Document:

Prepared and filed by St Ives Financial

Exhibit 10.2

CONSULTING AGREEMENT

     This agreement is made as of this 1st day of January, 2006 (the “Effective Date”) and when executed by the parties, will constitute an agreement between Authentidate Holding Corp., with its principal place of business at Connell Corporate Center, Three Connell Drive, Berkeley Heights, N.J. 07922 (the “Company”) and John J. Waters, with his principal place of business at 205 Micmac Lane, Jupiter, Florida 33478 (the “Consultant”), pursuant to which the Company agrees to retain Consultant and Consultant agrees to be retained by the Company under the terms and conditions set forth below.  

     1.       Retention.   The Company hereby retains Consultant to perform consulting services related to the business of the Company, on a non-exclusive basis, solely as directed by the Chief Executive Officer of the Company, and/ or the Chairman of the Board and Consultant hereby accepts such retention. Nothing herein shall require the Company to utilize or implement Consultant's services in any specific situation. Subject to the terms set forth below, Consultant shall furnish to the Company advice and recommendations with respect to such aspects of the business and affairs of the Company as the Company shall, from time to time, reasonably request upon reasonable notice.
Consultant shall deliver services at Consultant’s place of business, the Company’s place of business, or at various other sites as required and mutually and reasonably agreeable to the Company and the Consultant.   

     2.      Compensation; Expenses; Payment. (a)   As compensation for the services described in paragraph 1 above, and subject to the provisions of Paragraph 9 below, the Company agrees to pay Consultant a retainer fee (the “Retainer Fee”) of $350,416.67 payable as follows: $200,000, on or before January 10, 2006, $100,000 on or before April 1, 2006, and the balance shall be paid on September 1, 2006.   In addition to this compensation, the Company will reimburse Consultant for any and all expenses incurred by Consultant, subject to the Company’s prior written approval, in the performance of its duties hereunder and, Consultant shall account for such
expenses to the Company.  Such reimbursement shall cumulate and be paid on a monthly basis.

     (b)      Except as may be expressly set forth in that certain Settlement Agreement and Release between the Consultant and Company, dated as of January 1, 2006, Consultant acknowledges and agrees that the compensation paid to him in accordance with this paragraph 2 shall be in lieu of all compensation to which he is entitled pursuant to that certain Employment Agreement entered into between Consultant and Company dated as of August 6, 2004.

     3.      Relationship.   Consultant shall use his best efforts and shall devote such time and effort to the performance of his duties hereunder as is reasonably necessary for such performance.  Consultant is an independent contractor and not an employee, agent or representative of the Company. Consultant has no authority to bind the Company to any obligation or agreement.  Consultant expressly agrees that he shall at all times advise all third parties contacted in furtherance of this Agreement that he is an independent contractor with no authority to bind the Company.

     4.      Covenants.   Consultant shall coordinate his activities with the Company and report to the Chairman of the Board and/or the Chief Executive Officer of the Company.  All activities of Consultant shall require the prior written consent of the Chief Executive Officer of the Company.   During the term hereof, neither Consultant nor any affiliate, partner, employee, agent or representative of Consultant, shall render the same or similar services to any business, entity or person engaged in any business which is the same as or similar to or competitive with, the businesses of the Company or its subsidiaries.

 
     5.      Confidentiality.    

      (a)       During the Term and for a period of five years thereafter, Consultant shall (i) hold Company’s Confidential Information in strict trust and confidence and avoid the disclosure or release thereof to any other person or entity by using at least the same degree of care as it uses to avoid unauthorized use, disclosure, or dissemination of its own Confidential Information of a similar nature, but not less than reasonable care, (ii) not use the Confidential Information for any purpose whatsoever except as expressly contemplated under this Agreement, and (iii) not to, directly or indirectly, copy, reproduce, use, publish, misappropriate, assign, or otherwise transfer
or disclose to any person the Confidential Information, other than as permitted pursuant to the terms of this Agreement, regardless of whether such information was actually delivered to Consultant prior to the effective date of this Agreement.  Confidential Information, as used herein, shall mean all information, trade secrets, inventions, process, or other records relating to the Company’s business, financial affairs or operations, including but not limited to information related to business plans, technology, source code, product or service requirements, customers, pricing, techniques and methods, which is either marked or identified as confidential or which the receiving party knew or reasonably should have known, under the circumstances, was confidential.  All files, records,
documents, notes, or other items relating to or embodying Confidential Information that may be delivered to Consultant, or to which Consultant may be granted access, shall remain the exclusive property of the Company.   

      (b)       Notwithstanding the foregoing, Consultant shall not be required to maintain confidentiality with respect to information (i) which is or becomes part of the public domain not due to the breach of this agreement by Consultant; (ii) of which it had independent knowledge prior to disclosure by the Company; (iii) which comes into the possession of Consultant in the normal and routine course of its own business from and through independent non-confidential sources; or (iv) which is required to be disclosed by Consultant by governmental requirements.  If Consultant is requested or required (by oral questions, interrogatories, requests for information or document subpoenas, civil
investigative demands, or similar process) to disclose any confidential information supplied to it by the Company, or the existence of other negotiations in the course of its dealings with the Company or its representatives, Consultant shall, unless prohibited by law, promptly notify the Company of such request(s) so that the Company may seek an appropriate protective order.

