Document:

EXHIBIT 4.01

                          SECURITIES PURCHASE AGREEMENT

      THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
December 14, 2005, by and among NANOSCIENCE TECHNOLOGIES, INC., a Nevada
corporation (the "COMPANY"), and the Buyers listed on Schedule I attached hereto
(individually, a "BUYER" or collectively "BUYERS").

                                   WITNESSETH:

      WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");

      WHEREAS, the Buyers currently hold secured convertible debentures (the
"EXISTING DEBENTURES") previously issued by the Company having an aggregate
principal amount outstanding together with accrued and unpaid interest thereon
equal to One Million Fifty Thousand and Three Hundred Fifty Nine Dollars and
Twenty Cents ($1,050,359.20) (the "PAYOFF AMOUNT");

      WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase (i) up to One Million Six
Hundred Ninety Thousand and Three Hundred Fifty-Nine Dollars and Twenty Cents
($1,690,359.20) principal amount of secured convertible debentures (the
"CONVERTIBLE DEBENTURES"), which shall be convertible into shares of the
Company's common stock, par value $0.001 (the "COMMON STOCK") (as converted, the
"CONVERSION SHARES"). Of such total principal amount, subject to the deduction
of any and all fees, (A) the Payoff Amount shall be immediately applied towards
the repayment in full of the Existing Debentures, (B) Three Hundred Twenty
Thousand Dollars ($320,000) shall be funded on the fifth (5th) business day
following the date hereof (the "FIRST CLOSING"), and (C) Three Hundred Twenty
Thousand Dollars ($320,000) shall be funded two (2) business days after the date
on which the Company provides the Buyers with the Company's financial statements
for the fiscal-year ended September 30, 2005, as audited by its independent
public accountant Goldstein Golub Kessler LLP (the "SECOND CLOSING")
(individually referred to as a "CLOSING" collectively referred to as the
"CLOSINGS"), and (ii) a warrant, substantially in the form attached hereto as
Exhibit G (the "WARRANT") to purchase an aggregate of 100,000 shares of Common
Stock (the "WARRANT SHARES") at the First Closing. The total purchase price for
the Convertible Debentures and the Warrant shall be up to One Million Six
Hundred Ninety Thousand and Three Hundred Fifty-Nine Dollars and Twenty Cents
($1,690,359.20), (the "PURCHASE PRICE") which Purchase Price shall be allocated
among the Buyer(s) in the respective amounts set forth opposite each Buyers name
on Schedule I (the "SUBSCRIPTION AMOUNT"); and

      WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT A (the "INVESTOR
REGISTRATION RIGHTS AGREEMENT") pursuant to

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which the Company has agreed to provide certain registration rights under the
Securities Act and the rules and regulations promulgated there under, and
applicable state securities laws; and

      WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
and the Warrant contemplated hereby shall be held in escrow pursuant to the
terms of an escrow agreement substantially in the form of the Escrow Agreement
among the Company, the Buyer(s) and the Escrow Agent (as defined below) attached
hereto as EXHIBIT B (the "ESCROW AGREEMENT").

      WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as EXHIBIT C (the "SECURITY
AGREEMENT") pursuant to which the Company has agreed to provide the Buyer(s) a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement) to secure the Company's obligations under this Agreement, the
Convertible Debentures, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined below), the Security
Agreement, the Escrow Agreement, the Escrow Shares Escrow Agreement (as defined
below) or any other obligations of the Company to the Buyer(s);

      WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering an Escrow Shares
Escrow Agreement substantially in the form attached hereto as EXHIBIT D (the
"ESCROW SHARES ESCROW AGREEMENT") pursuant to which the Company shall issue and
deliver to the Escrow Agent 7,171,000 shares of Common Stock or "security stock"
(the "ESCROW SHARES") and the Escrow Agent shall distribute the Escrow Shares to
the Buyer(s) upon receipt of a Conversion Notice (as defined herein);

      WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as EXHIBIT E (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"); and

      NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:

      1.    PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

            (a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction
(or waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto
and the Warrant set forth opposite each Buyer's name on Schedule I hereto.

            (b) CLOSING DATE. The First Closing of the purchase and sale of the
Convertible Debentures and Warrant shall take place at 10:00 a.m. Eastern
Standard Time on the fifth (5th) business day following the date hereof, subject
to notification of satisfaction of the conditions to the Closing set forth
herein and in Sections 7 and 8 below (or such other date as is mutually agreed
to by the Company and the Buyer(s)) (the "FIRST CLOSING DATE") and the Second
Closing of the purchase and sale of the Convertible Debentures shall take place
at 10:00 a.m. Eastern

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Standard Time two (2) business days after the date on which the Company provides
the Buyers with the Company's financial statements for the year ended September
30, 2005 as audited by its independent public accountant Goldstein Golub Kessler
LLP, subject to notification of satisfaction of the conditions to the Second
Closing set forth herein and in Sections 7 and 8 below (or such other date as is
mutually agreed to by the Company and the Buyer(s)) (the "SECOND CLOSING DATE"
and collectively with the First Closing Date, the "CLOSING DATES"). The Closings
shall occur on the respective Closing Dates at the offices of Gottbetter &
Partners, LLP, 488 Madison Avenue, New York, New York 10022 (or such other place
as is mutually agreed to by the Company and the Buyer(s)).

            (c) ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by
the Buyer(s) and pending the Closing, $320,000 shall be deposited in a
non-interest bearing escrow account with Gottbetter & Partners, LLP as escrow
agent (the "ESCROW AGENT"), pursuant to the terms of the Escrow Agreement. If
the conditions in Sections 7 and 8 and as set forth herein for the Second
Closing are satisfied, an additional $320,000 shall be deposited in the
non-interest bearing account with the Escrow Agent one business day prior to the
Second Closing Date. Subject to the satisfaction of the terms and conditions of
this Agreement, on the respective Closing Dates, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate proceeds for the Convertible Debentures and Warrant to be issued and
sold to the Buyer(s), and (ii) the Company shall deliver to each Buyer,
Convertible Debentures which such Buyer(s) is purchasing in amounts indicated
opposite such Buyer's name on Schedule I, duly executed on behalf of the Company
and the Warrant which such Buyer(s) is purchasing in numbers indicated opposite
such Buyer's name on Schedule I.

      2.    BUYER'S REPRESENTATIONS AND WARRANTIES.

      Each Buyer represents and warrants, severally and not jointly, that:

            (a) INVESTMENT PURPOSE. Each Buyer is acquiring the Convertible
Debentures, the Warrant and, upon conversion of Convertible Debentures and/or
the exercise of the Warrant, in accordance with their terms, the Buyer will
acquire the Escrow Shares, Conversion Shares and/or Warrant Shares, as the case
may be, for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act; provided,
however, that by making the representations herein, such Buyer reserves the
right to dispose of the Conversion Shares, the Warrant, the Warrant Shares and
the Escrow Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares, the Warrant, the Warrant
Shares and the Escrow Shares or an available exemption under the Securities Act.

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

            (c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the
Convertible Debentures and the Warrant are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer

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set forth herein in order to determine the availability of such exemptions and
the eligibility of such Buyer to acquire such securities.

            (d) INFORMATION. Each Buyer and its advisors (and its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information it deemed material to making an
informed investment decision regarding its purchase of the Convertible
Debentures, the Warrant, the Escrow Shares, the Warrant Shares and the
Conversion Shares, which have been requested by such Buyer. Each Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. Each
Buyer understands that its investment in the Convertible Debentures, the
Warrant, the Escrow Shares, the Warrant Shares and the Conversion Shares
involves a high degree of risk. Each Buyer is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Buyer to obtain information from the
Company in order to evaluate the merits and risks of this investment. Each Buyer
has sought such accounting, legal and tax advice, as it has considered necessary
to make an informed investment decision with respect to its acquisition of the
Convertible Debentures, the Warrant, the Escrow Shares, the Warrant Shares and
the Conversion Shares.

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

            (f) TRANSFER OR RESALE. Each Buyer understands that except as
provided in the Investor Registration Rights Agreement: (i) the Convertible
Debentures, the Warrant, the Escrow Shares, the Warrant Shares and the
Conversion Shares have not been and are not being registered under the
Securities Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently registered thereunder, or
(B) such Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements; (ii) any sale of such securities
made in reliance on Rule 144 under the Securities Act (or a successor rule
thereto) ("RULE 144") may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.

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<PAGE>

            (g) LEGENDS. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures, the Warrant, the Escrow
Shares, the Warrant Shares and/or the Conversion Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be
placed against transfer of such stock certificates):

            THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
            APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
            SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND
            MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
            ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
            UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
            SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
            FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
            STATE SECURITIES LAWS.

The legend set forth above shall be removed and the Company shall use its
reasonable best efforts within two (2) business days, to issue a certificate
without such legend to the holder of the Escrow Shares, Warrant, Warrant Shares
and Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Escrow Shares, Warrant, Warrant Shares and Conversion Shares are registered
under the Securities Act or (ii) in connection with a sale transaction, after
such holder provides the Company with an opinion of counsel, which opinion shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale, assignment or transfer of the
Escrow Shares, Warrant, Warrant Shares and Conversion Shares may be made without
registration under the Securities Act.

