Document:

Exhibit 4.2

                                ESCROW AGREEMENT

      This ESCROW AGREEMENT (this "Escrow Agreement") is dated as of the 4th day
of May, 2006, by and among Argan, Inc., a Delaware corporation (the "Company"),
the purchasers identified on Schedule A attached hereto (each a "Buyer", and
collectively the "Buyers") and Robinson & Cole LLP (the "Escrow Agent").
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Purchase Agreement (defined below)

                                P R E M I S E S:

      WHEREAS, the Company and the Buyers are parties to that certain Stock
Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"),
pursuant to which the Company is offering, and the Buyers are purchasing (the
"Transaction"), an aggregate of 760,000 shares (the "Shares") of the Company's
common stock, $.15 par value, at a purchase price of $2.50 per share (the "Share
Consideration"); and

      WHEREAS, pursuant to the terms of the Purchase Agreement, the Company and
the Buyers shall deliver to the Escrow Agent the Shares and the Share
Consideration, respectively (collectively, the "Escrow Amount"), to provide for
certain contingencies as set forth herein.

                              A G R E E M E N T S:

         NOW, THEREFORE, in consideration of the above premises and of the
covenants and agreements contained herein, the Company, the Buyers and the
Escrow Agent agree as follows:

                                    Section 1
                                   Escrow Fund

      1.1 Delivery. Simultaneously with the execution and delivery of this
Agreement, (i) the Company shall deliver to the Escrow Agent written
instructions to its transfer agent instructing it to issue a stock certificate
in the name of each Buyer for the respective number of Shares issued to such
Buyer as set forth on Schedule A attached hereto (collectively, "Certificates"),
pursuant to the Purchase Agreement, and (ii) each Buyer shall deliver to the
Escrow Agent such Buyer's respective portion of the Share Consideration for the
number of Shares purchased by such Buyer as set forth on Schedule A attached
hereto, pursuant to the Purchase Agreement. Upon receipt of the Escrow Amount by
the Escrow Agent, the Escrow Amount held by the Escrow Agent pursuant to this
Escrow Agreement shall be deemed to comprise the "Escrow Fund". The Escrow Agent
agrees to hold the Escrow Amount as provided hereunder until the Escrow Amount
is released from escrow in accordance with the provisions of Section 2 hereof.

<PAGE>

                                    Section 2
                           Disbursement of Escrow Fund

      The Escrow Agent agrees to hold the Escrow Amount as provided hereunder
until the Escrow Amount is released as follows:

      2.1 Disbursement of Escrow Amount. The Escrow Agent shall release the
Escrow Amount in accordance with this Paragraph 2.1 upon the happening of
following events (collectively, "Release Conditions"):

      A.    Kevin Thomas shall have executed and delivered to the Company a
            subordination agreement in form and substance reasonably
            satisfactory to the Company; and

      B.    Kevin Thomas shall have executed and delivered to the Company a
            letter of representation with respect to the audit of the Company
            for the Company's fiscal year ended January 31, 2006.

The Escrow Agent shall release the Escrow Amount within two (2) business days of
Escrow Agent's receipt of a written notice executed by the Company stating that
the Release Conditions have been fulfilled and that the Escrow Amount should be
disbursed from the Escrow Fund to the Company and the Buyers pursuant to this
Paragraph 2.1. Upon the Escrow Agent's receipt of a Release Notice, the Escrow
Agent shall disburse the Escrow Amount as follows:

      1.    The Escrow Agent shall disburse to each Buyer the Certificate issued
            to such Buyer; and

      2.    The Escrow Agent shall disburse to the Company the Share
            Consideration.

      2.2 Expiration of Escrow Period. In the event that the Release Conditions
are not fulfilled by June 1, 2006, unless otherwise agreed in writing by the
parties, the Transaction shall terminate and the Escrow Agent, within two
business (2) days of such termination date, shall return (i) the Certificates to
the Company, and (ii) the Share Consideration (without interest thereon) to the
Buyers in their respective amounts.

      2.3 Dispute Resolution. In the event that any dispute arises with respect
to this Agreement or in the event that any claim is made with respect to the
Escrow Fund, then the Escrow Agent, upon receipt of written notice of such
dispute, is authorized and directed to retain in its possession without
liability to any person or party, all of the Escrow Amount until such dispute
shall have been settled either by the mutual agreement of the parties involved
or by a final, unappealable order, decree or judgment of a court of competent
jurisdiction.

                                    Section 3
                                  Escrow Agent

      3.1 Appointment and Duties. The Company and each Buyer hereby appoints the
Escrow Agent to serve hereunder, and the Escrow Agent hereby agrees to perform
all duties which are expressly set forth in this Escrow Agreement.

                                       2
<PAGE>

      3.2 Acknowledgement. The Company and each Buyer acknowledges that the
Escrow Agent acts as counsel to the Company and is likely to continue to act in
such capacity in any matter not in conflict with its duties as the Escrow Agent
hereunder.

      3.3 Indemnification. Each Buyer severally but not jointly, and the
Company, jointly and severally with each Buyer, will indemnify and defend the
Escrow Agent, and hold it harmless from any and all claims, regardless of
nature, arising out of or because of this Escrow Agreement, and exonerate the
Escrow Agent from any liability in connection with its discharge of obligations
pursuant to this Escrow Agreement in the absence of fraud or gross negligence.

      3.4 Resignation. The Escrow Agent may resign at any time upon giving the
other parties hereto ten (10) days prior written notice of resignation. In such
event, the successor shall be such person, firm or corporation as shall be
mutually selected by the Company and the Buyers. It is understood and agreed
that such resignation shall not be effective until a successor agrees to act
hereunder; provided, however, if no successor is appointed and acting hereunder
within ten (10) days after such notice is given, the Escrow Agent may pay and
deliver the Escrow Fund to a court as part of an interpleader or like action.

      3.5 Payment of Fees. The Company shall pay all of the Escrow Agent's fees
and expenses arising out of or relating to this Escrow Agreement.

                                    Section 4
                           Liabilities of Escrow Agent

      4.1 Limitations. The Escrow Agent shall be liable only to accept, hold and
deliver the Escrow Fund in accordance with the provisions of this Escrow
Agreement and amendments hereto; provided, however, that the Escrow Agent shall
not incur any liability with respect to any action taken or omitted (a) in good
faith upon the advice of its counsel given with respect to any questions
relating to its duties and responsibilities as the Escrow Agent under this
Escrow Agreement, or (b) in reliance upon any instrument which the Escrow Agent
shall in good faith believe to be genuine (including the execution, identity, or
authority of any person executing such instrument, its validity and
effectiveness, and the truth and accuracy of any information contained therein),
to have been signed by a proper person or persons, and to conform to the
provisions of this Escrow Agreement.

      4.2 Collateral Agreements. The Escrow Agent shall not be bound in any way
by any contract or agreement between the parties hereto, whether or not it has
knowledge of any such contract or agreement or of the terms or conditions of any
such contract or agreement, including without limitation, the Purchase
Agreement.

                                    Section 5
                                   Termination

      This Escrow Agreement, other than Paragraph 3.4, Paragraph 3.5 and Section
4, shall be terminated upon the earliest to occur of: (i) the full disbursement
of the Escrow Fund by the Escrow Agent; (ii) written mutual consent signed by
the Company and Buyers; or (iii) the transfer of the Escrow Fund to a court in
accordance with Paragraph 3.4 hereof. This Escrow Agreement shall not otherwise
be terminated.

                                       3
<PAGE>

                                    Section 6
                                Other Provisions

      6.1 Notices. Any notices required or permitted to be given to any party
hereto shall be given to all of the parties hereto. Any notices required or
permitted hereunder shall be sufficiently given pursuant to the notice
provisions in the Purchase Agreement.

      6.2 Benefit. This Escrow Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.

      6.3 Entire Agreement; Amendment. This Escrow Agreement contains all the
terms agreed upon by the parties with respect to the subject matter hereof. This
Escrow Agreement may be amended only by a written instrument signed by all of
the parties hereto.

      6.4 Headings. The headings of the sections and sub-sections of this Escrow
Agreement are for ease of reference only and do not evidence the intentions of
the parties.

      6.5 Governing Law. This Escrow Agreement shall be governed by, and
construed according to, the laws of the State of Connecticut, without regard to
the principles thereof relating to conflicts of laws. The parties hereto consent
to the jurisdiction of the courts of the State of Connecticut in Fairfield
County and the United States District Court for the District of Connecticut.

      6.6 Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument. This Agreement may be
executed by telecopied signatures with the same effect as original signatures.

                             [signatures to follow]

                                       4
<PAGE>

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

THE COMPANY:

ARGAN, INC.

/s/ Rainer Bosselmann
---------------------
By: Rainer Bosselmann
Its: President

THE BUYERS:

MSR I SBIC, L.P.

By: MSR I SBIC Partners, LLC, its General Partner
By: MSR Advisors, Inc., its Manager

/s/ Daniel A. Levinson
----------------------
By: Daniel A. Levinson
Its:  President

/s/ Matthew Rebold
------------------
Matthew Rebold

/s/ Michael Stone
-----------------
Michael Stone

PRAIRIE FIRE CAPITAL LLC

/s/ Kevin J. Curley
-------------------
By: Kevin J. Curley
Its:  Attorney-in-Fact

                                       5
<PAGE>

ALLEN SBH LLC

/s/ Herbert Allen
-----------------
By: Herbert Allen

/s/ John Simon
--------------
John Simon

/s/ James Quinn
---------------
James Quinn

ESCROW AGENT:

ROBINSON & COLE LLP

/s/ Richard A. Krantz
---------------------
By: Richard A. Krantz
Its:  Partner

                                       6
<PAGE>

Schedule A
----------

Buyer                           Number of Shares           Share Consideration
-----                           ----------------           -------------------
MSR SBIC I, L.P.                240,000                    $600,000
Matthew Rebold                   40,000                    $100,000
Michael Stone                   120,000                    $300,000
Prairie Fire Capital LLC        120,000                    $300,000
Allen SBH LLC                   120,000                    $300,000
John Simon                       80,000                    $200,000
James Quinn                      40,000                    $100,000

                                       7EX 10.01

    EXHIBIT
      10.01

     

    SECURITIES
      PURCHASE AGREEMENT 

     

    This
      Securities Purchase Agreement, together with all schedules and exhibits (this
      “Agreement”),
      is
      dated as of May 4, 2006, among SAN Holdings, Inc., a Colorado corporation (the
      “Company”),
      and
      the Purchaser identified on the signature pages hereto (the “Purchaser”),
      each
      a “party” and collectively the “parties.” 

