Document:

SECURITIES PURCHASE AGREEMENT

         This  SECURITIES  PURCHASE  AGREEMENT  (the  "AGREEMENT"),  dated as of
October 4, 2010, is by and among Imaging3,  Inc., a California  corporation with
headquarters located at 3200 W. Valhalla Drive,  Burbank,  California 91505 (the
"COMPANY"),  and each of the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").

                                    RECITALS

         A.  The  Company  and each  Buyer  is  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"),  and
Rule 506 of Regulation D  ("REGULATION  D") as  promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.

         B. Each Buyer wishes to purchase,  and the Company wishes to sell, upon
the terms and conditions  stated in this Agreement,  (i) the aggregate number of
shares of common stock, no par value, of the Company (the "COMMON  STOCK"),  set
forth  opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate  amount for all Buyers shall be  4,587,157  shares of Common Stock and
shall collectively be referred to herein as the "COMMON SHARES"), (ii) a warrant
to initially  acquire up to the  aggregate  number of shares of Common Stock set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers, in the
form  attached  hereto as EXHIBIT A (the  "SERIES A  WARRANTS")  (as  exercised,
collectively,  the  "SERIES A WARRANT  SHARES"),  (iii) a warrant  to  initially
acquire up to the aggregate  number of shares of Common Stock set forth opposite
such Buyer's name in column (5) on the Schedule of Buyers,  in the form attached
hereto as EXHIBIT B (the "SERIES B WARRANTS") (as exercised,  collectively,  the
"SERIES B WARRANT  SHARES")  and (iv) a warrant to  initially  acquire up to the
aggregate  number of shares of Common Stock set forth opposite such Buyer's name
in column (6) on the Schedule of Buyers,  in the form attached hereto as EXHIBIT
C (the "SERIES C WARRANTS") (as exercised,  collectively,  the "SERIES C WARRANT
SHARES"). The Series A Warrants, the Series B Warrants and the Series C Warrants
are  collectively  referred  to herein as the  "WARRANTS."  The Series A Warrant
Shares,  the  Series B  Warrant  Shares  and the  Series C  Warrant  Shares  are
collectively referred to herein as the "WARRANT SHARES."

         C. At the  Closing,  the  parties  hereto  shall  execute and deliver a
Registration  Rights  Agreement,  in the form attached  hereto as EXHIBIT D (the
"REGISTRATION  RIGHTS  AGREEMENT"),  pursuant to which the Company has agreed to
provide certain  registration rights with respect to the Registrable  Securities
(as defined in the Registration  Rights  Agreement),  under the 1933 Act and the
rules and regulations  promulgated  thereunder,  and applicable state securities
laws.

         D.  The  Common  Shares,  the  Warrants  and  the  Warrant  Shares  are
collectively referred to herein as the "SECURITIES."
<PAGE>

                                    AGREEMENT

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained herein and for other good and valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the Company and each
Buyer hereby agree as follows:

1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.
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         (a) COMMON SHARES AND WARRANTS. Subject to the satisfaction (or waiver)
of the conditions  set forth in Sections 6 and 7 below,  the Company shall issue
and sell to each  Buyer,  and  each  Buyer  severally,  but not  jointly,  shall
purchase from the Company on the Closing Date (as defined below),  the aggregate
number of Common  Shares,  as is set forth  opposite such Buyer's name in column
(3) on the  Schedule of Buyers,  along with (i) Series A Warrants  to  initially
acquire up to the  aggregate  number of Series A Warrant  Shares as is set forth
opposite such Buyer's name in column (4) on the Schedule of Buyers,  (ii) Series
B Warrants to initially  acquire up to the aggregate  number of Series B Warrant
Shares as is set forth  opposite such Buyer's name in column (5) on the Schedule
of Buyers and (iii) Series C Warrants to initially  acquire up to the  aggregate
number of Series C Warrant  Shares as is set forth opposite such Buyer's name in
column (6) on the Schedule of Buyers.

         (b) CLOSING.  The closing (the "CLOSING") of the purchase of the Common
Shares and the  Warrants by the Buyers  shall occur at the offices of  Greenberg
Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago,  Illinois 60601. The date
and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New York time,
on the first (1st) Business Day on which the conditions to the Closing set forth
in  Sections  6 and 7 below are  satisfied  or waived  (or such later date as is
mutually agreed to by the Company and each Buyer). As used herein "BUSINESS DAY"
means any day other  than a  Saturday,  Sunday or other day on which  commercial
banks in New York, New York are authorized or required by law to remain closed.

         (c) PURCHASE PRICE. The aggregate  purchase price for the Common Shares
and the Warrants to be purchased by each Buyer (the  "PURCHASE  PRICE") shall be
the amount set forth opposite such Buyer's name in column (7) on the Schedule of
Buyers.

         (d) PAYMENT OF PURCHASE  PRICE;  DELIVERIES.  On the Closing Date,  (i)
each Buyer shall pay its respective Purchase Price to the Company for the Common
Shares and the Warrants to be issued and sold to such Buyer at the  Closing,  by
wire transfer of immediately  available  funds in accordance  with the Company's
written wire  instructions  (less,  in the case of Cranshire (as defined below),
the  amounts  withheld  pursuant  to Section  4(g)) and (ii) the  Company  shall
deliver to each Buyer (A) one or more stock certificates,  free and clear of all
restrictive  and other  legends  (except as  expressly  provided in Section 5(c)
hereof),  evidencing  the number of Common Shares such Buyer is purchasing as is
set forth  opposite  such  Buyer's name in column (3) of the Schedule of Buyers,
and (B) (i) Series A Warrants to initially acquire up to the aggregate number of
Series A Warrant Shares as is set forth opposite such Buyer's name in column (4)
on the Schedule of Buyers, (ii) Series B Warrants to initially acquire up to the
aggregate  number  of Series B Warrant  Shares  as is set  forth  opposite  such
Buyer's name in column (5) on the Schedule of Buyers and (iii) Series C Warrants
to initially acquire up to the aggregate number of Series C Warrant Shares as is
set forth opposite such Buyer's name in column (6) on the Schedule of Buyers, in
all cases,  duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.

                                      -2-
<PAGE>

2. BUYER'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------

         Each Buyer,  severally and not jointly,  represents and warrants to the
Company with respect to only itself that:

         (a)  ORGANIZATION;  AUTHORITY.  Such Buyer is an entity duly organized,
validly  existing and in good standing under the laws of the jurisdiction of its
organization  with the  requisite  power  and  authority  to  enter  into and to
consummate  the  transactions  contemplated  by the  Transaction  Documents  (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.

         (b) NO PUBLIC SALE OR  DISTRIBUTION.  Such Buyer (i) is  acquiring  its
Common Shares and Warrants and (ii) upon exercise of its Warrants,  will acquire
the Warrant  Shares  issuable upon exercise  thereof,  in each case, for its own
account  and not with a view  towards,  or for resale in  connection  with,  the
public sale or distribution thereof in violation of applicable  securities laws,
except  pursuant to sales  registered or exempted under the 1933 Act;  provided,
however,  by making the  representations  herein,  such Buyer does not agree, or
make any  representation  or  warranty,  to hold any of the  Securities  for any
minimum  or other  specific  term and  reserves  the  right  to  dispose  of the
Securities  at any  time  in  accordance  with  or  pursuant  to a  registration
statement  or an  exemption  under the 1933 Act.  Such  Buyer is  acquiring  the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding,  directly or indirectly, with any
Person to distribute any of the Securities in violation of applicable securities
laws.

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

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

         (e)  INFORMATION.  Such  Buyer  and its  advisors,  if any,  have  been
furnished with all materials  relating to the business,  finances and operations
of the Company and  materials  relating to the offer and sale of the  Securities
which have been  requested by such Buyer.  Such Buyer and its advisors,  if any,
have been afforded the  opportunity to ask questions of the Company.  Such Buyer
understands  that its  investment  in the  Securities  involves a high degree of
risk.  Such Buyer has  sought  such  accounting,  legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.

         (f) NO  GOVERNMENTAL  REVIEW.  Such  Buyer  understands  that no United
States federal or state agency or any other  government or  governmental  agency
has passed on or made any recommendation or endorsement of the Securities or the

                                      -3-
<PAGE>

fairness  or  suitability  of the  investment  in the  Securities  nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Securities.

         (g) TRANSFER OR RESALE.  Such Buyer understands that except as provided
in the Registration Rights Agreement and Section 4(h) hereof: (i) the Securities
have not been  and are not  being  registered  under  the 1933 Act or any  state
securities laws, and may not be offered for sale, sold,  assigned or transferred
unless  (A)  subsequently  registered  thereunder,  (B) such  Buyer  shall  have
delivered to the Company (if  requested by the Company) an opinion of counsel to
such Buyer, in a form reasonably  acceptable to the Company,  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,  or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred  pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act (or a successor rule thereto) (collectively, "RULE 144"); (ii) any sale
of the  Securities  made in reliance on Rule 144 may be made only in  accordance
with the terms of Rule 144,  and  further,  if Rule 144 is not  applicable,  any
resale of the Securities under  circumstances in which the seller (or the Person
(as  defined  below)  through  whom  the sale is made)  may be  deemed  to be an
underwriter  (as that term is  defined in the 1933 Act) may  require  compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC promulgated  thereunder;  and (iii) neither the Company nor any other Person
is under any  obligation  to register the  Securities  under the 1933 Act or any
state  securities  laws or to  comply  with  the  terms  and  conditions  of any
exemption thereunder.

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

         (i) NO CONFLICTS. The execution, delivery and performance by such Buyer
of  this  Agreement  and the  consummation  by such  Buyer  of the  transactions
contemplated  hereby  will not (i) result in a violation  of the  organizational
documents of such Buyer,  (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 such Buyer is a
party,  or (iii)  result in a violation  of any law,  rule,  regulation,  order,
judgment or decree  (including  federal and state securities laws) applicable to
such  Buyer,  except  in the case of  clauses  (ii) and  (iii)  above,  for such
conflicts,  defaults,  rights or violations which would not,  individually or in
the aggregate,  reasonably be expected to have a material  adverse effect on the
ability of such Buyer to perform its obligations hereunder.

         (j)  CERTAIN  TRADING  ACTIVITIES.  Such  Buyer  has  not  directly  or
indirectly,  nor  has  any  Person  acting  on  behalf  of or  pursuant  to  any
understanding with such Buyer,  engaged in any transactions in the securities of
the Company (including,  without limitation,  any Short Sales (as defined below)
involving the Company's  securities) during the period commencing as of the time
that such Buyer was first  contacted by the Placement  Agent (as defined  below)

                                      -4-
<PAGE>

regarding the specific investment in the Company  contemplated by this Agreement
and ending  immediately  prior to the execution of this Agreement by such Buyer.
"SHORT SALES" means all "short sales" as defined in Rule 200  promulgated  under
Regulation SHO under the Securities  Exchange Act of 1934, as amended (the "1934
ACT") (but shall not be deemed to include the  location  and/or  reservation  of
borrowable shares of Common Stock).

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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         The Company represents and warrants to each of the Buyers that:

         (a) ORGANIZATION AND QUALIFICATION. Each of the Company and each of its
Subsidiaries  are  entities  duly  organized  and validly  existing  and in good
standing under the laws of the  jurisdiction in which they are formed,  and have
the requisite power and  authorization  to own their  properties and to carry on
their business as now being conducted and as presently proposed to be conducted.
Each of the Company and each of its  Subsidiaries is duly qualified as a foreign
entity to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the  business  conducted by it makes such
qualification  necessary,  except  to  the  extent  that  the  failure  to be so
qualified or be in good standing would not have a Material  Adverse  Effect.  As
used in this Agreement,  "MATERIAL  ADVERSE  EFFECT" means any material  adverse
effect  on  (i)  the  business,  properties,  assets,  liabilities,   operations
(including results thereof),  condition (financial or otherwise) or prospects of
the Company or any Subsidiary, either individually or taken as a whole, (ii) the
transactions contemplated hereby or in any of the other Transaction Documents or
(iii) the authority or ability of the Company to perform any of its  obligations
under any of the  Transaction  Documents.  Other than the  Persons  (as  defined
below)  set  forth  on  Schedule   3(a),   the  Company  has  no   Subsidiaries.
"SUBSIDIARIES"  means any Person in which the Company,  directly or  indirectly,
(I) owns any of the  outstanding  capital  stock or holds any  equity or similar
interest  of such Person or (II)  controls  or  operates  all or any part of the
business,  operations  or  administration  of  such  Person,  and  each  of  the
foregoing, is individually referred to herein as a "SUBSIDIARY."

         (b) AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the requisite
power and  authority  to enter  into and  perform  its  obligations  under  this
Agreement and the other  Transaction  Documents  and to issue the  Securities in
accordance with the terms hereof and thereof. The execution and delivery of this
Agreement  and  the  other   Transaction   Documents  by  the  Company  and  the
consummation by the Company of the transactions  contemplated hereby and thereby
(including,  without limitation, the issuance of the Common Shares, the issuance
of the  Warrants  and the  reservation  for issuance and issuance of the Warrant
Shares  issuable upon exercise of the Warrants) have been duly authorized by the
Company's  board of directors  and (other than the filing with the SEC of one or
more  Registration  Statements  in  accordance  with  the  requirements  of  the
Registration  Rights  Agreement,  a Form D with the SEC and any other filings as
may be required by any state securities agencies) no further filing,  consent or
authorization  is  required  by the  Company,  its  board  of  directors  or its
stockholders  or other  governing  body.  This Agreement has been, and the other
Transaction  Documents will be prior to the Closing, duly executed and delivered
by the Company, and each constitutes the legal, valid and binding obligations of
the Company,  enforceable  against the Company in accordance with its respective
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

                                      -5-
<PAGE>

of  applicable   creditors'   rights  and  remedies  and  except  as  rights  to
indemnification  and  to  contribution  may  be  limited  by  federal  or  state
securities law. "TRANSACTION DOCUMENTS" means, collectively, this Agreement, the
Warrants,  the Registration  Rights  Agreement,  the Irrevocable  Transfer Agent
Instructions (as defined below) and each of the other agreements and instruments
entered into or delivered by any of the parties  hereto in  connection  with the
transactions  contemplated  hereby and  thereby,  as may be amended from time to
time.

         (c) ISSUANCE OF  SECURITIES.  The issuance of the Common Shares and the
Warrants are duly  authorized and, upon issuance in accordance with the terms of
the Transaction Documents, will be validly issued, fully paid and non-assessable
and free from all preemptive or similar rights,  taxes, liens, charges and other
encumbrances with respect to the issue thereof.  As of the Closing,  the Company
shall have reserved from its duly authorized capital stock not less than 133% of
the  maximum  number of shares of Common  Stock  issuable  upon  exercise of the
Warrants  (without  taking into account any  limitations  on the exercise of the
Warrants  set  forth  therein).  The  issuance  of the  Warrant  Shares  is duly
authorized,  and upon  exercise in  accordance  with the  Warrants,  the Warrant
Shares, when issued,  will be validly issued,  fully paid and non-assessable and
free from all  preemptive or similar  rights,  taxes,  liens,  charges and other
encumbrances with respect to the issue thereof,  with the holders being entitled
to all rights  accorded to a holder of Common Stock.  Subject to the accuracy of
the  representations  and warranties of the Buyers in this Agreement,  the offer
and issuance by the Company of the Securities is exempt from registration  under
the 1933 Act.

         (d) NO  CONFLICTS.  The  execution,  delivery  and  performance  of the
Transaction  Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance  of the  Common  Shares,  the  Warrants  and  Warrant  Shares  and  the
reservation  for  issuance  of the  Warrant  Shares)  will not (i)  result  in a
violation  of the  Articles  of  Incorporation  (as defined  below)  (including,
without limitation,  any certificates of designation contained therein) or other
organizational documents of the Company or any of its Subsidiaries,  any capital
stock of the Company,  or Bylaws (as defined  below),  (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 (iii)
result in a violation of any law, rule,  regulation,  order,  judgment or decree
(including,  without limitation,  foreign, federal and state securities laws and
regulations  and the  rules  and  regulations  of the OTC  Bulletin  Board  (the
"PRINCIPAL  MARKET")) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its  Subsidiaries  is bound
or affected  except,  in the case of clause (ii) or (iii)  above,  to the extent
such violations that could not reasonably be expected to have a Material Adverse
Effect.

         (e)  CONSENTS.  The Company is not required to obtain any consent from,
authorization  or order of, or make any filing or registration  with (other than
the filing with the SEC of one or more  Registration  Statements  in  accordance
with the requirements of the Registration  Rights  Agreement,  a Form D with the
SEC and any other filings as may be required by any state securities  agencies),
any court,  governmental  agency or any regulatory or self-regulatory  agency or
any other  Person in order for it to  execute,  deliver  or  perform  any of its

                                      -6-
<PAGE>

obligations under, or contemplated by, the Transaction Documents,  in each case,
in accordance  with the terms hereof or thereof.  All consents,  authorizations,
orders,  filings and registrations which the Company is required to obtain at or
prior to the Closing  have been  obtained or effected on or prior to the Closing
Date, and neither the Company nor any of its Subsidiaries are aware of any facts
or circumstances which might prevent the Company from obtaining or effecting any
of the  registration,  application or filings  contemplated  by the  Transaction
Documents.  The Company is not in violation of the requirements of the Principal
Market and has no knowledge of any facts or circumstances which could reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.

         (f)  ACKNOWLEDGMENT  REGARDING  BUYER'S  PURCHASE  OF  SECURITIES.  The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length  purchaser with respect to the Transaction  Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its  Subsidiaries,  (ii) an "affiliate" (as
defined in Rule 144) of the Company or any of its  Subsidiaries  or (iii) to its
knowledge,  a "beneficial  owner" of more than 10% of the shares of Common Stock
(as defined for  purposes  of Rule 13d-3 of the 1934 Act).  The Company  further
acknowledges  that no Buyer is acting as a financial advisor or fiduciary of the
Company or any of its Subsidiaries (or in any similar  capacity) with respect to
the Transaction Documents and the transactions  contemplated hereby and thereby,
and any  advice  given by a Buyer or any of its  representatives  or  agents  in
connection  with the  Transaction  Documents and the  transactions  contemplated
hereby  and  thereby  is  merely  incidental  to such  Buyer's  purchase  of the
Securities.  The Company  further  represents  to each Buyer that the  Company's
decision to enter into the  Transaction  Documents  has been based solely on the
independent evaluation by the Company and its representatives.

         (g) NO  GENERAL  SOLICITATION;  PLACEMENT  AGENT'S  FEES.  Neither  the
Company, nor any of its Subsidiaries or 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) in connection with the offer or
sale of the Securities.  The Company shall be responsible for the payment of any
placement agent's fees,  financial advisory fees, or brokers' commissions (other
than for Persons engaged by any Buyer or its investment  advisor) relating to or
arising out of the transactions  contemplated hereby. Other than Wharton Capital
Partners  LTD.  (the  "PLACEMENT  AGENT"),  neither  the  Company nor any of its
Subsidiaries  has engaged any placement  agent or other agent in connection with
the offer or sale of the Securities.

         (h) NO INTEGRATED  OFFERING.  None of the Company,  its Subsidiaries or
any of their affiliates,  nor any Person acting on 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
issuance  of  any  of  the  Securities  under  the  1933  Act,  whether  through
integration  with prior  offerings or  otherwise,  or cause this offering of the
Securities  to  require  approval  of  stockholders  of the  Company  under  any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the  securities  of the Company are listed or designated  for  quotation.
None of the Company, its Subsidiaries, their affiliates nor any Person acting on
their behalf will take any action or steps that would  require  registration  of
the issuance of any of the  Securities  under the 1933 Act or cause the offering
of any of the Securities to be integrated  with other offerings of securities of
the Company.

                                      -7-
<PAGE>

         (i) DILUTIVE EFFECT. The Company  understands and acknowledges that the
number of Warrant  Shares will  increase in certain  circumstances.  The Company
further  acknowledges  that its  obligation  to issue the  Warrant  Shares  upon
exercise of the Warrants in accordance  with this  Agreement and the Warrants is
absolute and unconditional, regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.

         (j) APPLICATION OF TAKEOVER PROTECTIONS;  RIGHTS AGREEMENT. The Company
and its board of directors have taken all necessary  action, if any, in order to
render  inapplicable  any control  share  acquisition,  interested  stockholder,
business   combination,   poison  pill  (including,   without  limitation,   any
distribution under a rights agreement) or other similar anti-takeover  provision
under the Articles of Incorporation, Bylaws or other organizational documents or
the laws of the jurisdiction of its incorporation or otherwise which is or could
become  applicable to any Buyer as a result of the transactions  contemplated by
this Agreement,  including,  without  limitation,  the Company's issuance of the
Securities  and any Buyer's  ownership  of the  Securities.  The Company and its
board of directors have taken all necessary  action,  if any, in order to render
inapplicable  any  stockholder  rights plan or similar  arrangement  relating to
accumulations  of beneficial  ownership of shares of Common Stock or a change in
control of the Company or any of its Subsidiaries.

         (k) SEC DOCUMENTS; FINANCIAL STATEMENTS. During the two (2) years prior
to the date hereof, the Company has timely filed all reports,  schedules, forms,
statements and other documents  required to be filed by it with the SEC pursuant
to the reporting  requirements of the 1934 Act (all of the foregoing filed prior
to the date hereof and all exhibits  included therein and financial  statements,
notes and schedules  thereto and  documents  incorporated  by reference  therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to the Buyers or their  respective  representatives  true,  correct and complete
copies of each of the SEC Documents  not  available on the EDGAR  system.  As of
their respective dates, the SEC Documents complied in all material respects with
the  requirements  of the  1934 Act and the  rules  and  regulations  of the SEC
promulgated  thereunder  applicable  to the SEC  Documents,  and none of the SEC
Documents,  at the time they  were  filed  with the SEC,  contained  any  untrue
statement of a material  fact or omitted to state a material fact required to be
stated  therein or necessary  in order to make the  statements  therein,  in the
light of the  circumstances  under which they were made, not  misleading.  As of
their respective dates, the financial  statements of the Company included in the
SEC  Documents  complied as to form in all  material  respects  with  applicable
accounting  requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. 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  which  will  not  be  material,   either  individually  or  in  the
aggregate).  No other information provided by or on behalf of the Company to any
of the Buyers which is not  included in the SEC  Documents  (including,  without

                                      -8-
<PAGE>

limitation,  information referred to in Section 2(e) of 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 not misleading,  in the light
of the circumstance under which they are or were made.

