Document:

ex10_1.htm

    
      

    

    Exhibit
      10.1

    July
      11,
      2007

    

    

    Clarion
      Finance Pte Ltd.

    80
      Raffles Place #32-01

    Uob
      Plaza, Singapore 048624

     

    
      	
              RE:

            	Powder
              River Basin Mowry Project Area
	 	T45-48N,
              R68-71W, 6th
              PM
	 	Campbell,
              Crook, Johnson & Weston Counties,
              Wyoming

    

     

    Gentlemen:

    

    By
      virtue
      of that certain letter agreement with American Oil and Gas, Inc. (“AOGI”), dated
      July 22, 2005, as amended by a letter agreement dated July 14, 2006 (as amended,
      the “AOGI Agreement”) attached hereto as Exhibit “A,” Tatonka Oil and Gas, Inc.
      (“Tatonka”) is the owner of interests in certain oil and gas leases described on
      Exhibit “B” attached hereto (collectively, the “Leases”) covering or affecting
      the lands described in Exhibit “B” (collectively, the
“Lands”).  Clarion Finance Pte Ltd. (the “Company”) wishes to acquire
      a portion of Tatonka’s interest in the Leases and Lands, and to participate with
      Tatonka and with AOGI and North Finn, LLC (“North Finn”) in the exploration and
      development of the Leases and Lands. This letter agreement (this “Agreement”),
      when executed by the Company, shall evidence the agreement between the parties
      by which the Company shall acquire from Tatonka the right to earn 50% of the
      interests owned by Tatonka in the Leases and Lands, subject to the terms and
      conditions set forth below.

    

    1.            
      Acquisition of Interest in Leases.  At the Closing (as herein
      defined), the Company will pay Tatonka, by certified funds or by wire transfer
      to Tatonka’s designated account, the sum of $339,453.60 (the “Lease Acquisition
      Fee”) and Tatonka shall execute and deliver to the Escrow Agent (as herein
      defined) an assignment in the form of Assignment, Bill of Sale and Conveyance
      attached hereto as Exhibit “C” (the “Assignment”) assigning to the Company 50%
      of Tatonka’s right, title and interest in and to the Leases and Lands and to the
      AOGI Agreement (which the Company shall ratify and confirm upon its receipt
      of
      the Assignment).  The instructions for wiring the Lease Acquisition
      Fee to Tatonka are as follows:

    

    Credit
      to
      Tatonka Oil & Gas Company, Inc.

    1515
      Arapahoe Street, Tower 1, 10th Floor

    Denver,
      CO 80202

    (303)
      476-4100

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    TO:

    

    Colorado
      Business Bank

    821
      17th
      Street

    Denver,
      CO 80202

    (303)
      293-2265

    Routing
      #102003206

    Account
      #
      3223787

     

    
      2.           
         Escrow Agent.  The Assignment shall be delivered by
        Tatonka to Kendor P. Jones (the “Escrow Agent”) of the law firm of Welborn
        Sullivan Meck & Tooley, P.C., who shall hold such Assignment in escrow until
        he receives written instructions to deliver such Assignment to the Company
        or to
        return the Assignment to Tatonka pursuant to Section 5
        below.
     

    

    3.          
        Participation in Commitment Wells.  AOGI, North
      Finn and Tatonka have agreed to spend $15,000,000 to drill vertical and
      horizontal wells on the Leases and Lands with the target depth the Mowry
      formation (the “Commitment Wells”).  The Company hereby agrees to pay
      to the operator that drills the Commitment Wells (the “Operator”) $9,000,000,
      representing Tatonka’s 60% share of the costs to drill and complete the
      Commitment Wells.  To the extent that Tatonka’s 60% share of the costs
      to drill and complete the Commitment Wells exceeds $9,000,000, the Company
      shall
      have no obligation to pay such excess costs and Tatonka shall pay the Operator
      its share of such costs in excess of $9,000,000.

    

    4.           
       Closing.  The closing of the transaction between the
      parties (the “Closing”) shall be held at Tatonka’s offices at 10:00 a.m., MDT,
      on July 11, 2007 (the “Closing Date”).  At the Closing, the Company
      shall pay Tatonka the Lease Acquisition Fee and Tatonka shall deliver the
      Assignment to the Escrow Agent.

    

    5.            
      Release of the Assignment from Escrow.  If the Company
      satisfies the requirements of Section 3 above, Tatonka shall instruct the Escrow
      Agent to deliver the Assignment to the Company.  If the Company fails
      to satisfy the requirements of Section 3, the Company shall instruct the Escrow
      Agent to return the Assignment to Tatonka.

    

    6.            
      Interests In Revenues From Commitment Wells Until
      Payout.  Until Payout (as defined in Section 8 below) of the
      Commitment Wells, the Company shall be entitled to receive 45% of the net
      revenues from the sale of production from such Commitment Wells and Tatonka
      shall be entitled to receive 15% of the net revenues from the sale of production
      from the Commitment Wells.

    

    7.           
       Interests in Revenues From Commitment Wells After
      Payout.  Following Payout of the Commitment Wells, the Company and
      Tatonka shall each be entitled to receive 30% of the net revenues from the
      sale
      of production from the Commitment Wells.  In addition, each party
      shall be responsible for 30% of the operating costs of the Commitment Wells
      both
      before and after Payout and shall be responsible for 30% of the costs and shall
      be entitled to 30% of the net revenues attributable to drilling, completing
      and
      operating any other wells drilled on the Leases and Lands pursuant to the
      Operating Agreement referred to in Section 7.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    8.            
      Payout.  For all purposes hereunder, the term “Payout” shall
      mean that time, if ever, when the Company shall have recovered from the proceeds
      of 45% of production from the Commitment Wells, after deducting the lessor’s
      royalty and any overriding royalties and similar burdens on production with
      respect to which the Leases and Lands are encumbered on the date of this
      Agreement, and all applicable taxes, all of the costs of the Company incurred
      in
      drilling, testing, completing and equipping the Commitment
      Wells.  Within sixty (60) days following completion of the last of the
      Commitment Wells, the Company shall furnish Tatonka with a detailed statement
      of
      the actual costs incurred in the drilling, testing, completing and equipping
      of
      the Commitment Wells.

    

    9.            
      Operating Agreement  In the AOGI Agreement, Tatonka and AOGI
      agreed to enter into a mutually agreeable Joint Operating Agreement (the “JOA”)
      covering the Leases and Lands.  The Company also agrees to enter into
      the JOA.

    

    10.           Area
      of Mutual Interest.  In the AOGI Agreement, Tatonka and AOGI
      created an area of mutual interest (the “AMI”) encompassing Townships 45-49
      North, Ranges 68-71 West, 6th P.M., Campbell
      County, Wyoming.  The Company hereby agrees to be bound by the terms
      and conditions governing the AMI as if it were an original party to the AOGI
      Agreement.

    

    11.           Notices.  Except
      as herein otherwise expressly provided, any notice or other communication
      required or permitted hereunder shall be in writing and shall be deemed given
      only when received by the party to whom the same is directed as
      follows:

    

    
      	 	
              Tatonka
                Oil and Gas, Inc.

            	 
	 	
              1515
                Arapahoe Street

            	 
	 	
              Tower
                1, 10th
                Floor

            	 
	 	
              Denver,
                CO 80202

            	 
	 	
              Attn:
                Dirck E. Tromp

            	 
	 	
              Telephone:
                (303) 476-4102

            	 
	 	
              Fax:
                (303) 476-4101

            	 
	 	
              E-Mail:
                DTromp@tatonkaorg.com 

            
	 	 	 
	 	
              Clarion
                Finance Pte Ltd.

            	 
	 	
              80
                Raffles Place #32-01

            	
               

            
	 	
              
                Uob
                  Plaza, Singapore 048624

              

            	 
	 	
              Attn:
                _____________________

            	 
	 	
              Telephone:
                ________________

            	 
	 	
              Fax:
                ______________________

            	 
	 	
              E-Mail:
                ___________________

            	 

    

    

    12.           Term.  The
      term of this Agreement (the “Term”) shall commence as of the date hereof and it
      shall end the later of (i) the termination of the AOGI Agreement, (ii) the
      termination of the JOA, or (iii) when one of the parties, or its successors
      and
      assigns, no longer own an interest in the Leases and Lands.

    

    13.           Amendments.  No
      amendments or other changes to this Agreement shall be effective or binding
      on
      either of the parties unless the same shall be in writing and signed by both
      parties.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    14.           Applicable
      Law; Venue.  This Agreement shall be governed by and interpreted
      in accordance with the laws of the State of Colorado, without reference to
      its
      conflict of laws provisions.  Forum and venue shall be exclusively in
      state or federal court in Denver, Colorado.