     

    WITNESSETH:

     

    WHEREAS,
      pursuant to the Securities Purchase Agreement, dated as of February 28, 2006
      (the “Initial
      Purchase Agreement”),
      among
      the Company and each purchaser identified on the signature pages thereto (each,
      an “Initial
      Purchaser”),
      on
      March 2, 2006, in an initial closing (the “Initial
      Closing”),
      the
      Company sold 236.8 Units to the Initial Purchasers, each Unit consisting of
      (i) one share of Preferred Stock of the Company initially convertible into
      333,333 shares of Common Stock, with such Preferred Stock having the terms
      and
      conditions as described in the Certificate of Designations, and (ii) a
      $0.30 Warrant and a $0.50 Warrant, each of such Warrants initially exercisable
      into 166,667 shares of Common Stock, with such Warrants having the terms and
      conditions described in Exhibit
      D
      and
Exhibit
      E;

     

    WHEREAS,
      Sun Solunet, LLC (“Sun
      Solunet”),
      the
      majority shareholder of the Company, purchased a total of 176.5 Units from
      the
      Company for $8,000,000 in the Initial Closing;

     

    WHEREAS,
      the number of Units purchased by Sun Solunet at the Initial Closing was equal
      to
      quotient obtained by dividing (i) 8,000,000 by (ii) the quotient obtained by
      dividing (a) the aggregate Subscription Amount from all Initial Purchasers
      (other than Sun Solunet) less the aggregate fees payable to Monarch Capital
      Group LLC by (b) number of Units purchased by all Initial Purchasers (other
      than
      Sun Solunet);

     

    WHEREAS,
      the Initial Purchase Agreement provides that the Company may sell additional
      Units which sale is not required to be pursuant to the Initial Purchase
      Agreement so long as the Units are sold on the same terms and conditions as
      set
      forth in the Initial Purchase Agreement;

     

    WHEREAS,
      pursuant to the Securities Purchase Agreement, dated as of April 18, 2006 (the
      “April
      2006 Purchase Agreement”
and,
      together with the Initial Purchase Agreement, the “Prior
      Purchase Agreements”),
      among
      the Company and each purchaser identified on the signature pages thereto (the
      “April
      2006 Purchasers”
and,
      together with the Initial Purchasers, the “Prior
      Purchasers”),
      the
      Company sold to the April 2006 Purchasers a total of 10.8 Units (the
“April
      2006 Closing”);

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
      thereunder, the Company desires to issue and sell to the Purchaser, and the
      Purchaser desires to purchase from the Company in the aggregate, up to 30
      Units;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    WHEREAS,
      this Agreement is substantially similar to the Prior Purchase Agreements and
      the
      Company desires to grant the Purchaser under this Agreement the same rights
      with
      respect to the Units as those granted to the Prior Purchasers under the Prior
      Purchase Agreements and the Company desires to treat the Purchaser under this
      Agreement and the Prior Purchasers as a single class of holders of Units;
      and

     

    WHEREAS,
      subject to the terms and conditions set forth in the Initial Purchase Agreement,
      the Company may sell additional Units to Purchasers and or other Persons (as
      defined herein) pursuant to the terms set forth in the Initial Purchase
      Agreement.

     

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

     

    ARTICLE
      I

    DEFINITIONS

     

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

     

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

     

    “Affiliate”
means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person as such
      terms are used in and construed under Rule 144. With respect to the Purchaser,
      any investment fund or managed account that is managed on a discretionary basis
      by the same investment manager as the Purchaser will be deemed to be an
      Affiliate of the Purchaser.

     

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

     

    “Certificate
      of Designations”
means
      the Certificate of Designations, Preferences and other rights and qualifications
      of the Series A Preferred Stock substantially in the form of Exhibit
      A
      hereto.

     

    “Closing”
means
      the closing of the purchase and sale of the Units pursuant to Section 2.1.
      The
      Closing shall be deemed to be an additional Closing under the Initial Purchase
      Agreement. There may be subsequent Closings for the sale of additional Units
      pursuant to the Initial Purchase Agreement or on the same terms and conditions
      as set forth in the Initial Purchase Agreement.

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      the
      Purchaser’s obligations to pay the Subscription Amount and the Company’s
      obligation to issue the Warrants and the Preferred Shares have been satisfied
      or
      waived.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Common
      Stock”
means
      the common stock of the Company, no par value per share, and any securities
      into
      which such common stock may hereafter be reclassified. 

     

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

     

    “Disclosure
      Schedules”
means
      the Disclosure Schedules attached hereto. 

     

    “Effective
      Date”
means
      the date that the Registration Statement is first declared effective by the
      Commission. 

     

    “Escrow
      Agent”
means
      Wells Fargo Bank, National Association.

     

    “Escrow
      Agreement”
shall
      mean the Escrow Agreement substantially in the form of Exhibit
      B
      hereto,
      as the same may be amended or supplemented from time to time.

     

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

     

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

     

    “Material
      Adverse Effect”
shall
      have the meaning ascribed to such term in Section 3.1(b). 

     

    “Material
      Permits”
shall
      have the meaning ascribed to such term in Section 3.1(l). 

     

    “Per
      Unit Purchase Price”
equals
      $50,000.

     

    “Person”
means
      any legal person, including without limitation, an individual or corporation,
      partnership, trust, incorporated or unincorporated association, joint venture,
      limited liability company, joint stock company, government (or an agency or
      subdivision thereof) or other entity of any kind. 

     

    “Preferred
      Shares”
means
      the Series A Preferred Stock issuable pursuant to this Agreement.

     

    “Preferred
      Stock”
mean
      the Series A Preferred Stock of the Company no par value per share. Each share
      of Preferred Stock is convertible into 333,333 shares of Common
      Stock.

     

    “Purchaser”
means
      the Person signing this Agreement as the Purchaser. The Purchaser hereunder
      shall be deemed to be a Purchaser under the Initial Purchase Agreement.

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated as of the date of this Agreement,
      among
      the Company, the Purchaser and the Prior Purchasers, substantially in the form
      of Exhibit
      C
      hereto.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Purchaser of the Shares.

     

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

     

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

     

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

     

    “Securities”
means
      the Preferred Shares, the Shares and the Warrants. 

     

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

     

    “Shares”
means
      the shares of Common Stock issuable to the Purchaser pursuant to the exercise
      of
      the Warrants or the conversion of the Preferred Stock. 

     

    “Subscription
      Amount”
means
      the amounts set forth below the Purchaser’s signature block on the signature
      page hereto, payable in United States dollars and in immediately available
      funds. 

     

    “Subsidiary”
shall
      mean the subsidiaries of the Company disclosed in the SEC Reports. 

     

    “Sun
      Solunet”
means
      Sun Solunet, LLC, the majority shareholder of the Company as of the date of
      this
      Agreement.

     

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

     

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the New York
      Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or the
      OTC Bulletin Board. 

     

    “Transaction
      Documents”
means
      this Agreement, the Certificate of Designations, the Escrow Agreement, the
      Warrants and the Registration Rights Agreement and any other documents or
      agreements executed in connection with the transactions contemplated hereunder.
      

     

    “Units”
means
      the Units being offered pursuant to this Agreement, each Unit consisting of
      one
      share of Preferred Stock, one $0.30 Warrant and one $0.50 Warrant.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    “$0.30
      Warrants”
means
      the Common Stock Purchase Warrants, substantially in the form of Exhibit
      D,
      issuable to the Purchaser at the Closing, which warrants shall have an exercise
      price equal to $0.30 per share and be exercisable for a period of five years.
      Each $0.30 Warrant is initially exercisable into 166,667 shares of Common Stock.
      

     

    “$0.50
      Warrants”
means
      the Common Stock Purchase Warrants, substantially in the form of Exhibit
      E,
      issuable to the Purchaser at the Closing, which warrants shall have an exercise
      price equal to $0.50 per share and be exercisable for a period of five years.
      Each $0.50 Warrant is initially exercisable into 166,667 shares of Common
      Stock.

     

    “Warrants”
means
      the $0.30 Warrants and $0.50 Warrants, collectively. 

     

    ARTICLE
      II

    PURCHASE
      AND SALE 

     

    2.1. Closing.
      At the
      Closing, the Purchaser shall purchase from the Company and the Company shall
      issue and sell to the Purchaser, a number of Units equal to the Purchaser’s
      Subscription Amount divided by the Per Unit Purchase Price. Upon satisfaction
      of
      the conditions set forth in Section 2.2, the Closing shall occur at the offices
      of Olshan Grundman Frome Rosenzweig & Wolosky LLP, Park Avenue Tower, 65
      East 55th
      Street,
      New York, New York 10022, or such other location as the parties shall mutually
      agree.

     

    2.2. Closing
      Conditions; Deliveries.

     

    (a) At
      the
      Closing the Company shall deliver or cause to be delivered to the Purchaser
      or
      in lieu thereof the Placement Agent the following:

     

    (i) this
      Agreement duly executed by the Company; 

     

    (ii) a
      certificate evidencing a number of Preferred Shares equal to the Purchaser’s
      Subscription Amount divided by the Per Unit Purchase Price, registered in the
      name of the Purchaser; 

     

    (iii) a
      copy of
      a $0.30 Warrant, registered in the name of the Purchaser, pursuant to which
      the
      Purchaser shall have the initial right to acquire up to the number of shares
      of
      Common Stock equal to 50% of the Shares to be issued to the Purchaser at the
      Closing assuming the conversion of all Preferred Stock into Common Stock of
      all
      of the Preferred Stock acquired by the Purchaser; 

     

    (iv) a
      copy of
      a $0.50 Warrant, registered in the name of the Purchaser, pursuant to which
      the
      Purchaser shall have the initial right to acquire up to the number of shares
      of
      Common Stock equal to 50% of the Shares to be issued to the Purchaser at the
      Closing assuming the conversion of all Preferred Stock into Common Stock of
      all
      of the Preferred Stock acquired by the Purchaser;

     

    (v) the
      Registration Rights Agreement duly executed by the Company;

     

    (vi) [Reserved]

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (vii) [Reserved]
      

     

    (viii) an
      opinion of outside counsel to the Company, substantially in the form agreed
      to
      between the Company and the Purchaser; and

     

    (ix) a
      certificate of the President or Chief Financial Officer of the Company,
      certifying as to Section 2.2(d) of this Agreement as of the Closing Date and
      that the representations and warranties of the Company contained in this
      Agreement remain true and correct as of the Closing Date.

     

    (b) At
      the
      Closing the Purchaser shall deliver or cause to be delivered to the Company
      the
      following: 

     

    (i) this
      Agreement duly executed by the Purchaser; 

     

    (ii) the
      Purchaser’s Subscription Amount by wire transfer to the account of the Escrow
      Agent (such account as provided to the Purchaser in writing by or on behalf
      of
      the Escrow Agent) prior to the Closing Date;

     

    (iii) [Reserved]

     

    (iv) the
      Registration Rights Agreement duly executed by the Purchaser.

     

    (c) All
      representations and warranties of the other parties contained herein shall
      remain true and correct as of the Closing Date. 

     

    (d) As
      of the
      Closing Date, there shall have been no Material Adverse Effect with respect
      to
      the Company since the date hereof. 