      (c)      Failure
    on the part of the Consultant to abide by this section shall cause Company
    irreparable harm for which damages, although available, will not be an adequate
    remedy at law. Accordingly, Company has the right to obtain injunctive to
    prevent any threatened or actual violations of this section in addition to
    whatever remedies it may have at law. Consultant expressly waives the defense
    that a remedy in damages will be adequate and any requirement in an action
    for specific performance or injunction for the posting of a bond by the Company.

     6.      Intellectual Property.

     (a)      Consultant agrees and acknowledges that the Company shall own and retain all right, title and interest in and to all of its Confidential Information, products, technology and derivatives thereof and all intellectual property rights therein or thereto.  Nothing contained herein shall be construed so as to grant the Consultant any ownership or other rights in and to the intellectual property of the Company except as expressly stated herein. No license is granted by Company to its Confidential Information or to any intellectual property right therein except for the limited purpose of enabling the Consultant to perform the consulting services pursuant to this Agreement.

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     (b)      In consideration of the retention of Consultant by the Company, and free of any additional obligations of the Company to make additional payment to Consultant, Consultant agrees to promptly disclose and irrevocably assign to the Company any and all inventions, software (including source code and source code documentation for all computer programs developed or modified), manuscripts, documentation, improvements or other intellectual property whether or not protectible by any state or federal laws relating to the protection of intellectual property, relating to the present or future business of the Company that are developed, conceived or reduced to practice by Consultant,
either alone or jointly with others, and whether or not developed during normal business hours or arising within the scope of his duties of employment, during or as a result of performance of this Agreement (all of the foregoing “Intellectual Property”).  Consultant agrees that all such Intellectual Property, including without limitation all copyrights, trademarks, trade secrets and patent rights therein, is irrevocably assigned to and shall be and remain the sole and exclusive property of the Company and shall be deemed the product of work for hire.  If it is determined that any Deliverables are not works made for hire, Consultant hereby irrevocably assigns to Company Consultant’s entire right, title, and interest in and to such Deliverables and all intellectual property
rights, including patents, copyrights and trade secrets, and other proprietary rights of Consultant, in and to the Deliverables, that Consultant now has or may hereafter acquire, together with the sole and exclusive right to seek copyright, patent or other protection therefore and to recover for the past infringement thereof.

     (c)      Consultant hereby agrees to execute such assignments and other documents as the Company may consider appropriate to vest all right, title and interest in and to all deliverables to the Company and hereby appoints the Company Consultant’s attorney-in-fact with full powers to execute such document itself in the event employee fails or is unable to provide the Company with such signed documents.  This provision does not apply to an invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on Consultant's own time, unless (a) the invention relates (i) to the business of the Company, or (ii) to
the Company's actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by Consultant for the Company.  

     7.      Indemnification. (a)   Consultant agrees to indemnify and hold harmless the Company, its employees, agents, representatives and controlling persons (and the officers, directors, employees, agents, representatives and controlling persons of each of them) from and against any and all losses, claims, damages, liabilities, costs and expenses (and all actions, suits, proceedings or claims in respect thereof) and any legal or other expenses in giving testimony or furnishing documents in response to a subpoena or otherwise (including, without limitation, the cost of investigating, preparing or defending any such action, suit, proceeding or claim, whether or not in connection with
any action, suit, proceeding or claim in which the Company is a party), as and when incurred, directly or indirectly, caused by, relating to, based upon or arising out of Consultant’s gross negligence, willful misconduct or unauthorized acts.  Consultant’s obligation to indemnify the other party shall be conditioned on the following: (a) the Company shall notify the other party in writing as soon as practicable after its receipt of a claim and (b) Consultant shall control of the defense and all related settlement negotiations, provided, however, that any settlement be made with the consent of the Company and such settlement include as an unconditional term thereof the giving by the claimant of an unconditional release from all liability in favor of the Company. 

     (b)      Company agrees to indemnify and hold harmless the Consultant from and against any and all losses, claims, damages, liabilities, costs and expenses (and all actions, suits, proceedings or claims in respect thereof) and any legal or other expenses in giving testimony or furnishing documents in response to a subpoena or otherwise (including, without limitation, the cost of investigation, preparing or defending any such action, suit, proceeding or claim, whether or not in connection with any action, suit, proceeding or claim in which the Consultant is a party), as and when incurred to the greater of the fullest extent of the law and the fullest extent of Company’s by-laws
or other policies concerning indemnification as if Consultant was an employee of Company.  Company’s obligation to indemnify Consultant shall be conditioned on the following:  (a) the Consultant shall notify Company in writing as soon as practicable after its receipt of a claim and (b) Company shall control the defense and all related settlement negotiations, provided, however, that any settlement be made with the consent of the Consultant and such settlement include as an unconditional term thereof the giving by the claimant of an unconditional release from all liability in favor of the Consultant.