    

    15.           Assignability;
      Binding on Successors.  Either party may assign its rights and/or
      obligations under this Agreement, provided that it provides notice of such
      assignment to the other party.  This Agreement shall be binding upon
      and shall inure to the benefit of the parties and their respective successors
      and assigns.

    

    16.           Severability.  If
      a court of competent jurisdiction determines that any clause or provision of
      this Agreement is void, illegal or unenforceable, the other clauses and
      provisions of the Agreement shall remain in full force and effect, and the
      clauses and provisions that are determined to be void, illegal or unenforceable
      shall be limited so that they shall remain in effect to the extent permissible
      by law.

    

    17.           Counterparts.  This
      Agreement may be executed by the parties in counterparts, each of which shall
      be
      deemed to be an original instrument, but which together shall constitute one
      and
      the same instrument.  Execution may be evidenced by faxed signatures
      with original signature pages to follow promptly.

    

    18.           Relationship
      of Parties.  This Agreement shall not create, and shall not be
      construed as creating, a mining or other partnership or association, nor does
      this Agreement render the parties liable as partners.  The liability
      of the parties shall be several and not joint or collective.

    

    19.           No
      Third Party Beneficiaries.  Except for AOGI and North Finn, this
      Agreement is not intended to accrue to the benefit of any third
      party.

    

    20.           Entire
      Agreement.  This Agreement constitutes the entire agreement and
      understanding between the parties with respect to the subject matter
      hereof.  This Agreement supersedes all prior oral and written
      discussions, agreements and understandings relating to such subject
      matter.

    

    If
      you
      agree that the foregoing accurately reflects the agreement between the parties,
      please so indicate by signing and returning to the attention of the undersigned
      the enclosed duplicate original of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              Sincerely,  

            
	 	  	 
	 	
              TATONKA
                OIL & GAS, INC.  

            
	 	  	 
	 	  	 
	 	  	 
	 	 By: /s/
              DIRCK E. TROMP
	 	  	
              Dirck
                E. Tromp

            
	 	  	
              President
                and Chief Executive Officer

            

    

     

     

    
      	
              AGREED
                TO AND

            
	
              ACCEPTED
                this 12th

            
	
              day
                of July, 2007

            
	 
	
              CLARION
                FINANCE PTE LTD.

            
	 
	 
	
              By:
                /s/ DAVID DAWES

            
	
              Name:
                David Dawes

            
	
              Its:  PrincipalSECURITIES
      PURCHASE AGREEMENT

    

    SECURITIES
      PURCHASE AGREEMENT (this "AGREEMENT," “PURCHASE AGREEMENT,” or “SECURITIES
      PURCHASE AGREEMENT”), dated as of April 16, 2007, by and among QPC
      LASERS, INC.,
      a
      Nevada corporation, ("COMPANY"), and each buyer identified on the signature
      pages 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, upon the terms
      and
      conditions set forth in this Agreement, (i) secured convertible debentures
      (the
“DEBENTURES”) of the Company and (ii) Warrants (as defined in Section 1(b)(iv)
      in the form described in this Agreement, to purchase shares of Common Stock
      of
      the Company in a private offering. The minimum aggregate Commitment Amount
      (as
      defined in Section 10) of this offering of the Debentures to all Buyers shall
      be
      Four Million Two Hundred Fifty Thousand Dollars (U.S. $4,250,000) and the
      maximum aggregate Commitment Amount of this offering of the Debentures to all
      Buyers shall be Twelve Million U.S. Dollars (U.S. $12,000,000)(the “OFFERING”);

     

    C. The
      terms
      of the Debentures, including the terms on which the Debentures may be converted
      into common stock, $0.001
      par
      value, of the Company (the "COMMON STOCK"), are set forth in Debenture, in
      the
      form attached hereto as Exhibit
      A;

    

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

    

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.
      PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

    

    (a)
      CERTAIN DEFINITIONS. This
      Securities Purchase Agreement, the Debenture, the Registration Rights Agreement,
      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 mutually agree to the terms of each
      of the Transaction Documents. For purposes hereof:

    

    “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.

    

    “CLOSING”
      means the closing of the purchase and sale of the Securities pursuant to Section
      1(b).

    

    “CLOSING
      DATE” means the date of Closing.

     

    “EXEMPT
      ISSUANCE” means the issuance of (a) shares of Common Stock or options to
      employees, officers, directors or consultants (provided that no such common
      stock or options shall be issued to consultants unless such options are
      unregistered and subject to volume limitations under Rule 144, provided that
      such issuances to consultants shall not exceed 200,000 shares, subject to
      adjustment for reverse and forward stock splits and the like, and provided
      that
      the price of such issuances of Common Stock, and the conversion or exercise
      price of such issuance of options, to consultants shall not be subject to any
      adjustments or resets after issuance) of the Company in any 12 month period,
      provided that such issuance of shares of Common Stock or options to employees,
      officers, directors or consultants occurs pursuant to a stock or option plan
      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, (b) up to 300,000 warrants or options
      (with an exercise price no less than $1.00)
      to
      equipment lessors, and (c) securities upon the exercise, exchange of, conversion
      or redemption of, or payment of interest or liquidated or similar damages on,
      any Securities issued hereunder and/or 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 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).

    

    “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.

    

    “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, 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. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    “PERMITTED
      LIENS” means (i) Liens (as defined in Section 5 hereof) in favor of the Buyer;
      (ii) Liens in favor of the Holder; (iii) Liens for unpaid taxes that either
      (A)
      are not yet delinquent, or (B) are being contested in good faith in an
      appropriate manner, (c) Liens set forth on Schedule A, (iv) the interests of
      lessors or sublessors under operating leases, (v) purchase money Liens or the
      interests of lessors under capital leases so long as such Lien attaches only
      to
      the asset purchased or acquired and the proceeds thereof, (vi) Liens arising
      by
      operation of law in favor of warehousemen, landlords, carriers, mechanics,
      materialmen, laborers, or suppliers, incurred in the ordinary course of the
      Company’s or the Subsidiary’s business and not in connection with the borrowing
      of money, and which Liens either (A) are for sums not yet delinquent, or (B)
      are
      being contested in good faith in an appropriate manner, (vii) Liens or deposits
      to secure performance of bids, tenders, or leases incurred in the ordinary
      course of business and not in connection with the borrowing of money, (viii)
      Liens granted as security for surety or appeal bonds in connection with
      obtaining such bonds in the ordinary course of business, (ix) Liens resulting
      from any judgment or award that would not otherwise constitute a default
      hereunder, (x) any interest or title of a licensee or licensor under any license
      agreement permitted by this Agreement, (xi) Liens that arise in the ordinary
      course of business and do not in any material respect affect the property,
      (xii)
      Liens which are being contested in good faith in an appropriate manner, (xiii)
      Liens on patents, trademarks, trade names, service marks, copyrights, trade
      secrets or other intellectual property to the extent such Liens arise solely
      from the granting of licenses composing Permitted Transfers thereto or from
      any
      Person in the ordinary course of business consistent with past practice, (xiv)
      Liens in favor of the Existing Creditors (as defined in Section 5), and (xv)
      existing Liens shown on Schedule 5. 

     

    “PERMITTED
      TRANSFERS” means any disposition of property that is either (i) in the ordinary
      course of the business of the Company or its Subsidiaries, (ii) to a third
      party
      for reasonably equivalent value as deemed appropriate by the Company or its
      Subsidiaries in their reasonable business judgment, and that, in either case,
      that does not result, in a single transaction or a series of related
      transactions, in the disposition or sale of all or substantially all of the
      assets of the Company or its Subsidiaries, (iii) an Allowable IP Sale or
      Allowable Non-Exclusive IP Transaction as set forth in Section 4(m) hereof,
      or
      (iv) approved in writing by the Buyers. 

     

    “PURCHASE
      PRICE” shall mean the purchase price paid by the Buyer for the Debentures and
      the Warrants to be purchased by each Buyer.

    

    “SECURITIES”
      means the Debentures, the Warrants, the Conversion Shares and the Warrant
      Shares.

    

    “SECURITY
      AGREEMENT” means the Security Agreement, dated the date hereof, among the
      Company and the Purchasers, in the form of Exhibit C attached
      hereto.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    “WARRANT
      AMOUNT” shall have the meaning ascribed to it in Section 1(e)(v).

    

    (b)
      CLOSING OF THE PURCHASE OF DEBENTURES AND WARRANTS. The
      Closing shall occur not later than April 16, 2007. On the Closing Date, subject
      to the satisfaction or waiver of the terms and conditions set forth herein,
      the
      Company agrees to sell, and each Buyer, severally and not jointly, agrees to
      purchase, from the Company a Debenture having a purchase price equal to the
      Commitment Amount, and an accompanying number of Warrants (as described below)
      to purchase a number of shares equal to the applicable Warrant
      Amount.