         (l) ABSENCE OF CERTAIN  CHANGES.  Since the date of the Company's  most
recent  audited  financial  statements  contained  in a  Form  10-K,  except  as
disclosed in the SEC Documents  filed  subsequent  to such Form 10-K,  there has
been no material  adverse  change and no  material  adverse  development  in the
business,  assets,  liabilities,   properties,   operations  (including  results
thereof),  condition (financial or otherwise) or prospects of the Company or any
of its  Subsidiaries.  Since  the  date of the  Company's  most  recent  audited
financial  statements  contained in a Form 10-K,  neither the Company nor any of
its  Subsidiaries  has (i) declared or paid any dividends,  (ii) sold any assets
outside of the ordinary  course of business or (iii) made any  material  capital
expenditures,  individually or in the aggregate.  Neither the Company nor any of
its Subsidiaries  has taken any steps to seek protection  pursuant to any law or
statute  relating  to  bankruptcy,  insolvency,  reorganization,   receivership,
liquidation  or winding  up, nor does the  Company  or any  Subsidiary  have any
knowledge or reason to believe that any of their respective  creditors intend to
initiate involuntary  bankruptcy proceedings or any actual knowledge of any fact
which  would  reasonably  lead  a  creditor  to  do  so.  The  Company  and  its
Subsidiaries,  individually and on a consolidated  basis, are not as of the date
hereof, and after giving effect to the transactions contemplated hereby to occur
at the Closing,  will not be Insolvent (as defined below).  For purposes of this
Section  3(l),  "INSOLVENT"  means,  (I) with  respect  to the  Company  and its
Subsidiaries,  on a consolidated  basis,  (i) the present fair saleable value of
the Company's and its  Subsidiaries'  assets is less than the amount required to
pay the Company's and its Subsidiaries'  total  Indebtedness (as defined below),
(ii) the  Company  and its  Subsidiaries  are  unable  to pay  their  debts  and
liabilities,   subordinated,   contingent  or  otherwise,   as  such  debts  and
liabilities   become   absolute  and  matured  or  (iii)  the  Company  and  its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts  mature;  and (II) with respect to the
Company and each Subsidiary,  individually,  (i) the present fair saleable value
of the Company's or such  Subsidiary's  (as the case may be) assets is less than
the amount required to pay its respective total  Indebtedness,  (ii) the Company
or such  Subsidiary (as the case may be) is unable to pay its  respective  debts
and  liabilities,  subordinated,  contingent  or  otherwise,  as such  debts and
liabilities  become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes  that it will incur debts that
would be beyond its respective ability to pay as such debts mature.  Neither the
Company  nor any of its  Subsidiaries  has  engaged  in any  business  or in any
transaction,  and is not about to engage in any business or in any  transaction,
for  which  the  Company's  or such  Subsidiary's  remaining  assets  constitute
unreasonably small capital.

         (m) NO UNDISCLOSED EVENTS, LIABILITIES,  DEVELOPMENTS OR CIRCUMSTANCES.
No event,  liability,  development or circumstance has occurred or exists, or is
reasonably  expected to occur or exist, with respect to the Company,  any of its
Subsidiaries or any of their  respective  businesses,  properties,  liabilities,
prospects,  operations  (including  results thereof) or condition  (financial or
otherwise)  that (i) would be required  to be  disclosed  by the  Company  under
applicable  securities  laws on a registration  statement on Form S-1 filed with
the SEC  relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced, (ii) could have a material adverse effect
on any  Buyer's  investment  hereunder  or (iii)  could have a Material  Adverse
Effect.

                                      -9-
<PAGE>

         (n) CONDUCT OF BUSINESS;  REGULATORY  PERMITS.  Neither the Company nor
any of its  Subsidiaries  is in violation of any term of or in default under its
Articles of Incorporation, any certificate of designation, preferences or rights
of any other outstanding  series of preferred stock of the Company or any of its
Subsidiaries or Bylaws or their organizational charter, certificate of formation
or certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment,  decree or order or any
statute,  ordinance,  rule or regulation applicable to the Company or any of its
Subsidiaries,  and neither the Company nor any of its Subsidiaries  will conduct
its  business  in  violation  of any of the  foregoing,  except in all cases for
possible  violations which could not,  individually or in the aggregate,  have a
Material Adverse Effect.  Without limiting the generality of the foregoing,  the
Company is not in violation of any of the rules,  regulations or requirements of
the  Principal  Market and has no knowledge of any facts or  circumstances  that
could  reasonably  lead to  delisting or  suspension  of the Common Stock by the
Principal  Market in the  foreseeable  future.  Since  January 1, 2008,  (i) the
Common  Stock has been  listed or  designated  for  quotation  on the  Principal
Market,  (ii) trading in the Common  Stock has not been  suspended by the SEC or
the  Principal  Market and (iii) the  Company  has  received  no  communication,
written or oral, from the SEC or the Principal  Market  regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and each
of its Subsidiaries possess all certificates,  authorizations and permits issued
by the appropriate  regulatory authorities necessary to conduct their respective
businesses,   except   where  the   failure   to  possess   such   certificates,
authorizations  or permits would not have,  individually or in the aggregate,  a
Material  Adverse  Effect,  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.

         (o)  FOREIGN  CORRUPT  PRACTICES.  Neither  the  Company nor any of its
Subsidiaries nor any director,  officer,  agent, employee or other Person acting
on behalf of the  Company or any of its  Subsidiaries  has, in the course of its
actions  for, or on behalf of, the Company or any of its  Subsidiaries  (i) used
any corporate funds for any unlawful contribution,  gift, entertainment or other
unlawful  expenses  relating  to  political  activity;  (ii) made any  direct or
indirect  unlawful  payment to any  foreign or domestic  government  official or
employee  from  corporate  funds;  (iii)  violated  or is in  violation  of  any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate,  payoff,  influence payment,  kickback or other
unlawful payment to any foreign or domestic government official or employee.

         (p) SARBANES-OXLEY  ACT. Except as disclosed in the SEC Documents,  the
Company and each Subsidiary is in compliance with all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all
applicable  rules and  regulations  promulgated by the SEC  thereunder  that are
effective as of the date hereof.

         (q)  TRANSACTIONS  WITH  AFFILIATES.  Except  as  disclosed  in the SEC
Documents, none of the officers, directors or employees of the Company or any of
its Subsidiaries is presently a party to any transaction with the Company or any
of its  Subsidiaries  (other than for  ordinary  course  services as  employees,
officers or 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
such officer, director or employee or, to the knowledge of the Company or any of

                                      -10-
<PAGE>

its Subsidiaries,  any corporation,  partnership, trust or other Person in which
any such  officer,  director,  or employee has a  substantial  interest or is an
employee, officer, director, trustee or partner.

         (r)  EQUITY  CAPITALIZATION.  As of the  date  hereof,  the  authorized
capital stock of the Company consists of (i) 500,000,000 shares of Common Stock,
of which  375,790,811  are issued and outstanding and no shares are reserved for
issuance  pursuant to securities (other than the Common Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) no  shares of  preferred  stock.  No  shares  of  Common  Stock are held in
treasury.  All of such outstanding  shares are duly authorized and have been, or
upon issuance  will be,  validly  issued and are fully paid and  non-assessable.
82,776,328  shares of the Company's  issued and outstanding  Common Stock on the
date hereof are owned by Persons who are "affiliates" (as defined in Rule 405 of
the  1933  Act and  calculated  based  on the  assumption  that  only  officers,
directors  and holders of at least 10% of the Company's  issued and  outstanding
Common  Stock are  "affiliates"  without  conceding  that any such  Persons  are
"affiliates"  for purposes of federal  securities laws) of the Company or any of
its  Subsidiaries.  To the Company's  knowledge,  except as disclosed in the SEC
Documents,  no Person owns 10% or more of the Company's  issued and  outstanding
shares of Common Stock  (calculated based on the assumption that all Convertible
Securities  (as  defined  below),   whether  or  not  presently  exercisable  or
convertible,  have been fully exercised or converted (as the case may be) taking
account of any  limitations  on exercise or  conversion  (including  "blockers")
contained  therein  without  conceding  that  such  identified  Person  is a 10%
stockholder for purposes of federal  securities laws). (i) None of the Company's
or any Subsidiary's  capital stock is subject to preemptive  rights or any other
similar rights or any liens or encumbrances suffered or permitted by the Company
or any  Subsidiary;  (ii) 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,  or  exercisable  or
exchangeable  for, any 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  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,  or  exercisable  or
exchangeable  for, any capital stock of the Company or any of its  Subsidiaries;
(iii) except as disclosed in the SEC Documents,  there are no  outstanding  debt
securities,  notes,  credit  agreements,  credit facilities or other agreements,
documents or instruments  evidencing  Indebtedness  of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound;  (iv)  there are no  financing  statements  securing  obligations  in any
amounts filed in  connection  with the Company or any of its  Subsidiaries;  (v)
there are no  agreements or  arrangements  under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their  securities under
the 1933 Act (except pursuant to the Registration Rights Agreement);  (vi) there
are no  outstanding  securities  or  instruments  of the  Company  or any of its
Subsidiaries which contain any redemption or similar  provisions,  and there are
no contracts,  commitments,  understandings or arrangements by which the Company
or any of its  Subsidiaries  is or may become  bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or instruments
containing  anti-dilution  or similar  provisions  that will be triggered by the
issuance of the  Securities;  (viii)  neither the Company nor any Subsidiary has
any stock  appreciation  rights or "phantom  stock" plans or  agreements  or any
similar  plan  or  agreement;  and  (ix)  neither  the  Company  nor  any of its
Subsidiaries have any liabilities or obligations required to be disclosed in the

                                      -11-
<PAGE>

SEC Documents which are not so disclosed in the SEC Documents,  other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or could not have
a Material Adverse Effect. The Company has furnished to the Buyers true, correct
and complete copies of the Company's  Certificate of  Incorporation,  as amended
and as in effect on the date hereof (the "ARTICLES OF  INCORPORATION"),  and the
Company's bylaws, as amended and as in effect on the date hereof (the "BYLAWS"),
and the terms of all securities convertible into, or exercisable or exchangeable
for,  shares of Common Stock and the material  rights of the holders  thereof in
respect thereto.

         (s) INDEBTEDNESS  AND OTHER  CONTRACTS.  Neither the Company nor any of
its  Subsidiaries  (i)  except  as  disclosed  in the  SEC  Documents,  has  any
outstanding  Indebtedness  (as defined below),  (ii) is a party to any contract,
agreement or instrument,  the violation of which, or default under which, by the
other  party(ies) to such contract,  agreement or instrument could reasonably be
expected to result in a Material  Adverse  Effect,  (iii) is in violation of any
term of or in default  under any contract,  agreement or instrument  relating to
any  Indebtedness,  except where such  violations and defaults would not result,
individually or in the aggregate,  in a Material  Adverse  Effect,  or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance  of which,  in the  judgment of the  Company's  officers,  has or is
expected to have a Material Adverse Effect. For purposes of this Agreement:  (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed  money,  (B) all  obligations  issued,  undertaken  or  assumed  as the
deferred purchase price of property or services (including,  without limitation,
"capital leases" in accordance with generally  accepted  accounting  principles)
(other than trade payables entered into in the ordinary course of business), (C)
all  reimbursement  or payment  obligations  with  respect to letters of credit,
surety bonds and other similar  instruments,  (D) all  obligations  evidenced by
notes,  bonds,  debentures  or similar  instruments,  including  obligations  so
evidenced  incurred in connection  with the  acquisition of property,  assets or
businesses,  (E) all indebtedness  created or arising under any conditional sale
or other title  retention  agreement,  or incurred as financing,  in either case
with  respect to any  property  or assets  acquired  with the  proceeds  of such
indebtedness  (even  though the rights and  remedies of the seller or bank under
such  agreement in the event of default are limited to  repossession  or sale of
such  property),  (F) all  monetary  obligations  under any  leasing  or similar
arrangement which, in connection with generally accepted accounting  principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or  for  which  the  holder  of such  Indebtedness  has an  existing  right,
contingent or otherwise,  to be secured by) any mortgage,  lien, pledge, charge,
security  interest  or  other  encumbrance  upon or in any  property  or  assets
(including  accounts and contract  rights) owned by any Person,  even though the
Person which owns such assets or property  has not assumed or become  liable for
the payment of such indebtedness,  and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above;  (y) "CONTINGENT  OBLIGATION"  means,  as to any Person,  any
direct or  indirect  liability,  contingent  or  otherwise,  of that Person with
respect to any  indebtedness,  lease,  dividend or other  obligation  of another
Person if the primary purpose or intent of the Person  incurring such liability,
or the primary effect  thereof,  is to provide  assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating  thereto will be complied  with, or that the holders of such  liability
will be protected (in whole or in part) against loss with respect  thereto;  and

                                      -12-
<PAGE>

(z) "PERSON" means an individual, a limited liability company, a partnership,  a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

         (t) ABSENCE OF  LITIGATION.  Except as disclosed in the SEC  Documents,
there is no action, suit, proceeding,  inquiry or investigation before or by the
Principal Market, any court,  public board,  government agency,  self-regulatory
organization  or body pending or, to the  knowledge  of the Company,  threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company's or its Subsidiaries' officers or directors which is outside
of the ordinary course of business or individually or in the aggregate  material
to the  Company  or any of its  Subsidiaries.  There  has not  been,  and to the
knowledge  of  the  Company,   there  is  not  pending  or   contemplated,   any
investigation  by the SEC involving the Company,  any of its Subsidiaries or any
current of former director or officer of the Company or any of its Subsidiaries.
The  SEC  has  not  issued  any  stop  order  or  other  order   suspending  the
effectiveness of any registration  statement filed by the Company under the 1933
Act or the 1934 Act.

         (u) 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 be  unable  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 have a Material Adverse Effect.

         (v) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries
is a party to any  collective  bargaining  agreement  or employs any member of a
union. The Company believes that its and its Subsidiaries'  relations with their
respective  employees are good. No executive  officer (as defined in Rule 501(f)
promulgated  under the 1933 Act) or other key  employee of the Company or any of
its  Subsidiaries  has  notified  the Company or any such  Subsidiary  that such
officer  intends  to leave  the  Company  or any such  Subsidiary  or  otherwise
terminate such officer's employment with the Company or any such Subsidiary.  No
executive  officer  or  other  key  employee  of  the  Company  or  any  of  its
Subsidiaries  is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality,  disclosure or proprietary information
agreement,  non-competition agreement, or any other contract or agreement or any
restrictive  covenant,  and the  continued  employment  of each  such  executive
officer or other key  employee (as the case may be) does not subject the Company
or any of its Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its  Subsidiaries  are in compliance with all federal,
state, local and foreign laws and regulations  respecting labor,  employment and
employment practices and benefits,  terms and conditions of employment and wages
and  hours,  except  where  failure  to  be  in  compliance  would  not,  either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

         (w) TITLE.  The Company and its  Subsidiaries  have good and marketable
title in fee simple to all real property,  and have good and marketable title to
all  personal  property,  owned by them which is material to the business of the
Company  and its  Subsidiaries,  in each  case,  free and  clear  of all  liens,

                                      -13-
<PAGE>

encumbrances  and defects except such as do not  materially  affect the value of
such property and do not interfere  with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries.  Any real property and
facilities held under lease by the Company or any of its  Subsidiaries  are held
by them under valid,  subsisting and enforceable  leases with such exceptions as
are not material and do not interfere  with the use made and proposed to be made
of such property and buildings by the Company or any of its Subsidiaries.

         (x) 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,   original   works,   inventions,   licenses,   approvals,
governmental  authorizations,  trade  secrets  and other  intellectual  property
rights and all applications and registrations therefor  ("INTELLECTUAL  PROPERTY
RIGHTS")  necessary to conduct their respective  businesses as now conducted and
as  presently   proposed  to  be  conducted.   None  of  the  Company's  or  its
Subsidiaries'  Intellectual  Property  Rights have  expired,  terminated or been
abandoned,  or are expected to expire,  terminate or be abandoned,  within three
years from the date of this  Agreement.  The  Company  has no  knowledge  of any
infringement by the Company or any of its Subsidiaries of Intellectual  Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against  the Company or any of its  Subsidiaries  regarding  their  Intellectual
Property Rights.  The Company is not aware of any facts or  circumstances  which
might give rise to any of the  foregoing  infringements  or  claims,  actions or
proceedings.  The Company  and each of its  Subsidiaries  have taken  reasonable
security  measures to protect the secrecy,  confidentiality  and value of all of
their Intellectual Property Rights.

         (y)  ENVIRONMENTAL  LAWS. The Company and its  Subsidiaries  (i) are in
compliance with all  Environmental  Laws (as defined below),  (ii) have received
all  permits,  licenses or other  approvals  required  of them under  applicable
Environmental  Laws to  conduct  their  respective  businesses  and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing  clauses (i), (ii) and (iii),  the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign  laws  relating  to  pollution  or  protection  of human  health  or the
environment  (including,   without  limitation,   ambient  air,  surface  water,
groundwater,  land surface or subsurface strata), including, without limitation,
laws  relating to  emissions,  discharges,  releases or  threatened  releases of
chemicals, pollutants,  contaminants, or toxic or hazardous substances or wastes
(collectively,   "HAZARDOUS  MATERIALS")  into  the  environment,  or  otherwise
relating to the manufacture,  processing, distribution, use, treatment, storage,
disposal,  transport  or  handling  of  Hazardous  Materials,  as  well  as  all
authorizations,   codes,  decrees,  demands  or  demand  letters,   injunctions,
judgments,  licenses,  notices  or notice  letters,  orders,  permits,  plans or
regulations issued, entered, promulgated or approved thereunder.

         (z) SUBSIDIARY  RIGHTS.  The Company or one of its Subsidiaries has the
unrestricted  right to vote, and (subject to  limitations  imposed by applicable
law) to receive dividends and  distributions  on, all capital  securities of its
Subsidiaries as owned by the Company or such Subsidiary.

                                      -14-
<PAGE>

         (aa) TAX  STATUS.  The  Company  and each of its  Subsidiaries  (i) has
timely made or filed all  foreign,  federal  and state  income and all other tax
returns,  reports and  declarations  required by any jurisdiction to which it is
subject,  (ii) has timely 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  (iii)  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 and its  Subsidiaries  know of no basis for any
such  claim.  The  Company is not  operated  in such a manner as to qualify as a
passive  foreign  investment  company,  as defined  in Section  1297 of the U.S.
Internal Revenue Code of 1986, as amended.

         (bb) INTERNAL ACCOUNTING AND DISCLOSURE  CONTROLS.  Except as disclosed
in the  SEC  Documents,  the  Company  and  each of its  Subsidiaries  maintains
internal  control  over  financial  reporting  (as such term is  defined in Rule
13a-15(f) under the 1934 Act) that is effective to provide reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial statements for external purposes in accordance with generally accepted
accounting   principles,   including  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  and  liability  accountability,   (iii)  access  to  assets  or
incurrence of  liabilities  is permitted  only in accordance  with  management's
general or  specific  authorization  and (iv) the  recorded  accountability  for
assets and  liabilities is compared with the existing  assets and liabilities at
reasonable  intervals  and  appropriate  action  is taken  with  respect  to any
difference.  Except as disclosed  in the SEC  Documents,  the Company  maintains
disclosure  controls and  procedures  (as such term is defined in Rule 13a-15(e)
under the 1934 Act) that are effective in ensuring that information  required to
be disclosed  by the Company in the reports  that it files or submits  under the
1934 Act is  recorded,  processed,  summarized  and  reported,  within  the time
periods  specified  in the  rules  and  forms  of the  SEC,  including,  without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management,  including
its principal  executive officer or officers and its principal financial officer
or officers,  as  appropriate,  to allow  timely  decisions  regarding  required
disclosure.  Except as disclosed in the SEC  Documents,  neither the Company nor
any of its  Subsidiaries  has  received  any notice or  correspondence  from any
accountant  or other  Person  relating  to any  potential  material  weakness or
significant  deficiency  in any part of the  internal  controls  over  financial
reporting of the Company or any of its Subsidiaries.

         (cc)  OFF  BALANCE  SHEET   ARRANGEMENTS.   There  is  no  transaction,
arrangement,   or  other  relationship   between  the  Company  or  any  of  its
Subsidiaries  and an  unconsolidated  or other off balance  sheet entity that is
required  to be  disclosed  by the Company in its 1934 Act filings and is not so
disclosed  or that  otherwise  could be  reasonably  likely  to have a  Material
Adverse Effect.

         (dd)  INVESTMENT   COMPANY  STATUS.   The  Company  is  not,  and  upon
consummation of the sale of the Securities will not be, an "investment company,"
an affiliate of an "investment  company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or "principal  underwriter"

                                      -15-
<PAGE>

for, an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.

         (ee)  ACKNOWLEDGEMENT   REGARDING  BUYERS'  TRADING  ACTIVITY.   It  is
understood  and  acknowledged  by the  Company  that (i)  following  the  public
disclosure of the  transactions  contemplated  by the  Transaction  Documents in
accordance  with the terms  thereof,  none of the Buyers  have been asked by the
Company or any of its  Subsidiaries to agree,  nor has any Buyer agreed with the
Company or any of its Subsidiaries, to desist from effecting any transactions in
or with respect to (including,  without limitation,  purchasing or selling, long
and/or short) any securities of the Company, or "derivative" securities based on
securities  issued  by the  Company  or to hold  any of the  Securities  for any
specified term; (ii) any Buyer, and counterparties in "derivative"  transactions
to which any such Buyer is a party, directly or indirectly, presently may have a
"short" position in the Common Stock which was established prior to such Buyer's
knowledge of the  transactions  contemplated by the Transaction  Documents;  and
(iii) each  Buyer  shall not be deemed to have any  affiliation  with or control
over any arm's length counterparty in any "derivative" transaction.  The Company
further understands and acknowledges that following the public disclosure of the
transactions  contemplated  by the Transaction  Documents  pursuant to the Press
Release  (as  defined  below) one or more  Buyers  may engage in hedging  and/or
trading  activities at various times during the period that the  Securities  are
outstanding,  including,  without limitation,  during the periods that the value
and/or number of the Warrant Shares  deliverable  with respect to the Securities
are being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing  stockholders'  equity  interest in the Company
both at and after  the time the  hedging  and/or  trading  activities  are being
conducted.  The Company  acknowledges  that such  aforementioned  hedging and/or
trading  activities  do not  constitute a breach of this  Agreement or any other
Transaction  Document or any of the documents executed in connection herewith or
therewith.