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     8.      Non-Assignment.   This Agreement may not be transferred, assigned or delegated by any of the parties hereto without the prior written consent of the other party hereto.

     9.      Term and Termination.   This Agreement shall commence on the Effective Date and expires on September 30, 2006 (the “Term”).  Paragraphs 5, 6, 7, 9, 10, and 11 shall survive the expiration or termination of this Agreement under all circumstances.  The Company may immediately terminate this Agreement upon written notice in the event (i) Consultant is in breach of any obligation under this Agreement, which default is incapable of cure or which, being capable of cure, has not been cured within thirty (30) days after receipt of notice of such default or (ii) Consultant breaches any of its obligations arising under Paragraphs 5 or 6. Upon the expiration or
termination of this Agreement, (a) each party shall return the other’s Confidential Information in its possession or control, (b) all amounts not disputed in good faith that are owed by each party to the other party under this Agreement which accrued before such termination or expiration will be immediately due and payable and (c) Consultant shall deliver to Company all deliverables completed and accepted up to the date of termination and Company shall have all right, title and interest thereto.  If the Company terminates the Agreement prior to the expiration of the Term, or the Consultant dies or becomes disabled (as determined by Employee’s physician), prior to the expiration of the Term of the Agreement, then the Company may terminate this Agreement upon payment to
the Employee or his estate in a lump sum all sums remaining due for the balance of the Term of the Agreement.  

     10.      Notices.   Any notices hereunder shall be sent to the Company and to Consultant at their respective addresses set forth above.  Any notice shall be given by certified mail, return receipt requested, postage prepaid, overnight courier or personal delivery. Notices shall be deemed to have been given when deposited in the United States mail or delivered to a nationally-recognized courier service.  Either party may designate any other address to which notice shall be given, by giving written notice to the other of such change of address in the manner herein provided.

     11.      General.   This Agreement has been made in the State of New York and shall be construed and governed in accordance with the laws thereof without giving effect to principles governing conflicts of law.   This Agreement contains the entire agreement between the parties, may not be altered or modified, except in writing and signed by the party to be charged thereby, and supersedes any and all previous agreements between the parties relating to the subject matter hereof.  This Agreement shall be binding upon the parties hereto, the indemnified parties referred to in Paragraph 7, and their respective heirs, administrators, successors and permitted assigns. The failure or
neglect of the parties hereto to insist, in any one or more instances, upon the strict performance of any of the terms or conditions of this Agreement, or their waiver of strict performance of any of the terms or conditions of this Agreement, shall not be construed as a waiver or relinquishment in the future of such term or condition, but the same shall continue in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall remain in full force and effect in all other circumstances. This Agreement may be signed in counterparts, which together shall constitute one Agreement.  

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SIGNATURE PAGE TO CONSULTING AGREEMENT

     IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the Effective Date.

AUTHENTIDATE HOLDING CORP.

By: /s/ Suren Pai

Suren Pai, Chief Executive Officer

CONSULTANT 

By: /s/ John J. Waters

John J. Waters

5Exhibit 4.1

    
      
        

      

      Exhibit
        4.1

      

      SECURITIES
        PURCHASE AGREEMENT

      

      THIS SECURITIES
        PURCHASE AGREEMENT
        (this
“Agreement”),
        is
        dated as of January 5, 2006, by and among IGNIS
        PETROLEUM GROUP, INC.,
        a Nevada
        corporation (the “Company”),
        and
        the Buyers listed on Schedule I attached hereto (individually, a
“Buyer”
or
        collectively “Buyers”).

      

      WITNESSETH

      

      WHEREAS,
        the
        Company and the Buyer(s) are executing and delivering this Agreement in reliance
        upon an exemption from securities registration pursuant to Section 4(2) and/or
        Rule 506 of Regulation D (“Regulation
        D”)
        as
        promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
        under
        the Securities Act of 1933, as amended (the “Securities
        Act”);

      

      WHEREAS,
        the
        parties desire that, upon the terms and subject to the conditions contained
        herein, the Company shall issue and sell to the Buyer(s), as provided herein,
        and the Buyer(s) shall purchase up to Five Million Dollars ($5,000,000) of
        secured convertible debentures (the “Convertible
        Debentures”),
        which
        shall be convertible into shares of the Company’s common stock, par value $0.001
        (the “Common
        Stock”)
        (as
        converted, the “Conversion
        Shares”)
        of
        which Two Million Five Hundred Thousand Dollars ($2,500,000) shall be funded
        within two (2) business day following the date hereof (the “First
        Closing”)
        and
        One Million Five Hundred Thousand Dollars ($1,500,000) shall be funded two
        (2)
        business days prior to the date the registration statement (the “Registration
        Statement”)
        is
        filed, pursuant to the Investor Registration Rights Agreement dated the date
        hereof, with the United States Securities and Exchange Commission (the
“SEC”)
        and
        notification of satisfaction of the conditions to the Second Closing set
        forth
        herein and in Sections 6 and 7 below (the “Second
        Closing”)
        and
        One Million Dollars ($1,000,000) shall be funded two (2) business days prior
        to
        the date the Registration Statement is declared effective by the SEC (the
        “Third
        Closing”)
        (individually referred to as a “Closing”
        collectively referred to as the “Closings”),
        for a
        total purchase price of up to Five Million Dollars ($5,000,000) (the
“Purchase
        Price”)
        in the
        respective amounts set forth opposite each Buyer(s) name on Schedule I (the
        “Subscription
        Amount”);
        

