Document:

Unassociated Document

    Exhibit
      4.2

     

    

    FIRST
      AMENDMENT AND WAIVER AGREEMENT

    

    This
      First Amendment and Waiver Agreement (this “Agreement”),
      is
      made and entered into as of February 15, 2007, by and among Fellows Energy
      Ltd.,
      a Nevada corporation (along with its subsidiaries signatory hereto, the
“Company”)
      and
      Crescent International Ltd. (the “Holder”).
      

    

    WHEREAS,
      the Company and the Holder are parties to that certain Securities Purchase
      Agreement, dated June 17, 2005, by and among the Company and the signatories
      thereto (collectively, the “June
      Purchase Agreements”),
      pursuant to which the Company issued to the Holder Convertible Debentures,
      due
      September 7, 2007, including those Convertible Debentures originally issued
      to
      JGB Capital L.P., which JGB is assigning to Holder simultaneously with this
      Agreement, with an aggregate principal amount of $1,500,000, of which $______
      currently remains outstanding (the “June
      Debenture”);
      and

    

    WHEREAS,
      the Company and the Holder are parties to that certain Securities Purchase
      Agreement, September 21, 2005, by and among the Company and the signatories
      thereto (collectively, the “September
      Purchase Agreement”
and
      together with the June Purchase Agreement, the “Purchase
      Agreements”),
      pursuant to which the Company issued to the Holder a Convertible Debenture,
      due
      September 7, 2007, with an aggregate principal amount of $250,000, of which
      $____ currently remains outstanding (the “September
      Debenture”
and
      together with the June Debenture, the “Debentures”);
      and

    

    WHEREAS,
      on account of dilutive issuances of equity by the Company, the conversion price
      of the Debentures and the exercise prices of the common stock purchase warrants
      (collectively, the “Warrants”)
      issued
      pursuant to the Purchase Agreements have been reduced to equal $0.1357, subject
      to adjustment therein, with proportional increases in the number of shares
      of
      common stock issuable upon exercise of such Warrants, as set forth therein;
      and

    

    WHEREAS,
      certain events of default have occurred pursuant to the Debentures and are
      continuing to occur related to the Debentures and as a result of such defaults
      (“Existing
      Defaults”),
      Palisades is entitled, among other things, to enforce its rights and remedies
      against the Company, including without limitation, acceleration and immediately
      demand payment in full of all obligations under the Debentures; and

    

    WHEREAS,
      the parties have reached an agreement with respect to the modification and
      amendment of certain terms of the Debentures relating to the conversion and
      terms of the Debentures and the waiver of the Existing Defaults;
      and

    

    WHEREAS,
      capitalized terms used herein, but not otherwise defined, shall have the
      meanings ascribed to such terms as set forth in the September Purchase
      Agreement; and

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    NOW
      THEREFORE, in consideration of the terms and conditions contained in this
      Agreement, and other good and valuable consideration, the receipt and
      sufficiency of which is hereby acknowledged, the parties, intending to be
      legally bound hereby, agree as follows:

    

    1.  Incorporation
      of Preliminary Statements and Acknowledgement.
      The
      preliminary statements set forth above by this reference hereto are hereby
      incorporated into this Agreement. Without limiting the foregoing, the Company
      hereby acknowledges that the Existing Events have occurred and are continuing
      under the terms of the Purchase Agreement and Debentures and, notwithstanding
      anything to the contrary in this Agreement, the Purchase Agreements, Debentures
      or any of the other Transaction Documents, the Company acknowledges and agrees
      that upon a breach of this Agreement by the Company, such breach shall be an
      Event of Default under the Debentures.

    

    2.  Consent
      to Palisades Transaction.
      Simultaneously with the execution of this Agreement, the following transactions
      are also taking place: b) JGB is entering into an assignment agreement with
      Crescent International Ltd. (“Crescent”)
      for
      the assignment of the Debentures (the “JGB
      Assignment Agreement”);
      b)
      the Company is entering into an amendment and waiver agreement (the
“Debenture
      Amendments”
and
      together with this Agreement and the JGB Assignment Agreement, the “Assignment
      Documents”)
      with
      Palisades for the amendment of the convertible debentures issued pursuant to
      the
      Purchase Agreements; and c) the Company and Palisades are entering into a
      securities purchase agreement for the purchase of $714,500 in secured
      convertible debentures. The Holder hereby consents to the above-described
      transactions.

    

    3.  Waiver
      of Existing Defaults.
      The
      Holder agrees to forever waive its rights and remedies against the Company,
      including without limitation, acceleration of the Debentures, solely in
      connection with, and as they relate to, the prior occurrence of the Existing
      Defaults. Notwithstanding anything herein to the contrary, this waiver is
      limited only to the Existing Defaults and any future Events of Default,
      including a breach of this Agreement, shall not be deemed waived
      hereunder.

    

    4.  Release
      of all Claims.
      THE
      COMPANY (FOR ITSELF AND ITS AFFILIATES) HEREBY UNCONDITIONALLY RELEASES AND
      FOREVER DISCHARGES THE HOLDER AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS,
      DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, ACCOUNTANTS, CONSULTANTS,
      CONTRACTORS, ADVISORS AND ATTORNEYS (COLLECTIVELY, THE "BENEFITED
      PARTIES")
      FROM
      ALL CLAIMS (AS DEFINED BELOW) AND AGREES TO INDEMNIFY THE BENEFITED PARTIES,
      AND
      HOLD THEM HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF ACTION, COSTS
      AND
      EXPENSES OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS. AS USED
      IN
      THIS AMENDMENT, THE TERM "CLAIMS" MEANS ANY AND ALL POSSIBLE CLAIMS, DEMANDS,
      ACTIONS, CAUSES OF ACTIONS, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, KNOWN
      OR
      UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART, WHICH THE
      COMPANY, OR ANY OF ITS AGENTS, EMPLOYEES OR AFFILIATES MAY NOW OR HEREAFTER
      HAVE
      OR CLAIM AGAINST ANY OF THE BENEFITED PARTIES AND IRRESPECTIVE OF WHETHER ANY
      SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR OTHERWISE IN
      CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, INCLUDING ANY CONTRACTING
      FOR,
      CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF
      THE
      MAXIMUM RATE ON INTEREST CHARGEABLE UNDER APPLICABLE LAW AND ANY LOSS, COST
      OR
      DAMAGE, OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
      OR
      IN ANY WAY RESULTING FROM THE ACTIONS OR OMISSIONS OF THE BENEFITED PARTIES,
      INCLUDING ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF GOOD FAITH OR
      FAIR
      DEALING, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF INTEREST,
      NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER INFLUENCED
      AND
      CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF MENTAL
      DISTRESS, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, TORTIOUS
      INTERFERENCE WITH CORPORATE GOVERNANCE OR PROSPECTIVE BUSINESS ADVANTAGE, BREACH
      OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY OR ANY CLAIM
      FOR WRONGFULLY ACCELERATING ANY OBLIGATIONS OR WRONGFULLY ATTEMPTING TO
      FORECLOSE ON ANY COLLATERAL. THE COMPANY (FOR ITSELF AND ITS AFFILIATES) AGREES
      THAT NONE OF THE BENEFITED PARTIES HAS FIDUCIARY OR SIMILAR OBLIGATIONS TO
      THE
      COMPANY OR ANY AGENTS, EMPLOYEES OR AFFILIATES OF THE COMPANY AND THAT THEIR
      RELATIONSHIPS ARE STRICTLY THAT OF CREDITOR AND DEBTOR. THIS RELEASE IS ACCEPTED
      BY HOLDER PURSUANT TO THIS AMENDMENT AND SHALL NOT BE CONSTRUED AS AN ADMISSION
      OF LIABILITY BY HOLDER OR ANY OTHER BENEFITED PARTY.

