Document:

Exhibit
        4.1

      

      SECURITIES
        PURCHASE AGREEMENT

       

      This
        Securities Purchase Agreement (this “Agreement”)
        is
        dated as of June ___, 2005 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.

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

      “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.

       

      “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, 27 months from
        their date of issuance, 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.

       

      “Escrow
        Agent”
        shall
        have the meaning set forth in the Escrow Agreement.

       

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

       

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

       

      
        
           

        

        
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      “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.

       

      “FW”
        means
        Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite
        2620,
        New York, New York 10170-0002.

       

      “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.

       

      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

      “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.

       

      “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, the Warrants, the Warrant Shares and the Underlying
        Shares.

       

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

       

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

       

      
        
           

        

        
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      “Subscription
        Amount”means,
        as
        to each Purchaser, the aggregate amount
        to be
        paid for Debentures and Warrants 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
        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
        and upon exercise of the Warrants.

       

      “Warrants”
        means
        collectively the Common Stock purchase warrants, in the form of Exhibit
        C
        delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
        hereof, which Warrants shall be exercisable immediately and have a term of
        exercise equal to three years. 

       

      “Warrant
        Shares”
        means
        the shares of Common Stock issuable upon exercise of the Warrants.

       

      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 $6,300,000 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.

       

      
        
           

        

        
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      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
                D
                attached hereto; 

            

       

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

            

       

      	(iv)  	
              a
                Warrant registered in the name of such Purchaser to purchase up to
                a
                number of shares of Common Stock equal to 50% of such Purchaser’s
                Principal Amount divided by the Conversion Price, with an exercise
                price
                equal to $_____1,
                subject to adjustment therein;

            

       

      	(v)  	
              the
                Escrow Agreement duly executed by the Company;
                and

            

       

      	(vi)  	
              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;
                and

            

       

      	(iv)  	
              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:

            

       

      
        
          

        

      

      
        	1	
                110%
                  of the Closing Price on the Trading Day immediately prior to the
                  date
                  hereof.

              

      

       

       

      
        
           

        

        
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      	(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:

            

       

      	(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; and

            

       

      	(v)  	
              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.

            

       

      
        
           

        

        
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      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

       

      
        
           

        

        
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      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.

       

      (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.
        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”).

       

      (f)  Issuance
        of the Securities.
        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.
        

       

      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

      (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.

       

      (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 

       

      
        
           

        

        
          -10-

          
            

          

        

        
           

        

      

      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.

       

      (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.

       

      
        
           

        

        
          -12-

          
            

          

        

        
           

        

      

      (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.

       

      
        
           

        

        
          -13-

          
            

          

        

        
           

        

      

      (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.

       

      (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.

       

      
        
           

        

        
          -14-

          
            

          

        

        
           

        

      

      (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 

       

      
        
           

        

        
          -15-

          
            

          

        

        
           

        

      

      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.

       

      (bb)  Form
        S-3 Eligibility.The
        Company is eligible to register the resale of the Underlying Shares for resale
        by the Purchaser on Form S-3 promulgated under the Securities Act.

       

      (cc)  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.

       

      (dd)  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.

       

      (ee)  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.

       

      (ff)  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, 2004 are a registered public accounting firm as required
        by the Securities Act.

       

      
        
           

        

        
          -16-

          
            

          

        

        
           

        

      

      (gg)  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).

       

      (hh)  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.

       

      (ii)  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.

       

      (jj)  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, 

       

      
        
           

        

        
          -17-

          
            

          

        

        
           

        

      

      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.

       

      (kk)  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.

       

      
        
           

        

        
          -18-

          
            

          

        

        
           

        

      

      (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).

       

      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.

      

      
        
           

        

        
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      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.

       

      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

       

      
        
           

        

        
          -20-

          
            

          

        

        
           

        

      

      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.

      

      (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.

       

      
        
           

        

        
          -21-

          
            

          

        

        
           

        

      

      (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.

       

      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.

       

      
        
           

        

        
          -22-

          
            

          

        

        
           

        

      

      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)  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  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. 

       

      
        
           

        

        
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      (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. 

       

      (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.

       

      4.14  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. 

       

      
        
           

        

        
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      (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.
        

       

      (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. 

       

      4.15  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.

       

      4.16  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.

       

      
        
           

        

        
          -27-

          
            

          

        

        
           

        

      

      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 June ___, 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.

       

      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.

       

      
        
           

        

        
          -28-

          
            

          

        

        
           

        

      

      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.

       

      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.

       

      
        
           

        

        
          -29-

          
            

          

        

        
           

        

      

      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.

       

      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.

       

      
        
           

        

        
          -30-

          
            

          

        

        
           

        

      

      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 FW. FW does not represent
        all of
        the Purchasers but only HPC Capital Management (“HPC”).
        The
        Company has elected to provide all Purchasers with the same terms and
        Transaction Documents for the convenience of the Company and not because
        it was
        required or requested to do so by the Purchasers.

       

      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)

       

      
        
           

        

        
          -31-

          
            

          

        

        
           

        

      

      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:__________________________________________

                Name:

                Title:

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

                 

                 

              	 

      

      

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGE FOR PURCHASER FOLLOWS]

       

      
        
           

        

        
          -32-

          
            

          

        

        
           

        

      

      [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: ________________________________________________________

      Signature
        of Authorized Signatory of Purchaser:
        __________________________________

      Name
        of
        Authorized Signatory:
        ____________________________________________________

      Title
        of
        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:

      Principal
        Amount: (1.429
        multiplied by the Subscription Amount)

      Warrant
        Shares:

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]

      

      [SIGNATURE
        PAGES CONTINUE]

      

         

        
          
             

          

            -33-Exhibit
        4.2

      

      NEITHER
        THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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. THIS SECURITY
        AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
        IN
        CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
        SECURITIES.

      

      Original
        Issue Date: June ___, 2005

      Original
        Conversion Price (subject to adjustment herein):  $0.60

       

      $_______________

      
 

      CONVERTIBLE
        DEBENTURE

       

      THIS
        CONVERTIBLE DEBENTURE is one of a series of duly authorized and issued
        Convertible Debentures of Fellows Energy Ltd., a Nevada corporation, having
        a
        principal place of business at _____________________________ (the “Company”),
        designated as its Convertible Debenture (this debenture, the “Debenture”
        and
        collectively with the other such series of debentures, the “Debentures”).

      

      FOR
        VALUE
        RECEIVED, the Company promises to pay to ________________________ or its
        registered assigns (the “Holder”),
        or
        shall have paid pursuant to the terms hereunder, the principal sum of
        $_______________ by September ___, 2007, or such earlier date as this Debenture
        is required or permitted to be repaid as provided hereunder (the “Maturity
        Date”).
        This
        Debenture is subject to the following additional provisions:

      

      Section
        1. Definitions.
        For the
        purposes hereof, in addition to the terms defined elsewhere in this Debenture:
        (a) capitalized terms not otherwise defined herein have the meanings given
        to
        such terms in the Purchase Agreement, and (b) the following terms shall have
        the
        following meanings:

      

      “Alternate
        Consideration”
        shall
        have the meaning set forth in Section 5(d).

      

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

      “Base
        Conversion Price”
        shall
        have the meaning set forth in Section 5(b).

      

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

      

      “Buy-In”
        shall
        have the meaning set forth in Section 4(d)(v).

      

      “Change
        of Control Transaction”
        means
        the occurrence after the date hereof of any of (i) an acquisition after the
        date
        hereof by an individual or legal entity or “group” (as described in Rule
        13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
        through legal or beneficial ownership of capital stock of the Company, by
        contract or otherwise) of in excess of 33% of the voting securities of the
        Company, or (ii) the Company merges into or consolidates with any other Person,
        or any Person merges into or consolidates with the Company and, after giving
        effect to such transaction, the stockholders of the Company immediately prior
        to
        such transaction own less than 66% of the aggregate voting power of the Company
        or the successor entity of such transaction, or (iii) the Company sells or
        transfers its assets, as an entirety or substantially as an entirety, to
        another
        Person and the stockholders of the Company immediately prior to such transaction
        own less than 66% of the aggregate voting power of the acquiring entity
        immediately after the transaction, (iv) a replacement at one time or within
        a
        three year period of more than one-half of the members of the Company’s board of
        directors which is not approved by a majority of those individuals who are
        members of the board of directors on the date hereof (or by those individuals
        who are serving as members of the board of directors on any date whose
        nomination to the board of directors was approved by a majority of the members
        of the board of directors who are members on the date hereof), or (v) the
        execution by the Company of an agreement to which the Company is a party
        or by
        which it is bound, providing for any of the events set forth above in (i)
        or
        (iv).