         (ff)  MANIPULATION  OF  PRICE.  Neither  the  Company  nor  any  of its
Subsidiaries  has,  and, to the  knowledge of the Company,  no Person  acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause
or to result in the  stabilization  or manipulation of the price of any security
of the Company or any of its  Subsidiaries  to facilitate  the sale or resale of
any of the Securities,  (ii) sold, bid for, purchased,  or paid any compensation
for  soliciting  purchases of, any of the  Securities  (other than the Placement
Agent),  or (iii)  paid or  agreed to pay to any  Person  any  compensation  for
soliciting another to purchase any other securities of the Company or any of its
Subsidiaries.

         (gg) U.S. REAL PROPERTY  HOLDING  CORPORATION.  Neither the Company nor
any of its  Subsidiaries  is,  or  has  ever  been,  and so  long  as any of the
Securities  are held by any of the Buyers,  shall  become,  a U.S. real property
holding  corporation  within the meaning of Section 897 of the Internal  Revenue
Code of 1986, as amended,  and the Company and each Subsidiary  shall so certify
upon any Buyer's request.

         (hh) REGISTRATION ELIGIBILITY.  The Company is eligible to register the
Registrable Securities for resale by the Buyers using Form S-3 promulgated under
the 1933 Act.

         (ii) TRANSFER  TAXES.  On the Closing Date, all stock transfer or other
taxes  (other than  income or similar  taxes)  which are  required to be paid in
connection with the issuance,  sale and transfer of the Securities to be sold to

                                      -16-
<PAGE>

each Buyer  hereunder will be, or will have been,  fully paid or provided for by
the Company, and all laws imposing such taxes will be or will have been complied
with.

         (jj) BANK  HOLDING  COMPANY  ACT.  Neither  the  Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA") and to  regulation  by the Board of  Governors  of the  Federal  Reserve
System (the "FEDERAL RESERVE").  Neither the Company nor any of its Subsidiaries
or affiliates  owns or controls,  directly or  indirectly,  five percent (5%) or
more of the outstanding  shares of any class of voting securities or twenty-five
percent  (25%)  or more of the  total  equity  of a bank or any  equity  that is
subject  to the BHCA and to  regulation  by the  Federal  Reserve.  Neither  the
Company  nor any of its  Subsidiaries  or  affiliates  exercises  a  controlling
influence  over the  management  or  policies  of a bank or any  entity  that is
subject to the BHCA and to regulation by the Federal Reserve.

         (kk) SHELL COMPANY  STATUS.  The Company is not, and has never been, an
issuer identified in, or subject to, Rule 144(i).

         (ll) PUBLIC  UTILITY  HOLDING  ACT.  None of the Company nor any of its
Subsidiaries is a "holding  company," or an "affiliate" of a "holding  company,"
as such terms are defined in the Public Utility Holding Act of 2005.

         (mm) FEDERAL POWER ACT. None of the Company nor any of its Subsidiaries
is subject to regulation as a "public  utility"  under the Federal Power Act, as
amended.

         (nn) NO ADDITIONAL AGREEMENTS.  The Company does not have any agreement
or understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.

         (oo) ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither
the  Company  nor any of its  Subsidiaries  nor,  to the  best of the  Company's
knowledge (after reasonable  inquiry of its officers and directors),  any of the
officers,  directors,  employees, agents or other representatives of the Company
or any of its Subsidiaries or any other business entity or enterprise with which
the Company or any  Subsidiary  is or has been  affiliated or  associated,  has,
directly or indirectly, made or authorized any payment,  contribution or gift of
money, property, or services, whether or not in contravention of applicable law,
(a) as a kickback or bribe to any Person or (b) to any  political  organization,
or the holder of or any aspirant to any  elective or  appointive  public  office
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any of its Subsidiaries.

         (pp)  MONEY  LAUNDERING.  The  Company  and  its  Subsidiaries  are  in
compliance with, and have not previously  violated,  the USA Patriot Act of 2001
and all other  applicable  U.S.  and  non-U.S.  anti-money  laundering  laws and
regulations,  including, without limitation, the laws, regulations and Executive
Orders and sanctions programs  administered by the U.S. Office of Foreign Assets
Control,  including,  without limitation, (i) Executive Order 13224 of September
23, 2001 entitled,  "Blocking Property and Prohibiting Transactions With Persons
Who Commit,  Threaten  to Commit,  or Support  Terrorism"  (66 Fed.  Reg.  49079
(2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.

                                      -17-
<PAGE>

         (qq) FDA. As to each product  subject to the  jurisdiction  of the U.S.
Food and Drug  Administration  (the  "FDA")  under the  Federal  Food,  Drug and
Cosmetic Act, as amended,  and the  regulations  thereunder (the "FDCA") that is
manufactured,  packaged, labeled, tested, distributed,  sold, and/or marketed by
the Company or any of its  Subsidiaries  (each such product,  a  "PHARMACEUTICAL
PRODUCT"), such Pharmaceutical Product is being manufactured, packaged, labeled,
tested, distributed,  sold and/or marketed by the Company or such Subsidiary (as
the case may be) in compliance with all applicable  requirements  under FDCA and
similar laws, rules and regulations  relating to  registration,  investigational
use,   pre-market   clearance,   licensure,   or  application   approval,   good
manufacturing  practices,  good laboratory  practices,  good clinical practices,
product listing,  quotas,  labeling,  advertising,  record keeping and filing of
reports,  except where the failure to be in compliance would not have a Material
Adverse Effect.  There is no pending,  completed or, to the Company's knowledge,
threatened, action (including,  without limitation, any lawsuit, arbitration, or
legal  or  administrative  or  regulatory  proceeding,   charge,  complaint,  or
investigation)  against the Company or any of its Subsidiaries,  and none of the
Company or any of its  Subsidiaries  has received any notice,  warning letter or
other  communication  from the FDA or any other governmental  entity,  which (i)
contests the pre-market clearance, licensure,  registration, or approval of, the
uses of, the distribution of, the manufacturing or packaging of, the testing of,
the sale of, or the labeling and promotion of any Pharmaceutical  Product,  (ii)
withdraws its approval of,  requests the recall,  suspension,  or seizure of, or
withdraws or orders the withdrawal of advertising or sales promotional materials
relating to, any  Pharmaceutical  Product,  (iii) imposes a clinical hold on any
clinical  investigation by the Company or any of its Subsidiaries,  (iv) enjoins
production at any facility of the Company or any of its Subsidiaries, (v) enters
or  proposes to enter into a consent  decree of  permanent  injunction  with the
Company or any of its  Subsidiaries  or (vi) otherwise  alleges any violation of
any laws,  rules or regulations by the Company or any of its  Subsidiaries.  The
properties,  business and operations of the Company subject to the  jurisdiction
of the FDA  have  been and are  being  conducted  in all  material  respects  in
accordance with all applicable  laws,  rules and regulations of the FDA. Neither
the Company nor any of its  Subsidiaries  has been  informed by the FDA that the
FDA will prohibit the  marketing,  sale,  license or use in the United States of
any product proposed to be developed, produced or marketed by the Company or any
of its  Subsidiaries  nor has the FDA  expressed  any concern as to approving or
clearing for marketing  any product being  developed or proposed to be developed
by the Company or any of its Subsidiaries.

         (rr)  DISCLOSURE.  The Company  confirms  that neither it nor any other
Person  acting on its behalf has  provided  any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries,  other than the existence of the transactions contemplated by this
Agreement  and the other  Transaction  Documents.  The Company  understands  and
confirms that each of the Buyers will rely on the foregoing  representations  in
effecting  transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company and its Subsidiaries,  their businesses and the
transactions  contemplated  hereby,  including the schedules to this  Agreement,
furnished by or on behalf of the Company or any of its  Subsidiaries is true and
correct and does not contain any untrue  statement of a material fact or omit to
state any material fact necessary in order to make the statements  made therein,
in the light of the  circumstances  under which they were made, not  misleading.
Each press release issued by the Company or any of its  Subsidiaries  during the
twelve (12) months  preceding the date of this  Agreement did not at the time of
release  contain  any untrue  statement  of a  material  fact or omit to state a
material  fact  required to be stated  therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. No event or circumstance has occurred or information exists with

                                      -18-
<PAGE>

respect to the  Company  or any of its  Subsidiaries  or its or their  business,
properties,  liabilities,  prospects,  operations (including results thereof) or
conditions  (financial  or  otherwise),  which,  under  applicable  law, rule or
regulation,  requires  public  disclosure  at  or  before  the  date  hereof  or
announcement  by the Company but which has not been so publicly  disclosed.  The
Company   acknowledges   and  agrees  that  no  Buyer  makes  or  has  made  any
representations  or  warranties  with respect to the  transactions  contemplated
hereby other than those specifically set forth in Section 2.

4. COVENANTS.
------------

         (a) BEST  EFFORTS.  Each  Buyer  shall use its best  efforts  to timely
satisfy each of the conditions to be satisfied by it as provided in Section 6 of
this Agreement. The Company shall use its best efforts to timely satisfy each of
the conditions to be satisfied by it as provided in Section 7 of this Agreement.

         (b) FORM D AND BLUE SKY.  The Company  shall file a Form D with respect
to the Securities 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 in order to obtain an exemption for, or to, qualify the Securities 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 (or to obtain
an exemption from such  qualification),  and shall provide  evidence of any such
action so taken to the Buyers on or prior to the Closing Date.  Without limiting
any other  obligation  of the Company  under this  Agreement,  the Company shall
timely  make all  filings  and  reports  relating  to the  offer and sale of the
Securities  required under all applicable  securities laws  (including,  without
limitation, all applicable federal securities laws and all applicable "Blue Sky"
laws), and the Company shall comply with all applicable federal, state and local
laws,  statutes,  rules,  regulations  and the like relating to the offering and
sale of the Securities to the Buyers.

         (c)  REPORTING  STATUS.  Until the date on which the Buyers  shall have
sold all of the Registrable  Securities (the  "REPORTING  PERIOD"),  the Company
shall timely file all reports  required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not  terminate its status as an issuer  required
to file  reports  under  the 1934 Act  even if the  1934  Act or the  rules  and
regulations  thereunder  would  no  longer  require  or  otherwise  permit  such
termination.

         (d) USE OF PROCEEDS.  The Company  shall use the proceeds from the sale
of the Securities hereunder solely for general working capital purposes. Without
limiting  the  foregoing,  none of such  proceeds  shall  be used,  directly  or
indirectly,  (i) for the  satisfaction  of any debt of the Company or any of its
Subsidiaries  (other  than  payment of trade  payables  incurred  after the date
hereof in the  ordinary  course of business of the Company and its  Subsidiaries
and consistent with prior practices),  (ii) for the redemption of any securities
of the Company or (iii) with respect to any litigation  involving the Company or
any of its  Subsidiaries  (including,  without  limitation,  (x) any  litigation
disclosed in the SEC Documents or the  settlement  thereof or (y) the payment of
any costs or expenses related thereto).

                                      -19-
<PAGE>

         (e) FINANCIAL INFORMATION.  The Company agrees to send the following to
each  Investor  (as defined in the  Registration  Rights  Agreement)  during the
Reporting  Period (i) unless the  following are filed with the SEC through EDGAR
and are  available  to the  public  through  the EDGAR  system,  within  one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K and  Quarterly  Reports on Form 10-Q,  any  interim  reports or any
consolidated balance sheets, income statements,  stockholders' equity statements
and/or  cash flow  statements  for any period  other than  annual,  any  Current
Reports on Form 8-K and any registration  statements (other than on Form S-8) or
amendments  filed  pursuant to the 1933 Act, (ii) on the same day as the release
thereof,  facsimile copies of all press releases issued by the Company or any of
its  Subsidiaries  and (iii)  copies of any notices and other  information  made
available   or   given   to  the   stockholders   of  the   Company   generally,
contemporaneously   with  the  making   available  or  giving   thereof  to  the
stockholders.

         (f)  LISTING.   The  Company  shall  promptly  secure  the  listing  or
designation  for  quotation  (as  the  case  may  be) of all of the  Registrable
Securities  upon each  national  securities  exchange  and  automated  quotation
system,  if any,  upon which the Common Stock is then listed or  designated  for
quotation (as the case may be) (subject to official  notice of issuance) (but in
no event  later  than the  Closing  Date) and shall  maintain  such  listing  or
designation  for  quotation (as the case may be) of all  Registrable  Securities
from time to time issuable under the terms of the Transaction  Documents on such
national  securities  exchange or automated  quotation system. The Company shall
maintain the Common Stock's  listing or  designation  for quotation (as the case
may be) on the Principal Market, The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global  Select  Market,  the Nasdaq  Global Market or the Nasdaq  Capital
Market  (each,  an  "ELIGIBLE  MARKET").  Neither  the  Company  nor  any of its
Subsidiaries shall take any action which could be reasonably  expected to result
in the delisting or suspension  of the Common Stock on an Eligible  Market.  The
Company  shall pay all fees and  expenses  in  connection  with  satisfying  its
obligations under this Section 4(f).

         (g)  FEES.  The  Company  shall  reimburse   Cranshire  Capital,   L.P.
("CRANSHIRE")  or its designee(s)  for all costs and expenses  incurred by it or
its  affiliates  in  connection  with  the  transactions   contemplated  by  the
Transaction  Documents  (including,  without  limitation,  all  legal  fees  and
disbursements   in  connection   therewith,   structuring,   documentation   and
implementation of the transactions contemplated by the Transaction Documents and
due  diligence   and   regulatory   filings  in   connection   therewith)  in  a
non-accountable  amount  equal to  $35,000,  which  amount  shall be withheld by
Cranshire  from its  Purchase  Price at the Closing or paid by the Company  upon
termination of this Agreement on demand by Cranshire so long as such termination
did not  occur as a result  of a  material  breach  by  Cranshire  of any of its
obligations hereunder (as the case may be). The Company shall be responsible for
the payment of any placement agent's fees,  financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby (including,  without limitation, any
fees payable to the Placement  Agent,  who is the Company's sole placement agent
in connection with the transactions contemplated by this Agreement). The Company
shall pay, and hold each Buyer harmless against, any liability,  loss or expense
(including,  without  limitation,  reasonable  attorneys' fees and out-of-pocket
expenses)  arising in  connection  with any claim  relating to any such payment.
Except as otherwise set forth in the Transaction  Documents,  each party to this
Agreement  shall  bear  its own  expenses  in  connection  with  the sale of the
Securities to the Buyers.

                                      -20-
<PAGE>

         (h) PLEDGE OF  SECURITIES.  Notwithstanding  anything  to the  contrary
contained  in this  Agreement,  the  Company  acknowledges  and agrees  that the
Securities  may be  pledged  by a Buyer in  connection  with a bona fide  margin
agreement  or  other  loan  or  financing  arrangement  that is  secured  by the
Securities.  The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities  hereunder,  and no Buyer  effecting a pledge of
Securities  shall be required to provide the Company with any notice  thereof or
otherwise  make any  delivery to the Company  pursuant to this  Agreement or any
other  Transaction  Document.  The Company  hereby agrees to execute and deliver
such  documentation  as a pledgee of the Securities  may  reasonably  request in
connection with a pledge of the Securities to such pledgee by a Buyer.

         (i)  DISCLOSURE OF  TRANSACTIONS  AND OTHER MATERIAL  INFORMATION.  The
Company shall,  on or before 9:30 a.m., New York time, (but in no event prior to
9:15 a.m., New York time) on the first (1st) Business Day after the date of this
Agreement,  issue a press release (the "PRESS RELEASE") reasonably acceptable to
the Buyers disclosing all the material terms of the transactions contemplated by
the  Transaction  Documents.  On or before 9:30 a.m., New York time,  (but in no
event prior to 9:15 a.m.,  New York time) on the first (1st)  Business Day after
the date of this Agreement,  the Company shall file a Current Report on Form 8-K
describing  all the  material  terms  of the  transactions  contemplated  by the
Transaction Documents in the form required by the 1934 Act and attaching all the
material Transaction  Documents (including,  without limitation,  this Agreement
(and all schedules to this Agreement),  the form of Warrants and the form of the
Registration  Rights Agreement)  (including all attachments,  the "8-K FILING").
From and after the  issuance  of the  Press  Release,  the  Company  shall  have
disclosed all material,  non-public information (if any) delivered to any of the
Buyers by the  Company or any of its  Subsidiaries,  or any of their  respective
officers,  directors,  employees or agents in connection  with the  transactions
contemplated  by the  Transaction  Documents.  The  Company  shall not,  and the
Company  shall  cause  each  of its  Subsidiaries  and  each  of its  and  their
respective officers, directors,  employees and agents, not to, provide any Buyer
with any material,  non-public  information  regarding the Company or any of its
Subsidiaries  from and  after the  issuance  of the Press  Release  without  the
express prior written  consent of such Buyer. In the event of a breach of any of
the foregoing covenants or any of the covenants contained in Section 4(o) by the
Company,  any of its Subsidiaries,  or any of its or their respective  officers,
directors,  employees  and agents (as  determined in the  reasonable  good faith
judgment of such Buyer),  in addition to any other remedy  provided herein or in
the  Transaction  Documents,  such  Buyer  shall have the right to make a public
disclosure,  in the form of a press release,  public advertisement or otherwise,
of such  material,  non-public  information  without  the prior  approval by the
Company,  any of its Subsidiaries,  or any of its or their respective  officers,
directors,  employees  or  agents.  No Buyer  shall  have any  liability  to the
Company,  any of its Subsidiaries,  or any of its or their respective  officers,
directors,  employees,  stockholders or agents, for any such disclosure. Subject
to the  foregoing,  neither the Company,  its  Subsidiaries  nor any Buyer shall
issue any press  releases or any other  public  statements  with  respect to the
transactions  contemplated  hereby;  provided,  however,  the  Company  shall be
entitled,  without the prior approval of any Buyer, to make any press release or
other public  disclosure  with respect to such  transactions  (i) in substantial
conformity  with the 8-K Filing and  contemporaneously  therewith and (ii) as is
required by applicable law and regulations  (provided that in the case of clause
(i) each Buyer shall be  consulted  by the Company in  connection  with any such
press  release or other public  disclosure  prior to its  release).  Without the
prior written consent of the applicable  Buyer, the Company shall not (and shall

                                      -21-
<PAGE>

cause each of its  Subsidiaries and affiliates to not) disclose the name of such
Buyer in any  filing  (other  than the 8-K  Filing),  announcement,  release  or
otherwise.  Notwithstanding anything contained in this Agreement to the contrary
and without  implication  that the contrary would otherwise be true, the Company
expressly acknowledges and agrees that no Buyer has had, and no Buyer shall have
(unless  expressly  agreed to by a  particular  Buyer after the date hereof in a
written  definitive  and  binding  agreement  executed  by the  Company and such
particular Buyer), any duty of confidentiality with respect to, or a duty not to
trade on the  basis of,  any  material,  non-public  information  regarding  the
Company or any of it Subsidiaries.

         (j) ADDITIONAL REGISTRATION  STATEMENTS.  Until the Applicable Date (as
defined below) and at any time thereafter  while any  Registration  Statement is
not effective or the prospectus  contained therein is not available for use, the
Company shall not file a registration  statement  under the 1933 Act relating to
securities that are not the Registrable Securities.  "APPLICABLE DATE" means the
first date on which the resale by the Buyers of all  Registrable  Securities  is
covered by one or more  effective  Registration  Statements  (as  defined in the
Registration  Rights  Agreement)  (and  each  prospectus  contained  therein  is
available for use on such date).