     

    
      
         

      

      
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    5.  Amendment
      to Debentures.
      The
      Debentures are amended as follows:

     

    (a)  All
      definitions and references in the Debentures to “Forced Conversion”, “Forced
      Conversion Notice”, “Forced Conversion Notice Date”, “Monthly Conversion
      Period”, “Monthly Conversion Price”, Monthly Redemption”, “Monthly Redemption
      Amount”, “Monthly Redemption Date”, “Monthly Redemption Notice”, “Monthly
      Redemption Notice Date”, “Monthly Redemption Notice Period”, “Monthly Redemption
      Share Amount”, “Optional Redemption”, Optional Redemption Amount”, Optional
      Redemption Notice”, “Optional Redemption Notice Date”, “Pre-Redemption
      Conversion Shares” and “Threshold Period” are hereby deleted and of no further
      force or effect in the Debentures.

     

    (b)  Section
      6(a) of the Debentures is hereby deleted in its entirely and replaced as
      follows: “Section
      6.RESERVED.”

     

    (c)  Section
      4(b) of the Debentures is hereby amended and restated as follows:

     

    “Conversion
      Price.
      The
      conversion price in effect on any Conversion Date shall be equal to $0.1375
      (subject
      to adjustment herein)(the “Conversion
      Price”).”

    

    6.  Security
      Interest.
      As
      security for the payment in full of principal, interest and performance under
      this Agreement and the Debentures and of all other liabilities and obligations
      of the Company to the Holder, the Company and its subsidiaries, grant the Holder
      a general security interest in all assets of the Company and its subsidiaries
      and all proceeds arising therefrom and any and all products of such assets
      and
      in certain real estate holdings as described below. In furtherance thereof,
      the
      Company shall:

     

    
      
         

      

      
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    a.  
      On the
      date hereof enter into a Security Agreement simultaneously herewith evidencing
      the above-referenced security interest in all of the assets of the Company
      and
      its subsidiaries; and

     

    b.  Within
      30
      days of the date hereof, have granted the Holder a first lien on real property
      (except for the real property in Carbon county, which Holder shall take a second
      lien), in the form of a mortgage or deed of trust, in real property owned by
      the
      Company and its subsidiaries and located in Baca and Broomfield counties,
      Colorado, and Rich, Carbon and Emery counties, Utah. The Company shall use
      best
      efforts to secure such liens in favor of the Holder, including but not limited
      to, paying reasonable attorneys’ fees in connection therewith and securing title
      insurance reports.

     

    7.  Representations
      and Warranties of the Company.
      The
      Company hereby makes to the Holder the following representations and
      warranties:

     

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

     

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

     

    8.  Representations
      and Warranties of the Holder.
      The
      Holder represents and warrants as of the date hereof to the Company as
      follows:

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    i.  Authority.
      The
      execution, delivery and performance by such Holder of the transactions
      contemplated by this Agreement have been duly authorized by all necessary
      corporate or similar action on the part of such Holder. This Agreement has
      been
      duly executed by such Holder, and when delivered by such Holder in accordance
      with the terms hereof, will constitute the valid and legally binding obligation
      of such Holder, enforceable against it in accordance with its terms, except
      (i)
      as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

    ii.  Holder
      Status.
      Such
      Holder is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
      (a)(7) or (a)(8) under the Securities Act. Such Holder is not required to be
      registered as a broker-dealer under Section 15 of the Exchange Act.

     

    9.  Effect
      on Transaction Documents. Except
      as
      expressly set forth above, all of the terms and conditions of the Transaction
      Documents shall continue in full force and effect after the execution of this
      Agreement and shall not be in any way changed, modified or superseded by the
      terms set forth herein, including but not limited to, any other obligations
      the
      Company may have to the Holder under the Transaction Documents.

     

    10.  Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and the Holder. 

     

    11.  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be delivered as set forth in the applicable Transaction
      Document. 

     

    12.  Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      the
      Holder. The Company may not assign (except by merger) its rights or obligations
      hereunder without the prior written consent of the Holder. The Holder may assign
      their respective rights hereunder in the manner and to the Persons as permitted
      under the applicable Transaction Document.

     

    
      
         

      

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

     

    14.  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be determined in accordance with the provisions of
      the
      September Purchase Agreement.

     

    15.  Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    16.  Headings.
      The
      headings in this Agreement are for convenience only, do not constitute a part
      of
      the Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    

    [SIGNATURE
      PAGE FOLLOWS]

     

    

    
      
         

      

      
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    IN
      WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
      executed this Agreement as of the date first set forth above.

     

    
      	 	 	 
	 	
              FELLOWS
                ENERGY LTD.

            
	 
 	 
 	 
 
	 	By:  	/s/ GEORGE
              S.
              YOUNG
	 	
              
Name:
              George S. Young
	 	Title:
              Chief Executive Officer

    

     

     

    
 

    
      
         

      

      
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    [SIGNATURE
      PAGE OF HOLDER TO FLWE AMENDMENT AND WAIVER]

     

    Name
      of
      Holder: CRESCENT INTERNATIONAL LTD.

    Signature
      of Authorized Signatory of Holder:
      /s/
      MAXI BREZZI

    Name
      of
      Authorized Signatory: Maxi Brezzi

    Title
      of
      Authorized Signatory: Authorized Signatory

     

    DTC
      Instructions:

     

     

     

     

    

    

    8Exhibit 4.3

    Exhibit
      4.3

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of February 15, 2007 among Fellows Energy Ltd., a Nevada corporation
      (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      Rule 506 promulgated thereunder, the Company desires to issue and sell to each
      Purchaser, and each Purchaser, severally and not jointly, desires to purchase
      from the Company, securities of the Company as more fully described in this
      Agreement.

     

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

     

     

          
      ARTICLE I.  

    DEFINITIONS

     

    1.1  Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Debentures (as defined herein), and (b) the following terms have the
      meanings indicated in this Section 1.1:

     

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

     

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

     

    “Closing”
means
      the closing of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the Securities have been satisfied or
      waived.

     

    “Closing
      Price”
means
      on any particular date (a) the last reported closing bid price per share of
      Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
      at 4:15 PM (New York time), or (b) if there is no such price on such date,
      then
      the closing bid price on the Trading Market on the date nearest preceding such
      date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
      bid price for regular session trading on such day), or (c) if the Common
      Stock is not then listed or quoted on the Trading Market and if prices for
      the
      Common Stock are then reported in the “pink sheets” published by the Pink
      Sheets, LLC (or a similar organization or agency succeeding to its functions
      of
      reporting prices), the most recent bid price per share of the Common Stock
      so
      reported, or (d) if the shares of Common Stock are not then publicly traded
      the fair market value of a share of Common Stock as determined by a qualified
      independent appraiser selected in good faith by the Purchasers of a majority
      in
      interest of the outstanding principal amount of the Debentures.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $0.001 per share, and any other
      class
      of securities into which such securities may hereafter have been reclassified
      or
      changed into.

