Document:

Exhibit
      10.153

     

     

    NRC
      FORM
      374

     

    U.S.
      NUCLEAR REGULATORY COMMISSION

     

    MATERIALS
      LICENSE

     

     

    Pursuant
      to the Atomic Energy Act of 1954, as amended, the Energy Reorganization Act
      of
      1974 (Public Law 93-438) and Title 10, Code of Federal Regulations, Chapter
      I,
      Parts 30, 31, 32, 33, 34, 35, 36, 39, 40, and 70, and in reliance on statements
      and representations heretofore made by the licensee, a license is hereby issued
      authorizing the licensee to receive acquire, possess and transfer byproduct,
      source, and special nuclear material designated below; to use such material
      for
      the purpose(s) and at the place(s) designated below; to deliver or transfer
      such
      material to persons authorized to receive it in accordance with the regulations
      of the applicable part(s). This license shall be deemed to contain the
      conditions specified in Section 183 of the Atomic Energy Act of 1954, as
      amended, and is subject to all applicable rules, regulations, and orders of
      the
      Nuclear Regulatory Commission now or hereafter in effect and to any conditions
      specified below.

     

    Licensee

    1.
      HiEnergy Technologies, Inc.

    2.
      1601 B
      Alton Parkway, Irvine, California 92606

    3.
      License number 04-29234-01

    4.
      Expiration date June 30, 2016

    5.
      Docket
      No. 030-37298 Reference No.

    6.
      Byproduct, source, and/or special nuclear material

    A.
      Hydrogen-3

    7.
      Chemical and/or physical form

    A.
      Plated
      foil

    8.
      Maximum amount that licensee may possess at any one time under this
      license

    A.6
      Curies total

    9.
      Authorized use:

    A.
      Research and Development only.

    

    CONDITIONS

    10.
      Licensed material may be used or stored at the licensee’s facilities located at
      temporary job sites anywhere in the United States where the U.S. Nuclear
      Regulatory Commission maintains jurisdiction for regulating licensed material,
      including areas of exclusive Federal jurisdiction within Agreement
      States.

    

    If
      the
      jurisdiction status of a Federal facility within an Agreement State is unknown,
      the Licensee should contact the federal agency controlling the job site in
      question to determine whether the proposed job site is an area of exclusive
      Federal jurisdiction. Authorization for use of radioactive materials at job
      sites in Agreement States not under exclusive Federal jurisdiction shall be
      obtained from the appropriate state regulatory agency.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    11.
      The
      Radiation Safety Officer for this license is Dr. Alexander Vaucher.

    

    12.
      Licensed material shall only be used by, or under the supervision and in the
      physical presence of, individuals who have received the training described
      in
      application dated June 27, 2006.

    

    13.
      In
      addition to the possession limits in Item 8, the licensee shall further restrict
      the possession of licensed material to quantities below the minimum limit
      specified in 10 CFR 30.35(d) for establishing decommissioning financial
      assurance.

    

    14.
      The
      licensee shall conduct a physical inventory every 6 months, or at other
      intervals approved by the U.S. Nuclear Regulatory Commission, to account for
      all
      sources and/or devices received and possessed under the license. Records of
      inventories shall be maintained for 5 years from the date of each inventory
      and
      shall included the radionuclides, quantities, manufacturer’s name and model
      numbers, and the date of the inventory.

    

    15.
      Plated foils containing licensed material shall not be opened or sources removed
      from the source holder by the licensee.

    

    16.
      The
      licensee is authorized to transport licensed material in accordance with the
      provisions of 10 CFR Part 71, “Packaging and Transportation of Radioactive
      Material.”

    

    17.
      Except as specifically provided otherwise in the license, the licensee shall
      conduct its program in accordance with the statements, representations, and
      procedures contained in the documents, including any enclosures, listed below.
      The U.S. Nuclear Regulatory Commissions regulations shall govern unless the
      statements, representation, and procedures in the licensee’s application and
      correspondence are more restrictive than the regulations.

    

    FOR
      THE
      U.S. NUCLEAR REGULATORY COMMISSION

     

     

    
      	 	 	 
	Date: June
              30, 2006	 
	 
 	 
 	 
 
	 	By:  	/s/ Rachel
              S.
              Browder
	 	
              
                

              

              Rachel S. Browder, Health Physicist

              Nuclear Materials Licensing Branch

              Region IV

              Arlington, Texas 76011Unassociated Document

    Exhibit
      10.154

    

    STATE
      OF
      CALIFORNIA DEPARTMENT OF HEALTH SERVICES

    

    Certificate
      Of

    RADIATION
      MACHINE REGISTRATION

    

    

    

    HIENERGY
      TECHNOLOGIES

    

    

    

    Has
      registered in accordance with the requirements of 

    Title
      17,
      Californai Code of Regulations, Section 30108

    as
      possessing reportable sources of radiation at

    

    

    1601
      ALTON PKWY, UNIT B

    IRVINE
      CA
      92606

    

     

    
      	 	 	 
	 	 
	 
 	 
 	 
 
	REGISTRATION
              NUMBER: FAC61566	  	/s/ Edgar
              D.
              Bailey
	REGISTRATION
              EXPIRES: MARCH 31, 2008 	
              
Edgar
              D. Bailey
	 	Chief
	 	Radiologic Health BranchSECURITIES PURCHASE AGREEMENT

      SECURITIES  PURCHASE  AGREEMENT (this  "Agreement"),  dated as of July 25,
2006, by and among American Racing  Capital,  Inc., a Nevada  corporation,  with
headquarters  located at 4702 Oleander Drive,  Suite 200, Myrtle Beach, SC 29577
(the  "Company"),  and each of the purchasers  set forth on the signature  pages
hereto (the "Buyers").

      WHEREAS:

      A. The Company and the Buyers are executing and delivering  this Agreement
in reliance  upon the exemption  from  securities  registration  afforded by the
rules and  regulations  as  promulgated  by the  United  States  Securities  and
Exchange  Commission  (the "SEC") under the  Securities  Act of 1933, as amended
(the "1933 Act");

      B. Buyers  desire to purchase  and the Company  desires to issue and sell,
upon the  terms  and  conditions  set  forth in this  Agreement  (i) 6%  secured
convertible notes of the Company, in the form attached hereto as Exhibit "A", in
the aggregate  principal  amount of Two Million Dollars  ($2,000,000)  (together
with any  note(s)  issued in  replacement  thereof or as a  dividend  thereon or
otherwise  with  respect  thereto  in  accordance  with the terms  thereof,  the
"Notes"), convertible into shares of common stock, par value $.001 per share, of
the Company (the "Common Stock"),  upon the terms and subject to the limitations
and conditions set forth in such Notes, of which Seven Hundred  Thousand Dollars
($700,000)  shall be funded on the date  hereof,  Six Hundred  Thousand  Dollars
($600,000)  shall be  funded  on the date the  registration  statement  is filed
pursuant to the Registration Rights Agreement (as defined below) with the United
States Securities and Exchange  Commission  ("SEC"),  and Seven Hundred Thousand
Dollars  ($700,000)  shall be funded on the date the  Registration  Statement is
declared  effective  by  the  SEC  (individually  referred  to  as  a  "Closing"
collectively referred to as the "Closings"), for a total purchase price of up to
Two Million Dollars ($2,000,000) and (ii) warrants, in the forms attached hereto
as Exhibit "B", to purchase an aggregate  of  10,000,000  shares of Common Stock
(the "Warrants").

      C. Each Buyer wishes to purchase,  upon the terms and conditions stated in
this Agreement,  such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and

      D. Contemporaneous with the execution and delivery of this Agreement,  the
parties hereto are executing and delivering a Registration Rights Agreement,  in
the form attached hereto as Exhibit "C" (the "Registration  Rights  Agreement"),
pursuant to which the Company has agreed to provide certain  registration rights
under the 1933 Act and the rules and  regulations  promulgated  thereunder,  and
applicable state securities laws.