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

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            (i) RECEIPT OF DOCUMENTS. Each Buyer and its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Agreement, and the Escrow Shares Escrow Agreement; (ii) all due diligence and
other information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company's Form 10-KSB for
the fiscal year ended September 30, 2004; (iv) the Company's Form 10-QSB for the
fiscal quarter ended June 30, 2005; and (v) it has received answers to all
questions each Buyer submitted to the Company regarding an investment in the
Company; and each Buyer has relied on the information contained therein and has
not been furnished any other documents, literature, memorandum or prospectus.

            (j) DUE FORMATION OF CORPORATE AND OTHER BUYERS. If a Buyer is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and Warrant is not
prohibited from doing so.

            (k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges that
it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

            (l) NO GROUP PARTICIPATION. Each Buyer and its affiliates is not a
member of any group, nor is any Buyer acting in concert with any other person,
including any other Buyer, with respect to its acquisition of the Convertible
Debentures, Escrow Shares, the Warrant, the Warrant Shares or Conversion Shares.

            (m) COMPANY REGISTRATION STATEMENT. No Buyer makes any
representation or warranty regarding the Company's ability or to have any
registration statement (the "Registration Statement") filed by the Company
pursuant to the Investor Registration Rights Agreement or otherwise declared
effective by the SEC. The Company has the sole obligation to make any and all
such filings as may be necessary and to have any registration statement declared
effective by the SEC.

            (n) Existing Debentures. The Buyer(s) is the beneficial owner of the
Existing Debentures free and clear of any liens or encumbrances. The Buyer(s)
represents and warrants that upon payment of the Payoff Amount to the Buyer(s)
at the First Closing, the Company shall have satisfied all of its obligations
under and with respect to the Existing Debentures (including without limitation
obligations under related registration rights and security agreements, all of
which agreements shall be of no further force or effect from and after the First
Closing Date).

      3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined in Section 3(f) below):

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            (a) ORGANIZATION AND QUALIFICATION. The Company and its subsidiaries
are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect, as defined below.

            (b) AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Security Agreement, the Investor Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions, the Escrow
Agreement, the Escrow Shares Escrow Agreement, and any related agreements
(collectively the "TRANSACTION DOCUMENTS") and to issue the Convertible
Debentures, the Escrow Shares, the Warrant, the Warrant Shares and the
Conversion Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Convertible Debentures, the
Escrow Shares, the Warrant, the Warrant Shares and the Conversion Shares and the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the Registration Statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.

            (c) CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock of which 11,101,946 shares of
Common Stock were issued and outstanding and no Classes of Preferred Stock
authorized. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the SEC Documents, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in the SEC Documents, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the

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Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Investor
Registration Rights Agreement) and (iv) there are no outstanding registration
statements and there are no outstanding comment letters from the SEC or any
other regulatory agency. There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Convertible Debentures and the Warrant as described in this Agreement. The
Convertible Debentures, Warrant, Warrant Shares, Conversion Shares and Escrow
Shares when issued, will be free and clear of all pledges, liens, encumbrances
and other restrictions (other than those arising under federal or state
securities laws as a result of the private placement of such securities). No
co-sale right, right of first refusal or other similar right exists with respect
to the Convertible Debentures, the Warrant, Warrant Shares, Escrow Shares and
the Conversion Shares or the issuance and sale thereof. The issue and sale of
the Convertible Debentures, Warrant, Warrant Shares, Escrow Shares and the
Conversion Shares will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities. The Company has furnished to the Buyer true and correct copies of
the Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.

            (d) ISSUANCE OF SECURITIES. The Convertible Debentures are duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, and free from all taxes, liens and charges with respect to the issue
thereof. The Conversion Shares, the Warrant Shares and the Escrow Shares have
been duly authorized and reserved for issuance. Upon issuance upon conversion or
exercise in accordance with the Transaction Documents, the Conversion Shares,
the Warrant Shares and Escrow Shares will be duly issued, fully paid and
nonassessable.

            (e) NO CONFLICTS. Except as disclosed in the SEC Documents, the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby will
not (i) result in a violation of the Articles of Incorporation, any certificate
of designations of any outstanding series of preferred stock of the Company or
the By-laws or (ii) conflict with or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of The National Association of
Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is
quoted) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. Except as disclosed in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable

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state securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement or the Investor Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the SEC Documents, all consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.

            (f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Except as set forth in
Schedule 3(f), since September 30, 2003, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC under of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the forgoing filed prior to the date hereof or amended after the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by references therein, being
hereinafter referred to as the ("SEC DOCUMENTS"). The Company has delivered to
the Buyer(s) or its/their representatives, or made available through the SEC's
website at http:/www.sec.gov., true and complete copies of the SEC Documents. As
of their respective dates, the financial statements disclosed in the SEC
Documents (the "FINANCIAL STATEMENTS") complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such Financial Statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer(s) which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

            (g) 10(b)-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.

            (h) ABSENCE OF LITIGATION. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions contemplated hereby, (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a

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material adverse effect on the business, operations, properties, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole.

            (i) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF THE CONVERTIBLE
DEBENTURES. The Company acknowledges and agrees that each Buyer is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that each
Buyer is not 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 such Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Buyer's purchase
of the Convertible Debentures, the Escrow Shares, the Warrant, the Warrant
Shares or the Conversion Shares. The Company further represents to the Buyers
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its representatives.

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

            (k) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures, the Escrow Shares, the Warrant, the Warrant Shares or
the Conversion Shares under the Securities Act or cause this offering of the
Convertible Debentures, the Escrow Shares, the Warrant, the Warrant Shares or
the Conversion Shares to be integrated with prior offerings by the Company for
purposes of the Securities Act.

            (l) EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.

            (m) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names,

                                       10

<PAGE>

service marks, service mark registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.

            (n) ENVIRONMENTAL LAWS.

                  (i) Each of the Company and its subsidiaries has complied with
all applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that, individually or in the aggregate, have not had and
would not reasonably be expected to have a material adverse effect on the
assets, business, condition (financial or otherwise), results of operations or
future prospects of the Company (a "MATERIAL ADVERSE EFFECT"). There is no
pending or, to the knowledge of the Company, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request, relating to any Environmental Law
involving the Company or any subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries or
information requests that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect. For purposes
of this Agreement, "Environmental Law" means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment or
occupational health and safety, including without limitation any statute,
regulation, administrative decision or order pertaining to (i) treatment,
storage, disposal, generation and transportation of industrial, toxic or
hazardous materials or substances or solid or hazardous waste; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the release
or threatened release into the environment of industrial, toxic or hazardous
materials or substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life, marine
life and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels, containers, abandoned or discarded
barrels, and other closed receptacles; (vii) health and safety of employees and
other persons; and (viii) manufacturing, processing, using, distributing,
treating, storing, disposing, transporting or handling of materials regulated
under any law as pollutants, contaminants, toxic or hazardous materials or
substances or oil or petroleum products or solid or hazardous waste. As used
above, the terms "release" and "environment" shall have the meaning set forth in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA").

                  (ii) The Company has not received any environmental reports,
investigations and audits relating to premises currently or previously owned or
operated by the Company or a subsidiary (whether conducted by or on behalf of
the Company or a subsidiary or a third party, and whether done at the initiative
of the Company or a subsidiary or directed by a third party) which were issued
or conducted during the past five years and which the Company has possession of
or access to.

                  (iii) To the knowledge of the Company there is no material
environmental liability with respect to any solid or hazardous waste transporter
or treatment, storage or disposal facility that has been used by the Company or
any subsidiary.

                                       11

<PAGE>
                  (iv) The Company and its subsidiaries (i) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.

            (o) TITLE. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.

            (p) INSURANCE. The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.

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

            (r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

            (s) NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in the
SEC Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is in breach
of any contract or agreement which breach, in the judgment of the Company's
officers, has or is expected to have a Material Adverse Effect.

            (t) TAX STATUS. Except as set forth in the SEC Documents, the
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions

                                       12

<PAGE>

reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

            (u) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents,
and except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

            (v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated
to offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.

            (w) RELIANCE. The Company acknowledges that the Buyers are relying
on the representations and warranties made by the Company hereunder and that
such representations and warranties are a material inducement to the Buyer
purchasing the Convertible Debentures and Warrant. The Company further
acknowledges that without such representations and warranties of the Company
made hereunder, the Buyers would not enter into this Agreement.

            (x) REGISTRATION FORM. The Company meets the requirements for the
use of Form SB-2 for the registration of the resale of the Escrow Shares,
Conversion Shares and Warrant Shares by the Buyer.

            (y) NON-PUBLIC INFORMATION. The Company confirms that neither it nor
any person acting on its behalf has provided the Buyers or their agents or
counsel with any information that the Company believes constitutes material,
non-public information. The Company understands and confirms that the Buyers
will rely on the foregoing representation in effecting transactions in
securities of the Company.

            (z) ANTI-TAKEOVER PROVISION. The Company and its Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company's certificate of incorporation (or similar charter documents)
or the laws of its jurisdiction of incorporation that is or could become
applicable to the Buyers as a result of the Buyers and the Company fulfilling
their obligations or

                                       13

<PAGE>

exercising their rights under this Agreement, including without limitation the
Company's issuance of the Convertible Debentures, Warrant, Warrant Shares,
Conversion Shares and Escrow Shares and the Buyer's ownership thereof.

            (aa) SARBANES-OXLEY. The Company is in compliance with the
applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, and the
rules and regulations thereunder, that are currently in effect and is actively
taking steps to ensure that it will be in compliance with other applicable
provisions of such Act not currently in effect at all times after the
effectiveness of such provisions except where such noncompliance would not have
or reasonably be expected to result in a Material Adverse Effect or which would
be reasonably likely to have a material adverse effect on the transactions
contemplated hereby or by the Investor Registration Rights Agreement.