     

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

     

    “Company
      Counsel”
means
      Sichenzia Ross Friedman Ference LLP.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Debentures.

     

    “Debentures”
means,
      the Convertible Debentures due, subject to the terms therein, September 7,
      2007,
      issued by the Company to the Purchasers hereunder, in the form of Exhibit
      A.

     

    “Disclosure
      Schedules”
shall
      have the meaning ascribed to such term in Section 3.1.

     

    “Effective
      Date”
means
      the date that the initial Registration Statement filed by the Company pursuant
      to the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Evaluation
      Date”
shall
      have the meaning ascribed to such term in Section 3.1(r). 

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to any stock or option plan duly adopted
      by
      the Board of Directors of the Company, (b) securities upon the exercise or
      exchange of or conversion of any Securities issued hereunder and/or securities
      exercisable or exchangeable for or convertible into shares of Common Stock
      issued and outstanding on the date of this Agreement, provided that such
      securities have not been amended since the date of this Agreement to increase
      the number of such securities or to decrease the exercise, exchange or
      conversion price of any such securities, and (c) securities issued pursuant
      to
      acquisitions or strategic transactions, provided any such issuance shall only
      be
      to a Person 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 receives 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 primary business is
      investing in securities.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

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

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

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

     

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

     

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

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Principal
      Amount”
shall
      mean, as to each Purchaser, the amounts set forth below such Purchaser’s
      signature block on the signature pages hereto and next to the heading “Principal
      Amount”, in United States Dollars, which shall equal such Purchaser’s
      Subscription Amount multiplied by 1.429.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated the date hereof, among the Company
      and
      the Purchasers, in the form of Exhibit
      B
      attached
      hereto.

     

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

     

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

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all Warrants and Debentures, ignoring any conversion or exercise
      limits set forth therein, and assuming that the Conversion Price is at all
      times
      on and after the date of determination 75% of the then Conversion Price on
      the
      Trading Day immediately prior to the date of determination.

     

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

     

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

     

    “Securities”
means
      the Debentures and the Underlying Shares.

     

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

     

    “Security
      Agreement”
shall
      mean the Security Agreement in substantially the form of Exhibit
      D
      hereto
      executed and delivered contemporaneously with this Agreement. 

     

    “Security
      Documents”
shall
      mean the Security Agreement and any other documents and filing required
      thereunder in order to grant the Purchasers a first priority security interest
      in the assets of the Company and the Subsidiaries as provided in the Security
      Agreement, including all UCC-1 filing receipts.

     

    “Short
      Sales”
shall
      include all “short sales” as defined in Rule 200 of Regulation SHO under the
      Exchange Act.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Debentures purchased hereunder as specified below such Purchaser’s name
      on the signature page of this Agreement and next to the heading “Subscription
      Amount”, in United States Dollars and in immediately available
      funds.

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.13.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.13.

     

    “Subsidiary”
means
      any subsidiary of the Company as set forth on Schedule
      3.1(a).

     

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded on a Trading Market.

     

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

     

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

     

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion of the
      Debentures.

     

     

    ARTICLE
      II.  

    PURCHASE
      AND SALE

     

    2.1  Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      concurrent with the execution and delivery of this Agreement by the parties
      hereto, the Company agrees to sell, and each Purchaser agrees to purchase in
      the
      aggregate, severally and not jointly, up to $714,500 principal amount of the
      Debentures. Each Purchaser shall deliver to the Company via wire transfer or
      a
      certified check immediately available funds equal to their Subscription Amount
      and the Company shall deliver to each Purchaser their respective Debenture
      and
      Warrants as determined pursuant to Section 2.2(a) and the other items set forth
      in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions
      set
      forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of the
      Escrow Agent, or such other location as the parties shall mutually
      agree.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    2.2  Deliveries

     

    
      	a)  	
              On
                the Closing Date, the Company shall deliver or cause to be delivered
                to
                the Escrow Agent with respect to each Purchaser the
                following:

            

    

     

    
      	(i)  	
              this
                Agreement duly executed by the
                Company;

            

    

     

    
      	(ii)  	
              a
                legal opinion of Company Counsel, in the form of Exhibit
                C
                attached hereto;

            

    

     

    

    
      	(iii)  	
              a
                Debenture with a principal amount equal to such Purchaser’s Principal
                Amount, registered in the name of such
                Purchaser;

            

    

     

    
      	(iv)  	
              the
                Security Agreement, duly executed by the Company;
                and

            

    

     

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

            

    

     

    
      	b)  	
              On
                the Closing Date, each Purchaser shall deliver or cause to be delivered
                to
                the Escrow Agent the following: 

            

    

     

    
      	(i)  	
              this
                Agreement duly executed by such
                Purchaser;

            

    

     

    
      	(ii)  	
              such
                Purchaser’s Subscription Amount by wire transfer to the account of the
                Escrow Agent; 

            

    

     

    
      	(iii)  	
              the
                Escrow Agreement duly executed by such
                Purchaser;

            

    

     

    
      	(iv)  	
              the
                Security Agreement duly executed by such Purchaser;
                and

            

    

     

    
      	(v)  	
              the
                Registration Rights Agreement duly executed by such
                Purchaser.

            

    

     

    2.3  Closing
      Conditions. 

     

    
      	a)  	
              The
                obligations of the Company hereunder in connection with the Closing
                are
                subject to the following conditions being
                met:

            

    

     

    
      	(i)  	
              the
                accuracy in all material respects when made and on the Closing Date
                of the
                representations and warranties of the Purchasers contained
                herein;

            

    

     

    
      	(ii)  	
              all
                obligations, covenants and agreements of the Purchasers required
                to be
                performed at or prior to the Closing Date shall have been performed;
                and

            

    

     

    
      	(iii)  	
              the
                delivery by the Purchasers of the items set forth in Section 2.2(b)
                of
                this Agreement.

            

    

     

    
      	b)  	
              The
                respective obligations of the Purchasers hereunder in connection
                with the
                Closing are subject to the following conditions being
                met:

            

    

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	(i)  	
              the
                accuracy in all material respects on the Closing Date of the
                representations and warranties of the Company contained
                herein;

            

    

     

    
      	(ii)  	
              all
                obligations, covenants and agreements of the Company required to
                be
                performed at or prior to the Closing Date shall have been performed;
                

            

    

     

    
      	(iii)  	
              the
                delivery by the Company of the items set forth in Section 2.2(a)
                of this
                Agreement; 

            

    

     

    
      	(iv)  	
              there
                shall have been no Material Adverse Effect with respect to the Company
                since the date hereof; 

            

    

     

    
      	(v)  	
              the
                Company and each of the Purchasers shall have entered into amendment
                and
                waiver agreements with respect to outstanding convertible debentures
                of
                the Company held by the Purchasers;

            

    

     

    
      	(vi)  	
              the
                Company shall have instructed, out of the closing proceeds raised
                hereunder, that $100,000 be paid to HPC Capital Management in connection
                with services provided by HPC Capital
                Management;

            

    

     

    
      	(vii)  	
              the
                Company shall have issued 7,500,000 shares of Common Stock to HPC
                Capital
                Management, or their designees, for services provided by HPC Capital
                Management, of which 6,458,063 shares will be delivered at Closing
                and
                1,041,937 shares will be issued upon obtaining the Stockholder Approval
                and February 15, 2007 shall be considered the date of acquisition
                of such
                shares for Rule 144 purposes; and

            

    

     

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

            

    

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      III.  

