Document:

This
      Note
      is a Global Security within the meaning of the Indenture hereinafter referred
      to
      and is registered in the name of the Depository named below or a nominee of
      the
      Depository. This Note is not exchangeable for Notes registered in the name
      of a
      Person other than the Depository or its nominee except in the limited
      circumstances described herein and in the Indenture, and no transfer of this
      Note (other than a transfer of this Note as a whole by the Depository to a
      nominee of the Depository or by a nominee of the Depository to the Depository
      or
      another nominee of the Depository) may be registered except in the limited
      circumstances described herein.

    

    Unless
      this certificate is presented by an authorized representative of The Depository
      Trust Company, a New York corporation (the “Depository”),
      to the Company
      or its agent for registration of transfer, exchange, or payment, and any
      certificate issued is registered in the name of Cede & Co. or in such other
      name as is requested by an authorized representative of the Depository (and
      any
      payment is made to Cede & Co. or to such other entity as is requested by an
      authorized representative of the Depository), ANY TRANSFER, PLEDGE, OR OTHER
      USE
      HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
      registered owner hereof, Cede & Co., has an interest herein.

    

    

    CITIGROUP
      INC.

    5.500%
      Notes due August 27, 2012

     

    
      	
              REGISTERED

            	
              REGISTERED

            
	 	 
	 	
              CUSIP:
                172967 EJ 6

            
	 	
              ISIN:
                US172967EJ60

            
	 	
              Common
                Code: 031825750

            
	 	 
	
              No.
                R-______

            	
              $_____________

            

    

    

    CITIGROUP
      INC., a Delaware corporation (the “Company”, which term includes any successor
      Person under the Indenture), for value received, hereby promises to pay to
      Cede
& Co., or registered assigns, the principal sum of $____________ on August
      27, 2012 and
      to
      pay interest thereon from and including August 27, 2007 or from the most recent
      Interest Payment Date to which interest has been paid or duly provided for,
      semi-annually, on February 27 and August 27 of each year, commencing February
      27, 2008, at the rate of 5.500% per annum, until the principal hereof is paid
      or
      made available for payment. The interest so payable, and punctually paid or
      duly
      provided for, on any Interest Payment Date will, as provided in the Indenture,
      be paid to the Person in whose name this Note is registered at the close of
      business on the Record Date for such interest, which shall be the February
      15
      and August 15 (whether or not a Business Day) immediately preceding such
      Interest Payment Date.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Any
      such
      interest not so punctually paid or duly provided for will forthwith cease to
      be
      payable to the holder on such Record Date and may either be paid to the Person
      in whose name this Note is registered at the close of business on a subsequent
      Record Date, such subsequent Record Date to be not less than five days prior
      to
      the date of payment of such defaulted interest, notice whereof shall be given
      to
      holders of Notes of this series not less than 15 days prior to such subsequent
      Record Date, or be paid at any time in any other lawful manner not inconsistent
      with the requirements of any securities exchange on which the Notes of this
      series may be listed, and upon such notice as may be required by such exchange,
      all as more fully provided in the Indenture.

    

    Interest
      hereon will be calculated on the basis of a 360-day year comprised of twelve
      30-day months.

    

    If
      either
      an Interest Payment Date or the Maturity of the Notes falls on a day that is
      not
      a Business Day, such Interest Payment Date or Maturity will be the next
      succeeding Business Day. If a date for payment of interest or principal on
      the
      Notes falls on a day that is not a business day in the place of payment, such
      payment will be made on the next succeeding business day in such place of
      payment as if made on the date the payment was due. No interest will accrue
      on
      any amounts payable for the period from and after the due date for payment
      of
      such principal or interest. 

    

    For
      these
      purposes, “Business Day” means any day which is a day on which commercial banks
      settle payments and are open for general business in The City of New
      York.

    

    Payment
      of the principal of and interest on this Note will be made at the office or
      agency of the Trustee maintained for that purpose in The City of New
      York.

    

    Reference
      is hereby made to the further provisions of this Note set forth on the reverse
      hereof, which further provisions shall for all purposes have the same effect
      as
      if set forth at this place.

    

    Unless
      the certificate of authentication hereon has been executed by the Trustee or
      by
      an authenticating agent on behalf of the Trustee by manual signature, this
      Note
      shall not be entitled to any benefit under the Indenture or be valid or
      obligatory for any purpose.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the Company has caused this instrument to be duly executed
      under its corporate seal.

     

    
      	Dated: August 27, 2007 	 	 
	 	 	 
	 	CITIGROUP
              INC.
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
Title:
              Chief Accounting Officer
	 	
            

    

     

    
      	ATTEST: 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	By:	 	 	
            
	
              
                

              

              Title:
                Assistant Secretary

            	 	 	
            
	 	 	 	 

    

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    This
      is
      one of the Notes of the series issued under the within-mentioned
      Indenture.

     

    
      	Dated: August
              27, 2007 	 	 
	 	 	 
	 	THE
              BANK OF NEW
              YORK,
as Trustee
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
Name:
	 	Title: 

       

      
        	
              	 	 
	 	-or- 	 
	 	 	 
	 	CITIBANK,
                N.A.,
as Authenticating Agent
	 
 	 
 	 
 
	
              	By:  	
              
	 	
                
Name:
	 	Title: 

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

    This
      Note
      is one of a duly authorized issue of Securities of the Company (the “Notes”),
      issued and to be issued in one or more series under the Indenture, dated as
      of
      March 15, 1987 (as amended and supplemented to date, the “Indenture”), between
      the Company and The Bank of New York, as Trustee (the “Trustee”, which term
      includes any successor trustee under the Indenture), to which Indenture and
      all
      indentures supplemental thereto reference is hereby made for a statement of
      the
      respective rights, limitations of rights, duties and immunities thereunder
      of
      the Company, the Trustee and the holders of the Notes and of the terms upon
      which the Notes are, and are to be, authenticated and delivered. This Note
      is
      one of the series designated on the face hereof, initially limited in aggregate
      principal to $1,000,000,000.

    

    If
      an
      event of default (as defined in the Indenture) with respect to Notes of this
      series shall occur and be continuing, the principal of the Notes of this series
      may be declared due and payable in the manner and with the effect provided
      in
      the Indenture.

    

    The
      Indenture contains provisions for defeasance at any time of the entire
      indebtedness of this Note upon compliance by the Company with certain conditions
      set forth in Sections 11.03 and 11.04 thereof, which provisions apply to this
      Note.

    

    The
      Indenture contains provisions permitting the Company and the Trustee, without
      the consent of the holders of the Securities, to establish, among other things,
      the form and terms of any series of Securities issuable thereunder by one or
      more supplemental indentures, and, with the consent of the holders of not less
      than 66 2/3% in aggregate principal amount of Securities at the time outstanding
      which are affected thereby, to modify the Indenture or any supplemental
      indenture or the rights of the holders of Securities of such series to be
      affected, provided that no such modification will (i) extend the fixed maturity
      of any Securities, reduce the rate or extend the time of payment of interest
      thereon, reduce the principal amount thereof or the premium, if any, thereon,
      reduce the amount of the principal of Original Issue Discount Securities payable
      on any date, change the currency in which Securities are payable, or impair
      the
      right to institute suit for the enforcement of any such payment on or after
      the
      maturity thereof, without the consent of the holder of each Security so
      affected, or (ii) reduce the aforesaid percentage of Securities of any series
      the consent of the holders of which is required for any such modification
      without the consent of the holders of all Securities of such series then
      outstanding, or (iii) modify, without the written consent of the Trustee, the
      rights, duties or immunities of the Trustee.

    

    No
      reference herein to the Indenture and no provision of this Note or of the
      Indenture shall alter or impair the obligation of the Company, which is absolute
      and unconditional, to pay the principal of and interest on this Note at the
      times, place and rate, and in the coin or currency, herein
      prescribed.

    

    This
      Note
      is a Global Security registered in the name of a nominee of the Depository.
      This
      Note is exchangeable for Notes registered in the name of a person other than
      the
      Depository or its nominee only in the limited circumstances hereinafter
      described. Unless and until it is exchanged in whole or in part for definitive
      Notes in certificated form, this Note may not be transferred except as a whole
      by the Depository to a nominee of the Depository or by a nominee of the
      Depository to the Depository or another nominee of the
      Depository.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    The
      Notes
      represented by this Global Security are exchangeable for definitive Notes in
      certificated form of like tenor as such Notes in denominations of $1,000 and
      whole multiples of $1,000 in excess thereof only if (i) the Depository
      notifies the Company that it is unwilling or unable to continue as Depository
      for the Notes or (ii) the Depository ceases to be a clearing agency registered
      under the Securities Exchange Act of 1934, as amended, or (iii) the Company
      in
      its sole discretion decides to allow the Notes to be exchanged for definitive
      Notes in registered form. Any Notes that are exchangeable pursuant to the
      preceding sentence are exchangeable for certificated Notes issuable in
      authorized denominations and registered in such names as the Depository shall
      direct. As provided in the Indenture and subject to certain limitations therein
      set forth, the transfer of definitive Notes in certificated form is registrable
      in the register maintained by the Company in The City of New York for such
      purpose, upon surrender of the definitive Note for registration of transfer
      at
      the office or agency of the registrar, duly endorsed by, or accompanied by
      a
      written instrument of transfer in form satisfactory to the Company and the
      registrar duly executed by, the holder thereof or his attorney duly authorized
      in writing, and thereupon one or more new Notes of this series and of like
      tenor, of authorized denominations and for the same aggregate principal amount,
      will be issued to the designated transferee or transferees. Subject to the
      foregoing, this Note is not exchangeable, except for a Global Security or Global
      Securities of this issue of the same principal amount to be registered in the
      name of the Depository or its nominee.

    

    No
      service charge shall be made for any such registration of transfer or exchange,
      but the Company may require payment of a sum sufficient to cover any tax or
      other governmental charge payable in connection therewith.

    

    Prior
      to
      due presentment of this Note for registration of transfer, the Company, the
      Trustee and any agent of the Company or the Trustee may treat the Person in
      whose name this Note is registered as the owner hereof for all purposes, whether
      or not this Note be overdue, and neither the Company, the Trustee nor any such
      agent shall be affected by notice to the contrary.

    

    The
      Company will pay additional amounts (“Additional Amounts”) to the beneficial
      owner of any Note that is a non-United States person in order to ensure that
      every net payment on such Note will not be less, due to payment of U.S.
      withholding tax, than the amount then due and payable. For this purpose, a
“net
      payment” on a Note means a payment by the Company or a paying agent, including
      payment of principal and interest, after deduction for any present or future
      tax, assessment or other governmental charge of the United States. These
      Additional Amounts will constitute additional interest on the
      Note.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    The
      Company will not be required to pay Additional Amounts, however, in any of
      the
      circumstances described in items (1) through (13) below.

    

    
      	 	
              (1)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld solely by reason of the beneficial
                owner:

            

    

    

    
      	 	 	
              (a)

            	
              having
                a relationship with the United States as a citizen, resident or
                otherwise;

            

    

    
      	 	 	
              (b)

            	
              having
                had such a relationship in the past
                or

            

    

    
      	 	 	
              (c)

            	
              being
                considered as having had such a
                relationship.

            

    

    

    
      	 	
              (2)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld solely by reason of the beneficial
                owner:

            

    

    

    
      	 	
               

            	
              (a)

            	
              being
                treated as present in or engaged in a trade or business in the United
                States;

            

    

    
      	 	
               

            	
              (b)

            	
              being
                treated as having been present in or engaged in a trade or business
                in the
                United States in the past or

            

    

    
      	 	
               

            	
              (c)

            	
              having
                or having had a permanent establishment in the United
                States.

            

    

    

    
      	 	
              (3)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld in whole or in part by reason of the beneficial owner being
                or
                having been any of the following (as such terms are defined in the
                Internal Revenue Code of 1986, as
                amended):

            

    

    

    
      	 	
               

            	
              (a)

            	
              personal
                holding company;

            

    

    
      	 	
               

            	
              (b)

            	
              foreign
                personal holding company;

            

    

    
      	 	
               

            	
              (c)

            	
              foreign
                private foundation or other foreign tax-exempt
                organization;

            

    

    
      	 	
               

            	
              (d)

            	
              passive
                foreign investment company;

            

    

    
      	 	
               

            	
              (e)

            	
              controlled
                foreign corporation or

            

    

    
      	 	
               

            	
              (f)

            	
              corporation
                which has accumulated earnings to avoid United States federal income
                tax.

            

    

    

    
      	 	
              (4)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld solely by reason of the beneficial owner owning or having
                owned,
                actually or constructively, 10 percent or more of the total combined
                voting power of all classes of stock of the Company entitled to vote
                or by
                reason of the beneficial owner being a bank that has invested in
                a Note as
                an extension of credit in the ordinary course of its trade or
                business.

            

    

    

    For
      purposes of items (1) through (4) above, “beneficial owner” means a
      fiduciary, settlor, beneficiary, member or shareholder of the holder if the
      holder is an estate, trust, partnership, limited liability company, corporation
      or other entity, or a person holding a power over an estate or trust
      administered by a fiduciary holder.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    
      	 	
              (5)

            	
              Additional
                Amounts will not be payable to any beneficial owner of a Note that
                is
                a:

            

    

    

    
      	 	
               

            	
              (a)

            	
              fiduciary;

            

    

    
      	 	
               

            	
              (b)

            	
              partnership;

            

    

    
      	 	
               

            	
              (c)

            	
              limited
                liability company or

            

    

    
      	 	
               

            	
              (d)

            	
              other
                fiscally transparent entity

            

    

    

    
      	 	 	
              or
                that is not the sole beneficial owner of the Note, or any portion
                of the
                Note. However, this exception to the obligation to pay Additional
                Amounts
                will only apply to the extent that a beneficiary or settlor in relation
                to
                the fiduciary, or a beneficial owner or member of the partnership,
                limited
                liability company or other fiscally transparent entity, would not
                have
                been entitled to the payment of an Additional Amount had the beneficiary,
                settlor, beneficial owner or member received directly its beneficial
                or
                distributive share of the payment.

            

    

    

    
      	 	
              (6)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld solely by reason of the failure of the beneficial owner
                or any
                other person to comply with applicable certification, identification,
                documentation or other information reporting requirements. This exception
                to the obligation to pay Additional Amounts will only apply if compliance
                with such reporting requirements is required by statute or regulation
                of
                the United States or by an applicable income tax treaty to which
                the
                United States is a party as a precondition to exemption from such
                tax,
                assessment or other governmental
                charge.

            

    

    

    
      	 	
              (7)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is collected
                or
                imposed by any method other than by withholding from a payment on
                a Note
                by the Company or a paying agent.

            

    

    

    
      	 	
              (8)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld by reason of a change in law, regulation, or administrative
                or
                judicial interpretation that becomes effective more than 15 days
                after the
                payment becomes due or is duly provided for, whichever occurs
                later.

            

    

    

    
      	 	
              (9)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is imposed
                or
                withheld by reason of the presentation by the beneficial owner of
                a Note
                for payment more than 30 days after the date on which such payment
                becomes due or is duly provided for, whichever occurs
                later.

            

    

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    
      	 	
              (10)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any:

            

    

    

    
      	 	
               

            	
              (a)

            	
              estate
                tax;

            

    

    
      	 	
               

            	
              (b)

            	
              inheritance
                tax;

            

    

    
      	 	
               

            	
              (c)

            	
              gift
                tax;

            

    

    
      	 	
               

            	
              (d)

            	
              sales
                tax;

            

    

    
      	 	
               

            	
              (e)

            	
              excise
                tax;

            

    

    
      	 	
               

            	
              (f)

            	
              transfer
                tax;

            

    

    
      	 	
               

            	
              (g)

            	
              wealth
                tax;

            

    

    
      	 	
               

            	
              (h)

            	
              personal
                property tax or

            

    

    
      	 	
               

            	
              (i)

            	
              any
                similar tax, assessment, withholding, deduction or other governmental
                charge.

            

    

    

    
      	 	
              (11)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment, or other governmental charge required to
                be
                withheld by any paying agent from a payment of principal or interest
                on a
                Note if such payment can be made without such withholding by any
                other
                paying agent.

            

    

    

    
      	 	
              (12)

            	
              Additional
                amounts will not be payable if a payment on a Note is reduced as
                a result
                of any tax, assessment or other governmental charge that is required
                to be
                made pursuant to any European Union directive on the taxation of
                savings
                income or any law implementing or complying with, or introduced to
                conform
                to, any such directive.

            

    

    

    
      	 	
              (13)

            	
              Additional
                Amounts will not be payable if a payment on a Note is reduced as
                a result
                of any combination of items (1) through (12)
                above.

            

    

    

    Except
      as
      specifically provided herein, the Company will not be required to make any
      payment of any tax, assessment or other governmental charge imposed by any
      government or a political subdivision or taxing authority of such
      government.