      

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement, the
        parties
        hereto are executing and delivering an Investor Registration Rights Agreement
        (the “Investor
        Registration Rights Agreement”)
        pursuant to which the Company has agreed to provide certain registration
        rights
        under the Securities Act and the rules and regulations promulgated there
        under,
        and applicable state securities laws; 

      

      WHEREAS,
        the
        aggregate proceeds of the sale of the Convertible Debentures contemplated
        hereby
        shall be held in escrow pursuant to the terms of an Escrow Agreement (the
        “Escrow
        Agreement”)
        between the Company, the Buyers, and David Gonzalez, Esq. (the “Escrow
        Agent”);

      

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement, the
        parties
        hereto are executing and delivering a Security Agreement (the “Security
        Agreement”)
        pursuant to which the Company has agreed to provide the Buyer a security
        interest in Pledged Collateral (as this term is defined in the Security
        Agreement) to secure the Company’s obligations under this Agreement, the
        Transaction Documents, or any other obligations of the Company to the
        Buyer;

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement, the
        parties
        hereto are executing and delivering a Pledge and Escrow Agreement (the
“Company
        Pledge and Escrow Agreement”)
        pursuant to which the Company has agreed to provide the Buyer a security
        interest in the Pledged Shares (as this term is defined in the Pledge and
        Escrow
        Agreement) and an Insider Pledge and Escrow Agreement (“Insider
        Pledge Agreement”)
        of
        even date herewith among the Company, the Buyer, Philipp Buschmann and Michael
        Piazza and the Escrow Agent (the Company Pledge and Escrow Agreement and
        the
        Insider Pledge Agreement shall collectively be referred to as the “Pledge
        and Escrow Agreement”)
        to
        secure the Company’s obligations under this Agreement, the Transaction
        Documents, or any other obligations of the Company to the Buyer;
        and

      

      WHEREAS,
        contemporaneously with the execution and delivery of this Agreement, the
        parties
        hereto are executing and delivering Irrevocable Transfer Agent Instructions
        (the
“Irrevocable
        Transfer Agent Instructions”).

      

      NOW,
        THEREFORE,
        in
        consideration of the mutual covenants and other agreements contained in this
        Agreement the Company and the Buyer(s) hereby agree as follows:

      

      
        	 	
                1.

              	
                PURCHASE
                  AND SALE OF CONVERTIBLE DEBENTURES.

              

      

      

      (a)     Purchase
        of Convertible Debentures. 
         Subject to the satisfaction (or waiver) of the terms and conditions of
        this Agreement, each Buyer agrees, severally and not jointly, to purchase
        at
        each Closing and the Company agrees to sell and issue to each Buyer, severally
        and not jointly, at each Closing, Convertible Debentures in amounts
        corresponding with the Subscription Amount set forth opposite each Buyer’s name
        on Schedule I hereto. Upon execution hereof by a Buyer, the Buyer shall wire
        transfer the Subscription Amount set forth opposite his name on Schedule
        I in
        same-day funds or a check payable to “David Gonzalez, Esq., as Escrow Agent for
        Ignis Petroleum Group, Inc./Cornell Capital Partners, LP”, which Subscription
        Amount shall be held in escrow pursuant to the terms of the Escrow Agreement
        (as
        hereinafter defined) and disbursed in accordance therewith. 

      

      (b)     Closing
        Date.  
        The First Closing of the purchase and sale of the Convertible Debentures
        shall
        take place at 10:00 a.m. Eastern Standard Time within two (2) business day
        following the date hereof, subject to notification of satisfaction of the
        conditions to the First Closing set forth herein and in Sections 6 and 7
        below
        (or such later date as is mutually agreed to by the Company and the Buyer(s))
        (the “First
        Closing Date”),
        the
        Second Closing of the purchase and sale of the Convertible Debentures shall
        take
        place at 10:00 a.m. Eastern Standard Time two (2) business days prior to
        the
        date the Registration Statement is filed with the SEC, subject to notification
        of satisfaction of the conditions to the Second Closing set forth herein
        and in
        Sections 6 and 7 below (or such later date as is mutually agreed to by the
        Company and the Buyer(s)) (the “Second
        Closing Date”)
        and
        the Third Closing of the purchase and sale of the Convertible Debentures
        shall
        take place at 10:00 a.m. Eastern Standard Time two (2) business days prior
        to
        the date the Registration Statement is declared effective by the SEC, subject
        to
        notification of satisfaction of the conditions to the Third Closing set forth
        herein and in Sections 6 and 7 below (or such later date as is mutually agreed
        to by the Company and the Buyer(s)) (the “Third
        Closing Date”)
        (collectively referred to a the “Closing
        Dates”).
        The
        Closings shall occur on the respective Closing Dates at the offices of Yorkville
        Advisors, LLC, 101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302
        (or
        such other place as is mutually agreed to by the Company and the Buyer(s)).
        