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company.
      Except
      as set forth under the corresponding section of the disclosure schedules
      delivered to the Purchasers concurrently herewith (the “Disclosure
      Schedules”)
      which
      Disclosure Schedules shall be deemed a part hereof, the Company hereby makes
      the
      representations and warranties set forth below to each Purchaser.

     

    (a)  Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3.1(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each Subsidiary free and clear of any Liens, and all the issued
      and
      outstanding shares of capital stock of each Subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities. If the Company has no subsidiaries, then
      references in the Transaction Documents to the Subsidiaries will be
      disregarded.

     

    (b)  Organization
      and Qualification.
      The
      Company and each of the Subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite power and authority to own and use its properties and assets and
      to
      carry on its business as currently conducted. Neither the Company nor any
      Subsidiary is in violation or default of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. Each of the Company and the Subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business,
      prospects or condition (financial or otherwise) of the Company and the
      Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
      Company’s ability to perform in any material respect on a timely basis its
      obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
      Adverse Effect”)
      and no
      Proceeding has been instituted in any such jurisdiction revoking, limiting
      or
      curtailing or seeking to revoke, limit or curtail such power and authority
      or
      qualification.

     

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

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

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

     

    (e)  Filings,
      Consents and Approvals.
      Subject
      to Stockholder Approval (as defined in Section 4.13), the Company is not
      required to obtain any consent, waiver, authorization or order of, give any
      notice to, or make any filing or registration with, any court or other federal,
      state, local or other governmental authority or other Person in connection
      with
      the execution, delivery and performance by the Company of the Transaction
      Documents, other than (i) filings required pursuant to Section 4.6, (ii) the
      filing with the Commission of the Registration Statement, (iii) the notice
      and/or application(s) to each applicable Trading Market for the issuance and
      sale of the Debentures and Warrants and the listing of the Underlying Shares
      for
      trading thereon in the time and manner required thereby, and (iv) the filing
      of
      Form D with the Commission and such filings as are required to be made under
      applicable state securities laws (collectively, the “Required
      Approvals”).

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (f)  Issuance
      of the Securities.
      Subject
      to Stockholder Approval, the Securities are duly authorized and, when issued
      and
      paid for in accordance with the applicable Transaction Documents, will be duly
      and validly issued, fully paid and nonassessable, free and clear of all Liens
      imposed by the Company other than restrictions on transfer provided for in
      the
      Transaction Documents. The Underlying Shares, when issued in accordance with
      the
      terms of the Transaction Documents, will be validly issued, fully paid and
      nonassessable, free and clear of all Liens imposed by the Company. The Company
      has reserved from its duly authorized capital stock a number of shares of Common
      Stock for issuance of the Underlying Shares at least equal to the Required
      Minimum on the date hereof. 

     

    (g)  Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      3.1(g).
      The
      Company has not issued any capital stock since its most
      recently filed periodic report under the Exchange Act,
      other
      than pursuant to the exercise of employee stock options under the Company’s
      stock option plans, the issuance of shares of Common Stock to employees pursuant
      to the Company’s employee stock purchase plan and pursuant to the conversion or
      exercise of outstanding Common Stock Equivalents. No Person has any right of
      first refusal, preemptive right, right of participation, or any similar right
      to
      participate in the transactions contemplated by the Transaction Documents.
      Except as a result of the purchase and sale of the Securities, there are no
      outstanding options, warrants, script rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or exercisable or exchangeable for, or giving
      any
      Person any right to subscribe for or acquire, any shares of Common Stock, or
      contracts, commitments, understandings or arrangements by which the Company
      or
      any Subsidiary is or may become bound to issue additional shares of Common
      Stock
      or Common Stock Equivalents. The issuance and sale of the Securities will not
      obligate the Company to issue shares of Common Stock or other securities to
      any
      Person (other than the Purchasers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under such securities. All of the outstanding shares of capital stock
      of
      the Company are validly issued, fully paid and nonassessable, have been issued
      in compliance with all federal and state securities laws, and none of such
      outstanding shares was issued in violation of any preemptive rights or similar
      rights to subscribe for or purchase securities. No further approval or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Securities. There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

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

     

    (i)  Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in the SEC Reports, (i) there has
      been
      no event, occurrence or development that has had or that could reasonably be
      expected to result in a Material Adverse Effect, (ii) the Company has not
      incurred any liabilities (contingent or otherwise) other than (A) trade payables
      and accrued expenses incurred in the ordinary course of business consistent
      with
      past practice and (B) liabilities not required to be reflected in the Company’s
      financial statements pursuant to GAAP or required to be disclosed in filings
      made with the Commission, (iii) the Company has not altered its method of
      accounting, (iv) the Company has not declared or made any dividend or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock and (v) the Company has not issued any equity securities to any officer,
      director or Affiliate, except pursuant to existing Company stock option plans.
      The Company does not have pending before the Commission any request for
      confidential treatment of information.

     

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect.

     

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

     

    (m)  Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits could not have
      or
      reasonably be expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    (n)  Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all personal property owned
      by
      them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases of which the Company
      and the Subsidiaries are in compliance.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

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

     

    (p)  Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, including, but not limited to, directors and officers insurance
      coverage at least equal to the aggregate Subscription Amount. To the best
      knowledge of the Company, such insurance contracts and policies are accurate
      and
      complete. Neither the Company nor any 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 without a significant increase in
      cost.

     

    (q)  Transactions
      With Affiliates and Employees.
      Except
      as set forth in the SEC Reports, none of the officers or directors of the
      Company and, to the knowledge of the Company, none of the employees of the
      Company is presently a party to any transaction with the Company or any
      Subsidiary (other than for services as employees, officers and directors),
      including any contract, agreement or other arrangement providing for the
      furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Company, any entity in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner, in each case in excess of $60,000
      other than (i) for payment of salary or consulting fees for services rendered,
      (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
      for
      other employee benefits, including stock option agreements under any stock
      option plan of the Company.

     

    (r)  Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP 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. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that material information relating to the Company, including its
      Subsidiaries, is made known to the certifying officers by others within those
      entities, particularly during the period in which the Company’s most recently
      filed periodic report under the Exchange Act, as the case may be, is being
      prepared. The Company’s certifying officers have evaluated the effectiveness of
      the Company’s controls and procedures as of the date prior to the filing date of
      the most recently filed periodic report under the Exchange Act (such date,
      the
“Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the Company’s internal controls (as such term is defined in Item
      307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of the
      Company, in other factors that could significantly affect the Company’s internal
      controls.

