the           holder of such
Preferred Stock, the Corporation will take such corporate action           as may, in the
opinion of its counsel, be necessary to increase its authorized           but unissued
shares of Common Stock to such number of shares as shall be           sufficient for such
purposes, including, without limitation, engaging in best           efforts to obtain the
requisite stockholder approval of any necessary amendment           to this Certificate.  

13 

                (j)    Notices.
Any notice required by the provisions of this           Section 4 to be given to the
holders of shares of Preferred Stock shall be           deemed given if deposited in the
United States mail, postage prepaid, and           addressed to each holder of record at
his, her or its address appearing on the           books of the Corporation.  

            5.    Voting
Rights.  

                (a)    General.
Except as expressly provided by this Certificate           or as may be otherwise
provided by law, the holders of the Preferred Stock shall           have the same voting
rights as the holders of Common Stock and shall be entitled           to notice of any
stockholders’ meeting in accordance with the Bylaws of the           Corporation,
and the holders of Common Stock and the Preferred Stock shall vote           together as
a single class on all matters. Each holder of Common Stock shall be           entitled to
one vote for each share of Common Stock held, and each holder of           Preferred
Stock shall be entitled to the number of votes equal to the number of           shares of
Common Stock into which such shares of Preferred Stock could then be           converted.
Fractional votes shall not, however, be permitted and any fractional           voting
rights available on an as-converted basis (after aggregating all shares           into
which shares of Preferred Stock held by each holder could be converted)           shall
be rounded down to the nearest whole number.  

                (b)    Directors.  

                    (i)              For
so long as any share of Series A-1 Convertible Preferred Stock is           outstanding,
the authorized number of members of the Board of Directors shall be           five (5),
and the Corporation shall not change the authorized number of members           of the
Board of Directors without first obtaining the written consent, or           affirmative
vote at a meeting, of the holders of at least a majority of the then
          outstanding Series A-1 Convertible Preferred Stock, consenting or voting (as
the           case may be) separately as a class.  

                    (ii)              For
so long as the Series A-1 Convertible Preferred Stock is outstanding: (A)           the
holders of the Series A-1 Convertible Preferred Stock, voting as a separate
          class, shall be entitled to elect three (3) members to the Board of Directors,
          and (B) all of the stockholders of the Corporation voting together as a single
          class shall vote their shares so as to elect the remaining two directors as
          follows: (i) one director who shall be the then acting Chief Executive Officer
          of the Corporation, and (ii) one director who shall be nominated by a majority
          of the then sitting directors of the Corporation.  

                (c)    Protective
Provisions. For so long as a majority of the           shares of Series
A-1 Convertible Preferred Stock issued on the Original Issue           Date remain
outstanding, the Corporation shall not (by amendment, merger,           consolidation or
otherwise) without first obtaining the approval (by vote or           written consent, as
provided by law) of the holders of at least a majority of           the then outstanding
shares of Series A-1 Convertible Preferred Stock, voting           together as a separate
class:  

                    (i)              authorize,
pay or declare a dividend (other than dividends payable solely in           Common Stock)
on any shares of the capital stock of the Corporation, or           otherwise make any
distribution on any of its equity securities, other than           Permitted Repurchases
(as defined below);  

14 

                    (ii)              authorize
or issue, or obligate itself to issue, whether by reclassification,
          recapitalization, share exchange, merger or otherwise, any other equity
          security, including any security (other than Series A-1 Convertible Preferred
          Stock) convertible into or exercisable for any equity security, having rights,
          preferences or privileges over, or being on a parity with, the Series A-1
          Convertible Preferred Stock, with respect to voting (other than the pari passu
          voting rights of Common Stock), dividends, redemption, conversion, liquidation,
          registration or preemptive rights or otherwise;  

                    (iii)              except
as approved by the Board of Directors, sell or issue any shares of Common           Stock
for consideration other than cash;  