      NOW,  THEREFORE,  the  Company and each of the Buyers  severally  (and not
jointly) hereby agree as follows:
<PAGE>

            1. PURCHASE AND SALE OF NOTES AND WARRANTS.

                  a.  Purchase of Notes and  Warrants.  On the Closing  Date (as
defined  below),  the Company  shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company such principal amount of Notes and
number of Warrants as is set forth  immediately  below such  Buyer's name on the
signature pages hereto.

                  b. Form of Payment.  On the Closing  Date (as defined  below),
(i) each Buyer shall pay the purchase price for the Notes and the Warrants to be
issued and sold to it at the Closing (as defined below) (the  "Purchase  Price")
by wire transfer of immediately  available  funds to the Company,  in accordance
with the Company's written wiring instructions, against delivery of the Notes in
the principal  amount equal to the Purchase  Price and the number of Warrants as
is set forth  immediately below such Buyer's name on the signature pages hereto,
and (ii) the Company  shall  deliver  such Notes and Warrants  duly  executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.

                  c.  Closing  Date.  Subject to the  satisfaction  (or  written
waiver) of the  conditions  thereto  set forth in Section 6 and Section 7 below,
the  date and  time of the  issuance  and  sale of the  Notes  and the  Warrants
pursuant to this  Agreement  (the "Closing  Date") shall be 12:00 noon,  Eastern
Standard Time on July 25, 2006,  or such other  mutually  agreed upon time.  The
closing of the transactions contemplated by this Agreement (the "Closing") shall
occur on the Closing Date at such location as may be agreed to by the parties.

            2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not  jointly)  represents  and  warrants to the Company  solely as to such Buyer
that:

                  a.  Investment  Purpose.  As of the date hereof,  the Buyer is
purchasing the Notes and the shares of Common Stock issuable upon  conversion of
or  otherwise  pursuant  to  the  Notes  (including,  without  limitation,  such
additional  shares of Common  Stock,  if any, as are  issuable (i) on account of
interest on the Notes,  (ii) as a result of the events described in Sections 1.3
and 1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment  of the  Standard  Liquidated  Damages  Amount  (as  defined in
Section  2(f) below)  pursuant to this  Agreement,  such shares of Common  Stock
being  collectively  referred  to herein  as the  "Conversion  Shares")  and the
Warrants  and the shares of Common Stock  issuable  upon  exercise  thereof (the
"Warrant  Shares" and,  collectively  with the Notes,  Warrants  and  Conversion
Shares,  the  "Securities")  for its own  account  and not with a  present  view
towards  the public  sale or  distribution  thereof,  except  pursuant  to sales
registered or exempted from registration under the 1933 Act; provided,  however,
that by making the representations  herein, the Buyer does not agree to hold any
of the  Securities for any minimum or other specific term and reserves the right
to dispose of the  Securities  at any time in  accordance  with or pursuant to a
registration statement or an exemption under the 1933 Act.

                  b.  Accredited  Investor  Status.  The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").

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

                                       2
<PAGE>

                  d. Information. The Buyer and its advisors, if any, have been,
and for so long as the Notes and Warrants  remain  outstanding  will continue to
be,  furnished  with  all  materials  relating  to the  business,  finances  and
operations  of the Company and  materials  relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its  advisors,  if any,  have  been,  and for so long as the Notes and  Warrants
remain  outstanding  will  continue  to  be,  afforded  the  opportunity  to ask
questions of the Company.  Notwithstanding  the  foregoing,  the Company has not
disclosed to the Buyer any material nonpublic  information and will not disclose
such information  unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer.  Neither such inquiries nor any
other due diligence  investigation  conducted by Buyer or any of its advisors or
representatives  shall  modify,  amend or  affect  Buyer's  right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities  involves a significant degree
of risk.

                  e. Governmental  Review.  The Buyer understands that no United
States federal or state agency or any other  government or  governmental  agency
has passed upon or made any recommendation or endorsement of the Securities.

                  f. Transfer or Re-sale.  The Buyer understands that (i) except
as provided in the  Registration  Rights  Agreement,  the sale or re-sale of the
Securities  has not been and is not being  registered  under the 1933 Act or any
applicable  state  securities  laws,  and the  Securities may not be transferred
unless  (a) the  Securities  are  sold  pursuant  to an  effective  registration
statement  under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form,  substance and scope  customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred  may be sold or  transferred  pursuant to an exemption
from such registration,  which opinion shall be accepted by the Company, (c) the
Securities are sold or  transferred  to an  "affiliate"  (as defined in Rule 144
promulgated  under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise  transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the  Securities  are sold  pursuant to Regulation S
under the 1933 Act (or a successor rule)  ("Regulation  S"), and the Buyer shall
have  delivered  to the  Company an  opinion  of counsel  that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in  reliance on Rule 144 may be made only in  accordance  with the terms of
said Rule and  further,  if said Rule is not  applicable,  any  re-sale  of such
Securities  under  circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require  compliance  with some other  exemption under the 1933
Act or the rules and  regulations of the SEC  thereunder;  and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state  securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration  Rights Agreement).  Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.  In the
event that the Company  does not accept the  opinion of counsel  provided by the
Buyer with respect to the transfer of Securities  pursuant to an exemption  from
registration,  such as Rule 144 or  Regulation S, within three (3) business days
of delivery of the opinion to the  Company,  the Company  shall pay to the Buyer
liquidated  damages of three percent (3%) of the outstanding amount of the Notes
per month plus  accrued and unpaid  interest on the Notes,  prorated for partial
months,  in cash or shares at the option of the  Company  ("Standard  Liquidated
Damages  Amount").  If the  Company  elects  to be pay the  Standard  Liquidated
Damages  Amount in shares of Common  Stock,  such shares  shall be issued at the
Conversion Price at the time of payment.

                                       3
<PAGE>

                  g.  Legends.  The  Buyer  understands  that the  Notes and the
Warrants and, until such time as the  Conversion  Shares and Warrant Shares have
been registered  under the 1933 Act as contemplated by the  Registration  Rights
Agreement or otherwise  may be sold pursuant to Rule 144 or Regulation S without
any  restriction as to the number of securities as of a particular date that can
then be immediately  sold,  the Conversion  Shares and Warrant Shares may bear a
restrictive  legend in  substantially  the following  form (and a  stop-transfer
order may be placed against transfer of the certificates for such Securities):

            "The  securities  represented  by this  certificate  have  not  been
            registered  under  the  Securities  Act of  1933,  as  amended.  The
            securities  may not be sold,  transferred or assigned in the absence
            of an effective registration statement for the securities under said
            Act,  or an  opinion  of  counsel,  in  form,  substance  and  scope
            customary for opinions of counsel in comparable  transactions,  that
            registration  is not required under said Act or unless sold pursuant
            to Rule 144 or Regulation S under said Act."

      The legend set forth above shall be removed and the Company  shall issue a
certificate  without such legend to the holder of any Security  upon which it is
stamped,  if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective  registration  statement
filed  under  the  1933 Act or  otherwise  may be sold  pursuant  to Rule 144 or
Regulation  S without any  restriction  as to the number of  securities  as of a
particular  date that can then be immediately  sold, or (b) such holder provides
the Company with an opinion of counsel,  in form,  substance and scope customary
for opinions of counsel in comparable transactions,  to the effect that a public
sale or transfer of such  Security  may be made without  registration  under the
1933 Act,  which  opinion  shall be  accepted by the Company so that the sale or
transfer is effected or (c) such holder  provides  the Company  with  reasonable
assurances  that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer  agrees  to sell all  Securities,  including  those  represented  by a
certificate(s)  from which the  legend  has been  removed,  in  compliance  with
applicable prospectus delivery requirements, if any.

                  h.   Authorization;   Enforcement.   This  Agreement  and  the
Registration  Rights  Agreement  have been  duly and  validly  authorized.  This
Agreement has been duly executed and delivered on behalf of the Buyer,  and this
Agreement  constitutes,  and upon  execution  and  delivery  by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.

                                       4
<PAGE>

                  i. Residency.  The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.