      

      “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 Holders of a majority
        in
        interest of the outstanding principal amount of the Debentures.

       

      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

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

      

      “Conversion
        Date”
        shall
        have the meaning set forth in Section 4(a).

      

      “Conversion
        Price”
        shall
        have the meaning set forth in Section 4(b).

      

      “Conversion
        Shares”
        means
        the shares of Common Stock issuable upon conversion of this
        Debenture.

      

      “Debenture
        Register”
        shall
        have the meaning set forth in Section 2(c).

      

      “Dilutive
        Issuance”
        shall
        have the meaning set forth in Section 5(b).

      

      “Dilutive
        Issuance Notice”
        shall
        have the meaning set forth in Section 5(b).

      

      “Effectiveness
        Period”
        shall
        have the meaning given to such term in the Registration Rights Agreement.
        

      

      “Equity
        Conditions”
        shall
        mean, during the period in question, (i)
        the
        Company shall have duly honored all conversions and redemptions scheduled
        to
        occur or occurring by virtue of one or more Notice of Conversions of the
        Holder,
        if any, (ii) all liquidated damages and other amounts owing to the Holder
        in
        respect of this Debenture shall have been paid; (iii)
        there is an effective Registration Statement pursuant to which the Holder
        is
        permitted to utilize the prospectus thereunder to resell all of the shares
        issuable pursuant to the Transaction Documents (and the Company believes,
        in
        good faith, that such effectiveness will continue uninterrupted for the
        foreseeable future), (iv) the Common Stock is trading on the Trading Market
        and
        all of the shares issuable pursuant to the Transaction Documents are listed
        for
        trading on a Trading Market (and the Company believes, in good faith, that
        trading of the Common Stock on a Trading Market will continue uninterrupted
        for
        the foreseeable future), (v) there is a sufficient number of authorized but
        unissued and otherwise unreserved shares of Common Stock for the issuance
        of all
        of the shares issuable pursuant to the Transaction Documents, (vi) there
        is then
        existing no Event of Default or event which, with the passage of time or
        the
        giving of notice, would constitute an Event of Default, (vii) the issuance
        of
        the shares in question to the Holder would not violate the limitations set
        forth
        in Section 4(c)(i) and Section 4(c)(ii) and (viii)
        no
        public announcement of a pending or proposed Fundamental Transaction, Change
        of
        Control Transaction or acquisition transaction has occurred that has not
        been
        consummated.

      

      “Event
        of Default”
        shall
        have the meaning set forth in Section 8.

      

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

      

      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

        “Forced
        Conversion”
        shall
        have the meaning set forth in Section 6(d).

      

      “Forced
        Conversion Notice”
        shall
        have the meaning set forth in Section 6(d).

      

      “Forced
        Conversion Notice Date”
        shall
        have the meaning set forth in Section 6(d).

      

      “Fundamental
        Transaction”
        shall
        have the meaning set forth in Section 5(d).

       

      “Mandatory
        Default Amount”
        shall
        equal the sum of (i) the greater of: (A) 130% of the principal amount of
        this
        Debenture to be prepaid, or (B) the principal amount of this Debenture to
        be
        prepaid, divided by the Conversion Price on (x) the date the Mandatory Default
        Amount is demanded or otherwise due or (y) the date the Mandatory Default
        Amount
        is paid in full, whichever is less, multiplied by the Closing Price on (x)
        the
        date the Mandatory Default Amount is demanded or otherwise due or (y) the
        date
        the Mandatory Default Amount is paid in full, whichever is greater, and (ii)
        all
        other amounts, costs, expenses and liquidated damages due in respect of this
        Debenture.

      

      “Monthly
        Conversion Period”
        shall
        have the meaning set forth in Section 6(a) hereof.

      

      “Monthly
        Conversion Price”
        shall
        have the meaning set forth in Section 6(a) hereof.

      

      “Monthly
        Redemption”
        shall
        mean the redemption of this Debenture pursuant to Section 6(a)
        hereof.

      

      “Monthly
        Redemption Amount”
        shall
        mean, as to a Monthly Redemption, $______1.

      

      “Monthly
        Redemption Date”
        means
        the 1st
        of each
        month, commencing on the 91st
        calendar
        day following the Original Issue Date and ending upon the full redemption
        of
        this Debenture.

      

      “Monthly
        Redemption Notice”
        shall
        have the meaning set forth in Section 6(a) hereof. 

       

      “Monthly
        Redemption Notice Date”
        shall
        have the meaning set forth in Section 6(a) hereof. 

       

      “Monthly
        Redemption Notice Period”
        shall
        have the meaning set forth in Section 6(a) hereof. 

       

       

      
        
          

        

      

      
        	1	
                1/24th of Principal Amount
                  of this
                  Debenture on Closing.

              

      

       

       

      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

       

      “Monthly
        Redemption Share Amount”
        shall
        have the meaning set forth in Section 6(a) hereof. 

      

      “New
        York Courts”
        shall
        have the meaning set forth in Section 9(d).

      

      “Notice
        of Conversion”
        shall
        have the meaning set forth in Section 4(a).

      

      “Optional
        Redemption”
        shall
        have the meaning set forth in Section 6(b).

      

      “Optional
        Redemption Amount”
        shall
        mean the sum of 110% of the principal amount of the Debenture then outstanding
        and all liquidated damages and other amounts due in respect of the
        Debenture.

      

      “Optional
        Redemption Notice”
        shall
        have the meaning set forth in Section 6(b).

      

      “Optional
        Redemption Notice Date”
        shall
        have the meaning set forth in Section 6(b).

      

      “Original
        Issue Date”
        shall
        mean the date of the first issuance of the Debentures regardless of the number
        of transfers of any Debenture and regardless of the number of instruments
        which
        may be issued to evidence such Debenture.

      

      “Person”
        means a
        corporation, an association, a partnership, organization, a business, an
        individual, a government or political subdivision thereof or a governmental
        agency.

      

      “Pre-Redemption
        Conversion Shares”
        shall
        have the meaning set forth in Section 6(a) hereof.

       

      “Purchase
        Agreement”
        means
        the Securities Purchase Agreement, dated as of June ___, 2005, to which the
        Company and the original Holder are parties, as amended, modified or
        supplemented from time to time in accordance with its terms.

      

      “Registration
        Rights Agreement”
        means
        the Registration Rights Agreement, dated as of the date of the Purchase
        Agreement, to which the Company and the original Holder are parties, as amended,
        modified or supplemented from time to time in accordance with its
        terms.

      

      “Registration
        Statement”
        means a
        registration statement meeting the requirements set forth in the Registration
        Rights Agreement, covering among other things the resale of the Conversion
        Shares and naming the Holder as a “selling stockholder” thereunder.

      

      “Securities
        Act”
        means
        the Securities Act of 1933, as amended, and the rules and regulations
        promulgated thereunder.

      

      
        
           

        

        
          -5-

          
            

          

        

        
           

        

      

      “Subsidiary”
        shall
        have the meaning given to such term in the Purchase Agreement.

      

      “Threshold
        Period”
        shall
        have the meaning given to such term in Section 6(d). 

       

      “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”
        shall
        have the meaning set forth in the Purchase Agreement.

       

      Section
        2. Interest.

       

      a)  No
        Payment of Interest.
        This
        Debenture was issued for an Original Issue Discount. No interest payments
        shall
        be due and payable to the Holder hereunder. 

       

      b)  Prepayment.
        Except
        as otherwise set forth in this Debenture, the Company may not prepay any
        portion
        of the principal amount of this Debenture without the prior written consent
        of
        the Holder. 

      

      Section
        3.  Registration
        of Transfers and Exchanges.
        

       

      a)  Different
        Denominations.
        This
        Debenture is exchangeable for an equal aggregate principal amount of Debentures
        of different authorized denominations, as requested by the Holder surrendering
        the same. No service charge will be made for such registration of transfer
        or
        exchange.

       

      b)  Investment
        Representations.
        This
        Debenture has been issued subject to certain investment representations of
        the
        original Holder set forth in the Purchase Agreement and may be transferred
        or
        exchanged only in compliance with the Purchase Agreement and applicable federal
        and state securities laws and regulations. 

      

      c)  Reliance
        on Debenture Register.
        Prior
        to due presentment to the Company for transfer of this Debenture, the Company
        and any agent of the Company may treat the Person in whose name this Debenture
        is duly registered on the Debenture Register as the owner hereof for the
        purpose
        of receiving payment as herein provided and for all other purposes, whether
        or
        not this Debenture is overdue, and neither the Company nor any such agent
        shall
        be affected by notice to the contrary.