      
        
          
          

        

        
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      (c)     Escrow
        Arrangements; Form of Payment. 
         Upon execution hereof by Buyer(s) and pending the Closings, the aggregate
        proceeds of the sale of the Convertible Debentures to Buyer(s) pursuant hereto
        shall be deposited in a non-interest bearing escrow account with the Escrow
        Agent, pursuant to the terms of the Escrow Agreement. Subject to the
        satisfaction of the terms and conditions of this Agreement, on the Closing
        Dates, (i) the Escrow Agent shall deliver to the Company in accordance with
        the
        terms of the Escrow Agreement such aggregate proceeds for the Convertible
        Debentures to be issued and sold to such Buyer(s), minus the fees to be paid
        directly from the proceeds the Closings as set forth herein, and (ii) the
        Company shall deliver to each Buyer, Convertible Debentures which such Buyer(s)
        is purchasing in amounts indicated opposite such Buyer’s name on Schedule I,
        duly executed on behalf of the Company.

      

      
        	 	
                2.

              	
                BUYER’S
                  REPRESENTATIONS AND WARRANTIES.

              

      

      

      Each
        Buyer represents and warrants, severally and not jointly, that:

      

      (a)     Investment
        Purpose. 
         Each Buyer is acquiring the Convertible Debentures and, upon conversion of
        Convertible Debentures, the Buyer will acquire the Conversion Shares then
        issuable, for its own account for investment only and not with a view towards,
        or for resale in connection with, the public sale or distribution thereof,
        except pursuant to sales registered or exempted under the Securities Act;
        provided, however, that by making the representations herein, such Buyer
        reserves the right to dispose of the Conversion Shares at any time in accordance
        with or pursuant to an effective registration statement covering such Conversion
        Shares or an available exemption under the Securities Act.

      

      (b)     Accredited
        Investor Status. 
         Each Buyer is an “Accredited
        Investor”
as
        that
        term is defined in Rule 501(a)(3) of Regulation D.

      

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

      

      (d)     Information. 
         Each Buyer and its advisors (and his or, its counsel), if any, have been
        furnished with all materials relating to the business, finances and operations
        of the Company and information he deemed material to making an informed
        investment decision regarding his purchase of the Convertible Debentures
        and the
        Conversion Shares, which have been requested by such Buyer. Each Buyer and
        its
        advisors, if any, have been afforded the opportunity to ask questions of
        the
        Company and its management. Neither such inquiries nor any other due diligence
        investigations conducted by such Buyer or its advisors, if any, or its
        representatives shall modify, amend or affect such Buyer’s right to rely on the
        Company’s representations and warranties contained in Section 3 below. Each
        Buyer understands that its investment in the Convertible Debentures and the
        Conversion Shares involves a high degree of risk. Each Buyer is in a position
        regarding the Company, which, based upon employment, family relationship
        or
        economic bargaining power, enabled and enables such Buyer to obtain information
        from the Company in order to evaluate the merits and risks of this investment.
        Each Buyer has sought such accounting, legal and tax advice, as it has
        considered necessary to make an informed investment decision with respect
        to its
        acquisition of the Convertible Debentures and the Conversion
        Shares.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (e)     No
        Governmental Review.  
        Each Buyer understands that no United States federal or state agency or any
        other government or governmental agency has passed on or made any recommendation
        or endorsement of the Convertible Debentures or the Conversion Shares, or
        the
        fairness or suitability of the investment in the Convertible Debentures or
        the
        Conversion Shares, nor have such authorities passed upon or endorsed the
        merits
        of the offering of the Convertible Debentures or the Conversion
        Shares.

      

      (f)     Transfer
        or Resale.  
        Each Buyer understands that except as provided in the Investor Registration
        Rights Agreement: (i) the Convertible Debentures have not been and are not
        being
        registered under the Securities Act or any state securities laws, and may
        not be
        offered for sale, sold, assigned, pledged, hypothecated or transferred unless
        (A) subsequently registered thereunder, or (B) such Buyer shall have delivered
        to the Company an opinion of counsel, in a generally acceptable form, to
        the
        effect that such securities to be sold, assigned or transferred may be sold,
        assigned or transferred pursuant to an exemption from such registration
        requirements; (ii) any sale of such securities made in reliance on Rule 144
        under the Securities Act (or a successor rule thereto) (“Rule 144”)
        may be
        made only in accordance with the terms of Rule 144 and further, if Rule 144
        is
        not applicable, any resale of such securities under circumstances in which
        the
        seller (or the person through whom the sale is made) may be deemed to be an
        underwriter (as that term is defined in the Securities Act) may require
        compliance with some other exemption under the Securities Act or the rules
        and
        regulations of the SEC thereunder; and (iii) neither the Company nor any
        other
        person is under any obligation to register such securities under the Securities
        Act or any state securities laws or to comply with the terms and conditions
        of
        any exemption thereunder. The Company reserves the right to place stop transfer
        instructions against the shares and certificates for the Conversion
        Shares.