         (k) ADDITIONAL ISSUANCE OF SECURITIES.  The Company agrees that for the
period  commencing  on the  date  hereof  and  ending  on the  date  immediately
following the one hundred  eighty (180) Trading Day (as defined in the Warrants)
anniversary of the Applicable  Date (provided that such period shall be extended
by the number of days during such period and any extension thereof  contemplated
by this  proviso on which the  Registration  Statement  is not  effective or any
prospectus  contained  therein  is  not  available  for  use)  (the  "RESTRICTED
PERIOD"),  neither  the Company nor any of its  Subsidiaries  shall  directly or
indirectly  issue,  offer,  sell,  grant  any  option or right to  purchase,  or
otherwise dispose of (or announce any issuance, offer, sale, grant of any option
or right to  purchase  or  other  disposition  of) any  equity  security  or any
equity-linked or related security  (including,  without limitation,  any "equity
security"  (as that term is defined  under Rule 405  promulgated  under the 1933
Act), any Convertible Securities,  any debt, any preferred stock or any purchase
rights (any such issuance,  offer,  sale,  grant,  disposition  or  announcement
(whether  occurring  during the Restricted  Period or at any time thereafter) is
referred to as a "SUBSEQUENT  PLACEMENT").  Notwithstanding the foregoing,  this
Section  4(k) shall not apply in respect  of the  issuance  of (i) (A) shares of
Common Stock or standard options to purchase Common Stock to directors, officers
or  employees of the Company in their  capacity as such  pursuant to an Approved
Share Plan (as defined below), provided that (1) all such issuances (taking into
account the shares of Common Stock issuable upon exercise of such options) after
the date hereof  pursuant to this  clause (A) do not, in the  aggregate,  exceed
more than 18,789,540  shares of Common Stock  (adjusted for stock splits,  stock
combinations and other similar  transactions)  and (2) the exercise price of any
such  options is not  lowered,  none of such options are amended to increase the
number of shares issuable  thereunder and none of the terms or conditions of any
such  options are  otherwise  materially  changed in any manner  that  adversely
affects any of the Buyers; (B) shares of Common Stock issued upon the conversion
or exercise of Convertible  Securities  (other than standard options to purchase
Common  Stock  issued  pursuant  to an  Approved  Share Plan that are covered by
clause (A) above) issued prior to the date hereof,  provided that the conversion
or  exercise  price of any such  Convertible  Securities  (other  than  standard
options to purchase  Common Stock issued pursuant to an Approved Share Plan that
are  covered  by clause  (A)  above) is not  lowered,  none of such  Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an  Approved  Share Plan that are covered by clause (A) above) are amended to
increase  the  number of  shares  issuable  thereunder  and none of the terms or
conditions of any such  Convertible  Securities  (other than standard options to
purchase Common Stock issued pursuant to an Approved Share Plan that are covered

                                      -22-
<PAGE>

by clause (A)  above)  are  otherwise  materially  changed  in any  manner  that
adversely  affects any of the Buyers;  (C) the Common Shares and (D) the Warrant
Shares  (each of the  foregoing  in clauses (A) through  (D),  collectively  the
"EXCLUDED  SECURITIES")  or (ii) shares of  unregistered  Common Stock issued to
Richard Farkas in full  satisfaction  of all accrued and unpaid fees and amounts
owed by the Company and/or its Subsidiaries  through the Closing Date to Richard
Farkas and his  employees,  partners  and  affiliates  (the  "COUNSEL  SHARES").
"APPROVED SHARE PLAN" means any employee benefit plan which has been approved by
the board of directors of the Company  prior to or subsequent to the date hereof
pursuant to which shares of Common Stock and standard options to purchase Common
Stock may be issued to any employee,  officer or director for services  provided
to the Company in their  capacity as such.  "CONVERTIBLE  SECURITIES"  means any
capital stock or other security of the Company or any of its  Subsidiaries  that
is at any time and under any  circumstances  directly or indirectly  convertible
into,  exercisable or exchangeable  for, or which otherwise  entitles the holder
thereof  to  acquire,  any  capital  stock  or  other  security  of the  Company
(including, without limitation, Common Stock) or any of its Subsidiaries.

         (l)  RESERVATION  OF  SHARES.  So  long as any of the  Warrants  remain
outstanding,  the Company  shall take all action  necessary to at all times have
authorized,  and reserved for the purpose of issuance,  no less than 133% of the
maximum  number of shares of Common  Stock  issuable  upon  exercise  of all the
Warrants  (without regard to any limitations on the exercise of the Warrants set
forth therein).

         (m)  CONDUCT  OF  BUSINESS.   The  business  of  the  Company  and  its
Subsidiaries  shall not be  conducted  in  violation  of any law,  ordinance  or
regulation of any  governmental  entity,  except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

         (n)  VARIABLE  RATE  TRANSACTION.   Until  none  of  the  Warrants  are
outstanding,  the Company and each Subsidiary shall be prohibited from effecting
or entering  into an agreement to effect any  Subsequent  Placement  involving a
Variable Rate Transaction.  "VARIABLE RATE  TRANSACTION"  means a transaction in
which  the  Company  or any  Subsidiary  (i)  issues  or sells  any  Convertible
Securities either (A) at a conversion,  exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of, or quotations  for,
the  shares  of Common  Stock at any time  after the  initial  issuance  of such
Convertible  Securities,  or (B) with a conversion,  exercise or exchange  price
that is subject to being reset at some future date after the initial issuance of
such  Convertible  Securities or upon the  occurrence of specified or contingent
events  directly  or  indirectly  related to the  business of the Company or the
market for the  Common  Stock,  other than  pursuant  to a  customary  "weighted
average"  anti-dilution  provision or (ii) enters into any agreement (including,
without limitation,  an "equity line of credit" or an "at-the-market  offering")
whereby the Company or any Subsidiary may sell securities at a future determined
price  (other  than  standard  and  customary  "preemptive"  or  "participation"
rights).  Each Buyer shall be entitled to obtain  injunctive  relief against the
Company and its  Subsidiaries to preclude any such issuance,  which remedy shall
be in addition to any right to collect damages.

                                      -23-
<PAGE>

         (o)  PARTICIPATION  RIGHT. From the date hereof through the twelve (12)
month  anniversary  of the Applicable  Date,  neither the Company nor any of its
Subsidiaries  shall,  directly or indirectly,  effect any  Subsequent  Placement
unless the Company shall have first complied with this Section 4(o). The Company
acknowledges and agrees that the right set forth in this Section 4(o) is a right
granted by the Company, separately, to each Buyer.

                  (i) At least five (5)  Trading  Days prior to any  proposed or
         intended Subsequent Placement,  the Company shall deliver to each Buyer
         a written  notice of its  proposal or  intention to effect a Subsequent
         Placement (each such notice,  a  "PRE-NOTICE"),  which Pre-Notice shall
         not contain any information (including,  without limitation,  material,
         non-public  information)  other than:  (i) a statement that the Company
         proposes or intends to effect a Subsequent Placement,  (ii) a statement
         that the  statement in clause (i) above does not  constitute  material,
         non-public  information and (iii) a statement informing such Buyer that
         it is  entitled  to receive an Offer  Notice (as  defined  below)  with
         respect to such Subsequent Placement upon its written request. Upon the
         written  request of a Buyer  within  three (3)  Trading  Days after the
         Company's  delivery to such Buyer of such  Pre-Notice,  and only upon a
         written request by such Buyer, the Company shall promptly, but no later
         than one (1) Trading Day after such  request,  deliver to such Buyer an
         irrevocable  written  notice  (the "OFFER  NOTICE") of any  proposed or
         intended  issuance or sale or exchange (the "OFFER") of the  securities
         being offered (the  "OFFERED  SECURITIES")  in a Subsequent  Placement,
         which  Offer  Notice  shall  (w)  identify  and  describe  the  Offered
         Securities,  (x) describe the price and other terms upon which they are
         to be  issued,  sold or  exchanged,  and the  number  or  amount of the
         Offered  Securities to be issued,  sold or exchanged,  (y) identify the
         Persons (if known) to which or with which the Offered Securities are to
         be offered,  issued,  sold or exchanged and (z) offer to issue and sell
         to or  exchange  with such  Buyer in  accordance  with the terms of the
         Offer  100% of the  Offered  Securities,  provided  that the  number of
         Offered  Securities  which such Buyer shall have the right to subscribe
         for under this Section 4(o) shall be (a) based on such Buyer's pro rata
         portion of the aggregate number of Common Shares purchased hereunder by
         all Buyers (the  "BASIC  AMOUNT"),  and (b) with  respect to each Buyer
         that elects to purchase its Basic Amount, any additional portion of the
         Offered Securities attributable to the Basic Amounts of other Buyers as
         such Buyer shall  indicate it will purchase or acquire should the other
         Buyers   subscribe   for   less   than   their   Basic   Amounts   (the
         "UNDERSUBSCRIPTION AMOUNT").

                  (ii) To accept an Offer,  in whole or in part, such Buyer must
         deliver a written  notice to the Company  prior to the end of the fifth
         (5th) Business Day after such Buyer's  receipt of the Offer Notice (the
         "OFFER PERIOD"), setting forth the portion of such Buyer's Basic Amount
         that such Buyer  elects to  purchase  and, if such Buyer shall elect to
         purchase all of its Basic Amount, the Undersubscription Amount, if any,
         that such Buyer  elects to  purchase  (in either  case,  the "NOTICE OF
         ACCEPTANCE").  If the Basic  Amounts  subscribed  for by all Buyers are
         less than the total of all of the Basic  Amounts,  then such  Buyer who
         has set forth an  Undersubscription  Amount in its Notice of Acceptance
         shall be  entitled  to  purchase,  in  addition  to the  Basic  Amounts
         subscribed  for, the  Undersubscription  Amount it has subscribed  for;
         provided,  however,  if the  Undersubscription  Amounts  subscribed for
         exceed the  difference  between the total of all the Basic  Amounts and
         the Basic  Amounts  subscribed  for (the  "AVAILABLE  UNDERSUBSCRIPTION

                                      -24-
<PAGE>

         AMOUNT"),  such  Buyer  who has  subscribed  for any  Undersubscription
         Amount shall be entitled to purchase only that portion of the Available
         Undersubscription Amount as the Basic Amount of such Buyer bears to the
         total   Basic   Amounts  of  all  Buyers  that  have   subscribed   for
         Undersubscription  Amounts,  subject to  rounding by the Company to the
         extent it deems reasonably necessary. Notwithstanding the foregoing, if
         the Company  desires to modify or amend the terms and conditions of the
         Offer  prior to the  expiration  of the Offer  Period,  the Company may
         deliver to each Buyer a new Offer  Notice  and the Offer  Period  shall
         expire on the fifth (5th)  Business Day after such  Buyer's  receipt of
         such new Offer Notice.

                  (iii) The Company shall have five (5) days from the expiration
         of the Offer Period above (i) to offer,  issue, sell or exchange all or
         any part of such Offered  Securities as to which a Notice of Acceptance
         has not been given by a Buyer (the "REFUSED  SECURITIES") pursuant to a
         definitive  agreement(s) (the "SUBSEQUENT  PLACEMENT  AGREEMENT"),  but
         only to the  offerees  described  in the Offer  Notice (if so described
         therein)  and  only  upon  terms  and  conditions  (including,  without
         limitation, unit prices and interest rates) that are not more favorable
         to the  acquiring  Person or Persons or less  favorable  to the Company
         than those set forth in the Offer Notice and (ii) to publicly  announce
         (a) the  execution  of such  Subsequent  Placement  Agreement,  and (b)
         either (x) the  consummation of the  transactions  contemplated by such
         Subsequent   Placement   Agreement  or  (y)  the  termination  of  such
         Subsequent Placement Agreement,  which shall be filed with the SEC on a
         Current Report on Form 8-K with such Subsequent Placement Agreement and
         any documents contemplated therein filed as exhibits thereto.

                  (iv) In the event the Company  shall propose to sell less than
         all the  Refused  Securities  (any such sale to be in the manner and on
         the terms specified in Section 4(o)(iii)  above),  then such Buyer may,
         at its sole  option  and in its sole  discretion,  reduce the number or
         amount of the Offered Securities  specified in its Notice of Acceptance
         to an amount  that  shall be not less than the  number or amount of the
         Offered  Securities  that such Buyer  elected to  purchase  pursuant to
         Section 4(o)(ii) above  multiplied by a fraction,  (i) the numerator of
         which shall be the number or amount of Offered  Securities  the Company
         actually  proposes  to  issue,  sell  or  exchange  (including  Offered
         Securities to be issued or sold to Buyers pursuant to this Section 4(o)
         prior to such reduction) and (ii) the denominator of which shall be the
         original amount of the Offered Securities.  In the event that any Buyer
         so elects  to  reduce  the  number  or  amount  of  Offered  Securities
         specified in its Notice of Acceptance,  the Company may not issue, sell
         or  exchange  more than the  reduced  number  or amount of the  Offered
         Securities  unless and until such securities have again been offered to
         the Buyers in accordance with Section 4(o)(i) above.

                  (v) Upon the closing of the issuance,  sale or exchange of all
         or less than all of the Refused  Securities,  such Buyer shall  acquire
         from the Company, and the Company shall issue to such Buyer, the number
         or amount of Offered Securities  specified in its Notice of Acceptance.
         The purchase by such Buyer of any Offered  Securities is subject in all
         cases to the  preparation,  execution  and  delivery by the Company and

                                      -25-
<PAGE>

         such Buyer of a separate  purchase  agreement  relating to such Offered
         Securities reasonably  satisfactory in form and substance to such Buyer
         and its counsel.

                  (vi) Any Offered  Securities  not acquired by a Buyer or other
         Persons in accordance with this Section 4(o) may not be issued, sold or
         exchanged  until  they  are  again  offered  to such  Buyer  under  the
         procedures specified in this Agreement.

                  (vii)  The  Company  and each  Buyer  agree  that if any Buyer
         elects to  participate in the Offer,  neither the Subsequent  Placement
         Agreement  with  respect  to  such  Offer  nor  any  other  transaction
         documents  related thereto  (collectively,  the  "SUBSEQUENT  PLACEMENT
         DOCUMENTS")  shall  include any term or  provision  whereby  such Buyer
         shall be  required  to agree to any  restrictions  on trading as to any
         securities of the Company or be required to consent to any amendment to
         or termination of, or grant any waiver, release or the like under or in
         connection with, any agreement previously entered into with the Company
         or any instrument received from the Company.

                  (viii)  Notwithstanding  anything  to  the  contrary  in  this
         Section 4(o) and unless  otherwise agreed to by such Buyer, the Company
         shall either confirm in writing to such Buyer that the transaction with
         respect  to the  Subsequent  Placement  has  been  abandoned  or  shall
         publicly  disclose its  intention to issue the Offered  Securities,  in
         either  case in such a  manner  such  that  such  Buyer  will not be in
         possession of any material,  non-public information, by the fifth (5th)
         Business Day following  delivery of the Offer Notice.  If by such fifth
         (5th) Business Day, no public  disclosure  regarding a transaction with
         respect  to the  Offered  Securities  has  been  made,  and  no  notice
         regarding the abandonment of such transaction has been received by such
         Buyer, such transaction shall be deemed to have been abandoned and such
         Buyer  shall  not  be  in  possession   of  any  material,   non-public
         information  with  respect to the  Company or any of its  Subsidiaries.
         Should the Company  decide to pursue such  transaction  with respect to
         the Offered  Securities,  the  Company  shall  provide  such Buyer with
         another Offer Notice in accordance  with,  and subject to, the terms of
         this  Section  4(o)  and  such  Buyer  will  again  have  the  right of
         participation  set forth in this Section 4(o). The Company shall not be
         permitted  to deliver  more than one Offer  Notice to such Buyer in any
         sixty (60) day period,  except as  expressly  contemplated  by the last
         sentence of Section 4(o)(ii).

                  (ix) The restrictions contained in this Section 4(o) shall not
         apply in connection with the issuance of any (x) Excluded Securities or
         (y) Counsel Shares.  The Company shall not circumvent the provisions of
         this Section 4(o) by providing  terms or  conditions  to one Buyer that
         are not provided to all.

         (p) PASSIVE FOREIGN INVESTMENT  COMPANY.  The Company shall conduct its
business in such a manner as will ensure that the Company  will not be deemed to
constitute a passive  foreign  investment  company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.

         (q) CORPORATE  EXISTENCE.  So long as any Buyer owns any Warrants,  the
Company  shall not be party to any  Fundamental  Transaction  (as defined in the
Warrants)  unless the Company is in compliance  with the  applicable  provisions

                                      -26-
<PAGE>

governing Fundamental Transactions set forth in the Warrants.

         (r) OUTSTANDING LEGAL FEES. The Company shall only issue Counsel Shares
to Richard  Farkas in full  satisfaction  of all  accrued  and  unpaid  fees and
amounts owed by the Company and/or its Subsidiaries  through the Closing Date to
Richard  Farkas and his  employees,  partners and  affiliates,  provided that no
Counsel  Shares shall be issued prior to the ninety (90) day  anniversary of the
Closing Date.  Without  limiting any other provision of this Agreement,  no cash
shall be used by the Company or any of its  Subsidiaries to pay any of such fees
or amounts.

5. REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.
------------------------------------------------

         (a)  REGISTER.  The Company shall  maintain at its principal  executive
offices (or such other  office or agency of the Company as it may  designate  by
notice to each holder of  Securities),  a register for the Common Shares and the
Warrants in which the Company shall record the name and address of the Person in
whose name the Common  Shares and the Warrants have been issued  (including  the
name and address of each  transferee),  the number of Common Shares held by such
Person and the number of Warrant  Shares  issuable upon exercise of the Warrants
held by such Person.  The Company  shall keep the register open and available at
all  times  during  business  hours  for  inspection  of any  Buyer or its legal
representatives.

         (b) TRANSFER AGENT  INSTRUCTIONS.  The Company shall issue  irrevocable
instructions  to its transfer agent and any subsequent  transfer agent in a form
acceptable to each of the Buyers (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS")
to issue certificates or credit shares to the applicable balance accounts at The
Depository  Trust Company  ("DTC"),  registered in the name of each Buyer or its
respective  nominee(s),  for the Common  Shares and the  Warrant  Shares in such
amounts  as  specified  from  time to time by each  Buyer  to the  Company  upon
delivery of the Common  Shares or the  exercise of the Warrants (as the case may
be). The Company  represents  and warrants  that no  instruction  other than the
Irrevocable  Transfer Agent  Instructions  referred to in this Section 5(b), and
stop transfer  instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer  agent with respect to the  Securities,  and that
the Securities  shall otherwise be freely  transferable on the books and records
of the Company, as applicable,  to the extent provided in this Agreement and the
other Transaction  Documents.  If a Buyer effects a sale, assignment or transfer
of the Securities in accordance  with Section 2(g), the Company shall permit the
transfer and shall  promptly  instruct  its transfer  agent to issue one or more
certificates or credit shares to the applicable  balance accounts at DTC in such
name and in such  denominations  as specified by such Buyer to effect such sale,
transfer  or  assignment.  In the event that such sale,  assignment  or transfer
involves Common Shares or Warrant Shares sold, assigned or transferred  pursuant
to an  effective  registration  statement  or in  compliance  with Rule 144, the
transfer agent shall issue such shares to such Buyer, assignee or transferee (as
the case may be) without any restrictive  legend in accordance with Section 5(d)
below. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to each Buyer. Accordingly, the Company acknowledges
that the remedy at law for a breach of its  obligations  under this Section 5(b)
will be inadequate and agrees,  in the event of a breach or threatened breach by
the Company of the  provisions  of this Section  5(b),  that each Buyer shall be
entitled,  in  addition  to all other  available  remedies,  to an order  and/or
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.  The Company shall cause its counsel to issue the legal
opinion  referred  to in the  Irrevocable  Transfer  Agent  Instructions  to the

                                      -27-
<PAGE>

Company's  transfer agent on each Effective Date (as defined in the Registration
Rights Agreement).  Any fees (with respect to the transfer agent, counsel to the
Company  or  otherwise)  associated  with the  issuance  of such  opinion or the
removal of any legends on any of the Securities shall be borne by the Company.

         (c)  LEGENDS.  Each Buyer  understands  that the  Securities  have been
issued  (or will be issued in the case of the  Warrant  Shares)  pursuant  to an
exemption from  registration or qualification  under the 1933 Act and applicable
state  securities laws, and except as set forth below, the Securities shall bear
any legend as  required  by the "blue  sky" laws of any state and a  restrictive
legend in  substantially  the following form (and a  stop-transfer  order may be
placed against transfer of such stock certificates):

         [NEITHER THE ISSUANCE AND SALE OF THE  SECURITIES  REPRESENTED  BY THIS
         CERTIFICATE  NOR  THE  SECURITIES  INTO  WHICH  THESE   SECURITIES  ARE
         [EXERCISABLE] HAVE BEEN][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 MAY NOT BE OFFERED
         FOR SALE,  SOLD,  TRANSFERRED  OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
         EFFECTIVE   REGISTRATION   STATEMENT  FOR  THE  SECURITIES   UNDER  THE
         SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
         HOLDER (IF REQUESTED BY THE COMPANY),  IN A FORM REASONABLY  ACCEPTABLE
         TO THE COMPANY,  THAT  REGISTRATION  IS NOT REQUIRED  UNDER SAID ACT OR
         (II) UNLESS  SOLD OR  ELIGIBLE TO BE SOLD  PURSUANT TO RULE 144 OR RULE
         144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
         BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
         OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

         (d) REMOVAL OF LEGENDS. Certificates evidencing Securities shall not be
required  to contain  the  legend  set forth in Section  5(c) above or any other
legend (i) while a registration  statement (including a Registration  Statement)
covering the resale of such  Securities  is effective  under the 1933 Act,  (ii)
following  any  sale of such  Securities  pursuant  to Rule  144  (assuming  the
transferor is not an affiliate of the  Company),  (iii) if such  Securities  are
eligible to be sold,  assigned or  transferred  under Rule 144 (provided  that a
Buyer provides the Company with  reasonable  assurances that such Securities are
eligible for sale, assignment or transfer under Rule 144 which shall not include
an opinion of counsel),  (iv) in  connection  with a sale,  assignment  or other
transfer  (other than under Rule 144),  provided  that such Buyer  provides  the
Company  with an opinion of counsel to such  Buyer,  in a  generally  acceptable
form, to the effect that such sale, assignment or transfer of the Securities may
be made without  registration under the applicable  requirements of the 1933 Act
or (v) if such legend is not required under applicable  requirements of the 1933
Act (including,  without limitation,  controlling  judicial  interpretations and
pronouncements  issued by the SEC). If a legend is not required  pursuant to the
foregoing,  the Company  shall no later than two (2) Trading Days  following the
delivery by a Buyer to the  Company or the  transfer  agent (with  notice to the
Company) of a legended  certificate  representing  such Securities  (endorsed or
with  stock  powers  attached,  signatures  guaranteed,  and  otherwise  in form

                                      -28-
<PAGE>

necessary to affect the reissuance  and/or  transfer,  if applicable),  together
with any other  deliveries  from  such  Buyer as may be  required  above in this
Section 5(d), as directed by such Buyer, either: (A) provided that the Company's
transfer agent is  participating in the DTC Fast Automated  Securities  Transfer
Program and such  Securities  are Common  Shares or Warrant  Shares,  credit the
aggregate number of shares of Common Stock to which such Buyer shall be entitled
to  such  Buyer's  or its  designee's  balance  account  with  DTC  through  its
Deposit/Withdrawal at Custodian system or (B) if the Company's transfer agent is
not participating in the DTC Fast Automated  Securities Transfer Program,  issue
and deliver  (via  reputable  overnight  courier) to such Buyer,  a  certificate
representing  such  Securities  that is free  from  all  restrictive  and  other
legends, registered in the name of such Buyer or its designee (the date by which
such credit is so required to be made to the balance  account of such Buyer's or
such Buyer's nominee with DTC or such certificate is required to be delivered to
such Buyer  pursuant to the  foregoing  is  referred to herein as the  "REQUIRED
DELIVERY DATE").