      

      
        
           

        

        
          -6-

          
            

          

        

        
           

        

      

      Section
        4.  Conversion.

       

      a)  Voluntary
        Conversion.
        At any
        time after the Original Issue Date until this Debenture is no longer
        outstanding, this Debenture shall be convertible into shares of Common Stock
        at
        the option of the Holder, in whole or in part at any time and from time to
        time
        (subject to the limitations on conversion set forth in Section 4(c)
        hereof). The Holder shall effect conversions by delivering to the Company
        the
        form of Notice of Conversion attached hereto as Annex
        A
        (a
“Notice
        of Conversion”),
        specifying therein the principal amount of this Debenture to be converted
        and
        the date on which such conversion is to be effected (a “Conversion
        Date”).
        If no
        Conversion Date is specified in a Notice of Conversion, the Conversion Date
        shall be the date that such Notice of Conversion is provided hereunder. To
        effect conversions hereunder, the Holder shall not be required to physically
        surrender this Debenture to the Company unless the entire principal amount
        of
        this Debenture has been so converted. Conversions hereunder shall have the
        effect of lowering the outstanding principal amount of this Debenture in
        an
        amount equal to the applicable conversion. The Holder and the Company shall
        maintain records showing the principal amount converted and the date of such
        conversions. The Company shall deliver any objection to any Notice of Conversion
        within 1 Business Day of receipt of such notice. In the event of any dispute
        or
        discrepancy, the records of the Holder shall be controlling and determinative
        in
        the absence of manifest error. The Holder and any assignee, by acceptance
        of
        this Debenture, acknowledge and agree that, by reason of the provisions of
        this
        paragraph, following conversion of a portion of this Debenture, the unpaid
        and
        unconverted principal amount of this Debenture may be less than the amount
        stated on the face hereof.

       

      b)  Conversion
        Price.
        The
        conversion price in effect on any Conversion Date shall be equal to $0.60
        (subject
        to adjustment herein)(the “Conversion
        Price”).

      

      c)  Conversion
        Limitations.
        

      

      i.  RESERVED.

       

      ii.  Holder’s
        Restriction on Conversion.
        The
        Company shall not effect any conversion of this Debenture, and the Holder
        shall
        not have the right to convert any portion of this Debenture, pursuant to
        Section
        4(a) or otherwise, to the extent that after giving effect to such conversion,
        the Holder (together with the Holder’s affiliates), as set forth on the
        applicable Notice of Conversion, would beneficially own in excess of 4.99%
        of
        the number of shares of the Common Stock outstanding immediately after giving
        effect to such conversion.  For purposes of the foregoing sentence,
        the
        number of shares of Common Stock beneficially owned by the Holder and its
        affiliates shall include the number of shares of Common Stock issuable upon
        conversion of this Debenture with respect to which the determination of such
        sentence is being made, but shall exclude the number of shares of Common
        Stock
        which would be issuable upon (A) conversion of the remaining, nonconverted
        portion of this Debenture beneficially owned by the Holder or any of its
        affiliates and (B) exercise or conversion of the unexercised or nonconverted
        portion of any other securities of the Company (including, without limitation,
        any 

       

      
        
           

        

        
          -7-

          
            

          

        

        
           

        

      

      other
        Debentures or the Warrants) subject to a limitation on conversion or exercise
        analogous to the limitation contained herein beneficially owned by the Holder
        or
        any of its affiliates.  Except as set forth in the preceding sentence,
        for
        purposes of this Section 4(c)(ii), beneficial ownership shall be calculated
        in
        accordance with Section 13(d) of the Exchange Act. To the extent that the
        limitation contained in this section applies, the determination of whether
        this
        Debenture is convertible (in relation to other securities owned by the Holder)
        and of which a portion of this Debenture is convertible shall be in the sole
        discretion of such Holder. To ensure compliance with this restriction, the
        Holder will be deemed to represent to the Company each time it delivers a
        Notice
        of Conversion that such Notice of Conversion has not violated the restrictions
        set forth in this paragraph and the Company shall have no obligation to verify
        or confirm the accuracy of such determination. For purposes of this Section
        4(c)(ii), in determining the number of outstanding shares of Common Stock,
        the
        Holder may rely on the number of outstanding shares of Common Stock as reflected
        in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be,
        (y) a more recent public announcement by the Company or (z) any other notice
        by
        the Company or the Company’s Transfer Agent setting forth the number of shares
        of Common Stock outstanding.  Upon the written or oral request of
        the
        Holder, the Company shall within two Trading Days confirm orally and in writing
        to the Holder the number of shares of Common Stock then outstanding. 
        In
        any case, the number of outstanding shares of Common Stock shall be determined
        after giving effect to the conversion or exercise of securities of the Company,
        including this Debenture, by the Holder or its affiliates since the date
        as of
        which such number of outstanding shares of Common Stock was reported. The
        provisions of this Section 4(c) may be waived by the Holder, at the election
        of
        the Holder, upon not less than 61 days’ prior notice to the Company, and the
        provisions of this Section 4(c) shall continue to apply until such 61st day
        (or
        such later date, as determined by the Holder, as may be specified in such
        notice
        of waiver).

       

      	d)  	
              Mechanics
                of Conversion

            

       

      i.  Conversion
        Shares Issuable Upon Conversion of Principal Amount.
        The
        number of shares of Common Stock issuable upon a conversion hereunder shall
        be
        determined by the quotient obtained by dividing (x) the outstanding principal
        amount of this Debenture to be converted by (y) the Conversion
        Price.

       

      ii.  Delivery
        of Certificate Upon Conversion.
        Not
        later than three Trading Days after any Conversion Date, the Company will
        deliver or cause to be delivered to the Holder a certificate or certificates
        representing the Conversion Shares which shall be free of restrictive legends
        and trading restrictions (other than those required by the Purchase Agreement)
        representing the number of shares of Common Stock being acquired upon the
        conversion of this Debenture. The Company shall, if available and if allowed
        under applicable securities laws, use its best efforts to deliver any
        certificate or certificates required to be delivered by the Company under
        this
        Section electronically through the Depository Trust Corporation or another
        established clearing corporation performing similar functions. 

       

      
        
           

        

        
          -8-

          
            

          

        

        
           

        

      

      iii.  Failure
        to Deliver Certificates.
        If in
        the case of any Notice of Conversion such certificate or certificates are
        not
        delivered to or as directed by the applicable Holder by the third Trading
        Day
        after a Conversion Date, the Holder shall be entitled by written notice to
        the
        Company at any time on or before its receipt of such certificate or certificates
        thereafter, to rescind such conversion, in which event the Company shall
        immediately return the certificates representing the principal amount of
        this
        Debenture tendered for conversion. 

       

      iv.  Obligation
        Absolute; Partial Liquidated Damages.
        If the
        Company fails for any reason to deliver to the Holder such certificate or
        certificates pursuant to Section 4(d)(ii) by the third Trading Day after
        the
        Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
        damages and not as a penalty, for each $1000 of principal amount being
        converted, $10 per Trading Day (increasing to $20 per Trading Day after 5
        Trading Days after such damages begin to accrue) for each Trading Day after
        such
        third Trading Day until such certificates are delivered. The Company’s
        obligations to issue and deliver the Conversion Shares upon conversion of
        this
        Debenture in accordance with the terms hereof are absolute and unconditional,
        irrespective of any action or inaction by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision hereof, the recovery of any
        judgment against any Person or any action to enforce the same, or any setoff,
        counterclaim, recoupment, limitation or termination, or any breach or alleged
        breach by the Holder or any other Person of any obligation to the Company
        or any
        violation or alleged violation of law by the Holder or any other person,
        and
        irrespective of any other circumstance which might otherwise limit such
        obligation of the Company to the Holder in connection with the issuance of
        such
        Conversion Shares; provided,
        however,
        such
        delivery shall not operate as a waiver by the Company of any such action
        the
        Company may have against the Holder. In the event the Holder of this Debenture
        shall elect to convert any or all of the outstanding principal amount hereof,
        the Company may not refuse conversion based on any claim that the Holder
        or any
        one associated or affiliated with the Holder has been engaged in any violation
        of law, agreement or for any other reason, unless, an injunction from a court,
        on notice, restraining and or enjoining conversion of all or part of this
        Debenture shall have been sought and obtained and the Company posts a surety
        bond for the benefit of the Holder in the amount of 150% of the principal
        amount
        of this Debenture outstanding, which is subject to the injunction, which
        bond
        shall remain in effect until the completion of arbitration/litigation of
        the
        dispute and the proceeds of which shall be payable to such Holder to the
        extent
        it obtains judgment. In the absence of an injunction precluding the same,
        the
        Company shall issue Conversion Shares or, if applicable, cash, upon a properly
        noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual
        damages or declare an Event of Default pursuant to Section 8 herein for the
        Company’s failure to deliver Conversion Shares within the period specified
        herein and such Holder 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. The exercise of any such rights shall
        not
        prohibit the Holder from seeking to enforce damages pursuant to any other
        Section hereof or under applicable law.