     

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

     

    ARTICLE
      III

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1. Representations
      and Warranties of the Company.
      Except
      as disclosed in the SEC Reports or as set forth under the corresponding section
      of the Disclosure Schedules delivered concurrently herewith, the Company hereby
      makes the following representations and warranties as of the date hereof and
      as
      of the Closing Date to the Purchaser: 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (a) Subsidiaries.
      Except
      as disclosed in the SEC Reports, the Company has no direct or indirect
      subsidiaries. Except as disclosed in the SEC Reports, the Company owns, directly
      or indirectly, all of the capital stock or other equity interests of each
      Subsidiary free and clear of any Liens, and all the issued and outstanding
      shares of capital stock of each Subsidiary are validly issued and are fully
      paid, non-assessable and free of preemptive and similar rights. If the Company
      has no subsidiaries, then references in the Transaction Documents to the
      Subsidiaries will be disregarded.

     

    (b) Organization
      and Qualification.
      The
      Company is an entity duly incorporated or otherwise organized, validly existing
      and in good standing under the laws of the jurisdiction of its incorporation
      or
      organization (as applicable), with the requisite power and authority to own
      and
      use its properties and assets and to carry on its business as currently
      conducted. Neither the Company nor any Subsidiary is in violation of any of
      the
      provisions of its respective certificate or articles of incorporation, bylaws
      or
      other organizational or charter documents. The Company is duly qualified to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business or
      financial condition of the Company and the Subsidiaries, taken as a whole,
      or
      (iii) a material adverse effect on the Company’s ability to perform in any
      material respect on a timely basis its obligations under any Transaction
      Document (any of (i), (ii) or (iii), a “Material
      Adverse Effect”).
      

     

    (c) Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary corporate action on the part of the Company and
      no
      further action is required by the Company in connection therewith other than
      in
      connection with the Required Approvals. Each Transaction Document has been
      (or
      upon delivery will have been) duly executed by the Company and, when delivered
      in accordance with the terms hereof assuming such Transaction Documents are
      duly
      authorized, executed and delivered by the Purchaser as applicable, will
      constitute the valid and binding obligation of the Company enforceable against
      the Company in accordance with its terms except (i) as limited by general
      equitable principles and applicable bankruptcy, insolvency, reorganization,
      moratorium and other laws of general application affecting enforcement of
      creditors’ rights generally, (ii) as limited by laws relating to the
      availability of specific performance, injunctive relief or other equitable
      remedies and (iii) insofar as indemnification and contribution provisions may
      be
      limited by applicable law.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

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

     

    (e) Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) the filing of any reports with the
      Commission, as mandated by the Exchange Act or the Securities Act, (ii) the
      filing with the Commission of the Registration Statement, (iii) application(s)
      to each applicable Trading Market for the listing of the Shares for trading
      thereon in the time and manner required thereby, and (iv) the filing of Form
      D
      with the Commission and such filings as are required to be made under applicable
      state securities laws, with each of the items listed in clauses (i)-(iv)
      inclusive being deemed a “Required
      Approval”).
      

     

    (f) Issuance
      of the Securities.
      The
      Preferred Shares and Warrants are duly authorized and, when issued and paid
      for
      in accordance with the Transaction Documents, will be duly and validly issued,
      fully paid and nonassessable, free and clear of all Liens imposed by the Company
      other than as set forth in the Transaction Documents. The Shares, when issued
      in
      accordance with the terms of the Transaction Documents, will be validly issued,
      fully paid and nonassessable, free and clear of all Liens imposed by the
      Company.

     

    (g) Capitalization.
      The
      capitalization of the Company is as described in the Company’s SEC Reports filed
      with the Commission. The Company has not issued any capital stock since the
      April 2006 Closing other than pursuant to the exercise of employee stock options
      under the Company’s stock option plans, the issuance of shares of Common Stock
      to employees pursuant to the Company’s employee stock purchase plan and pursuant
      to the conversion or exercise of outstanding Common Stock Equivalents. No Person
      has any right of first refusal, preemptive right, right of participation, or
      any
      similar right to participate in the transactions contemplated by the Transaction
      Documents. Except as a result of the purchase and sale of the Securities, there
      are no outstanding options, warrants, script rights to subscribe to, calls
      or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or exchangeable for, or giving any Person any
      right
      to subscribe for or acquire, any shares of Common Stock, or contracts,
      commitments, understandings or arrangements by which the Company or any
      Subsidiary is or may become bound to issue additional shares of Common Stock,
      or
      securities or rights convertible or exchangeable into shares of Common Stock,
      other than as set forth in the SEC Reports. The issue and sale of the Securities
      will not obligate the Company to issue shares of Common Stock or other
      securities to any Person (other than the Purchaser) and will not result in
      a
      right of any holder of Company securities to adjust the exercise, conversion,
      exchange or reset price under such securities. All of the outstanding shares
      of
      capital stock of the Company are validly issued, fully paid and nonassessable,
      have been issued in material compliance with all federal and state securities
      laws, and none of such outstanding shares was issued in violation of any
      preemptive rights or similar rights to subscribe for or purchase securities.
      Except with respect to the approvals and authorizations required to increase
      the
      Company’s authorized capital to permit issuance of the Shares, no further
      approval or authorization of any stockholder, the Board of Directors of the
      Company or others is required for the issuance and sale of the Preferred Shares
      or the grant of the Warrants or the issuance of the Shares upon conversion
      of
      the Preferred Stock. With respect to the Shares issuable upon the exercise
      of
      the Warrants, the Company shall increase its authorized capital in amount
      sufficient to provide for the exercise of all outstanding Warrants of the
      Company. Except as disclosed in the SEC Reports, there are no stockholders
      agreements, voting agreements or other similar agreements with respect to the
      Company’s capital stock to which the Company is a party or, to the knowledge of
      the Company, between or among any of the Company’s stockholders.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (h)  SEC
      Reports; Financial Statements.
      The
      Company has filed all reports required to be filed by it under the Securities
      Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
      for the two years preceding the date hereof (or such shorter period as the
      Company was required by law to file such material) (the foregoing materials,
      including the exhibits thereto, being collectively referred to herein as the
      “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports, as the same may have been amended,
      complied in all material respects at the time of filing with the requirements
      of
      the Securities Act and the Exchange Act and the rules and regulations of the
      Commission promulgated thereunder, and none of the SEC Reports except to the
      extent amended, updated or superseded by any subsequent filed report, when
      furnished or filed, contained any untrue statement of a material fact or omitted
      to state a material fact required to be stated therein or necessary in order to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading in any material respect. The financial statements of the
      Company included in the SEC Reports, except to the extent amended, updated
      or
      superseded by any subsequent filed report, whether furnished or filed, at the
      time of filing complied in all material respects with applicable accounting
      requirements and the rules and regulations of the Commission with respect
      thereto as in effect at the time of filing. Such financial statements have
      been
      prepared in accordance with generally accepted accounting principles applied
      on
      a consistent basis during the periods involved (“GAAP”),
      except to the extent amended, updated or superseded by and subsequent filed
      report, except as may be otherwise specified in such financial statements or
      the
      notes thereto and except that unaudited financial statements may not contain
      all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated subsidiaries as of and
      for the dates thereof, except to the extent amended, updated or superseded
      by
      and subsequent filed report, and the results of operations and cash flows for
      the periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments. 

     

    (i) Material
      Changes.
      Since
      the date of the filing of the latest audited financial statements included
      within the SEC Reports, except as disclosed in the SEC Reports (i) there has
      been no event, occurrence or development that has had or that could reasonably
      be expected to result in a Material Adverse Effect, (ii) the Company has not
      incurred any liabilities (contingent or otherwise) other than (A) trade payables
      and accrued expenses incurred in the ordinary course of business consistent
      with
      past practice and (B) liabilities required to be reflected in the Company’s
      financial statements pursuant to GAAP or required to be disclosed in filings
      made with the Commission, (iii) the Company has not altered its method of
      accounting, (iv) the Company has not declared or made any dividend or
      distribution of cash or other property, with or without consideration, to its
      stockholders or purchased, redeemed or made any agreements to purchase or redeem
      any shares of its capital stock and (v) the Company has not issued any equity
      securities to any officer, director or Affiliate, except pursuant to existing
      Company stock option plans. Except as disclosed in the SEC Reports, the Company
      does not have pending before the Commission any request for confidential
      treatment of information. 

     

    (j) Litigation.
      Except
      as disclosed in the SEC Reports, there is no action, suit, inquiry, notice
      of
      violation, proceeding or investigation pending or, to the knowledge of the
      Company, threatened against or affecting the Company, any Subsidiary or any
      of
      their respective properties before or by any court, arbitrator, governmental
      or
      administrative agency or regulatory authority (federal, state, county, local
      or
      foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor to the Company’s
      knowledge, any director or officer thereof, is or has been the subject of any
      Action involving a claim of violation of or liability under federal or state
      securities laws or a claim of breach of fiduciary duty. There has not been,
      and
      to the knowledge of the Company, there is not pending or contemplated, with
      respect to the Company, any investigation by the Commission involving the
      Company or any current or former director or officer of the Company. The
      Commission has not issued any stop order or other order suspending the
      effectiveness of any registration statement filed by the Company or any
      Subsidiary under the Exchange Act or the Securities Act.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

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

     

    (l) Regulatory
      Permits.
      The
      Company possesses all certificates, authorizations and permits issued by the
      appropriate federal, state, local or foreign regulatory authorities necessary
      to
      conduct their respective businesses as described in the SEC Reports, except
      where the failure to possess such permits could not have or reasonably be
      expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      the Company has not received any notice of proceedings relating to the
      revocation or modification of any Material Permit. 

     

    (m) Sarbanes-Oxley.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. 

     

    (n) Certain
      Fees.
      Except
      for fees payable to Monarch Capital Group LLC, no brokerage or finder’s fees or
      commissions are or will be payable by the Company to any broker, financial
      advisor or consultant, finder, placement agent, investment banker, bank or
      other
      Person with respect to the transactions contemplated by this Agreement. The
      Purchaser shall have no obligation with respect to any fees or with respect
      to
      any claims made by or on behalf of other Persons for fees of a type contemplated
      in this Section that may be due in connection with the transactions contemplated
      by this Agreement. 

     

    (o) Private
      Placement.
      Assuming the accuracy of the Purchaser’s representations and warranties set
      forth in Section 3.2, no registration under the Securities Act is required
      for
      the offer and sale of the Securities by the Company to the Purchaser as
      contemplated hereby. The issuance and sale of the Securities hereunder does
      not
      contravene the rules and regulations of the Trading Market. 

     

    (p) Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
      Act, and the Company has taken no action designed to, or which to its knowledge
      is likely to have the effect of, terminating the registration of the Common
      Stock under the Exchange Act nor has the Company received any notification
      that
      the Commission is contemplating terminating such registration. Except as
      disclosed in the SEC Reports, the Company has not, in the 12 months preceding
      the date hereof, received notice from any Trading Market on which the Common
      Stock is or has been listed or quoted to the effect that the Company is not
      in
      compliance with the listing or maintenance requirements of such Trading Market.
      

     

    (q) Disclosure.
      The
      Company understands and confirms that the Purchaser will rely on the foregoing
      representations and covenants in effecting transactions in securities of the
      Company. All disclosure provided to the Purchaser regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, furnished by or on behalf of the Company are true
      and correct and do not contain any untrue statement of a material fact or omit
      to state any material fact necessary in order to make the statements made
      therein, in light of the circumstances under which they were made, not
      misleading. 