                    (iv)              make
any loans; guarantee the debt or performance obligation of any third party;
          enter into any joint venture, partnership or other strategic relationship; or
          invest in partially owned subsidiaries in excess of $250,000 in any twelve (12)
          month period;  

                    (v)              create
any subsidiary other than a wholly owned subsidiary;  

                    (vi)              effect
any amendment, alteration, repeal or waiver of any provision of the           Corporation’s
Certificate of Incorporation or Bylaws, whether by merger,           consolidation or
otherwise, including, without limitation, any increase or           decrease in the
number of authorized shares of Common Stock and/or Preferred           Stock;  

                    (vii)              effect
a Liquidation Transaction, or liquidate or dissolve;  

                    (viii)              except
as approved by the Board of Directors, dispose of more than ten percent           (10%)
of its assets, other than in the ordinary course of business;  

                    (ix)              approve
or authorize any material alteration or material change in the           Corporation’s
business;  

                    (x)              redeem,
purchase or otherwise acquire for value any share or shares of the           capital
stock of the Corporation; provided, however, that this restriction shall           not
apply to the repurchase of Common Stock from employees, officers, directors,
          consultants or other persons performing services for the Corporation or any
          subsidiary pursuant to agreements under which the Corporation has the option to
          repurchase such shares at cost upon the occurrence of certain events, such as
          the termination of employment, or at any price pursuant to the
          Corporation’s exercise of a right first refusal to repurchase such shares
          (“Permitted Repurchases”);  

                    (xi)              enter
into any transaction with any of its officers, directors, stockholders or
          affiliates or any entity in which any officer, director or stockholder of the
          Corporation, or any of their respective affiliates may have any interest,
unless           such transaction is in the ordinary course of business on terms no less
          favorable than those available at such time from non-affiliated parties; or  

15 

                    (xii)              incur
any Indebtedness for Borrowed Money that is not expressly subordinated in
          payment and priority to the obligations of the Corporation under the Notes (for
          purposes of this paragraph, “Indebtedness for Borrowed Money” means
          (i) all obligations (whether interest, principal, fees, penalties or otherwise)
          of the Corporation for borrowed money, (ii) all obligations of the Corporation
          evidenced by bonds, debentures, notes or other similar instruments, (iii) all
          obligations of the Corporation to pay deferred purchase price of property or
          services, except trade accounts payable arising in the ordinary course of the
          business of the Corporation, consistent with past practice, (iv) all
obligations           of the Corporation as lessee under capitalized leases that are in
excess of           $75,000 in the aggregate, and (iv) any of the foregoing guaranteed by
the           Corporation.  

            6.    Status
of Redeemed or Converted Preferred Stock. In the           event any
shares of Series A-1 Convertible Preferred Stock shall be redeemed           pursuant to
Section 3 or shares of Preferred Stock converted pursuant to Section           4, the
shares so redeemed or converted shall be cancelled and shall not be           issuable by
the Corporation. This Certificate shall be appropriately amended to           effect the
corresponding reduction in the Corporation’s authorized capital           stock.  

        (E)    Rights,
Preferences and Restrictions of Common Stock. The           rights,
preferences, privileges, and restrictions granted to and imposed on the           Common
Stock are as set forth below in this Article IV(E).  

            1.    Dividend
Rights. Subject to the prior rights of holders of           all classes of
stock at the time outstanding having prior rights as to           dividends, the holders
of the Common Stock shall be entitled to receive, when           and as declared by the
Board of Directors, out of any assets of the Corporation           legally available
therefor, such dividends as may be declared from time to time           by the Board of
Directors.  

            2.    Liquidation
Rights. Upon the liquidation, dissolution or           winding up of the
Corporation or the occurrence of a Liquidation Transaction,           the assets of the
Corporation shall be distributed as provided in Section 2 of           Article IV(C).  