    

    (c)
      CLOSING
      PROCEDURES; WARRANTS. 

    

    (i)
      Form
      of Debenture.
      Each
      Debenture shall be in the form annexed hereto as EXHIBIT
      “A.”

    

    (ii)
      Purchase
      Price of Debentures and Warrants; Original Issue
      Discount.
      Each
      Buyer shall pay $0.90 (the “PURCHASE PRICE”) for each $1.00 of principal amount
      of Debentures and related Warrants to be purchased by such Buyer at the Closing,
      representing a ten percent (10%) original issue discount. 

    

    (iii)
      Form
      Of Payment.
      On or
      before each Closing Date (as defined below), (i) each Buyer shall pay the
      applicable Purchase Price for the Debenture and the Warrants to be issued and
      sold to it at the Closing (as defined below) by wire transfer of immediately
      available funds to the Company, in accordance with the Company's written wiring
      instructions, against delivery of duly executed certificates representing the
      Debenture (“DEBENTURE CERTIFICATE”) having an aggregate initial principal amount
      (the “ORIGINAL PRINCIPAL AMOUNT”) equal to $1.00 for each $0.90 of the Purchase
      Price and the number of Warrants equal to the applicable 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. 

    

    (iv)
      Closing
      Date.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      the
      Closing shall occur when subscriber funds representing the aggregate Purchase
      Price of the Debenture being purchased by the Buyers 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 Closing hereunder shall occur not later than April
      16, 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. 

    

    (v)
      Warrants.
      Each of
      Buyer’s Debentures shall be accompanied by a number of warrants (“WARRANTS”)
      equal to the Original Principal Amount of the 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 be in the form of
      the Warrant annexed hereto as EXHIBIT “D,” except that the “Initial Exercise
      Price,” as defined therein, shall equal $1.05 (the “INITIAL WARRANT EXERCISE
      PRICE”),
      subject
      to adjustment therein. The 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.

    

    (vi)
      Closing
      Deliveries.
      On the
      Closing Date, the Company will deliver or cause to be delivered to each Buyer:
      

    

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

    

    (B)
      certificates representing the applicable Debenture and Warrant,

    

    (C)
      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,

    

    (D)
      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"), 

    

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

    

    (F)
      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)(v)) with an exercise price equal to the Initial Warrant Exercise Price
      (as
      defined in Section 1(b)(v)) subject to adjustment therein,

    

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

    

    On
      the
      Closing Date, each Buyer shall deliver or cause to be delivered to the Company
      the following:

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

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

    

    (B)
      funds
      in the amount of such Buyer’s applicable Purchase Price by wire transfer to the
      account as specified in writing by the Company.

     

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

    

    (a)
      STATUS OF BUYER.
      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. 

    

    (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, provided that the Buyer shall not be entitled to rely on a
      representation which it knows to be untrue.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    (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.

    

    (g)
      ORGANIZATION; AUTHORIZATION; ENFORCEMENT.
      If Buyer
      is an entity, the Buyer is an entity 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.

    

    (h)
      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.

    

    (i)
      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. 

    

    (j)
      NO GENERAL SOLICITATION.
      Buyer
      has not been the subject of general solicitation and has not relied on the
      content of the Company’s registration statement on Form SB-2, File #333-137413
      in making its investment decision for this Offering. Furthermore, the Buyer
      acknowledges that it understands that the Company’s registration statement on
      Form SB-2, File #333-137413 and all subsequently filed amendments to such
      registration statement have been withdrawn.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    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:

    

    (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 obligation 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. 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    (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
180,000,000
      shares
      of Common Stock, of which approximately 38,559,283
      shares
      are outstanding as of the date hereof and 20,000,000
      shares
      of preferred stock, par value $0.001
      per
      share, of which none 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 3(C-1). If any such securities are listed on the SCHEDULE 3(C-1),
      the number or amount of each such outstanding convertible security and the
      conversion terms are set forth in said SCHEDULE 3(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.

    

    The
      Company owns all of the outstanding shares of capital stock of Quintessence
      Photonics Corporation, a Delaware corporation (“Quintessence”). All such shares
      are validly issued, fully paid, nonassessable and free of preemptive rights
      or
      other similar rights and are owned directly or indirectly by the Company, free
      and clear of any Liens (as defined in Section 5 hereof). There are no
      subscriptions, options, warrants, voting trusts, proxies or other commitments,
      understandings, restrictions or arrangements relating to the issuance, sale,
      voting or transfer of any shares of capital stock or other equity interests
      of
      Quintessence, including any right of conversion or exchange under any
      outstanding security, instrument or agreement. The Company has no material
      investment in any entity other than Quintessence. 

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (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, other than restrictions
      on
      transfer arising under applicable federal or state securities laws.

    

    (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 Debenture 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 it may
      not refuse to issue Conversion Shares upon conversion of or otherwise pursuant
      to the Debenture and to issue Warrant Shares upon exercise of or otherwise
      pursuant to the Warrants in accordance with this Agreement, 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 Debenture 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.
      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) except
      as
      otherwise set forth in SCHEDULE 3(F), conflict with or result in a violation
      of
      any provision of the Certificate of Incorporation or By-laws, (ii) except as
      otherwise set forth in SCHEDULE 3(F), 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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    defaults
      as would not, individually or in the aggregate, have a Material Adverse Effect.
      The businesses of the Company and its Subsidiaries, if any, are not being
      conducted, and shall not be conducted so long as a Buyer owns any of the
      Securities, in violation of any law, ordinance or regulation of any governmental
      entity the violation of which would 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 Debenture or the Warrants
      in
      accordance with the terms hereof or thereof or to issue and sell the Debenture
      and Warrants in accordance with the terms hereof and to issue the Conversion
      Shares upon conversion of or otherwise pursuant to the Debenture 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 trading requirements of the Principal Market
      (as defined herein) and does not reasonably anticipate that the Common Stock
      will cease to be traded 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.

    

    (g)
      SEC DOCUMENTS; FINANCIAL STATEMENTS.
      Since at
      least May 12, 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 May 12, 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 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. The Company
      is
      the subject of the going concern qualification described in SCHEDULE 3(G)
      attached hereto.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    (h)
      ABSENCE OF CERTAIN CHANGES.
      Except
      for losses incurred in the ordinary course of business that have been publicly
      disclosed 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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    (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.    

    

    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 any of its
      Subsidiaries.

    

    “CORE
      INTELLECTUAL PROPERTY” shall mean the Intellectual Property designated as “Core
      Intellectual Property” on SCHEDULE 3(J-3) hereto.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    (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 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.

    

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

    

    (n)
      DISCLOSURE.
      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).

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    (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.
      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 require
      registration under the 1933 Act of the issuance of the Securities to any Buyer.
      The issuance of the Securities to each Buyer will not be integrated with any
      other issuance of the Company's securities (past, current or future) for
      purposes of any stockholder approval provisions applicable to the Company or
      its
      securities.

    

    (q)
      NO BROKERS.
      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.

    

    (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 May 12, 2006, 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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    (s)
      ENVIRONMENTAL MATTERS.

    

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

    

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

    

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

    

    (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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

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

    

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

    

    (x)
      SOLVENCY.
      The
      Company (both before and after giving effect to the transactions contemplated
      by
      this Agreement) is solvent (i.e., its assets have a fair market value in excess
      of the amount required to pay its probable liabilities on its existing debts
      as
      they become absolute and matured) and currently the Company has no information
      that would lead it to reasonably conclude that the Company would not have the
      ability to, nor does it intend to take any action that would impair its ability
      to, pay its debts from time to time incurred in connection therewith as such
      debts mature. Except as disclosed in SCHEDULE 3(X), the Company did not receive
      a qualified opinion from its auditors with respect to its most recent fiscal
      year end and does not anticipate or know of any basis upon which its auditors
      might issue a qualified opinion in respect of its current fiscal
      year.

    

    (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 taken, and will not take, directly or indirectly, any action
      designed to, or that might reasonably be expected to, cause or result in
      stabilization or manipulation of the price of the Common Stock of the Company
      to
      facilitate the sale or resale of the Securities or affect the price at which
      the
      Securities may be issued or resold. 

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

     (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 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”).

    

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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    

    (gg)
      ABSENCE
      OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR EVENTS.
      To the
      Company’s knowledge, none of the following has occurred during the past five (5)
      years with respect to a Company Control Person (as defined below):

    

    (i)
      A
      petition under the federal bankruptcy laws or any state insolvency law was
      filed
      by or against, or a 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)
      Such 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)
      Any order, judgment or decree, was entered within the past five (5) years and
      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:

    

    (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;

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

    (iv)
      Such Company Control Person was 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 (iii) of this item, or to be associated with Persons engaged in any
      such activity; or

    

    (v)
      Such 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 Debenture in right of payment, whether with respect to
      interest or upon liquidation or dissolution, or otherwise, other than
      indebtedness secured by purchase money security interests (which is senior
      only
      as to underlying assets covered thereby) and capital lease obligations (which
      is
      senior only as to the property covered thereby).