    

    As
      used
      in this Note, “United States person” means:

    

    
      	 	
              (a)

            	
              any
                individual who is a citizen or resident of the United
                States;

            

    

    
      	 	
              (b)

            	
              any
                corporation, partnership or other entity created or organized in
                or under
                the laws of the United States;

            

    

    
      	 	
              (c)

            	
              any
                estate if the income of such estate falls within the federal income
                tax
                jurisdiction of the United States regardless of the source of such
                income
                and

            

    

    
      	 	
              (d)

            	
              any
                trust if a United States court is able to exercise primary supervision
                over its administration and one or more United States persons have
                the
                authority to control all of the substantial decisions of the
                trust.

            

    

    

    Additionally,
      “non-United States person” means a person who is not a United States person, and
“United States” means the states of the United States of America and the
      District of Columbia, but excluding its territories and its
      possessions.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    Except
      as
      provided below, the Notes may not be redeemed prior to maturity.

     

    (1) The
      Company may, at its option, redeem the Notes if:

    

    
      	 	 	
              (a)

            	
              the
                Company becomes or will become obligated to pay Additional Amounts
                as
                described above;

            

    

    
      	 	 	
              (b)

            	
              the
                obligation to pay Additional Amounts arises as a result of any change
                in
                the laws, regulations or rulings of the United States, or an official
                position regarding the application or interpretation of such laws,
                regulations or rulings, which change is announced or becomes effective
                on
                or after August 20, 2007 and

            

    

    
      	 	 	
              (c)

            	
              the
                Company determines, in its business judgment, that the obligation
                to pay
                such Additional Amounts cannot be avoided by the use of reasonable
                measures available to it, other than substituting the obligor under
                the
                Notes or taking any action that would entail a material cost to the
                Company.

            

    

    

    
      	 	
              (2)

            	
              The
                Company may also redeem the Notes, at its option,
                if:

            

    

    

    
      	 	 	
              (a)

            	
              any
                act is taken by a taxing authority of the United States on or after
                August
                20, 2007, whether or not such act is taken in relation to the Company
                or
                any affiliate, that results in a substantial probability that the
                Company
                will or may be required to pay Additional Amounts as described
                above;

            

    

    
      	 	 	
              (b)

            	
              the
                Company determines, in its business judgment, that the obligation
                to pay
                such Additional Amounts cannot be avoided by the use of reasonable
                measures available to it, other than substituting the obligor under
                the
                Notes or taking any action that would entail a material cost to the
                Company and

            

    

    
      	 	 	
              (c)

            	
              the
                Company receives an opinion of independent counsel to the effect
                that an
                act taken by a taxing authority of the United States results in a
                substantial probability that the Company will or may be required
                to pay
                the Additional Amounts described under above, and delivers to the
                Trustee
                a certificate, signed by a duly authorized officer, stating that
                based on
                such opinion the Company is entitled to redeem the Notes pursuant
                to their
                terms.

            

    

    

    Any
      redemption of the Notes as set forth in clauses (1) or (2) above shall be in
      whole, and not in part, and will be made at a redemption price equal to 100%
      of
      the principal amount of the Notes Outstanding plus accrued interest thereon
      to
      the date of redemption. Holders shall be given not less than 30 days nor more
      than 60 days prior notice by the Trustee of the date fixed for such
      redemption.

    

    All
      terms
      used in this Note which are defined in the Indenture shall have the meanings
      assigned to them in the Indenture. The Notes are governed by the laws of the
      State of New York.

    
      
         

      

      
        10SECURITIES
      PURCHASE AGREEMENT

    

    SECURITIES
      PURCHASE AGREEMENT (this "AGREEMENT," “PURCHASE AGREEMENT,” or “SECURITIES
      PURCHASE AGREEMENT”), dated as of June 30,
      2007,
      by and among ALTERNATIVE
      CONSTRUCTION COMPANY, INC.,
      a
      Florida corporation, ("COMPANY"), and each buyer listed
      on
      the Schedule of Buyers attached hereto (each,
      including its successors and assigns, a “BUYER” and collectively the
“BUYERS”).

    

    WHEREAS:
      

    

    A.     
      The Company and the Buyers are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by Rule 506
      under Regulation D ("REGULATION D") as promulgated by the United States
      Securities and Exchange Commission (the "SEC") under the Securities Act of
      1933,
      as amended (the "1933 ACT" or the “SECURITIES ACT”);

    

    B.      
      Buyers desire to purchase and the Company desires to issue and sell in a private
      offering, upon the terms and conditions set forth in this Agreement, (i) senior
      secured convertible Debentures (as defined below) of the Company and (ii)
      Warrants (as defined below) in the form described in this Agreement, to purchase
      shares of common stock, no
      par
      value per share, of the Company (“COMMON STOCK”). The minimum aggregate
      Subscription Amount of this offering of the Debentures to all of the Buyers
      shall be Four Million U.S. Dollars (U.S. $4,000,000)(“the MINIMUM AMOUNT”) and
      the maximum aggregate Subscription Amount of this offering of the Debentures
      to
      this Buyer and other Buyers shall be Four Million U.S. Dollars (U.S.
      $4,000,000)(the “MAXIMUM AMOUNT”)(collectively, the “OFFERING”); 

     

    C.     
      The
      terms
      of the Debentures, including the terms on which the Debentures may be converted
      into Common Stock, are set forth in Debenture, in the form attached hereto
      as
Exhibit
      A;

     

    D.     
      Contemporaneously with the execution and delivery of this Agreement, the parties
      hereto are executing and delivering a Registration Rights Agreement, in the
      form
      attached hereto as Exhibit
      B-1
      (the
      "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed
      to
      provide certain registration rights under the 1933 Act and the rules and
      regulations promulgated thereunder, and applicable state securities laws, and
      an
      Escrow Agreement by and among the Company, the Buyers and the escrow agent
      named
      therein (the “Escrow Agent”), dated as of the date hereof, substantially in the
      form of EXHIBIT
      B-2
      attached
      hereto (the "Escrow Agreement"). 

    

    NOW
      THEREFORE,
      the
      Company and each Buyer, severally and not jointly, hereby agree as
      follows:

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    1.          
      PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

    

    (a)     
      CERTAIN DEFINITIONS. This
      Securities Purchase Agreement, the Debenture, the Registration Rights Agreement,
      the Escrow Agreement, the Security Agreement, the Subsidiary Guarantee, the
      Warrants, and any other agreements delivered together with this Agreement or
      in
      connection herewith shall be referred to herein as the “TRANSACTION DOCUMENTS.”
The Company and the each Buyer (severally and not jointly) mutually agree to
      the
      terms of each of the Transaction Documents. For purposes hereof:

    

    "APPROVED
      STOCK PLAN" means any employee benefit plan which has been duly
      adopted by a majority of the non-employee members of the Board of Directors
      of
      the Company or a majority of the members of a committee of non-employee
      directors established for such purpose,
      pursuant to which the Company's securities may be issued to any employee,
      consultant, officer or director for services provided to the
      Company.

    

    “COMMON
      STOCK EQUIVALENTS” means any securities of the Company or the Subsidiaries which
      would entitle the holder thereof to acquire, directly or indirectly, 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.

    

    “CONVERTIBLE
      SECURITIES” shall have the meaning ascribed to it in the Debenture.

    

    “DEBENTURES”
      shall mean the Initial Debenture and the Call Debenture, if any.

    

    "ELIGIBLE
      MARKET" means the over the counter Bulletin Board (“OTC-BB”), the New York Stock
      Exchange, Inc., the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ
      Global Select Market or the American Stock Exchange.

    

    “EXEMPT
      ISSUANCE” means the issuance of (a) any
      Common Stock issued or issuable in connection with any Approved Stock Plan
      up to
      a maximum of five percent (5%) of the outstanding Common Stock, in the
      aggregate,
      (b)
      securities upon the exercise, exchange of, conversion or redemption of, or
      payment of interest or liquidated or similar damages on, any Securities issued
      hereunder, (c) other securities exercisable, exchangeable for, convertible
      into,
      or redeemable for 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 directly or indirectly effectively increase the number
      of such securities or to decrease the exercise, exchange or conversion price
      of
      such securities (and including any issuances of securities pursuant to the
      anti-dilution provisions of any such securities), and (d)
      any
      Common Stock issued or issuable in connection with any acquisition by the
      Company, whether through an acquisition of stock or a merger of any business,
      assets or technologies the primary purpose of which is not to raise equity
      capital.
      

    

    “OPTIONS”
      shall have the meaning ascribed to it in the Debenture.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    “PAYMENT
      SHARES” shall mean (i) Default Shares (as defined in the Debenture), (ii)
      Interest Payment Shares (as defined in the Debenture) and (iii) shares issuable
      upon conversion of Failure Payments and other Required Cash Payments (as each
      is
      defined in the Debenture) into Common Stock of the Company. The Payment Shares
      shall be treated as Common Stock issuable upon conversion of the Debentures
      for
      all purposes hereof and thereof and shall be subject to all of the limitations
      and afforded all of the rights of the other shares of Common Stock issuable
      hereunder or thereunder, including without limitation, the right to be included
      in the Registration Statement (as defined in the Registration Rights Agreement)
      filed pursuant to the Registration Rights Agreement. 

    

    “PERMITTED
      LIENS” shall mean liens,: (i) liens on equipment purchased in the ordinary
      course of business, not to exceed $250,000
      in the
      aggregate (ii) liens subordinate to those created by this Agreement as long
      as
      the lienholder enters into a subordination agreement acceptable to the Buyers’
in their reasonable discretion, (iii) landlords', carriers', warehousemen's,
      mechanics' and other similar Liens arising by operation of law in the ordinary
      course of Borrower's business; provided, however, that all such Liens shall
      be
      discharged or bonded off within sixty (60) days from the filing thereof; (iv)
      Liens arising out of pledge or deposits under worker's compensation,
      unemployment insurance, old age pension, social security, retirement benefits
      or
      other similar legislation; (v) Liens for taxes (excluding any Lien imposed
      pursuant to any provision of ERISA) not yet due or which are being contested
      in
      good faith by appropriate proceedings and Borrower maintains appropriate
      reserves in respect thereto provided that in Lender's judgment such Lien does
      not adversely affect Lender's rights or the priority of Lender's Lien in the
      Collateral; and (vi) easements, rights of way, restrictions and other similar
      charges or Liens relating to real property and not interfering in a material
      way
      with the ordinary conduct of Borrower's business.

    

    “PERSON”
      shall mean an individual, a limited liability company, a partnership, a joint
      venture, an exempted company, a corporation, a trust, an unincorporated
      organization and a government or any department or agency thereof.

    

    “REQUIRED
      HOLDERS” shall have the meaning ascribed to it in the Debentures.

    

    “SECURITY
      AGREEMENT” means the Security Agreement, dated the date hereof, among the
      Company, the “Guarantors” (as defined therein), and the Purchasers, in the form
      of Exhibit
      C-1
      attached
      hereto and “SUBSIDIARY GUARANTEE” means the Subsidiary Guarantee, dated the date
      hereof, among the Company, the “Guarantors” (as defined therein), and the
      Purchasers, in the form of Exhibit
      C-2
      attached
      hereto.

    

    “SECURITY
      DOCUMENTS” shall mean the Security Agreement, the form of Subsidiary Guarantee
      and any other documents and filing required thereunder in order to grant the
      Buyers a first priority security interest in the assets of the Company and
      the
      Subsidiaries as provided in the Security Agreement, including but not limited
      to
      all UCC-1 filing receipts and documentation evidencing filing of liens with
      the
      United States Patent and Trademark Office.

    

    “WARRANTS”
      shall mean the Initial Warrants and the Call Warrants. 

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    “WARRANT
      AMOUNT” shall mean the Initial Warrant Amount or the Call Warrant Amount, as
      applicable.

    

    (b)
      PURCHASE OF INITIAL DEBENTURES AND INITIAL WARRANTS.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      on
      the Closing Date (as defined below), the Company shall issue and sell to each
      Buyer and each Buyer, severally and not jointly, agrees to purchase from the
      Company debentures (the “INITIAL DEBENTURES”) having an aggregate Purchase Price
      equal to the Subscription Amount (as defined in Section 10) and an accompanying
      number of warrants (the “INITIAL WARRANTS”) (as described below) to purchase a
      number of shares equal to the Initial Warrant Amount (as defined below).

    

    (i)
      Form
      of Initial Debenture.
      The
      Initial Debenture shall be in the form annexed hereto as Exhibit
      A.

    

    (ii)
      Form
      Of Payment.
      The
      aggregate purchase price for the Initial Debenture and the Initial Warrants
      to
      be purchased by each Buyer at the Closing shall be the amount set forth opposite
      such Buyer's name in column (5) of the Schedule of Buyers annexed hereto. Each
      Buyer shall pay $0.92 for each $1.00 of Original Principal Amount (as defined
      below) of Initial Debentures and related Initial Warrants to be purchased by
      such Buyer at the Closing (the "PURCHASE PRICE"), representing an eight percent
      (8%) original issue discount. On or before the Closing Date (as defined below),
      (i) each Buyer shall pay the Purchase Price for the Initial Debenture and the
      Initial Warrants to be issued and sold to it at the Closing (as defined below)
      by wire transfer of immediately available funds to the an escrow account
      designated by the Escrow Agent, in accordance with the wiring instructions
      set
      forth in the Escrow Agreement or otherwise specified in writing by the Escrow
      Agent, against delivery of duly executed certificates representing the Debenture
      (“DEBENTURE CERTIFICATE”) having an aggregate initial principal amount (the
“ORIGINAL PRINCIPAL AMOUNT”) equal to the Purchase Price divided by .92, and the
      number of Initial Warrants equal to the Initial Warrant Amount, and (ii) the
      Company shall deliver such Debenture Certificates and Warrants duly executed
      on
      behalf of the Company, to such Buyer, against delivery of such Purchase Price.
      

    

    (iii)
      Closing
      Date.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      the
      "Closing" with respect to a Buyer shall occur when subscriber funds representing
      the aggregate Purchase Price of the Initial Debentures being purchased by such
      Buyer are transmitted by wire transfer of immediately available funds by each
      Buyer to the Company, assuming that the Transaction Documents are signed by
      both
      parties prior to or within three (3) business days following such transmission.
      The date of the Closing shall be referred to herein as the “CLOSING DATE.”
Unless otherwise mutually agreed by the parties, the last Closing hereunder
      shall occur not later than June 30, 2007. The Closing contemplated by this
      Agreement shall occur on the applicable Closing Date at the offices of the
      Company, or at such other location as may be agreed to by the parties.

    

    (iv)
      Initial Warrants.
      Each
      Buyer’s Debenture shall be accompanied by a number of warrants (“INITIAL
      WARRANTS”) equal to the Original Principal Amount of the Initial Debenture being
      purchased by such Buyer, divided by the Initial Conversion Price (as defined
      in
      the Debenture), multiplied by 150% (the “WARRANT AMOUNT”). The Warrants shall
      have a seven (7) year term, and shall be in the form of the Warrant annexed
      hereto as Exhibit
      D,
      except
      that the “Initial Exercise Price,” as defined therein, shall equal the Initial
      Conversion Price of the Debenture (the “INITIAL WARRANT EXERCISE PRICE”),
      subject to adjustment as provided therein. In the event that the Company effects
      a Prepayment Redemption (as defined in the Debenture), the Company shall issue
      an additional number of warrants (“PREPAYMENT REDEMPTION WARRANTS”) equal to the
      Original Principal Amount of the Debenture being purchased by such Buyer,
      divided by the Conversion Price (as defined in the Debenture) in effect at
      the
      time of such issuance, multiplied by 50% (the “PREPAYMENT WARRANT AMOUNT”). The
      Prepayment Redemption Warrants shall be in the form of the Warrant annexed
      hereto as Exhibit
      D,
      except
      that the “Initial Exercise Price,” as defined therein, shall equal the
      Conversion Price of the Debenture in effect at the time of issuance of such
      Prepayment Redemption Warrants,
      subject
      to adjustment as provided therein. The Warrants and the Prepayment Redemption
      Warrants shall contain Exercise Price adjustment provisions that are consistent
      with the adjustment provisions afforded to the Conversion Price of the Debenture
      in the Debenture and shall have a five (5) year term.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    "MARKET
      PRICE," for any security as of any date, shall have the meaning ascribed to
      it
      in the applicable security.