         (e) FAILURE TO TIMELY  DELIVER;  BUY-IN.  If the  Company  fails to (i)
issue and deliver (or cause to be delivered) to a Buyer by the Required Delivery
Date a certificate  representing  the  Securities so delivered to the Company by
such Buyer that is free from all  restrictive  and other  legends or (ii) credit
the balance  account of such Buyer's or such  Buyer's  nominee with DTC for such
number of shares of Common Shares or Warrant Shares so delivered to the Company,
then,  in addition to all other  remedies  available to such Buyer,  the Company
shall pay in cash to such  Buyer on each day after the  Required  Delivery  Date
that the  issuance  or credit of such  shares is not timely  effected  an amount
equal to 2% of the  product  of (A) the sum of the  number  of  shares of Common
Shares or  Warrant  Shares  (as the case may be) not  issued to such  Buyer on a
timely  basis and to which such Buyer is entitled and (B) the Closing Sale Price
(as defined in the Warrants) of the Common Stock on the Trading Day  immediately
preceding  the Required  Delivery  Date.  In addition to the  foregoing,  if the
Company fails to so properly deliver such unlegended certificates or so properly
credit the balance  account of such Buyer's or such Buyer's  nominee with DTC by
the Required  Delivery Date, and if on or after the Required  Delivery Date such
Buyer  purchases (in an open market  transaction or otherwise)  shares of Common
Stock to  deliver  in  satisfaction  of a sale by such Buyer of shares of Common
Stock  that such  Buyer  anticipated  receiving  from the  Company  without  any
restrictive  legend,  then, in addition to all other remedies  available to such
Buyer,  the Company  shall,  within  three (3) Trading  Days after such  Buyer's
request and in such Buyer's sole  discretion,  either (i) pay cash to such Buyer
in an amount equal to such Buyer's total  purchase  price  (including  brokerage
commissions,  if any) for the shares of Common Stock so  purchased  (the "BUY-IN
PRICE"), at which point the Company's  obligation to deliver such certificate or
credit such Buyer's  balance  account  shall  terminate and such shares shall be
cancelled,  or (ii)  promptly  honor its  obligation  to deliver to such Buyer a
certificate or certificates or credit such Buyer's DTC account representing such
number of shares of Common  Stock  that would  have been  issued if the  Company
timely complied with its obligations  hereunder and pay cash to such Buyer in an
amount  equal to the excess (if any) of the Buy-In Price over the product of (A)
such  number of shares of Common  Shares or Warrant  Shares (as the case may be)
that the Company was required to deliver to such Buyer by the Required  Delivery
Date times (B) the  Closing  Sale Price of the Common  Stock on the  Trading Day
immediately preceding the Required Delivery Date.

                                      -29-
<PAGE>

6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
-------------------------------------------------

         (a) The  obligation  of the  Company  hereunder  to issue  and sell the
Common  Shares and the related  Warrants to each Buyer at the Closing is subject
to the  satisfaction,  at or before the 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 by providing
each Buyer with prior written notice thereof:

                  (i)  Such  Buyer  shall  have   executed  each  of  the  other
         Transaction  Documents to which it is a party and delivered the same to
         the Company.

                  (ii) Such Buyer and each other Buyer shall have  delivered  to
         the Company the Purchase  Price (less,  in the case of  Cranshire,  the
         amounts  withheld  pursuant to Section  4(g)) for the Common Shares and
         the related  Warrants  being  purchased by such Buyer at the Closing by
         wire  transfer  of  immediately  available  funds  pursuant to the wire
         instructions provided by the Company.

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

7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
----------------------------------------------------

         (a) The  obligation  of each Buyer  hereunder  to  purchase  the Common
Shares and the related  Warrants at the Closing is subject to the  satisfaction,
at or before the Closing  Date, of each of the  following  conditions,  provided
that these  conditions  are for each  Buyer's  sole benefit and may be waived by
such Buyer at any time in its sole  discretion  by  providing  the Company  with
prior written notice thereof:

                  (i) The Company shall have duly executed and delivered to such
         Buyer (A) each of the other  Transaction  Documents  and (B) the Common
         Shares (in the number as is set forth  across from such Buyer's name in
         column (3) of the Schedule of Buyers) and the related Warrants (for the
         number of Warrant  Shares as is set forth across from such Buyer's name
         in columns (4), (5) and (6) of the Schedule of Buyers) being  purchased
         by such Buyer at the Closing pursuant to this Agreement.

                  (ii) Such Buyer shall have  received the opinion of Richardson
         & Associates,  the Company's counsel,  dated as of the Closing Date, in
         the form acceptable to such Buyer.

                  (iii) The Company shall have delivered to such Buyer a copy of
         the Irrevocable Transfer Agent Instructions,  in the form acceptable to
         such  Buyer,  which  instructions  shall  have  been  delivered  to and
         acknowledged in writing by the Company's transfer agent.

                                      -30-
<PAGE>

                  (iv)  The  Company  shall  have  delivered  to  such  Buyer  a
         certificate  evidencing  the formation and good standing of the Company
         and each of its  Subsidiaries  in each such  entity's  jurisdiction  of
         formation  issued by the Secretary of State (or  comparable  office) of
         such jurisdiction of formation as of a date within ten (10) days of the
         Closing Date.

                  (v)  The  Company  shall  have   delivered  to  such  Buyer  a
         certificate  evidencing  the  Company's   qualification  as  a  foreign
         corporation  and good  standing  issued by the  Secretary  of State (or
         comparable  office) of each  jurisdiction in which the Company conducts
         business  and is required  to so qualify,  as of a date within ten (10)
         days of the Closing Date.

                  (vi)  The  Company  shall  have  delivered  to  such  Buyer  a
         certified  copy of the  Articles of  Incorporation  as certified by the
         Secretary of State of the Company's state of  incorporation  within ten
         (10) days of the Closing Date.

                  (vii)  The  Company  shall  have  delivered  to  such  Buyer a
         certificate,  in the form  acceptable  to such  Buyer,  executed by the
         Secretary  of the Company and dated as of the Closing  Date,  as to (i)
         the  resolutions  consistent  with  Section  3(b)  as  adopted  by  the
         Company's  board of directors in a form  reasonably  acceptable to such
         Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as
         in effect at the Closing.

                  (viii)  Each and  every  representation  and  warranty  of the
         Company  shall be true and  correct  as of the date when made and as of
         the Closing  Date as though  originally  made at that time  (except for
         representations  and warranties that speak as of a specific date, which
         shall be true and correct as of such date) and the  Company  shall have
         performed,  satisfied and complied in all respects with the  covenants,
         agreements  and  conditions  required  to be  performed,  satisfied  or
         complied  with by the  Company at or prior to the  Closing  Date.  Such
         Buyer  shall  have  received  a  certificate,  executed  by  the  Chief
         Executive Officer of the Company,  dated as of the Closing Date, to the
         foregoing  effect  and as to such other  matters  as may be  reasonably
         requested by such Buyer in the form acceptable to such Buyer.

                  (ix) The Company  shall have  delivered to such Buyer a letter
         from the Company's  transfer  agent  certifying the number of shares of
         Common Stock  outstanding on the Closing Date immediately  prior to the
         Closing.

                  (x) The Common Stock (I) shall be designated  for quotation or
         listed on the Principal  Market and (II) shall not have been suspended,
         as of the Closing Date, by the SEC or the Principal Market from trading
         on  the  Principal  Market  nor  shall  suspension  by  the  SEC or the
         Principal Market have been threatened,  as of the Closing Date,  either
         (A) in  writing  by the SEC or the  Principal  Market or (B) by falling
         below the minimum maintenance requirements of the Principal Market.

                  (xi)  The  Company  shall  have  obtained  all   governmental,
         regulatory or third party consents and approvals, if any, necessary for
         the  sale  of  the  Securities,  including  without  limitation,  those
         required by the Principal Market.

                                      -31-
<PAGE>

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

                  (xiii) Since the date of execution of this Agreement, no event
         or series of events shall have occurred that  reasonably  would have or
         result in a Material Adverse Effect.

                  (xiv)  The  Company  shall  have  obtained   approval  of  the
         Principal  Market to list or designate  for  quotation (as the case may
         be) the Common Shares and the Warrant Shares.

                  (xv) The Company shall have delivered to such Buyer such other
         documents,  instruments or  certificates  relating to the  transactions
         contemplated  by  this  Agreement  as such  Buyer  or its  counsel  may
         reasonably request.

8. TERMINATION.
--------------

         In the event that the Closing shall not have occurred with respect to a
Buyer within ten (10) days after the date hereof, then such Buyer shall have the
right to terminate its  obligations  under this Agreement with respect to itself
at any time on or after the close of business on such date without  liability of
such Buyer to any other  party;  provided,  however,  (i) the right to terminate
this Agreement  under this Section 8 shall not be available to such Buyer if the
failure  of the  transactions  contemplated  by  this  Agreement  to  have  been
consummated  by such date is the result of such Buyer's breach of this Agreement
and (ii) the  abandonment  of the sale and purchase of the Common Shares and the
Warrants shall be applicable  only to such Buyer  providing such written notice,
provided  further that no such  termination  shall affect any  obligation of the
Company under this Agreement to reimburse such Buyer for the expenses  described
in Section  4(g) above.  Nothing  contained in this Section 8 shall be deemed to
release any party from any  liability  for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific  performance by any other party of its
obligations under this Agreement or the other Transaction Documents.

9. MISCELLANEOUS.
----------------

         (a) GOVERNING LAW;  JURISDICTION;  JURY TRIAL. The parties hereby agree
that pursuant to 735 Illinois  Compiled  Statutes  105/5-5 they have chosen that
all  questions   concerning  the   construction,   validity,   enforcement   and
interpretation  of this Agreement  shall be governed by the internal laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other  jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of  Illinois.  Each party  hereby  irrevocably  submits  to the  exclusive
jurisdiction of the state and federal courts sitting in Chicago,  Illinois,  for
the adjudication of any dispute hereunder or in connection  herewith or with any
transaction  contemplated  hereby or discussed  herein,  and hereby  irrevocably
waives,  and agrees not to assert in any suit,  action or proceeding,  any claim
that it is not personally  subject to the  jurisdiction of any such court,  that
such suit, action or proceeding is brought in an inconvenient  forum or that the

                                      -32-
<PAGE>

venue of such  suit,  action  or  proceeding  is  improper.  Each  party  hereby
irrevocably  waives  personal  service of process and consents to process  being
served in any such suit,  action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner  permitted by law. EACH PARTY HEREBY  IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION  OF ANY DISPUTE  HEREUNDER OR IN CONNECTION  WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

         (b)  COUNTERPARTS.  This  Agreement  may be  executed  in  two or  more
identical  counterparts,  all of  which  shall  be  considered  one and the same
agreement and shall become effective when  counterparts have been signed by each
party and  delivered  to the other  party.  In the event that any  signature  is
delivered by facsimile  transmission  or by an e-mail which  contains a portable
document  format (.pdf) file of an executed  signature page, such signature page
shall create a valid and binding  obligation of the party executing (or on whose
behalf such  signature  is  executed)  with the same force and effect as if such
signature page were an original thereof.

         (c)  HEADINGS;   GENDER.   The  headings  of  this  Agreement  are  for
convenience   of   reference   and  shall  not  form  part  of,  or  affect  the
interpretation  of,  this  Agreement.   Unless  the  context  clearly  indicates
otherwise,  each  pronoun  herein  shall be deemed  to  include  the  masculine,
feminine,  neuter,  singular and plural forms  thereof.  The terms  "including,"
"includes,"  "include" and words of like import shall be construed broadly as if
followed by the words "without  limitation."  The terms  "herein,"  "hereunder,"
"hereof" and words of like import refer to this entire Agreement instead of just
the provision in which they are found.

         (d)  SEVERABILITY.  If any provision of this Agreement is prohibited by
law or  otherwise  determined  to be  invalid  or  unenforceable  by a court  of
competent  jurisdiction,  the  provision  that would  otherwise  be  prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable,  and the invalidity or  unenforceability
of such provision  shall not affect the validity of the remaining  provisions of
this  Agreement so long as this  Agreement as so modified  continues to express,
without  material  change,  the  original  intentions  of the  parties as to the
subject matter hereof and the prohibited nature,  invalidity or unenforceability
of the  provision(s)  in question does not  substantially  impair the respective
expectations  or  reciprocal   obligations  of  the  parties  or  the  practical
realization of the benefits that would  otherwise be conferred upon the parties.
The parties will endeavor in good faith  negotiations to replace the prohibited,
invalid or unenforceable  provision(s) with a valid provision(s),  the effect of
which  comes  as  close  as  possible  to that  of the  prohibited,  invalid  or
unenforceable provision(s).

         (e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the other Transaction
Documents  and the schedules  and exhibits  attached  hereto and thereto and the
instruments  referenced  herein and  therein  supersede  all other prior oral or
written agreements between the Buyers, the Company, their affiliates and Persons
acting on their behalf solely with respect to the matters  contained  herein and
therein, and this Agreement,  the other Transaction Documents, the schedules and
exhibits  attached hereto and thereto and the instruments  referenced herein and
therein contain the entire  understanding  of the parties solely with respect to
the matters covered herein and therein; provided,  however, nothing contained in
this Agreement or any other  Transaction  Document shall (or shall be deemed to)

                                      -33-
<PAGE>

(i) have any  effect  on any  agreements  any Buyer  has  entered  into with the
Company or any of its Subsidiaries  prior to the date hereof with respect to any
prior investment made by such Buyer in the Company or (ii) waive,  alter, modify
or  amend  in  any  respect  any  obligations  of  the  Company  or  any  of its
Subsidiaries,  or any rights of or benefits to any Buyer or any other Person, in
any agreement entered into prior to the date hereof between or among the Company
and/or  any of its  Subsidiaries  and any  Buyer and all such  agreements  shall
continue in full force and effect.  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.  For  clarification
purposes,  the  Recitals  are  part  of this  Agreement.  No  provision  of this
Agreement may be amended  other than by an  instrument in writing  signed by the
Company and each of the Buyers.  No waiver  shall be  effective  unless it is in
writing and signed by an  authorized  representative  of the waiving  party.  No
consideration  shall be  offered  or paid to any Person to amend or consent to a
waiver or  modification  of any  provision of any of the  Transaction  Documents
unless  the same  consideration  also is  offered  to all of the  parties to the
Transaction  Documents,  all  holders  of Common  Shares or all  holders  of the
Warrants (as the case may be). The Company has not, directly or indirectly, made
any  agreements  with any  Buyers  relating  to the terms or  conditions  of the
transactions  contemplated by the Transaction  Documents  except as set forth in
the Transaction Documents.  Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company, any
Subsidiary or otherwise.  As a material  inducement for each Buyer to enter into
this Agreement,  the Company  expressly  acknowledges and agrees that (i) no due
diligence or other  investigation  or inquiry  conducted by a Buyer,  any of its
advisors or any of its  representatives  shall affect such Buyer's right to rely
on, or shall  modify or qualify in any manner or be an  exception to any of, the
Company's  representations  and  warranties  contained in this  Agreement or any
other Transaction  Document and (ii) unless a provision of this Agreement or any
other  Transaction  Document  is  expressly  preceded  by the phrase  "except as
disclosed in the SEC Documents,"  nothing  contained in any of the SEC Documents
shall  affect such  Buyer's  right to rely on, or shall modify or qualify in any
manner  or  be an  exception  to  any  of,  the  Company's  representations  and
warranties contained in this Agreement or any other Transaction Document.

         (f) NOTICES.  Any notices,  consents,  waivers or other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be deemed  to have  been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending party);  or (iii) one (1) Business Day after deposit
with an overnight  courier  service with next day  delivery  specified,  in each
case,  properly  addressed to the party to receive the same.  The  addresses and
facsimile numbers for such communications shall be:

                                      -34-
<PAGE>

                           If to the Company:

                                   3200 W. Valhalla Drive
                                   Burbank, California 91505
                                   Telephone: (800) 900-9729
                                   Facsimile: (818) 260-0445
                                   Attention: Chief Executive Officer

                           With a copy (for informational purposes only) to:

                                   Richardson  &  Associates   1453  3rd  Street
                                   Promenade  #315 Santa  Monica,  CA 90401-3419
                                   Telephone:  (310) 393-9992  Facsimile:  (310)
                                   393-2004 Attention: Mark Richardson, Esq.

                           If to the Transfer Agent:

                                   Mountain Share Transfer Company
                                   1625 Abilene Dr.
                                   Broomfield, Colorado 80020
                                   Telephone: (303) 460-1149
                                   Facsimile: (303) 438-9243
                                   Attention: Beth Powell

If to a Buyer, to its address and facsimile  number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,

                           with a copy (for informational purposes only) to:

                                   Greenberg Traurig, LLP
                                   77 W. Wacker Drive, Suite 3100
                                   Chicago, Illinois 60601
                                   Telephone:  (312) 456-8400
                                   Facsimile:  (312) 456-8435
                                   Attention:  Peter H. Lieberman, Esq.
                                               Todd A. Mazur, Esq.

or to such other address and/or facsimile number and/or to the attention of such
other Person as the  recipient  party has  specified by written  notice given to
each  other  party  five (5) days  prior to the  effectiveness  of such  change,
provided that Greenberg  Traurig,  LLP shall only be provided  copies of notices
sent to Cranshire. Written confirmation of receipt (A) given by the recipient of
such  notice,  consent,  waiver  or other  communication,  (B)  mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date,  recipient  facsimile  number  and an  image  of the  first  page  of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service,  receipt by facsimile or receipt from an overnight
courier   service  in   accordance   with  clause  (i),  (ii)  or  (iii)  above,
respectively.

                                      -35-
<PAGE>

         (g)  SUCCESSORS AND ASSIGNS.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including,  as contemplated  below,  any assignee of any of the Securities.  The
Company shall not assign this Agreement or any rights or  obligations  hereunder
without  the prior  written  consent of each of the Buyers,  including,  without
limitation,  by way of a  Fundamental  Transaction  (as defined in the Warrants)
(unless the Company is in compliance  with the applicable  provisions  governing
Fundamental  Transactions set forth in the Warrants). A Buyer may assign some or
all of its  rights  hereunder  in  connection  with any  transfer  of any of its
Securities  without the  consent of the  Company,  in which event such  assignee
shall be deemed to be a Buyer hereunder with respect to such assigned rights.

         (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, other than the Indemnitees referred to in Section 9(k).

         (i) SURVIVAL. The representations, warranties, agreements and covenants
shall  survive the  Closing.  Each Buyer shall be  responsible  only for its own
representations, warranties, agreements and covenants hereunder.

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

         (k)  INDEMNIFICATION.  In consideration  of each Buyer's  execution and
delivery of the  Transaction  Documents and acquiring the Securities  thereunder
and in addition to all of the Company's other  obligations under the Transaction
Documents,  the Company shall defend, protect,  indemnify and hold harmless each
Buyer and each holder of any Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing Persons' agents or other  representatives  (including,  without
limitation,  those retained in connection with the transactions  contemplated by
this Agreement)  (collectively,  the "INDEMNITEES") from and against any and all
actions,  causes of action,  suits,  claims,  losses,  costs,  penalties,  fees,
liabilities and damages, and expenses in connection  therewith  (irrespective of
whether any such  Indemnitee is a party to the action for which  indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED  LIABILITIES"),  incurred by any Indemnitee as a result of, or
arising  out of,  or  relating  to (a) any  misrepresentation  or  breach of any
representation  or  warranty  made  by the  Company  in  any of the  Transaction
Documents,  (b) any  breach of any  covenant,  agreement  or  obligation  of the
Company  contained  in any of the  Transaction  Documents  or (c) any  cause  of
action,  suit or claim brought or made against such  Indemnitee by a third party
(including  for these  purposes  a  derivative  action  brought on behalf of the
Company)  and  arising out of or  resulting  from (i) the  execution,  delivery,
performance  or  enforcement  of any  of the  Transaction  Documents,  (ii)  any
transaction  financed  or to be  financed  in  whole  or in  part,  directly  or
indirectly,  with the  proceeds  of the  issuance of the  Securities,  (iii) any
disclosure  properly  made by such Buyer  pursuant to Section  4(i), or (iv) the

                                      -36-
<PAGE>

status of such Buyer or holder of the  Securities  as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents,  except,
solely with respect to clause (c)(iv), to the extent such Indemnified  Liability
arises  solely from an  Indemnitee's  gross  negligence.  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.
Except as otherwise set forth herein,  the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.

         (l) 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.  No specific
representation or warranty shall limit the generality or applicability of a more
general  representation  or warranty.  Each and every reference to share prices,
shares of Common Stock and any other  numbers in this  Agreement  that relate to
the  Common  Stock  shall be  automatically  adjusted  for stock  splits,  stock
combinations  and other  similar  transactions  that occur  with  respect to the
Common Stock after the date of this Agreement.

         (m) REMEDIES.  Each Buyer and each holder of any Securities  shall have
all rights and remedies set forth in the  Transaction  Documents  and all rights
and  remedies  which such  holders have been granted at any time under any other
agreement  or contract  and all of the rights  which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights  specifically  (without  posting a bond or other
security),  to recover  damages by reason of any breach of any provision of this
Agreement  and to exercise all other  rights  granted by law.  Furthermore,  the
Company  recognizes  that in the event  that it fails to  perform,  observe,  or
discharge any or all of its  obligations  under the Transaction  Documents,  any
remedy  at law may prove to be  inadequate  relief to the  Buyers.  The  Company
therefore agrees that the Buyers shall be entitled to seek specific  performance
and/or temporary, preliminary and permanent injunctive or other equitable relief
from any court of competent  jurisdiction in any such case without the necessity
of proving actual damages and without posting a bond or other security.

         (n)  WITHDRAWAL  RIGHT.   Notwithstanding   anything  to  the  contrary
contained in (and without  limiting any similar  provisions of) the  Transaction
Documents,  whenever  any Buyer  exercises a right,  election,  demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided,  then such Buyer may rescind or
withdraw,  in its sole  discretion  from time to time upon written notice to the
Company,  any  relevant  notice,  demand or election in whole or in part without
prejudice to its future actions and rights.