     

    (r) General
      Solicitation.
      Neither
      the Company nor, to the Company’s knowledge, any person acting on behalf of the
      Company has offered or sold any of the Units by any form of general solicitation
      or general advertising. To the Company’s knowledge, based upon representations
      by the Purchaser or other investors, the Company has offered the Units for
      sale
      only to the Purchaser and certain other “accredited investors” within the
      meaning of Rule 501 under the Securities Act.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    3.2. Representations
      and Warranties of the Purchaser.
      The
      Purchaser acknowledges that the offering of Securities to the Purchaser is
      intended to be exempt from registration under the Securities Act by virtue
      of
      Section 4(2) of the Securities Act and the provisions of Regulation D
      promulgated thereunder, which is in part dependent upon the truth, completeness
      and accuracy of the representations made by the Purchaser in this Agreement.
      The
      Purchaser hereby represents and warrants as of the date hereof and as of the
      Closing Date to the Company as follows: 

     

    (a) No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the consummation
      by
      the Purchaser of the transactions contemplated hereby or relating hereto do
      not
      and will not (i) result in a violation of the Purchaser’s charter documents
      or bylaws or (ii) conflict with, or constitute a default (or an event which
      with notice or lapse of time or both would become a default) under, or give
      to
      others any rights of termination, amendment, acceleration or cancellation of
      any
      agreement, indenture or instrument to which the Purchaser is a party, or
      conflict with, breach or violate any law applicable to the Purchaser or its
      properties (except for such conflicts, defaults and violations as would not,
      individually or in the aggregate, have a Material Adverse Effect on the
      Purchaser). The Purchaser is not required to obtain any consent, authorization
      or order of, or make any filing or registration with, any court or governmental
      agency in order for it to execute, deliver or perform any of the Purchaser’s
      obligations under this Agreement or to purchase the securities from the Company
      in accordance with the terms hereof, provided that for purposes of the
      representation made in this sentence, the Purchaser is assuming and relying
      upon
      the accuracy of the relevant representations and agreements of the Company
      herein.

     

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

     

    (c) Purchaser’s
      Intent.
      The
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account (this
      representation and warranty not limiting the Purchaser’s right to sell the
      Shares pursuant to the Registration Statement or otherwise in compliance with
      applicable federal and state securities laws and in accordance with the
      Transaction Documents). The Purchaser is acquiring the Securities hereunder
      in
      the ordinary course of its business. The Purchaser does not have any agreement
      or understanding, directly or indirectly, with any Person to distribute any
      of
      the Securities. 

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (d) Purchaser
      Status.
      At the
      time the Purchaser was offered the Securities, it was, and at the date hereof
      and as of the Closing Date it is an “accredited investor” as defined in Rule
      501(a) under the Securities Act. The Purchaser is not required to be registered
      as a broker-dealer under Section 15 of the Exchange Act. The Purchaser
      understands that the Purchaser’s investment in the Securities being purchased
      from the Company involve a high degree of risk. The Purchaser 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
      being purchased by the Purchaser from the Company. The Purchaser warrants that
      the Purchaser is able to bear the complete loss of the Purchaser’s investment in
      the securities being purchased from the Company.

     

    (e) Experience
      of the Purchaser.
      The
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      The Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment. 

     

    (f) Full
      Access.
      The
      Purchaser has been given full access to such records of the Company and the
      Subsidiaries and to the officers and directors of the Company (including the
      opportunity to ask questions of and receive answers from such Persons) and
      the
      Subsidiaries as it has deemed necessary or appropriate.

     

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

     

    (h) Compliance
      with Patriot Act.
      The
      funds utilized by the Purchaser for the purchase of the Securities do not
      violate any provisions of the USA Patriot Act of 2001. 

     

    (i) Beneficial
      Ownership.
      The
      Purchaser and its affiliates do not beneficially own more than 4.9% of the
      Common Stock as of the date hereof. The Purchaser shall not exercise the
      Warrants or convert the Preferred Shares to the extent that such exercise or
      conversion would result in beneficial ownership by the Purchaser and its
      affiliates of more than 4.9% of the then outstanding number of shares of Common
      Stock on such date. For the purposes of this subsection, beneficial ownership
      shall be determined in accordance with Section 13(d) of the Exchange Act, and
      Regulation 13d-3 promulgated thereunder. Notwithstanding the foregoing, the
      Purchaser, to the extent such purchase of the Securities causes the Purchaser’s
      beneficial ownership to exceed 4.9% of the outstanding shares of the Company,
      will qualify for filing on a Schedule 13D or 13G under the Exchange
      Act.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (j) Blue
      Sky Compliance.
      The
      Purchaser shall agree to comply with any state blue sky limitations on the
      resale of the Securities, if any. 

     

    (k) Certain
      Fees.
      Except
      for fees payable to Monarch Capital Group LLC, no brokerage or finder’s fees or
      commissions are or will be payable by the Purchaser to any broker, financial
      advisor or consultant, finder, placement agent, investment banker, bank or
      other
      Person with respect to the transactions contemplated by this Agreement. The
      Purchaser shall have no obligation with respect to any fees or with respect
      to
      any claims made by or on behalf of other Persons for fees of a type contemplated
      in this Section that may be due in connection with the transactions contemplated
      by this Agreement.

     

    (l) Investment
      Decision.
      The
      Purchaser is making its own investment decision to invest in the Securities
      and
      has not relied on any representation (oral or written other than as set forth
      in
      this Agreement).

     

    ARTICLE
      IV

    OTHER
      AGREEMENTS OF THE PARTIES

     

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

     

    (a) The
      Purchaser agrees to the imprinting, so long as is required by this Section
      4.1(a), of a legend on any of the Securities in the following form: THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
      ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
      INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
      SECURITIES ACT.

     

    
      
         

      

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

     

    (b) Certificates
      evidencing the Shares shall not contain any legend (including the legend set
      forth in Section 4.1(a)), (i) while a registration statement (including the
      Registration Statement) covering the resale of such security is effective under
      the Securities Act, or (ii) following any sale of such Shares pursuant to Rule
      144, or (iii) if such Shares are eligible for sale under Rule 144(k) and a
      request for the removal has been provided in writing by the Purchaser to the
      Company, or (iv) if such legend is not required under applicable requirements
      of
      the Securities Act (including judicial interpretations and pronouncements issued
      by the Staff of the Commission) and a request for the removal has been provided
      in writing by the Purchaser to the Company. The Company shall cause its counsel
      to issue a legal opinion to the Company’s transfer agent promptly after the
      Effective Date if required by the Company’s transfer agent to effect the removal
      of the legend hereunder with respect to the Shares registered thereunder,
      subject to any state blue sky law limitations. If any Preferred Shares are
      converted or if all or any portion of a Warrant is exercised at a time when
      there is an effective registration statement to cover the resale of the Shares
      for which the Preferred Shares are converted or the applicable portion of the
      Warrant has been exercised, such Shares shall be issued free of all legends.
      The
      Company agrees that following the Effective Date or at such time as such legend
      is no longer required under this Section 4.1(b), it will, no later than five
      Trading Days following the delivery by the Purchaser to the Company or the
      Company’s transfer agent of a certificate representing Shares issued with a
      restrictive legend, deliver or cause to be delivered to the Purchaser a
      certificate representing such Securities that is free from all restrictive
      and
      other legends. The Company may not make any notation on its records or give
      instructions to any transfer agent of the Company that enlarge the restrictions
      on transfer set forth in this Section. 

     

    (c) The
      Purchaser agrees that the removal of the restrictive legend from certificates
      representing Securities as set forth in this Section 4.1 is predicated upon
      the
      Company’s reliance that the Purchaser will sell any Securities pursuant to
      either the registration requirements of the Securities Act, including any
      applicable prospectus delivery requirements, or an exemption
      therefrom.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    4.2. Furnishing
      of Information.
      As long
      as the Purchaser owns Securities, the Company covenants to timely file (or
      obtain extensions in respect thereof and file within the applicable grace
      period) all reports required to be filed by the Company after the date hereof
      pursuant to the Exchange Act. As long as the Purchaser owns Securities, if
      the
      Company is not required to file reports pursuant to such laws, it will prepare
      and furnish to the Purchaser and make publicly available in accordance with
      Rule
      144(c) such information as is required for the Purchaser to sell the Securities
      under Rule 144 to the extent Rule 144 is available for such sale. The Company
      further covenants that it will take such further reasonable action as any holder
      of Securities may reasonably request, to the extent required from time to time
      to enable such Person to sell such Securities without registration under the
      Securities Act within the limitation of the exemptions provided by Rule 144.
      

     

    4.3. Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that (X) would be integrated with the offer or sale of the Securities
      in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchaser or (Y) that would be integrated with the
      offer or sale of the Securities for purposes of the rules and regulations of
      any
      Trading Market such that it would require shareholder approval prior to the
      closing of such other transaction unless such shareholder approval is obtained
      before the closing of such subsequent transaction.

     

    4.4. Shareholders
      Rights Plan.
      Except
      as set forth in the Disclosure Schedule, no claim will be made or enforced
      by
      the Company or, to the knowledge of the Company, any other Person that the
      Purchaser is an “Acquiring Person” under any shareholders rights plan or similar
      plan or arrangement in effect or hereafter adopted by the Company, or that
      the
      Purchaser could be deemed to trigger the provisions of any such plan or
      arrangement, by virtue of receiving Securities under the Transaction Documents
      or under any other agreement between the Company and the Purchaser.

     

    4.5. Non-Public
      Information.
      The
      Purchaser hereby agrees to keep confidential the information provided in the
      power-point presentation made to the Purchaser by the Company (the “Presentation”).
      Except for the Presentation, the Purchaser acknowledges and the Company confirms
      that neither the Company nor, to its knowledge, any other person acting on
      the
      Company’s behalf, has provided the Purchaser or their agents or counsel with any
      other information that constitutes material, non-public information relating
      to
      the Company. The Company acknowledges that the Company nor anyone acting on
      its
      behalf shall provide any additional material, non-public information to the
      Purchaser without the Purchaser’s written consent and the Purchaser acknowledges
      that it shall not be permitted to accept any such information unless and until
      the Purchaser shall have executed a written agreement with the Company agreeing
      to keep such information confidential and to limit the use of such information
      as required by the Company, except as required by law. 