       

      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

      v.  Compensation
        for Buy-In on Failure to Timely Deliver Certificates Upon
        Conversion.
        In
        addition to any other rights available to the Holder, if the Company fails
        for
        any reason to deliver to the Holder such certificate or certificates pursuant
        to
        Section 4(d)(ii) by the third Trading Day after the Conversion Date, and
        if
        after such third Trading Day the Holder is required by its brokerage firm
        to
        purchase (in an open market transaction or otherwise) Common Stock to deliver
        in
        satisfaction of a sale by such Holder of the Conversion Shares which the
        Holder
        anticipated receiving upon such conversion (a “Buy-In”),
        then
        the Company shall (A) pay in cash to the Holder (in addition to any remedies
        available to or elected by the Holder) the amount by which (x) the Holder’s
        total purchase price (including brokerage commissions, if any) for the Common
        Stock so purchased exceeds (y) the product of (1) the aggregate number of
        shares
        of Common Stock that such Holder anticipated receiving from the conversion
        at
        issue multiplied by (2) the actual sale price of the Common Stock at the
        time of
        the sale (including brokerage commissions, if any) giving rise to such purchase
        obligation and (B) at the option of the Holder, either reissue (if surrendered)
        this Debenture in a principal amount equal to the principal amount of the
        attempted conversion or deliver to the Holder the number of shares of Common
        Stock that would have been issued had the Company timely complied with its
        delivery requirements under Section 4(d)(ii). For example, if the Holder
        purchases Common Stock having a total purchase price of $11,000 to cover
        a
        Buy-In with respect to an attempted conversion of this Debenture with respect
        to
        which the actual sale price of the Conversion Shares at the time of the sale
        (including brokerage commissions, if any) giving rise to such purchase
        obligation was a total of $10,000 under clause (A) of the immediately preceding
        sentence, the Company shall be required to pay the Holder $1,000. The Holder
        shall provide the Company written notice indicating the amounts payable to
        the
        Holder in respect of the Buy-In. Notwithstanding anything contained herein
        to
        the contrary, if a Holder requires the Company to make payment in respect
        of a
        Buy-In for the failure to timely deliver certificates hereunder and the Company
        timely pays in full such payment, the Company shall not be required to pay
        such
        Holder liquidated damages under Section 4(d)(iv) in respect of the certificates
        resulting in such Buy-In.

       

      vi.  Reservation
        of Shares Issuable Upon Conversion.
        The
        Company covenants that it will at all times reserve and keep available out
        of
        its authorized and unissued shares of Common Stock solely for the purpose
        of
        issuance upon conversion of this Debenture, free from preemptive rights or
        any
        other actual contingent purchase rights of persons other than the Holder
        (and
        the other holders of the Debentures), not less than such number of shares
        of the
        Common Stock as shall (subject to the terms and conditions set forth in the
        Purchase Agreement) be issuable (taking into account the adjustments and
        restrictions of Section 5) upon the conversion of the outstanding principal
        amount of this Debenture hereunder. The Company covenants that all shares
        of
        Common Stock that shall be so issuable shall, upon issue, be duly and validly
        authorized, issued and fully paid, nonassessable and, if the Registration
        Statement is then effective under the Securities Act, registered for public
        sale
        in accordance with such Registration Statement.

       

      
        
           

        

        
          -10-

          
            

          

        

        
           

        

      

      vii.  Fractional
        Shares.
        Upon a
        conversion hereunder the Company shall not be required to issue stock
        certificates representing fractions of shares of the Common Stock, but may
        if
        otherwise permitted, make a cash payment in respect of any final fraction
        of a
        share based on the Closing Price at such time. If the Company elects not,
        or is
        unable, to make such a cash payment, the Holder shall be entitled to receive,
        in
        lieu of the final fraction of a share, one whole share of Common
        Stock.

       

      viii.  Transfer
        Taxes.
        The
        issuance of certificates for shares of the Common Stock on conversion of
        this
        Debenture shall be made without charge to the Holder hereof for any documentary
        stamp or similar taxes that may be payable in respect of the issue or delivery
        of such certificate, provided that the Company shall not be required to pay
        any
        tax that may be payable in respect of any transfer involved in the issuance
        and
        delivery of any such certificate upon conversion in a name other than that
        of
        the Holder of this Debenture so converted and the Company shall not be required
        to issue or deliver such certificates unless or until the person or persons
        requesting the issuance thereof shall have paid to the Company the amount
        of
        such tax or shall have established to the satisfaction of the Company that
        such
        tax has been paid.

      

      Section
        5. Certain
        Adjustments.

       

      a)  Stock
        Dividends and Stock Splits.
        If the
        Company, at any time while this Debenture is outstanding: (A) pays a stock
        dividend or otherwise makes a distribution or distributions on shares of
        its
        Common Stock or any other equity or equity equivalent securities payable
        in
        shares of Common Stock (which, for avoidance of doubt, shall not include
        any
        shares of Common Stock issued by the Company pursuant to this Debenture),
        (B)
        subdivides outstanding shares of Common Stock into a larger number of shares,
        (C) combines (including by way of reverse stock split) outstanding shares
        of
        Common Stock into a smaller number of shares, or (D) issues by reclassification
        of shares of the Common Stock any shares of capital stock of the Company,
        then
        the Conversion Price shall be multiplied by a fraction of which the numerator
        shall be the number of shares of Common Stock (excluding treasury shares,
        if
        any) outstanding immediately before such event and of which the denominator
        shall be the number of shares of Common Stock outstanding immediately after
        such
        event. Any adjustment made pursuant to this Section shall become effective
        immediately after the record date for the determination of stockholders entitled
        to receive such dividend or distribution and shall become effective immediately
        after the effective date in the case of a subdivision, combination or
        re-classification.

       

      
        
           

        

        
          -11-

          
            

          

        

        
           

        

      

      b)  Subsequent
        Equity Sales.
        If the
        Company or any Subsidiary thereof, as applicable, at any time while this
        Debenture is outstanding, shall offer, sell, grant any option to purchase
        or
        offer, sell or grant any right to reprice its securities, or otherwise dispose
        of or issue (or announce any offer, sale, grant or any option to purchase
        or
        other disposition) any Common Stock or Common Stock Equivalents entitling
        any
        Person to acquire shares of Common Stock, at an effective price per share
        less
        than the then Conversion Price (such lower price, the “Base
        Conversion Price”
        and
        such issuances collectively, a “Dilutive
        Issuance”),
        as
        adjusted hereunder (if the holder of the Common Stock or Common Stock
        Equivalents so issued shall at any time, whether by operation of purchase
        price
        adjustments, reset provisions, floating conversion, exercise or exchange
        prices
        or otherwise, or due to warrants, options or rights per share which is issued
        in
        connection with such issuance, be entitled to receive shares of Common Stock
        at
        an effective price per share which is less than the Conversion Price, such
        issuance shall be deemed to have occurred for less than the Conversion Price
        on
        such date of the Dilutive Issuance), then the Conversion Price shall be reduced
        to equal the Base Conversion Price. Such adjustment shall be made whenever
        such
        Common Stock or Common Stock Equivalents are issued. Notwithstanding
        the foregoing, no adjustment will be made under this Section 5(b) in respect
        of
        an Exempt Issuance.
        The
        Company shall notify the Holder in writing, no later than the Business Day
        following the issuance of any Common Stock or Common Stock Equivalents subject
        to this section, indicating therein the applicable issuance price, or of
        applicable reset price, exchange price, conversion price and other pricing
        terms
        (such notice the “Dilutive
        Issuance Notice”).
        For
        purposes of clarification, whether or not the Company provides a Dilutive
        Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
        Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
        entitled to receive a number of Conversion Shares based upon the Base Conversion
        Price regardless of whether the Holder accurately refers to the Base Conversion
        Price in the Notice of Conversion. 