         (o) PAYMENT SET ASIDE; CURRENCY. To the extent that the Company makes a
payment or  payments  to any Buyer  hereunder  or  pursuant  to any of the other
Transaction  Documents  or any of the Buyers  enforce or exercise  their  rights
hereunder  or  thereunder,  and such payment or payments or the proceeds of such
enforcement  or  exercise  or any part  thereof  are  subsequently  invalidated,
declared to be fraudulent or preferential,  set aside, recovered from, disgorged
by or are required to be refunded,  repaid or otherwise restored to the Company,
a  trustee,  receiver  or any other  Person  under any law  (including,  without
limitation,  any bankruptcy  law,  foreign,  state or federal law, common law or
equitable  cause of  action),  then to the  extent of any such  restoration  the

                                      -37-
<PAGE>

obligation or part thereof originally  intended to be satisfied shall be revived
and  continued  in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred. Until the day immediately following
the ninety (90) day  anniversary of the  Applicable  Date, the Company shall not
effect any stock combination,  reverse stock split or other similar  transaction
(or make any  public  announcement  or  disclosure  with  respect  to any of the
foregoing)  without  the prior  written  consent of each of the  Buyers.  Unless
otherwise expressly indicated,  all dollar amounts referred to in this Agreement
and  the  other  Transaction  Documents  are in  United  States  Dollars  ("U.S.
DOLLARS"),  and all amounts owing under this Agreement and all other Transaction
Documents  shall  be paid in U.S.  Dollars.  All  amounts  denominated  in other
currencies (if any) shall be converted in the U.S. Dollar  equivalent  amount in
accordance  with the Exchange Rate on the date of  calculation.  "EXCHANGE RATE"
means,  in relation to any amount of currency to be converted into U.S.  Dollars
pursuant to this  Agreement,  the U.S.  Dollar exchange rate as published in the
Wall Street Journal on the relevant date of calculation.

         (p) JUDGMENT CURRENCY.

                  (i) If for the  purpose of  obtaining  or  enforcing  judgment
         against  the  Company  in any  court  in any  jurisdiction  it  becomes
         necessary to convert into any other currency (such other currency being
         hereinafter   in  this  Section  9(p)  referred  to  as  the  "JUDGMENT
         CURRENCY") an amount due in U.S.  Dollars  under this  Agreement or any
         other  Transaction  Document,  the  conversion  shall  be  made  at the
         Exchange Rate prevailing on the Trading Day immediately preceding:  (1)
         the  date  actual  payment  of  the  amount  due,  in the  case  of any
         proceeding  in the  courts of  Illinois  or in the  courts of any other
         jurisdiction  that will give  effect to such  conversion  being made on
         such date or (2) the date on which the foreign court determines, in the
         case of any  proceeding  in the courts of any other  jurisdiction  (the
         date as of which  such  conversion  is made  pursuant  to this  Section
         9(p)(i)  being  hereinafter  referred  to as the  "JUDGMENT  CONVERSION
         DATE").

                  (ii) If in the  case of any  proceeding  in the  court  of any
         jurisdiction referred to in Section 9(p)(i) above, there is a change in
         the Exchange Rate prevailing  between the Judgment  Conversion Date and
         the date of actual  payment of the amount  due,  the  applicable  party
         shall pay such  adjusted  amount as may be necessary to ensure that the
         amount paid in the Judgment  Currency,  when  converted at the Exchange
         Rate prevailing on the date of payment, will produce the amount of U.S.
         Dollars  which  could have been  purchased  with the amount of Judgment
         Currency  stipulated in the judgment or judicial  order at the Exchange
         Rate prevailing on the Judgment Conversion Date.

                  (iii) Any amount  due from the  Company  under this  provision
         shall be due as a separate  debt and shall not be  affected by judgment
         being  obtained  for any other  amounts due under or in respect of this
         Agreement or any other Transaction Document.

         (q)  INDEPENDENT   NATURE  OF  BUYERS'   OBLIGATIONS  AND  RIGHTS.  The
obligations  of each Buyer under the  Transaction  Documents are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the  performance of the  obligations of any other Buyer under any
Transaction  Document.  Nothing  contained  herein or in any  other  Transaction
Document,  and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute,  a  partnership,  an  association,  a joint venture or any
other kind of group or entity,  or create a  presumption  that the Buyers are in
any way  acting  in  concert  or as a  group  or  entity  with  respect  to such

                                      -38-
<PAGE>

obligations or the transactions contemplated by the Transaction Documents or any
matters,  and the Company acknowledges that the Buyers are not acting in concert
or as a group, and the Company shall not assert any such claim,  with respect to
such obligations or the transactions  contemplated by the Transaction Documents.
The decision of each Buyer to purchase  Securities  pursuant to the  Transaction
Documents  has been made by such Buyer  independently  of any other Buyer.  Each
Buyer  acknowledges  that no other  Buyer has  acted as agent for such  Buyer in
connection  with such Buyer making its  investment  hereunder  and that no other
Buyer will be acting as agent of such Buyer in connection  with  monitoring such
Buyer's  investment  in  the  Securities  or  enforcing  its  rights  under  the
Transaction  Documents.  The Company and each Buyer confirms that each Buyer has
independently   participated   with  the  Company  in  the  negotiation  of  the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled  to  independently  protect and enforce its rights,
including,  without limitation,  the rights arising out of this Agreement or out
of any other Transaction Documents,  and it shall not be necessary for any other
Buyer to be joined as an additional  party in any  proceeding  for such purpose.
The use of a  single  agreement  to  effectuate  the  purchase  and  sale of the
Securities contemplated hereby was solely in the control of the Company, not the
action or decision of any Buyer,  and was done solely for the convenience of the
Company and not because it was required or  requested to do so by any Buyer.  It
is  expressly  understood  and  agreed  that each  provision  contained  in this
Agreement  and in each other  Transaction  Document is between the Company and a
Buyer,  solely, and not between the Company and the Buyers  collectively and not
between and among the Buyers.

                            [SIGNATURE PAGES FOLLOW]

                                      -39-
<PAGE>

         IN WITNESS WHEREOF,  Buyer and the Company have caused their respective
signature  page to this  Agreement  to be duly  executed  as of the  date  first
written above.

                                 COMPANY:

                                 IMAGING3, INC.

                                 By:/s/ Dean Janes
                                    ___________________________________
                                        Name:  Dean Janes
                                        Title: Chief Executive Officer

                                      -40-
<PAGE>

         IN WITNESS WHEREOF,  Buyer and the Company have caused their respective
signature  page to this  Agreement  to be duly  executed  as of the  date  first
written above.

                                          BUYER:

                                          CRANSHIRE CAPITAL, L.P.

                                          By:      Downsview Capital, Inc.
                                          Its:     General Partner

                                          /s/ Mitchell P. Kopin
                                          ------------------------------
                                          By:      Mitchell P. Kopin
                                          Its:     President

                                      -41-

<PAGE>

         IN WITNESS WHEREOF,  Buyer and the Company have caused their respective
signature  page to this  Agreement  to be duly  executed  as of the  date  first
written above.

                                          BUYER:

                                          FREESTONE ADVANTAGE PARTNERS, L.P.

                                          /s/ Keith Goodman
                                          ------------------------------
                                          By:  Keith Goodman
                                          Its: Common Manager

                                      -42-
<PAGE>
<TABLE>
<CAPTION>

                                                          SCHEDULE OF BUYERS

           (1)                      (2)                   (3)      (4)        (5)       (6)       (7)                 (8)
                                                                  NUMBER     NUMBER    NUMBER
                                                        NUMBER      OF         OF        OF                          LEGAL
                         ADDRESS AND FACSIMILE NUMBER     OF     SERIES A   SERIES B  SERIES C                  REPRESENTATIVE'S
                                                        COMMON   WARRANT    WARRANT   WARRANT   PURCHASE          ADDRESS AND
          BUYER                                         SHARES    SHARES     SHARES    SHARES     PRICE         FACSIMILE NUMBER

-----------------------  ----------------------------  --------- --------- ---------  --------- -----------  -----------------------
<S>                      <C>                           <C>       <C>       <C>        <C>       <C>          <C>
                         3100 Dundee Road, Suite 703   4,518,349 4,518,349 4,518,349  4,518,349 $985,000.08  Greenberg Traurig, LLP
                         Northbrook, Illinois 60062                                                          77 W. Wacker Drive,
                         Attn:  Mitchell P. Kopin                                                            Suite 3100
CRANSHIRE CAPITAL, L.P.  Facsimile: (847) 562-9031                                                           Chicago, Illinois 60601
                                                                                                             Attention:
                                                                                                               Peter H. Lieberman
                                                                                                               Todd A. Mazur
                                                                                                             Facsimile:(312)456-8435

 FREESTONE ADVANTAGE     3100 Dundee Road, Suite 703
    PARTNERS, LP         Northbrook, Illinois 60062     68,808     68,808    68,808    68,808    $15,000.14
                         Attn:  Mitchell P. Kopin
                         Facsimile: (847) 562-9031                                                           Elected Not To Provide

</TABLE>[FORM OF SERIES A WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES  REPRESENTED BY THIS CERTIFICATE
NOR THE  SECURITIES  INTO  WHICH  THESE  SECURITIES  ARE  EXERCISABLE  HAVE BEEN
REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE  STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,  SOLD,  TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE  REGISTRATION  STATEMENT  FOR
THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF  REQUESTED BY THE  COMPANY),  IN A FORM  REASONABLY
ACCEPTABLE TO THE COMPANY,  THAT  REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD  PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT.  NOTWITHSTANDING  THE  FOREGOING,  THE  SECURITIES  MAY BE  PLEDGED IN
CONNECTION  WITH  A  BONA  FIDE  MARGIN  ACCOUNT  OR  OTHER  LOAN  OR  FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

                                 IMAGING3, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Series A Warrant No.:
                      --------------
Date of Issuance: October ___, 2010 ("ISSUANCE DATE")

     Imaging3, Inc., a California corporation (the "COMPANY"),  hereby certifies
that, for good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, [CRANSHIRE CAPITAL, L.P.][OTHER BUYERS], the registered
holder hereof or its permitted assigns (the "HOLDER"),  is entitled,  subject to
the terms set forth below,  to purchase from the Company,  at the Exercise Price
(as defined  below) then in effect,  upon  exercise of this  Warrant to Purchase
Common  Stock  (including  any  Warrants  to  Purchase  Common  Stock  issued in
exchange,  transfer or replacement hereof, the "WARRANT"),  at any time or times
on or after the Issuance  Date,  but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below),  [______________](1)  (subject to adjustment
as provided  herein)  fully paid and  nonassessable  shares of Common  Stock (as
defined  below) (the  "WARRANT  SHARES").  Except as otherwise  defined  herein,
capitalized  terms in this Warrant  shall have the meanings set forth in Section
16.  This  Warrant is one of the  Warrants to  Purchase  Common  Stock (the "SPA
WARRANTS")  issued  pursuant to Section 1 of that  certain  Securities  Purchase
Agreement,  dated as of  October  4,  2010,  by and  among the  Company  and the
investors  (the  "BUYERS")   referred  to  therein  (the  "SECURITIES   PURCHASE
Agreement").

--------
1  100% warrant coverage.

<PAGE>

1. EXERCISE OF WARRANT.

     (a)  MECHANICS  OF  EXERCISE.  Subject to the terms and  conditions  hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the Issuance Date,
in whole or in part,  by delivery  (whether  via  facsimile or  otherwise)  of a
written  notice,  in the  form  attached  hereto  as  EXHIBIT  A (the  "EXERCISE
NOTICE"),  of the Holder's  election to exercise  this  Warrant.  Within one (1)
Trading Day following an exercise of this Warrant as aforesaid, the Holder shall
deliver  payment to the  Company  of an amount  equal to the  Exercise  Price in
effect on the date of such exercise  multiplied by the number of Warrant  Shares
as to which this Warrant was so exercised (the  "AGGREGATE  EXERCISE  PRICE") in
cash or via wire transfer of immediately  available  funds if the Holder did not
notify the Company in such Exercise  Notice that such exercise was made pursuant
to a Cashless  Exercise  (as defined in Section  1(d)).  The Holder shall not be
required to deliver the  original of this Warrant in order to effect an exercise
hereunder.  Execution  and  delivery of an Exercise  Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the
original of this Warrant and issuance of a new Warrant  evidencing  the right to
purchase the remaining  number of Warrant  Shares.  Execution and delivery of an
Exercise Notice for all of the then-remaining Warrant Shares shall have the same
effect as  cancellation  of the original of this Warrant  after  delivery of the
Warrant Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day  following  the date on which the  Company has  received an Exercise
Notice,   the  Company  shall  transmit  by  facsimile  an   acknowledgment   of
confirmation of receipt of such Exercise Notice,  in the form attached hereto as
EXHIBIT  B, to the  Holder  and the  Company's  transfer  agent  (the  "TRANSFER
AGENT").  On or before the third (3rd)  Trading Day  following the date on which
the Company has received  such Exercise  Notice,  the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast  Automated  Securities  Transfer  Program,  upon the request of the Holder,
credit such  aggregate  number of shares of Common  Stock to which the Holder is
entitled  pursuant to such  exercise to the Holder's or its  designee's  balance
account with DTC through its Deposit/  Withdrawal at Custodian system, or (Y) if
the Transfer Agent is not  participating  in the DTC Fast  Automated  Securities
Transfer  Program,  issue  and  deliver  to  the  Holder  or,  at  the  Holder's
instruction pursuant to the Exercise Notice, the Holder's agent or designee,  in
each case,  sent by reputable  overnight  courier to the address as specified in
the applicable Exercise Notice, a certificate, registered in the Company's share
register  in the  name  of the  Holder  or its  designee  (as  indicated  in the
applicable  Exercise Notice),  for the number of shares of Common Stock to which
the Holder is entitled  pursuant to such exercise.  Upon delivery of an Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant  Shares with  respect to which this  Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant  Shares (as the case may be). If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant  Shares being  acquired  upon an exercise,  then,  at the request of the
Holder,  the  Company  shall as soon as  practicable  and in no event later than
three (3) Business  Days after any  exercise  and at its own expense,  issue and
deliver  to the Holder (or its  designee)  a new  Warrant  (in  accordance  with
Section 7(d))  representing  the right to purchase the number of Warrant  Shares
purchasable  immediately  prior to such exercise  under this  Warrant,  less the
number of Warrant  Shares with  respect to which this Warrant is  exercised.  No
fractional  shares of Common  Stock are to be issued  upon the  exercise of this

                                      -2-
<PAGE>

Warrant,  but rather the number of shares of Common  Stock to be issued shall be
rounded up to the nearest whole number.  The Company shall pay any and all taxes
and fees which may be payable  with  respect to the  issuance  and  delivery  of
Warrant Shares upon exercise of this Warrant.

     (b) EXERCISE PRICE.  For purposes of this Warrant,  "EXERCISE  PRICE" means
$0.2725, subject to adjustment as provided herein.

     (c) COMPANY'S  FAILURE TO TIMELY DELIVER  SECURITIES.  If the Company shall
fail,  for any reason or for no reason,  to issue to the Holder within three (3)
Trading Days after receipt of the applicable  Exercise Notice, a certificate for
the  number  of  shares of Common  Stock to which  the  Holder is  entitled  and
register  such  shares of Common  Stock on the  Company's  share  register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this Warrant
(as the case may be), then, in addition to all other  remedies  available to the
Holder, the Company shall pay in cash to the Holder on each day after such third
(3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected  an amount  equal to 2% of the product of (A) the  aggregate  number of
shares of Common  Stock not issued to the Holder on a timely  basis and to which
the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day  immediately  preceding  the last possible date on which the Company
could have issued such shares of Common  Stock to the Holder  without  violating
Section  1(a).  In addition to the  foregoing,  if within three (3) Trading Days
after the Company's receipt of the applicable Exercise Notice, the Company shall
fail to issue and deliver a  certificate  to the Holder and register such shares
of Common Stock on the Company's  share register or credit the Holder's  balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder (as the case may be), and if on or
after such third  (3rd)  Trading  Day the Holder  purchases  (in an open  market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock  issuable  upon such  exercise that
the Holder  anticipated  receiving  from the Company,  then,  in addition to all
other  remedies  available to the Holder,  the Company  shall,  within three (3)
Business Days after the Holder's request and in the Holder's discretion,  either
(i) pay cash to the Holder in an amount  equal to the  Holder's  total  purchase
price (including brokerage  commissions,  if any) for the shares of Common Stock
so purchased (the "BUY-IN  PRICE"),  at which point the Company's  obligation to
deliver such certificate or credit the Holder's balance account with DTC for the
number  of  shares of Common  Stock to which  the  Holder is  entitled  upon the
Holder's  exercise  hereunder  (as the case may be) (and to issue such shares of
Common Stock) shall terminate,  or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates  representing  such shares of Common
Stock or credit the Holder's  balance  account with DTC for the number of shares
of Common  Stock to which the  Holder is  entitled  upon the  Holder's  exercise
hereunder  (as the case may be) and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In  Price over the  product of (A) such number of
shares of Common  Stock times (B) the Closing  Sale Price of the Common Stock on
the  Trading  Day  immediately  preceding  the date of the  applicable  Exercise
Notice.

     (d) CASHLESS  EXERCISE.  Notwithstanding  anything  contained herein to the
contrary  (other than Section 1(f) below),  if at the time of exercise  hereof a
Registration  Statement  (as defined in the  Registration  Rights  Agreement (as
defined  in the  Securities  Purchase  Agreement))  is  not  effective  (or  the

                                      -3-
<PAGE>

prospectus  contained  therein is not  available  for use) for the resale by the
Holder  of  all of  the  Warrant  Shares,  then  the  Holder  may,  in its  sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate  Exercise Price,  elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined  according to the
following formula (a "CASHLESS EXERCISE"):

                           Net Number = (A X B) - (A X C)
                                        -----------------

                                                B

                           For purposes of the foregoing formula:

     A= the total  number of shares with  respect to which this  Warrant is then
     being exercised.

     B= as  applicable:  (i) the Closing  Sale Price of the Common  Stock on the
     Trading  Day  immediately  preceding  the date of the  applicable  Exercise
     Notice if such Exercise Notice is (1) both executed and delivered  pursuant
     to  Section  1(a)  hereof  on a day that is not a  Trading  Day or (2) both
     executed  and  delivered  pursuant to Section  1(a) hereof on a Trading Day
     prior to the  opening  of  "regular  trading  hours"  (as  defined  in Rule
     600(b)(64) of Regulation NMS promulgated under the federal securities laws)
     on such Trading Day,  (ii) the Bid Price of the Common Stock as of the time
     of the  Holder's  execution  of the  applicable  Exercise  Notice  if  such
     Exercise Notice is executed during "regular trading hours" on a Trading Day
     and is delivered within two (2) hours  thereafter  pursuant to Section 1(a)
     hereof or (iii) the Closing  Sale Price of the Common  Stock on the date of
     the  applicable  Exercise  Notice if the date of such Exercise  Notice is a
     Trading  Day and  such  Exercise  Notice  is both  executed  and  delivered
     pursuant to Section 1(a) hereof after the close of "regular  trading hours"
     on such Trading Day.

     C= the Exercise Price then in effect for the  applicable  Warrant Shares at
     the time of such exercise.

     (e)  DISPUTES.  In the case of a  dispute  as to the  determination  of the
Exercise Price or the arithmetic  calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof,  the Company shall promptly issue to the
Holder the number of Warrant  Shares  that are not  disputed  and  resolve  such
dispute in accordance with Section 13.

     (f)  LIMITATIONS  ON  EXERCISES.  Notwithstanding  anything to the contrary
contained in this Warrant,  this Warrant shall not be  exercisable by the Holder
hereof to the  extent  (but only to the  extent)  that the  Holder or any of its
affiliates would  beneficially own in excess of 4.9% (the "MAXIMUM  PERCENTAGE")
of  the  Common  Stock.  To  the  extent  the  above  limitation  applies,   the
determination  of whether this Warrant  shall be  exercisable  (vis-a-vis  other
convertible,  exercisable or exchangeable  securities owned by the Holder or any
of its affiliates)  and of which such securities  shall be exercisable (as among

                                      -4-
<PAGE>

all  such  securities  owned  by the  Holder)  shall,  subject  to such  Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for  conversion,  exercise  or  exchange  (as the case may be). No prior
inability to exercise  this Warrant  pursuant to this  paragraph  shall have any
effect on the  applicability of the provisions of this paragraph with respect to
any  subsequent  determination  of  exercisability.  For  the  purposes  of this
paragraph,   beneficial   ownership  and  all  determinations  and  calculations
(including,  without  limitation,  with respect to  calculations  of  percentage
ownership)  shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities  Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct  this  paragraph  (or any  portion  hereof)  which may be  defective  or
inconsistent  with  the  intended  Maximum   Percentage   beneficial   ownership
limitation  herein  contained  or to make  changes or  supplements  necessary or
desirable to properly  give effect to such Maximum  Percentage  limitation.  The
limitations  contained in this  paragraph  shall apply to a successor  Holder of
this Warrant.  The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph  without the consent
of holders of a majority of its Common Stock.  For any reason at any time,  upon
the written or oral  request of the Holder,  the  Company  shall  within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then  outstanding,  including by virtue of any prior  conversion or
exercise of convertible or exercisable securities into Common Stock,  including,
without  limitation,  pursuant to this Warrant or securities  issued pursuant to
the Securities Purchase Agreement.

     (g)  INSUFFICIENT  AUTHORIZED  SHARES.  The Company shall at all times keep
reserved for  issuance  under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company's obligation to issue shares of Common
Stock hereunder  (without regard to any limitation  otherwise  contained  herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise  of  this  Warrant).  If,  notwithstanding  the  foregoing,  and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company  does not have a  sufficient  number of  authorized  and  unreserved
shares of Common Stock to satisfy its  obligation  to reserve for issuance  upon
exercise of the SPA  Warrants at least a number of shares of Common  Stock equal
to the number of shares of Common  Stock as shall from time to time be necessary
to  effect  the  exercise  of all of the  SPA  Warrants  then  outstanding  (the
"REQUIRED  RESERVE AMOUNT") (an "AUTHORIZED  SHARE  FAILURE"),  then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount  sufficient  to allow the Company to reserve
the Required Reserve Amount for all the SPA Warrants then  outstanding.  Without
limiting the generality of the foregoing sentence,  as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure,  the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of  authorized  shares of Common Stock.  In  connection  with such
meeting,  the Company shall provide each  stockholder with a proxy statement and
shall  use its best  efforts  to  solicit  its  stockholders'  approval  of such
increase  in  authorized  shares  of  Common  Stock  and to cause  its  board of
directors to recommend to the stockholders that they approve such proposal.