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

                  a. Organization and Qualification. The Company and each of its
Subsidiaries  (as defined  below),  if any,  is a  corporation  duly  organized,
validly  existing and in good  standing  under the laws of the  jurisdiction  in
which it is incorporated, with full power and authority (corporate and other) to
own,  lease,  use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted.  Schedule 3(a) sets forth
a list of all of the  Subsidiaries of the Company and the  jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a  foreign  corporation  to do  business  and is in good  standing  in  every
jurisdiction  in which its  ownership  or use of  property  or the nature of the
business  conducted by it makes such  qualification  necessary  except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any of (i) a material and adverse effect
on the  legality,  validity  or  enforceability  of  any  document  executed  in
connection  with this  financing,  (ii) a  material  and  adverse  effect on the
results of operations,  assets,  prospects,  business or condition (financial or
otherwise) of the Company and the  Subsidiaries,  taken as a whole,  or (iii) an
adverse  impairment  to  the  Company's  ability  to  perform  under  any of the
documents executed in connection with this financing.  "Subsidiaries"  means any
corporation or other organization,  whether  incorporated or unincorporated,  in
which the Company owns,  directly or indirectly,  any equity or other  ownership
interest.

                  b.  Authorization;   Enforcement.  (i)  The  Company  has  all
requisite  corporate  power  and  authority  to  enter  into  and  perform  this
Agreement,  the Registration Rights Agreement, the Notes and the Warrants and to
consummate  the  transactions  contemplated  hereby and thereby and to issue the
Securities,  in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the Notes and
the  Warrants  by the  Company and the  consummation  by it of the  transactions
contemplated hereby and thereby (including without  limitation,  the issuance of
the Notes and the Warrants and the issuance and  reservation for issuance of the
Conversion  Shares and  Warrant  Shares  issuable  upon  conversion  or exercise
thereof) have been duly  authorized  by the Company's  Board of Directors and no
further consent or authorization of the Company, its Board of Directors,  or its
shareholders  is  required,  (iii) this  Agreement  has been duly  executed  and
delivered by the Company by its authorized  representative,  and such authorized
representative  is the true and official  representative  with authority to sign
this Agreement and the other documents executed in connection  herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement,  the Notes and
the Warrants,  each of such  instruments  will  constitute,  a legal,  valid and
binding obligation of the Company  enforceable against the Company in accordance
with its terms.

                                       5
<PAGE>

                  c.  Capitalization.  As of the  date  hereof,  the  authorized
capital stock of the Company consists of (i) 500,000,000 shares of Common Stock,
of which 27,791,000  shares are issued and  outstanding,  no shares are reserved
for  issuance  pursuant  to the  Company's  stock  option  plans,  no shares are
reserved  for  issuance  pursuant  to  securities  (other than the Notes and the
Warrants)  exercisable  for, or convertible  into or exchangeable  for shares of
Common  Stock  and  30,576,132  shares  shall  be  reserved  for  issuance  upon
conversion  of the Notes and  exercise of the  Warrants  (subject to  adjustment
pursuant to the Company's covenant set forth in Section 4(h) below) (the Company
will take  whatever  steps are  required to increase  its  authorized  shares if
necessary);  and (ii)  10,000,000  shares of preferred  stock of which 2,000,000
shares are issued and  outstanding.  All of such  outstanding  shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully paid
and  nonassessable.  No shares of capital  stock of the  Company  are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or  encumbrances  imposed  through the actions or failure to act of
the Company.  Except as disclosed in Schedule  3(c), as of the effective date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character  whatsoever  relating to,
or  securities  or rights  convertible  into or  exchangeable  for any shares of
capital  stock of the Company or any of its  Subsidiaries,  or  arrangements  by
which the  Company or any of its  Subsidiaries  is or may become  bound to issue
additional  shares of capital  stock of the Company or any of its  Subsidiaries,
(ii) there are no agreements or  arrangements  under which the Company or any of
its  Subsidiaries  is  obligated  to  register  the  sale of any of its or their
securities  under the 1933 Act (except the  Registration  Rights  Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Notes, the Warrants,  the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof  ("Certificate of Incorporation"),  the Company's By-laws, as in
effect on the date  hereof  (the  "By-laws"),  and the  terms of all  securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto.  The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial  Officer on behalf of the Company as of the Closing
Date.

                  d.  Issuance  of Shares.  The  Conversion  Shares and  Warrant
Shares are duly authorized and reserved for issuance and, upon conversion of the
Notes and exercise of the Warrants in accordance  with their  respective  terms,
will be validly issued, fully paid and non-assessable,  and free from all taxes,
liens,  claims and encumbrances  with respect to the issue thereof and shall not
be subject to preemptive  rights or other similar rights of  shareholders of the
Company and will not impose personal liability upon the holder thereof.

                  e.  Acknowledgment  of Dilution.  The Company  understands and
acknowledges  the  potentially  dilutive  effect to the  Common  Stock  upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or  exercise  of  the  Warrants.  The  Company  further  acknowledges  that  its
obligation to issue Conversion  Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this  Agreement,  the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership  interests of other shareholders of
the Company.

                                       6
<PAGE>

                  f. No Conflicts.  The execution,  delivery and  performance of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including,  without limitation, the issuance and reservation
for issuance of the Conversion  Shares and Warrant Shares) will not (i) conflict
with  or  result  in  a  violation  of  any  provision  of  the  Certificate  of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any  provision  of, or constitute a default (or an event which with notice or
lapse of time or both  could  become a  default)  under,  or give to others  any
rights  of  termination,   amendment,   acceleration  or  cancellation  of,  any
agreement,  indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) to the knowledge of the Company,
result in a violation of any law, rule,  regulation,  order,  judgment or decree
(including  federal and state securities laws and regulations and regulations of
any  self-regulatory  organizations  to which the Company or its  securities are
subject)  applicable to the Company or any of its  Subsidiaries  or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
(except for such conflicts, defaults, terminations,  amendments,  accelerations,
cancellations  and  violations as would not,  individually  or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries
is  in  violation  of  its  Certificate  of  Incorporation,   By-laws  or  other
organizational  documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which with notice or lapse of time or both
could put the Company or any of its  Subsidiaries in default) under, and neither
the Company nor any of its  Subsidiaries  has taken any action or failed to take
any action  that would  give to others  any  rights of  termination,  amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its  Subsidiaries  is a party or by which any  property or
assets of the Company or any of its  Subsidiaries  is bound or affected,  except
for possible  defaults as would not,  individually  or in the aggregate,  have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries,  if
any, are not being conducted, and shall not be conducted so long as a Buyer owns
any of the Securities,  in violation of any law,  ordinance or regulation of any
governmental entity.  Except as specifically  contemplated by this Agreement and
as required under the 1933 Act and any  applicable  state  securities  laws, the
Company is not  required to obtain any  consent,  authorization  or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for  it to  execute,  deliver  or  perform  any of its  obligations  under  this
Agreement,  the  Registration  Rights  Agreement,  the Notes or the  Warrants in
accordance  with the terms  hereof or thereof or to issue and sell the Notes and
Warrants in accordance with the terms hereof and to issue the Conversion  Shares
upon  conversion  of the Notes  and the  Warrant  Shares  upon  exercise  of the
Warrants.  Except as disclosed in Schedule 3(f),  all consents,  authorizations,
orders,  filings  and  registrations  which the  Company is  required  to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof.  The Company is not in violation of the quotation  requirements
of the  Over-the-Counter  Bulletin  Board (the "OTCBB") and does not  reasonably
anticipate  that  the  Common  Stock  will  be  delisted  by  the  OTCBB  in the
foreseeable future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.

                                       7
<PAGE>

                  g. SEC Documents; Financial Statements. Except as disclosed in
Schedule  3(g),  the Company has timely  filed all  reports,  schedules,  forms,
statements and other documents  required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934  Act") (all of the  foregoing  filed prior to the date hereof and all
exhibits  included  therein and financial  statements and schedules  thereto and
documents  (other than  exhibits to such  documents)  incorporated  by reference
therein,  being  hereinafter  referred  to herein as the "SEC  Documents").  The
Company  has  delivered  to each  Buyer  true  and  complete  copies  of the SEC
Documents,  except for such  exhibits and  incorporated  documents.  As of their
respective  dates, the SEC Documents  complied in all material respects with the
requirements  of the  1934  Act  and  the  rules  and  regulations  of  the  SEC
promulgated  thereunder  applicable  to the SEC  Documents,  and none of the SEC
Documents,  at the time they  were  filed  with the SEC,  contained  any  untrue
statement of a material  fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the  circumstances  under  which they were  made,  not  misleading.  None of the
statements  made in any such SEC  Documents  is,  or has  been,  required  to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent  filings  prior the date  hereof).  As of their
respective  dates,  the financial  statements of the Company included in the SEC
Documents  complied  as  to  form  in  all  material  respects  with  applicable
accounting  requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting  principles,  consistently  applied,
during the periods  involved  (except (i) as may be otherwise  indicated in such
financial  statements  or the notes  thereto,  or (ii) in the case of  unaudited
interim  statements,  to the extent  they may not  include  footnotes  or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the  consolidated  results of their  operations  and
cash  flows  for the  periods  then  ended  (subject,  in the case of  unaudited
statements,  to normal year-end audit  adjustments).  Except as set forth in the
financial  statements of the Company included in the SEC Documents,  the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the  ordinary  course of business  subsequent  to December  31, 2005 and (ii)
obligations  under contracts and commitments  incurred in the ordinary course of
business and not required under generally accepted  accounting  principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.