      4.    COVENANTS.

            (a) BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 7
and 8 of this Agreement.

            (b) FORM D. The Company agrees to file a Form D with respect to the
Convertible Debentures, Escrow Shares, Warrant, Warrant Shares and Conversion
Shares as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
qualify the Convertible Debentures, Escrow Shares, Warrant, the Warrant Shares
and Conversion Shares, or obtain an exemption for the Convertible Debentures,
Escrow Shares, Warrant, the Warrant Shares and Conversion Shares for sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide evidence
of any such action so taken to the Buyers on or prior to the Closing Date.

            (c) REPORTING STATUS. Until the earlier of (i) the date as of which
the Buyer(s) may sell all of the Escrow Shares, the Warrant, the Warrant Shares,
and Conversion Shares without restriction pursuant to Rule 144(k) promulgated
under the Securities Act (or successor thereto), or (ii) the date on which (A)
the Buyer(s) shall have sold all the Escrow Shares, the Warrant, the Warrant
Shares and Conversion Shares and (B) none of the Convertible Debentures are
outstanding (the "REGISTRATION PERIOD"), the Company shall file in a timely
manner all reports required to be filed with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the regulations of the
SEC thereunder, and the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would otherwise permit such termination.

            (d) USE OF PROCEEDS; SURRENDER OF EXISTING DEBENTURES. The Company
shall use the proceeds from the sale of the Convertible Debentures to satisfy in
full all of the Company's obligations under and with respect to the Existing
Debentures through payment of the Payoff Amount to the Buyer(s) simultaneously
with the First Closing, and shall use the remainder of such proceeds for general
corporate and working capital purposes, but in no event shall the

                                       14

<PAGE>

Company use the proceeds to repay any indebtedness of any Company insiders. The
Buyer(s) hereby agrees to surrender to the Company the original Existing
Debentures for cancellation or, if it fails to so surrender, hereby agrees to
indemnify the Company from and against any claims, liabilities, losses or
damages arising out of such failure to surrender same.

            (e) RESERVATION OF SHARES. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, that number of shares of Common Stock equal to a multiple
of five (5) times the number of shares of Common Stock into which the
Convertible Debentures are from time to time convertible unless a change in such
multiple is agreed to in writing by the Buyer(s) and the Company. If at any time
the Company does not have available such number of authorized and unissued
shares of Common Stock as shall from time to time be sufficient to effect the
issuance of all of (i) the Conversion Shares, including the Escrow Shares, upon
the conversion of the entire principal amount of the Convertible Debentures and
(ii) Warrant Shares upon exercise of the Warrant, the Company shall call and
hold a special meeting of the shareholders within one hundred twenty (120) days
of such occurrence, for the sole purpose of increasing the number of shares
authorized. The Company's management shall recommend to the shareholders to vote
in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock.

            (f) LISTINGS OR QUOTATION. The Company shall use its best efforts,
after the effectiveness of the Registration Statement pursuant to the Investor
Registration Rights Agreement, to promptly secure the listing or quotation of
the Conversion Shares, including the Escrow Shares, and the Warrant Shares, upon
a national securities exchange, automated quotation system or The National
Association of Securities Dealers Inc.'s Over-The-Counter Bulletin Board
("OTCBB") or other market, if any, upon which shares of Common Stock are then
listed or quoted (subject to official notice of issuance) and shall use its best
efforts to maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Conversion Shares from time to time issuable under
the terms of this Agreement. The Company shall maintain the Common Stock's
authorization for quotation on the OTCBB. It shall be an event of default
hereunder if the Company fails to strictly comply with its obligation under this
Section 4(f).

            (g) FEES AND EXPENSES. (i) The Company shall pay a legal fee of
Sixteen Thousand Dollars ($16,000) in connection with this transaction to
Gottbetter & Partners, LLP. The Company shall bear all of its own legal and
professional fees and expenses, including but not limited to those associated
with the filing of the Registration Statement as contemplated herein. Each of
the Company and the Buyer(s) shall pay all costs and expenses incurred by such
party in connection with the negotiation, investigation, preparation, execution
and delivery of the Transaction Documents. The Company shall pay Yorkville
Advisors Management, LLC ("YAM") a fee equal to ten percent (10%) of the
Purchase Price, with half to be paid upon the First Closing and half to be paid
upon the Second Closing.

            (h) WARRANT. The Company shall issue the Warrant to the Buyer(s).
The Warrant Shares shall have such registration rights as set forth in the
Investor Registration Rights Agreement.

                                       15

<PAGE>

            (i) REGISTRATION STATEMENT. The Company shall be solely responsible
for the contents of the Registration Statement, prospectus or other filing made
with the SEC or otherwise used in the offering of the Company's securities
(except as such disclosure relates solely to the Buyer(s) and then only to the
extent that such disclosure conforms with information furnished in writing by
the Buyer(s) to the Company), even if the Buyer or its agents as an
accommodation to the Company participate or assist in the preparation of the
Registration Statement, prospectus or other SEC filing. The Company shall retain
its own legal counsel to review, edit, confirm and do all things such counsel
deems necessary or desirable to the Registration Statement, prospectus or other
SEC filing to ensure that it does not contain an untrue statement or alleged
untrue statement of material fact or omit or alleged to omit a material fact
necessary to make the statements made therein, in light of the circumstances
under which the statements were made, not misleading.

            (j) CORPORATE EXISTENCE. So long as any of the Convertible
Debentures remain outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"ORGANIZATIONAL CHANGE") unless, prior to the consummation of an Organizational
Change, the Company obtains the written consent of each Buyer. In any such case,
the Company will make appropriate provision with respect to such holders' rights
and interests to insure that the provisions of this Section 4(j) will thereafter
be applicable to the Convertible Debentures.

            (k) TRANSACTIONS WITH AFFILIATES. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "AFFILIATE" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "CONTROL" or "CONTROLS"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.

                                       16

<PAGE>

            (l) TRANSFER AGENT. The Company covenants and agrees that, in the
event that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).

            (m) RESTRICTION ON ISSUANCE OF THE CAPITAL STOCK. Except as
otherwise expressly provided in the Convertible Debentures or the Warrant, so
long as any Convertible Debentures or the Warrant are outstanding, the Company
shall not, without the prior written consent of the Buyer(s), (i) issue or sell
shares of Common Stock or Preferred Stock without consideration or for a
consideration per share less than the Closing Bid Price of the Common Stock
determined immediately prior to its issuance, (ii) issue any warrant, option,
right, contract, call, or other security instrument granting the holder thereof,
the right to acquire Common Stock without consideration or for a consideration
less than such Common Stock's Closing Bid Price value determined immediately
prior to its issuance, (iii) enter into any security instrument granting the
holder a security interest in any and all assets of the Company, or (iv) file
any registration statement on Form S-8, provided that (x) such shares are not
issued without consideration or for a consideration less than the Common Stock's
closing Bid Price on the date of issuance, and (y) such Form S-8 registration
statement is not filed prior to 90 days following the effectiveness of the
Registration Statement. "Closing Bid Price" on any day shall be the closing bid
price for a share of Common Stock on such date on the OTCBB (or such other
exchange, market, or other system that the Common Stock is then traded on), as
reported on Bloomberg, L.P. (or similar organization or agency succeeding to its
functions of reporting prices).

            (n) RESALES ABSENT EFFECTIVE REGISTRATION STATEMENT. Each of the
Buyers understands and acknowledges that (i) this Agreement and the agreements
contemplated hereby may require the Company to issue and deliver Conversion
Shares, Escrow Shares or Warrant Shares to the Buyers with legend restricting
their transferability under the Securities Act, and (ii) it is aware that
resales of such Conversion Shares, Escrow Shares or Warrant Shares may not be
made unless, at the time of resale, there is an effective registration statement
under the Securities Act covering such Buyer's resale(s) or an applicable
exemption from registration.

            (o) LEGEND. Certificates evidencing the Convertible Debentures,
Warrant, Warrant Shares, Conversion Shares and Escrow Shares shall not contain
any legend (including the legend set forth above), (A) while a registration
statement covering the resale of such security is effective under the Securities
Act (provided, however, that the Buyer's prospectus delivery requirements under
the Securities Act will remain applicable), or (B) following any sale of such
Convertible Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow
Shares pursuant to Rule 144, or (C) if such Convertible Debentures, Warrant,
Warrant Shares, Conversion Shares and/or Escrow Shares are eligible for sale
under Rule 144(k), or (D) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the SEC). The Company shall cause its
counsel to issue a legal opinion to the Company's transfer agent promptly after
the effective date of any registration statement (the "EFFECTIVE DATE") if
required by the Company's transfer agent to effect the removal of the legend
hereunder. The Company agrees that following the Effective Date or at such time
as such legend is no longer required under this clause (ii), it will, no later
than three trading days following the delivery by the Buyer to the Company or
the

                                       17

<PAGE>

Company's transfer agent of a certificate representing Warrant Shares,
Conversion Shares and/or Escrow Shares issued with a restrictive legend, deliver
or cause to be delivered to such Buyer a certificate representing such Warrant
Shares, Conversion Shares and/or Escrow Shares that is free from all restrictive
and other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge(s) the
restrictions on transfer set forth herein.