            3.    Redemption.
The Common Stock is not redeemable.  

            4.    Voting
Rights. Each holder of Common Stock shall have the           right to one
vote per share of Common Stock, and shall be entitled to notice of           any
stockholders’ meeting in accordance with the bylaws of the Corporation,
          and shall be entitled to vote upon such matters and in such manner as may be
          provided by law. Notwithstanding the provisions of Section 242(b)(2) of the
          DGCL, but without limitation of and subject to the first sentence of this
          Section 4, the number of authorized shares of Common Stock may be increased or
          decreased (but not below the number of shares of Common Stock then outstanding)
          by the affirmative vote of the holders of at least a majority of the Common
          Stock and Preferred Stock (voting together as a single class on an as-converted
          basis), and the holders of Common Stock shall not be entitled to a separate
          class vote with respect thereto.  

16 

ARTICLE V  

        The
Board of Directors of the Corporation is expressly authorized to make, alter or repeal the
Bylaws of the Corporation. 

ARTICLE VI  

        Elections
of directors need not be by written ballot unless otherwise provided in the Bylaws of the
Corporation. 

ARTICLE VII  

        (A)              To
the fullest extent permitted by the Delaware General Corporation Law, as the
          same exists or as may hereafter be amended, a director of the Corporation shall
          not be personally liable to the Corporation or its stockholders for monetary
          damages for breach of fiduciary duty as a director.  

        (B)              The
Corporation shall indemnify to the fullest extent permitted by law any           person
made or threatened to be made a party to an action or proceeding, whether
          criminal, civil, administrative or investigative, by reason of the fact that
he,           his testator or intestate is or was a director or officer of the
Corporation or           any predecessor of the Corporation, or serves or served at any
other enterprise           as a director or officer at the request of the Corporation or
any predecessor to           the Corporation.  

        (C)              Neither
any amendment nor repeal of this Article VII, nor the adoption of any           provision
of the Corporation’s Certificate of Incorporation inconsistent           with this
Article VII, shall eliminate or reduce the effect of this Article           VII in
respect of any matter occurring, or any action or proceeding accruing or
          arising or that, but for this Article VII, would accrue or arise, prior to such
          amendment, repeal or adoption of an inconsistent provision.  

* * * 

        FOUR:
 This Amended and  Restated  Certificate  of  Incorporation  has been duly  approved by
the Board of Directors of the Corporation. 

        FIVE:
This Amended and Restated Certificate of Incorporation was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 228 of the
Delaware General Corporation Law. This Amended and Restated Certificate of Incorporation
has been duly adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law by the stockholders of this corporation. 

17 

        IN
WITNESS WHEREOF, MSO Holdings, Inc. has caused this Amended and Restated Certificate
of Incorporation to be signed by its President the _______ day of ___________, 2006. 

		
		_______________________________
		Steven Straus, President

18 

EXHIBIT C
FORM OF CONVERTIBLE
NOTE

Attached as Exhibit 4.3 

C-1 

EXHIBIT D
FORM OF ESCROW
AGREEMENT 

Attached as Exhibit 10.15 

D-1 

EXHIBIT E
FORM OF WARRANT 

Attached as Exhibit 4.4 

E-1 

EXHIBIT F
AMENDMENT TO
STOCKHOLDERS AGREEMENT 

As Attached. 

F-1 

AMENDMENT NO. 2 TO
AMENDED
AND RESTATED
STOCKHOLDERS AGREEMENT 

        This
AMENDMENT NO. 2 TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this
“Amendment”) is made and effective as of May 9th, 2006 (the
“Effective Date”), by and among MSO Holdings, Inc., a Delaware
corporation (the “Parent”); the undersigned Investors (the
“Investors”) and the undersigned Common Holders (the “Common
Holders”) who are parties to that certain Amended and Restated Stockholders
Agreement dated July 30, 2004 by and among the Company, the Investors and the Common
Holders, as amended by that certain Amendment to Amended and Restated Stockholders
Agreement dated May 26, 2005 (“Amendment No. 1”) (the
“Stockholders Agreement”), which Investors represent a majority in
interest of the outstanding Series A Stock and which Common Holders represent a majority
in interest of the Common Holders. Terms used in this Amendment but not defined herein
shall have the respective meanings set forth in the Stockholders Agreement. 