                  h.  Absence  of  Certain  Changes.   Except  as  disclosed  in
Company's  filings  with the SEC as of  December  31,  2005,  there  has been no
material  adverse  change and no  material  adverse  development  in the assets,
liabilities,  business, properties,  operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.

                  i. Absence of  Litigation.  There is no action,  suit,  claim,
proceeding,  inquiry  or  investigation  before or by any court,  public  board,
government  agency,  self-regulatory  organization  or body  pending  or, to the
knowledge  of the  Company  or any of its  Subsidiaries,  threatened  against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material  Adverse Effect.  Schedule
3(i)  contains  a  complete  list and  summary  description  of any  pending  or
threatened   proceeding   against  or  affecting  the  Company  or  any  of  its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.

                                       8
<PAGE>

                  j.  Patents,  Copyrights,  etc.  The  Company  and each of its
Subsidiaries  owns or  possesses  the  requisite  licenses  or rights to use all
patents,  patent  applications,   patent  rights,  inventions,  know-how,  trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and,  except as set forth in Schedule 3(j) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the  future);  there is no claim or action by any  person  pertaining  to, or
proceeding pending, or to the Company's knowledge  threatened,  which challenges
the right of the Company or of a  Subsidiary  with  respect to any  Intellectual
Property  necessary to enable it to conduct its  business as now operated  (and,
except  as set  forth in  Schedule  3(j)  hereof,  to the best of the  Company's
knowledge,  as presently contemplated to be operated in the future); to the best
of the  Company's  knowledge,  the  Company's or its  Subsidiaries'  current and
intended  products,  services and processes do not infringe on any  Intellectual
Property or other  rights held by any person;  and the Company is unaware of any
facts or  circumstances  which  might  give  rise to any of the  foregoing.  The
Company and each of its Subsidiaries have taken reasonable  security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.

                  k. No Materially Adverse  Contracts,  Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter,  corporate or other legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
Material  Adverse Effect.  Neither the Company nor any of its  Subsidiaries is a
party to any  contract  or  agreement  which in the  judgment  of the  Company's
officers has or is expected to have a Material Adverse Effect.

                  l. Tax  Status.  Except as set  forth on  Schedule  3(l),  the
Company and each of its  Subsidiaries  has made or filed all federal,  state and
foreign income and all other tax returns,  reports and declarations  required by
any  jurisdiction to which it is subject (unless and only to the extent that the
Company  and each of its  Subsidiaries  has set  aside on its  books  provisions
reasonably  adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental  assessments and charges that are material
in  amount,  shown  or  determined  to be  due  on  such  returns,  reports  and
declarations,  except  those being  contested in good faith and has set aside on
its  books  provisions  reasonably  adequate  for the  payment  of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.  The Company has not executed a waiver with respect to
the statute of  limitations  relating to the  assessment  or  collection  of any
foreign, federal, state or local tax. Except as set forth on Schedule 3(l), none
of the Company's tax returns is presently being audited by any taxing authority.

                                       9
<PAGE>

                  m. Certain Transactions.  Except as set forth on Schedule 3(m)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less  favorable  than the Company or any of its  Subsidiaries  could obtain from
third  parties and other than the grant of stock  options  disclosed on Schedule
3(c), none of the officers,  directors, or employees of the Company is presently
a party to any transaction  with the Company or any of its  Subsidiaries  (other
than for services as employees, officers and directors), including any contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer,  director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

                  n. Disclosure.  All information  relating to or concerning the
Company or any of its  Subsidiaries  set forth in this Agreement and provided to
the Buyers  pursuant to Section 2(d) hereof and otherwise in connection with the
transactions  contemplated  hereby is true and correct in all material  respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein,  in light of the circumstances under
which they were made, not misleading.  No event or circumstance  has occurred or
exists with  respect to the Company or any of its  Subsidiaries  or its or their
business,  properties,  prospects,  operations or financial  conditions,  which,
under  applicable  law,  rule  or  regulation,  requires  public  disclosure  or
announcement  by the  Company but which has not been so  publicly  announced  or
disclosed  (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective  registration  statement filed
by the Company under the 1933 Act).

                  o.  Acknowledgment  Regarding  Buyers' Purchase of Securities.
The Company  acknowledges  and agrees  that the Buyers are acting  solely in the
capacity of arm's  length  purchasers  with  respect to this  Agreement  and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial  advisor or fiduciary of the Company (or in any similar
capacity)  with  respect to this  Agreement  and the  transactions  contemplated
hereby  and  any  statement  made  by  any  Buyer  or any  of  their  respective
representatives or agents in connection with this Agreement and the transactions
contemplated  hereby is not advice or a recommendation  and is merely incidental
to the Buyers'  purchase of the Securities.  The Company  further  represents to
each Buyer that the  Company's  decision to enter into this  Agreement  has been
based   solely  on  the   independent   evaluation   of  the   Company  and  its
representatives.

                  p. No Integrated Offering. Neither the Company, nor any of its
affiliates,  nor any  person  acting on its or their  behalf,  has  directly  or
indirectly  made any offers or sales in any security or solicited  any offers to
buy any security under  circumstances that would require  registration under the
1933 Act of the issuance of the  Securities  to the Buyers.  The issuance of the
Securities to the Buyers will not be integrated  with any other  issuance of the
Company's  securities (past,  current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.

                  q. No  Brokers.  Except as set  forth in  Schedule  3(q),  the
Company has taken no action which would give rise to any claim by any person for
brokerage  commissions,  transaction fees or similar  payments  relating to this
Agreement or the transactions contemplated hereby.

                                       10
<PAGE>

                  r.   Permits;   Compliance.   The  Company  and  each  of  its
Subsidiaries  is  in  possession  of  all  franchises,  grants,  authorizations,
licenses, permits, easements,  variances,  exemptions,  consents,  certificates,
approvals and orders  necessary to own,  lease and operate its properties and to
carry on its business as it is now being conducted  (collectively,  the "Company
Permits"),  and there is no action  pending or, to the knowledge of the Company,
threatened  regarding  suspension or cancellation of any of the Company Permits.
Neither the  Company nor any of its  Subsidiaries  is in  conflict  with,  or in
default  or  violation  of,  any of the  Company  Permits,  except  for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since December 31,
2004,  neither  the  Company  nor  any  of its  Subsidiaries  has  received  any
notification  with  respect to possible  conflicts,  defaults or  violations  of
applicable laws, except for notices relating to possible conflicts,  defaults or
violations,  which  conflicts,  defaults or violations would not have a Material
Adverse Effect.

                  s. Environmental Matters.

                        (i) Except as set forth in Schedule 3(s), there
are,  to the  Company's  knowledge,  with  respect to the  Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental  Laws  (as  defined  below),  releases  of any  material  into the
environment, actions, activities, circumstances,  conditions, events, incidents,
or contractual  obligations  which may give rise to any common law environmental
liability  or any  liability  under the  Comprehensive  Environmental  Response,
Compensation  and  Liability  Act of 1980 or similar  federal,  state,  local or
foreign  laws and neither the Company nor any of its  Subsidiaries  has received
any notice with respect to any of the  foregoing,  nor is any action pending or,
to the Company's knowledge,  threatened in connection with any of the foregoing.
The term  "Environmental  Laws" means all federal,  state, local or foreign laws
relating  to  pollution  or  protection  of  human  health  or  the  environment
(including,  without limitation,  ambient air, surface water, groundwater,  land
surface or subsurface strata),  including,  without limitation, laws relating to
emissions,  discharges, releases or threatened releases of chemicals, pollutants
contaminants,   or  toxic  or  hazardous  substances  or  wastes  (collectively,
"Hazardous  Materials")  into the  environment,  or  otherwise  relating  to the
manufacture,   processing,  distribution,  use,  treatment,  storage,  disposal,
transport or handling of  Hazardous  Materials,  as well as all  authorizations,
codes, decrees,  demands or demand letters,  injunctions,  judgments,  licenses,
notices  or  notice  letters,  orders,  permits,  plans or  regulations  issued,
entered, promulgated or approved thereunder.