    

    (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.   Except
      as disclosed on SCHEDULE
      3(LL),
      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.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

    (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.

     

    
      
        
        

      

      
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    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 15(d) 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 use the proceeds from the sale of the Debenture and the Warrants
      in the manner set forth in SCHEDULE 4(D) attached hereto and made a part hereof
      and shall not use such proceeds to pay down its corporate debt or in a manner
      inconsistent with the provisions of Section 10 of the Debenture. None of the
      proceeds of the offering shall be used to repay any debt or obligation to any
      officer, director or manager of the Company (collectively, “INSIDERS”), or any
      of their affiliates, except that (i) up to $107,827.30
      in the
      aggregate of the proceeds may be used to pay deferred
      salary
      to
      Jeffrey E. Ungar and George M. Lintz
      that is
      unpaid as of March 31, 2007, and (ii)
      (if,
      and only if, the proceeds of this Offering, less any commissions and less any
      fees paid pursuant to Section 4(q), exceed $6,300,000) up to $300,000 in the
      aggregate of the proceeds may be used to pay bonuses to Jeffrey E. Ungar and
      George M. Lintz that have been declared but unpaid as of the Closing Date.
      From
      the date hereof until the Debentures are no longer outstanding, in the event
      that the Company raises capital through the issuance of debt or equity, the
      Company shall be prohibited from using in excess of twenty five percent (25%)
      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.

     

    (e)
      CAPITAL
      RAISING LIMITATIONS; RIGHT OF PARTICIPATION.

     

    (i)
       Lock
      up of Issuance of Securities.
      Except
      for Permitted Subsequent Financings (as defined in the Debenture), except for
      Exempt Issuances and except for the transactions or other issuances of
      securities by the Company as contemplated by the Transaction Documents, from
      the
      date hereof until the date that is one (1) year after the Closing Date, neither
      the Company nor any Subsidiary shall issue shares of Common Stock or Common
      Stock Equivalents, and from the date that is one (1) year after the Closing
      Date
      until the date that is two (2) years after the Closing Date, neither the Company
      nor any Subsidiary shall issue shares of Common Stock or Common Stock
      Equivalents for an effective price per share, or for a conversion or exchange
      price per share, that is less than the Initial Conversion Price (as defined
      in
      the Debenture); PROVIDED,
      HOWEVER,
      the one
      (1) and two year periods set forth in this Section 4(e), respectively, shall
      be
      extended for the number of Trading Days during such period in which (i) trading
      in the Common Stock is suspended by any Trading Market, or (ii) following the
      Effective Date, the Registration Statement is not effective or the prospectus
      included in the Registration Statement may not be used by the Buyers for the
      resale of the Underlying Shares. 

     

    
      
        
        

      

      
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    (ii) Capital
      Raising Limitations.
      During
      the period that any Debenture remains outstanding (the “LIMITATION PERIOD”), the
      Company shall not issue or sell, or agree to issue or sell Variable Equity
      Securities (as defined below), or any securities of the Company pursuant to
      an
      Equity Line (as defined below) structure or format or any securities of the
      Company in exchange for goods or services, without obtaining the prior written
      approval of each of the Buyers, with the exception of any such agreements,
      transactions or Equity Lines existing as of the date hereof. 
      For
      purposes hereof, an “EQUITY LINE” shall mean a 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. For purposes
      hereof, the following shall be collectively referred to herein as, the “VARIABLE
      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 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 (C) any common stock that is sold at
      a
      discount to the Market Price at the time of closing that is greater than 10%,
      (D) any adjustable warrant where the number of shares issuable thereunder is
      subject to increase, (E) 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, (F) any warrant, convertible security or other Common
      Stock
      Equivalent with a conversion, exercise or exchange price that is set a price
      that represents a discount to the Market Price at the time of closing of such
      warrant, convertible security or other Common Stock Equivalent that is greater
      than 10%, (G) any note, debenture or other debt obligation that is accompanied
      by shares of Common Stock for which the additional consideration (in excess
      of
      the face value of the debt obligation) per share is less than 90% of the Market
      Price at the time of closing. For purposes of the above, the “MARKET PRICE” at
      time of closing shall mean the Market Price, as defined in the Debenture.

     

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

    

    (A)
      From
      the date hereof and during the period that any portion of the Debenture is
      outstanding, 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 in up to the Buyer’s Participation Maximum (as defined below) of the
      Subsequent Financing. 

     

    
      
        
        

      

      
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    (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 fifty percent (50%) of 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 one hundred percent (100%) of the ratio of (x) the Original Principal
      Amount of Securities 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).

     

    
      
        
        

      

      
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    (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 60 Trading Days after the
      date
      of the initial Subsequent Financing Notice.

    (H)
      Notwithstanding the foregoing, Section 4(e) shall not apply in respect of an
      (i)
      Exempt Issuance or (ii) an underwritten public offering of Common Stock,
      provided that it is expressly agreed and understood that Permitted Subsequent
      Financings remain subject to Buyer’s rights of participation in Subsequent
      Financings pursuant to this Section 4(e)(iii).

    

    (iv) Most
      Favored Nation (MFN) Securities Exchange Provision. From
      the
      date hereof until the date when such Buyer no longer holds any Debentures,
      if
      the Company effects a Subsequent Financing, each Buyer may elect, in its sole
      discretion, to 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) an underwritten public offering of Common Stock. The Company shall provide
      each Buyer with notice of any such Subsequent Financing in the manner set forth
      in Section 4(e)(iv), provided that following such an 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
      Subsection 4(e) 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) 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) 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 between the Company and a third party that are in violation of this
      Subsection 4(e) 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 this Subsection 4(e).

     

    
      
        
        

      

      
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    (f)
      SECURITIES
      LAWS DISCLOSURE; PUBLICITY. The
      Company shall, on the next Business Day following the Closing Date, issue a
      press release with respect to the transactions contemplated hereby and 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 180,000,000
      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 Debenture, 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 Debenture 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 Debenture
      and Warrants and issuance of the Conversion Shares and Warrant Shares in
      connection therewith (based on the Conversion Price (as defined in the
      Debenture) 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 Debenture and exercise of or otherwise pursuant to the Warrants without
      the
      consent of the Buyers. The Company shall use its best efforts at all times
      to
      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 Debenture (based on the Conversion Price (as defined in the Debenture)
      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 Debenture (based on the Conversion
      Price (as defined in the Debenture) 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 3b-3 of the 1934 Act) of the Common Stock or hedging transaction which
      established a net short position with respect to the Common Stock. For purposes
      of clarification, a “net short position” of the Buyer shall be determined by
      offsetting any short sales by the number of shares of Common Stock the Buyer
      then holds plus any shares of Common Stock the Buyer may receive upon conversion
      of the Debentures in full and exercise of the Warrants in full, ignoring any
      conversion or exchange limitations thereon for such purpose, provided, that,
      at
      the time the short sale trade is entered the price of the Common Stock is at
      least $1.50, subject to adjustment for reverse and forward stock splits and
      the
      like. If such number of shares exceeds a Buyer’s aggregate short position, or if
      the minimum stock price of the Common Stock at the time the short sale trade
      is
      entered is below $1.50, such Buyer shall be deemed to have a “net short
      position.” 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. Affiliate includes each subsidiary of the Company.

    

    (j)
      LISTING.
      The
      Company will use its best efforts to obtain and, so long as any Buyer owns
      any
      of the Securities, maintain the trading of its Common Stock on the over the
      counter Bulletin Board (“OTC-BB”), or to obtain and, so long as any Buyer owns
      any of the Securities, maintain the listing and trading of its Common Stock
      on
      the Nasdaq National Market (the "NNM"), the Nasdaq SmallCap Market (the "NASDAQ
      SMALLCAP"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange
      ("AMEX")(whichever of the foregoing 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 each 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 Debenture 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.

    

    (m)
      LIMITATION
      ON SALE OR DISPOSITION OF INTELLECTUAL PROPERTY.
      Except
      as otherwise provided in the IP Restrictions (as defined below), the Company,
      may at any time, without the Buyers' written consent, enter into any of the
      following agreements with respect to its Intellectual Property: (i) Licensing
      Agreements and sub-licenses, or (ii) assignments or sales of its Intellectual
      Property, provided, however, that any of the foregoing must be approved by
      a
      majority of the independent directors of the Company. 