                                      -5-
<PAGE>

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price
and number of Warrant Shares  issuable upon exercise of this Warrant are subject
to adjustment from time to time as set forth in this Section 2.

     (a) STOCK DIVIDENDS AND SPLITS.  Without  limiting any provision of Section
2(b) or  Section  4, if the  Company,  at any time on or  after  the date of the
Securities Purchase Agreement,  (i) pays a stock dividend on one or more classes
of its then outstanding shares of Common Stock or otherwise makes a distribution
on any class of capital  stock that is payable in shares of Common  Stock,  (ii)
subdivides (by any stock split, stock dividend,  recapitalization  or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii)  combines  (by  combination,  reverse  stock  split or
otherwise)  one or more classes of its then  outstanding  shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common  Stock  outstanding  immediately  before  such  event and of which the
denominator   shall  be  the  number  of  shares  of  Common  Stock  outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph  shall  become  effective  immediately  after the record  date for the
determination of stockholders entitled to receive such dividend or distribution,
and any  adjustment  pursuant  to clause (ii) or (iii) of this  paragraph  shall
become  effective  immediately  after the effective date of such  subdivision or
combination.  If any event requiring an adjustment  under this paragraph  occurs
during the period  that an  Exercise  Price is  calculated  hereunder,  then the
calculation  of such Exercise Price shall be adjusted  appropriately  to reflect
such event.

     (b) ADJUSTMENT  UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever on
or after the date of the Securities  Purchase  Agreement,  the Company issues or
sells,  or in  accordance  with this Section 2 is deemed to have issued or sold,
any shares of Common Stock  (including  the issuance or sale of shares of Common
Stock  owned or held by or for the account of the  Company,  but  excluding  any
Excluded  Securities (as defined in the Securities Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a  consideration  per share (the
"NEW  ISSUANCE  PRICE") less than a price equal to the Exercise  Price in effect
immediately  prior  to such  issue  or sale or  deemed  issuance  or sale  (such
Exercise  Price then in effect is referred to as the  "APPLICABLE  PRICE")  (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price.  For purposes of determining  the adjusted  Exercise Price under
this Section 2(b), the following shall be applicable:

          (i) ISSUANCE OF OPTIONS.  If the Company in any manner grants or sells
     any  Options  and the lowest  price per share for which one share of Common
     Stock is issuable upon the exercise of any such Option or upon  conversion,
     exercise or exchange of any Convertible  Securities  issuable upon exercise
     of any such Option is less than the  Applicable  Price,  then such share of
     Common Stock shall be deemed to be outstanding  and to have been issued and
     sold by the Company at the time of the  granting or sale of such Option for
     such price per share.  For  purposes of this Section  2(b)(i),  the "lowest
     price per share for which one share of Common  Stock is  issuable  upon the
     exercise of any such  Options or upon  conversion,  exercise or exchange of
     any Convertible Securities issuable upon exercise of any such Option" shall
     be  equal  to (1)  the  lower  of (x)  the  sum of the  lowest  amounts  of

                                      -6-
<PAGE>

     consideration  (if any)  received or receivable by the Company with respect
     to any one share of Common  Stock upon the granting or sale of such Option,
     upon exercise of such Option and upon  conversion,  exercise or exchange of
     any Convertible  Security issuable upon exercise of such Option and (y) the
     lowest  exercise  price  set  forth in such  Option  for which one share of
     Common  Stock is issuable  upon the  exercise  of any such  Options or upon
     conversion,  exercise or exchange of any  Convertible  Securities  issuable
     upon  exercise of any such Option  minus (2) the sum of all amounts paid or
     payable  to the  holder  of such  Option  (or any  other  Person)  upon the
     granting  or sale of such  Option,  upon  exercise  of such Option and upon
     conversion,  exercise or exchange of any Convertible Security issuable upon
     exercise of such Option plus the value of any other consideration  received
     or  receivable  by, or benefit  conferred on, the holder of such Option (or
     any other Person).  Except as contemplated  below, no further adjustment of
     the Exercise Price shall be made upon the actual issuance of such shares of
     Common Stock or of such  Convertible  Securities  upon the exercise of such
     Options or upon the actual  issuance  of such  shares of Common  Stock upon
     conversion, exercise or exchange of such Convertible Securities.

          (ii) ISSUANCE OF CONVERTIBLE SECURITIES.  If the Company in any manner
     issues or sells any  Convertible  Securities and the lowest price per share
     for  which  one  share of Common  Stock is  issuable  upon the  conversion,
     exercise or exchange thereof is less than the Applicable  Price,  then such
     share of Common  Stock shall be deemed to be  outstanding  and to have been
     issued and sold by the Company at the time of the  issuance or sale of such
     Convertible  Securities for such price per share.  For the purposes of this
     Section 2(b)(ii), the "lowest price per share for which one share of Common
     Stock is issuable upon the conversion,  exercise or exchange thereof" shall
     be  equal  to (1)  the  lower  of (x)  the  sum of the  lowest  amounts  of
     consideration  (if any)  received or receivable by the Company with respect
     to one share of Common Stock upon the  issuance or sale of the  Convertible
     Security  and upon  conversion,  exercise or  exchange of such  Convertible
     Security and (y) the lowest  conversion price set forth in such Convertible
     Security for which one share of Common Stock is issuable  upon  conversion,
     exercise  or  exchange  thereof  minus (2) the sum of all  amounts  paid or
     payable to the holder of such  Convertible  Security (or any other  Person)
     upon the issuance or sale of such  Convertible  Security  plus the value of
     any other consideration received or receivable by, or benefit conferred on,
     the holder of such  Convertible  Security (or any other Person).  Except as
     contemplated  below,  no further  adjustment of the Exercise Price shall be
     made  upon  the  actual  issuance  of such  shares  of  Common  Stock  upon
     conversion, exercise or exchange of such Convertible Securities, and if any
     such issue or sale of such Convertible  Securities is made upon exercise of
     any Options for which  adjustment of this Warrant has been or is to be made
     pursuant to other  provisions of this Section 2(b),  except as contemplated
     below, no further  adjustment of the Exercise Price shall be made by reason
     of such issue or sale.

          (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase or
     exercise price provided for in any Options,  the additional  consideration,
     if any,  payable  upon the issue,  conversion,  exercise or exchange of any
     Convertible Securities, or the rate at which any Convertible Securities are
     convertible  into or exercisable or exchangeable for shares of Common Stock
     increases  or decreases  at any time,  the Exercise  Price in effect at the

                                      -7-
<PAGE>

     time of such increase or decrease  shall be adjusted to the Exercise  Price
     which  would  have  been in  effect  at  such  time  had  such  Options  or
     Convertible  Securities  provided for such increased or decreased  purchase
     price, additional  consideration or increased or decreased conversion rate,
     as the case may be, at the time  initially  granted,  issued  or sold.  For
     purposes  of  this  Section  2(b)(iii),  if  the  terms  of any  Option  or
     Convertible  Security  that was  outstanding  as of the date of issuance of
     this Warrant are  increased  or  decreased  in the manner  described in the
     immediately  preceding sentence,  then such Option or Convertible  Security
     and the shares of Common Stock deemed issuable upon exercise, conversion or
     exchange thereof shall be deemed to have been issued as of the date of such
     increase or decrease.  No adjustment pursuant to this Section 2(b) shall be
     made if such  adjustment  would result in an increase of the Exercise Price
     then in effect.

          (iv)  CALCULATION  OF  CONSIDERATION   RECEIVED.   If  any  Option  or
     Convertible  Security is issued in connection  with the issuance or sale or
     deemed  issuance or sale of any other  securities of the Company,  together
     comprising  one  integrated  transaction,  (x) such  Option or  Convertible
     Security  (as   applicable)   will  be  deemed  to  have  been  issued  for
     consideration  equal to the Black Scholes  Consideration  Value thereof and
     (y) the other  securities  issued or sold or deemed to have been  issued or
     sold in such integrated transaction shall be deemed to have been issued for
     consideration  equal to the  difference of (I) the aggregate  consideration
     received by the Company minus (II) the Black Scholes Consideration Value of
     each such Option or Convertible Security (as applicable).  If any shares of
     Common  Stock,  Options  or  Convertible  Securities  are issued or sold or
     deemed to have been  issued or sold for cash,  the  consideration  received
     therefor will be deemed to be the net amount of  consideration  received by
     the Company therefor. If any shares of Common Stock, Options or Convertible
     Securities  are issued or sold for a  consideration  other  than cash,  the
     amount of such consideration received by the Company will be the fair value
     of such consideration, except where such consideration consists of publicly
     traded  securities,  in which case the amount of consideration  received by
     the Company for such securities will be the arithmetic average of the VWAPs
     of such  security  for  each  of the  five  (5)  Trading  Days  immediately
     preceding the date of receipt.  If any shares of Common  Stock,  Options or
     Convertible Securities are issued to the owners of the non-surviving entity
     in connection with any merger in which the Company is the surviving entity,
     the amount of consideration therefor will be deemed to be the fair value of
     such portion of the net assets and business of the non-surviving  entity as
     is  attributable  to such shares of Common  Stock,  Options or  Convertible
     Securities,  as the case may be. The fair value of any consideration  other
     than cash or publicly traded  securities will be determined  jointly by the
     Company  and the  Holder.  If such  parties  are unable to reach  agreement
     within ten (10) days after the occurrence of an event  requiring  valuation
     (the  "VALUATION  EVENT"),  the fair  value of such  consideration  will be
     determined  within  five (5)  Trading  Days  after  the  tenth  (10th)  day
     following  such  Valuation  Event by an  independent,  reputable  appraiser
     jointly selected by the Company and the Holder.  The  determination of such
     appraiser shall be final and binding upon all parties absent manifest error
     and the fees and expenses of such appraiser shall be borne by the Company.

          (v)  RECORD  DATE.  If the  Company  takes a record of the  holders of
     shares of Common Stock for the purpose of  entitling  them (A) to receive a

                                      -8-
<PAGE>

     dividend or other distribution  payable in shares of Common Stock,  Options
     or in Convertible  Securities or (B) to subscribe for or purchase shares of
     Common Stock, Options or Convertible Securities, then such record date will
     be deemed to be the date of the issue or sale of the shares of Common Stock
     deemed to have been issued or sold upon the declaration of such dividend or
     the making of such other  distribution  or the date of the granting of such
     right of subscription or purchase (as the case may be).

     (c) NUMBER OF WARRANT  SHARES.  Simultaneously  with any  adjustment to the
Exercise  Price  pursuant to paragraphs (a) or (b) of this Section 2, the number
of Warrant  Shares that may be purchased  upon exercise of this Warrant shall be
increased  or  decreased  proportionately,  so that  after such  adjustment  the
aggregate  Exercise Price payable  hereunder for the adjusted  number of Warrant
Shares shall be the same as the aggregate  Exercise Price in effect  immediately
prior  to  such  adjustment  (without  regard  to any  limitations  on  exercise
contained herein).

     (d) OTHER  EVENTS.  In the event that the  Company (or any  Subsidiary  (as
defined in the Securities  Purchase  Agreement))  shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable,  would not
operate to protect the Holder from  dilution or if any event  occurs of the type
contemplated by the provisions of this Section 2 but not expressly  provided for
by such  provisions  (including,  without  limitation,  the  granting  of  stock
appreciation rights, phantom stock rights or other rights with equity features),
then  the  Company's  board  of  directors  shall in good  faith  determine  and
implement an  appropriate  adjustment  in the  Exercise  Price and the number of
Warrant  Shares  (if  applicable)  so as to protect  the  rights of the  Holder,
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise  determined
pursuant to this Section 2, provided  further that if the Holder does not accept
such adjustments as  appropriately  protecting its interests  hereunder  against
such dilution, then the Company's board of directors and the Holder shall agree,
in good faith,  upon an  independent  investment  bank of nationally  recognized
standing to make such  appropriate  adjustments,  whose  determination  shall be
final and binding and whose fees and expenses shall be borne by the Company.

     (e)  CALCULATIONS.  All calculations  under this Section 2 shall be made by
rounding to the nearest cent or the nearest  1/100th of a share,  as applicable.
The  number of shares of Common  Stock  outstanding  at any given time shall not
include  shares  owned or held by or for the  account  of the  Company,  and the
disposition  of any such shares shall be  considered  an issue or sale of Common
Stock.

3. RIGHTS UPON DISTRIBUTION OF ASSETS.  In addition to any adjustments  pursuant
to Section 2 above,  if the Company  shall declare or make any dividend or other
distribution  of its  assets (or  rights to  acquire  its  assets) to holders of
shares of Common  Stock,  by way of return of capital or  otherwise  (including,
without  limitation,  any  distribution  of cash,  stock  or  other  securities,
property or options by way of a dividend, spin off, reclassification,  corporate
rearrangement,   scheme  of  arrangement  or  other  similar   transaction)   (a
"DISTRIBUTION"),  at any time after the issuance of this Warrant,  then, in each
such case, the Holder shall be entitled to participate in such  Distribution  to
the same extent that the Holder  would have  participated  therein if the Holder
had held the number of shares of Common Stock acquirable upon complete  exercise

                                      -9-
<PAGE>

of this Warrant (without regard to any limitations on exercise hereof, including
without limitation, the Maximum Percentage) immediately before the date on which
a record is taken for such  Distribution,  or, if no such  record is taken,  the
date as of which  the  record  holders  of  shares  of  Common  Stock  are to be
determined for the participation in such Distribution (provided, however, to the
extent that the Holder's right to participate  in any such  Distributions  would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be  entitled  to  participate  in  such  Distribution  to  such  extent  (or the
beneficial  ownership  of any such  shares of  Common  Stock as a result of such
Distribution to such extent) and such  Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) PURCHASE RIGHTS.  In addition to any adjustments  pursuant to Section 2
above,  if at any  time  the  Company  grants,  issues  or  sells  any  Options,
Convertible  Securities  or rights to purchase  stock,  warrants,  securities or
other  property pro rata to the record  holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms  applicable to such Purchase  Rights,  the aggregate  Purchase  Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock  acquirable  upon  complete  exercise of this  Warrant  (without
regard to any limitations on exercise hereof, including without limitation,  the
Maximum  Percentage)  immediately before the date on which a record is taken for
the grant,  issuance or sale of such Purchase  Rights,  or, if no such record is
taken,  the date as of which the record holders of shares of Common Stock are to
be determined for the grant,  issue or sale of such Purchase  Rights  (provided,
however,  to the  extent  that the  Holder's  right to  participate  in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to  participate  in such Purchase Right to such
extent (or  beneficial  ownership  of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in  abeyance  for the  Holder  until such  time,  if ever,  as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

     (b) FUNDAMENTAL TRANSACTIONS.  The Company shall not enter into or be party
to a Fundamental  Transaction unless (i) the Successor Entity assumes in writing
all of  the  obligations  of the  Company  under  this  Warrant  and  the  other
Transaction  Documents  (as defined in the  Securities  Purchase  Agreement)  in
accordance  with  the  provisions  of this  Section  4(b)  pursuant  to  written
agreements in form and substance  satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction, including agreements to deliver to
the Holder in  exchange  for this  Warrant a security  of the  Successor  Entity
evidenced by a written instrument substantially similar in form and substance to
this  Warrant,  including,  without  limitation,  which  is  exercisable  for  a
corresponding  number of shares of  capital  stock  equivalent  to the shares of
Common Stock  acquirable and receivable  upon exercise of this Warrant  (without
regard  to any  limitations  on the  exercise  of this  Warrant)  prior  to such
Fundamental  Transaction,  and with an exercise price which applies the exercise
price  hereunder  to such shares of capital  stock (but taking into  account the
relative  value of the  shares  of Common  Stock  pursuant  to such  Fundamental
Transaction and the value of such shares of capital stock,  such  adjustments to

                                      -10-
<PAGE>

the  number of shares of capital  stock and such  exercise  price  being for the
purpose of protecting  the economic value of this Warrant  immediately  prior to
the consummation of such Fundamental  Transaction) and (ii) the Successor Entity
(including  its Parent  Entity) is a publicly  traded  corporation  whose common
stock is  quoted  on or listed  for  trading  on an  Eligible  Market.  Upon the
consummation of each Fundamental Transaction, the Successor Entity shall succeed
to, and be  substituted  for (so that from and after the date of the  applicable
Fundamental   Transaction,   the  provisions  of  this  Warrant  and  the  other
Transaction  Documents  referring to the  "Company"  shall refer  instead to the
Successor  Entity),  and may  exercise  every right and power of the Company and
shall assume all of the  obligations  of the Company  under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been  named  as the  Company  herein.  Upon  consummation  of  each  Fundamental
Transaction,  the Successor Entity shall deliver to the Holder confirmation that
there  shall be issued  upon  exercise  of this  Warrant  at any time  after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other  securities,  cash, assets or other property (except such
items still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable  thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction,  such shares of publicly traded common stock
(or its equivalent) of the Successor Entity  (including its Parent Entity) which
the  Holder  would  have been  entitled  to receive  upon the  happening  of the
applicable  Fundamental  Transaction had this Warrant been exercised immediately
prior  to  the  applicable  Fundamental   Transaction  (without  regard  to  any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights  hereunder,  prior to the  consummation of each  Fundamental  Transaction
pursuant  to which  holders of shares of Common  Stock are  entitled  to receive
securities  or other  assets with respect to or in exchange for shares of Common
Stock (a "CORPORATE  EVENT"),  the Company shall make  appropriate  provision to
insure  that the  Holder  will  thereafter  have the  right to  receive  upon an
exercise of this Warrant at any time after the  consummation  of the  applicable
Fundamental  Transaction but prior to the Expiration Date, in lieu of the shares
of the Common Stock (or other securities, cash, assets or other property (except
such items still issuable under Sections 3 and 4(a) above,  which shall continue
to be receivable thereafter)) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction,  such shares of stock, securities, cash, assets or
any  other  property  whatsoever   (including  warrants  or  other  purchase  or
subscription  rights)  which the Holder would have been entitled to receive upon
the happening of the applicable  Fundamental  Transaction  had this Warrant been
exercised immediately prior to the applicable  Fundamental  Transaction (without
regard to any  limitations  on the  exercise of this  Warrant).  Provision  made
pursuant to the preceding  sentence shall be in a form and substance  reasonably
satisfactory to the Holder.

     (c) BLACK SCHOLES VALUE.  Notwithstanding  the foregoing and the provisions
of Section  4(b)  above,  in the event of any  announcement  of any  Fundamental
Transaction,  then, at the request of the Holder delivered at any time after the
announcement  of such  Fundamental  Transaction  through the date that is ninety
(90) days after the consummation of such Fundamental Transaction, the Company or
the Successor  Entity (as the case may be) shall  purchase this Warrant from the
Holder on the date of such  request  by paying to the  Holder  cash in an amount
equal to the Black Scholes Value.

     (d) APPLICATION. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied  as if this  Warrant  (and  any such  subsequent  warrants)  were  fully

                                      -11-
<PAGE>

exercisable  and  without  regard to any  limitations  on the  exercise  of this
Warrant  (provided  that the Holder shall continue to be entitled to the benefit
of the Maximum  Percentage,  applied  however  with respect to shares of capital
stock registered  under the 1934 Act and thereafter  receivable upon exercise of
this Warrant (or any such other warrant)).

5.  NONCIRCUMVENTION.  The Company hereby  covenants and agrees that the Company
will not,  by  amendment  of its  Articles of  Incorporation  (as defined in the
Securities  Purchase  Agreement),  Bylaws (as defined in the Securities Purchase
Agreement)  or through any  reorganization,  transfer of assets,  consolidation,
merger, scheme of arrangement,  dissolution, issue or sale of securities, or any
other voluntary action,  avoid or seek to avoid the observance or performance of
any of the terms of this Warrant,  and will at all times in good faith carry out
all the  provisions  of this  Warrant  and take all action as may be required to
protect  the  rights of the  Holder.  Without  limiting  the  generality  of the
foregoing,  the  Company (i) shall not  increase  the par value of any shares of
Common Stock  receivable  upon the  exercise of this Warrant  above the Exercise
Price then in effect,  (ii) shall take all such  actions as may be  necessary or
appropriate  in order that the Company may validly and legally  issue fully paid
and nonassessable  shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary  to reserve and keep  available  out of its  authorized  and  unissued
shares of Common Stock,  solely for the purpose of effecting the exercise of the
SPA Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the  exercise of the SPA Warrants  then  outstanding
(without regard to any limitations on exercise).

6. WARRANT  HOLDER NOT DEEMED A  STOCKHOLDER.  Except as otherwise  specifically
provided herein, the Holder, solely in its capacity as a holder of this Warrant,
shall not be  entitled to vote or receive  dividends  or be deemed the holder of
share capital of the Company for any purpose,  nor shall  anything  contained in
this Warrant be  construed to confer upon the Holder,  solely in its capacity as
the Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether any
reorganization,  issue  of  stock,  reclassification  of  stock,  consolidation,
merger, conveyance or otherwise),  receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant  Shares  which it is then  entitled to receive  upon the due exercise of
this Warrant. In addition,  nothing contained in this Warrant shall be construed
as imposing  any  liabilities  on the Holder to purchase  any  securities  (upon
exercise of this  Warrant or  otherwise)  or as a  stockholder  of the  Company,
whether  such  liabilities  are  asserted by the Company or by  creditors of the
Company.  Notwithstanding  this Section 6, the Company  shall provide the Holder
with copies of the same notices and other  information given to the stockholders
of the  Company  generally,  contemporaneously  with the  giving  thereof to the
stockholders.