      

      (g)     Legends. 
         Each Buyer understands that the certificates or other instruments
        representing the Convertible Debentures and/or the Conversion Shares shall
        bear
        a restrictive legend in substantially the following form (and a stop -transfer
        order may be placed against transfer of such stock certificates):

      

      THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
        THE
        SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
        THE
        SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH
        A VIEW
        TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED
        HYPOTHECATED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
        FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
        STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
        FORM,
        THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
        LAWS. 

      
        
          
          

        

        
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      The
        legend set forth above shall be removed and the Company within two (2) business
        days shall issue a certificate without such legend to the holder of the
        Conversion Shares upon which it is stamped, if, unless otherwise required
        by
        state securities laws, (i) in connection with a sale transaction, provided
        the
        Conversion Shares are registered under the Securities Act or (ii) in connection
        with a sale transaction, after such holder provides the Company with an opinion
        of counsel, which opinion shall be in form, substance and scope customary
        for
        opinions of counsel in comparable transactions, to the effect that a public
        sale, pledge, hypothecation, assignment or transfer of the Conversion Shares
        may
        be made without registration under the Securities Act. 

      

      (h)     Authorization,
        Enforcement.  
        This Agreement has been duly and validly authorized, executed and delivered
        on
        behalf of such Buyer and is a valid and binding agreement of such Buyer
        enforceable in accordance with its terms, except as such enforceability may
        be
        limited by general principles of equity or applicable bankruptcy, insolvency,
        reorganization, moratorium, liquidation and other similar laws relating to,
        or
        affecting generally, the enforcement of applicable creditors’ rights and
        remedies.

      

      (i)     Receipt
        of Documents.  
        Each Buyer and his or its counsel has received and read in their entirety:
        (i)
        this Agreement and each representation, warranty and covenant set forth herein
        and the Transaction Documents (as defined herein); (ii) all due diligence
        and
        other information necessary to verify the accuracy and completeness of such
        representations, warranties and covenants; (iii) the Company’s Form 10-KSB for
        the fiscal year ended June 30, 2005; (iv) the Company’s Form 10-QSB for the
        fiscal quarter ended September 30, 2005 and (v) answers to all questions
        each
        Buyer submitted to the Company regarding an investment in the Company; and
        each
        Buyer has relied on the information contained therein and has not been furnished
        any other documents, literature, memorandum or prospectus.

      

      (j)     Due
        Formation of Corporate and Other Buyers. 
         If the Buyer(s) is a corporation, trust, partnership or other entity that
        is not an individual person, it has been formed and validly exists and has
        not
        been organized for the specific purpose of purchasing the Convertible Debentures
        and is not prohibited from doing so.

      

      (k)     No
        Legal Advice From the Company. 
         Each Buyer acknowledges, that it had the opportunity to review this
        Agreement and the transactions contemplated by this Agreement with his or
        its
        own legal counsel and investment and tax advisors. Each Buyer is relying
        solely
        on such counsel and advisors and not on any statements or representations
        of the
        Company or any of its representatives or agents for legal, tax or investment
        advice with respect to this investment, the transactions contemplated by
        this
        Agreement or the securities laws of any jurisdiction. 

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (l)     Residency. 
         Each
        Buyer is incorporated and in good standing in the jurisdiction set forth
        immediately below such Buyer’s name on Schedule I. 

      

      
        	 	
                3.

              	
                REPRESENTATIONS
                  AND WARRANTIES OF THE COMPANY.

              

      

      

      The
        Company represents and warrants as of the date hereof to each of the Buyers
        that, except as set forth in the SEC Documents (as defined herein) or in
        the
        Disclosure Schedule attached hereto (the “Disclosure
        Schedule”):

      

      (a)     Organization
        and Qualification.  
        The Company and its subsidiaries are corporations duly organized and validly
        existing in good standing under the laws of the jurisdiction in which they
        are
        incorporated, and have the requisite corporate power to own their properties
        and
        to carry on their business as now being conducted. Each of the Company and
        its
        subsidiaries is duly qualified as a foreign corporation to do business and
        is in
        good standing in every jurisdiction in which the nature of the business
        conducted by it makes such qualification necessary, except to the extent
        that
        the failure to be so qualified or be in good standing would not have a material
        adverse effect on the Company and its subsidiaries taken as a
        whole.

      