    

    So
      long
      as any portion of the Debenture remains outstanding, the Company shall not,
      in
      each case without the written consent of Holders (as defined in the Debenture)
      holding at least two-thirds (2/3) of the then outstanding principal amount
      of
      Debentures, (i) 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 3(J) 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") to any of its affiliates (as such term is defined in Rule 501(b) of
      Regulation D), or to any officer, director or senior manager of the Company
      or
      to any family member of any such person (collectively, "CONTROL PERSONS”), or to
      any entity that is controlled by any such Control Person or in which any such
      Control Person has any beneficial interest, (ii) sell, convey, dispose of,
      spin
      off or assign any or all of its Intellectual Property Rights related to Core
      Intellectual Property, unless the cash consideration received by the Company
      in
      exchange for such Core Intellectual Property exceeds $50 million (an “Allowable
      IP Sale”), or (iii) enter into one or more licensing, development or
      collaboration agreements pursuant to which the Company may share rights to
      its
      Core Intellectual Property (collectively, "LICENSING AGREEMENTS") with respect
      to its Core Intellectual Property, unless such Licensing Agreements are
      Allowable Non-Exclusive IP Transactions (as defined below) or the net revenues
      of the Company resulting from such licensing agreements exceed $5 million per
      calendar year (collectively, the "IP RESTRICTIONS"). For purposes hereof, an
      “ALLOWABLE NON-EXCLUSIVE IP TRANSACTION” is a Licensing Agreement that is made
      between the Company and a person or entity that is not a Control Person (as
      defined above), and which does not grant the licensee (i) any right to exclude
      any other person or entity from using, selling, or licensing the Core
      Intellectual Property or from using or selling products that utilize the
      technologies covered by the Core Intellectual Property, or (ii) any right to
      limit any other person or entity as to geography, time, or otherwise, from
      using, selling, or licensing the Core Intellectual Property or from using or
      selling products that utilize the technologies covered by the Core Intellectual
      Property. 

     

    
      
        
        

      

      
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    Notwithstanding
      anything to the contrary herein, the Company shall not, without the written
      consent of any Holders (as defined in the Debenture) whose Debentures are in
      default, and other Holders (who, together with the Holders whose Debentures
      are
      in default) hold at least two-thirds (2/3) of the then outstanding principal
      amount of Debentures, (i) sell, convey, dispose of, spin off or assign title
      to
      any of its Intellectual Property or Intellectual Property Rights to any person
      or entity, or (ii) enter into any Licensing Agreement(s) with respect to any
      of
      its Intellectual Property or Intellectual Property Rights with any person or
      entity, during the period beginning on the date of any Event of Default (as
      defined in the Debenture) has occurred pursuant to the terms of the Debenture
      through the date that such Event of Default is cured.

    

    (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.

    

    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. 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    

    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 Beneficial Ownership Limitation provisions of this Section
      4(n)
      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(n) 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.

    

    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)
      [Intentionally
      left blank]

    

    (p)
      EQUAL
      TREATMENT OF BUYERS.
      No
      consideration shall be offered or paid to any person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Agreements
      unless the same consideration is also offered to all of the parties to the
      Transaction Agreements.

     

    (q)
      LEGAL
      AND DUE DILIGENCE FEES.
      The
      Company shall pay to Bristol Investment Fund, Ltd. (the “BRISTOL”) a cash fee of
      $20,000 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. Bristol may
      withhold such amount out of the Purchase Price for its Debenture. In addition,
      the Company shall pay Bristol Capital, LLC a seven percent (7%) origination
      fee
      on Bristol’s Commitment Amount and Bristol Capital, LLC will be entitled to ten
      percent (10%) warrant coverage on Bristol’s Commitment Amount. The origination
      fee and Warrant Shares shall be delivered to Bristol Capital, LLC at 19009
      Wilshire Blvd., Suite 1410, Los Angeles, California 90024, Attn. Amy Wang,
      telephone number (310) 696-0333.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    

    (r)
      LIMITED
      STANDSTILL.
      The
      Company will deliver to the Subscribers 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 that are identified on SCHEDULE 4(r) hereto (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.

    

    (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 relating
      to
      securities that are not the Securities, other than an S-8 to cover no more
      than
      5,800,000 shares issued pursuant to the Company’s stock option plan(s), attached
      as SCHEDULE 4(t) hereto and the non-qualified stock option grants set forth
      on
      SCHEDULE 3(C-2).  

    

    (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, person 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)
      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.

     

    (v)
      [INTENTIONALLY
      LEFT BLANK].

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    

    5.
      SECURITY; SENIOR DEBT.
      

    

    (i)
      Grant
      Of Security Interest.
      Except
      as otherwise set forth on SCHEDULE 5 annexed hereto, the Company
      hereby represents that it has good and marketable title to all of the common
      stock of Quintessence (the “QUINTESSENCE
      COMMON STOCK”),
      free
      and clear of
      any
      mortgage, lien, pledge, charge, security interest or other encumbrance
      (collectively, “LIENS”),
      including any restriction on the right to vote, sell or otherwise dispose of
      the
      Quintessence Common Stock. Prior
      to,
      and as a condition to Closing, the Company shall enter into a Security Agreement
      in the form of EXHIBIT C annexed hereto (the “SECURITY AGREEMENT”), which shall
      grant the Buyers a continuing security interest in all of the assets of the
      Company, which consist of the Company’s right, title and interest to all of the
Quintessence
      Common Stock (the “INITIAL
      COLLATERAL”)
      as
      collateral security for all of its “Obligations” (as defined in the Security
      Agreement).
      In the
      event that subsequent to the Closing Date, any of the Holders of a minimum
      of
      Five Hundred Thousand (US $500,000) of the Original Principal Amount of the
      outstanding Debentures determines that he, she or it would like a security
      interest on all of the property of Quintessence, the Company shall use
      commercially reasonable efforts to (i) obtain an inter-creditor arrangement
      with
      Finisar Corporation (“FINISAR”) and the other existing secured creditors of
      Quintessence (the “EXISTING
      CREDITORS”)
      whereby such Existing Creditors each agree to allow Quintessence to grant to
      all
      of the holders of Debentures (the “HOLDERS”) a security interest lien junior
      only to liens existing on the date of this Agreement and the Permitted Liens
      on
      all of the property constituting collateral under the Quintessence Security
      Agreement (defined below) and (ii) cause Quintessence to enter into a Security
      Agreement (the “QUINTESSENCE SECURITY AGREEMENT”) which shall state that all of
      the Debentures are secured by substantially all of Quintessence’s property as
      described therein (the “SUBSEQUENT
      COLLATERAL”)
      from
      that day forward; provided
      that
      the
      Buyer and the Holders acknowledge and agree that they will enter into
      subordination agreements in favor of the Existing Creditors, in a form
      acceptable to the Existing Creditors, with respect to such Subsequent Collateral
      concurrently with, and as a condition precedent to, the Company satisfying
      the
      obligations in this sentence. 

    

    The
      Company hereby represents that the Holder has a senior lien on the Initial
      Collateral and agrees not to grant any liens on the Initial Collateral that
      are
      either senior to, or in parity with, the Holder’s lien. 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
      Liens upon or in any of the property owned by the Company or any of its
      Subsidiaries except for Permitted Liens and shall not assign or transfer any
      interest in the property owned by the Company or any of its Subsidiaries unless
      such transfer is a Permitted Transfer. 

    

    (ii) Limitation
      On Future Debt; Subordination.
      Before
      entering into any future debt with a third party that is not otherwise
      prohibited under the Transaction Documents, the Company shall further comply
      with the following requirements: (i) any debt financing issued by the Company
      after the date hereof but prior to the earlier of (1) the date that the
      Registration Statement is initially filed with the SEC, or (2) the Filing
      Deadline (as defined in the Registration Rights Agreement) shall, by its terms,
      be made either expressly subordinate to, or pari-passu with, the Debentures,
      and
      (b) any debt financing issued by the Company after the earlier of (1) the date
      that the Registration Statement is initially filed with the SEC, or (2) the
      Filing Deadline shall, by its terms, be made expressly subordinate to the
      Debentures. With respect to any financing that is required to be expressly
      subordinate to the Debentures, the Company shall first obtain a subordination
      agreement, satisfactory to the Holders of an outstanding majority of the
      Debentures, from the proposed debt holder. 

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    

    (iii) Senior
      Debt.
      In the
      event that the Liens held by Existing Creditors are terminated and released,
      the
      Company shall agree to provide the Holders with a first lien on all of the
      property of Quintessence. Furthermore, the Company hereby consents to permit
      Bristol and its designees to negotiate and purchase the senior debt from the
      Existing Creditors, and agrees to honor the transfer of any such senior debt
      from the Existing Creditors to Bristol and/or its designees, provided that
      such
      transfer complies with all applicable laws, rules and regulations, and Bristol
      and its designees shall have received all required consents and authorizations
      for such transfer. 