Recitals: 

        WHEREAS,
the Parent intends to effect a conversion of a certain amount of its outstanding Series A
Convertible Preferred Stock into a newly created Series A-1 Convertible Preferred Stock in
connection with a convertible promissory note financing of Parent (the
“Conversion”); 

        WHEREAS,
the parties intend for the rights and obligations set forth in the Stockholders Agreement
to apply to the Series A-1 Convertible Preferred Stock issued in connection with the
Conversion as opposed to the Series A Convertible Preferred Stock; and 

        WHEREAS,
the parties to the Stockholders Agreement now desire to amend the Stockholders Agreement
to clarify certain provisions of the Stockholders Agreement in light of the Conversion and
to eliminate Sections 6 and 7 of the Stockholders Agreement in their entirety. 

        WHEREAS,
the Stockholders Agreement may be amended pursuant to Section 9.1 of the Stockholders
Agreement in a writing signed by the Company, the holders of a majority of the Series A
Stock and holders of a majority in interest of the Common Holders. 

        NOW,
THEREFORE, the parties hereby agree as follows: 

        1.    Amendments
to Stockholders Agreement.  

            (a)    Series
A-1 Stock. All references to the Series A Convertible Preferred           Stock of
Parent or Series A Stock of Parent, as the case may be, set forth in           the
Stockholders Agreement shall hereafter be deemed to be references to the           Series
A-1 Convertible Preferred Stock of Parent or Series A-1 Stock of Parent,           as the
case may be.  

            (b)    Investors.
Exhibit A is hereby amended and restated in its entirety as           attached hereto as
Exhibit A to set forth the names of the persons and entities           who are holders of
Series A-1 Convertible Preferred Stock, each of whom shall be           deemed an “Investor” under
the Stockholders Agreement.  

1 

            (c)    Section
6. Section 6 of the Stockholders Agreement relating to the size           and
election of the Parent’s Board of Directors is hereby deleted in its
          entirety and shall no longer have any further force or effect.  

            (d)    Section
7. Section 7 of the Stockholders Agreement relating to the           reverse merger
into a public shell is hereby deleted in its entirety and shall           no longer have
any further force or effect.  

        2.    Full
Force and Effect. The Stockholders Agreement, as           amended by
Amendment No. 1, and except as amended by this Amendment, shall           remain in full
force and effect in accordance with the provisions thereof.  

        3.    Counterparts.
This Amendment may be executed in multiple           counterparts, each of which shall be
deemed an original and together shall           constitute one document. This Amendment
may be executed and transmitted via           facsimile with the same validity as if it
were an ink-signed document.  

[Remainder of Page
Intentionally Left Blank]  

2 

        IN
WITNESS WHEREOF, the parties have executed this Amendment as of the Effective Date. 

		
	
“Parent”	MSO HOLDINGS, INC.
		
By: /s/ Steven Straus
		       Steven Straus, President
	“Investor”	

NAME OF INVESTING ENTITY:
		
        See Attached List        
		
By:_____________________________
		Name:___________________________
		Its:_____________________________
	“Common Holders”	

BELUSHA, LP
		
By: /s/ Albert Henry
		Name: Albert Henry
		Its: Manager
		

By: /s/ Michael Wood
		       Dr. Michael Wood

[Signature Page to
Amendment to Amended and Restated Stockholders Agreement] 

		
	“Investor”	Name of Investing Entity:
		