       

      c)  Pro
        Rata Distributions.
        If the
        Company, at any time while this Debenture is outstanding, shall distribute
        to
        all holders of Common Stock (and not to the holders of the Debentures) evidences
        of its indebtedness or assets (including cash and cash dividends) or rights
        or
        warrants to subscribe for or purchase any security, then in each such case
        the
        Conversion Price shall be adjusted by multiplying such Conversion Price in
        effect immediately prior to the record date fixed for determination of
        stockholders entitled to receive such distribution by a fraction of which
        the
        denominator shall be the Closing Price determined as of the record date
        mentioned above, and of which the numerator shall be such Closing Price on
        such
        record date less the then fair market value at such record date of the portion
        of such assets or evidence of indebtedness so distributed applicable to one
        outstanding share of the Common Stock as determined by the Board of Directors
        in
        good faith. In either case the adjustments shall be described in a statement
        provided to the Holder of the portion of assets or evidences of indebtedness
        so
        distributed or such subscription rights applicable to one share of Common
        Stock.
        Such adjustment shall be made whenever any such distribution is made and
        shall
        become effective immediately after the record date mentioned above.

       

      
        
           

        

        
          -12-

          
            

          

        

        
           

        

      

      d)  Fundamental
        Transaction.
        If, at
        any time while this Debenture is outstanding, (A) the Company effects any
        merger
        or consolidation of the Company with or into another Person, (B) the Company
        effects any sale of all or substantially all of its assets in one or a series
        of
        related transactions, (C) any tender offer or exchange offer (whether by
        the
        Company or another Person) is completed pursuant to which holders of Common
        Stock are permitted to tender or exchange their shares for other securities,
        cash or property, or (D) the Company effects any reclassification of the
        Common
        Stock or any compulsory share exchange pursuant to which the Common Stock
        is
        effectively converted into or exchanged for other securities, cash or property
        (in any such case, a “Fundamental
        Transaction”),
        then
        upon any subsequent conversion of this Debenture, the Holder shall have the
        right to receive, for each Conversion Share that would have been issuable
        upon
        such conversion immediately prior to the occurrence of such Fundamental
        Transaction, the same kind and amount of securities, cash or property as
        it
        would have been entitled to receive upon the occurrence of such Fundamental
        Transaction if it had been, immediately prior to such Fundamental Transaction,
        the holder of one share of Common Stock (the “Alternate
        Consideration”).
        For
        purposes of any such conversion, the determination of the Conversion Price
        shall
        be appropriately adjusted to apply to such Alternate Consideration based
        on the
        amount of Alternate Consideration issuable in respect of one share of Common
        Stock in such Fundamental Transaction, and the Company shall apportion the
        Conversion Price among the Alternate Consideration in a reasonable manner
        reflecting the relative value of any different components of the Alternate
        Consideration. If holders of Common Stock are given any choice as to the
        securities, cash or property to be received in a Fundamental Transaction,
        then
        the Holder shall be given the same choice as to the Alternate Consideration
        it
        receives upon any conversion of this Debenture following such Fundamental
        Transaction. To the extent necessary to effectuate the foregoing provisions,
        any
        successor to the Company or surviving entity in such Fundamental Transaction
        shall issue to the Holder a new debenture consistent with the foregoing
        provisions and evidencing the Holder’s right to convert such debenture into
        Alternate Consideration. The terms of any agreement pursuant to which a
        Fundamental Transaction is effected shall include terms requiring any such
        successor or surviving entity to comply with the provisions of this paragraph
        (d) and insuring that this Debenture (or any such replacement security) will
        be
        similarly adjusted upon any subsequent transaction analogous to a Fundamental
        Transaction.

       

      e)  Calculations.
        All
        calculations under this Section 5 shall be made to the nearest cent or the
        nearest 1/100th of a share, as the case may be. For purposes of this Section
        5,
        the number of shares of Common Stock deemed to be issued and outstanding
        as of a
        given date shall be the sum of the number of shares of Common Stock (excluding
        treasury shares, if any) issued and outstanding.

      

      
        
           

        

        
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      f)  Notice
        to the Holder.

      

      i.  Adjustment
        to Conversion Price.
        Whenever the Conversion Price is adjusted pursuant to any of this Section
        5, the
        Company shall promptly mail to each Holder a notice setting forth the Conversion
        Price after such adjustment and setting forth a brief statement of the facts
        requiring such adjustment. If the Company issues a variable rate security,
        despite the prohibition thereon in the Purchase Agreement, the Company shall
        be
        deemed to have issued Common Stock or Common Stock Equivalents at the lowest
        possible conversion or exercise price at which such securities may be converted
        or exercised in the case of a Variable Rate Transaction (as defined in the
        Purchase Agreement).

       

      ii.  Notice
        to Allow Conversion by Holder.
        If (A)
        the Company shall declare a dividend (or any other distribution) on the Common
        Stock; (B) the Company shall declare a special nonrecurring cash dividend
        on or
        a redemption of the Common Stock; (C) the Company shall authorize the granting
        to all holders of the Common Stock rights or warrants to subscribe for or
        purchase any shares of capital stock of any class or of any rights; (D) the
        approval of any stockholders of the Company shall be required in connection
        with
        any reclassification of the Common Stock, any consolidation or merger to
        which
        the Company is a party, any sale or transfer of all or substantially all
        of the
        assets of the Company, of any compulsory share exchange whereby the Common
        Stock
        is converted into other securities, cash or property; (E) the
        Company shall authorize the voluntary or involuntary dissolution, liquidation
        or
        winding up of the affairs of the Company; then, in each case, the Company
        shall
        cause to be filed at each office or agency maintained for the purpose of
        conversion of this Debenture, and shall cause to be mailed
        to
        the Holder at its last address as it shall appear upon the stock
        books of
        the
        Company, at least 20 calendar days prior to the applicable record or effective
        date hereinafter specified, a notice stating (x)
        the
        date on which a record is to be taken for the purpose of such dividend,
        distribution, redemption, rights or warrants, or if a record is not to be
        taken,
        the date as of which the holders of the Common Stock of record to be entitled
        to
        such dividend, distributions, redemption, rights or warrants are to be
        determined or (y) the date on which such reclassification, consolidation,
        merger, sale, transfer or share exchange is expected to become effective
        or
        close, and the date as of which it is expected that holders of the Common
        Stock
        of record shall be entitled to exchange their shares of the Common Stock
        for
        securities, cash or other property deliverable upon such reclassification,
        consolidation, merger, sale, transfer or share exchange; provided,
        that
        the failure to mail such notice or any defect therein or in the mailing thereof
        shall not affect the validity of the corporate action required to be specified
        in such notice. The Holder is entitled to convert this Debenture during the
        20-day period commencing the date of such notice to the effective date of
        the
        event triggering such notice and such conversion shall not limit any other
        conversion right of the Holder.

       

      
        
           

        

        
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      Section
        6. Redemption
        and Forced Conversion.

      