    

    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
      Debenture): (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 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. 

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    

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

    

    (a)
      The
      Buyer shall have executed each of the Transaction Documents, 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 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
      the
      Closing is subject to the satisfaction, at or before the Closing Date, of each
      of the following conditions, provided that these conditions are for such Buyer's
      sole benefit and may be waived by such Buyer at any time in its sole
      discretion:

    

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

    

    (b)
      The
      Company shall have delivered to such Buyer 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 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.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    

    (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, 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.

     

    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.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    

    (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 by authorized representatives of both parties, and approved
      by Buyers holding at least sixty seven percent (67%) of the total outstanding
      Debentures 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.

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    

    (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:
      Mr.
      George Lintz, CFO

    QPC
      Lasers, Inc.

    15632
      Roxford Street

    Sylmar,
      CA 91342 

    Phone:
      818-986-0000

    Fax:
      818-301-0431

     

    With
      copy
      to:

     

    Hillel
      T.
      Cohn , Esq.

    Morrison
      & Foerster 

    555
      West
      Fifth Street, Suite 3500 

    Los
      Angeles, California 90013-1024 

    Phone:
      (213) 892-5251 

    Fax:
      (213) 892-5454

    

    If
      to a
      Buyer: To the address set forth immediately below such

    Buyer's
      name on the signature pages hereto.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    

    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; PROVIDED,
      HOWEVER, that prior to any assignment of its rights hereunder to a person (other
      than an affiliate) that purchases any Debenture or Warrants from such Buyer
      in a
      private transaction such Buyer shall provide the Company with written notice
      of
      its intention to sell some or all of the Debenture or Warrants, which notice
      shall disclose the proposed purchase price for such Debenture or Warrants,
      and
      the Company shall have the option, during the ten (10) business day period
      following such notice, to purchase all, but not less than all, of such Debenture
      and/or Warrants at the proposed purchase price, after which period the Buyer
      shall be free to sell the Debenture and/or Warrants to a third party at such
      proposed purchase price.

    

    (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 a period of three (3) years after each
      Closing contemplated by this Agreement 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.

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    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).

    

    (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.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    

    (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.

    

    10. NUMBER
      OF SHARES AND PURCHASE PRICE.
      Buyer
      subscribes Debenture in an initial principal amount equal to the Original
      Principal Amount set forth on the signature page hereto against payment by
      wire
      transfer or
      other form acceptable to the Company, in
      the
      amount of the Commitment 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]

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    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 16th day of April, 2007.

    

      
        	 	 	 
	
                Your
                  Signature

              	 	
                PRINT
                  EXACT NAME IN WHICH YOU WANT 

              
	 	 	
                THE
                  SECURITIES TO BE REGISTERED

              
	 	 	 
	 	 	 
	
                Commitment
                  Amount 

              	 	 
	 	 	 
	
                 

              	 	
                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)

                

              	 	 
	 	 	 
	 	 	 
	
                WITH
                  A COPY TO:

              	 	 
	
                Please
                  type or print address where copies are to be delivered 

              	 	 
	 	 	 
	
                ATTN.:_________

              	 	 
	 	 	 
	
                 

              	 	 
	
                Street
                  Address

              	 	 
	 	 	 
	 	 	 
	
                City,
                  State or Province, Country, Offshore Postal Code

              	 	 
	 	 	 
	 	 	 
	
                Phone
                  Number (For Federal Express) and Fax Number (re: Notice)

              	 	 

      

    

    

    [signature
      page to Securities Purchase Agreement]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    THIS
      AGREEMENT IS ACCEPTED BY THE COMPANY AS TO A PRINCIPAL AMOUNT OF DEBENTURES
      IN
      THE AMOUNT OF $_________________
      (the
“COMMITMENT AMOUNT”) AND THE ACCOMPANYING WARRANTS ON THE 16th DAY OF APRIL,
      2007.

     

    
      	 	 	QPC LASERS,
              INC. 
	 	 	 	 
	 	 	By: 	 
	 	 	Print
              Name: 	 
	 	 	Title: 	 

    

    

    

    [Signature
      page to Securities Purchase Agreement]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      OF BUYERS

     

    
      	
              (1)

            	 	
              (2)

            	 	
              (3)

            	 	
              (4)

            	 	
              (5)

            	 	
              (6)

            	 
	
              Buyer

            	 	 	
              Address
                and

              Facsimile
                Number

            	 	 	
              Aggregate

              Principal
                of Debenture

            	 	 	
              Aggregate

              Number
                of

              Warrant

              Shares

            	 	 	
              Commit-ment
                Amount

            	 	 	
              Legal
                Representative’s

              Address
                and

              Facsimile
                Number

            	 
	
               

            	 	 	
            	 	 	
            	 	 	
            	 	 	
            	 	 	
            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Total:

            	 	 	 	 	
              $

            	
              ___

            	 	 	
              ___

            	 	
              $

            	
              ___

            	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    Debenture

    

    Please
      see Exhibit 99.2 to the Company’s Current
      Report
      on Form 8-K filed on April 20, 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      B

    Registration
      Rights Agreement

    

    Please
      see Exhibit 99.4 to the Company’s Current
      Report
      on Form 8-K filed on April 20, 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      C

    Security
      Agreement

    

    Please
      see exhibit 99.5 to the Company’s Current
      Report
      on Form 8-K filed on April 20, 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      D

    Warrant

    

    Please
      see Exhibit 99.3 to the Company’s Current
      Report
      on Form 8-K filed on April 20, 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      E

    Form
      of Legal Opinion

    April
      ___, 2007

    

    To
      the
      Buyers identified on the signature page to the Securities Purchase Agreement
      dated April 16, 2007

    

     

    
      	
              Re:

            	
              QPC
                Lasers, Inc Convertible Debentures with
                Warrants

            

    

     

    Ladies
      and Gentlemen:

     

    We
      have
      acted as counsel to QPC Lasers, Inc., a Nevada corporation (the
“Company”),
      in
      connection with the issuance and sale by the Company of US $ _______ principal
      amount of 10% secured convertible debentures due on April 16, 2009 (the
“Debentures”)
      and
      warrants to purchase ______ shares of the Company’s common stock (the
“Warrants”),
      pursuant to the terms of an Securities Purchase Agreement, dated April 16,
      2007
      (the “Purchase Agreement”),
      by
      and among the Company and the buyers identified on the signature pages thereto
      (the “Buyers”).
      This
      opinion is furnished to you pursuant to Section 8(f) of the Purchase
      Agreement. All capitalized terms used herein and not otherwise defined shall
      have the respective meanings assigned to them in the Purchase Agreement.

     

    We
      have
      examined originals or copies of the following documents; all dated as of April
      16, 2007 (the “Transaction
      Documents"):
      

     

    
      	 	
              i.

            	
              the
                Purchase Agreement; 

            

    

     

    
      	 	
              ii.

            	
              the
                Debenture;

            

    

     

    
      	 	
              iii.

            	
              the
                Registration Rights Agreement; and

            

    

     

    
      	 	
              iv.

            	
              the
                Warrants.

            

    

     

    In
      addition, we have examined such corporate records, documents, instruments,
      certificates of public officials and of the Company, including a certificate
      of
      George Lintz, Chief Financial Officer and Chief Operating Officer of the
      Company, dated April 16, 2007, (the “Opinion
      Certificate”),
      made
      such inquiries of the officials of the Company and considered such questions
      of
      law as we have deemed necessary for the purpose of rendering the opinions set
      forth herein. In rending this opinion, we have relied upon the Opinion
      Certificate as to certain factual matters. We have made no independent
      investigation of the accuracy or completeness of such matters.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    In
      such
      examination, we have assumed the genuineness of all signatures and the
      authenticity of all items submitted to us as originals and the conformity with
      originals of all items submitted to us as copies. In making our examination
      of
      documents executed by parties other than the Company, we have assumed that
      each
      other party has the power and authority (or in the case of an individual, the
      capacity) to execute and deliver, and to perform and observe the provisions
      of
      such documents, and the due authorization by each such party of all requisite
      action and the due execution and delivery of such documents by each such party,
      and that such documents constitute the legal, valid and binding obligations
      of
      each such party enforceable against such party in accordance with their
      terms.

    

    Our
      opinions in paragraph 1 and 2 below as to the qualification and good
      standing of the Company and Quintessence Photonics Corporation are based solely
      on certificates of public officials in the state(s) named in those paragraphs.
      

     

    Our
      opinions in paragraphs 1, 3 and 4 assume compliance by the Company with
      applicable provisions of Nevada law.
      