     

    
      
        
        

      

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

     

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

     

    (u)  Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an Affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act.

     

    (v)  Registration
      Rights.
      Other
      than each of the Purchasers, no Person has any right to cause the Company to
      effect the registration under the Securities Act of any securities of the
      Company.

     

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

     

    
      
        
        

      

      
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    (x)  Application
      of Takeover Protections.
      The
      Company and its Board of Directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Company’s Certificate of
      Incorporation (or similar charter documents) or the laws of its state of
      incorporation that is or could become applicable to the Purchasers as a result
      of the Purchasers and the Company fulfilling their obligations or exercising
      their rights under the Transaction Documents, including without limitation
      as a
      result of the Company’s issuance of the Securities and the Purchasers’ ownership
      of the Securities.

     

    (y)  Disclosure.
      The
      Company confirms that neither it nor any other Person acting on its behalf
      has
      provided any of the Purchasers or their agents or counsel with any information
      that constitutes or might constitute material, nonpublic information. The
      Company understands and confirms that the Purchasers will rely on the foregoing
      representations and covenants in effecting transactions in securities of the
      Company. All disclosure provided to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, furnished by or on behalf of the Company with
      respect to the representations and warranties made herein are true and correct
      with respect to such representations and warranties and do not contain any
      untrue statement of a material fact or omit to state any material fact necessary
      in order to make the statements made therein, in light of the circumstances
      under which they were made, not misleading. The Company acknowledges and agrees
      that no Purchaser makes or has made any representations or warranties with
      respect to the transactions contemplated hereby other than those specifically
      set forth in Section 3.2 hereof.

     

    (z)  No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, neither the Company, nor any of its affiliates, nor any Person
      acting on its or their behalf has, directly or indirectly, made any offers
      or
      sales of any security or solicited any offers to buy any security, under
      circumstances that would cause this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provisions, including, without limitation,
      under
      the rules and regulations of any Trading Market on which any of the securities
      of the Company are listed or designated.

     

    (aa)  Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the Company’s fair saleable value of its assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business for the current fiscal
      year
      as now conducted and as proposed to be conducted including its capital needs
      taking into account the particular capital requirements of the business
      conducted by the Company, and projected capital requirements and capital
      availability thereof; and (iii) the current cash flow of the Company, together
      with the proceeds the Company would receive, were it to liquidate all of its
      assets, after taking into account all anticipated uses of the cash, would be
      sufficient to pay all amounts on or in respect of its debt when such amounts
      are
      required to be paid. The Company does not intend to incur debts beyond its
      ability to pay such debts as they mature (taking into account the timing and
      amounts of cash to be payable on or in respect of its debt). The Company has
      no
      knowledge of any facts or circumstances which lead it to believe that it will
      file for reorganization or liquidation under the bankruptcy or reorganization
      laws of any jurisdiction within one year from the Closing Date. The SEC Reports
      set forth as of the dates thereof all outstanding secured and unsecured
      Indebtedness of the Company or any Subsidiary, or for which the Company or
      any
      Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $50,000 due under leases required to be capitalized in accordance
      with GAAP. Neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

    
      
        
        

      

      
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    (bb)  Tax
      Status.
      Except
      for matters that would not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect, the Company and each
      Subsidiary has filed all necessary federal, state and foreign income and
      franchise tax returns and has paid or accrued all taxes shown as due thereon,
      and the Company has no knowledge of a tax deficiency which has been asserted
      or
      threatened against the Company or any Subsidiary.

     

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

     

    (dd)  Foreign
      Corrupt Practices.
      Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any funds
      for unlawful contributions, gifts, entertainment or other unlawful expenses
      related to foreign or domestic political activity, (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic political parties or campaigns from corporate funds, (iii)
      failed to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in violation
      of law, or (iv) violated in any material respect any provision of the Foreign
      Corrupt Practices Act of 1977, as amended.

     

    
      
        
        

      

      
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    (ee)  Accountants.
      The
      Company’s accountants are set forth on Schedule
      3.1(ff)
      of the
      Disclosure Schedule. To the knowledge of the Company, such accountants, who
      the
      Company expects will express their opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2005 are a registered public accounting firm as required
      by the Securities Act.

     

    (ff)  Seniority.
      As of
      the Closing Date, no indebtedness or other equity of the Company is senior
      to
      the Debentures in right of payment, whether with respect to interest or upon
      liquidation or dissolution, or otherwise, other than indebtedness secured by
      purchase money security interests (which is senior only as to underlying assets
      covered thereby) and capital lease obligations (which is senior only as to
      the
      property covered thereby).

     

    (gg)  No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the accountants and lawyers formerly or
      presently employed by the Company and the Company is current with respect to
      any
      fees owed to its accountants and lawyers.

     

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

     

    (ii)  Acknowledgement
      Regarding Purchasers’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Section 4.16 hereof), it is understood and agreed by the Company
      (i)
      that none of the Purchasers have been asked to agree, nor has any Purchaser
      agreed, to desist from purchasing or selling, long and/or short, securities
      of
      the Company, or “derivative” securities based on securities issued by the
      Company or to hold the Securities for any specified term; (ii) that past or
      future open market or other transactions by any Purchaser, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock, and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Underlying Shares deliverable with respect to Securities
      are being determined and (b) such hedging activities (if any) could reduce
      the
      value of the existing stockholders' equity interests in the Company at and
      after
      the time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

    
      
        
        

      

      
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    (jj)  Manipulation
      of Price. 
      The Company has not, and to its knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or, paid any compensation for soliciting purchases of, any of the
      Securities (other than for the placement agent’s placement of the Securities),
      or (iii) paid or agreed to pay to any person any compensation for soliciting
      another to purchase any other securities of the Company.

     

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

     

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

     

    (b)  Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no arrangement or understanding with any other persons regarding the
      distribution of such Securities (this representation and warranty not limiting
      such Purchaser’s right to sell the Securities pursuant to the Registration
      Statement or otherwise in compliance with applicable federal and state
      securities laws) in violation of the Securities Act or any applicable state
      securities law. Such Purchaser is acquiring the Securities hereunder in the
      ordinary course of its business. Such Purchaser does not have any agreement
      or
      understanding, directly or indirectly, with any Person to distribute any of
      the
      Securities.

     

    
      
        
        

      

      
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    (c)  Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it exercises any Warrants or converts any
      Debentures it will be either: (i) an “accredited investor” as defined in Rule
      501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii)
      a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
      Act. Such Purchaser is not required to be registered as a broker-dealer under
      Section 15 of the Exchange Act.

     

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

     

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

     

    (f)  Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder, such Purchaser has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with such Purchaser, executed any disposition, including Short
      Sales (but not including the location and/or reservation of borrowable shares
      of
      Common Stock), in the securities of the Company during the period
      commencing from
      the time
      that such Purchaser first received a term sheet from the Company or any other
      Person setting forth the material terms of the transactions contemplated
      hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the representation set forth above shall only apply
      with respect to the portion of assets managed by the portfolio manager that
      made
      the investment decision to purchase the Securities covered by this Agreement.
      Other than to other Persons party to this Agreement, such Purchaser has
      maintained the confidentiality of all disclosures made to it in connection
      with
      this transaction (including the existence and terms of this
      transaction).