      a)  Monthly
        Redemption.
        On each
        Monthly Redemption Date, the Company shall redeem the Monthly Redemption
        Amount
        plus the sum of all liquidated damages and any other amounts then owing to
        such
        Holder in respect of this Debenture (the “Monthly
        Redemption”).
        The
        Monthly Redemption Amount due on each Monthly Redemption Date shall be paid
        in
        cash; provided,
        however,
        as to
        any Monthly Redemption Amount paid in cash, the Company shall pay a cash
        value
        equal to 110% of such Monthly Redemption Amount. Additionally, as to any
        Monthly
        Redemption and upon prior written irrevocable notice, which notice shall
        be
        delivered no later than 2 calendar days immediately prior to the applicable
        Monthly Conversion Period (such notice, the “Monthly
        Redemption Notice”,
        the
        date of the Monthly Redemption Notice, the “Monthly
        Redemption Notice Date”
        and
        such period, the “Monthly
        Redemption Notice Period”),
        in
        lieu of a cash redemption payment the Company may elect to pay all or part
        of a
        Monthly Redemption Amount in Conversion Shares (such dollar amount to be
        paid on
        a Monthly Redemption Date in Conversion Shares, the “Monthly
        Redemption Share Amount”)
        based
        on a conversion price equal to the lesser of (i) the then Conversion Price
        and
        (ii) 80% of the average of the 5 Closing Prices immediately prior to the
        applicable Monthly Redemption Date (subject to adjustment for any stock
        dividend, stock split, stock combination or other similar event affecting
        the
        Common Stock during such 5 Trading Day period)(the price calculated during
        the 5
        Trading Day period immediately prior to the Monthly Redemption Date, the
        “Monthly
        Conversion Price”
        and
        such 5 day period, the “Monthly
        Conversion Period”);
        provided,
        however,
        that
        the Company may not pay the Monthly Redemption Amount in Conversion Shares
        unless, (y) from the Monthly Redemption Notice Date through and until the
        date
        such Monthly Redemption is paid in full, the Equity Conditions, unless waived
        in
        writing by the Holder, have been satisfied and (z) as to such Monthly
        Redemption, prior to such Monthly Redemption Notice Period (but not more
        than 5
        Trading Days prior to the commencement of the Monthly Redemption Notice Period),
        the Company shall have delivered to the Holder’s account with The Depository
        Trust Company a number of shares of Common Stock to be applied against such
        Monthly Redemption Share Amount equal to the quotient of (x) the applicable
        Monthly Redemption Share Amount divided by (y) the then Conversion Price
        (the
“Pre-Redemption
        Conversion Shares”).
        The
        Holder may convert, pursuant to Section 4(a), any principal amount of this
        Debenture subject to a Monthly Redemption at any time prior to the date that
        the
        Monthly Redemption Amount and all amounts owing thereon are due and paid
        in
        full. Unless otherwise indicated by the Holder in the applicable Notice of
        Conversion, any principal amount of this Debenture converted during the
        applicable Monthly Redemption Notice Period until the date the Monthly
        Redemption Amount is paid in full shall be first applied to the principal
        amount
        subject to the Monthly Redemption Amount payable in cash and then to the
        Monthly
        Redemption Share Amount. Any principal amount of this Debenture converted
        during
        the applicable Monthly Redemption Notice Period in excess of the Monthly
        Redemption Amount shall be applied against the last principal amount of this
        Debenture scheduled to be redeemed hereunder, in reverse time order from
        the
        Maturity Date; provided,
        however,
        if any
        such conversion is applied to such Monthly Redemption Amount, the Pre-Redemption
        Conversion Shares, if any were issued in connection with such Monthly Redemption
        or were not already applied to such conversions, shall be first applied against
        such conversion. The Company covenants and agrees that it will honor all
        Notice
        of Conversions tendered up until such amounts are paid in full. The Company’s
        determination to pay a Monthly Redemption in cash, shares of Common Stock
        or a
        combination thereof shall be applied ratably to all of the holders of the
        Debentures based on their (or their predecessor’s) initial purchases of
        Debentures pursuant to the Purchase Agreement. At any time the Company delivers
        a notice to the Holder of its election to pay the Monthly Redemption Amount
        in
        shares of Common Stock, the Company shall file a prospectus supplement pursuant
        to Rule 424 disclosing such election.

      

      
        
           

        

        
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      b)  Optional
        Redemption at Election of Company.
        At any
        time after the 90 day anniversary of the Effective Date, the Company may
        deliver
        a notice to the Holders (an “Optional
        Redemption Notice”
        and the
        date such notice is deemed delivered hereunder, the “Optional
        Redemption Notice Date”)
        of its
        irrevocable election to redeem some or all of the then outstanding Debentures,
        for an amount, in cash, equal to the Optional Redemption Amount on the
        20th
        Trading
        Day following the Optional Redemption Notice Date (such date, the “Optional
        Redemption Date”
        and
        such redemption, the “Optional
        Redemption”).
        The
        Optional Redemption Amount is due in full on the Optional Redemption Date.
        The
        Company may only effect an Optional Redemption if during the period commencing
        on the Optional Redemption Notice Date through to the Optional Redemption
        Date,
        each of the Equity Conditions shall have been met. If any of the Equity
        Conditions shall cease to be satisfied at any time during the required period,
        then the Holder may elect to nullify the Optional Redemption Notice by notice
        to
        the Company within 3 Trading Days after the first day on which any such Equity
        Condition has not been met (provided that if, by a provision of the Transaction
        Documents the Company is obligated to notify the Holder of the non-existence
        of
        an Equity Condition, such notice period shall be extended to the third Trading
        Day after proper notice from the Company) in which case the Optional Redemption
        Notice shall be null and void, ab initio. The Company covenants and agrees
        that
        it will honor all Notice of Conversions tendered from the time of delivery
        of
        the Optional Redemption Notice through the date all amounts owing thereon
        are
        due and paid in full.

      

      c)  Redemption
        Procedure.
        The
        payment of cash and/or issuance of Common Stock (other than the Pre-Redemption
        Conversion Shares), as the case may be, pursuant to a Monthly Redemption
        or the
        payment of cash pursuant to an Optional Redemption shall be made on the Monthly
        Redemption Date or the Optional Redemption Date (as applicable). The aggregate
        number of Conversion Shares otherwise issuable to the Holder pursuant to
        a
        Monthly Redemption on a Monthly Redemption Date shall be reduced by the number
        of Pre-Redemption Conversion Shares issued to the Holder in connection with
        such
        Monthly Redemption (adjusted appropriately for any such shares applied to
        conversion during the Monthly Redemption Period). If any portion of the cash
        payment for a Monthly Redemption or an Optional Redemption, as applicable,
        shall
        not be paid by the Company by the respective due date, interest shall accrue
        thereon at the rate of 18% per annum (or the maximum rate permitted by
        applicable law, whichever is less) until the payment of the Monthly Redemption
        Amount or Optional Redemption Amount, as applicable, plus all amounts owing
        thereon, is paid in full. Alternatively, if any portion of the Monthly
        Redemption Amount or the Optional Redemption Amount, as applicable, remains
        unpaid after such date, the Holder may elect, by written notice to the Company
        given at any time thereafter, to invalidate ab initio such redemption,
        notwithstanding anything herein contained to the contrary, and, with respect
        the
        failure to honor the Optional Redemption, the Company shall have no further
        right to exercise such Optional Redemption. If any Pre-Redemption Conversion
        Shares are issued to the Holder in connection with a Monthly Redemption and
        are
        not applied against either the Monthly Redemption Amount or against voluntary
        conversions during the Monthly Redemption, then the Holder shall promptly
        return
        such excess shares to the Company. The Holder may elect to convert the
        outstanding principal amount of the Debenture pursuant to Section 4 prior
        to
        actual payment in cash for any redemption under this Section 6 by fax delivery
        of a Notice of Conversion to the Company.

       

      
        
           

        

        
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      d)  Forced
        Conversion.
        Notwithstanding anything herein to the contrary, if after the Effective Date,
        each of the Closing Prices for any 20 consecutive Trading Days (such 20 day
        period commencing only after the later of the Effective Date, such period
        the
“Threshold
        Period”))
        exceeds 250% of the then Conversion Price, the Company may, within 1 Trading
        Day
        of the end of any such Threshold Period, deliver a notice to the Holder (a
        “Forced
        Conversion Notice”
        and the
        date such notice is received by the Holder, the “Forced
        Conversion Notice Date”)
        to
        cause the Holder to immediately convert all or part of the then outstanding
        principal amount of Debentures pursuant to Section 4. The Company may only
        effect a Forced Conversion Notice if all of the Equity Conditions are met
        through the applicable Threshold Period until the date of the applicable
        Forced
        Conversion and through and including the date such shares of Common Stock
        are
        issued to the Holder. Any Forced Conversion shall be applied ratably to all
        Holders based on their initial purchases of Debentures pursuant to the Purchase
        Agreement. For purposes of clarification, a Forced Conversion shall be subject
        to all of the provisions of Section 4, including, without limitation, the
        provision requiring payment of liquidated damages and limitations on
        conversions.

      

      Section
        7. Negative
        Covenants.
        So long
        as any portion of this Debenture is outstanding, the Company will not and
        will
        not permit any of its Subsidiaries to directly or indirectly:

       

      a)  enter
        into, create, incur, assume or suffer to exist any liens of any kind, on
        or with
        respect to any of its property or assets now owned or any interest therein
        or
        any income or profits therefrom unless this Debenture is paid off in connection
        with such lien and pursuant to Section 6(b) herein;

      

      b)  amend
        its
        certificate of incorporation, bylaws or other charter documents so as to
        materially and adversely affect any rights of the Holder;

      

      c)  repay,
        repurchase or offer to repay, repurchase or otherwise acquire more than a
        de
        minimis
        number
        of shares of its Common Stock or Common Stock Equivalents other than as to
        the
        Conversion Shares to the extent permitted or required under the Transaction
        Documents or as otherwise permitted by the Transaction Documents; 

      

      d)  enter
        into any agreement with respect to any of the foregoing;
        or

      

      e)  pay
        cash
        dividends or distributions on any equity securities of the Company.