                        (ii) Other than those that are or were stored, used
or disposed of in compliance  with  applicable  law, no Hazardous  Materials are
contained on or about any real property  currently owned,  leased or used by the
Company or any of its Subsidiaries,  and no Hazardous Materials were released on
or about any real property  previously  owned,  leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its  Subsidiaries,  except in the normal  course of the
Company's or any of its Subsidiaries' business.

                        (iii) Except as set forth in Schedule 3(s), there are
no underground storage tanks on or under any real property owned, leased or used
by the  Company  or any of its  Subsidiaries  that  are not in  compliance  with
applicable law.

                                       11
<PAGE>

                  t. Title to Property.  The Company and its  Subsidiaries  have
good and  marketable  title in fee  simple  to all  real  property  and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in Schedule 3(t) or
such as  would  not have a  Material  Adverse  Effect.  Any  real  property  and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.

                  u.  Insurance.  The Company and each of its  Subsidiaries  are
insured by insurers of recognized financial  responsibility  against such losses
and risks and in such  amounts  as  management  of the  Company  believes  to be
prudent  and  customary  in  the   businesses  in  which  the  Company  and  its
Subsidiaries  are engaged.  Neither the Company nor any such  Subsidiary has any
reason  to  believe  that it will not be able to renew  its  existing  insurance
coverage as and when such coverage  expires or to obtain  similar  coverage from
similar  insurers as may be  necessary  to continue  its business at a cost that
would not have a Material Adverse Effect. The Company has provided to Buyer true
and  correct  copies  of all  policies  relating  to  directors'  and  officers'
liability  coverage,  errors and  omissions  coverage,  and  commercial  general
liability coverage.

                  v. Internal Accounting  Controls.  The Company and each of its
Subsidiaries  maintain a system of internal accounting controls  sufficient,  in
the  judgment  of the  Company's  board  of  directors,  to  provide  reasonable
assurance that (i)  transactions  are executed in accordance  with  management's
general or specific authorizations,  (ii) transactions are recorded as necessary
to permit  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  and to maintain  asset  accountability,  (iii)
access to assets is permitted only in accordance  with  management's  general or
specific  authorization  and (iv) the  recorded  accountability  for  assets  is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

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

                  x.   Solvency.   The  Company  (after  giving  effect  to  the
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
fair  market  value  in  excess  of the  amount  required  to pay  its  probable
liabilities  on its  existing  debts as they become  absolute  and  matured) and
currently  the  Company  has no  information  that would  lead it to  reasonably
conclude  that the Company  would not,  after giving  effect to the  transaction
contemplated by this Agreement,  have the ability to, nor does it intend to take
any action  that would  impair its  ability  to, pay its debts from time to time
incurred  in  connection  therewith  as such debts  mature.  The Company did not
receive a qualified  opinion from its  auditors  with respect to its most recent
fiscal year end and,  after giving effect to the  transactions  contemplated  by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year.

                                       12
<PAGE>

                  y. No  Investment  Company.  The Company is not,  and upon the
issuance and sale of the Securities as  contemplated  by this Agreement will not
be an  "investment  company"  required  to be  registered  under the  Investment
Company Act of 1940 (an "Investment Company").  The Company is not controlled by
an Investment Company.

                  z. Breach of Representations and Warranties by the Company. If
the Company breaches any of the  representations or warranties set forth in this
Section  3, and in  addition  to any  other  remedies  available  to the  Buyers
pursuant  to this  Agreement,  the Company  shall pay to the Buyer the  Standard
Liquidated  Damages Amount in cash or in shares of Common Stock at the option of
the  Company,  until  such  breach is cured.  If the  Company  elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.

            4.    COVENANTS.

                  a. Best  Efforts.  The parties shall use their best efforts to
satisfy  timely  each of the  conditions  described  in  Section 6 and 7 of this
Agreement.

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

                  c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company's  Common Stock is  registered  under Section 12(g) of the 1934
Act. The Company  represents and warrants that it meets the requirements for the
use of Form S-3 (or if the Company is not eligible for the use of Form S-3 as of
the Filing Date (as defined in the Registration  Rights Agreement),  the Company
may use the form of  registration  for which it is  eligible  at that  time) for
registration of the sale by the Buyer of the Registrable  Securities (as defined
in the Registration  Rights  Agreement).  So long as the Buyer beneficially owns
any of the Securities,  the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer  required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations  thereunder would permit such termination.
The  Company  further  agrees to file all  reports  required  to be filed by the
Company with the SEC in a timely manner so as to become eligible, and thereafter
to  maintain  its  eligibility,  for the use of Form S-3 or such  other  form of
registration  for which it is eligible.  The Company shall issue a press release
describing the material terms of the transaction  contemplated hereby as soon as
practicable  following  the  Closing  Date  but in no  event  more  than two (2)
business days of the Closing Date, which press release shall be subject to prior
review by the Buyers.  The  Company  agrees  that such press  release  shall not
disclose the name of the Buyers unless expressly  consented to in writing by the
Buyers or unless required by applicable law or regulation,  and then only to the
extent of such requirement.

                                       13
<PAGE>

                  d. Use of  Proceeds.  The Company  shall use the net  proceeds
from the sale of the Notes and the  Warrants in the manner set forth in Schedule
4(d)  attached  hereto  and  made a part  hereof  and  shall  not,  directly  or
indirectly,  use such  proceeds for (i) any loan to or  investment  in any other
corporation,  partnership, enterprise or other person (except in connection with
its currently existing direct or indirect  Subsidiaries);  (ii) the satisfaction
of any portion of the Company's  debt (other than payment of trade  payables and
accrued expenses in the ordinary course of the Company's business and consistent
with prior past practices), or (iii) the redemption of any Common Stock.

                  e.  Future  Offerings.  Subject  to the  exceptions  described
below,   the  Company  will  not,   without  the  prior  written  consent  of  a
majority-in-interest  of the Buyers,  negotiate  or  contract  with any party to
obtain  additional  equity  financing  (including  debt financing with an equity
component)  that  involves (A) the issuance of Common Stock at a discount to the
market  price of the Common  Stock on the date of issuance  (taking into account
the  value of any  warrants  or  options  to  acquire  Common  Stock  issued  in
connection  therewith) or (B) the issuance of  convertible  securities  that are
convertible  into an  indeterminate  number of shares of Common Stock or (C) the
issuance of warrants during the period (the "Lock-up  Period")  beginning on the
Closing Date and ending on the later of (i) two hundred  seventy (270) days from
the  Closing  Date and (ii) one  hundred  eighty  (180)  days  from the date the
Registration  Statement  (as defined in the  Registration  Rights  Agreement) is
declared effective (plus any days in which sales cannot be made thereunder).  In
addition,  subject to the  exceptions  described  below,  the  Company  will not
conduct any equity financing  (including debt with an equity component) ("Future
Offerings")  during the period  beginning on the Closing Date and ending two (2)
years after the end of the Lock-up  Period unless it shall have first  delivered
to each Buyer,  at least twenty (20)  business days prior to the closing of such
Future  Offering,  written  notice  describing  the  proposed  Future  Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection  therewith,  and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the  aggregate  principal  amount of
Notes purchased by it hereunder bears to the aggregate principal amount of Notes
purchased  hereunder) of the securities  being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding  sentence are collectively  referred to as
the "Capital Raising  Limitations").  In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the notice
to the Buyers concerning the proposed Future Offering, the Company shall deliver
a new notice to each Buyer  describing  the amended terms and  conditions of the
proposed Future Offering and each Buyer  thereafter  shall have an option during
the fifteen  (15) day period  following  delivery of such new notice to purchase
its pro  rata  share  of the  securities  being  offered  on the  same  terms as
contemplated  by such  proposed  Future  Offering,  as  amended.  The  foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction   involving  (i)  issuances  of  securities  in  a  firm  commitment
underwritten  public offering  (excluding a continuous offering pursuant to Rule
415  under  the  1933  Act,  an  equity  line of  credit  or  similar  financing
arrangement)  resulting  in  net  proceeds  to  the  Company  of  in  excess  of
$15,000,000,  or (ii)  issuances of  securities as  consideration  for a merger,
consolidation  or  purchase  of  assets,  or in  connection  with any  strategic
partnership  or joint  venture  (the  primary  purpose  of which is not to raise
equity  capital),  or in connection  with the  disposition  or  acquisition of a
business,  product or license by the Company.  The Capital  Raising  Limitations
also shall not apply to the issuance of  securities  upon exercise or conversion
of the Company's options,  warrants or other convertible  securities outstanding
as of the date hereof or to the grant of additional options or warrants,  or the
issuance of additional securities,  under any Company stock option or restricted
stock plan approved by the shareholders of the Company. Notwithstanding anything
in this  section  4(e) to the  contrary,  in the  event the  Company's  Board of
Directors decides, in good faith, to enter into a transaction or relationship in
which the  Company  issues  shares of Common  Stock or other  securities  of the
Company to a person or any entity which is, itself or through its  subsidiaries,
an operating company in a business  synergistic with the business of the Company
and in which the Company  received  benefits in  addition to the  investment  of
funds,  but shall not  include a  transaction  in which the  Company  is issuing
securities  primarily  for the purpose of raising  capital or to an entity whose
business is investing in securities, the Company shall be permitted to do so.