      (b)     Authorization,
        Enforcement, Compliance with Other Instruments. 
         (i) The Company has the requisite corporate power and authority to
        enter into and perform this Agreement, the Security Agreement, the Investor
        Registration Rights Agreement, the Irrevocable Transfer Agent Agreement,
        the
        Escrow Agreement, the Pledge and Escrow Agreement, and any related agreements
        (collectively the “Transaction
        Documents”)
        and to
        issue the Convertible Debentures and the Conversion Shares in accordance
        with
        the terms hereof and thereof, (ii) the execution and delivery of the Transaction
        Documents by the Company and the consummation by it of the transactions
        contemplated hereby and thereby, including, without limitation, the issuance
        of
        the Convertible Debentures the Conversion Shares and, except for the shareholder
        authorization the Company must seek to provide additional authorized, but
        unissued shares of Common Stock as the Company presently has insufficient
        shares
        of Common Stock authorized to permit the issuance of Conversion Shares or
        Warrant Shares (the “Share Authorization”), the reservation for issuance and the
        issuance of the Conversion Shares issuable upon conversion or exercise thereof,
        have been duly authorized by the Company’s Board of Directors and no further
        consent or authorization is required by the Company, its Board of Directors
        or
        its stockholders, (iii) the Transaction Documents have been duly executed
        and
        delivered by the Company, (iv) the Transaction Documents constitute the valid
        and binding obligations of the Company enforceable against the Company in
        accordance with their terms, except as such enforceability may be limited
        by
        general principles of equity or applicable bankruptcy, insolvency,
        reorganization, moratorium, liquidation or similar laws relating to, or
        affecting generally, the enforcement of creditors’ rights and remedies. The
        authorized officer of the Company executing the Transaction Documents knows
        of
        no reason why the Company cannot file the registration statement as required
        under the Investor Registration Rights Agreement or perform any of the Company’s
        other obligations under such documents. 

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      (c)     Capitalization.  
        The authorized capital stock of the Company consists of 75,000,000 shares
        of
        Common Stock, par value $0.001 per share, of which 48,881,458 shares are
        issued
        and outstanding. All of such outstanding shares have been validly issued
        and are
        fully paid and nonassessable. No shares of Common Stock are subject to
        preemptive rights or any other similar rights or any liens or encumbrances
        suffered or permitted by the Company. As of the date of this Agreement, (i)
        there are no outstanding options, warrants, scrip, rights to subscribe to,
        calls
        or commitments of any character whatsoever relating to, or securities or
        rights
        convertible into, any shares of capital stock of the Company or any of its
        subsidiaries, or contracts, commitments, understandings 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
        or
        options, warrants, scrip, rights to subscribe to, calls or commitments of
        any
        character whatsoever relating to, or securities or rights convertible into,
        any
        shares of capital stock of the Company or any of its subsidiaries, (ii) there
        are no outstanding debt securities and (iii) there are no agreements or
        arrangements under which the Company or any of its subsidiaries is obligated
        to
        register the sale of any of their securities under the Securities Act (except
        pursuant to the Registration Rights Agreement) and (iv) there are no outstanding
        registration statements and there are no outstanding comment letters from
        the
        SEC or any other regulatory agency. There are no securities or instruments
        containing anti-dilution or similar provisions that will be triggered by
        the
        issuance of the Convertible Debentures as described in this Agreement. The
        Company has furnished to the Buyer true and correct copies of the Company’s
        Articles of Incorporation, as amended and as in effect on the date hereof
        (the
“Articles
        of Incorporation”),
        and
        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
        and
        the material rights of the holders thereof in respect thereto other than
        stock
        options issued to employees and consultants. 

      

      (d)     Issuance
        of Securities. 
         The Convertible Debentures are duly authorized and, upon issuance in
        accordance with the terms hereof, shall be duly issued, fully paid and
        nonassessable, are free from all taxes, liens and charges with respect to
        the
        issue thereof. Upon the Share Authorization, the Conversion Shares issuable
        upon
        conversion of the Convertible Debentures will be duly authorized and reserved
        for issuance. Upon conversion or exercise in accordance with the Convertible
        Debentures the Conversion Shares will be duly issued, fully paid and
        nonassessable.

      

      (e)     No
        Conflicts. 
         The execution, delivery and performance of the Transaction Documents by
        the Company and the consummation by the Company of the transactions contemplated
        hereby will not (i) result in a violation of the Articles of Incorporation,
        any
        certificate of designations of any outstanding series of preferred stock
        of the
        Company or the By-laws or (ii) conflict with 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 or instrument to which the Company
        or
        any of its subsidiaries is a party, or result in a violation of any law,
        rule,
        regulation, order, judgment or decree (including federal and state securities
        laws and regulations and the rules and regulations of The National Association
        of Securities Dealers Inc.’s OTC Bulletin Board on which the Common Stock is
        quoted) 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. Neither the Company nor its subsidiaries is in violation of any
        term
        of or in default under its Articles of Incorporation or By-laws or their
        organizational charter or by-laws, respectively, or any material contract,
        agreement, mortgage, indebtedness, indenture, instrument, judgment, decree
        or
        order or any statute, rule or regulation applicable to the Company or its
        subsidiaries. The business of the Company and its subsidiaries is not being
        conducted, and shall not be conducted in violation of any material law,
        ordinance, or regulation of any governmental entity. Except as specifically
        contemplated by this Agreement and as required under the Securities 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 or governmental agency in order for it to execute, deliver or perform
        any
        of its obligations under or contemplated by this Agreement or the Registration
        Rights Agreement in accordance with the terms hereof or thereof. 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 and its subsidiaries are unaware
        of any
        facts or circumstance, which might give rise to any of the
        foregoing.