     

    
      
        
        

      

      
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    The
      Company acknowledges and agrees that each Purchaser does not make or has not
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in this Section
      3.2.

    

     

    ARTICLE
      IV.  

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

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

     

    (b)  The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1(b), of a legend on any of the Securities in the following form:

     

    [NEITHER]
      THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
      [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
      EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
      AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
      TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
      TO
      AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
      TO
      THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
      EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
      MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     

    
      
        
        

      

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

     

    (c)  Certificates
      evidencing the Underlying Shares shall not contain any legend (including the
      legend set forth in Section 4.1(b) hereof): (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such
      Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
      are
      eligible for sale under Rule 144(k), or (iv) if such legend is not required
      under applicable requirements of the Securities Act (including judicial
      interpretations and pronouncements issued by the staff of the Commission).
      The
      Company shall cause its counsel to issue a legal opinion to the Company’s
      transfer agent promptly after the Effective Date if required by the Company’s
      transfer agent to effect the removal of the legend hereunder. If all or any
      portion of a Debenture or Warrant is converted or exercised (as applicable)
      at a
      time when there is an effective registration statement to cover the resale
      of
      the Underlying Shares, or if such Underlying Shares may be sold under Rule
      144(k) or if such legend is not otherwise required under applicable requirements
      of the Securities Act (including judicial interpretations thereof) then such
      Underlying Shares shall be issued free of all legends. The Company agrees that
      following the Effective Date or at such time as such legend is no longer
      required under this Section 4.1(c), it will, no later than three Trading Days
      following the delivery by a Purchaser to the Company or the Company’s transfer
      agent of a certificate representing Underlying Shares, as applicable, issued
      with a restrictive legend (such third Trading Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Purchaser a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to any transfer agent
      of the Company that enlarge the restrictions on transfer set forth in this
      Section. Certificates for Securities subject to legend removal hereunder shall
      be transmitted by the transfer agent of the Company to the Purchasers by
      crediting the account of the Purchaser’s prime broker with the Depository Trust
      Company System.

    

    
      
        
        

      

      
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    (d)  In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $1,000 of Underlying Shares (based on the Closing Price of the Common
      Stock
      on the date such Securities are submitted to the Company’s transfer agent)
      delivered for removal of the restrictive legend and subject to Section 4.1(c),
      $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after
      such
      damages have begun to accrue) for each Trading Day after the Legend Removal
      Date
      until such certificate is delivered without a legend. Nothing herein shall
      limit
      such Purchaser’s right to pursue actual damages for the Company’s failure to
      deliver certificates representing any Securities as required by the Transaction
      Documents, and such Purchaser shall have the right to pursue all remedies
      available to it at law or in equity including, without limitation, a decree
      of
      specific performance and/or injunctive relief.

     

    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom.

     

    (f)  Until
      the
      one year anniversary of the Effective Date, the Company shall not undertake
      a
      reverse or forward stock split or reclassification of the Common Stock without
      the prior written consent of the Purchasers holding a majority in Principal
      Amount outstanding of the Debentures.

     

    4.2  Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligations under the Transaction Documents, including without limitation its
      obligation to issue the Underlying Shares pursuant to the Transaction Documents,
      are unconditional and absolute and not subject to any right of set off,
      counterclaim, delay or reduction, regardless of the effect of any such dilution
      or any claim the Company may have against any Purchaser and regardless of the
      dilutive effect that such issuance may have on the ownership of the other
      stockholders of the Company.

     

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

     

    
      
        
        

      

      
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    4.4  Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market.

     

    4.5  Conversion
      and Exercise Procedures.
      The
      form of Notice of Exercise included in the Warrants and the form of Notice
      of
      Conversion included in the Debentures set
      forth
      the totality of the procedures required of the Purchasers in order to exercise
      the Warrants or convert the Debentures. No additional legal opinion or other
      information or instructions shall be required of the Purchasers to exercise
      their Warrants or convert their Debentures. The Company shall honor exercises
      of
      the Warrants and conversions of the Debentures and shall deliver Underlying
      Shares in accordance with the terms, conditions and time periods set forth
      in
      the Transaction Documents.

     

    4.6  Securities
      Laws Disclosure; Publicity.
      The
      Company shall, by 8:30 a.m. Eastern time on the Trading Day following the date
      hereof, issue a Current Report on Form 8-K, reasonably acceptable to each
      Purchaser disclosing the material terms of the transactions contemplated hereby,
      and shall attach the Transaction Documents thereto. The Company and each
      Purchaser shall consult with each other in issuing any other press releases
      with
      respect to the transactions contemplated hereby, and neither the Company nor
      any
      Purchaser shall issue any such press release or otherwise make any such public
      statement without the prior consent of the Company, with respect to any press
      release of any Purchaser, or without the prior consent of each Purchaser, with
      respect to any press release of the Company, which consent shall not
      unreasonably be withheld, except if such disclosure is required by law, in
      which
      case the disclosing party shall promptly provide the other party with prior
      notice of such public statement or communication. Notwithstanding the foregoing,
      the Company shall not publicly disclose the name of any Purchaser, or include
      the name of any Purchaser in any filing with the Commission or any regulatory
      agency or Trading Market, without the prior written consent of such Purchaser,
      except (i) as required by federal securities law in connection with the
      registration statement contemplated by the Registration Rights Agreement and
      (ii) to the extent such disclosure is required by law or Trading Market
      regulations, in which case the Company shall provide the Purchasers with prior
      notice of such disclosure permitted under subclause (i) or (ii).

     

    4.7  Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, to the knowledge of the
      Company, any other Person that any Purchaser is an “Acquiring Person” under any
      shareholder rights plan or similar plan or arrangement in effect or hereafter
      adopted by the Company, or that any Purchaser could be deemed to trigger the
      provisions of any such plan or arrangement, by virtue of receiving Securities
      under the Transaction Documents or under any other agreement between the Company
      and the Purchasers. The Company shall conduct its business in a manner so that
      it will not become subject to the Investment Company Act.

     

    4.8  Non-Public
      Information.
      The
      Company covenants and agrees that neither it nor any other Person acting on
      its
      behalf will provide any Purchaser or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto such Purchaser shall have executed a written agreement regarding
      the confidentiality and use of such information. The Company understands and
      confirms that each Purchaser shall be relying on the foregoing representations
      in effecting transactions in securities of the Company.

     

    
      
        
        

      

      
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    4.9  Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      4.9
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and not for the satisfaction of any
      portion of the Company’s debt (other than payment of trade payables in the
      ordinary course of the Company’s business and prior practices), to redeem any
      Common Stock or Common Stock Equivalents or to settle any outstanding
      litigation.