            (p) PLEDGE. The Company acknowledges and agrees that the Buyers may
from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Convertible Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow
Shares to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and, if required under the terms of such
arrangement, the Buyer may transfer pledged or secured Convertible Debentures,
Warrant, Warrant Shares, Conversion Shares and/or Escrow Shares to the pledgees
or secured parties. At the Buyer's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Convertible
Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow Shares may
reasonably request in connection with a pledge or transfer of the Convertible
Debentures, Warrant, Warrant Shares, Conversion Shares and/or Escrow Shares,
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder.

            (q) REMOVAL OF LEGEND. In addition to the Buyer's other available
remedies, the Company shall pay to the Buyer(s), in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares, Conversion
Shares and/or Escrow Shares (based on the closing price of the Common Stock on
the date such Warrant Shares, Conversion Shares and/or Escrow Shares are
submitted to the Company's transfer agent), $5 per trading day (increasing to
$10 per trading day five (5) trading days after such damages have begun to
accrue) for each trading day after the seventh (7th) trading day following
delivery by a Buyer to the Company or the Company's transfer agent of a
certificate representing Warrant Shares, Conversion Shares and/or Escrow Shares
issued with a restrictive legend, until such certificate is delivered to the
Buyer with such legend removed. Nothing herein shall limit the Buyer's right to
pursue actual damages for the failure of the Company and its transfer agent to
deliver certificates representing any securities as required hereby or by the
Irrevocable Transfer Agent Instructions, and the Buyer shall have the right to
pursue all remedies available to it at law or in equity, including, without
limitation, a decree of specific performance and/or injunctive relief.

            (r) PRESS RELEASE. In addition to any and all other public
statements or disclosures made by the Company in its sole discretion (subject to
the last sentence of this Section 3(r), the Company will issue a press release
and file a Current Report on Form 8-K with the SEC regarding the Closings of the
purchase and sale of the Convertible Debentures and Warrant on or before four
(4) business days after each Closing. The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide the Buyers or
their agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto the Buyers
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and

                                       18

<PAGE>

confirms that the Buyers shall be relying on the foregoing representations in
effecting transactions in securities of the Company.

            (s) STOCK SPLITS, ETC. The provisions of this Agreement shall be
appropriately adjusted to reflect any stock split, stock divided, reverse stock
split, reorganization or other similar event effected after the date hereof.

            (t) NO SHORT POSITION. Each of the Buyers and any of its affiliates
do not have an open short position in the Common Stock, and each Buyer agrees
that it will not, and that it will cause its affiliates not to, engage in any
short sales of, or hedging transactions with respect to the Common Stock until
the earlier to occur of (i) the third anniversary of the Closing Date and (ii)
the Buyer no longer owns a principal balance of the Convertible Debenture.

      5.    TRANSFER AGENT INSTRUCTIONS.

      The Company shall issue the Irrevocable Transfer Agent Instructions to its
transfer agent irrevocably appointing Gottbetter & Partners, LLP as its agent
for purpose of having certificates issued, registered in the name of the
Buyer(s) or their respective nominee(s), for the Conversion Shares representing
such amounts of Convertible Debentures as specified from time to time by the
Buyer(s) to the Company upon conversion of the Convertible Debentures, for
interest owed pursuant to the Convertible Debentures, and for any and all
Liquidated Damages (as this term is defined in the Investor Registration Rights
Agreement). Gottbetter & Partners, LLP shall be paid a cash fee of One Hundred
Fifty Dollars ($150) by the Buyers or their assigns for every occasion they act
pursuant to the Irrevocable Transfer Agent Instructions. The Company shall not
change its transfer agent without the express written consent of the Buyer(s),
which may be withheld by the Buyer(s) in their sole discretion. The successor
transfer agent shall be required to execute the Irrevocable Transfer Agent
Instructions. Prior to registration of the Conversion Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the Securities Act) will be given by the Company to its transfer
agent and that the Conversion Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Investor Registration Rights Agreement. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance customary for opinions of counsel in comparable transactions to the
effect that registration of a resale by the Buyer(s) of any of the Conversion
Shares is not required under the Securities Act, and absent manifest error in
such opinion, the Company shall within two (2) business days instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyers. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyer(s) shall be entitled, in addition to all other available
remedies, to an

                                       19

<PAGE>

injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

      6.    THE ESCROW SHARES; LIMITATION ON CONVERSION.

            (a) SHARE DENOMINATIONS. The Escrow Agent shall retain and hold the
Escrow Shares which shall be held in accordance with the terms of this Agreement
and the Escrow Shares Escrow Agreement. The Escrow Shares shall be in the share
denominations specified in SCHEDULE II attached hereto, registered in the name
of the Buyer(s) specified in Schedule II.

            (b) CONVERSION NOTICE. EXHIBIT F attached hereto and made a part
hereof sets forth the procedures with respect to the conversion of the
Convertible Debentures, including the forms of Conversion Notice to be provided
upon conversion, instructions as to the procedures for conversion and such other
information and instructions as may be reasonably necessary to enable the
Buyer(s) or its permitted transferee(s) to exercise the right of conversion
smoothly and expeditiously.

            (c) The Company agrees that, at any time the conversion price of the
Convertible Debentures is such that the number of Escrow Shares for the
Convertible Debentures is less than five (5) times the number of shares of
Common Stock that would be needed to satisfy full conversion of all of such
Convertible Debentures then outstanding, given the then current conversion price
(the "FULL CONVERSION SHARES"), upon five (5) business days written notice of
such circumstance to the Company by the Buyers and the Escrow Agent, the Company
shall issue additional share certificates in the name of the Buyer(s) and/or
their assigns in denominations specified by the Buyer(s), and deliver same to
the Escrow Agent, such that the new number of Escrow Shares with respect to the
Convertible Debentures is equal to five (5) times the Full Conversion Shares.

            (d) BUYER'S OWNERSHIP OF COMMON STOCK. In addition to and not in
lieu of the limitations on conversion set forth in the Convertible Debentures,
the conversion rights of the Buyer set forth in the Convertible Debentures shall
be limited, solely to the extent required, from time to time, such that, unless
the Buyer gives written notice 65 days in advance to the Company of the Buyer's
intention to exceed the Limitation on Conversion as defined herein, with respect
to all or a specified amount of the Convertible Debentures and the corresponding
number of the Conversion Shares in no instance the Buyer (singularly, together
with any Persons who in the determination of the Buyer, together with the Buyer,
constitute a group as defined in Rule 13d-5 of the Exchange Act) be entitled to
convert the Convertible Debentures to the extent such conversion would result in
the Buyer beneficially owning four point nine nine percent (4.99%) of the
outstanding shares of Common Stock of the Company. For these purposes,
beneficial ownership shall be defined and calculated in accordance with Rule
13d-3, promulgated under the Exchange Act (the foregoing being herein referred
to as the "LIMITATION ON CONVERSION"); PROVIDED, HOWEVER, that the Limitation on
Conversion shall not apply to any forced or automatic conversion pursuant to
this Agreement or the Convertible Debentures; and PROVIDED, FURTHER that if the
Company shall have breached any of the Transaction Documents and, if capable of
cure, failed to cure such breach within the time provided in the relevant
agreement, the provisions of this Section 6(d) shall be null and void from and
after such date. The Company shall, promptly upon its receipt of a Conversion
Notice tendered by the Buyer (or its sole designee) for the

                                       20

<PAGE>

Convertible Debentures, as applicable, notify the Buyer by telephone and by
facsimile (the "LIMITATION NOTICE") of the number of shares of Common Stock
outstanding on such date and the number of Conversion Shares, which would be
issuable to the Buyer (or its sole designee, as the case may be) if the
conversion requested in such Conversion Notice were effected in full and the
number of shares of Common Stock outstanding giving full effect to such
conversion whereupon, in accordance with the Convertible Debentures,
notwithstanding anything to the contrary set forth in the Convertible
Debentures, the Buyer may, by notice to the Company within one (1) business day
of its receipt of the Limitation Notice by facsimile, revoke such conversion to
the extent (in whole or in part) that the Buyer determines that such conversion
would result in the ownership by the Buyer of shares of Common Stock in excess
of the Limitation on Conversion. The Limitation Notice shall begin the 65 day
advance notice required in this Section 6(d).

      7.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The obligation of the Company hereunder to issue and sell the Convertible
Debentures and the Warrant to the Buyer(s) at each Closing is subject to the
satisfaction, at or before the respective Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:

            (a) Each Buyer shall have executed the Transaction Documents and
delivered them to the Company.

            (b) The Buyer(s) shall have delivered to the Escrow Agent the
portion of the Purchase Price relating to the Convertible Debentures to be
issued on that date in respective amounts as set forth next to each Buyer as
outlined on Schedule I attached hereto and the Warrant and the Escrow Agent
shall have delivered the net proceeds of that Closing to the Company by wire
transfer of immediately available U.S. funds pursuant to the wire instructions
provided by the Company.

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

      8.    CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

            (a) The obligation of the Buyer(s) hereunder to Purchase the
Convertible Debentures at the First Closing is subject to the satisfaction, at
or before the First Closing Date, of each of the following conditions:

                  (i) The Company shall have executed the Transaction Documents
and delivered the same to the Buyer(s).

                                       21

<PAGE>

                  (ii) The Common Stock shall be authorized for quotation on the
OTCBB, trading in the Common Stock shall not have been suspended for any reason,
and all required approvals by the OTCBB in respect of the Conversion Shares
issuable upon the conversion of the Convertible Debentures shall have been
obtained.