     

    4.6. Use
      of
      Proceeds.
      In
      addition to paying any legal and administrative fees in connection with the
      sale
      of the Units to the Purchaser, the Company shall use approximately $__________
      of the net proceeds from the sale of the Units to the Purchaser for the paydown
      or payoff of outstanding debt, and the remaining net proceeds from the sale
      of
      the Units to the Purchaser for working capital and general corporate
      purposes.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    4.7. Reimbursement.
      If the
      Purchaser becomes involved in any capacity in any Proceeding by or against
      any
      Person who is a stockholder of the Company (except as a result of sales,
      pledges, margin sales and similar transactions by the Purchaser to or with
      any
      current stockholder), solely as a result of the Purchaser’s acquisition of the
      Securities under this Agreement, the Company will reimburse the Purchaser for
      its reasonable legal and other expenses (including the cost of any investigation
      preparation and travel in connection therewith) incurred in connection
      therewith, as such expenses are incurred. The reimbursement obligations of
      the
      Company under this paragraph shall be in addition to any liability which the
      Company may otherwise have, shall extend upon the same terms and conditions
      to
      any Affiliates of the Purchaser who are actually named in such action,
      proceeding or investigation, and partners, directors, agents, employees and
      controlling persons (if any), as the case may be, of the Purchaser and any
      such
      Affiliate, and shall be binding upon and inure to the benefit of any successors,
      assigns, heirs and personal representatives of the Company, the Purchaser and
      any such Affiliate and any such Person. The Company also agrees that neither
      the
      Purchaser nor any such Affiliates, partners, directors, agents, employees or
      controlling persons shall have any liability to the Company or any Person
      asserting claims on behalf of or in right of the Company solely as a result
      of
      acquiring the Securities under this Agreement. 

     

    4.8. Indemnification
      of Purchaser.
      The
      Company will indemnify and hold the Purchaser and its directors, officers,
      shareholders, partners, employees and agents (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to: (a) any misrepresentation, breach or inaccuracy of any of the
      representations, warranties, covenants or agreements made by the Company in
      this
      Agreement or in the other Transaction Documents; or (b) any cause of action,
      suit or claim brought or made against such Purchaser Party and arising solely
      out of or solely resulting from the execution, delivery, performance or
      enforcement of this Agreement or any of the other Transaction Documents and
      without causation by any other activity, obligation, condition or liability
      pertaining to the Purchaser. The Company will reimburse the Purchaser for its
      reasonable legal and other expenses (including the cost of any investigation,
      preparation and travel in connection therewith) incurred in connection
      therewith, as such expenses are incurred; provided, however, that absent an
      actual conflict of interest with respect to the Purchaser involved in any such
      matter for which indemnification claim is made hereunder, the Company shall
      pay
      only one reasonable counsel fee for the representation of the Purchaser in
      such
      matter.

     

    4.9. Reservation
      of Common Stock.
      As of
      the date hereof, the Company has reserved and the Company shall continue to
      reserve and keep available at all times, free of preemptive rights, 50,000,000
      shares of Common Stock for the purpose of enabling the Company to issue Shares
      to the Purchaser, the April Purchasers and the Initial Purchasers. The Company
      shall increase its authorized capital in an amount sufficient to provide for
      the
      conversion of all the Preferred Stock and exercise of all of the outstanding
      Warrants of the Company. Until such time as the Company has so increased its
      authorized capital, the Purchaser shall be entitled to convert the Preferred
      Stock and exercise the Warrants held by it on a pro rata basis with the Prior
      Purchasers, weighted on the basis of the respective Subscription Amounts paid
      to
      the Company by each such Purchaser.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    4.10. Listing
      of Common Stock.
      The
      Company hereby agrees to use commercially reasonably efforts to maintain the
      listing or quotation of the Common Stock on the Trading Market, and as soon
      as
      reasonably practicable following the Closing (but not later than the earlier
      of
      the Effective Date and the first anniversary of the Closing Date) to list all
      of
      the Shares on the Trading Market. The Company further agrees, if the Company
      applies to have the Common Stock traded on any other Trading Market, it will
      include in such application all of the Shares, and will take such other action
      as is necessary to cause all of the Shares to be listed or quoted on such other
      Trading Market as promptly as possible. The Company will take all action
      reasonably necessary to continue the listing and/or quotation and trading of
      its
      Common Stock on a Trading Market and will comply in all respects with the
      Company’s reporting, filing and other obligations under the bylaws or rules of
      the Trading Market. 

     

    4.11. Equal
      Treatment.
      Following the execution and delivery of this Agreement by the parties hereto,
      no
      consideration shall be offered or paid to any person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Prior
      Purchase Agreements. For clarification purposes, this provision constitutes
      a
      separate right granted to the Purchaser and the Prior Purchasers by the Company
      and negotiated separately by each such Person, and is intended to treat for
      the
      Company such Persons as a class and shall not in any way be construed as such
      Persons acting in concert or as a group with respect to the purchase,
      disposition or voting of Securities or otherwise. 

     

    4.12. No
      Net
      Short Position.
      The
      Purchaser agrees that neither it, any Person acting at the request or direction
      of the Purchaser, nor any Affiliate, will enter into any Short Sales (as
      hereinafter defined) from the period commencing on the Closing Date and ending
      on the date that the Purchaser no longer holds any Shares. For purposes of
      this
      Section 4.12, a “Short
      Sale”
by
      the
      Purchaser shall mean a sale of Common Stock by the Purchaser that is marked
      as a
      short sale and that is made at a time when there is no equivalent offsetting
      long position in Common Stock held by the Purchaser. For purposes of determining
      whether there is an equivalent offsetting long position in Common Stock held
      by
      the Purchaser, Shares that have not yet been converted or exercised pursuant
      to
      the Certificate of Designations or the Warrants shall be deemed to be held
      long
      by the Purchaser, and the amount of shares of Common Stock held in a long
      position shall be all Shares held by the Purchaser on such date, plus any shares
      of Common Stock otherwise then held by the Purchaser. Additionally, the
      Purchaser understands and acknowledges that the Commission currently takes
      the
      position that coverage of short sales of shares of the Common Stock “against the
      box” prior to the Effective Date of the Registration Statement with the Shares
      purchased hereunder is a violation of Section 5 of the Securities Act, as set
      forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available
      Telephone Interpretations, dated July 1997, compiled by the Office of Chief
      Counsel, Division of Corporation Finance. Accordingly, the Purchaser hereby
      agrees not to use any of the Shares to directly cover any short sales made
      prior
      to the Effective Date. 

     

    4.13. Corporate
      Existence; Conflicting Agreements.
      The
      Company will take all steps necessary to preserve and continue the corporate
      existence of the Company to the extent that failure to so preserve and continue
      the corporate existence of the Company would restrict or impair the right or
      ability of the Company or any successor to perform any of its obligations under
      this Agreement or any of the other agreements attached as exhibits hereto.
      The
      Company shall not enter into any agreement, the terms of which agreement would
      restrict or impair the right or ability of the Company or any successor to
      perform any of its obligations under this Agreement or any of the other
      agreements attached as exhibits hereto.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    4.14. Lock-Up
      Agreement.
      The
      Company has caused the officers and inside directors that are employees of
      the
      Company to execute a lock-up agreement hereto restricting such Persons from
      selling any shares of Common Stock for a one-year period commencing on the
      date
      of the Initial Purchase Agreement. 

     

    4.15. Disclosure
      of Transactions and Other Material Information.
      Within
      four business days of the Closing Date, the Company shall file a Current Report
      on Form 8-K describing the material terms of this Agreement and the transactions
      contemplated hereby in the form required by the Exchange Act (including all
      exhibits, the “8-K
      Filing”).
      From
      and after the filing of the 8-K Filing, the Purchaser shall not be in possession
      of any material, nonpublic information received from the Company, except the
      Presentation and such material, nonpublic information that may be provided
      in
      accordance with Section 4.5 hereof. In the event of a breach of Section 4.5
      by
      the Company, the Purchaser may request that the Company make public disclosure,
      in the form of a press release, public advertisement or otherwise, of such
      material, nonpublic information. The Purchaser shall be consulted by the Company
      in connection with any press release issued in connection with the sale of
      Units
      to the Purchaser prior to its release and the Company shall not disclose the
      identity of the Purchaser in such press release without the prior consent of
      the
      Purchaser.

     

    4.16. Due
      Diligence.
      The
      Purchaser hereby agrees and acknowledges that (i) it has conducted its own
      due
      diligence review or investigation of the Company and the Units prior to making
      any investment in the Units and (ii) it is not relying on any other person
      to
      conduct a due diligence review or investigation independently verifying any
      of
      the representations contained in this Agreement or in any other document
      previously provided to it.

     

    ARTICLE
      V

    MISCELLANEOUS

     

    5.1. Fees
      and Expenses.
      Each
      party shall pay the fees and expenses of its advisers, counsel, accountants
      and
      other experts, if any, and all other expenses incurred by such party incident
      to
      the negotiation, preparation, execution, delivery and performance of this
      Agreement. The Company shall pay all stamp and other taxes and duties levied
      in
      connection with the sale of the Securities. 

     

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

     

    5.3. Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered (receipt confirmed) via facsimile at the facsimile number set
      forth
      on the signature pages attached hereto prior to 6:30 p.m. (New York City time)
      on a Trading Day, (b) the next Trading Day after the date of transmission,
      if
      such notice or communication is delivered (receipt confirmed) via facsimile
      at
      the facsimile number set forth on the signature pages attached hereto on a
      day
      that is not a Trading Day or later than 6:30 p.m. (New York City time) on any
      Trading Day, (c) the second Trading Day following the date of deposit with
      a
      carrier or service, if sent by U.S. nationally recognized overnight carrier
      or
      courier service, or (d) upon actual receipt by the party to whom such notice
      is
      required to be given. The address for such notices and communications shall
      be
      as set forth on the signature pages attached hereto.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    5.4. Amendments;
      Waivers.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed, in the case of an amendment, by the Company and the Purchaser
      or, in the case of a waiver, by the party against whom enforcement of any such
      waiver is sought. No waiver of any default with respect to any provision,
      condition or requirement of this Agreement shall be deemed to be a continuing
      waiver in the future or a waiver of any subsequent default or a waiver of any
      other provision, condition or requirement hereof (unless it so provides by
      its
      terms), nor shall any delay or omission of either party to exercise any right
      hereunder in any manner impair the exercise of any such right. 

     

    5.5. Construction.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. The language used in this Agreement will be deemed to be the language
      chosen by the parties to express their mutual intent, and no rules of strict
      construction will be applied against any party. 

     

    5.6. Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Purchaser. The Purchaser may assign any or all of its rights
      under this Agreement to any Person to whom the Purchaser assigns or transfers
      any Securities, provided such transferee agrees in writing to be bound, with
      respect to the transferred Securities, by the provisions hereof that apply
      to
      the “Purchaser”. 