7. REISSUANCE OF WARRANTS.

     (a) TRANSFER OF WARRANT.  If this Warrant is to be transferred,  the Holder
shall  surrender  this  Warrant  to the  Company,  whereupon  the  Company  will
forthwith  issue and  deliver  upon the order of the  Holder a new  Warrant  (in

                                      -12-
<PAGE>

accordance   with  Section   7(d)),   registered  as  the  Holder  may  request,
representing   the  right  to  purchase  the  number  of  Warrant  Shares  being
transferred  by the Holder and, if less than the total number of Warrant  Shares
then underlying this Warrant is being transferred,  a new Warrant (in accordance
with Section 7(d)) to the Holder  representing  the right to purchase the number
of Warrant Shares not being transferred.

     (b) LOST,  STOLEN OR  MUTILATED  WARRANT.  Upon  receipt by the  Company of
evidence reasonably satisfactory to the Company of the loss, theft,  destruction
or  mutilation  of this  Warrant  (as to which a written  certification  and the
indemnification  contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction,  of any  indemnification  undertaking by the
Holder to the  Company in  customary  and  reasonable  form and,  in the case of
mutilation,  upon surrender and cancellation of this Warrant,  the Company shall
execute  and deliver to the Holder a new Warrant  (in  accordance  with  Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.

     (c) EXCHANGEABLE FOR MULTIPLE WARRANTS. This Warrant is exchangeable,  upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance  with Section 7(d))  representing  in the
aggregate  the right to purchase  the number of Warrant  Shares then  underlying
this  Warrant,  and each such new Warrant will  represent  the right to purchase
such portion of such Warrant  Shares as is  designated by the Holder at the time
of such  surrender;  provided,  however,  no warrants for  fractional  shares of
Common Stock shall be given.

     (d) ISSUANCE OF NEW  WARRANTS.  Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent,  as indicated on the face
of such new Warrant,  the right to purchase the Warrant  Shares then  underlying
this Warrant (or in the case of a new Warrant  being issued  pursuant to Section
7(a) or Section 7(c),  the Warrant Shares  designated by the Holder which,  when
added to the number of shares of Common Stock  underlying the other new Warrants
issued in connection  with such issuance,  does not exceed the number of Warrant
Shares then  underlying  this  Warrant),  (iii) shall have an issuance  date, as
indicated  on the face of such  new  Warrant  which is the same as the  Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

8. NOTICES.  Whenever notice is required to be given under this Warrant,  unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder
with prompt  written  notice of all  actions  taken  pursuant  to this  Warrant,
including  in  reasonable  detail a  description  of such  action and the reason
therefor.  Without  limiting the generality of the  foregoing,  the Company will
give written notice to the Holder (i)  immediately  upon each  adjustment of the
Exercise  Price and the number of Warrant  Shares,  setting  forth in reasonable
detail, and certifying,  the calculation of such adjustment(s) and (ii) at least
fifteen  (15) days  prior to the date on which the  Company  closes its books or
takes a record (A) with respect to any dividend or distribution  upon the shares
of Common  Stock,  (B) with  respect to any  grants,  issuances  or sales of any
Options,   Convertible   Securities  or  rights  to  purchase  stock,  warrants,
securities  or other  property  to holders of shares of Common  Stock or (C) for
determining  rights  to  vote  with  respect  to  any  Fundamental  Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the  public  prior to or in  conjunction  with such  notice  being

                                      -13-
<PAGE>

provided  to the  Holder and (iii) at least ten (10)  Trading  Days prior to the
consummation  of any  Fundamental  Transaction.  To the  extent  that any notice
provided hereunder constitutes,  or contains,  material,  non-public information
regarding   the  Company  or  any  of  its   subsidiaries,   the  Company  shall
simultaneously  file such  notice  with the SEC (as  defined  in the  Securities
Purchase  Agreement)  pursuant to a Current  Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.

9. AMENDMENT AND WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant  (other than Section  1(f)) may be amended and the Company may take
any action herein  prohibited,  or omit to perform any act herein required to be
performed  by it, only if the Company has  obtained  the written  consent of the
Holder.  The Holder  shall be  entitled,  at its  option,  to the benefit of any
amendment of (i) any other similar warrant issued under the Securities  Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in  writing  and signed by an  authorized  representative  of the  waiving
party.

10.  SEVERABILITY.  If any  provision  of this Warrant is  prohibited  by law or
otherwise  determined  to be invalid or  unenforceable  by a court of  competent
jurisdiction,  the  provision  that would  otherwise be  prohibited,  invalid or
unenforceable  shall be deemed  amended to apply to the broadest  extent that it
would be valid and enforceable,  and the invalidity or  unenforceability of such
provision  shall not affect the  validity of the  remaining  provisions  of this
Warrant so long as this  Warrant as so modified  continues  to express,  without
material change, the original intentions of the parties as to the subject matter
hereof  and  the  prohibited  nature,  invalidity  or  unenforceability  of  the
provision(s)   in  question  does  not   substantially   impair  the  respective
expectations  or  reciprocal   obligations  of  the  parties  or  the  practical
realization of the benefits that would  otherwise be conferred upon the parties.
The parties will endeavor in good faith  negotiations to replace the prohibited,
invalid or unenforceable  provision(s) with a valid provision(s),  the effect of
which  comes  as  close  as  possible  to that  of the  prohibited,  invalid  or
unenforceable provision(s).

11.  GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance  with, and all questions  concerning the  construction,  validity,
interpretation  and  performance  of this  Warrant  shall be  governed  by,  the
internal laws of the State of Illinois,  without  giving effect to any choice of
law or conflict of law  provision  or rule  (whether of the State of Illinois or
any other  jurisdictions)  that would cause the  application  of the laws of any
jurisdictions  other than the State of Illinois.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago,  Illinois,  for  the  adjudication  of  any  dispute  hereunder  or  in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein,  and hereby  irrevocably  waives,  and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court,  that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing  contained herein shall
be deemed or operate to preclude the Holder from  bringing  suit or taking other

                                      -14-
<PAGE>

legal  action  against the Company in any other  jurisdiction  to collect on the
Company's  obligations  to the Holder or to enforce a  judgment  or other  court
ruling in favor of the Holder.  THE COMPANY HEREBY  IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE  HEREUNDER OR IN  CONNECTION  WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

12. CONSTRUCTION;  HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be  construed  against any Person as
the  drafter  hereof.  The  headings  of this  Warrant  are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Warrant.  Terms  used in this  Warrant  but  defined  in the  other  Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined  in  the  Securities  Purchase  Agreement)  in  such  other  Transaction
Documents unless otherwise consented to in writing by the Holder.

13. DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the
Exercise  Price,  the Closing Sale Price,  the Bid Price or fair market value or
the  arithmetic  calculation  of the  Warrant  Shares (as the case may be),  the
Company  or  the  Holder  (as  the  case  may  be)  shall  submit  the  disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable  notice giving rise
to such  dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such  dispute,  at any time after the Holder  learned of the
circumstances giving rise to such dispute (including,  without limitation, as to
whether any issuance or sale or deemed  issuance or sale was an issuance or sale
or deemed  issuance  or sale of  Excluded  Securities).  If the  Holder  and the
Company are unable to agree upon such  determination or calculation (as the case
may be) of the Exercise  Price,  the Closing  Sale Price,  the Bid Price or fair
market  value or the number of Warrant  Shares (as the case may be) within three
(3) Business Days of such disputed determination or arithmetic calculation being
submitted  to the  Company or the Holder (as the case may be),  then the Company
shall,  within two (2)  Business  Days  submit via  facsimile  (a) the  disputed
determination  of the Exercise Price,  the Closing Sale Price,  the Bid Price or
fair market value (as the case may be) to an independent,  reputable  investment
bank selected by the Holder or (b) the disputed  arithmetic  calculation  of the
Warrant Shares to the Company's  independent,  outside  accountant.  The Company
shall cause at its expense the  investment  bank or the  accountant (as the case
may be) to perform the  determinations  or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed  determinations or calculations (as
the case may be).  Such  investment  bank's  or  accountant's  determination  or
calculation  (as the  case may be)  shall be  binding  upon all  parties  absent
demonstrable error.

14.  REMEDIES,  CHARACTERIZATION,  OTHER  OBLIGATIONS,  BREACHES AND  INJUNCTIVE
RELIEF.  The  remedies  provided  in this  Warrant  shall be  cumulative  and in
addition  to all other  remedies  available  under  this  Warrant  and the other
Transaction  Documents,  at law or in equity  (including  a decree  of  specific
performance and/or other injunctive relief),  and nothing herein shall limit the
right of the Holder to pursue  actual  damages for any failure by the Company to
comply with the terms of this Warrant.  The Company covenants to the Holder that
there shall be no  characterization  concerning  this  instrument  other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments,  exercises and the like (and the computation  thereof) shall be the

                                      -15-
<PAGE>

amounts to be received by the Holder and shall not, except as expressly provided
herein,  be subject to any other  obligation of the Company (or the  performance
thereof).  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause  irreparable  harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened  breach, the holder of this Warrant shall
be  entitled,  in addition to all other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required. The Company shall provide all
information and  documentation  to the Holder that is requested by the Holder to
enable  the  Holder  to  confirm  the  Company's  compliance  with the terms and
conditions  of this Warrant  (including,  without  limitation,  compliance  with
Section 2  hereof).  The  issuance  of shares  and  certificates  for  shares as
contemplated  hereby upon the  exercise of this  Warrant  shall be made  without
charge to the  Holder or such  shares  for any  issuance  tax or other  costs in
respect thereof,  provided that the Company shall not be required to pay any tax
which may be payable in respect of any  transfer  involved in the  issuance  and
delivery of any  certificate in a name other than the Holder or its agent on its
behalf.

15.  TRANSFER.  This  Warrant  may be offered  for sale,  sold,  transferred  or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(g) of the Securities Purchase Agreement.

16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall
have the following meanings:

     (a) "BID  PRICE"  means,  for any  security  as of the  particular  time of
determination,  the bid  price  for such  security  on the  Principal  Market as
reported by Bloomberg  as of such time of  determination,  or, if the  Principal
Market is not the  principal  securities  exchange  or  trading  market for such
security, the bid price of such security on the principal securities exchange or
trading  market where such security is listed or traded as reported by Bloomberg
as of such time of  determination,  or if the foregoing does not apply,  the bid
price of such security in the over-the-counter market on the electronic bulletin
board  for  such   security  as  reported  by  Bloomberg  as  of  such  time  of
determination, or, if no bid price is reported for such security by Bloomberg as
of such time of  determination,  the  average  of the bid  prices of any  market
makers for such  security as  reported  in the "pink  sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) as of such time of determination.
If the Bid Price cannot be calculated for a security as of the  particular  time
of  determination  on any of the foregoing bases, the Bid Price of such security
as of such time of  determination  shall be the fair  market  value as  mutually
determined  by the  Company  and the  Holder.  If the Company and the Holder are
unable to agree upon the fair market value of such  security,  then such dispute
shall be  resolved in  accordance  with the  procedures  in Section 13. All such
determinations  shall be  appropriately  adjusted for any stock dividend,  stock
split, stock combination or other similar transaction during such period.

     (b) "BLACK SCHOLES  CONSIDERATION  VALUE" means the value of the applicable
Option or  Convertible  Security (as the case may be) as of the date of issuance
thereof  calculated  using the Black Scholes  Option Pricing Model obtained from
the "OV" function on Bloomberg utilizing (i) an underlying price per share equal
to the Closing  Sale Price of the Common  Stock on the  Trading Day  immediately

                                      -16-
<PAGE>

preceding the public announcement of the execution of definitive  documents with
respect to the issuance of such Option or Convertible  Security (as the case may
be), (ii) a risk-free  interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible  Security (as
the  case may be) as of the  date of  issuance  of such  Option  or  Convertible
Security  (as the case may be) and  (iii) an  expected  volatility  equal to the
greater of 100% and the 100 day  volatility  obtained  from the HVT  function on
Bloomberg  (determined  utilizing  a 365  day  annualization  factor)  as of the
Trading  Day  immediately  following  the date of  issuance  of such  Option  or
Convertible Security (as the case may be).

     (c) "BLACK  SCHOLES  VALUE" means the value of the  unexercised  portion of
this Warrant  remaining on the date of the Holder's  request pursuant to Section
4(c),  which value is calculated  using the Black Scholes  Option  Pricing Model
obtained from the "OV" function on Bloomberg  utilizing (i) an underlying  price
per share  equal to the  greater of (1) the  highest  Closing  Sale Price of the
Common  Stock  during  the  period  beginning  on the  Trading  Day  immediately
preceding the announcement of the applicable Fundamental  Transaction and ending
on the Trading Day of the Holder's  request pursuant to Section 4(c) and (2) the
sum of the price per share being offered in cash in the  applicable  Fundamental
Transaction (if any) plus the value of the non-cash  consideration being offered
in the applicable Fundamental Transaction (if any), (ii) a strike price equal to
the Exercise Price in effect on the of date of the Holder's  request pursuant to
Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (1) the remaining term of this Warrant
as of the date of the  Holder's  request  pursuant  to Section  4(c) and (2) the
remaining term of this Warrant as of the date of  consummation of the applicable
Fundamental  Transaction and (iv) an expected volatility equal to the greater of
100% and the 100 day  volatility  obtained  from the HVT  function on  Bloomberg
(determined  utilizing  a 365 day  annualization  factor) as of the  Trading Day
immediately  following the public  announcement  of the  applicable  Fundamental
Transaction.

     (d) "BLOOMBERG" means Bloomberg, L.P.

     (e) "BUSINESS DAY" means any day other than  Saturday,  Sunday or other day
on which  commercial banks in The City of New York are authorized or required by
law to remain closed.

     (f) "CLOSING SALE PRICE" means,  for any security as of any date,  the last
closing trade price for such security on the  Principal  Market,  as reported by
Bloomberg,  or, if the Principal  Market begins to operate on an extended  hours
basis and does not designate the closing trade price,  then the last trade price
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal  securities exchange or trading
market for such security, the last trade price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg,  or if the foregoing does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such  security  as  reported  by  Bloomberg,  or, if no last trade  price is
reported for such  security by  Bloomberg,  the average of the ask prices of any
market  makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National  Quotation  Bureau,  Inc.). If the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases,  the Closing  Sale Price of such  security on such date shall be the fair

                                      -17-
<PAGE>

market  value as mutually  determined  by the  Company  and the  Holder.  If the
Company  and the Holder are unable to agree upon the fair  market  value of such
security,  then such dispute shall be resolved in accordance with the procedures
in Section 13. All such determinations  shall be appropriately  adjusted for any
stock  dividend,  stock split,  stock  combination or other similar  transaction
during such period.

     (g) "COMMON STOCK" means (i) the Company's  shares of common stock,  no par
value per share,  and (ii) any capital  stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.

     (h) "CONVERTIBLE  SECURITIES" means any stock or other security (other than
Options)  that  is  at  any  time  and  under  any  circumstances,  directly  or
indirectly,   convertible  into,  exercisable  or  exchangeable  for,  or  which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

     (i) "ELIGIBLE MARKET" means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
or the Principal Market.

     (j) "EXPIRATION DATE" means the date that is the fifth (5th) anniversary of
the  Issuance  Date or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a "HOLIDAY"),  the
next date that is not a Holiday.

     (k)  "FUNDAMENTAL  TRANSACTION"  means  that (i) the  Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1)  consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign,  transfer,  convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other  Person to make a purchase,  tender or exchange  offer that is accepted by
the holders of more than 50% of the  outstanding  shares of Voting  Stock of the
Company  (not  including  any shares of Voting  Stock of the Company held by the
Person or  Persons  making or party to, or  associated  or  affiliated  with the
Persons making or party to, such  purchase,  tender or exchange  offer),  or (4)
consummate a stock or share  purchase  agreement or other  business  combination
(including, without limitation, a reorganization,  recapitalization, spin-off or
scheme of arrangement)  with any other Person whereby such other Person acquires
more than 50% of the  outstanding  shares of Voting  Stock of the  Company  (not
including  any shares of Voting Stock of the Company held by the other Person or
other Persons  making or party to, or  associated  or affiliated  with the other
Persons  making or party to,  such stock or share  purchase  agreement  or other
business  combination),  or (5) (I)  reorganize,  recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination,  reverse stock
split or other  similar  transaction  involving  the  Common  Stock  (including,
without limitation,  any public announcement or disclosure of (x) any potential,
possible or actual  stock  combination,  reverse  stock  split or other  similar

                                      -18-
<PAGE>

transaction  involving  the Common  Stock or (y) board or  stockholder  approval
thereof,  or the intention of the Company to seek board or stockholder  approval
of any stock  combination,  reverse  stock  split or other  similar  transaction
involving the Common Stock), or (ii) any "person" or "group" (as these terms are
used for purposes of Sections  13(d) and 14(d) of the 1934 Act and the rules and
regulations  promulgated  thereunder) is or shall become the "beneficial  owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.

     (l)  "OPTIONS"  means any rights,  warrants or options to subscribe  for or
purchase shares of Common Stock or Convertible Securities.

     (m)  "PARENT  ENTITY"  of a  Person  means  an  entity  that,  directly  or
indirectly,  controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market,  or, if there is more
than one such  Person or Parent  Entity,  the Person or Parent  Entity  with the
largest  public  market  capitalization  as of the date of  consummation  of the
Fundamental Transaction.

     (n)  "PERSON"  means  an  individual,   a  limited  liability   company,  a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization,  any other  entity or a  government  or any  department  or agency
thereof.

     (o) "PRINCIPAL MARKET" means the OTC Bulletin Board.

     (p)  "SUCCESSOR  ENTITY" means the Person (or, if so elected by the Holder,
the Parent  Entity)  formed by,  resulting  from or  surviving  any  Fundamental
Transaction  or the Person (or, if so elected by the Holder,  the Parent Entity)
with which such Fundamental Transaction shall have been entered into.

     (q) "TRADING  DAY" means any day on which the Common Stock is traded on the
Principal  Market,  or, if the  Principal  Market is not the  principal  trading
market  for the Common  Stock,  then on the  principal  securities  exchange  or
securities  market on which  the  Common  Stock is then  traded,  provided  that
"Trading  Day" shall not include any day on which the Common  Stock is scheduled
to trade on such  exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended  from trading during the final hour of trading on such
exchange or market (or if such  exchange or market does not designate in advance
the closing  time of trading on such  exchange  or market,  then during the hour
ending at 4:00:00 p.m.,  New York time) unless such day is otherwise  designated
as a Trading Day in writing by the Holder.

     (r) "VOTING  STOCK" of a Person means  capital  stock of such Person of the
class or classes  pursuant to which the holders  thereof have the general voting
power to elect,  or the  general  power to  appoint,  at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time  capital  stock of any other  class or classes  shall have or
might have voting power by reason of the happening of any contingency).

     (s)  "VWAP"   means,   for  any  security  as  of  any  date,   the  dollar
volume-weighted  average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period  beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00  p.m.,  New York time,  as reported by  Bloomberg  through its
"Volume at Price"  function  or, if the  foregoing  does not  apply,  the dollar

                                      -19-
<PAGE>

volume-weighted average price of such security in the over-the-counter market on
the electronic  bulletin board for such security during the period  beginning at
9:30:01  a.m.,  New York time,  and ending at 4:00:00  p.m.,  New York time,  as
reported  by  Bloomberg,  or,  if no  dollar  volume-weighted  average  price is
reported  for such  security by  Bloomberg  for such  hours,  the average of the
highest  closing bid price and the lowest closing ask price of any of the market
makers for such  security as  reported  in the "pink  sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such  security  on such  date on any of the  foregoing  bases,  the VWAP of such
security on such date shall be the fair market value as mutually  determined  by
the Company  and the  Holder.  If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such  determinations  shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.

                            [SIGNATURE PAGE FOLLOWS]

                                      -20-

<PAGE>

         IN WITNESS  WHEREOF,  the Company  has caused this  Warrant to Purchase
Common Stock to be duly executed as of the Issuance Date set out above.

                      IMAGING3, INC.

                      By:____________________________________
                      Name:
                      Title:

                                      -21-
<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                 IMAGING3, INC.

     The   undersigned   holder   hereby   exercises   the  right  to   purchase
_________________  of the shares of Common Stock ("WARRANT SHARES") of Imaging3,
Inc., a California  corporation (the  "COMPANY"),  evidenced by Series A Warrant
No.  _______ (the  "WARRANT").  Capitalized  terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.

     1. FORM OF EXERCISE PRICE.  The Holder intends that payment of the Exercise
Price shall be made as:

  ____________  a "CASH EXERCISE" with respect to ________________ Warrant
                Shares; and/or

  ____________  a "CASHLESS EXERCISE" with respect to _______________ Warrant
                Shares.

     In the event that the Holder has elected a Cashless  Exercise  with respect
to some or all of the Warrant Shares to be issued  pursuant  hereto,  the Holder
hereby represents and warrants that (i) this Exercise Notice was executed by the
Holder  at  __________  [a.m.][p.m.]  on the date set  forth  below  and (ii) if
applicable,  the Bid Price as of such time of execution of this Exercise  Notice
was $________.

     2.  PAYMENT OF EXERCISE  PRICE.  In the event that the Holder has elected a
Cash  Exercise  with  respect to some or all of the Warrant  Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. DELIVERY OF WARRANT SHARES.  The Company shall deliver to Holder, or its
designee or agent as specified  below,  __________  Warrant Shares in accordance
with the terms of the  Warrant.  Delivery  shall be made to  Holder,  or for its
benefit, to the following address:

                        ________________________________
                        ________________________________
                        ________________________________
                        ________________________________

Date: _______________ __, ______

________________________________
Name of Registered Holder

By:
         -----------------------------------
         Name:
         Title:

<PAGE>

                                                                       EXHIBIT B

                                 ACKNOWLEDGMENT

         The Company hereby acknowledges this Exercise Notice and hereby directs
______________  to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________,  20__, from the
Company and acknowledged and agreed to by _______________.

                                            IMAGING3, INC.

                                            By:_________________________________
                                            Name:
                                            Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00179-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00179-of-00352.parquet"}]]