    

    Our
      opinions in paragraph 5 and 6(iii) below are based solely upon our review of
      the
      orders, judgments, writs, and decrees described therein, if any.

    

    Our
      opinion in paragraph 7 is based solely upon the facts included in the Opinion
      Certificate. We have made no independent investigation of the accuracy or
      completeness of such matters.

     

    In
      rending our opinion expressed in paragraph 8 below, we have relied solely upon
      (i) the representations and warranties of the investors contained in the
      Purchase Agreements, which we have assumed to be true and correct in all
      respects as of the date hereof, (ii) our review of the Transaction Documents
      and
      the (iii) Opinion Certificate. 

    

    We
      have
      made no independent investigation as to whether the foregoing certificates
      are
      accurate or complete. 

    

    Whenever
      our opinion herein with respect to the existence or absence of facts is
      indicated to be based on our knowledge, it is intended to signify that, in
      the
      course of our representation of the Company, none of Hillel T. Cohn, Kevin
      Cops,
      Tiffany Kwock or Jonathan Kuai has acquired actual knowledge of the existence
      or
      absence of such facts. We have not undertaken any independent investigation
      to
      determine the existence or absence of such facts, and no inference as to our
      knowledge of the existence or absence of such facts should be drawn from the
      fact of our representation of the Company.

    

    The
      opinions hereinafter expressed are subject to the following qualifications
      and
      exceptions: 

     

    
      	
              (i)

            	
              The
                effect of bankruptcy, insolvency, reorganization, arrangement, moratorium
                or other similar laws relating to or affecting the rights of creditors
                generally, including, without limitation, laws relating to fraudulent
                transfers or conveyances, preferences and equitable subordination;
                

            

    

     

    
      	
              (ii)

            	
              Limitations
                imposed by general principles of equity upon the availability of
                equitable
                remedies or the enforcement of provisions of the Transaction Documents;
                and the effect of judicial decisions which have held that certain
                provisions are unenforceable where their enforcement would violate
                the
                implied covenant of good faith and fair dealing, or would be commercially
                unreasonable, or where their breach is not material;
                

            

    

     

    
      	
              (iii)

            	
              The
                provisions of Section 9(k) of the Purchase Agreement purporting to
                provide for indemnification under certain circumstances may be
                unenforceable as violative of public policy expressed in the Act,
                and
                accordingly, we are unable to render an opinion as to the enforceability
                of such provisions; 

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (iv)

            	
              Our
                opinion is based upon current statutes, rules, regulations, cases
                and
                official interpretive opinions, and it covers certain items that
                are not
                directly or definitively addressed by such authorities;
                

            

    

     

    
      	
              (v)

            	
              Except
                to the extent encompassed by an opinion set forth below with respect
                to
                the Company, we express no opinion as to the effect on the opinions
                expressed herein of (1) the compliance or non-compliance of any party
                to the Transaction Documents with any law, regulation or order applicable
                to it, or (2) the legal or regulatory status or the nature of the
                business of any such party;

            

    

     

    
      	
              (vi)

            	
              The
                effect of judicial decisions which may permit the introduction of
                extrinsic evidence to modify the terms or the interpretation of the
                Transaction Documents;

            

    

     

    
      	
              (vii)

            	
              The
                enforceability of provision of the Transaction Documents which purport
                to
                establish evidentiary standards or to make determinations conclusive
                or
                powers absolute;

            

    

     

    
      	
              (viii)

            	
              The
                enforceability of provisions of the Transaction Documents imposing
                or
                which are construed as effectively imposing a
                penalty;

            

    

     

    
      	
              (ix)

            	
              The
                enforceability of provisions of the Transaction Documents providing
                that
                rights or remedies are not exclusive, that every right or remedy
                is
                cumulative, or that the election of a particular remedy or remedies
                does
                not preclude recourse to one or more other
                remedies;

            

    

     

    
      	
              (x)

            	
              We
                express no opinion as to compliance with applicable antifraud statutes,
                rules or regulations of applicable state and federal laws concerning
                the
                issuance or sale of securities;

            

    

     

    
      	
              (xi)

            	
              We
                express no opinion as to the enforceability of provisions of the
                Transaction Documents under which the Company agrees to submit to
                the
                jurisdiction of, or that disputes arising under the Transaction Documents
                are to be determined by a particular court or
                courts;

            

    

     

    
      	
              (xii)

            	
              We
                express no opinion as to whether the provisions of the Transaction
                Documents under which the Company submits to the jurisdiction of
                one or
                more New York courts or federal courts located in the State of New
                York
                are subject to application of the doctrine of forum
                non conveniens
                or
                a similar statutory principle;

            

    

     

    
      	
              (xiii)

            	
              We
                call your attention to the arbitration provisions of the Transaction
                Documents and to the existence of differences between the arbitral
                and
                judicial processes; we have based our opinion upon an assessment
                of legal
                authorities which would be applicable in judicial
                proceedings;

            

    

     

    
      	
              (xiv)

            	
              We
                express no opinion as to whether the provisions of the Transaction
                Documents under which the Company agrees that disputes arising under
                the
                Transaction Documents are to be determined by one or more New York
                courts
                are subject to application of the doctrine of forum
                non conveniens
                or
                a similar statutory principle;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (xv)

            	
              We
                express no opinion as to the fairness of the transactions contemplated
                by
                the Purchase Agreement to the Company or its shareholders;
                

            

    

     

    
      	
              (xvi)

            	
              We
                express no opinion as to whether or not, in light of the SEC's current
                policies, the Company will be able to register the shares issuable
                upon
                conversion of the Debenture or the exercise of the Warrants, pursuant
                to
                its obligations under the Registration Rights Agreement;
                and

            

    

     

    
      	
              (xvii)

            	
              We
                have assumed that the directors of the Company have acted and will
                act in
                accordance with their fiduciary duties in authorizing the Transaction
                Documents and the transactions contemplated thereby and taking corporate
                action thereunder.

            

    

     

    Based
      upon and subject to the foregoing, we are of the opinion that: 

     

    
      	
              1.

            	
              The
                Company is a corporation duly incorporated, validly existing and
                in good
                standing under the laws of the State of Nevada. The Company is duly
                qualified to transact business as a foreign corporation in the State
                of
                California. 

            

    

     

    
      	
              2.

            	
              Quintessence
                Photonics Corporation, the Company’s subsidiary, is a corporation duly
                incorporated, validly existing and in good standing under the laws
                of the
                state of Delaware. 

            

    

     

    
      	
              3.

            	
              The
                Purchase Agreement and the other Transaction Documents have been
                duly
                authorized, executed and delivered by the Company and each constitutes
                the
                legal, valid and binding obligations of the
                Company.

            

    

     

    
      	
              4.

            	
              The
                shares issuable upon conversion of the Debentures or exercise of
                the
                Warrants, as applicable, will be duly authorized, validly issued
                and fully
                paid, assuming delivery and receipt of payment therefor in accordance
                with
                the Debentures or Warrants, as
                applicable.

            

    

     

    
      	
              5.

            	
              To
                our knowledge, except as disclosed in the Transaction Documents and
                the
                Company’s public filings made with the Securities and Exchange Commission
                (“SEC”), there are no claims, actions, suits, proceedings, arbitrations,
                investigations, or inquiries, pending or threatened, of a material
                character before any court or governmental or administrative body
                or
                agency, or any private arbitration tribunal, against the Company
                or its
                Subsidiaries, or any of its Officers, directors or employees ( in
                connection with the discharge of their duties as officers, directors
                or
                employees of the Company) or affecting any of the Company’s properties or
                assets. 

            

    

     

    
      	
              6.

            	
              The
                execution and delivery of the Transaction Documents and the performance
                by
                the Company, the performance by the Company of its obligations under
                the
                Transaction Documents and the issuance of the Debentures and Warrants
                as
                contemplated by the Transaction Documents (and the common stock issuable
                upon conversion) (i) do not violate or result in a violation of the
                Company’s articles of incorporation or bylaws, (ii) do not violate any
                applicable federal or state law, rule or regulation that is known
                to us to
                be customarily applicable to transactions contemplated by the Purchase
                Agreement and (iii) do not violate any judgment, order or decree
                disclosed in the Transaction Documents or the Company’s public filings
                made with the SEC. 

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              7.

            	
              To
                our knowledge, the Company is not an “investment company” within the
                meaning of the Investment Company Act of 1940, as amended, and rules
                promulgated thereunder. 

            

    

     

    
      	
              8.

            	
              Based
                in part upon the representations of the Buyers contained in the Purchase
                Agreement, the Shares,
                the Debentures, the conversion shares, the Warrants, and the Warrant
                Shares may
                be issued to the Buyers without registration under the Securities
                Act of
                1933, as amended.