     

    5.7. No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.8. 

     

    5.8. Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of the Transaction Documents shall be governed by and construed and enforced
      in
      accordance with the internal laws of the State of New York, without regard
      to
      the principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
      transactions contemplated by this Agreement and any other Transaction Documents
      (whether brought against a party hereto or its respective affiliates, directors,
      officers, shareholders, employees or agents) shall be commenced exclusively
      in
      the state and federal courts sitting in the City of New York. Each party hereto
      hereby irrevocably submits to the exclusive jurisdiction of the state and
      federal courts sitting in the City of New York, New York for the adjudication
      of
      any dispute hereunder or in connection herewith or with any transaction
      contemplated hereby or discussed herein (including with respect to the
      enforcement of any of the Transaction Documents), and hereby irrevocably waives,
      and agrees not to assert in any suit, action or proceeding, any claim that
      it is
      not personally subject to the jurisdiction of any such court, that such suit,
      action or proceeding is improper. Each party hereto hereby irrevocably waives
      personal service of process and consents to process being served in any such
      suit, action or proceeding by delivering a copy thereof via overnight delivery
      (with evidence of delivery) to such party at the address in effect for notices
      to it under this Agreement and agrees that such service shall constitute good
      and sufficient service of process and notice thereof. Nothing contained herein
      shall be deemed to limit in any way any right to serve process in any manner
      permitted by law. Each party hereto (including its affiliates, agents, officers,
      directors and employees) hereby irrevocably waives, to the fullest extent
      permitted by applicable law, any and all right to trial by jury in any legal
      proceeding arising out of or relating to this Agreement or the transactions
      contemplated hereby. If either party shall commence an action or proceeding
      to
      enforce any provisions of a Transaction Document, then the prevailing party
      in
      such action or proceeding, as determined by the court hearing such matter,
      shall
      be reimbursed by the other party for its reasonable attorneys’ fees and other
      costs and expenses incurred with the investigation, preparation and prosecution
      of such action or proceeding.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    5.9. Survival.
      The
      representations and warranties herein shall survive the Closing and delivery
      of
      the Preferred Shares, the Warrants and the Shares. 

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    5.14. Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of the Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any of the Prior Purchasers under the applicable
      Prior Purchase Agreement and the transaction documents relating thereto, and
      the
      Purchaser shall not be responsible in any way for the performance of the
      obligations of any Prior Purchaser under the related transaction document.
      Nothing contained herein or in any Transaction Document, and no action taken
      by
      the Purchaser pursuant thereto, shall be deemed to constitute the Purchaser
      and
      the Prior Purchasers as a partnership, an association, a joint venture or any
      other kind of entity, or create a presumption that such Persons are in any
      way
      acting in concert or as a group with respect to such obligations or the
      transactions contemplated by the Transaction Document. The Purchaser shall
      be
      entitled independently to protect and enforce its rights, including without
      limitation, the rights arising out of this Agreement or out of the other
      Transaction Documents or the Prior Purchase Agreements or the related
      transaction documents, and it shall not be necessary for any Prior Purchaser
      to
      be joined as an additional party in any proceeding for such purpose. The
      Purchaser has been or has had the opportunity to be represented by its own
      separate legal counsel in its review and negotiation of the Transaction
      Documents. The Company has elected to provide the Purchaser with the
      substantially the same terms and Transaction Documents as the Prior Purchasers
      for the convenience of the Company and not because it was required or requested
      to do so by such Persons.

     

    [Signature
      Pages Follow]

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

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

     

    SAN
      HOLDINGS, INC.

     

    By: 
      /s/
      John
      Jenkins

      
        

      

    

    Name:
      John Jenkins

    Title:
      CEO

     

    Address
      for Notice:

     

    If
      to
      SAN Holdings, Inc.:

     

    9800
      Pyramid Court

    Suite
      130

    Englewood,
      CO 80112

    Attention:
      John Jenkins or Robert Ogden

     

    With
      a
      copy to:

     

    Kutak
      Rock LLP

    1801
      California Street

    Suite
      3100

    Denver,
      CO 80202

    Facsimile
      No.: (303) 292-7799

    Attention:
      Joshua Kerstein, Esq.

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGES FOR PURCHASERS FOLLOW]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    [PURCHASER
      SIGNATURE PAGES SECURITIES PURCHASE AGREEMENT] 

     

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

     

    

     

    Name
      of
      Investing Entity:

    Millennium
      Partners, L.P.

    By:
      Millennium Management, L.L.C.

     

    Signature
      of Authorized Signatory of Investing Entity: /s/
      Terry Feeney

     

    Name
      of
      Authorized Signatory: Terry Feeney

     

    Title
      of
      Authorized Signatory: Chief Operating Officer

     

    Email
      Address of Authorized Entity:
      ________________________________________________

     

    Address
      for Notice of Investing Entity: 

     

    c/o
      Millennium Management, L.L.C.

    666
      Fifth
      Avenue, 8th Floor

    New
      York,
      NY 10103

    Attention:
      David Nolan 

     

    Telephone:
      (212) 841-4100

    Facsimile:
      (212) 841-4141

    

     

    Address
      for Delivery of Securities for Investing Entity (if not same as above):

     

    

    Subscription
      Amount: $1,500,000

     

    Units:
      30

     

    Preferred
      Shares: 30

     

    $0.30
      Warrants: 5,000,010

    $0.50
      Warrants: 5,000,010

     

    EIN
      Number:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    DISCLOSURE
      SCHEDULES

     

     

    [Intentionally
      Omitted]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Exhibit
      A

     

    Form
      of Certificate of Designations of Series A Preferred Stock

     

    

     

    [INTENTIONALLY
      OMITTED; Incorporated by reference to Exhibit A of Exhibit 10.01 to the
      Company’s Current Report on Form 8-K filed March 8, 2006]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Exhibit
      B

     

    Form
      of Escrow Agreement

     

    

    [INTENTIONALLY
      OMITTED; Incorporated by reference to Exhibit B of Exhibit 10.01 to the
      Company’s Current Report on Form 8-K filed March 8, 2006]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Exhibit
      C

     

    Form
      of Registration Rights Agreement

     

    

    [INTENTIONALLY
      OMITTED; Incorporated by reference to Exhibit C of Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed March 8, 2006 except for the signature page
      which is incorporated by reference to Exhibit C of Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed April 21, 2006]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Exhibit
      D 

     

    Form
      of $0.30 Warrant

     

    
      Warrant
        Number WA-[A][B]- ____

       

      NEITHER
        THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
        HAVE
        BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
        MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
        FROM,
        OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
        SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
        EVIDENCED, IF REQUESTED, BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
        REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
        SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED
        IN
        CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER
        OR
        OTHER BONA FIDE LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
        INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

       

      COMMON
        STOCK PURCHASE WARRANT

       

      To
        Purchase _________________Shares of Common Stock of

       

      SAN
        HOLDINGS, INC.

       

      THIS
        COMMON STOCK PURCHASE WARRANT (the “Warrant”)
        CERTIFIES that, for value received, [______________] (the “Holder”),
        is
        entitled, upon the terms and subject to the limitations on exercise and the
        conditions hereinafter set forth, at any time on or after the date of issuance
        of this Warrant (the “Initial
        Exercise Date”)
        and on
        or prior to the five year anniversary of the Initial Exercise Date (the
“Termination
        Date”)
        but
        not thereafter, to subscribe for and purchase from San Holdings, Inc., a
        Colorado corporation (the “Company”),
        up to
        [_____________________] shares (the “Warrant
        Shares”)
        of
        Common Stock, no par value per share, of the Company (the “Common
        Stock”).
        The
        purchase price of one share of Common Stock (the “Exercise
        Price”)
        under
        this Warrant shall be [$0.30/$0.50], subject to adjustment hereunder. The
        Exercise Price and the number of Warrant Shares for which the Warrant is
        exercisable shall be subject to adjustment as provided herein. Capitalized
        terms
        used and not otherwise defined herein shall have the meanings set forth in
        that
        certain Securities Purchase Agreement (the “Purchase
        Agreement”),
        dated
        May 4, 2006, among the Company and the purchasers signatory thereto.

       

      1. Title
        to Warrant.
        Prior
        to the Termination Date and subject to compliance with applicable laws and
        Section 7 of this Warrant, this Warrant and all rights hereunder are
        transferable, in whole or in part, at the office or agency of the Company
        by the
        Holder in person or by duly authorized attorney, upon surrender of this Warrant
        together with the Assignment Form annexed hereto properly endorsed. The
        transferee shall sign an investment letter in form and substance reasonably
        satisfactory to the Company.

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

       

      2. Authorization
        of Shares.
        The
        Company covenants that all Warrant Shares which may be issued upon the exercise
        of the purchase rights represented by this Warrant will, upon exercise of
        the
        purchase rights represented by this Warrant, be duly authorized, validly
        issued,
        fully paid and nonassessable and free from all taxes, liens and charges in
        respect of the issue thereof (other than taxes in respect of any transfer
        occurring contemporaneously with such issue). 

       

      3. Exercise
        of Warrants.

       

      (a) Exercise
        of the purchase rights represented by this Warrant may be made at any time
        or
        times on or after the Initial Exercise Date and on or before the Termination
        Date by delivery to the Company of the Notice of Exercise Form, surrender
        of
        this Warrant and payment of the aggregate Exercise Price (or such other office
        or agency of the Company as it may designate by notice in writing to the
        registered Holder at the address of such Holder appearing on the books of
        the
        Company). Certificates for shares purchased hereunder shall be delivered
        to the
        Holder within five (5) Trading Days from the delivery to the Company of the
        Notice of Exercise Form, surrender of this Warrant and payment of the aggregate
        Exercise Price as set forth above (“Warrant
        Share Delivery Date”).
        This
        Warrant shall be deemed to have been exercised on the date the Exercise Price
        is
        received by the Company. The Warrant Shares shall be deemed to have been
        issued,
        and Holder or any other person so designated to be named therein shall be
        deemed
        to have become a holder of record of such shares for all purposes, as of
        the
        date the Warrant has been exercised by payment to the Company of the Exercise
        Price and all taxes required to be paid by the Holder, if any, pursuant to
        Section 5 prior to the issuance of such shares, have been paid in full. If
        the
        Company fails to deliver to the Holder a certificate or certificates
        representing the Warrant Shares or indicating the issuance of such Warrant
        Shares on the stock ledger of the Company maintained by the Company or its
        transfer agent pursuant to this Section 3(a) by the Warrant Share Delivery
        Date,
        then the Holder will have the right to rescind such exercise. 

       

      (b) If
        this
        Warrant shall have been exercised in part, the Company shall, at the time
        of
        delivery of the certificate or certificates representing Warrant Shares,
        deliver
        to Holder a new Warrant evidencing the rights of Holder to purchase the
        unpurchased Warrant Shares called for by this Warrant, which new Warrant
        shall
        in all other respects be identical with this Warrant. 

       

      (c) If
        at any
        time after one year from the date of issuance of this Warrant there is no
        effective Registration Statement registering the resale of the Warrant Shares
        by
        the Holder, this Warrant may also be exercised at such time by notice delivered
        to the Company by means of a “cashless exercise” in which the Holder shall be
        entitled to receive a certificate for the number of Warrant Shares equal
        to the
        quotient obtained by dividing [(A-B) (X)] by (A), where: 

       

      (A)
        = the
        closing price on the Trading Day immediately preceding the date of such
        election; 

       

      (B)
        = the
        Exercise Price of this Warrant, as adjusted; and 

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      (X)
        = the
        number of Warrant Shares issuable upon exercise of this Warrant in accordance
        with the terms of this Warrant by means of a cash exercise rather than a
        cashless exercise. 

       

      (d) Except
        with respect to Sun Solunet, LLC, the Holder shall not be entitled to exercise
        this Warrant into shares of Common Stock that would result in beneficial
        ownership by the Holder and its affiliates of more than 4.9% of the then
        outstanding number of shares of Common Stock on such date. For the purposes
        of
        the immediately preceding sentence, beneficial ownership shall be determined
        in
        accordance with Section 13(d) of the Securities Exchange Act of 1934, as
        amended, and Regulation 13d-3 promulgated thereunder. 