                                       14
<PAGE>

                  f.  Expenses.  At the  Closing,  the Company  shall  reimburse
Buyers  for  expenses  incurred  by them in  connection  with  the  negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements  to be  executed in  connection  herewith  ("Documents"),  including,
without  limitation,  attorneys' and  consultants'  fees and expenses,  transfer
agent fees, fees for stock quotation  services,  fees relating to any amendments
or  modifications  of the  Documents or any consents or waivers of provisions in
the Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of  restructuring  the  transactions  contemplated by the Documents.  When
possible,  the Company must pay these fees directly,  otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately  upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company  fails to reimburse  the Buyer in full within three (3)
business days of the written  notice or submission of invoice by the Buyer,  the
Company  shall pay  interest on the total amount of fees to be  reimbursed  at a
rate of 15% per annum.

                  g.  Financial  Information.  The  Company  agrees  to send the
following  reports to each Buyer until such Buyer transfers,  assigns,  or sells
all of the  Securities:  (i) within ten (10) business days after the filing with
the SEC, a copy of its Annual  Report on Form  10-KSB its  Quarterly  Reports on
Form 10-QSB and any Current  Reports on Form 8-K;  (ii) within one (1)  business
day after release,  copies of all press releases issued by the Company or any of
its  Subsidiaries;  and (iii)  contemporaneously  with the making  available  or
giving  to the  shareholders  of the  Company,  copies of any  notices  or other
information the Company makes available or gives to such shareholders.

                  h.  Authorization  and  Reservation  of  Shares.   Subject  to
Stockholder  Approval,  the  Company  shall at all times  have  authorized,  and
reserved  for the purpose of issuance,  a sufficient  number of shares of Common
Stock to provide for the full  conversion or exercise of the  outstanding  Notes
and  Warrants  and  issuance  of the  Conversion  Shares and  Warrant  Shares in
connection  therewith  (based on the  Conversion  Price of the Notes or Exercise
Price of the Warrants in effect from time to time) and as otherwise  required by
the Notes.  The  Company  shall not reduce the number of shares of Common  Stock
reserved  for  issuance  upon  conversion  of Notes and exercise of the Warrants
without the consent of each Buyer.  The Company shall at all times  maintain the
number  of  shares  of  Common  Stock so  reserved  for  issuance  at an  amount
("Reserved  Amount") equal to no less than two (2) times the number that is then
actually  issuable upon full  conversion of the Notes and  Additional  Notes and
upon exercise of the Warrants (based on the Conversion Price of the Notes or the
Exercise Price of the Warrants in effect from time to time).  If at any time the
number  of  shares  of  Common  Stock   authorized  and  reserved  for  issuance
("Authorized  and Reserved  Shares") is below the Reserved  Amount,  the Company
will  promptly take all  corporate  action  necessary to authorize and reserve a
sufficient number of shares,  including,  without limitation,  calling a special
meeting of  shareholders  to authorize  additional  shares to meet the Company's
obligations  under this Section 4(h), in the case of an  insufficient  number of
authorized shares, obtain shareholder approval of an increase in such authorized
number of shares, and voting the management shares of the Company in favor of an
increase  in the  authorized  shares of the Company to ensure that the number of
authorized  shares is  sufficient  to meet the Reserved  Amount.  If the Company
fails to obtain such shareholder  approval within thirty (30) days following the
date on which the number of Reserved  Amount exceeds the Authorized and Reserved
Shares,  the Company shall pay to the Borrower the Standard  Liquidated  Damages
Amount,  in cash or in shares of Common Stock at the option of the Buyer. If the
Buyer  elects to be paid the  Standard  Liquidated  Damages  Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment.  In order to ensure that the Company has authorized a sufficient amount
of shares to meet the Reserved Amount at all times,  the Company must deliver to
the Buyer at the end of every month a list  detailing (1) the current  amount of
shares  authorized by the Company and reserved for the Buyer;  and (2) amount of
shares  issuable upon  conversion of the Notes and upon exercise of the Warrants
and as payment of  interest  accrued on the Notes for one year.  If the  Company
fails to provide  such list  within  five (5)  business  days of the end of each
month, the Company shall pay the Standard  Liquidated Damages Amount, in cash or
in  shares  of  Common  Stock at the  option  of the  Buyer,  until  the list is
delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
in shares of Common Stock,  such shares shall be issued at the Conversion  Price
at the time of payment.

                                       15
<PAGE>

                  i. Listing.  The Company shall promptly  secure the listing or
quotation,  as the case may be, of the Conversion Shares and Warrant Shares upon
each national  securities  exchange or automated  quotation system, if any, upon
which  shares of Common  Stock are then  listed or  quoted,  as the case may be,
(subject to official  notice of issuance)  and, so long as any Buyer owns any of
the  Securities,  shall  maintain,  so long as any other  shares of Common Stock
shall be so listed or quoted, as the case may be, such listing or quotation,  as
the case may be, of all  Conversion  Shares and Warrant Shares from time to time
issuable upon  conversion of the Notes or exercise of the Warrants.  The Company
will obtain and, so long as any Buyer owns any of the  Securities,  maintain the
listing or quotation, as the case may be, and trading of its Common Stock on the
OTCBB  or any  equivalent  replacement  exchange,  the  Nasdaq  National  Market
("Nasdaq"),  the Nasdaq SmallCap Market ("Nasdaq SmallCap"),  the New York Stock
Exchange  ("NYSE"),  or the American Stock Exchange  ("AMEX") and will comply in
all respects with the Company's  reporting,  filing and other  obligations under
the bylaws or rules of the National  Association of Securities  Dealers ("NASD")
and such exchanges,  as applicable.  The Company shall promptly  provide to each
Buyer copies of any notices it receives  from the OTCBB and any other  exchanges
or quotation  systems on which the Common Stock is then listed or quoted, as the
case may be, regarding the continued eligibility of the Common Stock for listing
or quotation, as the case may be, on such exchanges and quotation systems.

                  j. Corporate  Existence.  So long as a Buyer beneficially owns
any Notes or Warrants,  the Company shall  maintain its corporate  existence and
shall not sell all or substantially all of the Company's  assets,  except in the
event of a merger or consolidation  or sale of all or  substantially  all of the
Company's  assets,  where the surviving or successor  entity in such transaction
(i) assumes the Company's  obligations  hereunder and under the  agreements  and
instruments  entered into in connection  herewith and (ii) is a publicly  traded
corporation  whose  Common  Stock is listed for  trading  on the OTCBB,  Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.