    

    (v)
      Closing
      Deliveries.
      On the
      Closing Date (or the Call Closing Date, with respect to a Call Closing), the
      Company will deliver or cause to be delivered to the Escrow Agent, on behalf
      of
      each Buyer: 

    

    (A)
      the
      items required to be delivered to Buyer pursuant to Section 8, duly executed
      by
      the Company where so required,

    

    (B)
      a
      certificate ("CLOSING CERTIFICATE") signed by its chief executive officer or
      chief financial officer (1) representing the truth and accuracy of all the
      representations and warranties made by the Company contained in this Agreement,
      as of the applicable Closing Date, as if such representations and warranties
      were made and given on all such dates, (2) adopting the covenants and conditions
      set forth in this Agreement in relation to the applicable Debenture and
      Warrants, (3) representing the timely compliance by the Company with the
      Company's registration requirements set forth in the Registration Rights
      Agreement, and (4) certifying that an Event of Default has not
      occurred,

    

    (C)
      a
      legal opinion in substantially the form of Exhibit
      E
      attached
      hereto in relation to the Company, the applicable Debenture, the applicable
      Warrant and the Transaction Documents ("CLOSING LEGAL OPINION"), 

    

    (D)
      a
      Debenture with a principal amount equal to such Buyer’s Original Principal
      Amount, registered in the name of such Buyer,

    

    (E)
      a
      Warrant registered in the name of such Buyer to purchase up to a number of
      shares of Common Stock equal to the Warrant Amount (as defined in Section
      1(b)(iv)) with an exercise price equal to the Initial Warrant Exercise Price
      (as
      defined in Section 1(b)(iv)) subject to adjustment therein,

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

    (F)
      Limited Standstill Agreements, in the form of Exhibit
      F
      hereto,
      duly executed by each of the Designated Insiders (as defined in Section
      4(r));

    

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

    

    (H) The
      Company shall have delivered to such Buyer a true copy of certificate evidencing
      the Company's qualification as a foreign corporation and good standing issued
      by
      the Secretary of State (or comparable office) of each jurisdiction in which
      the
      Company conducts business, as of a date within five (5) days of the Closing
      Date.

    

    (I) The
      Company shall have delivered to such Buyer a certified copy of the Articles
      of
      Incorporation as certified by the Secretary of State of the State of Florida
      as
      of a date that is five (5) days prior to the Closing Date.

    

    (J) A
      fully
      executed Security Agreement and a fully executed Subsidiary Guarantee, in the
      form of Exhibit
      C-1 and C-2
      hereto,
      respectively, fully and duly executed by each of the Company, the “guarantors”
(as defined in each of such agreements, respectively), and the
      Buyers.

    

    

    On
      the
      Closing Date, each Buyer shall deliver or cause to be delivered to the Escrow
      Agent, on behalf of the Company, each of the following:

    

    (A)
      this
      Securities Purchase Agreement and the Registration Rights Agreement duly
      executed by such Buyer,

    

    (B)
      such
      Buyer’s Subscription Amount by wire transfer to the account as specified in
      writing by the Company (subject to offsets for any expenses to which such Buyer
      is entitled).

    

    

    (c)
      PURCHASE AND SALE OF CALL DEBENTURES AND CALL WARRANTS.

    

    (i)
       Buyer’s
      Option To Call Additional Debentures From Company.
      The
      Buyer, at its option, anytime during the twelve (12) month period after the
      initial effectiveness of the Registration Statement (as defined in the
      Registration Rights Agreement) filed pursuant to the Registration Rights
      Agreement (the “CALL PERIOD”), upon at least three (3) Business Days advance
      written notice to the Company (a “DEBENTURE CALL NOTICE”), may elect to purchase
      an additional debenture (a “CALL DEBENTURE”) in any amount up to the buyer’s
      original Subscription Amount, for a purchase price equal to the Purchase Price
      (as defined in Section 1(b)(ii) above), representing an eight percent (8%)
      original issue discount. 

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    (ii)
      Form
      Of Call Debentures.
      Each
      Call Debenture shall be in the form of the Debenture annexed hereto as EXHIBIT
      “A,” (including but not limited to the same “Initial Conversion Price” as the
      Initial Debenture), except the maturity date of each such Call Debenture shall
      be two (2) years after the applicable Call Closing Date (as defined
      below):

    

    (iii)
      Call
      Closing Date.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement
      on
      the applicable Call Closing Date, and at the Buyer’s option, Buyer shall have
      the right to purchase from the Company and the Company shall have the obligation
      to sell to Buyer a Call Debenture and accompanying Call Warrants. A "CALL
      CLOSING" shall occur no later than the later of (x) the Business Day immediately
      following the date when Buyer transmits immediately available funds representing
      the aggregate Purchase Price of the Call Debenture being purchased to the
      Company by wire transfer, or (y) the date that is three (3) Business Days after
      the Company’s receipt of a Debenture Call Notice. The date of the Closing shall
      be referred to herein as the “CALL CLOSING DATE.” The Initial Conversion Price
      of each Call Debenture and the Initial Exercise Price of each Call Warrant
      shall
      be identical to the Initial Conversion Price of the Initial Debenture and the
      Initial Exercise Price of the Initial Warrant, respectively, but shall equitably
      adjusted as necessary to offset the effect of stock splits, stock dividends,
      pro
      rata distributions of property or equity interests to the Company's shareholders
      after the Initial Closing Date. The Call Closing contemplated by this Agreement
      shall occur on the applicable Closing Date at the offices of the Company, or
      at
      such other location as may be agreed to by the parties. 

    

    (iv)
      Call
      Warrants. 

    

    Each
      Buyer’s Call Debenture (if any) shall be accompanied by a number of additional
      Warrants (the “CALL WARRANTS”) equal to 150% of the Original Principal Amount of
      the Call Debenture being purchased by the Buyer, divided by the Initial
      Conversion Price (as defined in the Debenture) (the “CALL WARRANT AMOUNT”). The
      Call Warrants shall be in the form of the Initial Warrant annexed hereto as
      EXHIBIT “D,” (including but not limited to the same Initial Exercise Price and
      term as the Initial Warrant), except that the Date of Issuance of any Call
      Warrants shall be the date on which they are actually issued.

    

    The
      Initial Warrants and the Call Warrants shall contain Exercise Price adjustment
      provisions that are consistent with the adjustment provisions afforded to the
      Conversion Price of the Debenture in the Debenture and shall have a five (5)
      year term.

    
 

    
 

     2.          
      BUYER’S REPRESENTATIONS AND WARRANTIES.
      Each
      Buyer represents and warrants to the Company solely as to such Buyer
      that:

    

    (a)      
      INVESTMENT PURPOSE.
      As of
      the date hereof, the Buyer is purchasing the Debenture and the shares of Common
      Stock issuable upon conversion of the Debenture or otherwise pursuant to the
      Debenture and the other Transaction Documents (including, without limitation,
      the Payment Shares) (such shares of Common Stock being collectively referred
      to
      herein as the “CONVERSION SHARES") and the Warrants and the shares of Common
      Stock issuable upon exercise thereof (the "WARRANT SHARES" and, collectively
      with the Debenture, Warrants and Conversion Shares, the "SECURITIES") for its
      own account and not with a present view towards the public sale or distribution
      thereof, except pursuant to sales registered or exempted from registration
      under
      the 1933 Act; PROVIDED, HOWEVER, that by making the representations herein,
      the
      Buyer does not agree to hold any of the Securities for any minimum or other
      specific term and reserves the right to dispose of the Securities at any time
      in
      accordance with or pursuant to a registration statement or an exemption under
      the 1933 Act and applicable state securities laws. 

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

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

    

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

    

    (d)      
      INFORMATION.
      The
      Buyer and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and materials relating
      to the offer and sale of the Securities which have been requested by the Buyer
      or its advisors. The Buyer and its advisors, if any, have been afforded the
      opportunity to ask questions of the Company. Neither such inquiries nor any
      other due diligence investigation conducted by Buyer or any of its advisors
      or
      representatives shall modify, amend or affect Buyer's right to rely on the
      Company's representations and warranties contained in Section 3 below. The
      Buyer
      understands that its investment in the Securities involves a significant degree
      of risk..

    

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

    

    (f)      
      TRANSFER OR RE-SALE.
      The
      Buyer understands that (i) except as provided in the Registration Rights
      Agreement, the sale or re-sale of the Securities has not been and is not being
      registered under the 1933 Act or any applicable state securities laws, and
      the
      Securities may not be transferred or resold unless (a) the Securities are sold
      pursuant to an effective registration statement under the 1933 Act, (b) the
      Buyer shall have delivered to the Company an opinion of counsel (which opinion
      shall be in form, substance and scope reasonably satisfactory to counsel to
      the
      Company) to the effect that the Securities to be sold or transferred may be
      sold
      or transferred pursuant to an exemption from such registration, (c) the
      Securities are sold or transferred to an "affiliate" (as defined in Rule 144
      promulgated under the 1933 Act (or a successor rule) ("RULE 144") of the Buyer
      who agrees to sell or otherwise transfer the Securities only in accordance
      with
      this Section 2(f) and who is an Accredited Investor, or (d) the Securities
      are
      sold pursuant to Rule 144 or Rule 144(k); and (ii) any sale of such Securities
      made in reliance on Rule 144 or Rule 144(k) may be made only in accordance
      with
      the terms of said Rule. Notwithstanding the foregoing or anything else contained
      herein to the contrary, the Securities may be pledged as collateral in
      connection with a BONA FIDE margin account or other lending
      arrangement.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (g)      
      ORGANIZATION; AUTHORIZATION; ENFORCEMENT.
      Buyer is
      a duly organized, validly existing and in good standing under the laws of the
      jurisdiction in which it is organized. Buyer has all requisite power and
      authority to enter into and perform this Agreement and the Registration Rights
      Agreement and to consummate the transactions contemplated hereby and thereby
      in
      accordance with the terms hereof and thereof. The execution and delivery of
      this
      Agreement and the Registration Rights Agreement have been duly and validly
      authorized and no further consent or authorization of Buyer, its manager or
      members is required. This Agreement has been duly executed and delivered on
      behalf of the Buyer, and this Agreement constitutes, and upon execution and
      delivery by the Buyer of the Registration Rights Agreement, such agreement
      will
      constitute, legal, valid and binding agreements of the Buyer enforceable in
      accordance with their 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..

    

    (h)      
      RESIDENCY. The
      Buyer’s residency is as indicated on its signature page hereto. 

    

    (i)
      KNOWLEDGE AND EXPERIENCE.
      Buyer
      has such knowledge and experience in financial and business matters that it
      is
      capable of evaluating the merits and risks of the investment in the
      Securities.

    

    (j)      
      SHORT SALES PRIOR TO THE DATE HEREOF. Buyer
      and
      its Affiliates have not from the time that such Buyer first received a term
      sheet (written or oral) from the Company or any other person setting forth
      the
      material terms of the transactions contemplated hereunder until the date hereof
      entered into or effected, or attempted to induce any third party to enter into
      or effect, any short sales of the Common Stock, or any hedging transaction
      which
      establishes a net short position with respect to the Common Stock. 

    

    (k)      
      NO GENERAL SOLICITATION.
      Buyer
      has not been the subject of general solicitation with respect to this
      Offering.

    

    (l)       INDEPENDENT
      INVESTMENT DECISION.
       Such Buyer has independently evaluated the merits of its decision to
      purchase the Securities pursuant to the Transaction Documents, and such Buyer
      confirms that it has not relied on the advice of any other Buyer's business
      and/or legal counsel in making such decision.  

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    3.        
        REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
      The
      Company represents and warrants to each Buyer that, except as set forth on
      the
      Company’s disclosure schedules or any update thereto prior to the Closing Date
      (so long as such schedules do not contain any material adverse
      change):

    

    (a)                
       ORGANIZATION AND QUALIFICATION.
      The
      Company and each of its Subsidiaries (as defined below), if any, is a
      corporation duly organized, validly existing and in good standing under the
      laws
      of the jurisdiction in which it is incorporated, with full power and authority
      (corporate and other) to own, lease, use and operate its properties and to
      carry
      on its business as and where now owned, leased, used, operated and conducted.
      SCHEDULE 3(A) sets forth a list of all of the Subsidiaries of the Company and
      the jurisdiction in which each is incorporated. The Company and each of its
      Subsidiaries is duly qualified as a foreign corporation to do business and
      is in
      good standing in every jurisdiction in which its ownership or use of property
      or
      the nature of the business conducted by it makes such qualification necessary
      except where the failure to be so qualified or in good standing would not have
      a
      Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
      effect on (i) the Securities, (ii) the business, operations, assets, financial
      condition or prospects of the Company and its Subsidiaries, if any, taken as
      a
      whole, (iii) on the transactions contemplated hereby or by the agreements or
      instruments to be entered into in connection herewith or (iv) the authority
      or
      the ability of the Company to perform its obligations under this Agreement,
      the
      Registration Rights Agreement, the Debenture or the Warrants. "SUBSIDIARIES"
      means any corporation or other organization, whether incorporated or
      unincorporated, in which the Company owns, directly or indirectly, any equity
      or
      other ownership interest.

    

    (b)                
       AUTHORIZATION; ENFORCEMENT.
      (i) The
      Company has all requisite corporate power and authority to enter into and
      perform this Agreement, the Registration Rights Agreement, the Debenture and
      the
      Warrants and to consummate the transactions contemplated hereby and thereby
      and
      to issue the Securities, in accordance with the terms hereof and thereof, (ii)
      except as otherwise set forth in SCHEDULE 3(B), the execution and delivery
      of
      this Agreement, the Registration Rights Agreement, the Debenture and the
      Warrants by the Company and the consummation by it of the transactions
      contemplated hereby and thereby (including without limitation, the issuance
      of
      the Debenture and the Warrants and the issuance and reservation for issuance
      of
      the Conversion Shares issuable upon conversion of or otherwise pursuant to
      the
      Debenture and the Warrant Shares issuable upon exercise of or otherwise pursuant
      to the Warrants) have been duly authorized by the Company's Board of Directors
      and no further consent or authorization of the Company, its Board of Directors,
      or its stockholders is required, (iii) this Agreement has been duly executed
      and
      delivered by the Company, and (iv) this Agreement constitutes, and upon
      execution and delivery by the Company of the Registration Rights Agreement,
      the
      Debenture and the Warrants, each of such agreements and instruments will
      constitute, a legal, valid and binding obligation of the Company enforceable
      against the Company in accordance with its terms, except (i) as limited by
      general equitable principles and applicable bankruptcy, insolvency,
      reorganization, moratorium and other laws of general application affecting
      enforcement of creditors’ rights generally, (ii) as limited by laws relating to
      the availability of specific performance, injunctive relief or other equitable
      remedies and (iii) insofar as indemnification and contribution provisions may
      be
      limited by applicable law. 

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (c)     
               
CAPITALIZATION.  As
      of the
      date hereof, the authorized capital stock of the Company is as set forth on
      SCHEDULE 3(C-1). The authorized capital stock of the Company consists of
100,000
      shares
      of Common Stock, of which approximately 6,996,047
      shares
      are outstanding as of the date hereof and 50,000,000
      shares
      of preferred stock, par value $.0001
      per
      share, of which 1,877,358
      are
      outstanding as of the date hereof. There are no outstanding securities which
      are
      convertible into shares of Common Stock, whether such conversion is currently
      exercisable or exercisable only upon some future date or the occurrence of
      some
      event in the future, except as disclosed on SCHEDULE (C-1). If any such
      securities are listed on the SCHEDULE (C-1), the number or amount of each such
      outstanding convertible security and the conversion terms are set forth in
      said
      SCHEDULE (C-1). All of such outstanding shares of capital stock set forth in
      SCHEDULE 3(C-1) are, or upon issuance will be, duly authorized, validly issued,
      fully paid and nonassessable. 

    

    No
      shares
      of capital stock of the Company are subject to preemptive rights or any other
      similar rights of the stockholders of the Company or any liens or encumbrances
      imposed through the actions or failure to act of the Company. Except as
      disclosed in SCHEDULE 3(C-2), as of the effective date of this Agreement, (i)
      there are no outstanding options, warrants, scrip, rights to subscribe for,
      puts, calls, rights of first refusal, agreements, understandings, claims or
      other commitments or rights of any character whatsoever relating to, or
      securities or rights convertible into or exchangeable for any shares of capital
      stock of the Company or any of its Subsidiaries, or arrangements by which the
      Company or any of its Subsidiaries is or may become bound to issue additional
      shares of capital stock of the Company or any of its Subsidiaries, (ii) there
      are no agreements or arrangements under which the Company or any of its
      Subsidiaries is obligated to register the sale of any of its or their securities
      under the 1933 Act (except the Registration Rights Agreement) and (iii) there
      are no anti-dilution or price adjustment provisions contained in any security
      issued by the Company (or in any agreement providing rights to security holders)
      that will be triggered by the issuance of the Debenture, the Warrants, the
      Conversion Shares or Warrant Shares. The Company has furnished to each Buyer
      true and correct copies of the Company's Articles of Incorporation as in effect
      on the date hereof ("ARTICLES OF INCORPORATION"), the Company's By-laws, as
      in
      effect on the date hereof (the "BY-LAWS"), and the terms of all securities
      convertible into or exercisable for Common Stock of the Company and the material
      rights of the holders thereof in respect thereto. In the event that the date
      of
      execution of this Agreement is not the Closing Date, the Company shall provide
      each Buyer with a written update of this representation signed by the Company's
      President and Chief Executive or Chief Financial Officer on behalf of the
      Company as of the Closing Date. 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 Buyers) and will not result in a right of any holder
      of
      Company securities to adjust the exercise, conversion, exchange or reset price
      under any of such 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.