                  (iii) The representations and warranties of the Company shall
be true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and as
of the First Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the First Closing Date.
If requested by the Buyer, the Buyer shall have received a certificate, executed
by the COO of the Company, dated as of the First Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyers
including, without limitation an update as of the First Closing Date regarding
the representation contained in Section 3(c) above.

                  (iv) The Company shall have executed and delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto and the Warrant in the number
set forth opposite the Buyer(s) name on Schedule I attached hereto.

                  (v) The Buyer(s) shall have received an opinion of counsel
from Reitler Brown & Rosenblatt LLC in a form reasonably satisfactory to the
Buyer(s).

                  (vi) The Company shall have provided to the Buyer(s) a
certificate of good standing from the Secretary of State from the state in which
the company is incorporated.

                  (vii) The Company shall have delivered to the Escrow Agent the
Escrow Shares.

                  (viii) The Company shall have provided to the Buyers an
acknowledgement, to the satisfaction of the Buyers, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.

                  (ix) The Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Convertible Debentures then outstanding.

                  (x) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyers, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.

                                       22

<PAGE>

                  (xi) The Company shall have filed a form UCC -1 with regard to
the Pledged Property and Pledged Collateral as detailed in the Security
Agreement dated the date hereof and provided proof of such filing to the
Buyer(s).

            (b) The obligation of the Buyer hereunder to purchase the Second
Convertible Debentures at the Second Closing is subject to the satisfaction, at
or before the Second Closing Date, of each of the following conditions:

                  (i) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Second Closing Date. If
requested by the Buyer, the Buyer shall have received a certificate, executed by
the COO of the Company, dated as of the Second Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Second Closing Date regarding
the representation contained in Section 3(c) above.

                  (ii) The Company shall have executed and delivered to the
Buyer the Second Convertible Debentures in the respective amounts set forth
opposite each Buyer(s) name on Schedule I attached hereto.

                  (iii) The Company shall have certified that all conditions to
the Second Closing have been satisfied

                  (iv) The Company shall have provided to the Buyer a
certificate of good standing from the secretary of the state in which the
Company is incorporated.

                  (v) The Company shall have delivered to the Escrow Agent the
additional Escrow Shares pursuant to 6(c) hereof, if necessary.

                  (vi) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's certified
public accountant as to its ability to provide all consents required in order to
file a registration statement in connection with this transaction.

      9.    INDEMNIFICATION.

            (a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures, the Escrow Shares, the
Warrant and the Conversion Shares hereunder, and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Buyer(s) and each other holder of the
Convertible Debentures, the Escrow Shares, the Warrant and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without

                                       23

<PAGE>

limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "BUYER INDEMNITEES") from and against any and
all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures,
the Escrow Shares, the Warrant or the Conversion Shares, as a Buyer of
Convertible Debentures, the Escrow Shares, the Warrant or the Conversion Shares
in the Company. To the extent that the foregoing undertaking by the Company may
be unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

            (b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "COMPANY INDEMNITEES") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

      10.   GOVERNING LAW: MISCELLANEOUS.

            (a) GOVERNING LAW. The parties hereto acknowledge that the
transactions contemplated by this Agreement and the exhibits hereto bear a
reasonable relation to the State of

                                       24

<PAGE>

New York. The parties hereto agree that the internal laws of the State of New
York shall govern this Agreement and the exhibits hereto, including, but not
limited to, all issues related to usury. Any action to enforce the terms of this
Agreement or any of its exhibits shall be brought exclusively in the state
and/or federal courts situated in the County and State of New York. Service of
process in any action by the Buyers to enforce the terms of this Agreement may
be made by serving a copy of the summons and complaint, in addition to any other
relevant documents, by commercial overnight courier to the Company at its
principal address set forth in this Agreement.

            (b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.

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

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

            (e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

            (f) NOTICES. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

                                       25

<PAGE>

If to the Company, to:                       Nanoscience Technologies, Inc.
                                             45 Rockefeller Pl., Suite 2000 #43
                                             New York, NY 10111
                                             Attention:        David Rector
                                             Telephone:        212-332-3443
                                             Facsimile:        212-332-3401

With a copy to:                              Reitler Brown & Rosenblatt LLC
                                             800 Third Avenue, 21st floor
                                             New York, NY 10022
                                             Attn:    Robert S. Brown, Esq.
                                             Telephone:        212-209-3050
                                             Facsimile:        212-371-5500

If to the Transfer Agent, to:                Interstate Transfer Company
                                             6084 South 900 East, Suite 101
                                             Salt Lake City, UT 84121
                                             Attention: Janis Patterson
                                             Phone: (801) 281 9746
                                             Fax : (801) 281 9750

      If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.

            (g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.

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

            (i) SURVIVAL. Unless this Agreement is terminated under Section
10(l), the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 10, and the indemnification provisions set forth in Section 9,
shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debentures are converted in full. The Buyer(s) shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.

            (j) PUBLICITY. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press

                                       26

<PAGE>

release or other public disclosure prior to its release and Buyer(s) shall be
provided with a copy thereof upon release thereof).

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

            (l) TERMINATION. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 7 and 8 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 10(l), the Company shall remain obligated to
reimburse the Buyer(s) for the fees and expenses of Yorkville Advisors
Management, LLC and Gottbetter & Partners, LLP described in Section 4(g) above.

            (m) NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

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

                    [REMAINDER PAGE INTENTIONALLY LEFT BLANK]

                                       27

<PAGE>

      IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

                                 COMPANY:
                                 NANOSCIENCE TECHNOLOGIES, INC.

                                 By: /s/ David Rector
                                     -------------------------------------------
                                 Name:    David Rector
                                 Title:   Secretary, Chief Operating Officer

                                       28

<PAGE>

                                    EXHIBIT A

                 FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT

                                        1

<PAGE>

                                    EXHIBIT B

                            FORM OF ESCROW AGREEMENT

                                        1

<PAGE>

                                    EXHIBIT C

                               SECURITY AGREEMENT

                                        1

<PAGE>

                                    EXHIBIT D

                         ESCROW SHARES ESCROW AGREEMENT

                                        1

<PAGE>

                                    EXHIBIT E

                     IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

                                        1

<PAGE>

                                    EXHIBIT F

                              CONVERSION PROCEDURES

      1. At any time and from time to time during the term of the Convertible
Debentures, the Holder may deliver to the Escrow Agent written notice (a
"CONVERSION NOTICE") that it has elected to convert the Company Convertible
Debentures (the "DEBENTURES") registered in the name of such Holder in whole or
in part in accordance with the terms of the Debentures and the Conversion Notice
shall be in the form annexed as EXHIBIT A to the Debentures. A fee of $50,
payable by the Holder, shall accompany every Conversion Notice delivered to the
Escrow Agent.

      2. The Holder shall send by fax or e-mail the executed Conversion Notice
to the Escrow Agent (with a copy to the Company) by 4:00 p.m. New York time at
least one business day prior to the Conversion Date (as defined in the
Debentures). The Escrow Agent shall send the Conversion Notice by facsimile or
e-mail address to the Company by the end of the business day on the day
received, assuming received by 6:00 p.m. New York time and if thereafter on the
next business day, at the facsimile telephone number or e-mail address, as the
case may be, of the principal place of business of the Company. Each Company
Conversion Notice price adjustment under Article V of the Debentures shall be
given by facsimile addressed to the Holder of Debentures at the facsimile
telephone number of such Holder appearing on the books of the Company as
provided to the Company by such Holder for the purpose of such Company
Conversion Notice price adjustment, with a copy to the Escrow Agent. Any such
notice shall be deemed given and effective upon the transmission of such
facsimile or e-mail at the facsimile telephone number or e-mail address, as the
case may be, specified in this paragraph 2 (with printed confirmation of
transmission). In the event that the Escrow Agent receives the Conversion Notice
after 4:00 p.m. New York time, the Conversion Notice shall be deemed to have
been received on the next business day. In the event that the Company receives
the Conversion Notice after the end of the business day, notice will be deemed
to have been given the next business day.

      3. The Company shall have two (2) business days from transmission of the
Conversion Notice by the Escrow Agent to object only to the calculation of the
number of Company Escrow Shares to be released. If the Company fails to object
to the calculation of the number of Escrow Shares to be released within said
time, then the Company shall be deemed to have waived any objections to said
calculation. The Company's only basis for any objection hereunder shall be to
the calculation of the number of Escrow Shares to be released. If the Escrow
Agent does not receive said objection notice within the time period set forth
above from the Company, and provided that the Purchaser does not revoke such
conversion, the Escrow Agent shall release from escrow and deliver to the Holder
certificates or instruments representing the number of Escrow Shares issuable to
the Holder in accordance with such conversion on the second business day from
the receipt by the Company of the Conversion Notice. In the event that the
certificates evidencing the Escrow Shares held by the Escrow Agent are not in
denominations appropriate for such delivery to the Holder, the Escrow Agent
shall request the Company to cause its transfer agent and registrar to reissue
certificates in smaller denominations. The Escrow Agent shall, however,
immediately release to the requesting Holder certificates

                                        1

<PAGE>

representing such lesser number of shares as the denominations in its possession
will allow that is closest to but no more than the actual number to be released
to such Holder. Upon receipt of the reissued shares in lesser denominations from
the Company's transfer agent, the Escrow Agent shall release to such Holder the
balance of the shares due to such Holder.