       

      4. No
        Fractional Shares or Scrip.
        No
        fractional shares or scrip representing fractional shares shall be issued
        upon
        the exercise of this Warrant. As to any fraction of a share which Holder
        would
        otherwise be entitled to purchase upon such exercise, the Company shall pay
        a
        cash adjustment in respect of such final fraction in an amount equal to such
        fraction multiplied by the Exercise Price. 

       

      5. Charges,
        Taxes and Expenses.
        Issuance of certificates for Warrant Shares shall be made without charge
        to the
        Holder for any issue or transfer tax or other incidental expense in respect
        of
        the issuance of such certificate, all of which taxes and expenses shall be
        paid
        by the Company, and such certificates shall be issued in the name of the
        Holder
        or in such name or names as may be directed by the Holder; provided, however,
        that in the event certificates for Warrant Shares are to be issued in a name
        other than the name of the Holder, this Warrant when surrendered for exercise
        shall be accompanied by the Assignment Form attached hereto and an investment
        letter duly executed by the Holder in form and substance reasonably acceptable
        to the Company; and the Company may require, as a condition thereto, the
        payment
        of a sum sufficient to reimburse it for any transfer tax incidental thereto.
        

       

      6. Closing
        of Books.
        The
        Company will not close its stockholder books or records in any manner which
        prevents the timely exercise of this Warrant, pursuant to the terms hereof.
        

       

      7. Transfer,
        Division and Combination.
        

       

      (a) Subject
        to compliance with any applicable securities laws and the conditions set
        forth
        in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the
        Purchase Agreement, this Warrant and all rights hereunder are transferable,
        in
        whole or in part, upon surrender of this Warrant at the principal office
        of the
        Company, together with a written assignment of this Warrant substantially
        in the
        form attached hereto duly executed by the Holder or its agent or attorney
        and
        funds sufficient to pay any transfer taxes payable upon the making of such
        transfer. Upon such surrender and, if required, such payment, the Company
        shall
        execute and deliver a new Warrant or Warrants in the name of the assignee
        or
        assignees and in the denomination or denominations specified in such instrument
        of assignment, and shall issue to the assignor a new Warrant evidencing the
        portion of this Warrant not so assigned, and this Warrant shall promptly
        be
        cancelled. A Warrant, if properly assigned, may be exercised by a new holder
        for
        the purchase of Warrant Shares without having a new Warrant issued.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (b) This
        Warrant may be divided or combined with other Warrants upon presentation
        hereof
        at the aforesaid office of the Company, together with a written notice
        specifying the names and denominations in which new Warrants are to be issued,
        signed by the Holder or its agent or attorney. Subject to compliance with
        Section 7(a), as to any transfer which may be involved in such division or
        combination, the Company shall execute and deliver a new Warrant or Warrants
        in
        exchange for the Warrant or Warrants to be divided or combined in accordance
        with such notice. 

       

      (c) The
        Company shall prepare, issue and deliver at its own expense (other than transfer
        taxes) the new Warrant or Warrants under this Section 7. 

       

      (d) The
        Company agrees to maintain, at its aforesaid office, books for the registration
        and the registration of transfer of the Warrants. 

       

      (e) If,
        at
        the time of the surrender of this Warrant in connection with any transfer
        of
        this Warrant, the transfer of this Warrant shall not be registered pursuant
        to
        an effective registration statement under the Securities Act and under
        applicable state securities or blue sky laws, the Company may require, as
        a
        condition of allowing such transfer (i) that the Holder or transferee of
        this
        Warrant, as the case may be, furnish to the Company a written opinion of
        counsel
        (which opinion shall be in form, substance and scope customary for opinions
        of
        counsel in comparable transactions) to the effect that such transfer may
        be made
        without registration under the Securities Act and under applicable state
        securities or blue sky laws, (ii) that the holder or transferee execute and
        deliver to the Company an investment letter in form and substance acceptable
        to
        the Company and (iii) that the transferee be an “accredited investor” as defined
        in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the
        Securities Act or a qualified institutional buyer as defined in Rule 144A(a)
        under the Securities Act. 

       

      8. No
        Rights as Shareholder until Exercise.
        This
        Warrant does not entitle the Holder to any voting rights or other rights
        as a
        shareholder of the Company prior to the exercise hereof. Upon the surrender
        of
        this Warrant and the payment of the aggregate Exercise Price (or by means
        of a
        cashless exercise), the Warrant Shares so purchased shall be and be deemed
        to be
        issued to such Holder as the record owner of such shares as of the close
        of
        business on the later of the date of such surrender or payment. 

       

      9. Loss,
        Theft, Destruction or Mutilation of Warrant.
        The
        Company covenants that upon receipt by the Company of evidence reasonably
        satisfactory to it of the loss, theft, destruction or mutilation of this
        Warrant
        or any stock certificate relating to the Warrant Shares, and in case of loss,
        theft or destruction, of indemnity or security reasonably satisfactory to
        it,
        and upon surrender and cancellation of such Warrant or stock certificate,
        if
        mutilated, the Company will make and deliver a new Warrant or stock certificate
        of like tenor and dated as of such cancellation, in lieu of such Warrant
        or
        stock certificate. 

       

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

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      11. Adjustments
        of Exercise Price and Number of Warrant Shares, Stock Splits,
        etc.
        The
        number and kind of securities purchasable upon the exercise of this Warrant
        and
        the Exercise Price shall be subject to adjustment from time to time upon
        the
        happening of any of the following. In case the Company shall (i) pay a dividend
        in shares of Common Stock or make a distribution in shares of Common Stock
        to
        holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
        of Common Stock into a greater number of shares, (iii) combine its outstanding
        shares of Common Stock into a smaller number of shares of Common Stock, or
        (iv)
        issue any shares of its capital stock in a reclassification of the Common
        Stock,
        then the number of Warrant Shares purchasable upon exercise of this Warrant
        immediately prior thereto shall be adjusted so that the Holder shall be entitled
        to receive the kind and number of Warrant Shares or other securities of the
        Company which it would have owned or have been entitled to receive had such
        Warrant been exercised in advance thereof. Upon each such adjustment of the
        kind
        and number of Warrant Shares or other securities of the Company which are
        purchasable hereunder, the Holder shall thereafter be entitled to purchase
        the
        number of Warrant Shares or other securities resulting from such adjustment
        at
        an Exercise Price per Warrant Share or other security obtained by multiplying
        the Exercise Price in effect immediately prior to such adjustment by the
        number
        of Warrant Shares purchasable pursuant hereto immediately prior to such
        adjustment and dividing by the number of Warrant Shares or other securities
        of
        the Company that are purchasable pursuant hereto immediately after such
        adjustment. An adjustment made pursuant to this paragraph shall become effective
        immediately after the effective date of such event retroactive to the record
        date, if any, for such event. 

       

      12. Reorganization,
        Reclassification, Merger, Consolidation or Disposition of Assets.
        In case
        the Company shall reorganize its capital, reclassify its capital stock,
        consolidate or merge with or into another corporation (where the Company
        is not
        the surviving corporation or where there is a change in or distribution with
        respect to the Common Stock of the Company), or sell, transfer or otherwise
        dispose of its property, assets or business to another corporation and, pursuant
        to the terms of such reorganization, reclassification, merger, consolidation
        or
        disposition of assets, shares of common stock of the successor or acquiring
        corporation, or any cash, shares of stock or other securities or property
        of any
        nature whatsoever (including warrants or other subscription or purchase rights)
        in addition to or in lieu of common stock of the successor or acquiring
        corporation (“Other
        Property”),
        are
        to be received by or distributed to the holders of Common Stock of the Company,
        then the Holder shall have the right thereafter to receive, upon exercise
        of
        this Warrant, the number of shares of Common Stock of the successor or acquiring
        corporation or of the Company, if it is the surviving corporation, and Other
        Property receivable upon or as a result of such reorganization,
        reclassification, merger, consolidation or disposition of assets by a Holder
        of
        the number of shares of Common Stock for which this Warrant is exercisable
        immediately prior to such event. In case of any such reorganization,
        reclassification, merger, consolidation or disposition of assets, the successor
        or acquiring corporation (if other than the Company) shall expressly assume
        the
        due and punctual observance and performance of each and every covenant and
        condition of this Warrant to be performed and observed by the Company and
        all
        the obligations and liabilities hereunder, subject to such modifications
        as may
        be deemed appropriate (as determined in good faith by resolution of the Board
        of
        Directors of the Company) in order to provide for adjustments of Warrant
        Shares
        for which this Warrant is exercisable which shall be as nearly equivalent
        as
        practicable to the adjustments provided for in this Section 12. For purposes
        of
        this Section 12, “common stock of the successor or acquiring corporation” shall
        include stock of such corporation of any class which is not preferred as
        to
        dividends or assets over any other class of stock of such corporation and
        which
        is not subject to redemption and shall also include any evidences of
        indebtedness, shares of stock or other securities which are convertible into
        or
        exchangeable for any such stock, either immediately or upon the arrival of
        a
        specified date or the happening of a specified event and any warrants or
        other
        rights to subscribe for or purchase any such stock. The foregoing provisions
        of
        this Section 12 shall similarly apply to successive reorganizations,
        reclassifications, mergers, consolidations or disposition of
        assets.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      13. Issuance
        of Additional Stock.
        If the
        Company shall, at any time through the two year anniversary of the date that
        the
        Registration Statement is declared effective by the Commission, issue any
        rights, warrants, options or other securities convertible into or exchangeable
        for Common Stock (collectively, “Additional
        Stock”)
        without consideration or for a consideration per share less than the Exercise
        Price (including by operation of purchase price adjustments, reset provisions,
        floating conversion, exercise or exchange prices or otherwise), the Exercise
        Price in effect immediately prior to each such issuance shall forthwith be
        reduced to an amount equal to such lower purchase price for such Additional
        Stock (or in the case of options and similar securities, the consideration
        received for the option and to be received upon exercise of such option),
        or, if
        for no consideration, $.001; provided,
        however,
        that
        none of the following shall constitute Additional Stock: (a) shares of Common
        Stock; (b) rights, warrants, options or other securities convertible into
        or
        exchangeable for Common Stock, issued or issuable to employees, consultants
        or
        directors of the Company for the primary purpose of soliciting or retaining
        their employment or services directly or pursuant to a stock option plan
        or
        restricted stock plan approved by the Board of Directors of the Company and
        (c)
        shares of Common Stock of the Company issuable upon exercise of rights,
        warrants, options or other securities convertible into or exchangeable for
        Common Stock outstanding as of the date hereof.

       

      14. Notice
        of Adjustment.
        Whenever the number of Warrant Shares or number or kind of securities or
        other
        property purchasable upon the exercise of this Warrant or the Exercise Price
        is
        adjusted, as herein provided, the Company shall give notice thereof to the
        Holder, which notice shall state the number of Warrant Shares (and other
        securities or property) purchasable upon the exercise of this Warrant and
        the
        Exercise Price of such Warrant Shares (and other securities or property)
        after
        such adjustment, setting forth a brief statement of the facts requiring such
        adjustment and setting forth the computation by which such adjustment was
        made.