            

    

     

    
      	
              9.

            	
              The
                execution, delivery and performance of the Transaction Documents
                by the
                Company will not violate or result in a material breach of any of
                the
                terms of or constitute a material default under or (except as contemplated
                in the Transaction Documents) result in the creation of any lien,
                charge
                or encumbrance on any property or assets of the Company, pursuant
                to the
                terms of any indenture, mortgage, deed of trust or other agreement
                or
                order disclosed in the Company’s public filings made with the SEC. As to
                agreements which by their terms are or may be governed by the laws
                of a
                jurisdiction other than New York, we assume that such agreements
                are
                governed by the law of New York for purposes of the opinion expressed
                in
                this paragraph. In addition, we exclude from the scope of such opinion
                any
                potential violation of financial covenants contained in such
                agreements.

            

    

     

    We
      express no opinion as to matters governed by laws of any jurisdiction other
      than
      the substantive laws of the State of New York, and the federal laws of the
      United States of America (without reference to choice-of-law rules), as in
      effect on the date hereof. We express no opinion as to enforceability of the
      New York choice-of-law provision contained in the Transaction Documents.
      Unless separately engaged to so in writing, we will not update our opinions
      expressed hereinabove for subsequent changes or modifications to the law and
      regulations or the judicial and administrative interpretations
      thereof.

    

    This
      letter is furnished solely for the benefit of the Buyers. Neither this letter
      nor any opinion expressed herein may be relied upon, nor may copies be delivered
      or disclosed to, any other person or entity without our prior written
      consent.

    

    Very
      truly yours,

    Morrison
&
Foerster 
LLP

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      F

    Limited
      Standstill Agreement

     

              This
      AGREEMENT (the "Agreement") is made as of the ___
      day of
      April, 2007, by the signatories hereto (each an "Insider"), in connection with
      his or her ownership of shares of QPC LASERS, INC., a Nevada corporation (the
      "Company").

     

              NOW,
      THEREFORE, for good and valuable consideration, the sufficiency and receipt
      of
      which consideration are hereby acknowledged, Insider agrees as
      follows:

     

              1.
      Background.

     

                        a.
      Insider is the actual and/or beneficial
      owner of
      the amount of shares of the Common Stock, $0.001 par value, of the Company
      ("Common Stock") and rights to purchase Common Stock designated on the signature
      page hereto, some or all of which are owned by virtue of Insider's ownership
      of
      a note convertible into Common Stock.

     

                        b.
      Insider acknowledges that the Company has entered into or will enter into an
      agreement (“Securities Purchase Agreement”) with each buyer (collectively, the
“Buyers”) of the Company's convertible debentures (“Debentures”) and warrants
      (“Warrants”), for the sale to the Buyers of an aggregate of up to $10,000,000 of
      principal amount of secured Debentures and Warrants (the "Offering"). Insider
      understands that, as a condition to proceeding with the Offering, the Buyers
      have required, and the Company has agreed to obtain an agreement from the
      Insider, to refrain from selling any securities of the Company from the date
      of
      the Securities Purchase Agreement until the date that none of the Debentures
      remain outstanding (the "Restriction Period"), as further described herein.
      

     

              2.
      Share
      Restriction; Non-Default.
      

     

                        a.
      The Insider agrees that during the Restriction Period, the Insider will not
      sell
      or transfer, directly or indirectly, any Common Stock, option, convertible
      security or any other instrument convertible into or exercisable or exchangeable
      for Common Stock, or to convert or exercise any such convertible or exercisable
      instrument (except as may be issued pursuant to the terms of the Company’s
      approved stock option plan) beneficially owned by such person, unless (i)
holders
      of Debentures representing at least 75% of the aggregate principal amount of
      the
      Debentures then outstanding shall
      have executed a written consent to such sale, transfer or exercise or (ii)
      for
      each of the sixty (60) consecutive Trading Days (the “Limitation Measuring
      Period”) prior to the date of such sale, transfer or exercise, the Registration
      Statement (as defined in the Registration Rights Agreement between the Company
      and the Buyers) covering the resale of the Conversion Shares (as defined in
      the
      Debentures) shall have been effective and the VWAP (as defined in the
      Debentures) of the Company’s Common Stock shall have equaled or exceeded 175% of
      the initial Conversion Price (as defined in the Debentures) (subject to
      appropriate adjustments for stock splits, stock dividends, stock combinations
      and other similar transactions after the Issue Date) for each Trading Day (as
      defined in the Debentures) during the Limitation Measuring Period (the “Senior
      Management Limitation”). Insider further agrees that the Company is authorized
      to and the Company agrees to place "stop orders" on its books to prevent any
      transfer of shares of Common Stock or other securities of the Company held
      by
      Insider in violation of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

                        b.
      Any subsequent issuance to and/or acquisition of shares or the right to acquire
      shares by Insider will be subject to the provisions of this
      Agreement.

     

                        c.
      The foregoing restrictions notwithstanding the Insider may sell during the
      Restriction Period, up to two and one-half percent (2-1/2%) of the amount of
      shares of Common Stock actually and/or beneficially owned by Insider on the
      Closing Date (as defined in the Subscription Agreement). In no event may more
      than one percent (1%) of the amount of shares of Common Stock actually owned
      by
      the Insider on the Closing Date be sold during any thirty (30) day
      period.

     

                        d.
      Notwithstanding the foregoing restrictions on transfer, the Insider may, at
      any
      time and from time to time during the Restriction Period, transfer the Common
      Stock (i) as bona fide gifts or transfers by will or intestacy, (ii) to any
      trust for the direct or indirect benefit of the undersigned or the immediate
      family of the Insider, provided that any such transfer shall not involve a
      disposition for value, (iii) to a partnership which is the general partner
      of a
      partnership of which the Insider is a general partner, provided, that, in the
      case of any gift or transfer described in clauses (i), (ii) or (iii), each
      donee
      or transferee agrees in writing to be bound by the terms and conditions
      contained herein in the same manner as such terms and conditions apply to the
      undersigned. For purposes hereof, "immediate family" means any relationship
      by
      blood, marriage or adoption, not more remote than first cousin.

     

    e.
      The
      Insider further agrees not to place into default any debt that is owed to it
      by
      the Company or preferred stock of the Company that is held by it during the
      Restricted Period (“Insiders Non-Default Covenant”).

     

    f.  Notwithstanding
      anything to the contrary herein, (i) nothing herein shall prevent the Insider
      from converting any of its options or convertible securities into Common Stock
      during the Restriction Period, so long as any resales of the resulting Common
      Stock are made in conformity with this Agreement, and (ii) nothing herein shall
      prohibit each Insider from making charitable contributions of up to $100,000
      worth of Common Stock without further restriction on the resale thereof by
      the
      recipient charity.

     

              3.
      Miscellaneous.

     

                        a.
      At any time, and from time to time, after the signing of this Agreement Insider
      will execute such additional instruments and take such action as may be
      reasonably requested by the Subscribers to carry out the intent and purposes
      of
      this Agreement.

     

                        b.
      This Agreement shall be governed, construed and enforced in accordance with
      the
      laws of the State of New York without regard to conflicts of laws principles
      that would result in the application of the substantive laws of another
      jurisdiction, except to the extent that the securities laws of the state in
      which Insider resides and federal securities laws may apply. Any proceeding
      brought to enforce this Agreement may be brought exclusively in courts sitting
      in New York County, New York.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

                        c.
      This Agreement contains the entire agreement of the Insider with respect to
      the
      subject matter hereof.

     

                        d.
      This Agreement shall be binding upon Insider, its legal representatives,
      successors and assigns.

     

                        e.
      This Agreement may be signed and delivered by facsimile and such facsimile
      signed and delivered shall be enforceable.

     

                        f.
      The Company agrees not to take any action or allow any act to be taken which
      would be inconsistent with this Agreement.

     

                        IN
      WITNESS WHEREOF, and intending to be legally bound hereby, Insider has executed
      this Agreement as of the day and year first above written.

     

    
      	 	 	
              INSIDER: 

            
	 	 	 	 
	 	 	 
	 	 	
              (Signature
                of Insider) 

            
	 	 	 
	 	 	 
	 	 	
              (Print
                Name of Insider) 

            
	 	 	 
	 	 	 
	 	 	
              Number
                of Shares of Common Stock 

            
	 	 	
              Beneficially
                Owned 

            
	 	 	 
	 	 	 
	 	 	
              Note
                Principal Owned on the date of 

            
	 	 	
              This
                Agreement 

            
	 	 	 
	 	 	 
	 	 	
              COMPANY: 

            
	 	 	 
	 	 	
              QPC
                LASERS, INC. 

            
	 	 	 
	 	 	By: 	 
	 	 	Print
              Name: 	 
	 	 	Title:

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