Richard Schoninger
		
By: /s/ Richard Schoninger
		Name: Richard Schoninger
		

Bruce S. Schonbraun
		
By: /s/ Bruce S. Schonbraun
		Name: Bruce S. Schonbraun
		

Richard O. Ullman
		
By: /s/ Richard O. Ullman
		Name: Richard O. Ullman
		

Tim Ostrowski
		
By: /s/ Tim Ostrowski
		Name: Tim Ostrowski
		

Frank Bonvino
		
By: /s/ Frank Bonvino
		Name: Frank Bonvino
		

Terrence L. Mealy
		
By: /s/ Terrence L. Mealy
		Name: Terrence L. Mealy

[Signature Page to
Amendment to Amended and Restated Stockholders Agreement] 

2 

		
	“Investor”	Name of Investing Entity:
		
New England Partners Capital, LP
		
By: /s/ John Rousseau
		Name: John Rousseau
		Its: President
		

LBJ Holdings LLC
		By: HSP Group, Inc. (Its Manager)
		
By: /s/ Brian Putiker
		Name: Brian Putiker
		Its: Vice President
		

RMC Capital LLC
		
By: /s/ Michael Acks
		Name: Michael Acks
		Its: President
		

Morgan Investors X
		
By: /s/ Gary Levenstein
		Name: Gary Levenstein
		Its: President - Investment Division
		c/o:  Jess S. Morgan & Co, Inc.
		Its: Managing General Partner
		

Seneca Health Partners LP I
		By: Seneca Partners GP, LLC
		Its: General Partner
		
By: /s/ Rajesh Kothari
		Name: Rajesh Kothari
		Its: Secretary

[Signature Page to
Amendment to Amended and Restated Stockholders Agreement] 

3 

		
	“Investor”	Name of Investing Entity:
		
Albert Henry
		
By: /s/ Albert Henry
		Name: Albert Henry
		

Echo Capital Growth Corporation
		
By: /s/ Paul J. Hill
		Name: Paul J. Hill
		Its: President
		

Harvard Developments Inc.
		
By: /s/ Arden Giesbrocht
		Name: Arden Giesbrocht
		Title: Controller
		
By: /s/ Terry Downie
		Name: Terry Downie
		Its: Vice President, Finance
		

Ricky Sandler
		
By: /s/ Ricky Sandler
		Name: Ricky Sandler
		

Shea Ventures, LLC
		
By: /s/ Edmund H. Shea, Jr.
		Name: Edmund H. Shea, Jr.
		Its: Manager

[Signature Page to
Amendment to Amended and Restated Stockholders Agreement] 

4 

		
	“Investor”	Name of Investing Entity:
		
CLK, LLC
		
By: /s/ Craig L. Krumwiede
		Name: Craig L. Krumwiede
		Its: President
		

Albin F. Moschner
		
By: /s/ Albin F. Moschner
		Name: Albin F. Moschner
		

Mark Kubow
		
By: /s/ Mark Kubow
		Name: Mark Kubow
		

Angelo J. Bufalino
		
By: /s/ Angelo J. Bufalino
		Name: Angelo J. Bufalino
		

Christopher Perry
		
By: /s/ Christopher Perry
		Name: Christopher Perry
		

Steven C. Straus
		
By: /s/ Steven C. Straus
		Name: Steven C. Straus

[Signature Page to
Amendment to Amended and Restated Stockholders Agreement] 

5 

EXHIBIT A
INVESTORS 

Richard Schoninger
 Bruce
S. Schonbraun
 Richard Ullman
 Al Moschner
 Tim Ostrowski
 Mark Kubow
 Angelo Bufalino
 Chris
Perry
 Steve Straus
 Frank Bonvino
 Harvard Developments, Inc.
Ricky C. Sandler
Echo Capital
Growth Corporation
CLK, Inc.
Terrence L. Mealy
Shea Ventures,
LLC
New England Partners Capital, LP
LBJ Holdings, LLC
RMC Capital LLC
Morgan Investors
X
Seneca Health Partners LPI
Albert Henry  

A-1

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