     

    (d)               
      ISSUANCE OF SHARES.
      Upon
      issuance upon conversion of the Debenture and upon exercise of the Warrants
      in
      accordance with their respective terms, and receipt of the exercise price
      therefor, the Conversion Shares and Warrant Shares, along with any Payment
      Shares or any other shares issued pursuant to the terms of the Transaction
      Documents, will be validly issued, fully paid and non-assessable, and free
      from
      all taxes, liens, claims and encumbrances and shall not be subject to preemptive
      rights or other similar rights of stockholders of the Company and will not
      impose personal liability upon the holder thereof. 

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (e)              
      ACKNOWLEDGMENT OF DILUTION.
      The
      Company understands and acknowledges the potentially dilutive effect to the
      Common Stock upon the issuance of the Conversion Shares upon conversion of
      or
      otherwise pursuant to the Debentures or upon issuance of the Warrant Shares
      upon
      exercise of or otherwise pursuant to the Warrants. The Company's directors
      and
      executive officers have studied and fully understand the nature of the
      Securities being sold hereunder. The Company further acknowledges that its
      obligation to issue Conversion Shares upon conversion of or otherwise pursuant
      to the Debentures, to issue Warrant Shares upon exercise of or otherwise
      pursuant to the Warrants in accordance with this Agreement, and to otherwise
      issue shares of Common Stock to the Buyer is absolute and unconditional
      regardless of the dilutive effect that such issuance may have on the ownership
      interests of other stockholders of the Company. Taking the foregoing into
      account, the Company's Board of Directors has determined, in its good faith
      business judgment, that the issuance of the Securities hereunder and under
      the
      Debentures and the Warrants and the consummation of the transactions
      contemplated hereby and thereby are in the best interest of the Company and
      its
      stockholders.

    

    (f)             
       NO CONFLICTS.
      Except
      as otherwise set forth in SCHEDULE 3(F), the execution, delivery and performance
      of each of the Transaction Documents by the Company and the consummation by
      the
      Company of the transactions contemplated hereby and thereby (including, without
      limitation, the issuance and reservation for issuance of the Conversion Shares
      and Warrant Shares) will not (i) conflict with or result in a violation of
      any
      provision of the Certificate of Incorporation or By-laws, (ii) trigger any
      resets of conversion or exercise prices in other outstanding convertible
      securities, warrants or options of the Company, (iii) trigger the issuance
      of
      securities by the Company to any third party, (iv) violate or conflict with,
      or
      result in a breach of any provision of, or constitute a default (or an event
      which with notice or lapse of time or both would become a default) under, or
      give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, indenture, patent, patent license or instrument
      to which the Company or any of its Subsidiaries is a party, or (v) result in
      a
      violation of any law, rule, regulation, order, judgment or decree (including
      federal and state securities laws and regulations and regulations of any
      self-regulatory organizations to which the Company or its securities are
      subject) applicable to the Company or any of its Subsidiaries or by which any
      property or asset of the Company or any of its Subsidiaries is bound or affected
      (except, in the case of clauses (i), (iv) and (v) above, for such conflicts,
      defaults, terminations, amendments, accelerations, cancellations and violations
      as would not, individually or in the aggregate, have a Material Adverse Effect).
      Neither the Company nor any of its Subsidiaries is in violation of its
      Certificate of Incorporation, By-laws or other organizational documents and
      neither the Company nor any of its Subsidiaries is in default (and no event
      has
      occurred which with notice or lapse of time or both could put the Company or
      any
      of its Subsidiaries in default) under, and neither the Company nor any of its
      Subsidiaries has taken any action or failed to take any action that would give
      to others any rights of termination, amendment, acceleration or cancellation
      of,
      any agreement, indenture or instrument to which the Company or any of its
      Subsidiaries is a party or by which any property or assets of the Company or
      any
      of its Subsidiaries is bound or affected, except for possible defaults as would
      not, individually or in the aggregate, have a Material Adverse Effect. Except
      as
      disclosed in SCHEDULE 3(F) or as specifically contemplated by this Agreement
      or
      as required under the 1933 Act and any applicable state securities laws, the
      Company is not required to obtain any consent, authorization or order of, or
      make any filing or registration with, any court, governmental agency, regulatory
      agency, self regulatory organization or stock market or any third party in
      order
      for it to execute, deliver or perform any of its obligations under this
      Agreement, the Registration Rights Agreement, the Debentures or the Warrants
      in
      accordance with the terms hereof or thereof or to issue and sell the Debentures
      and Warrants in accordance with the terms hereof and to issue the Conversion
      Shares upon conversion of or otherwise pursuant to the Debentures and the
      Warrant Shares upon exercise of or otherwise pursuant to the Warrants. Except
      as
      disclosed in SCHEDULE 3(F), all consents, authorizations, orders, filings and
      registrations which the Company is required to obtain pursuant to the preceding
      sentence have been obtained or effected on or prior to the date hereof. The
      Company is not in violation of the listing requirements of the Principal Market
      (as defined herein) and does not reasonably anticipate that the Common Stock
      will cease to be listed on the Principal Market in the foreseeable future.
      The
      Company and its Subsidiaries are unaware of any facts or circumstances which
      might give rise to any of the foregoing.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (g)             
       SEC DOCUMENTS; FINANCIAL STATEMENTS.
      Since at
      least the beginning of the most recent fiscal quarter that began on or after
      September 26, 2006, the Company has timely filed all reports, schedules, forms,
      statements and other documents required to be filed by it with the SEC pursuant
      to the reporting requirements of the Securities Exchange Act of 1934, as amended
      (the "1934 ACT") (all of the foregoing filed prior to the date hereof and since
      at least he beginning of the most recent fiscal quarter that began on or after
      September 26, 2006, and all exhibits included therein and financial statements
      and schedules thereto and documents (other than exhibits to such documents)
      incorporated by reference therein, being hereinafter referred to herein as
      the
      "SEC DOCUMENTS"). For purposes of this Agreement, “TIMELY FILED” shall mean that
      the applicable document was filed (i) by its original due date under the 1934
      Act, or, if a request for an extension was timely filed, (ii) by such extended
      due date. True and complete copies of the SEC Documents are available on the
      SEC’s internet website (www.sec.gov), except for such exhibits and incorporated
      documents. Upon the request of a Buyer, the Company will promptly provide access
      to copies of the SEC Documents to such Buyer. As of their respective dates,
      the
      SEC Documents complied in all material respects with the requirements of the
      1934 Act and the rules and regulations of the SEC promulgated thereunder
      applicable to the SEC Documents, and none of the SEC Documents, at the time
      they
      were filed with the SEC, contained any untrue statement of a material fact
      or
      omitted to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in light of the circumstances under which
      they were made, not misleading. None of the statements made in any such SEC
      Documents is, or has been, required to be amended or updated under applicable
      law (except for such statements as have been amended or updated in subsequent
      filings prior to the date hereof). As of their respective dates, the financial
      statements of the Company (and the notes thereto) included in the SEC Documents
      complied as to form in all material respects with applicable accounting
      requirements and the published rules and regulations of the SEC with respect
      thereto. Such financial statements have been prepared in accordance with United
      States generally accepted accounting principles, consistently applied, during
      the periods involved (except (i) as may be otherwise indicated in such financial
      statements or the notes thereto, or (ii) in the case of unaudited interim
      statements, to the extent they may not include footnotes or may be condensed
      or
      summary statements) and fairly present in all material respects the consolidated
      financial position of the Company and its consolidated Subsidiaries as of the
      dates thereof and the consolidated results of their operations and cash flows
      for the periods then ended (subject, in the case of unaudited statements, to
      normal year-end audit adjustments). Except as set forth in the financial
      statements of the Company included in the SEC Documents, the Company has no
      liabilities, contingent or otherwise, other than (i) liabilities incurred in
      the
      ordinary course of business subsequent to the date of the Company’s most recent
      10-Q or 10-K and (ii) obligations under contracts and commitments incurred
      in
      the ordinary course of business and not required under generally accepted
      accounting principles to be reflected in such financial statements, which,
      individually or in the aggregate, are not material to the financial condition
      or
      operating results of the Company. 

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (h)          
         ABSENCE OF CERTAIN CHANGES.
      Except
      for losses incurred in the ordinary course of business that have been publicly
      disclosed at least five (5) days prior to the date hereof or as set forth on
      SCHEDULE 3(H) hereof, since the date of the Company’s most recent 10-Q or 10-K,
      there has been no material adverse change and no material adverse development
      in
      the assets, liabilities, business, properties, operations, financial condition,
      results of operations or prospects of the Company or any of its Subsidiaries.
      For purposes of this Section 3(h), the terms "MATERIAL ADVERSE CHANGE" and
      "MATERIAL ADVERSE DEVELOPMENT" shall exclude continuing losses that are
      consistent with the Company's historical losses.

    

    (i)               ABSENCE
      OF LITIGATION.
      Except
      as disclosed in SCHEDULE 3(I)(A), to the knowledge of the Company or any of
      its
      subsidiaries, there is no action, suit, claim, proceeding, inquiry or
      investigation before or by any court, public board, government agency,
      self-regulatory organization or body pending or, to the knowledge of the Company
      or any of its Subsidiaries, threatened against or affecting the Company or
      any
      of its Subsidiaries, or their officers or directors in their capacity as such.
      SCHEDULE 3(I)(B) contains a complete list and summary description of any known
      pending or threatened proceeding against or affecting the Company or any of
      its
      Subsidiaries, without regard to whether it, if adversely decided, would have
      a
      Material Adverse Effect. The Company and its Subsidiaries are unaware of any
      facts or circumstances which might give rise to any of the
      foregoing.

    

    (j)             
       PATENTS, COPYRIGHTS, ETC.
      All of
      the Company’s material patents, patent applications, Patents (as defined below),
      patent rights, inventions, know-how, trade secrets, trademarks, trademark
      applications, service marks, service names, trade names and copyrights
      ("INTELLECTUAL PROPERTY") are set forth in SCHEDULE 3(J-1) hereof. Any
      liens, encumbrances or licenses that have been granted against the Intellectual
      Property are listed in SCHEDULE 3(J-2). Except as otherwise set forth on
      SCHEDULE 3(J-2), the Company owns all right and title to the Intellectual
      Property free and clear of any liens or encumbrances and has not granted any
      licenses or rights to use any of the Patents to any third party. The Company
      and
      each of its Subsidiaries owns or possesses the requisite licenses or rights
      to
      use all Intellectual Property necessary to enable it to conduct its business
      as
      now operated, including but not limited to the intellectual property set forth
      in SCHEDULE 3(J-1) hereof (and, except as otherwise set forth in SCHEDULE 3(J-2)
      hereof, to the best of the Company's knowledge, as presently contemplated to
      be
      operated in the future), except for such licenses or rights the failure of
      which
      to own or possess would not, individually or in the aggregate, have a Material
      Adverse Effect; there is no claim or action by any person pertaining to, or
      proceeding pending, or to the Company's knowledge threatened, which challenges
      the right of the Company or of a Subsidiary with respect to any Intellectual
      Property necessary to enable it to conduct its business as now operated (and,
      except as otherwise set forth in SCHEDULE 3(J-2) hereof, to the best of the
      Company's knowledge, as presently contemplated to be operated in the future),
      except for actions or claims which, if adversely decided, would not have a
      Material Adverse Effect; to the best of the Company's knowledge, the Company's
      or its Subsidiaries' current and intended products, services and processes
      do
      not infringe on any Intellectual Property or other rights held by any person,
      and the Company is unaware of any facts or circumstances which might give rise
      to any of the foregoing. The Company and each of its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of their Intellectual Property. 

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    For
      purposes hereof, "PATENTS"
      means
      all domestic and foreign letters patent, design patents, utility patents,
      industrial designs, inventions, trade secrets, ideas, concepts, methods,
      techniques, processes, proprietary information, technology, know-how, formulae,
      rights of publicity and other general intangibles of like nature, now existing
      or hereafter acquired (including, without limitation, all domestic and foreign
      letters patent, design patents, utility patents, industrial designs, inventions,
      trade secrets, ideas, concepts, methods, techniques, processes, proprietary
      information, technology, know-how and formulae described in SCHEDULE
      3(J)
      hereof),
      all applications, registrations and recordings thereof (including, without
      limitation, applications, registrations and recordings in the United States
      Patent and Trademark Office, or in any similar office or agency of the United
      States or any other country or any political subdivision thereof), and all
      reissues, divisions, continuations, continuations in part and extensions or
      renewals thereof, in each case owned by the Company or an of its
      Subsidiaries.

    

    (k)          
        NO MATERIALLY ADVERSE CONTRACTS, ETC.
      Neither
      the Company nor any of its Subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company's officers has or is reasonably likely
      in
      the future to have a Material Adverse Effect. Neither the Company nor any of
      its
      Subsidiaries is a party to any contract or agreement, or has knowledge of a
      breach of any contract or agreement to which the Company or any of its
      Subsidiaries is a party, either of which in the judgment of the Company's
      officers has or is reasonably likely to have a Material Adverse
      Effect.

    

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

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (m)             [Intentionally
      Left Blank].

    

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

    

    (o)               ACKNOWLEDGMENT
      REGARDING BUYER’S PURCHASE OF SECURITIES.
      The
      Company acknowledges and agrees that each Buyer is acting solely in the capacity
      of arm's length purchaser with respect to this Agreement and the transactions
      contemplated hereby. The Company further acknowledges that each Buyer is not
      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 that any statement made by each Buyer or any of its respective
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereby is not advice or a recommendation and is merely incidental
      to the Buyer’s purchase of the Securities and has not been relied upon by the
      Company, its officers or directors in any way. The Company further represents
      to
      each Buyer that the Company's decision to enter into this Agreement has been
      based solely on the independent evaluation of the Company and its
      representatives.

    

    (p)              
      NO INTEGRATED OFFERING.
      Assuming
      the accuracy of the Buyer’s’ representations and warranties set forth in
      Sections 2(a) and (b), 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 which integration would
      impair the exemptions relied upon for the offer, sale and issuance of the
      Securities. 

    

    (q)             
       NO BROKERS.
      The
      identity of any brokers or placement agents that are receiving compensation
      in
      respect to this Offering, along with the amount of cash, warrants or other
      consideration that compose any compensation to each such broker or placement
      agent, are disclosed in SCHEDULE 3(Q) hereto. Other than as set forth on
      SCHEDULE 3(Q), the Company has taken no action which would give rise to any
      claim by any person for brokerage commissions, finder's fees or similar payments
      relating to this Agreement or the transactions contemplated hereby. The
      Company shall indemnify and hold harmless each of Buyer, its employees,
      officers, directors, agents, and partners, and their respective Affiliates,
      from
      and against all claims, losses, damages, costs (including the costs of
      preparation and attorney's fees) and expenses suffered in respect of any such
      claimed or existing fees.

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    (r)               PERMITS;
      COMPLIANCE.
      The
      Company and each of its Subsidiaries is in possession of all franchises, grants,
      authorizations, licenses, permits, easements, variances, exemptions, consents,
      certificates, approvals and orders necessary to own, lease and operate its
      properties and to carry on its business as it is now being conducted
      (collectively, the "COMPANY PERMITS"), except where the failure to so possess
      any such Company Permits would not have a Material Adverse Effect, and there
      is
      no action pending or, to the knowledge of the Company, threatened regarding
      suspension or cancellation of any of the Company Permits. To the best of the
      Company's knowledge, neither the Company nor any of its Subsidiaries is in
      conflict with, or in default or violation of, any of the Company Permits, except
      for any such conflicts, defaults or violations which, individually or in the
      aggregate, would not reasonably be expected to have a Material Adverse Effect.
      Since the beginning of the most recent fiscal quarter that began more than
      two
      (2) years prior to the Closing Date,
      neither
      the Company nor any of its Subsidiaries has received any notification with
      respect to possible conflicts, defaults or violations of applicable laws, except
      for notices relating to possible conflicts, defaults or violations, which
      conflicts, defaults or violations would not have a Material Adverse
      Effect.

     

    (s)               
      ENVIRONMENTAL MATTERS.

    

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

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

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

    

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

    

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

    

    (u)           
        INSURANCE.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has any reason to believe that it will not be able to renew
      its existing insurance coverage as and when such coverage expires or to obtain
      similar coverage from similar insurers as may be necessary to continue its
      business at a cost that would not have a Material Adverse Effect.