      4. The Holder shall send the original Debentures and Conversion Notice to
the Escrow Agent via FedEx or other commercial overnight courier, along with a
fee of $50, instructions regarding names and amount of certificates for the
issuance of the Conversion Shares, and, if conversion is not in full,
instructions as to the re-issuance of the balance of the Debentures; PROVIDED,
HOWEVER, that if the Escrow Agent is holding the Debentures, then the Conversion
Notice may be faxed or e-mailed and the fee may be transmitted via wire transfer
to the Escrow Agent. The Escrow Agent shall deliver the foregoing to the Company
within one (1) business day of the Escrow Agent's receipt thereof. In the event
that the Escrow Agent has custody of the Debentures, the Escrow Agent shall
notify the Company and the Holder in writing of the balance of the Debentures
remaining and the Company and the Holder shall acknowledge such notice in
writing, in lieu of issuance of a new Debenture for the balance.

      5. If the Company will be issuing a new Debenture, it will send such new
Debenture to the Escrow Agent by overnight courier within five (5) business days
of its receipt of the original Debentures and Conversion Notice. The Escrow
Agent shall send the Conversion Shares to the Holder in accordance with Holder's
instructions within one (1) business day of receipt of the Conversion Notice and
will send the new Debenture (if any) to the Holder upon receipt.

      6. The Escrow Agent agrees to notify the Company in writing by facsimile
or e-mail each time the Escrow Agent releases the Escrow Shares to the Holder,
such notice to be given at least one (1) business day prior to such release.

      7. Subject to the provisions of and any limitations set forth in the
Purchase Agreement or the Debentures, the Company agrees that, at any time the
conversion price of the Debentures are such that the number of Escrow Shares
with respect to the Debentures is less than five (5) times the number of shares
of Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) business days written notice of such circumstance to the
Company by a Holder and/or Escrow Agent, it will issue additional share
certificates, in the names of all Holders and deliver same to the Escrow Agent,
such that the new number of Escrow Shares with respect to the Debentures is
equal to five (5) times the Full Conversion Shares.

                                        2

<PAGE>

                                    EXHIBIT G

                                     WARRANT

                                        1

<PAGE>

                                   SCHEDULE I

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                                           ADDRESS/FACSIMILE         AMOUNT OF     NUMBER OF
              NAME                             SIGNATURE                    NUMBER OF BUYER        SUBSCRIPTION     WARRANTS
-----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                                 <C>                          <C>             <C>
Highgate House Funds, Ltd.        By: /s/ Adam S. Gottbetter          488 Madison Avenue           $1,690,359.20     100,000
                                      -----------------------------   New York, NY 10022
                                  Name:    Adam S. Gottbetter         Telephone: (212) 400-6990
                                  Its:     Portfolio Manager          Facsimile: (212) 400-6901

                                                                      Gottbetter & Partners, LLP
With a copy to:                   Tim Dockery                         488 Madison Avenue
                                                                      New York, NY 10022
                                                                      Telephone: (212) 400-6900
                                                                      Facsimile: (212) 400-6901

</TABLE>

                                        1

<PAGE>

                                   SCHEDULE II

                               SHARE DENOMINATIONS

NAME OF INVESTOR

Highgate House Funds, Ltd.

Stock Certificate Denominations for the Escrow Shares in the name of Highgate
House Funds, Ltd.:

----------------------------------------------------
NO. OF CERTIFICATES   CERTIFICATE AMOUNT       TOTAL
----------------------------------------------------
10                                   500       5,000
----------------------------------------------------
11                                 1,000      11,000
----------------------------------------------------
10                                 2,500      25,000
----------------------------------------------------
11                                 5,000      55,000
----------------------------------------------------
15                                10,000     150,000
----------------------------------------------------
11                                25,000     275,000
----------------------------------------------------
11                                50,000     550,000
----------------------------------------------------
11                               100,000   1,100,000
----------------------------------------------------
4                                250,000   1,000,000
----------------------------------------------------
8                                500,000   4,000,000
----------------------------------------------------

----------------------------------------------------
                      TOTAL                7,171,000
----------------------------------------------------

                                        1

<PAGE>

                                  SCHEDULE 3(F)

                       SEC DOCUMENTS: FINANCIAL STATEMENTS

      The Company intends to imminently file amendments to its Form 10-QSBs
filed with the United States Securities and Exchange Commission for the quarters
ending December 31, 2004, March 31, 2005 and June 30, 2005, such amendments are
filed to revise accounting treatment of senior debentures previously issued to
Highgate and Montgomery.

                                        2EXHIBIT 4.02

                     AMENDED AND RESTATED SECURITY AGREEMENT

      THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "AGREEMENT"), is entered
into and made effective as of December 14, 2005, by and between NANOSCIENCE
TECHNOLOGIES, INC., a Nevada corporation (the "COMPANY") and the BUYER(S) listed
on Schedule I attached to the Securities Purchase Agreement (as defined below)
(the "SECURED PARTY").

      WHEREAS, the Company issued to Montgomery Equity Partners, LP and the
Secured Party One Million Four Thousand Six Hundred and Twenty Three Dollars and
Twenty Nine Cents ($1,004,623.29) aggregate principal amount of five percent
(5%) secured convertible debentures, convertible into shares of the Company's
common stock, par value $0.001, for a total purchase price of One Million Four
Thousand Six Hundred and Twenty Three Dollars and Twenty Nine Cents
($1,004,623.29) (as amended and restated, the "ORIGINAL DEBENTURES");

      WHEREAS, the Company, Montgomery Equity Partners, LP and the Secured Party
entered into a Security Agreement, dated December 13, 2004 (the "SECURITY
AGREEMENT"), related to the Original Debentures that this Agreement amends and
restates;

      WHERAS, Montgomery Equity Partners, LP has assigned its rights under the
Original Debentures and the Security Agreement to the Secured Party;

      WHERAS, the Company has requested the Secured Party to make additional
financing available to the Company;

      WHEREAS, the Secured Party is willing to provide such additional financing
on the condition that such additional financing is secured hereunder and under
the UCC-1 Financing Statement filed in Nevada on February 24, 2005, file number
2005006071-7, in connection with the Securities Purchase Agreement dated
December 13, 2004 and the Original Debentures (the "UCC-1 STATEMENT");

      WHEREAS, all of the Company's obligations to the Secured Party are secured
by this Agreement, which was perfected pursuant to the UCC-1 Statement;

      WHEREAS, the Company shall issue and sell to the Secured Party, as
provided in the Securities Purchase Agreement dated the date hereof (the
"SECURITIES PURCHASE AGREEMENT"), and the Secured Party shall purchase up to One
Million, Six Hundred Ninety Thousand and Three Hundred Fifty Nine Dollars and
Twenty Cents ($1,690,359.20) of eight percent (8%) secured convertible
debentures (the "CONVERTIBLE DEBENTURES"), which shall be convertible into
shares of the Company's common stock, par value $0.001 (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES") in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached to the Securities Purchase Agreement;

      WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Convertible Debenture,
the Investor Registration Rights

<PAGE>

Agreement, the Escrow Shares Escrow Agreement, the Irrevocable Transfer Agent
Instructions and the Escrow Agreement (all dated the date hereof and
collectively referred to as the "TRANSACTION DOCUMENTS"), the Company hereby
grants to the Secured Party a security interest in and to the pledged property
identified on EXHIBIT "A" hereto (collectively referred to as the "PLEDGED
PROPERTY") until the satisfaction of the Obligations, as defined herein below;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:

ARTICLE 1.

DEFINITIONS AND INTERPRETATIONS

      Section 1.1. RECITALS.

      The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.

      Section 1.2. INTERPRETATIONS.

      Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.

      Section 1.3. DEFINITIONS.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Securities Purchase Agreement.

      Section 1.4. OBLIGATIONS SECURED.

      The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party, whether oral or
written and whether arising before, on or after the date hereof including,
without limitation, those obligations of the Company to the Secured Party under
the Securities Purchase Agreement, the Secured Convertible Debenture, the
Investor Registration Rights Agreement and Irrevocable Transfer Agent
Instructions, and any other amounts now or hereafter owed to the Secured Party
by the Company thereunder or hereunder (collectively, the "OBLIGATIONS").

ARTICLE 2.

PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY
INTEREST

      Section 2.1. PLEDGED PROPERTY.

            (a) The Company hereby pledges to the Secured Party, and creates in
the Secured Party for its benefit, a security interest in and to all of the
Pledged Property for such time until the Obligations are paid in full.

                                       2

<PAGE>

      The Pledged Property, as set forth in EXHIBIT "A" attached hereto, and the
products thereof and the proceeds of all such items are hereinafter collectively
referred to as the "PLEDGED COLLATERAL."

            (b) Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the Secured
Party to perfect its security interest in the Pledged Property. Simultaneously
with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge and deliver to the Secured Party such documents and
instruments, including, without limitation, financing statements, certificates,
affidavits and forms as may, in the Secured Party's reasonable judgment, be
necessary to effectuate, complete or perfect, or to continue and preserve, the
security interest of the Secured Party in the Pledged Property, and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.

      Section 2.2. RIGHTS; INTERESTS; ETC.

            (a) So long as no Event of Default (as hereinafter defined) shall
have occurred and be continuing:

                  (i) the Company shall be entitled to exercise any and all
rights pertaining to the Pledged Property or any part thereof for any purpose
not inconsistent with the terms hereof; and

                  (ii) the Company shall be entitled to receive and retain any
and all payments paid or made in respect of the Pledged Property.