                                       16
<PAGE>

                  k. No  Integration.  The Company  shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of the Securities to be integrated with any other
offering  of  securities  by the  Company  for the  purpose  of any  stockholder
approval provision applicable to the Company or its securities.

                  l.  Subsequent  Investment.  The Company and the Buyers  agree
that, upon the filing by the Company of the  Registration  Statement to be filed
pursuant to the Registration  Rights  Agreement (the "Filing Date"),  the Buyers
shall purchase  additional Notes (the "Filing Notes") in the aggregate principal
amount of Six Hundred  Thousand  Dollars  ($600,000)  for an aggregate  purchase
price of Six  Hundred  Thousand  Dollars  ($600,000),  with the  closing of such
purchase to occur on the Filing Date; provided,  however, that the obligation of
each Buyer to purchase  the Filing Notes is subject to the  satisfaction,  at or
before the closing of such  purchase and sale,  of the  conditions  set forth in
Section 7. The Company and the Buyers further agree that,  upon the  declaration
of  effectiveness  of the  Registration  Statement  to be filed  pursuant to the
Registration  Rights Agreement (the "Effective Date"), the Buyers shall purchase
additional notes (the  "Effectiveness  Notes" and,  collectively with the Filing
Notes,  the  "Additional  Notes")  in the  aggregate  principal  amount of Seven
Hundred Thousand Dollars  ($700,000),  for an aggregate  purchase price of Seven
Hundred Thousand Dollars ($700,000),  with the closing of such purchase to occur
on the Effective Date; provided,  however,  that the obligation of each Buyer to
purchase the Additional Notes is subject to the  satisfaction,  at or before the
closing of such  purchase and sale,  of the  conditions  set forth in Section 7;
and, provided, further, that there shall not have been a Material Adverse Effect
as of such effective date. The terms of the Additional  Notes shall be identical
to the terms of the Notes to be issued on the  Closing  Date.  The Common  Stock
underlying the Additional  Notes shall be Registrable  Securities (as defined in
the  Registration  Rights  Agreement) and shall be included in the  Registration
Statement to be filed pursuant to the Registration Rights Agreement.

                  m. Key Man  Insurance.  The Company shall use its best efforts
to obtain,  on or before five (5) business  days from the date  hereof,  key man
life insurance on all key executive employees.

                  n.  Restriction on Short Sales. The Buyers agree that, so long
as any of the Notes remain outstanding,  but in no event less than two (2) years
from the date hereof, the Buyers will not enter into or effect any "short sales"
(as such term is defined  in Rule 3b-3 of the 1934 Act) of the  Common  Stock or
hedging  transaction  which establishes a net short position with respect to the
Common Stock.

                                       17
<PAGE>

                  o. Breach of  Covenants.  If the Company  breaches  any of the
covenants  set forth in this  Section 4, and in addition  to any other  remedies
available to the Buyers pursuant to this Agreement, the Company shall pay to the
Buyers the Standard  Liquidated  Damages Amount,  in cash or in shares of Common
Stock at the option of the Company,  until such breach is cured.  If the Company
elects to pay the  Standard  Liquidated  Damages  Amount in shares,  such shares
shall be issued at the Conversion Price at the time of payment.

            5. TRANSFER AGENT INSTRUCTIONS.  The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee,  for the  Conversion  Shares and Warrant Shares in
such  amounts as  specified  from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the "Irrevocable Transfer Agent  Instructions").  Prior to registration
of the  Conversion  Shares and Warrant  Shares under the 1933 Act or the date on
which the Conversion  Shares and Warrant Shares may be sold pursuant to Rule 144
without any  restriction as to the number of Securities as of a particular  date
that  can  then be  immediately  sold,  all  such  certificates  shall  bear the
restrictive  legend  specified  in Section 2(g) of this  Agreement.  The Company
warrants  that  no  instruction  other  than  the  Irrevocable   Transfer  Agent
Instructions  referred to in this Section 5, and stop transfer  instructions  to
give  effect to Section  2(f) hereof (in the case of the  Conversion  Shares and
Warrant  Shares,  prior to  registration  of the  Conversion  Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately  sold),  will
be given by the  Company to its  transfer  agent and that the  Securities  shall
otherwise be freely  transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration  Rights Agreement.
Nothing in this  Section  shall  affect in any way the Buyer's  obligations  and
agreement  set  forth in  Section  2(g)  hereof to  comply  with all  applicable
prospectus delivery requirements,  if any, upon re-sale of the Securities.  If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope  customary for opinions in comparable  transactions,  to the effect that a
public sale or  transfer of such  Securities  may be made  without  registration
under  the 1933 Act and such  sale or  transfer  is  effected  or (ii) the Buyer
provides reasonable  assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer,  and, in the case of the  Conversion
Shares and Warrant Shares,  promptly instruct its transfer agent to issue one or
more  certificates,  free  from  restrictive  legend,  in such  name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating  the  intent  and  purpose of the  transactions  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or  threatened  breach by the Company of the  provisions of this Section,
that the Buyers shall be entitled,  in addition to all other available remedies,
to an  injunction  restraining  any breach  and  requiring  immediate  transfer,
without the  necessity  of showing  economic  loss and without any bond or other
security being required.

                                       18
<PAGE>

            6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following  conditions  thereto,  provided that these  conditions are for the
Company's  sole benefit and may be waived by the Company at any time in its sole
discretion:

                  a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.

                  b. The  applicable  Buyer shall have  delivered  the  Purchase
Price in accordance with Section 1(b) above.

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

                  d. No litigation, statute, rule, regulation,  executive order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by or in any court or governmental  authority of competent jurisdiction
or  any   self-regulatory   organization   having  authority  over  the  matters
contemplated  hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

            7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer  hereunder  to purchase  the Notes and  Warrants at the Closing is
subject  to the  satisfaction,  at or  before  the  Closing  Date of each of the
following  conditions,  provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:

                  a. The Company  shall have  executed  this  Agreement  and the
Registration Rights Agreement, and delivered the same to the Buyer.

                  b.  The  Company  shall  have  delivered  to such  Buyer  duly
executed Notes (in such  denominations  as the Buyer shall request) and Warrants
in accordance with Section 1(b) above.

                  c. The Irrevocable  Transfer Agent  Instructions,  in form and
substance satisfactory to a majority-in-interest  of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.

                  d. The  representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing  Date as  though  made at such  time  (except  for  representations  and
warranties  that  speak  as of a  specific  date)  and the  Company  shall  have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate  or  certificates,  executed by the chief  executive
officer of the Company,  dated as of the Closing Date,  to the foregoing  effect
and as to such  other  matters  as may be  reasonably  requested  by such  Buyer
including,  but not  limited  to  certificates  with  respect  to the  Company's
Certificate  of  Incorporation,  By-laws  and  Board of  Directors'  resolutions
relating to the transactions contemplated hereby.

                                       19
<PAGE>

                  e. No litigation, statute, rule, regulation,  executive order,
decree,  ruling or injunction shall have been enacted,  entered,  promulgated or
endorsed by or in any court or governmental  authority of competent jurisdiction
or  any   self-regulatory   organization   having  authority  over  the  matters
contemplated  hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                  f. No event  shall have  occurred  which could  reasonably  be
expected to have a Material Adverse Effect on the Company.

                  g. The  Conversion  Shares and Warrant  Shares shall have been
authorized  for  quotation  on the OTCBB and trading in the Common  Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.

                  h. The Buyer shall have  received an opinion of the  Company's
counsel,  dated as of the Closing Date, in form, scope and substance  reasonably
satisfactory  to the Buyer and in  substantially  the same form as  Exhibit  "D"
attached hereto.

                  i. The Buyer  shall have  received  an  officer's  certificate
described in Section 3(c) above, dated as of the Closing Date.

            8.    GOVERNING LAW; MISCELLANEOUS.

                  a. Governing Law. THIS AGREEMENT  SHALL BE ENFORCED,  GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO  AGREEMENTS  MADE AND TO BE  PERFORMED  ENTIRELY  WITHIN SUCH STATE,  WITHOUT
REGARD TO THE  PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT
TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK,  NEW YORK WITH RESPECT TO ANY DISPUTE  ARISING UNDER THIS  AGREEMENT,  THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS  CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT  SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS  AGREEMENT  SHALL  BE  RESPONSIBLE  FOR ALL FEES  AND  EXPENSES,  INCLUDING
ATTORNEYS'  FEES,  INCURRED  BY THE  PREVAILING  PARTY IN  CONNECTION  WITH SUCH
DISPUTE.