       

      Section
        8. Events
        of Default.
        

      

      a)  “Event
        of Default”,
        wherever used herein, means any one of the following events (whatever the
        reason
        and whether it shall be voluntary or involuntary or effected by operation
        of law
        or pursuant to any judgment, decree or order of any court, or any order,
        rule or
        regulation of any administrative or governmental body):

      

      i.  any
        default in the payment of (A) the principal amount of any Debenture, or (B)
        liquidated damages in respect of, any Debenture, as and when the same shall
        become due and payable (whether on a Conversion Date or the Maturity Date
        or by
        acceleration or otherwise) which default under clause (B) above, is not cured,
        within 3 Trading Days;

       

      ii.  the
        Company shall fail to observe or perform any other covenant or agreement
        contained in this Debenture or any other Debenture (other than a breach by
        the
        Company of its obligations to deliver shares of Common Stock to the Holder
        upon
        conversion which breach is addressed in clause (xi) below) which failure
        is not
        cured, if possible to cure, within the earlier to occur
        of
(A)
        5
Trading
        Days after notice of such default sent by the Holder or by any other
        Holder
        and
        (B)10 Trading Days after the Company shall become or should have become aware
        of
        such failure;

       

      iii.  a
        default
        or event of default (subject to any grace or cure period provided for in
        the
        applicable agreement, document or instrument) shall occur under (A) any of
        the
        Transaction Documents, or (B) any other material agreement, lease, document
        or
        instrument to which the Company or any Subsidiary is bound;

       

      iv.  any
        representation or warranty made herein,
        in any
        other Transaction Documents, in any written statement pursuant hereto or
        thereto, or in any other report, financial statement or certificate made
        or
        delivered to the Holder or any other holder of Debentures shall
        be
        untrue or incorrect in any material respect as of the date when made or deemed
        made;

      

      
        
           

        

        
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      v.  (i)
        the
        Company or any of its Subsidiaries shall commence a case, as debtor, a case
        under any applicable bankruptcy or insolvency laws as now or hereafter in
        effect
        or any successor thereto, or the Company or any Subsidiary commences any
        other
        proceeding under any reorganization, arrangement, adjustment of debt, relief
        of
        debtors, dissolution, insolvency or liquidation or similar law of any
        jurisdiction whether now or hereafter in effect relating to the Company or
        any
        Subsidiary thereof or (ii) there is commenced a case against the Company
        or any
        Subsidiary thereof, under any applicable bankruptcy or insolvency laws, as
        now
        or hereafter in effect or any successor thereto which remains undismissed
        for a
        period of 60 days; or (iii) the Company or any Subsidiary thereof is adjudicated
        by a court of competent jurisdiction insolvent or bankrupt; or any order
        of
        relief or other order approving any such case or proceeding is entered; or
        (iv)
        the Company or any Subsidiary thereof suffers any appointment of any custodian
        or the like for it or any substantial part of its property which continues
        undischarged or unstayed for a period of 60 days; or (v) the Company or any
        Subsidiary thereof makes a general assignment for the benefit of creditors;
        or
        (vi) the Company shall fail to pay, or shall state that it is unable to pay,
        or
        shall be unable to pay, its debts generally as they become due; or (vii)
        the
        Company or any Subsidiary thereof shall call a meeting of its creditors with
        a
        view to arranging a composition, adjustment or restructuring of its debts;
        or
        (viii) the Company or any Subsidiary thereof shall by any act or failure
        to act
        expressly indicate its consent to, approval of or acquiescence in any of
        the
        foregoing; or (ix) any corporate or other action is taken by the Company
        or any
        Subsidiary thereof for the purpose of effecting any of the
        foregoing;

       

      vi.  the
        Company or any Subsidiary shall default in any of its obligations under any
        mortgage, credit agreement or other facility, indenture agreement, factoring
        agreement or other instrument under which there may be issued, or by which
        there
        may be secured or evidenced any indebtedness for borrowed money or money
        due
        under any long term leasing or factoring arrangement of the Company in an
        amount
        exceeding $150,000, whether such indebtedness now exists or shall hereafter
        be
        created and such default shall result in such indebtedness becoming or being
        declared due and payable prior to the date on which it would otherwise become
        due and payable; 

       

      vii.  the
        Common Stock shall not be eligible for quotation on or quoted for trading
        on a
        Trading Market and shall not again be eligible for and quoted or listed for
        trading thereon within five Trading Days;

       

      viii.  the
        Company shall be a party to any Change of Control Transaction or Fundamental
        Transaction, shall agree to sell or dispose of all or in excess of 33% of
        its
        assets in one or more transactions (whether or not such sale would constitute
        a
        Change of Control Transaction) or shall redeem or repurchase more than a
        de
        minimis number of its outstanding shares of Common Stock or other equity
        securities of the Company (other than redemptions of Conversion Shares and
        repurchases of shares of Common Stock or other equity securities of departing
        officers and directors of the Company; provided such repurchases shall not
        exceed $100,000, in the aggregate, for all officers and directors during
        the
        term of this Debenture);

      

      
        
           

        

        
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      ix.  a
        Registration Statement shall not have been declared effective by the Commission
        on or prior to the 180th calendar
        day after the Closing Date; 

       

      x.  if,
        during the Effectiveness Period (as defined in the Registration Rights
        Agreement), the effectiveness of the Registration Statement lapses for any
        reason or the Holder shall not be permitted to resell Registrable Securities
        (as
        defined in the Registration Rights Agreement) under the Registration Statement,
        in either case, for more than 10 consecutive Trading Days or 15 non-consecutive
        Trading Days during any 12 month period; provided,
        however,
        that in
        the event that the Company
        is negotiating a merger, consolidation, acquisition or sale of all or
        substantially all of its assets or a similar transaction and in the written
        opinion of counsel to the Company, the Registration Statement, would be required
        to be amended to include information concerning such transactions or the
        parties
        thereto that is not available or may not be publicly disclosed at the time,
        the
        Company shall be permitted an additional 10 consecutive Trading Days during
        any
        12 month period relating to such an event; and

       

      xi.  the
        Company shall fail for any reason to deliver certificates to a Holder prior
        to
        the fifth Trading Day after a Conversion Date or any Forced Conversion Date
        pursuant to and in accordance with Section 4(d) or the Company shall provide
        notice to the Holder, including by way of public announcement, at any time,
        of
        its intention not to comply with requests for conversions of any Debentures
        in
        accordance with the terms hereof. 

       

      
        
           

        

        
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      b)  Remedies
        Upon Event of Default.
        If any
        Event of Default occurs, the full principal amount of this Debenture, together
        with other amounts owing in respect thereof, to the date of acceleration
        shall
        become, at the Holder’s election, immediately due and payable in cash. The
        aggregate amount payable upon an Event of Default shall be equal to the
        Mandatory Default Amount. Commencing 5 days after the occurrence of any Event
        of
        Default that results in the eventual acceleration of this Debenture, the
        interest rate on this Debenture shall accrue at the rate of 18% per annum,
        or
        such lower maximum amount of interest permitted to be charged under applicable
        law. Upon the payment in full of the Mandatory Default Amount on this entire
        Debenture, the Holder shall promptly surrender this Debenture to or as directed
        by the Company. The Holder need not provide and the Company hereby waives
        any
        presentment, demand, protest or other notice of any kind, and the Holder
        may
        immediately and without expiration of any grace period enforce any and all
        of
        its rights and remedies hereunder and all other remedies available to it
        under
        applicable law. Such declaration may be rescinded and annulled by Holder
        at any
        time prior to payment hereunder and the Holder shall have all rights as a
        Debenture holder until such time, if any, as the full payment under this
        Section
        shall have been received by it. No such rescission or annulment shall affect
        any
        subsequent Event of Default or impair any right consequent thereon.

       

      Section
        9. Miscellaneous.
        