            (b) Upon the occurrence and during the continuance of an Event of
Default:

                  (i) All rights of the Company to exercise the rights which it
would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and
to receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such payments; PROVIDED, HOWEVER, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Collateral pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by the Company for the benefit of the Secured Party and
paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations;

                  (ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; and

                                       3

<PAGE>

                  (iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Convertible Debentures as described herein

            (c) Each of the following events shall constitute a default under
this Agreement (each an "EVENT OF DEFAULT"):

                  (i) any default, whether in whole or in part, shall occur in
the payment to the Secured Party of principal or interest under the Convertible
Debentures or other item comprising the Obligations as and when due or with
respect to any other debt or obligation of the Company to a party other than the
Secured Party;

                  (ii) any default, whether in whole or in part, shall occur in
the due observance or performance of any obligations or other covenants, terms
or provisions to be performed under this Agreement or the Transaction Documents;

                  (iii) the Company shall: (1) make a general assignment for the
benefit of its creditors; (2) apply for or consent to the appointment of a
receiver, trustee, assignee, custodian, sequestrator, liquidator or similar
official for itself or any of its assets and properties; (3) commence a
voluntary case for relief as a debtor under the United States Bankruptcy Code;
(4) file with or otherwise submit to any governmental authority any petition,
answer or other document seeking: (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief
of debtors, dissolution or liquidation; (5) file or otherwise submit any answer
or other document admitting or failing to contest the material allegations of a
petition or other document filed or otherwise submitted against it in any
proceeding under any such applicable law, or (6) be adjudicated a bankrupt or
insolvent by a court of competent jurisdiction;

                  (iv) any case, proceeding or other action shall be commenced
against the Company for the purpose of effecting, or an order, judgment or
decree shall be entered by any court of competent jurisdiction approving (in
whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any
receiver, trustee, assignee, custodian, sequestrator, liquidator or other
official shall be appointed with respect to the Company, or shall be appointed
to take or shall otherwise acquire possession or control of all or a substantial
part of the assets and properties of the Company, and any of the foregoing shall
continue unstayed and in effect for any period of thirty (30) days;

                  (v) a breach by the Company of any material contract that
would have a Material Adverse Effect (as defined in Section 6.1 below).

                                       4

<PAGE>

                                   ARTICLE 3.

                          ATTORNEY-IN-FACT; PERFORMANCE

      Section 3.1. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.

      Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.

      Section 3.2. SECURED PARTY MAY PERFORM.

      If the Company fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES

      Section 4.1. AUTHORIZATION; ENFORCEABILITY.

      Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.

      Section 4.2. OWNERSHIP OF PLEDGED PROPERTY.

      The Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.

                                       5

<PAGE>

                                   ARTICLE 5.

                    DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

      Section 5.1. DEFAULT AND REMEDIES.

            (a) If an Event of Default described in Section 2.2(c)(i) and (ii)
occurs, then in each such case the Secured Party may declare the Obligations to
be due and payable immediately, by a notice in writing to the Company, and upon
any such declaration, the Obligations shall become immediately due and payable.
If an Event of Default described in Sections 2.2(c)(iii) through (vi) occurs and
is continuing for the period set forth therein, then the Obligations shall
automatically become immediately due and payable without declaration or other
act on the part of the Secured Party.

            (b) Upon the occurrence of an Event of Default, the Secured Party
shall be entitled: (i) to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.

      Section 5.2. METHOD OF REALIZING UPON THE PLEDGED PROPERTY: OTHER
                   REMEDIES.

      Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:

            (a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Company ten (10) days' prior written notice of the time and
place or of the time after which a private sale may be made (the "SALE
NOTICE")), which notice period is hereby agreed to be commercially reasonable.
At any sale or sales of the Pledged Property, the Company may bid for and
purchase the whole or any part of the Pledged Property and, upon compliance with
the terms of such sale, may hold, exploit and dispose of the same without
further accountability to the Secured Party. The Company will execute and
deliver, or cause to be executed and delivered, such instruments, documents,
assignments, waivers, certificates, and affidavits and supply or cause to be
supplied such further information and take such further action as the Secured
Party reasonably shall require in connection with any such sale.

            (b) Any cash being held by the Secured Party as Pledged Collateral
and all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied as follows:

                  (i) to the payment of all amounts due the Secured Party for
the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;

                  (ii) to the payment of the Obligations then due and unpaid.

                                       6

<PAGE>

                  (iii) the balance, if any, to the person or persons entitled
thereto, including, without limitation, the Company.

            (c) In addition to all of the rights and remedies which the Secured
Party may have pursuant to this Agreement, the Secured Party shall have all of
the rights and remedies provided by law, including, without limitation, those
under the Uniform Commercial Code of the State of Nevada.

                  (i) If the Company fails to pay such amounts due upon the
occurrence of an Event of Default which is continuing, then the Secured Party
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of the Company,
wherever situated.

                  (ii) The Company agrees that they shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the obligations, including,
without limitation, reasonable legal fees and expenses, and such amounts shall
be deemed included as Obligations secured hereby and payable as set forth in
Section 8.3 hereof.

      Section 5.3. PROOFS OF CLAIM.

      In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), shall
be entitled and empowered, by intervention in such proceeding or otherwise:

                  (i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding), and

                  (ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event that
the Secured Party shall consent to the making of such payments directed to the
Secured Party, to pay to the Secured Party any amounts for expenses due it
hereunder.

      Section 5.4. DUTIES REGARDING PLEDGED COLLATERAL.

      The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond

                                       7

<PAGE>

the safe custody and reasonable care of any of the Pledged Property actually in
the Secured Party's possession.

                                   ARTICLE 6.
                              AFFIRMATIVE COVENANTS

      The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied or this Agreement shall otherwise
terminate, unless the Secured Party shall consent otherwise in writing (as
provided in Section 8.4 hereof):

      Section 6.1. EXISTENCE, PROPERTIES, ETC.

            (a) The Company shall do, or cause to be done, all things, or
proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain Company's due organization, valid existence
and good standing under the laws of its state of incorporation, and (ii) to
preserve and keep in full force and effect all qualifications, licenses and
registrations in those jurisdictions in which the failure to do so could have a
Material Adverse Effect (as defined below); and (b) the Company shall not do, or
cause to be done, any act impairing the Debtor's corporate power or authority
(i) to carry on the Company's business as now conducted, and (ii) to execute or
deliver this Agreement or any other document delivered in connection herewith,
including, without limitation, any UCC-1 Financing Statements required by the
Secured Party (which other loan instruments collectively shall be referred as
"LOAN INSTRUMENTS") to which it is or will be a party, or perform any of its
obligations hereunder or thereunder. For purpose of this Agreement, the term
"MATERIAL ADVERSE EFFECT" shall mean any material and adverse effect as
determined by Secured Party in its sole discretion, whether individually or in
the aggregate, upon (a) the Company's assets, business, operations, properties
or condition, financial or otherwise; (b) the Company's to make payment as and
when due of all or any part of the Obligations; or (c) the Pledged Property.

      Section 6.2. FINANCIAL STATEMENTS AND REPORTS.

      The Company shall furnish to the Secured Party within a reasonable time
such financial data as the Secured Party may reasonably request, including,
without limitation, the following:

            (a) The balance sheet of the Company as of the close of each fiscal
year, the statement of earnings and retained earnings of the Company as of the
close of such fiscal year, and statement of cash flows for the Company for such
fiscal year, all in reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied, certified by the chief
executive and chief financial officers of the Company as being true and correct
and accompanied by a certificate of the chief executive and chief financial
officers of the Company, stating that the Company has kept, observed, performed
and fulfilled each covenant, term and condition of this Agreement during such
fiscal year and that no Event of Default hereunder has occurred and is
continuing, or if an Event of Default has occurred and is continuing, specifying
the nature of same, the period of existence of same and the action the Company
proposes to take in connection therewith;

                                       8

<PAGE>

            (b) A balance sheet of the Company as of the close of each month,
and statement of earnings and retained earnings of the Company as of the close
of such month, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied,
certified by the chief executive and chief financial officers of the Company as
being true and correct; and

            (c) Copies of all accountants' reports and accompanying financial
reports submitted to the Company by independent accountants in connection with
each annual examination of the Company.

      Section 6.3. ACCOUNTS AND REPORTS.

      The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:

            (a) as soon as available, a copy of any notice or other
communication received by the Company alleging any nonpayment or other material
breach or default, or any foreclosure or other action respecting any material
portion of its assets and properties, respecting any of the indebtedness of the
Company in excess of $15,000 (other than the Obligations), or any demand or
other request for payment under any guaranty, assumption, purchase agreement or
similar agreement or arrangement respecting the indebtedness or obligations of
others in excess of $15,000, including any received from any person acting on
behalf of the Secured Party or beneficiary thereof; and

            (b) within fifteen (15) days after the making of each submission or
filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the stockholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the
transactions contemplated in Transaction Documents or the Loan Instruments.

      Section 6.4. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION.

      The Company shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the Pledged Property and Collateral
described in the Transaction Documents and/or the Loan Instruments), corporate
books and financial records, and to discuss its accounts, affairs and finances
with any employee, officer or director thereof.

      Section 6.5. MAINTENANCE AND INSURANCE.

            (a) The Company shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
making all necessary repairs thereto and renewals and replacements thereof.