     

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

     

    4.11  Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.11, the Company will indemnify and hold
      the
      Purchasers and their directors, officers, shareholders, members, partners,
      employees and agents (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing. Any Purchaser Party shall
      have
      the right to employ separate counsel in any such action and participate in
      the
      defense thereof, but the fees and expenses of such counsel shall be at the
      expense of such Purchaser Party except to the extent that (i) the employment
      thereof has been specifically authorized by the Company in writing, (ii) the
      Company has failed after a reasonable period of time to assume such defense
      and
      to employ counsel or (iii) in such action there is, in the reasonable opinion
      of
      such separate counsel, a material conflict on any material issue between the
      position of the Company and the position of such Purchaser Party. The Company
      will not be liable to any Purchaser Party under this Agreement (i) for any
      settlement by a Purchaser Party effected without the Company’s prior written
      consent, which shall not be unreasonably withheld or delayed; or (ii) to the
      extent, but only to the extent that a loss, claim, damage or liability is
      attributable to any Purchaser Party’s breach of any of the representations,
      warranties, covenants or agreements made by the Purchasers in this Agreement
      or
      in the other Transaction Documents.

     

    
      
        
        

      

      
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    4.12  Reservation
      and Listing of Securities.

     

    (a)  Subject
      to Stockholder Approval, the Company shall maintain a reserve from its duly
      authorized shares of Common Stock for issuance pursuant to the Transaction
      Documents in such amount as may be required to fulfill its obligations in full
      under the Transaction Documents.

     

    (b)  If,
      on
      any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than the Required Minimum on such date, then
      the
      Board of Directors of the Company shall use commercially reasonable efforts
      to
      amend the Company’s certificate or articles of incorporation to increase the
      number of authorized but unissued shares of Common Stock to at least the
      Required Minimum at such time, as soon as possible and in any event not later
      than the 75th day after such date.

     

    (c)  The
      Company shall, if applicable: (i) in the time and manner required by the Trading
      Market, prepare and file with such Trading Market an additional shares listing
      application covering a number of shares of Common Stock at least equal to the
      Required Minimum on the date of such application, (ii) take all steps necessary
      to cause such shares of Common Stock to be approved for listing on the Trading
      Market as soon as possible thereafter, (iii) provide to the Purchasers evidence
      of such listing, and (iv) maintain the listing of such Common Stock on any
      date
      at least equal to the Required Minimum on such date on such Trading Market
      or
      another Trading Market. 

     

    4.13  Stockholder
      Approval.
      The
      Company shall file a proxy or information statement with the SEC on or before
      April 16, 2007 and shall use its best efforts to obtain, on or before May 15,
      2007, such approvals of the Company’s stockholders as may be required to issue
      all of the shares of Common Stock issuable upon conversion or exercise of,
      or
      otherwise with respect to, the Debentures and the Warrants in accordance with
      Nevada law and any applicable rules or regulations of the OTCBB and Nasdaq,
      either through a reverse stock split of the Common Stock or an increase in
      authorized capital (the “Stockholder
      Approval”).
      The
      Company shall furnish to each Purchaser and its legal counsel promptly (but
      in
      no event less than two (2) business days) before the same is filed with the
      SEC,
      one copy of any amendment thereto, and shall deliver to each Buyer promptly
      each
      letter written by or on behalf of the Company to the SEC or the staff of the
      SEC, and each item of correspondence from the SEC or the staff of the SEC,
      in
      each case relating to such proxy or information statement (other than any
      portion thereof which contains information for which the Company has sought
      confidential treatment). The Company will promptly (but in no event more than
      three (3) business days) respond to any and all comments received from the
      SEC
      (which comments shall promptly be made available to each Buyer). The Company
      shall comply with the filing and disclosure requirements of Section 14 under
      the
      1934 Act in connection with the Stockholder Approval. The Company represents
      and
      warrants that its Board of Directors has approved the proposal contemplated
      by
      this Section 4(l) and shall indicate such approval in the proxy or information
      statement used in connection with the Stockholder Approval. If
      the
      Company does not obtain Stockholder Approval at the first meeting, the Company
      shall call a meeting every 4 months thereafter to seek Stockholder Approval
      until the date that the Debentures are no longer outstanding. The Company shall
      notify the Purchasers promptly upon receipt of Stockholder
      Approval.

     

    
      
        
        

      

      
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    4.14  Participation
      in Future Financing.
      

     

    (a)  From
      the
      date hereof until the date that is the 12 month anniversary of the Effective
      Date, upon any financing by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents (a “Subsequent
      Financing”),
      such
      Purchaser shall have the right to participate in the Subsequent Financing in
      an
      amount equal to up to 100% of the Subsequent Financing (the “Participation
      Maximum”).
      

     

    (b)  At
      least
      5 Trading Days prior to the closing of the Subsequent Financing, the Company
      shall deliver to each Purchaser a written notice of its intention to effect
      a
      Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Purchaser, and only upon a request by such Purchaser, for
      a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      1
      Trading Day after such request, deliver a Subsequent Financing Notice to such
      Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing, the amount of proceeds intended
      to be raised thereunder, the Person with whom such Subsequent Financing is
      proposed to be effected, and attached to which shall be a term sheet or similar
      document relating thereto. 

     

    (c)  Any
      Purchaser desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice that the Purchaser
      is willing to participate in the Subsequent Financing, the amount of the
      Purchaser’s participation, and that the Purchaser has such funds ready, willing
      and available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from a Purchaser as of such
      5th
      Trading
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate. 

     

    (d)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, notifications
      by
      the Purchasers of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Subsequent Financing, then the Company may effect the
      remaining portion of such Subsequent Financing on the terms and to the Persons
      set forth in the Subsequent Financing Notice. 

     

    
      
        
        

      

      
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    (e)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers seeking
      to
      purchase more than the aggregate amount of the Participation Maximum, each
      such
      Purchaser shall have the right to purchase the greater of (a) their Pro Rata
      Portion (as defined below) of the Participation Maximum and (b) the difference
      between the Participation Maximum and the aggregate amount of participation
      by
      all other Purchasers.  “Pro
      Rata Portion”
is
      the
      ratio of (x) the Subscription Amount of Securities purchased on the Closing
      Date
      by a Purchaser participating under this Section 4.13 and (y) the sum of the
      aggregate Subscription Amounts of Securities purchased on the Closing Date
      by
      all Purchasers participating under this Section 4.13.

     

    (f)  The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within 60 Trading Days after the date of the
      initial Subsequent Financing Notice. 

     

    (g)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of an Exempt
      Issuance.

     

    4.15  Subsequent
      Equity Sales.
      

     

    (a)  From
      the
      date hereof until 90 days after the Effective Date, neither the Company nor
      any
      Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
      provided,
      however,
      the 90
      day period set forth in this Section 4.14 shall be extended for the number
      of
      Trading Days during such period in which (i) trading in the Common Stock is
      suspended by any Trading Market, or (ii) following the Effective Date, the
      Registration Statement is not effective or the prospectus included in the
      Registration Statement may not be used by the Purchasers for the resale of
      the
      Underlying Shares. 

     

    (b)  From
      the
      date hereof until such time as no Purchaser holds any of the Debentures, the
      Company shall be prohibited from effecting or entering into an agreement to
      effect any Subsequent Financing involving a “Variable Rate Transaction”. The
      term “Variable
      Rate Transaction”
shall
      mean a transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      

     

    
      
        
        

      

      
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    (c)  Notwithstanding
      the foregoing, this Section 4.14 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance. 