    

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

    

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

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    (x)              
      [INTENTIONALLY
      LEFT BLANK].

    

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

    

    (z)             
       NO
      MARKET MANIPULATION.
      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,
      or
      that has constituted or which might reasonably be expected to constitute, 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 anyone any compensation for soliciting purchases of, any
      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.

     

    (aa)         
         STOP
      TRANSFER.
      The
      Securities, when issued, will be restricted securities. The Company will not
      issue any stop transfer order or other order impeding the sale, resale or
      delivery of any of the Securities, except as may be required by any applicable
      federal or state securities laws and unless contemporaneous notice of such
      instruction is given to the Buyers.

    

    (bb)          
        NO
      UNDISCLOSED LIABILITIES.
      The
      Company has no liabilities or obligations which are material, individually
      or in
      the aggregate, other than those incurred in the ordinary course of the Company's
      businesses which have been disclosed in the Company’s public filings and which,
      individually or in the aggregate, would reasonably be expected to have a
      Material Adverse Effect other than as set forth in SCHEDULE 3(BB).

    

    (cc)          
        NO
      UNDISCLOSED EVENTS OR CIRCUMSTANCES.
      Other
      than events or circumstances which have been disclosed in the Company’s public
      filings, no event or circumstance has occurred or exists with respect to the
      Company or its businesses, properties, operations or financial condition, that,
      under applicable law, rule or regulation, requires public disclosure or
      announcement prior to the date hereof by the Company but which has not been
      so
      publicly announced or disclosed in the Reports.

    

     (dd)           
      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 Company and the accountants and lawyers
      formerly or presently employed by the Company, including but not limited to
      disputes or conflicts over payment owed to such accountants and lawyers.
      Attached hereto as SCHEDULE DD and Exhibit
      E are
      signed letters from the Company’s current accounting firm and outside law firm
      attesting to the facts in the immediately preceding sentence (the “ACCOUNTANT
      AND LAWYER LETTERS”).

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    (ee)         
       COMPANY
      ACKNOWLEDGMENT.
      The
      Company hereby acknowledges that each Buyer may elect to hold its Debenture
      and
      the Warrants for various periods of time, as permitted by the terms of the
      Transaction Documents and the Company further acknowledges that Buyer has made
      no representations or warranties, either written or oral, as to how long the
      Securities will be held by such Buyer or regarding Buyer’s trading history or
      investment strategies.

    

    (ff)           
       DISCLOSURE.
      The
      Company confirms that neither it nor any other Person acting on its behalf
      has
      provided any of the Buyers or their agents or counsel with any information
      that
      constitutes material, nonpublic information concerning the Company or its
      Subsidiaries other than the existence of the transactions contemplated by this
      Agreement or the other Transaction Documents. The Company understands and
      confirms that each of the Buyers will rely on the foregoing representations
      in
      effecting transactions in securities of the Company. All disclosure provided
      to
      the Buyers regarding the Company, its business and the transactions contemplated
      hereby, including the Schedules to this Agreement, furnished by or on behalf
      of
      the Company is true and correct and does not contain any untrue statement of
      a
      material fact or omit to state any material fact necessary in order to make
      the
      statements made therein, in the light of the circumstances under which they
      were
      made, not misleading. Each press release issued by the Company or any of its
      Subsidiaries during the twelve (12) months preceding the date of this Agreement
      did not at the time of release contain any untrue statement of a material fact
      or omit to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading. No event or circumstance has occurred
      or
      information exists with respect to the Company or any of its Subsidiaries or
      its
      or their business, properties, prospects, operations or financial conditions,
      which, under applicable law, rule or regulation, requires public disclosure
      or
      announcement by the Company but which has not been so publicly announced or
      disclosed.

    

    (gg)          
        ABSENCE
      OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR EVENTS.
      To the
      Company’s knowledge, during the past five (5) years:

    

    (i)
      No
      petition under the federal bankruptcy laws or any state insolvency law was
      filed
      by or against, and no receiver, fiscal agent or similar officer was appointed
      by
      a court for the business or property of such Company Control Person, or any
      partnership in which he was a general partner at or within two years before
      the
      time of such filing, or any corporation or business association of which he
      was
      an executive officer at or within two years before the time of such
      filing;

    

    (ii)
      No
      Company Control Person was convicted in a criminal proceeding or is a named
      subject of a pending criminal proceeding (excluding traffic violations and
      other
      minor offenses);

    

    (iii)
      No
      Company Control Person has been the subject of any order, judgment or decree,
      that was not subsequently reversed, suspended or vacated, of any court of
      competent jurisdiction, permanently or temporarily enjoining him from, or
      otherwise limiting, the following activities:

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    

    

    (A)
      acting, as an investment advisor, underwriter, broker or dealer in securities,
      or as an affiliated person, director or employee of any investment company,
      bank, savings and loan association or insurance company, as a futures commission
      merchant, introducing broker, commodity trading advisor, commodity pool
      operator, floor broker, any other Person regulated by the Commodity Futures
      Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice
      in connection with such activity;

    

    (B)
      engaging in any type of business practice; or

    

    (C)
      engaging in any activity in connection with the purchase or sale of any security
      or commodity or in connection with any violation of federal or state securities
      laws or federal commodities laws;

    

    (iv)
      No
      Company Control Person has been the subject of any order, judgment or decree,
      not subsequently reversed, suspended or vacated, of any federal or state
      authority barring, suspending or otherwise limiting for more than 60 days the
      right of such Company Control Person to engage in any activity described in
      paragraph (3) of this item, or to be associated with Persons engaged in any
      such
      activity; or

    

    (v)
      No
      Company Control Person was found by a court of competent jurisdiction in a
      civil
      action or by the CFTC or SEC to have violated any federal or state securities
      law, and the judgment in such civil action or finding by the CFTC or SEC has
      not
      been subsequently reversed, suspended, or vacated.

    

    For
      purposes hereof, “COMPANY CONTROL PERSON” means each director, executive
      officer, promoter, and such other Persons as may be deemed in control of the
      Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934
      Act.

     

                        (hh)           
      DTC STATUS. The
      Company's transfer agent is a participant in and the Common Stock is eligible
      for transfer pursuant to the Depository Trust Company Automated Securities
      Transfer Program. The name, address, telephone number, fax number, contact
      person and email address of the Company transfer agent is set forth on SCHEDULE
      3(HH) hereto.

     

    (ii)            
       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.

     

    (jj)            
       SENIORITY.
      Except
      as set forth on SCHEDULE
      3(JJ),
      as of
      the Closing Date, no indebtedness or other equity of the Company is senior
      to or
      pari passu with the Debentures in right of payment, whether with respect to
      interest or upon liquidation or dissolution, or otherwise.

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    (kk)       
         REGISTRATION
      RIGHTS. Except
      as
      set forth on SCHEDULE 3(KK) hereto, other than each of the Buyers, no Person
      has
      any right to cause the Company to effect the registration under the Securities
      Act of any securities of the Company.

     

    (ll)         
         TRANSACTIONS
      WITH AND OBLIGATIONS TO AFFILIATES.   Other
      than the agreements designated on SCHEDULE
      3(LL) as “Existing Obligations With Affiliates”,
      none of
      the officers, directors or employees of the Company or any of its Subsidiaries
      is presently a party to any transaction with the Company or any of its
      Subsidiaries (other than for ordinary course services as employees, officers
      or
      directors), including any contract, agreement or other arrangement providing
      for
      the furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any such
      officer, director or employee or, to the knowledge of the Company or any of
      its
      Subsidiaries, any corporation, partnership, trust or other entity in which
      any
      such officer, director, or employee has a substantial interest or is an officer,
      director, trustee or partner. SCHEDULE
      3(LL)
      sets
      forth any loans, payables, payments, transactions, debt or equity securities,
      or
      similar agreements or obligations between the Company and any officers,
      directors, management or affiliates of the Company. The previously existing
      agreements between the Company and officers, directors or employees of the
      Company or any of its Subsidiaries designated on SCHEDULE
      3(LL-2)
      as
“Terminated Obligations With Affiliates” have been terminated and cancelled, and
      are of not force and effect.

     

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

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    (nn)          
      CONDUCT
      OF BUSINESS.
      Neither
      the Company nor its Subsidiaries is in material violation of any term of or
      in
      default under its Certificate of Incorporation, Bylaws or their organizational
      charter or bylaws, respectively. Except as disclosed in SCHEDULE
      3(NN),
      neither
      the Company nor any of its Subsidiaries is in violation of any judgment, decree
      or order or any statute, ordinance, rule or regulation applicable to the Company
      or its Subsidiaries, and neither the Company nor any of its Subsidiaries will
      conduct its business in violation of any of the foregoing, except for possible
      violations which would not, individually or in the aggregate, have a Material
      Adverse Effect. Without limiting the generality of the foregoing, the Company
      is
      not in violation of any of the rules, regulations or requirements of the
      Principal Market other than violations which could not reasonably be expected,
      individually or in the aggregate, to have a Material Adverse Effect and has
      no
      knowledge of any facts or circumstances which would reasonably lead to delisting
      or suspension of the Common Stock by the Principal Market in the foreseeable
      future. Except as disclosed on SCHEDULE
      3(NN)
      since
      April 3, 2007, (i) the Common Stock has been designated for quotation on the
      Principal Market, (ii) trading in the Common Stock has not been suspended by
      the
      SEC or the Principal Market and (iii) the Company has received no communication,
      written or oral, from the SEC or the Principal Market regarding the suspension
      or delisting of the Common Stock from the Principal Market, and the Company
      has
      not received any letters of inquiry from the SEC Division of Enforcement or
      state securities regulators in the past 24 months related to any potential
      or
      alleged violation of state or federal securities laws. To the knowledge of
      the
      Company, each of the
      Company and its Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate regulatory authorities necessary to conduct
      their respective businesses, except where the failure to possess such
      certificates, authorizations or permits would not have, individually or in
      the
      aggregate, a Material Adverse Effect, and neither the Company nor any such
      Subsidiary has received any notice of proceedings relating to the revocation
      or
      modification of any such certificate, authorization or permit.

     

    (oo)         
        ABSENCE
      OF CERTAIN CHANGES.
      Except
      as disclosed in SCHEDULE 3(OO) or in the SEC Documents, since the date of
      the Company’s most recent audited financial statements contained in a Form
      10-KSB, there has been no material adverse change and no material adverse
      development in the business, assets, properties, operations, condition
      (financial or otherwise), or results of operations of the Company. Except as
      disclosed in
      SCHEDULE 3(OO),
      since
      the date of the Company’s most recent audited financial statements contained in
      a Form 10-KSB, neither the Company nor any of its Subsidiaries has
      (i) declared or paid any dividends on its Common Stock, (ii) except as
      disclosed in the SEC Documents, sold any assets, individually or in the
      aggregate, in excess of $100,000 outside of the ordinary course of business
      or
      (iii) except as set forth in
      SCHEDULE 3(L)
      or in
      the SEC Documents, had capital expenditures, individually or in the aggregate,
      in excess of $100,000. Except as set forth in SCHEDULE
      3(OO),
      neither
      the Company nor any of its Subsidiaries has taken any steps to seek protection
      pursuant to any bankruptcy law nor does the Company have any knowledge or reason
      to believe that its creditors intend to initiate involuntary bankruptcy
      proceedings or any actual knowledge of any fact which would reasonably lead
      a
      creditor to do so. [The Company and its Subsidiaries, individually and on a
      consolidated basis, are not as of the date hereof, and after giving effect
      to
      the transactions contemplated hereby to occur at the Closing, will not be
      Insolvent (as defined below). For purposes of this Section 3(oo),
“INSOLVENT” means (i) the present fair saleable value of the Company’s
      assets is less than the amount required to pay the Company’s total Indebtedness,
      (ii) the Company is unable to pay its debts and liabilities, subordinated,
      contingent or otherwise, as such debts and liabilities become absolute and
      matured, (iii) the Company intends to incur or believes that it will incur
      debts that would be beyond its ability to pay as such debts mature or
      (iv) the Company has unreasonably small capital with which to conduct the
      business in which it is engaged as such business is now conducted and is
      proposed to be conducted.]*

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    (pp)          
      NO
      UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS
      OR CIRCUMSTANCES.  Except
      as disclosed in the Disclosure Schedules, no event, liability, development
      or
      circumstance has occurred or exists, or is contemplated to occur with respect
      to
      the Company, its Subsidiaries or their respective business, properties,
      prospects, operations or financial condition, that would be required to be
      disclosed by the Company under applicable securities laws on a registration
      statement on Form SB-2 or any other appropriate form filed with the SEC relating
      to an issuance and sale by the Company of its Common Stock and which has not
      been publicly announced.

     

    (qq)        
        EMPLOYEE
      RELATIONS.

     

    (i)
       Neither the Company nor any of its Subsidiaries is a party to any
      collective bargaining agreement or employs any member of a union.  The
      Company and its Subsidiaries believe that their relations with their employees
      are good.  Except as disclosed in SCHEDULE 3(QQ), no executive officer of
      the Company or any of its Subsidiaries (as defined in Rule 501(f) of the 1933
      Act) has notified the Company or any such Subsidiary that such officer intends
      to leave the Company or any such Subsidiary or otherwise terminate such
      officer's employment with the Company or any such Subsidiary.  No executive
      officer of the Company or any of its Subsidiaries, to the knowledge of the
      Company or any such Subsidiary, is, or is now expected to be, in violation
      of
      any material term of any employment contract, confidentiality, disclosure or
      proprietary information agreement, non-competition agreement, or any other
      contract or agreement or any restrictive covenant, and, the continued employment
      of each such executive officer does not, subject the Company or any of its
      Subsidiaries to any liability with respect to any of the foregoing
      matters.

     

    (ii)
      The
      Company and its Subsidiaries are in compliance with all material federal, state,
      local and foreign laws and regulations respecting labor, employment and
      employment practices and benefits, terms and conditions of employment and wages
      and hours, except where failure to be in compliance would not, either
      individually or in the aggregate, reasonably be expected to result in a Material
      Adverse Effect.

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    (rr)      
          INTELLECTUAL
      PROPERTY RIGHTS. The
      Company and its Subsidiaries own or possess adequate rights or
      licenses to use all trademarks, trade names, service marks, service mark
      registrations, service names, patents, patent rights, copyrights, inventions,
      licenses, approvals, governmental authorizations, trade secrets and other
      intellectual property rights necessary to conduct their respective businesses
      as
      now conducted ("INTELLECTUAL PROPERTY RIGHTS").  Except as set forth in
SCHEDULE
      3(RR),
      none of
      the Company's Intellectual Property Rights have expired or terminated, or are
      expected to expire or terminate, within three years from the date of this
      Agreement. The Company does not have any knowledge of any infringement by the
      Company or its Subsidiaries of Intellectual Property Rights of others.
 There is no claim, action or proceeding being made or brought, or to the
      knowledge of the Company, being threatened, against the Company or any of its
      Subsidiaries regarding its Intellectual Property Rights.  The Company is
      unaware of any facts or circumstances which might give rise to any of the
      foregoing infringements or claims, actions or proceedings. The Company and
      its
      Subsidiaries have taken reasonable security measures to protect the secrecy,
      confidentiality and value of all of their Intellectual Property
      Rights.

     

    (ss)          
      OBLIGATIONS TO ISSUE ADDITIONAL SECURITIES. SCHEDULE
      3(SS) lists all outstanding debt or equity securities, warrants or options,
      or
      Common Stock Equivalents, and all contractual agreements of the Company, in
      each
      case, that contain any provisions (“TRIGGERING PROVISIONS”) that could require
      the adjustment to conversion or exercise prices of existing securities, or
      the
      issuance of additional securities triggered as a result of the issuance of
      securities by the Company or by the passage of time on or after the date of
      this
      Securities Purchase Agreement.

     

    (tt)            
      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 antitakeover 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 Buyers as a result
      of
      the Buyers 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 Buyers’ ownership of the
      Securities.

    
      
        
           

        

        
          25

          
            

          

        

        
           

        

      

    

    4.     
      COVENANTS.

    

    (a)  BEST
      EFFORTS.
      The
      parties shall use their best efforts to satisfy timely each of the conditions
      described in Sections 7 and 8 of this Agreement.

    

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

    

    (c)  REPORTING
      STATUS.
      The
      Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
      long as any Buyer beneficially owns any of the Securities, the Company shall
      timely file all reports required to be filed with the SEC pursuant to the 1934
      Act (“1934 ACT FILINGS”), and the Company shall not terminate its status as an
      issuer required to file reports under the 1934 Act even if the 1934 Act or
      the
      rules and regulations thereunder would permit such termination. 