                                       20
<PAGE>

                  b. Counterparts;  Signatures by Facsimile.  This Agreement may
be  executed  in one or more  counterparts,  each of which  shall be  deemed  an
original but all of which shall  constitute one and the same agreement and shall
become effective when  counterparts have been signed by each party and delivered
to the other party.  This Agreement,  once executed by a party, may be delivered
to the other party hereto by facsimile  transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

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

                  d.  Severability.  In the  event  that any  provision  of this
Agreement is invalid or  unenforceable  under any applicable  statute or rule of
law, then such provision  shall be deemed  inoperative to the extent that it may
conflict  therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or  enforceability  of any other provision
hereof.

                  e.  Entire  Agreement;  Amendments.  This  Agreement  and  the
instruments  referenced  herein contain the entire  understanding of the parties
with  respect  to  the  matters  covered  herein  and  therein  and,  except  as
specifically  set forth  herein or  therein,  neither  the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters.  No provision of this  Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.

                  f.  Notices.  Any notices  required or  permitted  to be given
under the terms of this Agreement  shall be sent by certified or registered mail
(return receipt  requested) or delivered  personally or by courier  (including a
recognized  overnight  delivery  service) or by facsimile and shall be effective
five days after being  placed in the mail,  if mailed by regular  United  States
mail,  or upon  receipt,  if  delivered  personally  or by courier  (including a
recognized  overnight delivery service) or by facsimile,  in each case addressed
to a party. The addresses for such communications shall be:

                  If to the Company:

                  American Racing Capital, Inc.
                  4702 Oleander Drive, Suite 200
                  Myrtle Beach, SC 29577
                  Attention:  Chief Executive Officer
                  Telephone:  (800) 914-3177
                  Facsimile:  (775) 265-9970

                                       21
<PAGE>

                  With a copy to:

                  Anslow & Jaclin, LLP
                  195 Route 9, Suite 204
                  Manalapan, NJ 07725
                  Attention:   Richard I. Anslow, Esq.
                  Telephone:  (732) 409-1212
                  Facsimile:   (732) 577-1188

      If to a Buyer:  To the address set forth  immediately  below such  Buyer's
name on the signature pages hereto.
                  With copy to:

                  Ballard Spahr Andrews & Ingersoll, LLP
                  1735 Market Street, 51st Floor
                  Philadelphia, Pennsylvania  19103
                  Attention:  Gerald J. Guarcini, Esq.
                  Telephone:  215-864-8625
                  Facsimile:  215-864-8999

      Each  party  shall  provide  notice  to the other  party of any  change in
address.

                  g.  Successors and Assigns.  This  Agreement  shall be binding
upon and inure to the benefit of the parties and their  successors  and assigns.
Neither the Company nor any Buyer shall  assign this  Agreement or any rights or
obligations   hereunder   without  the  prior  written  consent  of  the  other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights  hereunder  to  any  person  that  purchases   Securities  in  a  private
transaction from a Buyer or to any of its  "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.

                  h. Third Party  Beneficiaries.  This Agreement is intended for
the benefit of the parties hereto and their respective  permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

                  i. Survival. The representations and warranties of the Company
and the  agreements  and  covenants  set forth in  Sections  3, 4, 5 and 8 shall
survive the closing hereunder  notwithstanding  any due diligence  investigation
conducted by or on behalf of the Buyers.  The Company  agrees to  indemnify  and
hold harmless each of the Buyers and all their  officers,  directors,  employees
and agents for loss or damage arising as a result of or related to any breach or
alleged  breach by the  Company of any of its  representations,  warranties  and
covenants  set  forth in  Sections  3 and 4 hereof or any of its  covenants  and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.

                  j.  Publicity.  The Company and each of the Buyers  shall have
the right to review a  reasonable  period of time  before  issuance of any press
releases,  SEC,  OTCBB or NASD  filings,  or any other  public  statements  with
respect to the transactions  contemplated hereby;  provided,  however,  that the
Company shall be entitled,  without the prior approval of each of the Buyers, to
make any press release or SEC,  OTCBB (or other  applicable  trading  market) or
NASD filings with respect to such  transactions as is required by applicable law
and  regulations  (although each of the Buyers shall be consulted by the Company
in  connection  with any such press  release  prior to its  release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).

                                       22
<PAGE>

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

                  l. No Strict Construction. The language used in this Agreement
will be deemed to be the language  chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

                  m. Remedies.  The Company  acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Company  acknowledges  that the  remedy at law for a breach  of its  obligations
under this Agreement will be inadequate and agrees,  in the event of a breach or
threatened  breach by the Company of the provisions of this Agreement,  that the
Buyers shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or  injunctions  restraining,  preventing or curing any breach of this Agreement
and to  enforce  specifically  the  terms and  provisions  hereof,  without  the
necessity of showing  economic loss and without any bond or other security being
required.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       23
<PAGE>

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

AMERICAN RACING CAPITAL, INC.

D. Davy Jones
Chief Executive Officer

AJW PARTNERS, LLC
By:  SMS Group, LLC

Corey S. Ribotsky
Manager

RESIDENCE:  Delaware

ADDRESS:    1044 Northern Boulevard
            Suite 302
            Roslyn, New York  11576
            Facsimile:  (516) 739-7115
            Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

      Aggregate Principal Amount of Notes:                        $ ________
      Number of Series A Warrants:                                  ________
      Number of Series B Warrants:                                  ________
      Aggregate Purchase Price:                                   $ ________

                                       24
<PAGE>

AJW OFFSHORE, LTD.
By:  First Street Manager II, LLC

Corey S. Ribotsky
Manager

RESIDENCE:  Cayman Islands

ADDRESS:    AJW Offshore, Ltd.
            P.O. Box 32021 SMB
            Grand Cayman, Cayman Island, B.W.I.

AGGREGATE SUBSCRIPTION AMOUNT:

      Aggregate Principal Amount of Notes:                        $ ________
      Number of Series A Warrants:                                  ________
      Number of Series B Warrants:                                  ________
      Aggregate Purchase Price:                                   $ ________

                                       25
<PAGE>

AJW QUALIFIED PARTNERS, LLC
By:  AJW Manager, LLC

Corey S. Ribotsky
Manager

RESIDENCE:  New York

ADDRESS:    1044 Northern Boulevard
            Suite 302
            Roslyn, New York  11576
            Facsimile:  (516) 739-7115
            Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

      Aggregate Principal Amount of Notes:                        $ ________
      Number of Series A Warrants:                                  ________
      Number of Series B Warrants:                                  ________
      Aggregate Purchase Price:                                   $ ________

                                       26
<PAGE>

NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By:  First Street Manager II, LLP

Corey S. Ribotsky
Manager

RESIDENCE:  New York

ADDRESS:    1044 Northern Boulevard
            Suite 302
            Roslyn, New York  11576
            Facsimile:  (516) 739-7115
            Telephone:  (516) 739-7110

AGGREGATE SUBSCRIPTION AMOUNT:

      Aggregate Principal Amount of Notes:                        $ ________
      Number of Series A Warrants:                                  ________
      Number of Series B Warrants:                                  ________
      Aggregate Purchase Price:                                   $ ________

                                       27
<PAGE>

                                  Schedule 3(a)

                                  Subsidiaries

American Racing Capital, Inc.
PO Box 563
Zephyr Cove, NV 89448

Fast One Consulting, Inc.
PO Box 563
Zephyr Cove, NV 89448

Davy Jones Motorsports, Inc.
PO Box 185
Glenbrook, NV 89413

ARC Development Corp.
PO Box 22002
San Diego, CA 92192

                                       28
<PAGE>

                                  Schedule 3(c)

None.

                                       29
<PAGE>

                                  Schedule 3(f)
None.

                                       30
<PAGE>

                                  Schedule 3(g)

Form 10-KSB for the fiscal year ended December 31, 2005

Form 10-QSB for the fiscal quarter ended March 31, 2006

The Company intends to make both filings shortly.

                                       31
<PAGE>

                                  Schedule 3(i)

None.

                                       32
<PAGE>

                                  Schedule 3(j)

None.

                                       33
<PAGE>

                                  Schedule 3(l)

None.

                                       34
<PAGE>

                                  Schedule 3(m)

None.

                                       35
<PAGE>

                                  Schedule 3(q)

None.

                                       36
<PAGE>

                                  Schedule 3(s)

None.

                                       37
<PAGE>

                                  Schedule 3(t)

None.

                                       38
<PAGE>

                                  Schedule 4(d)

                                 Use of Proceeds

                                       39

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