     

    4.16  Equal
      Treatment of Purchasers.
      No
      consideration shall be offered or paid to any person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. Further, the Company shall not make any payment of
      principal on the Debentures in amounts which are disproportionate to the
      respective Principal Amounts outstanding on the Debentures at any applicable
      time. For clarification purposes, this provision constitutes a separate right
      granted to each Purchaser by the Company and negotiated separately by each
      Purchaser, and is intended for the Company to treat the Purchasers as a class
      and shall not in any way be construed as the Purchasers acting in concert or
      as
      a group with respect to the purchase, disposition or voting of Securities or
      otherwise.

     

    4.17  Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any affiliates acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period after
      the
      Discussion Time and ending at the time that the transactions contemplated by
      this Agreement are first publicly announced as described in Section 4.6. Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.6, such Purchaser will
      maintain, the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser understands and acknowledges, severally and not jointly with any
      other
      Purchaser, that the Commission currently takes the position that coverage of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Securities is a violation
      of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
      Section A, of the Manual of Publicly Available Telephone Interpretations, dated
      July 1997, compiled by the Office of Chief Counsel, Division of Corporation
      Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
      warranty or covenant hereby that it will not engage in Short Sales in
      the
      securities of the Company after the time that the transactions contemplated
      by
      this Agreement are first publicly announced as described in Section 4.6.
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the covenant set forth
      above
      shall only apply with respect to the portion of assets managed by the portfolio
      manager that made the investment decision to purchase the Securities covered
      by
      this Agreement.

     

    
      
        
        

      

      
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    ARTICLE
      V.  

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before September 20,
      2005; provided,
      however,
      that no
      such termination will affect the right of any party to sue for any breach by
      the
      other party (or parties).

     

    5.2  Fees
      and Expenses.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities.

     

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

     

    5.4  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
      Day,
      (b) the next Trading Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Trading Day or later
      than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
      Trading
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

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

     

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

     

    
      
        
        

      

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

     

    5.8  No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.11.

     

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

     

    5.10  Survival.
      The
      representations and warranties contained herein shall survive the Closing and
      the delivery, exercise and/or conversion of the Securities, as applicable for
      the applicable statue of limitations.

     

    
      
        
        

      

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

     

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

     

    5.13  Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Purchaser
      exercises a right, election, demand or option under a Transaction Document
      and
      the Company does not timely perform its related obligations within the periods
      therein provided, then such Purchaser may rescind or withdraw, in its sole
      discretion from time to time upon written notice to the Company, any relevant
      notice, demand or election in whole or in part without prejudice to its future
      actions and rights; provided,
      however,
      in the
      case of a rescission of a conversion of a Debenture or exercise of a Warrant,
      the Purchaser shall be required to return any shares of Common Stock subject
      to
      any such rescinded conversion or exercise notice.

     

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

     

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

     

    5.16  Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    5.17  Usury.
      To the
      extent it may lawfully do so, the Company hereby agrees not to insist upon
      or
      plead or in any manner whatsoever claim, and will resist any and all efforts
      to
      be compelled to take the benefit or advantage of, usury laws wherever enacted,
      now or at any time hereafter in force, in connection with any claim, action
      or
      proceeding that may be brought by any Purchaser in order to enforce any right
      or
      remedy under any Transaction Document. Notwithstanding any provision to the
      contrary contained in any Transaction Document, it is expressly agreed and
      provided that the total liability of the Company under the Transaction Documents
      for payments in the nature of interest shall not exceed the maximum lawful
      rate
      authorized under applicable law (the “Maximum
      Rate”),
      and,
      without limiting the foregoing, in no event shall any rate of interest or
      default interest, or both of them, when aggregated with any other sums in the
      nature of interest that the Company may be obligated to pay under the
      Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
      contract rate of interest allowed by law and applicable to the Transaction
      Documents is increased or decreased by statute or any official governmental
      action subsequent to the date hereof, the new maximum contract rate of interest
      allowed by law will be the Maximum Rate applicable to the Transaction Documents
      from the effective date forward, unless such application is precluded by
      applicable law. If under any circumstances whatsoever, interest in excess of
      the
      Maximum Rate is paid by the Company to any Purchaser with respect to
      indebtedness evidenced by the Transaction Documents, such excess shall be
      applied by such Purchaser to the unpaid principal balance of any such
      indebtedness or be refunded to the Company, the manner of handling such excess
      to be at such Purchaser’s election.

     

    5.18  Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance of the obligations of any other
      Purchaser under any Transaction Document. Nothing contained herein or in any
      Transaction Document, and no action taken by any Purchaser pursuant thereto,
      shall be deemed to constitute the Purchasers as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Purchasers are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      Each
      Purchaser shall be entitled to independently protect and enforce its rights,
      including without limitation the rights arising out of this Agreement or out
      of
      the other Transaction Documents, and it shall not be necessary for any other
      Purchaser to be joined as an additional party in any proceeding for such
      purpose. Each Purchaser has been represented by its own separate legal counsel
      in their review and negotiation of the Transaction Documents. For reasons of
      administrative convenience only, Purchasers and their respective counsel have
      chosen to communicate with the Company through Sichenzia Ross Friedman Ference
      LLP. 

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    5.19  Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Transaction Documents is a continuing obligation of the Company
      and shall not terminate until all unpaid partial liquidated damages and other
      amounts have been paid notwithstanding the fact that the instrument or security
      pursuant to which such partial liquidated damages or other amounts are due
      and
      payable shall have been canceled.

     

    5.20  Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Transaction Documents and, therefore, the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

     

     

    
 

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

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

     

    
      	
              FELLOWS
                ENERGY LTD.

               

            	
              Address
                for Notice:

            
	
              By:
                /s/ GEORGE S. YOUNG

              
                

              

              Name:
                George S. Young

              Title:
                Chief Executive Officer

            	
              370
                Interlocken Boulevard, Suite 400, Broomfield, CO 80021

            
	
              With
                a copy to (which shall not constitute notice):

               

              Marc
                Ross

              Sichenzia
                Ross Friedman Ference LLP

              1065
                Avenue of the Americas, 21st
                flr.

              New
                York, NY 10018

               

               

            	 

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

     

     

     

     

     

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    [PURCHASER
      SIGNATURE PAGES TO FLWE SECURITIES PURCHASE AGREEMENT]

    

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

     

    Name
      of
      Purchaser: PALISADES
      MASTER FUND L.P.

     

    
      
        	 	 	 	 
	/s/ Arlene
                DeCastro	 	 	/s/ Peter
                Cooper
	
                
Arlene
                DeCastro	 	 	
                
Peter
                Cooper
	Authorized
                Signatory	 	 	Authorized Signatory

      

    

     

    Email
      Address of
      Purchaser:_______________________________________________________

    

    Address
      for Notice of Purchaser:

    

    

    

    

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

    

    

    

    

    

    Subscription
      Amount: $500,000

    Principal
      Amount: (1.429
      multiplied by the Subscription Amount) $714,500

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    

     

     

    35

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