                                       9

<PAGE>

            (b) The Company shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Company deems reasonably necessary to the Company's business, (i) adequate
to insure all assets and properties of the Company, which assets and properties
are of a character usually insured by persons engaged in the same or similar
business against loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents and/or the Loan Instruments and/or the applicable law and (iv) as may
be reasonably requested by Secured Party, all with adequate, financially sound
and reputable insurers.

      Section 6.6. CONTRACTS AND OTHER COLLATERAL.

      The Company shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.

      Section 6.7. DEFENSE OF COLLATERAL, ETC.

      The Company shall defend and enforce their right, title and interest in
and to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Company shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.

      Section 6.8. PAYMENT OF DEBTS, TAXES, ETC.

      The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due

      Section 6.9. TAXES AND ASSESSMENTS; TAX INDEMNITY.

      The Company shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
PROVIDED, HOWEVER, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.

                                       10

<PAGE>

      Section 6.10. COMPLIANCE WITH LAW AND OTHER AGREEMENTS.

      The Company shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company are a party
or by which the Company or any of their properties are bound. Without limiting
the foregoing, the Company shall pay all of their indebtedness promptly in
accordance with the terms thereof.

      Section 6.11. NOTICE OF DEFAULT.

      The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the other
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.

      Section 6.12. NOTICE OF LITIGATION.

      The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.

                                   ARTICLE 7.

                               NEGATIVE COVENANTS

      The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied or this Agreement shall otherwise
terminate, the Company shall not, unless the Secured Party shall consent
otherwise in writing:

      Section 7.1. LIENS AND ENCUMBRANCES.

      Except as may already exist as of the date hereof which is disclosed in
the Company's SEC Documents (as defined in the Securities Purchase Agreement)
(the "Existing Liens"), the Company, the Company shall not directly or
indirectly make, create, incur, assume or permit to exist any assignment,
transfer, pledge, mortgage, security interest or other lien or encumbrance of
any nature in, to or against any part of the Pledged Property or of the
Company's capital stock, or offer or agree to do so, or own or acquire or agree
to acquire any asset or property of any character subject to any of the
foregoing encumbrances (including any conditional sale contract or other title
retention agreement), or assign, pledge or in any way transfer or encumber its
right to receive any income or other distribution or proceeds from any part of
the Pledged Property or

                                       11

<PAGE>

the Company's capital stock; or enter into any sale-leaseback financing
respecting any part of the Pledged Property as lessee, or cause or assist the
inception or continuation of any of the foregoing.

      Section 7.2. CERTIFICATE OF INCORPORATION, BY-LAWS, MERGERS,
                   CONSOLIDATIONS, ACQUISITIONS AND SALES.

      From and after the date hereof and until satisfaction in full of the
Obligations, without the prior express written consent of the Secured Party, the
Company shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) issue
or sell its stock, stock options, bonds, notes or other corporate securities or
obligations (except as permitted under the Securities Purchase Agreement); (c)
be a party to any merger, consolidation or corporate reorganization; (d)
purchase or otherwise acquire all or substantially all of the assets or stock
of, or any partnership or joint venture interest in, any other person, firm or
entity; (e) sell, transfer, convey, grant a security interest in or lease all or
any substantial part of its assets, or (f) create any subsidiaries or convey any
of its assets to any subsidiary.

      Section 7.3. MANAGEMENT, OWNERSHIP.

      The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.

      Section 7.4. DIVIDENDS, ETC.

      The Company shall not declare or pay any dividend of any kind, in cash or
in property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock (other than the redemption
rights under the Convertible Debentures and any other securities of the Company
in existence as of the date hereof), nor make any distribution of any kind in
respect thereof, nor make any return of capital to shareholders, nor make any
payments in respect of any pension, profit sharing, retirement, stock option,
stock bonus, incentive compensation or similar plan (except as required or
permitted hereunder), without the prior written consent of the Secured Party.

      Section 7.5. GUARANTIES; LOANS.

      The Company shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
persons, except for (i) the indebtedness currently secured by the liens
identified on the Pledged Property identified on Exhibit A hereto and (ii) the
endorsement of negotiable instruments payable to the Company for deposit or
collection in the ordinary course of business. The Company shall not make any
loan, advance or extension of credit to any person other than in the normal
course of its business.

                                       12

<PAGE>

      Section 7.6. DEBT.

      The Company shall not create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever in an aggregate amount in
excess of $25,000 (excluding any indebtedness of the Company to the Secured
Party, trade accounts payable and accrued expenses incurred in the ordinary
course of business and the endorsement of negotiable instruments payable to the
Company, respectively for deposit or collection in the ordinary course of
business).

      Section 7.7. CONDUCT OF BUSINESS.

      The Company will continue to engage, in an efficient and economical
manner, in a business of the same general type as conducted by it on the date of
this Agreement.

      Section 7.8. PLACES OF BUSINESS.

      The location of the Company's chief place of business is New York, New
York. The Company shall not change the location of its chief place of business,
chief executive office or any place of business disclosed to the Secured Party
or move any of the Pledged Property from its current location without thirty
(30) days' prior written notice to the Secured Party in each instance.

                                   ARTICLE 8.

                                  MISCELLANEOUS

      Section 8.1. NOTICES.

      All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:

                                       13

<PAGE>

If to the Company, to:             Nanoscience Technologies, Inc.
                                   45 Rockefeller Pl., Suite 2000 #43
                                   New York, NY  10011
                                   Attention: David Rector
                                   Telephone: (212) 323-3443
                                   Facsimile: (212) 332-3401

With a copy to:                    Reitler Brown & Rosenblatt LLC
                                   800 Third Avenue, 21st floor
                                   Attention: Robert S. Brown, Esq.
                                   New York, NY 10022
                                   Telephone: (2120 209-5500
                                   Facsimile: (212) 371-5500

If to the Secured Party:           Highgate House Funds, Ltd.
                                   488 Madison Avenue, 12th Floor
                                   New York, NY 10022
                                   Telephone: 212-400-6900
                                   Facsimile: 212-400-6901

With a copy to:                    Adam S. Gottbetter, Esq.
                                   Gottbetter & Partners, LLP
                                   488 Madison Avenue, 12th Floor
                                   New York, NY 10022
                                   Telephone: 212-400-6900
                                   Facsimile: 212-400-6901

      Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.

      Section 8.2. SEVERABILITY.

      If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.

      Section 8.3. EXPENSES.

      In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its

                                       14

<PAGE>

counsel, which the Secured Party may incur in connection with: (i) the custody
or preservation of, or the sale, collection from, or other realization upon, any
of the Pledged Property; (ii) the exercise or enforcement of any of the rights
of the Secured Party hereunder or (iii) the failure by the Company to perform or
observe any of the provisions hereof.

      Section 8.4. WAIVERS, AMENDMENTS, ETC.

      The Secured Party's delay or failure at any time or times hereafter to
require strict performance by the Company of any undertakings, agreements or
covenants shall not waive, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.

      Section 8.5. CONTINUING SECURITY INTEREST.

      This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; (ii) be binding upon the Company and its successors and heirs;
and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.

      Section 8.6. INDEPENDENT REPRESENTATION.

      Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.

      Section 8.7. APPLICABLE LAW: JURISDICTION.

      The parties hereto acknowledge that the transactions contemplated by this
Agreement and the exhibits hereto bear a reasonable relation to the State of New
York. The parties hereto agree that the internal laws of the State of New York
shall govern this Agreement and the exhibits hereto, including, but not limited
to, all issues related to usury. Any action to enforce the terms of this
Agreement or any of its exhibits shall be brought exclusively in the state
and/or federal courts situated in the County and State of New York. Service of
process in any action by the Secured Party to enforce the terms of this
Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Company at its principal address set forth in this Agreement.

                                       15

<PAGE>

      Section 8.8. WAIVER OF JURY TRIAL.

      AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

      Section 8.9. ENTIRE AGREEMENT.

      This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       16

<PAGE>

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

                                  COMPANY:
                                  NANOSCIENCE TECHNOLOGIES, INC.

                                  By: /s/ David Rector
                                      ------------------------------------------
                                  Name: David Rector
                                  Title: Secretary, Chief Operating Officer

                                  SECURED PARTY:
                                  HIGHGATE HOUSE FUNDS, LTD.

                                  By: /s/ Adam S. Gottbetter
                                      ------------------------------------------
                                  Name: Adam S. Gottbetter
                                  Title: Portfolio Manager

                                       17

<PAGE>

                                    EXHIBIT A
                         DEFINITION OF PLEDGED PROPERTY

      For the purpose of securing prompt and complete payment and performance by
the Company of all of the Obligations, the Company unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:

            (a) all goods of the Company, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company or in which the Company may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;

            (b) all inventory of the Company, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Company's
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;

            (c) all contract rights and general intangibles of the Company,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;

            (d) all documents, warehouse receipts, instruments and chattel paper
of the Company whether now owned or hereafter created;

            (e) all accounts and other receivables, instruments or other forms
of obligations and rights to payment of the Company (herein collectively
referred to as "ACCOUNTS"), together with the proceeds thereof, all goods
represented by such Accounts and all such goods that may be returned by the
Company's customers, and all proceeds of any insurance thereon, and all
guarantees, securities and liens which the Company may hold for the payment of
any such Accounts including, without limitation, all rights of stoppage in
transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of
which the Company represents and warrants will be bona fide and existing
obligations of its respective customers, arising out of the sale of goods by the
Company in the ordinary course of business;

            (f) to the extent assignable, all of the Company's rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;

            (g) all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.

                                       A-1

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