      
         

      

      a)  Notices.
        Any and
        all notices or other communications or deliveries to be provided by the Holder
        hereunder, including, without limitation, any Notice of Conversion, shall
        be in
        writing and delivered personally, by facsimile, sent by a nationally recognized
        overnight courier service, addressed to the Company, at the address set forth
        above, facsimile number 303.327.1526,
        Attn: George Young or
        such
        other address or facsimile number as the Company may specify for such purposes
        by notice to the Holder delivered in accordance with this Section. Any and
        all
        notices or other communications or deliveries to be provided by the Company
        hereunder shall be in writing and delivered personally, by facsimile, sent
        by a
        nationally recognized overnight courier service addressed to each Holder
        at the
        facsimile telephone number or address of such Holder appearing on the books
        of
        the Company, or if no such facsimile telephone number or address appears,
        at the
        principal place of business of the Holder. Any notice or other communication
        or
        deliveries hereunder shall be deemed given and effective on the earliest
        of (i)
        the date of transmission, if such notice or communication is delivered via
        facsimile at the facsimile telephone number specified in this Section prior
        to
        5:30 p.m. (New York City time), (ii) the date after the date of transmission,
        if
        such notice or communication is delivered via facsimile at the facsimile
        telephone number specified in this Section later than 5:30 p.m. (New York
        City
        time) on any date and earlier than 11:59 p.m. (New York City time) on such
        date,
        (iii) the second Business Day following the date of mailing, if sent by
        nationally recognized overnight courier service, or (iv) upon actual receipt
        by
        the party to whom such notice is required to be given.

       

      b)  Absolute
        Obligation.
        Except
        as expressly provided herein, no provision of this Debenture shall alter
        or
        impair the obligation of the Company, which is absolute and unconditional,
        to
        pay the principal of and liquidated damages (if any) on, this Debenture at
        the
        time, place, and rate, and in the coin or currency, herein prescribed. This
        Debenture is a direct debt obligation of the Company. This Debenture ranks
        pari passu
        with all
        other Debentures now or hereafter issued under the terms set forth
        herein. 

       

      c)  Lost
        or Mutilated Debenture.
        If this
        Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
        execute and deliver, in exchange and substitution for and upon cancellation
        of a
        mutilated Debenture, or in lieu of or in substitution for a lost, stolen
        or
        destroyed Debenture, a new Debenture for the principal amount of this Debenture
        so mutilated, lost, stolen or destroyed but only upon receipt of evidence
        of
        such loss, theft or destruction of such Debenture, and of the ownership hereof,
        and indemnity, if requested, all reasonably satisfactory to the
        Company.

       

      
        
           

        

        
          -20-

          
            

          

        

        
           

        

      

      d)  Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Debenture 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 any of the Transaction Documents (whether brought
        against a party hereto or its respective affiliates, directors, officers,
        shareholders, employees or agents) shall be commenced in the state and federal
        courts sitting in the City of New York, Borough of Manhattan (the “New
        York Courts”).
        Each
        party hereto hereby irrevocably submits to the exclusive jurisdiction of
        the New
        York Courts 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, or such New York Courts are 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 Debenture and agrees that such service
        shall
        constitute good and sufficient service of process and notice thereof. Nothing
        contained herein shall be deemed to limit in any way any right to serve process
        in any manner permitted by law. Each party hereto hereby irrevocably waives,
        to
        the fullest extent permitted by applicable law, any and all right to trial
        by
        jury in any legal proceeding arising out of or relating to this Debenture
        or the
        transactions contemplated hereby. If either party shall commence an action
        or
        proceeding to enforce any provisions of this Debenture, 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.

       

      e)  Waiver.
        Any
        waiver by the Company or the Holder of a breach of any provision of this
        Debenture shall not operate as or be construed to be a waiver of any other
        breach of such provision or of any breach of any other provision of this
        Debenture. The failure of the Company or the Holder to insist upon strict
        adherence to any term of this Debenture on one or more occasions shall not
        be
        considered a waiver or deprive that party of the right thereafter to insist
        upon
        strict adherence to that term or any other term of this Debenture. Any waiver
        must be in writing.

       

      f)  Severability.
        If any
        provision of this Debenture is invalid, illegal or unenforceable, the balance
        of
        this Debenture shall remain in effect, and if any provision is inapplicable
        to
        any person or circumstance, it shall nevertheless remain applicable to all
        other
        persons and circumstances. If it shall be found that any interest or other
        amount deemed interest due hereunder violates applicable laws governing usury,
        the applicable rate of interest due hereunder shall automatically be lowered
        to
        equal the maximum permitted rate of interest. The Company covenants (to the
        extent that it may lawfully do so) that it shall not at any time insist upon,
        plead, or in any manner whatsoever claim or take the benefit or advantage
        of,
        any stay, extension or usury law or other law which would prohibit or forgive
        the Company from paying all or any portion of the principal of or interest
        on
        this Debenture as contemplated herein, wherever enacted, now or at any time
        hereafter in force, or which may affect the covenants or the performance
        of this
        indenture, and the Company (to the extent it may lawfully do so) hereby
        expressly waives all benefits or advantage of any such law, and covenants
        that
        it will not, by resort to any such law, hinder, delay or impeded the execution
        of any power herein granted to the Holder, but will suffer and permit the
        execution of every such as though no such law has been enacted.

       

      
        
           

        

        
          -21-

          
            

          

        

        
           

        

      

      g)  Next
        Business Day.
        Whenever any payment or other obligation hereunder shall be due on a day
        other
        than a Business Day, such payment shall be made on the next succeeding Business
        Day.

       

      h)  Headings.
        The
        headings contained herein are for convenience only, do not constitute a part
        of
        this Debenture and shall not be deemed to limit or affect any of the provisions
        hereof.

      

      i)  Assumption. 
        Any successor to the Company or surviving entity in a Fundamental Transaction
        shall (i) assume in writing all of the obligations of the Company under this
        Debenture and the other Transaction Documents pursuant to written agreements
        in
        form and substance satisfactory to the Holder (such approval not to be
        unreasonably withheld or delayed) prior to such Fundamental Transaction and
        (ii)
        to issue to the Holder a new debenture of such successor entity evidenced
        by a
        written instrument substantially similar in form and substance to this
        Debenture, including, without limitation, having a principal amount and interest
        rate equal to the principal amounts and the interest rates of the Debentures
        held by the Holder and having similar ranking to this Debenture, and
        satisfactory to the Holder (any such approval not to be unreasonably withheld
        or
        delayed).  The provisions of this Section 9(i) shall apply similarly
        and
        equally to successive Fundamental Transactions and shall be applied without
        regard to any limitations of this Debenture.

      

      *********************

      
        
           

        

        
          -22-

          
            

          

        

        
           

          
          

        

      

      IN
        WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
        by a
        duly authorized officer as of the date first above indicated.

       

      
        	 	 	 
	 	FELLOWS
                ENERGY LTD.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

              
	 	
                Name:

                Title :

              

      

       

      

      
        
           

        

        
          -23-

          
            

          

        

        
           

        

      

      ANNEX
        A

      

      NOTICE
        OF CONVERSION

      

      The
        undersigned hereby elects to convert principal under the Convertible Debenture
        of Fellows Energy Ltd., a Nevada corporation (the “Company”),
        into
        shares of common stock, par value $0.001 per share (the “Common
        Stock”),
        of
        the Company according to the conditions hereof, as of the date written below.
        If
        shares are to be issued in the name of a person other than the undersigned,
        the
        undersigned will pay all transfer taxes payable with respect thereto and
        is
        delivering herewith such certificates and opinions as reasonably requested
        by
        the Company in accordance therewith. No fee will be charged to the holder
        for
        any conversion, except for such transfer taxes, if any.

      

      By
        the
        delivery of this Notice of Conversion the undersigned represents and warrants
        to
        the Company that its ownership of the Common Stock does not exceed the amounts
        determined in accordance with Section 13(d) of the Exchange Act, specified
        under
        Section 4 of this Debenture.

      

      The
        undersigned agrees to comply with the prospectus delivery requirements under
        the
        applicable securities laws in connection with any transfer of the aforesaid
        shares of Common Stock. 

      

      Conversion
        calculations:   

      Date
        to
        Effect Conversion:

       

      Principal
        Amount of Debenture to be Converted:

       

      Number
        of
        shares of Common Stock to be issued:

       

      Signature:

      Name:

      Address:

      

      
        
           

        

        
          -24-

          
            

          

        

        
           

        

      

      Schedule
        1

      

      CONVERSION
        SCHEDULE

      

      The
        Convertible Debentures in the aggregate principal amount of $____________
        issued
        by Fellows Energy Ltd., a Nevada corporation. This Conversion Schedule reflects
        conversions made under Section 4 of the above referenced Debenture.

      

      Dated:
        

       

      
        	
                 

                Date
                  of Conversion

                (or
                  for first entry, Original Issue Date)

              	 	 	
                
                

                Amount
                  of Conversion

              	 	 	
                
                

                Aggregate
                  Principal Amount Remaining Subsequent to Conversion

                (or
                  original Principal Amount)

              	
                 

              	 	
                
                

                Company
                  Attest

              	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
                 

              	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 

      

      

      

      
        
           

        

          -25-

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