    

    (d)  USE
      OF PROCEEDS.
      The
      Company shall segregate at least $250,000
      of the
      Offering proceeds into a separate designated bank account to be used only as
      payment to third-party entities acceptable to the Required Holders, for carrying
      out investor relations services (“IR PURPOSES”). The Company shall use at least
      $150,000 of the proceeds of the Offering for IR Purposes during each of the
      first two (2) calendar years after the Closing Date. The Company shall use
      the
      remainder of the proceeds from the sale of the Debentures and the Warrants
      in
      the manner set forth in SCHEDULE 4(D) attached hereto and made a part hereof
      and, except as otherwise expressly specified in SCHEDULE 4(D), the Company
      shall
      not use any of such proceeds (i) to repay any of its corporate debt or other
      Indebtedness, (ii) to redeem any Common Stock or Common Stock Equivalents,
      (iii)
      to settle any outstanding litigation, or (iv) to repay any debt or obligation
      to
      any officer, director or manager of the Company, including but not limited
      to
      the Company’s president, chief executive officer, chief financial officer and
      chief operations officer, and any of their affiliates or family members
      (collectively, “INSIDERS”). The Escrow Agreement shall provide that the Escrow
      Agent shall disburse the $879,372 designated in SCHEDULE 4(D) as going to “Notes
      Payable,” directly to the holders of such notes.

    

    During
      the period from the date hereof until the date that fewer than 20% of the
      Debentures originally issued pursuant to the Securities Purchase Agreement
      remain outstanding (the “LIMITATION PERIOD”), in the event that the Company
      raises capital through the issuance of debt or equity or other Common Stock
      Equivalents, the Company shall be prohibited from using in excess of ten percent
      (10%) of the proceeds of any such issuances for the repayment of the then
      outstanding indebtedness to any Insider or the payment of salaries (other than
      salaries for the current pay period) or bonuses to any Insiders that have
      accrued and become payable prior to the date of such financing but that had
      not
      been paid. 

    
      
         

      

      
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    (e)  CAPITAL
      RAISING LIMITATIONS; RIGHT OF PARTICIPATION.

     

    (i)
       Lock
      up of Issuance of Securities.
      Except
      for Exempt Issuances, except for the transactions set forth on SCHEDULE 4(e)(i)
      and except for the transactions or other issuances of securities by the Company
      to the Buyers as contemplated by the Transaction Documents, during the
      Limitation Period, neither the Company nor any Subsidiary shall issue shares
      of
      Common Stock or Common Stock Equivalents.

    

    (ii) Capital
      Raising Limitations.
      During
      the period that any Debenture or Warrant remains outstanding, notwithstanding
      whether or not an issuance of securities is an Exempt Issuance, the Company
      shall not issue or sell, or agree to issue or sell Highly Dilutive Equity
      Securities (as defined below), without obtaining the prior written approval
      of
      each of the Buyers, with the exception of any such agreements or transactions
      that (x) exist as of the date hereof and (ii) are not amended or modified after
      the date hereof. 
      For
      purposes hereof, the following shall be collectively referred to herein as,
      the
“HIGHLY DILUTIVE EQUITY SECURITIES”: (A) any debt or equity securities which are
      convertible into, exercisable or exchangeable for, or carry the right to receive
      additional shares of Common Stock either (1) at any conversion, exercise or
      exchange rate or other price that is based upon and/or varies with the trading
      prices of or quotations for Common Stock at any time after the initial issuance
      of such debt or equity security, or (2) with a fixed conversion, exercise or
      exchange price that is subject to being reset at some future date at any time
      after the initial issuance of such debt or equity security due to a change
      in
      the market price of the Company’s Common Stock since date of initial issuance,
      or (B) any amortizing convertible security which amortizes prior to its maturity
      date, where the Company is required to or has the option to (or the investor
      in
      such transaction has the option to require the Company to) make such
      amortization payments in shares of Common Stock (whether or not such payments
      in
      stock are subject to certain equity conditions), or (C) any debenture or
      preferred stock that is accompanied by a number of warrants greater than the
      original principal amount, divided by the Market Price at the time of closing
      of
      such debenture or preferred stock, or (D) any Common Stock that is sold at
      a
      discount to the Market Price at the time of closing that is greater than 20%,
      or
      (E) any adjustable warrant where the number of shares issuable thereunder is
      subject to increase, or (F) any common stock that is accompanied by a number
      of
      warrants greater than the number of shares of common stock sold by the Company
      in such transaction, or (G) any warrant, convertible security or other Common
      Stock Equivalent with a conversion, exercise or exchange price that is set
      at a
      price that is less than 75% of the Initial Conversion Price of the Debenture,
      or
      (H) any note, debenture or other debt obligation that is accompanied by shares
      of Common Stock for which the additional consideration paid per share of Common
      Stock is less than 90% of the Market Price at the time of closing, or (I) any
      securities of the Company in exchange for goods or services, or (J) any
      transaction involving a written agreement between the Company and an investor
      or
      underwriter whereby the Company has the right to “put” its securities to the
      investor or underwriter over an agreed period of time and at an agreed price
      or
      price formula (each, an “EQUITY LINE” transaction). For purposes of the above,
      the “MARKET PRICE” at time of closing shall mean the Market Price, as defined in
      the Debentures.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    (iii) Buyer’s
      Right of Participation in Future Financings. 

    

    (A)
      Anytime during the Limitation Period, upon any financing by the Company or
      any
      of its subsidiaries (each, a “SUBSEQUENT FINANCING”) of Common Stock or Common
      Stock Equivalents (as defined in Section 1(a)), excluding any securities issued
      pursuant to the Offering described in this Agreement, each Buyer shall have
      the
      right to participate (the “BUYER’S RIGHT OF PARTICIPATION”) in up to the Buyer’s
      Participation Maximum (as defined below) of the Subsequent Financing, provided
      that any securities issued to the Buyer hereunder, and any securities issuable
      pursuant to the conversion or exercise of such securities, shall be subject
      to
      the Beneficial Ownership Limitation. 

    

    (B)
      At
      least ten (10) days prior to the closing of the Subsequent Financing, the
      Company shall deliver to each Buyer a written notice of its intention to effect
      a Subsequent Financing (an “ADVANCE NOTICE OF FINANCING”), which Advance Notice
      of Financing shall ask such Buyer if it wants to review the details of such
      financing (such additional notice, a “SUBSEQUENT FINANCING NOTICE”). Upon the
      request of a Buyer, and only upon a request by such Buyer, for a Subsequent
      Financing Notice, the Company shall promptly, but no later than one (1) Trading
      Day after such request, deliver a Subsequent Financing Notice to such Buyer.
      The
      Subsequent Financing Notice shall describe in reasonable detail the proposed
      terms of such Subsequent Financing, the amount of proceeds intended to be raised
      thereunder, the Person with whom such Subsequent Financing is proposed to be
      effected, and attached to which shall be a term sheet or similar document
      relating thereto. 

    

    (C)
      Any
      Buyer 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
      tenth (10th)
      Trading
      Day after such Buyer has received the Advance Notice of Financing that the
      Buyer
      is willing to participate in the Subsequent Financing, the amount of the Buyer’s
      participation, and that the Buyer 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 Buyer as of such tenth (10th)
      Trading
      Day, such Buyer 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 tenth (10th) Trading
      Day after all of the requesting Buyers have received the Advance Notice of
      Financing, notifications by the Buyers 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 tenth (10th) Trading Day after all of
      the
      Buyers have received the Advance Notice of Financing, the Company receives
      responses to a Subsequent Financing Notice from Buyers seeking to purchase
      more
      than the aggregate amount of the Subsequent Financing, each such Buyer shall
      have the right to purchase up to (the “BUYER’S PARTICIPATION MAXIMUM”) (a) their
      Pro Rata Portion (as defined below) of the Subsequent Financing, plus (b) a
      pro
      rata amount (based upon the relative amount of the participating Buyers’
respective Pro Rata Portions) of the aggregate of the unused Pro Rata Portions
      of the other Buyers. For purposes hereof, “PRO
      RATA PORTION”
shall
      mean the ratio of (x) the Original Principal Amount of the Debentures purchased
      on the Closing Date by a Buyer participating under this Section 4(e)(iii)(E)
      and
      (y) the sum of the aggregate Original Principal Amounts of Securities purchased
      on the Closing Date by all Buyers participating under this Section
      4(e)(iii)(E).

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    (F)
      For
      purposes of clarity, in the event that there is any amount of a Subsequent
      Financing that is not requested to be purchased by a Buyer, then any other
      Buyer
      shall have the right to purchase such remaining amount of the Subsequent
      Financing.

    

    (G)
      The
      Company must provide the Buyers with a second Subsequent Financing Notice,
      and
      the Buyers will again have the right of participation set forth above in this
      Section 4(e)(iii)(E), 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 thirty (30) Trading Days after
      the date of the initial Subsequent Financing Notice.

    

    (iv) Most
      Favored Nation (MFN) Securities Exchange Provision. From
      the
      date hereof until the date when such Buyer holds less than 20% in principal
      amount of Debentures originally purchased by such Buyer hereunder, if the
      Company effects a Subsequent Financing, each Buyer may elect, in its sole
      discretion, to exchange (a “Holder Securities Exchange”) all or some of the
      Debentures then held by such Buyer for any securities or units issued in a
      Subsequent Financing on a $1.00 for $1.00 basis based on the outstanding
      principal amount of such Debentures, along with any accrued but unpaid interest,
      liquidated damages and other amounts owing thereon, and the effective price
      at
      which such securities were sold in such Subsequent Financing; PROVIDED,
      HOWEVER,
      that
      this Section 4(e)(iv) shall not apply with respect to (a) an Exempt Issuance
      or
      (b) a firm commitment underwritten public offering of Common Stock with a
      reputable national underwriter. The Company shall provide each Buyer with notice
      of any such Subsequent Financing in the manner set forth in Section 4(e)(iv).
      Notwithstanding anything to the contrary herein, following such a Holder
      Securities Exchange, the Holder shall retain all of its unconverted
      Warrants.

    

    (v)
      Injunctive Relief. The
      Company acknowledges that a breach by it of its obligations under this
      Agreement, including but not limited to its obligations under this Subsection
      4(e) or its obligations under Section 4(m), will cause irreparable harm to
      Buyer, by vitiating the intent and purpose of the transactions contemplated
      hereby. Accordingly, the Company acknowledges that the remedy at law for a
      breach of its obligations under this Subsection 4(e) or a breach of its
      obligations under Subsection 4(m) will be inadequate and agrees, in the event
      of
      a breach or threatened breach by the Company of the provisions of this
      Agreement, that Buyer shall be entitled, in addition to all other available
      remedies in law or in equity, to an injunction or injunctions to prevent or
      cure
      any breaches of the provisions of this Subsection 4(e) or of Subsection 4(m)
      and
      to enforce specifically the terms and provisions of this Agreement, without
      the
      necessity of showing economic loss and without any bond or other security being
      required. Specifically, the Buyer shall be entitled to injunctive relief to
      cause the court to rescind any financing or financings or other transactions
      between the Company and a third party that are in violation of subsection 4(e)
      or subsection 4(m) the Buyer shall be entitled to injunctive relief to cause
      the
      court to rescind any financing or financings between the Company and a third
      party that are in violation of subsection 4(e) or subsection
      4(m).

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

    (f)              
      SECURITIES
      LAWS DISCLOSURE; PUBLICITY. The
      Company shall, by 8:30 a.m. New York City time on the third (3rd)
      Business
      Day following the Closing Date, issue a Current Report on Form 8-K, disclosing
      the material terms of the transactions contemplated hereby and including the
      Transaction Documents as exhibits thereto. The Company and each Buyer shall
      consult with each other in issuing any other press releases with respect to
      the
      transactions contemplated hereby, and neither the Company nor any Buyer 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
      Buyer, or without the prior consent of each Buyer, with respect to any press
      release of the Company, which consent shall not unreasonably be withheld or
      delayed, 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 Buyer, or include the name
      of any Buyer in any filing with the Commission or any regulatory agency or
      any
      market or exchange, without the prior written consent of such Buyer, except
      (i)
      as required by federal securities law in connection with (A) any registration
      statement contemplated by the Registration Rights Agreement and (B) the filing
      of final Transaction Documents (including signature pages thereto) with the
      SEC and
      (ii)
      to the extent such disclosure is required by law or regulations of the Principal
      Market, in which case the Company shall provide the Buyers with prior notice
      of
      such disclosure permitted under this subclause (ii).

    

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

    

     

     (h)  AUTHORIZATION
      AND RESERVATION OF SHARES. 

    

    (i)
      Authorization
      and Reservation Requirements.
      The
      Company represents that it has at least 3,500,000
      authorized shares of Common Stock and covenants that it will initially reserve
      (the “INITIAL SHARE RESERVATION”) from its authorized and unissued Common Stock
      a number of shares of Common Stock equal to at least one and one-half (1.5)
      times the Original Principal Amount of the Debentures, divided by the Conversion
      Price in effect on the date of the Initial Share Reservation, free from
      preemptive rights, to provide for the issuance of Common Stock upon the
      conversion of the Debentures and shall initially reserve an additional number
      of
      shares equal to the Warrant Amount, free from preemptive rights, to provide
      for
      the issuance of Common Stock upon the exercise of the Warrants. The Company
      further covenants that, beginning on the date hereof, and continuing throughout
      the period the conversion right exists, the Company shall at all times have
      authorized, and reserved (the “ONGOING SHARE RESERVATION REQUIREMENT”) for the
      purpose of issuance, a sufficient number of shares of Common Stock to provide
      for the full conversion or exercise of the outstanding portion of the Debentures
      and Warrants and issuance of the Conversion Shares and Warrant Shares in
      connection therewith (based on the Conversion Price (as defined in the
      Debentures) in effect from time to time and the Exercise Price of the Warrants
      in effect from time to time). The Company shall not reduce the number of shares
      of Common Stock reserved for issuance upon conversion of or otherwise pursuant
      to the Debentures and exercise of or otherwise pursuant to the Warrants without
      the consent of the Buyers. The Company shall at all times maintain the number
      of
      shares of Common Stock so reserved for issuance at no less than 100% of the
      number that is then actually issuable upon full conversion of the Debentures
      (based on the Conversion Price (as defined in the Debentures) in effect from
      time to time) and full exercise of the Warrants (based on the Exercise Price
      of
      the Warrants in effect from time to time). 

    
      
         

      

      
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    (ii)
      Stockholder
      Approval.
      If at
      any time the number of shares of Common Stock authorized and reserved for
      issuance is below the number of Conversion Shares issued and issuable upon
      conversion of or otherwise pursuant to the Debentures (based on the Conversion
      Price (as defined in the Debentures) in effect from time to time) and Warrant
      Shares issued or issuable upon exercise of or otherwise pursuant to the Warrants
      (based on the Exercise Price of the Warrants in effect from time to time),
      together with the Payment Shares and any other shares of Common Stock issued
      or
      issuable pursuant to the terms of the Transaction Documents, the Company will
      promptly take all corporate action necessary to authorize and reserve a
      sufficient number of shares, including, without limitation, calling a special
      meeting of stockholders to authorize additional shares to meet the Company's
      obligations under this Section 4(h), in the case of an insufficient number
      of
      authorized shares, and using its best efforts to obtain stockholder approval
      of
      an increase in such authorized number of shares.

    

    (i)   
       CERTAIN
      TRADING ACTIVITIES.
      Anytime
      during the period that any Debentures or Warrants are outstanding, the Buyer
      and
      its Affiliates will not enter into or effect, or attempt to induce any third
      party to enter into or effect, any "short sales" (as such term is defined in
      Rule 200of Regulation SHO) of the Common Stock or hedging transaction which,
      in
      either case, establishes a net short position with respect to the Common Stock,
      where “net short position” means having a contractual obligation to deliver a
      greater number of shares of Common Stock than such Buyer beneficially owns
      long,
      which includes without limitation shares of Common Stock held long and shares
      of
      Common Stock issuable upon exercise, conversion or exchange of Company
      securities held by such Buyer (whether or not then convertible, exercisable
      or
      exchangeable and
      without regard to any limitation on beneficial ownership or restrictions on
      conversion, exercise or exchange),
      including the Debentures and Warrants. For the purposes of this Agreement,
      an
      "AFFILIATE" of any person or entity means any other person or entity directly
      or
      indirectly controlling, controlled by or under direct or indirect common control
      with such person or entity. 

    

    (j) LISTING.
      The
      Company shall use its best efforts to promptly secure the listing of the
      Conversion Shares and Warrant Shares upon each national securities exchange
      or
      automated quotation system, if any, upon which shares of Common Stock are then
      listed (subject to official notice of issuance) and, so long as any Buyer owns
      any of the Securities, shall maintain, so long as any other shares of Common
      Stock shall be so listed, such listing of all Conversion Shares from time to
      time issuable upon conversion of or otherwise pursuant to the Debentures and
      all
      Warrant Shares from time to time issuable upon exercise of or otherwise pursuant
      to the Warrants. The Company will use its best efforts to obtain and, so long
      as
      any Buyer owns any of the Securities, maintain the listing and trading of its
      Common Stock on an Eligible Market (whichever Eligible Market is at the time
      the
      principal trading exchange or market for the Common Stock is referred to herein
      as the "PRINCIPAL MARKET"), and will comply in all respects with the Company's
      reporting, filing and other obligations under the bylaws or rules of the
      National Association of Securities Dealers ("NASD") and such exchanges, as
      applicable. The Company shall promptly provide to Buyer copies of any notices
      it
      receives from the PRINCIPAL MARKET and any other exchanges or quotation systems
      on which the Common Stock is then listed regarding the continued eligibility
      of
      the Common Stock for listing on such exchanges and quotation
      systems.