       

      15. Notice
        of Corporate Action.
        If at
        any time: 

       

      (a) the
        Company shall take a record of the holders of its Common Stock for the purpose
        of entitling them to receive a dividend or other distribution, or any right
        to
        subscribe for or purchase any evidences of its indebtedness, any shares of
        stock
        of any class or any other securities or property, or to receive any other
        right,
        or 

       

      (b) there
        shall be any capital reorganization of the Company, any reclassification
        or
        recapitalization of the capital stock of the Company or any consolidation
        or
        merger of the Company with, or any sale, transfer or other disposition of
        all or
        substantially all the property, assets or business of the Company to, another
        corporation or, 

       

      (c) there
        shall be a voluntary or involuntary dissolution, liquidation or winding up
        of
        the Company;

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      then,
        in
        any one or more of such cases, the Company shall give to Holder (i) at least
        10
        days’ prior written notice of the date on which a record date shall be selected
        for such dividend, distribution or right or for determining rights to vote
        in
        respect of any such reorganization, reclassification, merger, consolidation,
        sale, transfer, disposition, liquidation or winding up, and (ii) in the case
        of
        any such reorganization, reclassification, merger, consolidation, sale,
        transfer, disposition, dissolution, liquidation or winding up, at least 10
        days’
prior written notice of the date when the same shall take place. Such notice
        in
        accordance with the foregoing clause also shall specify (i) the date on which
        any such record is to be taken for the purpose of such dividend, distribution
        or
        right, the date on which the holders of Common Stock shall be entitled to
        any
        such dividend, distribution or right, and the amount and character thereof,
        and
        (ii) the date on which any such reorganization, reclassification, merger,
        consolidation, sale, transfer, disposition, dissolution, liquidation or winding
        up is to take place and the time, if any such time is to be fixed, as of
        which
        the holders of Common Stock shall be entitled to exchange their Warrant Shares
        for securities or other property deliverable upon such disposition, dissolution,
        liquidation or winding up. Each such written notice shall be sufficiently
        given
        if addressed to Holder at the last address of Holder appearing on the books
        of
        the Company and delivered in accordance with Section 19(d). 

       

      16. Authorized
        Shares.
        The
        Company covenants that the Company shall call a shareholder meeting for purposes
        of increasing its authorized capital in an amount sufficient to provide for
        the
        exercise of all outstanding Warrants of the Company. Until such time as the
        Company has so increased its authorized capital each Holder shall each be
        entitled to exercise the Warrants held by them on a pro rata basis with the
        other Holders, weighted on the basis of the respective Subscription Amounts
        paid
        to the Company by each Holder. If such increase in authorized capital is
        not
        authorized by the earlier of (i) the date that the registration statement
        relating to the Common Stock underlying the Preferred Stock and the Warrants
        is
        effective, or (ii) 150 days from the date the Company first receives funds
        from
        the escrow account established pursuant to the Purchase Agreement (each an
        “Event”), then on the date on which such Event occurs (the “Event Date”), the
        Company shall pay to each Holder an amount in cash, as partial liquidated
        damages and not as a penalty, equal to 2.0% of the aggregate purchase price
        paid
        by such Holder pursuant to the Purchase Agreement, and on each monthly
        anniversary of each such Event Date until cured, provided however,
        if the
        Company is otherwise paying liquidated damages pursuant to that certain
        Registration Rights Agreement between the Company and the purchasers signatory
        thereto, then no liquidated damages shall be due pursuant to this Paragraph
        16.
        The Company further covenants that its issuance of this Warrant shall constitute
        full authority to its officers who are charged with the duty of executing
        stock
        certificates to execute and issue the necessary certificates for the Warrant
        Shares upon the exercise of the purchase rights under this Warrant. Subject
        to
        this Paragraph 16, the Company will take all such reasonable action as may
        be
        necessary to assure that such Warrant Shares may be issued as provided herein
        without violation of any applicable law or regulation, or of any requirements
        of
        the Trading Market upon which the Common Stock may be listed. 

       

      Except
        and to the extent as waived or consented to by the Holder, the Company shall
        not
        by any action, including, without limitation, amending its certificate of
        incorporation or through any reorganization, transfer of assets, consolidation,
        merger, 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, but will at all times in good faith assist in the carrying out of
        all
        such terms and in the taking of all such actions as may be necessary or
        appropriate to protect the rights of Holder as set forth in this Warrant
        against
        impairment. Without limiting the generality of the foregoing, the Company
        will
        (a) not increase the par value of any Warrant Shares above the amount payable
        therefor upon such exercise immediately prior to such increase in par value,
        (b)
        take all such action as may be necessary or appropriate in order that the
        Company may validly and legally issue fully paid and nonassessable Warrant
        Shares upon the exercise of this Warrant, and (c) use commercially reasonable
        efforts to obtain all such authorizations, exemptions or consents from any
        public regulatory body having jurisdiction thereof as may be necessary to
        enable
        the Company to perform its obligations under this Warrant.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      Before
        taking any action which would result in an adjustment in the number of Warrant
        Shares for which this Warrant is exercisable or in the Exercise Price, the
        Company shall obtain all such authorizations or exemptions thereof, or consents
        thereto, as may be necessary from any public regulatory body or bodies having
        jurisdiction thereof. 

       

      17. Registration
        Rights.
        The
        Holder of this Warrant and/or the Warrant Shares and any transferee hereof
        and
        thereof shall be entitled to the benefit of such registration rights in respect
        of the Warrant Shares as are set forth in the Registration Rights Agreement.
        

       

      18. Redemption.
        

       

      (a) The
        Company may redeem all (but not less than all) of this Warrant at any time,
        at
        the price of $.01 per Warrant Share (issuable under this Warrant), upon notice
        referred to in Section 18(b), provided that (i) the Warrant Shares have been
        registered for resale by means of the Registration Statement as defined in
        the
        Purchase Agreement or any other registration statement; (ii) the Registration
        Statement is current and effective at the time the aforementioned notice
        is sent
        and through the redemption period; and (iii) the closing sales price of the
        Common Stock has been at least 200% of the then Exercise Price of the Warrants
        for 20 consecutive Trading Days ending within two Trading Days of the notice
        of
        redemption as referred to in Section 18(b) below.

       

      (b) In
        the
        event the Company shall elect to redeem this Warrant, the Company shall fix
        a
        date for the redemption (the “Redemption
        Date”)
        and
        mail a notice of redemption by first class mail, postage prepaid, not less
        than
        30 days from the date fixed for redemption to the Holder of this Warrant
        at such
        Holder’s last address as it appears on the books of the Company. Any notice
        mailed in the manner herein provided shall be conclusively presumed to have
        been
        duly given whether or not the registered Holder received such notice. The
        notice
        of redemption shall specify (i) the redemption price, (ii) the date fixed
        for
        redemption, (iii) the place where the Warrant is to be delivered and the
        redemption price paid and (iv) that the right to exercise the Warrant shall
        terminate at 5:00 P.M. New York City on the Business Day immediately preceding
        the Redemption Date. No failure to mail such notice nor any defect therein
        or in
        the mailing thereof shall affect the validity of the proceedings for such
        redemption except as to a Holder (A) to whom notice was not mailed or (B)
        whose
        notice was defective. An affidavit of the Secretary of the Company that notice
        of redemption has been mailed shall, in the absence of fraud, be prima facie
        evidence of the facts stated therein.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      (c) The
        Warrant may be exercised in accordance with Section 3 of this Warrant at
        any
        time after notice of redemption shall have been given by the Company pursuant
        to
        Section 18(b) hereof and until the Business Day immediately preceding the
        Redemption Date. On and after the Redemption Date, the Holder of this Warrant
        shall have no further rights except to receive, upon surrender of the Warrant,
        the redemption price.

       

      19. Miscellaneous.
        

       

      (a) Jurisdiction.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Warrant shall be determined in accordance with the provisions of
        the
        Purchase Agreement. 

       

      (b) Restrictions.
        The
        Holder acknowledges that the Warrant Shares acquired upon the exercise of
        this
        Warrant, if not registered, will have restrictions upon resale imposed by
        state
        and federal securities laws. 

       

      (c) Nonwaiver
        and Expenses.
        No
        course of dealing or any delay or failure to exercise any right hereunder
        on the
        part of Holder shall operate as a waiver of such right or otherwise prejudice
        Holder's rights, powers or remedies, notwithstanding all rights hereunder
        terminate on the Termination Date. If the Company willfully and knowingly
        fails
        to comply with any provision of this Warrant, which results in any material
        damages to the Holder, the Company shall pay to Holder such amounts as shall
        be
        sufficient to cover any reasonable out-of-pocket costs and expenses incurred
        by
        Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
        any of its rights, powers or remedies hereunder. 

       

      (d) Notices.
        Any
        notice, request or other document required or permitted to be given or delivered
        to the Holder by the Company shall be delivered in accordance with the notice
        provisions of the Purchase Agreement. 

       

      (e) Limitation
        of Liability.
        No
        provision hereof, in the absence of any affirmative action by Holder to exercise
        this Warrant or purchase Warrant Shares, and no enumeration herein of the
        rights
        or privileges of Holder, shall give rise to any liability of Holder for the
        purchase price of any Common Stock or as a stockholder of the Company, whether
        such liability is asserted by the Company or by creditors of the Company.
        

       

      (f) Remedies.
        Holder,
        in addition to being entitled to exercise all rights granted by law, including
        recovery of damages, will be entitled to specific performance of its rights
        under this Warrant. The Company agrees that monetary damages would not be
        adequate compensation for any loss incurred by reason of a breach by it of
        the
        provisions of this Warrant and hereby agrees to waive the defense in any
        action
        for specific performance that a remedy at law would be adequate. 

       

      (g) Successors
        and Assigns.
        Subject
        to applicable securities laws, this Warrant and the rights and obligations
        evidenced hereby shall inure to the benefit of and be binding upon the
        successors of the Company and the successors and permitted assigns of Holder.
        The provisions of this Warrant are intended to be for the benefit of all
        Holders
        from time to time of this Warrant and shall be enforceable by any such Holder
        or
        holder of Warrant Shares.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

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

       

      (i) Severability.
        Wherever possible, each provision of this Warrant shall be interpreted in
        such
        manner as to be effective and valid under applicable law, but if any provision
        of this Warrant shall be prohibited by or invalid under applicable law, such
        provision shall be ineffective to the extent of such prohibition or invalidity,
        without invalidating the remainder of such provisions or the remaining
        provisions of this Warrant. 

       

      (j) Headings.
        The
        headings used in this Warrant are for the convenience of reference only and
        shall not, for any purpose, be deemed a part of this Warrant. 

       

      IN
        WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
        ___ day
        of May, 2006. 

       

      SAN
        HOLDINGS, INC.

       

      By:_____________________________________

      Name:

      Title:

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      

Exhibit
      E

     

    Form
      of $0.50 Warrant

     

     

    See
      Exhibit D

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