    
      
         

      

      
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    (k)  CORPORATE
      EXISTENCE.
      So long
      as a Buyer beneficially owns any portion of the Debentures or Warrants, the
      Company shall maintain its corporate existence in good standing and remain
      a
“REPORTING ISSUER” (defined as a Company which files periodic reports under the
      Exchange Act).

    

    (l)  NO
      INTEGRATION.
      The
      Company shall not make any offers or sales of any security (other than the
      Securities) under circumstances that would require registration of the
      Securities being offered or sold hereunder under the 1933 Act or cause the
      offering of the Securities to be integrated with any other offering of
      securities by the Company under the 1933 Act.

    

    (m)
        
LIMITATION
      ON SALE OR DISPOSITION OF INTELLECTUAL PROPERTY.
      So long
      as any portion of the Debentures remain outstanding, so long as the Company
      shall have any obligation under the Debentures or so long as any of the Warrants
      remain outstanding, the Corporation shall not sell, convey, dispose of, spin
      off
      or assign any or all of its Intellectual Property (including but not limited
      to
      the Intellectual Property set forth in SCHEDULE 4(M) hereof), or the rights
      to
      receive proceeds from patent licensing agreements, patent infringement
      litigation or other litigation related to such intellectual property
      (collectively, the “INTELLECTUAL PROPERTY RIGHTS”), in each case without Buyer’s
      written consent, provided that the Company may, without the Buyer’s Written
      Consent, enter into one or more licensing agreements with respect to its
      Intellectual Property so long as such licensing agreements exceed $5 million
      per
      calendar year and so long as such agreements are not with any affiliate (as
      such
      term is defined in Rule 501(b) of Regulation D) of the Company or with any
      relative of, or entity controlled by, or any entity 10% or more of which is
      owned by, any officer, director, employee or former employee of the Company,
      provided, further, that the Company shall not be subject to the restrictions
      of
      this Section 4(m) if the cash consideration received by the Company in exchange
      for such Intellectual Property Rights exceeds $50 million. 

    

    (n)            
      LIMITATION
      ON RATE OF ISSUANCE OF SHARES. The
      parties agree that, if by virtue of this AGREEMENT, or by virtue of any other
      agreement between the parties, Holder becomes entitled to receive from the
      Company a number of shares of Common Stock of the Company (collectively,
“ISSUABLE SECURITIES”), such that the sum of (1) the number of shares of Common
      Stock of the Company beneficially owned by HOLDER and any applicable affiliates
      (other than shares of Common Stock which may be deemed beneficially owned
      through the ownership of the unconverted portion of the Debenture, the
      unexercised Warrants or the unexercised or unconverted portion of any other
      security of HOLDER subject to a limitation on conversion or exercise analogous
      to the limitations contained herein)(collectively, the “BENEFICIALLY OWNED
      SHARES”) and (2) the number Issuable Securities described above, with respect to
      which the determination of this proviso is being made, would result in
      beneficial ownership by the Holder and its affiliates of more than 4.99% of
      the
      outstanding shares of Common Stock (the “4.99% BENEFICIAL OWNERSHIP
      LIMITATION”), then the Company shall immediately deliver to Holder the number of
      shares of Common Stock of the Company, that can be issued without exceeding
      the
      4.99% Beneficial Ownership Limitation, and the Company shall not issue shares
      of
      Common Stock to the Buyer in excess of the Beneficial Ownership
      Limitation.

    
      
         

      

      
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    For
      purposes of the proviso to the immediately preceding sentence, (i) beneficial
      ownership shall be determined by the Holder in accordance with Section 13(d)
      of
      the Exchange Act and Regulations 13D-G thereunder, except as otherwise provided
      in clause (1) of such proviso to the immediately preceding sentence, and
      PROVIDED THAT the 4.99% Beneficial Ownership Limitation shall be conclusively
      satisfied if the applicable notice from Holder includes a signed representation
      by the Holder that the issuance of the shares in such notice will not violate
      the 4.99% Beneficial Ownership Limitation, and the Company shall not be entitled
      to require additional documentation of such satisfaction. 

    

    The
      parties agree that, in the event that the Company receives any tender offer
      or
      any offer to enter into a merger with another entity whereby the Company shall
      not be the surviving entity (an “OFFER”), or in the event the Company is issuing
      Default Shares (as defined in the Debenture) to the Buyer, then “4.99%” shall be
      automatically revised immediately after such offer to read “9.99%” each place it
      occurs in the first two paragraphs of this Section 4(n) above. Notwithstanding
      the above, Holder shall retain the option to either exercise or not exercise
      its
      option(s) to acquire Common Stock pursuant to the terms hereof after an Offer.
      In addition, the 4.99% Beneficial Ownership Limitation provisions of this
      Section 7(a)(ii) may be waived by such Holder, at the election of such Holder,
      upon not less than 61 days’ prior notice to the Company, to change the 4.99%
      Beneficial Ownership Limitation to 9.99% of the number of shares of the Common
      Stock outstanding immediately after giving effect to the issuance of shares
      of
      Common Stock upon conversion of the Debenture held by the Holder or upon
      exercise of a Warrant held by the Holder, as applicable, and the provisions
      of
      this Section 4(n) shall continue to apply. The limitations on conversion set
      forth in this subsection are referred to as the “BENEFICIAL OWNERSHIP
      LIMITATION.” Upon such a change by a Holder of the Beneficial Ownership
      Limitation from such 4.99% Beneficial Ownership Limitation to such 9.99%
      limitation, the Beneficial Ownership Limitation may not be further waived by
      such Holder. 

    

    The
      provisions of this paragraph shall be construed and implemented in a manner
      otherwise than in strict conformity with the terms of this Section 4(c) to
      correct this paragraph (or any portion hereof) which may be defective or
      inconsistent with the intended Beneficial Ownership Limitation herein contained
      or to make changes or supplements necessary or desirable to properly give effect
      to such limitation.

    
      
         

      

      
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    Maximum
      Exercise of Rights. In the event the Buyer notifies the Company that the
      exercise of the rights described herein or in the Warrants, or the issuance
      of
      Payment Shares or other shares of Common Stock issuable to the Holder under
      the
      terms of the Transaction Documents (collectively, “ISSUABLE SHARES”) would
      result in the issuance of an amount of Common Stock of the Company that would
      exceed the maximum amount that may be issued to a Buyer calculated in the manner
      described in Section 4(n) of this Agreement, then the issuance of such
      additional shares of Common Stock of the Company to such Buyer will be deferred
      in whole or in part until such time as such Buyer is able to beneficially own
      such Common Stock without exceeding the maximum amount set forth calculated
      in
      the manner described in herein. The determination of when such Common Stock
      may
      be issued shall be made by each Buyer as to only such Buyer. 

    

    (o)         
      APPOINTMENT
      OF DIRECTORS UPON CONTINUING DEFAULT.
      If any
      Event of Default (as defined in the Debentures) remains uncured for an aggregate
      of ninety (90) days or more, the Buyers, at their option, may recommend one
      nominee for the Company’s Board of Directors (such nomination based upon a
      majority vote of the Buyers, where each Buyer receives a number of votes in
      proportion to the then outstanding principal amount of its Debenture), if any
      Event of Default remains uncured for an aggregate of one hundred twenty (120)
      days or more, the Buyers, at their option, may recommend a second nominee for
      the Company’s Board of Directors (using the above described nomination
      procedure), and if any Event of Default remains uncured for an aggregate of
      one
      hundred fifty (150) days or more, the Buyers, at their option, may (on one
      or
      more occasions thereafter anytime that the nominees of the Required Holders
      constitute less than a majority of the Company’s directors until cured)
      recommend an additional number of nominees to the Company’s Board of Directors
      (using the above described nomination procedure), such that the Buyers’ nominees
      shall constitute a majority of the Company’s Board of Directors (each such
      nominee referred to singularly as a “BUYERS NOMINEE” and collectively as the
“BUYERS’ NOMINEES”). The Company agrees that its Board of Directors, or the
      Nominating Committee of the Board, as applicable, shall appoint as members
      of
      the Company’s Board of Directors the number of Buyers’ Nominee’s required
      pursuant to the immediately preceding sentence. After such appointment, the
      Company and its Board of Directors shall use their best efforts to obtain
      shareholder ratification of the appointment of the Buyers’ Nominees at the next
      shareholder meeting.

    

    (p)          
      EQUAL
      TREATMENT OF BUYERS.
      The
      terms of Securities issued to Buyers per the terms of this Agreement and the
      Transaction Documents shall be identical in all material respects. In addition,
      neither the Company nor any of its affiliates shall, directly or indirectly,
      pay
      or cause to be paid any consideration (immediate or contingent), whether by
      way
      of interest, fee, payment for the redemption, conversion of the Notes or
      exercise of the Warrants, or otherwise, to any Buyer or holder of Securities,
      for or as an inducement to, or in connection with the solicitation of, any
      consent, waiver or amendment. of any terms or provisions of the Transaction
      Documents, unless such consideration is required to be paid to all Buyers or
      holders of Securities bound by such consent, waiver or amendment. The Company
      shall not, directly or indirectly, redeem any Securities unless such offer
      of
      redemption is made pro rata to all Buyers or holders of Securities, as the
      case
      may be, on identical terms. For clarification purposes, this provision
      constitutes a separate right granted by the Company to each Buyer of Securities
      and negotiated separately by each Buyer, is intended for the Company to treat
      the Buyers as a class, and shall not in any way be construed as the Buyers
      acting in concert or as a group with respect to the purchase, disposition or
      voting of Securities or otherwise.

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    (q)           LEGAL
      AND DUE DILIGENCE FEES.
      The
      Company shall pay to BridgePointe Master Fund Ltd. (the “LEAD INVESTOR”) a
      non-accountable cash fee of $35,000 (the “CASH FEE”), half of which has been
      paid and the other half due at Closing, as reimbursement for legal services
      rendered by its attorneys in connection with this Agreement and the purchase
      and
      sale of the Debentures and Warrants and as reimbursement for due diligence
      expenses. The Lead Investor may withhold any unpaid portion of Cash Fee out
      of
      the Purchase Price for its Debenture at Closing.

    

    (r)        
       LIMITED
      STANDSTILL.
      The
      Company will deliver to the Buyers on or before the Closing Date and enforce
      the
      provisions of irrevocable standstill agreements ("LIMITED STANDSTILL
      AGREEMENTS") in the form annexed hereto as Exhibit
      F
      with the
      Insiders and other shareholders that are identified on SCHEDULE 4(r) hereto
      (collectively, the “DESIGNATED INSIDERS”). 

    

    (s)          
      NON-PUBLIC
      INFORMATION. The
      Company covenants and agrees that from and after the date hereof, neither it
      nor
      any other Person acting on its behalf will provide any Buyer or its agents
      or
      counsel with any information that the Company believes constitutes material
      non-public information, unless prior thereto such Buyer shall have executed
      a
      written agreement regarding the confidentiality and use of such information.
      The
      Company understands and confirms that each Buyer shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company. In the event of a breach of the foregoing covenant by the Company,
      or
      any of its Subsidiaries, or any of its or their respective officers, directors,
      employees and agents, in addition to any other remedy provided herein or in
      the
      Transaction Documents, the Company shall publicly disclose any material,
      non-public information in a Form 8-K within five (5) Business Days of the date
      that it discloses such information to the Buyer. In the event that the Company
      discloses any material, non-public information to the Buyer and fails to
      publicly file a Form 8-K in accordance with the above, a Buyer shall have the
      right to make a public disclosure, in the form of a press release, public
      advertisement or otherwise, of such material, nonpublic information without
      the
      prior approval by the Company, its Subsidiaries, or any of its or their
      respective officers, directors, employees or agents. No Buyer shall have any
      liability to the Company, its Subsidiaries, or any of its or their respective
      officers, directors, employees, stockholders or agents, for any such disclosure.
      The Company understands and confirms that each Buyer shall be relying on the
      foregoing representations in effecting transactions in securities of the
      Company.

    

    (t)           
      ADDITIONAL
      REGISTRATION STATEMENTS. Until
      the Effective Date (as defined in the Registration Rights
      Agreement), the Company will not file a registration statement under the 1933
      Act (other than on Form S-8) relating to securities that are not the Securities.
       

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    (u)           
      TRANSACTIONS
      WITH AFFILIATES. So
      long
      as any Debenture or Warrant is outstanding, the Company shall not, and shall
      cause each of its Subsidiaries not to, enter into, amend, modify or supplement,
      or permit any Subsidiary to enter into, amend, modify or supplement any
      agreement, transaction, commitment, or arrangement with any of its or any
      Subsidiary’s officers, directors, employees, persons who were officers or
      directors at any time during the previous two (2) years, stockholders who
      beneficially own five percent (5%) or more of the Common Stock, or Affiliates
      (as defined below) of any thereof, or with any individual related by blood,
      marriage, or adoption to any such individual or with any entity in which any
      such entity or individual owns a five percent (5%) or more beneficial interest
      (each a “RELATED PARTY”), except for customary employment arrangements and
      benefit programs on reasonable terms. “AFFILIATE” for purposes hereof means,
      with respect to any person or entity, another person or entity that, directly
      or
      indirectly, (i) has a ten percent (10%) or more equity interest in that person
      or entity, (ii) has ten percent (10%) or more common ownership with that person
      or entity, (iii) controls that person or entity, or (iv) shares common
      control with that person or entity. “CONTROL” or “CONTROLS” for purposes hereof
      means that a person or entity has the power, direct or indirect, to conduct
      or
      govern the policies of another person or entity.

     

    5.
      SECURITY; SENIOR DEBT. The
      Debentures are secured by the security agreement (the ”Security Agreement”) of
      the same date. Except as otherwise set forth on SCHEDULE 5 annexed hereto,
      the
      Company hereby represents that the Holder has a senior lien on the Collateral
      (as defined in the Security Agreement), and agrees not to grant any liens on
      the
      Collateral that are either senior to, or in parity with, or subordinate to
      the
      Holder’s lien. From the Issue Date of the Debentures through the date that all
      of the Debentures have been paid in full or converted in full, before entering
      into any future debt with a third party or permitting any Subsidiary to enter
      into any future debt with a third party (unless the issuance of such debt is
      otherwise prohibited under the terms of the Transaction Documents), the Company
      shall first obtain a subordination agreement, satisfactory to Buyer, from the
      proposed debt holder. The Borrower agrees to take all necessary actions to
      assist the Holder in perfecting the Holder’s lien on each piece of Collateral
      within fifteen (15) days of the date hereof, including but not limiting to
      signing and delivering the appropriate forms. 

    

    Notwithstanding
      the above, at such time as less than twenty five percent (25%) of the Debentures
      originally issued pursuant to the Securities Purchase Agreement remain
      outstanding, the Buyers shall release any and all security interest that they
      have in the Company’s Intellectual Property.

    

    The
      Company hereby represents that, except as otherwise set forth on SCHEDULE 5
      annexed hereto, there are no liens or encumbrances on the Intellectual Property
      (as defined in Section 3(j)) or the Collateral. The Company agrees that from
      the
      Issue Date of the Debentures through the date that all of the Debentures have
      been paid in full or converted in full (the “Covered Period”), the Company shall
      not enter into, create, incur, assume or suffer to exist any mortgage, lien,
      pledge, charge, security interest or other encumbrance (collectively, “Liens”)
      upon or in the Intellectual Property or the Collateral owned by the Company
      or
      any of its Subsidiaries and shall not assign or transfer any interest in the
      Patents owned by the Company or any of its Subsidiaries. In the event that
      the
      Company attempts to place any Lien or Liens on the Intellectual Property or
      the
      Collateral or attempts to assign or transfer any interest in the Intellectual
      Property or the Collateral during the Covered Period, the Buyer shall have
      the
      right to apply for an injunction in any state or federal courts sitting in
      the
      City of New York, borough of Manhattan to prevent such Lien or transfer. Before
      entering into any future debt with a third party, the Company shall first obtain
      a subordination agreement, satisfactory to Buyer, from the proposed debt holder.
      

    
      
         

      

      
        36

        
          

        

      

      
         

      

    

    6.         
      LEGENDS. 

    

    (a)      
       The Conversion Shares and the Warrant Shares, together with any other
      shares of Common Stock that are issued or issuable pursuant to the Transaction
      Documents shall be referred to herein as the “ISSUED COMMON SHARES.”
Certificates evidencing the Issued Common Shares shall not contain any legend
      restricting the transfer thereof (including the legend set forth in Section
      2(e)
      of the Debentures): (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 Issued Common Shares
      pursuant to Rule 144, or (iii) if such Issued Common 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) (collectively, the
“UNRESTRICTED CONDITIONS”). 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 issuance of Issued Common
      Shares without a restrictive legend or removal of the legend hereunder. If
      the
      Unrestricted Conditions are met at the time of issuance of Issued Common Shares,
      then such Issued Common Shares shall be issued free of all legends. The Company
      agrees that following the Effective Date or at such time as the Unrestricted
      Conditions are met or such legend is otherwise no longer required under this
      Section 6(b), it will, no later than three Trading Days following the delivery
      by a Buyer to the Company or the Company’s transfer agent of a certificate
      representing Issued Common Shares, as applicable, issued with a restrictive
      legend (such third Trading Day, the “LEGEND REMOVAL DATE”), deliver or cause to
      be delivered to such Buyer a certificate representing such shares that is free
      from all restrictive and other legends. 

    

    (b)      
       Each
      Buyer, severally and not jointly with the other Buyers, agrees that the removal
      of the restrictive legend from certificates representing Securities as set
      forth
      in this Section 6 is predicated upon the Company’s reliance that each Buyer will
      sell any Securities pursuant to either the registration requirements of the
      Securities Act, including any applicable prospectus delivery requirements,
      or an
      exemption therefrom, and that if Securities are sold pursuant to a Registration
      Statement, they will be sold in compliance with the plan of distribution set
      forth therein. 

    

    7.         
      CONDITIONS
      TO THE COMPANY'S OBLIGATION TO SELL.
      The
      obligation of the Company hereunder to issue and sell the Debentures and
      Warrants to a Buyer at the Closing (or Call Closing) is subject to the
      satisfaction, at or before the Closing Date, of each of the following conditions
      thereto, provided that these conditions are for the Company's sole benefit
      and
      may be waived by the Company at any time in its sole
      discretion:

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

    

    (a)      
      The Buyer shall have executed each of the Transaction Documents which requires
      Buyer’s signature, and delivered the same to the Company.

    

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

    

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

    

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

    

    8.         
      CONDITIONS
      TO BUYER'S OBLIGATION TO PURCHASE.
      The
      obligation of each Buyer hereunder to purchase the Debenture and Warrants at
      each Closing (and Call Closing) is subject to the satisfaction, at or before
      the
      Closing Date (or Call Closing Date), of each of the following conditions,
      provided that these conditions are for such Buyer's sole benefit and may be
      waived by such Buyer at any time in its sole discretion:

    

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

    

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

    

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

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

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

    

    (e)     
       Trading in the Common Stock on the PRINCIPAL MARKET shall not have been
      suspended by the SEC or the Nasdaq and, within two (2) business days of the
      Closing, the Company will make application to the PRINCIPAL MARKET, if legally
      required by Nasdaq, to have the Conversion Shares and the Warrant Shares
      authorized for quotation.

    

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

    

    (g)     
      The Buyer shall have received a Closing Certificate described in Section 1(b)(v)
      above, dated as of the Closing Date.

    

    (h)      The
      Company shall have delivered to the Buyer an executed Accountant Letter and
      an
      executed Law Firm Letter, as described in Section 3(dd) hereof.

    

    (i)       
      Prior
      to
      the Closing, the Company shall have delivered or caused to be delivered to
      each
      Buyer true copies of UCC search results, listing all effective financing
      statements which name as debtor the Company or any of its Subsidiaries filed
      in
      the prior five years to perfect an interest in any assets thereof, together
      with
      copies of such financing statements, none of which, except as otherwise agreed
      in writing by the Buyers, shall cover any of the Collateral (as defined in
      the
      Security Documents) and the results of searches for any tax lien and judgment
      lien filed against such Person or its property, which results, except as
      otherwise agreed to in writing by the Buyers shall not show any such
      Liens.

    

    (j)       
      The Company shall have received funds from Buyers representing their respective
      Purchase Prices in an amount exceeding the Minimum Amount, in the aggregate
      and
      not exceeding the Maximum Amount, in the aggregate.

    

    (k)      
      No Material Adverse Changes have occurred since the date that the Buyer executed
      this Agreement. 

    

    9.           
      GOVERNING
      LAW; MISCELLANEOUS.

    

    (a)      
      GOVERNING LAW. All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement and the other 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 is an 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 other
      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 reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
      and prosecution of such action or proceeding.

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

    (b)       
      COUNTERPARTS; SIGNATURES BY FACSIMILE.
      This
      Agreement may be executed in one or more counterparts, all of which shall be
      considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      This Agreement, once executed by a party, may be delivered to the other party
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement.

    

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

    

    (d)       SEVERABILITY.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement or the validity or
      enforceability of this Agreement in any other jurisdiction.

    

    (e)      
      ENTIRE AGREEMENT; AMENDMENTS.
      This
      Agreement and the instruments referenced herein contain the entire understanding
      of the parties with respect to the matters covered herein and therein and
      supersede all previous communication, representation, or Agreements whether
      oral
      or written, between the parties with respect to the matters covered herein.
      Except as specifically set forth herein or therein, neither the Company nor
      the
      Buyer makes any representation, warranty, covenant or undertaking with respect
      to such matters. The Agreement may not be orally modified. Only a modification
      in writing, signed authorized representatives of both parties will be
      enforceable. The parties waive the right to rely on any oral representations
      made by the other party, whether in the past or in the future, regarding the
      subject matter of the Agreement, the instruments referenced herein or any other
      dealings between the parties related to investments or potential investments
      into the Company or any securities transactions or potential securities
      transactions with the Company.

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

    (f)       
      INDEPENDENT
      NATURE OF BUYERS’ OBLIGATIONS AND RIGHTS. The
      obligations of each Buyer under any Transaction Document are several and not
      joint with the obligations of any other Buyer, and no Buyer shall be responsible
      in any way for the performance of the obligations of any other Buyer under
      any
      Transaction Document. Nothing contained herein or in any Transaction Document,
      and no action taken by any Buyer pursuant thereto, shall be deemed to constitute
      the Buyers as a partnership, an association, a joint venture or any other kind
      of entity, or create a presumption that the Buyers 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 Buyer 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 Buyer to be joined as an additional
      party in any proceeding for such purpose. Each Buyer has been represented by
      its
      own separate legal counsel in its review and negotiation of the Transaction
      Documents. 

    

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

    

    
      	
            	 	
              If
                to the Company, to:

            

    

    

    Attn:
      Michael Hawkins, CEO

    Alternative
      Construction Company, Inc.

    2910
      Bush
      Drive

    Melbourne,
      FL 32935

    Phone:
      (321) 421-6349

    Fax:
      (321) 421-6616

    

    
      	
            	 	
              With
                copy to:

            

    

    

    Attn:
      Thomas G. Amon, Esq.

    Law
      Offices of Thomas G. Amon

    500
      Fifth
      Avenue, Suite 1650

    Phone:
      (212) 810-2430

    Fax:
      (212) 810-2427

    

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

            

    

    

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

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

     

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

    

    (i)         
      THIRD
      PARTY BENEFICIARIES.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

    

    (j)         
      SURVIVAL.
      The
      representations and warranties of the parties hereto contained in this Agreement
      shall survive the closing hereunder for the maximum period permitted by
      applicable law notwithstanding any due diligence investigation conducted by
      or
      on behalf of the Buyer. 

    

    (k)        INDEMNIFICATION.
      The
      Company (the “INDEMNIFYING PARTY”) agrees to indemnify and hold harmless the
      Buyer and all its officers, directors, employees, agents, members and managers
      (the “INDEMNIFIED PARTY”) for loss or damage arising as a result of or related
      to any breach or alleged breach by the Company of any of its representations,
      warranties and covenants set forth in Sections 3 and 4 hereof or any of its
      covenants and obligations under this Agreement or the Registration Rights
      Agreement, including advancement of expenses as they are incurred with respect
      to claims by third parties.

    

    Promptly
      after receipt of notice of the commencement of any action against an Indemnified
      Party, such Indemnified Party shall notify the Indemnifying Party in writing
      of
      the commencement thereof and the basis hereunder upon which a claim for
      indemnification is asserted, but the failure to do so shall not relieve the
      Indemnifying Party of its obligations hereunder except to the extent the
      Indemnifying Party is materially prejudiced by such failure. In the event of
      the
      commencement of any such action, the Indemnifying Party shall be entitled to
      participate therein and to assume the defense thereof with counsel satisfactory
      to the Indemnified Party, and, after notice from the Indemnifying Party to
      the
      Indemnified Party of its election so to assume the defense thereof, the
      Indemnifying Party shall not be liable to the Indemnified Party hereunder for
      any legal expenses (including attorneys' fees) subsequently incurred by such
      Indemnified Party in connection with the defense thereof other than reasonable
      costs of investigation and of liaison with counsel so selected, PROVIDED,
      HOWEVER, that, if the defendants in any such action include both the Indemnified
      Party and the Indemnifying Party and the Indemnified Party shall have reasonably
      concluded that there may be reasonable defenses available to it which are
      different from or additional to those available to the Indemnifying Party or
      if
      the interests of the Indemnified Party reasonably may be deemed to conflict
      with
      the interests of the Indemnifying Party, the Indemnified Party shall have the
      right to select one separate counsel and to assume such legal defenses and
      otherwise to participate in the defense of such action, with the reasonable
      expenses and fees of such separate counsel and other expenses related to such
      participation to be reimbursed by the Indemnifying Party as incurred.

     

    
      
         

      

      
        42

        
          

        

      

      
         

      

    

    As
      to
      cases in which the Indemnifying Party has assumed and is providing the defense
      for the Indemnified Party, the control of such defense shall be vested in the
      Indemnifying Party; provided that the consent of the Indemnified Party shall
      be
      required prior to any settlement of such case or action, which consent shall
      not
      be unreasonably withheld. As to any action, the party which is controlling
      such
      action shall provide to the other party reasonable information (including
      reasonable advance notice of all proceedings and depositions in respect thereto)
      regarding the conduct of the action and the right to attend all proceedings
      and
      depositions in respect thereto through its agents and attorneys, and the right
      to discuss the action with counsel for the party controlling such action.

     

    (l)         
      PUBLICITY.
      The
      Company and the Buyer shall have the right to review a reasonable period of
      time
      before issuance of any press releases, filings with the SEC, NASD or any stock
      exchange or interdealer quotation system, or any other public statements with
      respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that the
      Company shall be entitled, without the prior approval of the Buyer, to make
      any
      press release or public filings with respect to such transactions as is required
      by applicable law and regulations (although the Buyer shall be consulted by
      the
      Company in connection with any such press release prior to its release and
      shall
      be provided with a copy thereof and be given an opportunity to comment thereon).
      The Company agrees that it will not disclose, and will not include in any public
      announcement, the name of the Buyers without the consent of the Buyers unless
      and until such disclosure is required by law or applicable regulation, and
      then
      only to the extent of such requirement.

    

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

    

    (n)        
      NO
      STRICT CONSTRUCTION.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

    

    (o)        
      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.

    

    (p)        REMEDIES.
      The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to Buyer, by vitiating the intent and purpose of the
      transactions contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for a breach of its obligations under this Agreement will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Agreement, that Buyer shall be entitled,
      in
      addition to all other available remedies in law or in equity, to an injunction
      or injunctions to prevent or cure any breaches of the provisions of this
      Agreement and to enforce specifically the terms and provisions of this
      Agreement, without the necessity of showing economic loss and without any bond
      or other security being required.

    
      
         

      

      
        43

        
          

        

      

      
         

      

    

    10.          
      NUMBER
      OF SHARES AND PURCHASE PRICE.
      Buyer
      subscribes for a Debenture in a principal amount equal to the Original Principal
      Amount (as defined above), having a Purchase Price equal to the subscription
      amount (“SUBSCRIPTION AMOUNT”) set forth on such Buyer’s signature page below
      against payment by wire transfer in the amount of the Subscription Amount (less
      any offset of expenses as permitted hereunder).

    

    The
      undersigned acknowledges that this Agreement and the subscription represented
      hereby shall not be effective unless accepted by the Company as indicated
      below.

    

     

    [INTENTIONALLY
      LEFT BLANK]

    
      
         

      

      
        44

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the undersigned Buyer does represent and certify under penalty
      of perjury that the foregoing statements are true and correct and that Buyer
      by
      the following signature(s) executed this Agreement.

    

    Dated
      this 30th
      day of
      June, 2007.

    

    

    

    
      	 	 	 
	
               Your
                Signature 

            	 	
               PRINT
                EXACT NAME IN WHICH YOU WANT
                THE
                SECURITIES TO BE REGISTERED

            
	 	 	 
	Buyer’s Entity Type and
              Residency:__________________________.	 	 
	 	 	 
	Buyer’s Subscription Amount:
              $______________________.	 	 
	 	 	 
	Original Principal Amount of Debentures
              Being
              Purchased: $__________________.	 	 
	 	 	 
	 	 	 DELIVERY
              INSTRUCTIONS:
	Name: Please Print 	 	 Please type or print address where your
              security is to be delivered 
	 	 	 
	 	 	 ATTN:_________________________
	Title/Representative Capacity (if
              applicable)	 	 
	 	 	 
	 	 	 
	Name of Company You Represent (if
              applicable)	 	 Street Address
	 	 	 
	 	 	 
	Place of Execution of this
              Agreement	 	  City,
              State or Province, Country, Offshore Postal Code
	 	 	 
	 	 	 
	Phone Number (For Federal Express) and
              Fax
              Number (re: Notice)	 	 

    

    

    THIS
      AGREEMENT IS ACCEPTED BY THE COMPANY IN THE INVESTMENT AMOUNT OF $
      _________________ (“SUBSCRIPTION AMOUNT”) ON THE 30th
      DAY OF
      JUNE, 2007.

     

    
      
        	 	
                ALTERNATIVE
                  CONSTRUCTION COMPANY, INC.

              
	 	 
	 	 
	 	
                By:______________________________________

              
	 	
                Print
                  Name:______________________________

              
	 	
                Title:_______________________________

              

      

      
        
           

        

        
          45

          
            

          

        

        
           

        

      

    SCHEDULE
      OF BUYERS

     

    
      	
              (1)

            	
              (2)

            	
              (3)

            	
              (4)

            	
              (5)

            	
              (6)

            
	
              Buyer

            	
              Address
                and

              Facsimile
                Number

            	
              Aggregate

              Principal
                of Debenture

            	
              Aggregate

              Number
                of

              Warrant

              Shares

            	
              Purchase

              Price

            	
              Legal
                Representative’s

              Address
                and

              Facsimile
                Number

            
	
               

            	
               

            	
               

            	
               

            	
               

            	
               

            
	 	 	 	 	 	 
	
              BridgePointe
                Master Fund Ltd.

            	
              1125
                Sanctuary Parkway

              Suite
                275

              Alpharetta,
                GA 30004

              Facsimile:
                770.777.5844

            	
               

              $2,173,913

            	
               

              815,217

            	
               

              $2,000,000

            	
              P.
                Bradford Hathorn, Esq.

              Roswell
                Capital Partners, LLC

              1125
                Sanctuary Parkway, Suite 275

              Alpharetta,
                GA 30004

              Facsimile:
                770-777-5844

            
	
               

              CAMOFI
                MASTER LDC

            	
               

              c/o
                Centrecourt Asset Management LLC

              350
                Madison Avenue, 

              8th
                Floor

              New
                York, NY 10017

              Facsimile:
                646-304-0500

            	
               

              $1,630,434.70

            	
               

              611,413

            	
               

              $1,500,000

            	
               

              Keith
                D. Wellner, General Counsel

              Centrecourt
                Asset Management LLC

              350
                Madison Avenue, 

              8th
                Floor

              New
                York, NY 10017

              Telephone:
                646-758-6755

              Facsimile:
                646-304-0500

            
	
               

              CAMHZN
                Master LDC

            	
               

              c/o
                Centrecourt Asset Management LLC

              350
                Madison Avenue, 

              8th
                Floor

              New
                York, NY 10017

              Facsimile:
                646-304-0500

            	
               

              $543,478.26

            	
               

              203,804

            	
               

              $500,000

            	
               

              Keith
                D. Wellner, General Counsel

              Centrecourt
                Asset Management LLC

              350
                Madison Avenue, 

              8th
                Floor

              New
                York, NY 10017

              Telephone:
                646-758-6755

              Facsimile:
                646-304-0500

            
	 	 	 	 	 	 
	
              Total:

            	 	 	 	
              $4,000,000

            	 

    

     

    
      
         

      

      
        46

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