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      (f)     SEC
        Documents: Financial Statements.  
        Since November 5, 2004, the Company has filed all reports, schedules, forms,
        statements and other documents required to be filed by it with the SEC under
        the
        Securities Exchange Act of 1934, as amended (the “Exchange
        Act”)
        (all
        of the foregoing filed prior to the date hereof or amended after the date
        hereof
        and all exhibits included therein and financial statements and schedules
        thereto
        and documents incorporated by reference therein, being hereinafter referred
        to
        as the “SEC
        Documents”).
        The
        Company has delivered to the Buyers or their representatives, or made available
        through the SEC’s website at http://www.sec.gov., true and complete copies of
        the SEC Documents. As of their respective dates, the financial statements
        of the
        Company disclosed in the SEC Documents (the “Financial
        Statements”)
        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, to the Company’s knowledge, have been
        prepared in accordance with 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 exclude
        footnotes or may be condensed or summary statements) and, fairly present
        in all
        material respects the financial position of the Company as of the dates thereof
        and the results of its operations and cash flows for the periods then ended
        (subject, in the case of unaudited statements, to normal year-end audit
        adjustments). No other information provided by or on behalf of the Company
        to
        the Buyer which is not included in the SEC Documents, including, without
        limitation, information referred to in this Agreement, contains any untrue
        statement of a material fact or omits to state any material fact necessary
        in
        order to make the statements therein, in the light of the circumstances under
        which they were made, not misleading.

      

      (g)     10(b)-5.  
        To the Company’s knowledge, the SEC Documents do not include any untrue
        statements of material fact, nor do they omit to state any material fact
        required to be stated therein necessary to make the statements made, in light
        of
        the circumstances under which they were made, not misleading.

      

      (h)     Absence
        of Litigation.  
        There is no action, suit, proceeding, inquiry or investigation before or
        by any
        court, public board, government agency, self-regulatory organization or body
        pending against or affecting the Company, the Common Stock or any of the
        Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would
        (i) have a material adverse effect on the transactions contemplated hereby
        (ii)
        adversely affect the validity or enforceability of, or the authority or ability
        of the Company to perform its obligations under, this Agreement or any of
        the
        documents contemplated herein, or (iii) have a material adverse effect on
        the
        business, operations, properties, financial condition or results of operations
        of the Company and its subsidiaries taken as a whole.

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      (i)     Acknowledgment
        Regarding Buyer’s Purchase of the Convertible Debentures.  
        The Company acknowledges and agrees that the Buyer(s) is acting solely in
        the
        capacity of an arm’s length purchaser with respect to this Agreement and the
        transactions contemplated hereby. The Company further acknowledges that the
        Buyer(s) 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 any advice given by the Buyer(s) or any of their
        respective representatives or agents in connection with this Agreement and
        the
        transactions contemplated hereby is merely incidental to such Buyer’s purchase
        of the Convertible Debentures or the Conversion Shares. The Company further
        represents to the Buyer that the Company’s decision to enter into this Agreement
        has been based solely on the independent evaluation by the Company and its
        representatives.

      

      (j)     No
        General Solicitation. 
         Neither the Company, nor any of its affiliates, nor any person acting on
        its or their behalf, has engaged in any form of general solicitation or general
        advertising (within the meaning of Regulation D under the Securities Act)
        in
        connection with the offer or sale of the Convertible Debentures or the
        Conversion Shares.

      

      (k)     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 of the Convertible Debentures or the Conversion
        Shares under the Securities Act or cause this offering of the Convertible
        Debentures or the Conversion Shares to be integrated with prior offerings
        by the
        Company for purposes of the Securities Act.

      

      (l)             
        Employee
        Relations. 
         Neither the Company nor any of its subsidiaries is involved in any labor
        dispute nor, to the knowledge of the Company or any of its subsidiaries,
        is any
        such dispute threatened. None of the Company’s or its subsidiaries’ employees is
        a member of a union and the Company and its subsidiaries believe that their
        relations with their employees are good.

      

      (m)     Intellectual
        Property Rights.  
        The Company and its subsidiaries own or possess adequate rights or licenses
        to
        use all material trademarks, trade names, service marks, service mark
        registrations, service names, patents, patent rights, copyrights, inventions,
        licenses, approvals, governmental authorizations, trade secrets and rights
        necessary to conduct their respective businesses as now conducted. The Company
        and its subsidiaries do not have any knowledge of any infringement by the
        Company or its subsidiaries of trademark, trade name rights, patents, patent
        rights, copyrights, inventions, licenses, service names, service marks, service
        mark registrations, trade secret or other similar rights of others, and,
        to the
        knowledge of the Company there is no claim, action or proceeding being made
        or
        brought against, or to the Company’s knowledge, being threatened against, the
        Company or its subsidiaries regarding trademark, trade name, patents, patent
        rights, invention, copyright, license, service names, service marks, service
        mark registrations, trade secret or other infringement; and the Company and
        its
        subsidiaries are unaware of any facts or circumstances which might give rise
        to
        any of the foregoing.

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (n)     Environmental
        Laws.  
        The Company and its subsidiaries are (i) in compliance with any and all material
        applicable foreign, federal, state and local laws and regulations relating
        to
        the protection of human health and safety, the environment or hazardous or
        toxic
        substances or wastes, pollutants or contaminants (“Environmental
        Laws”),
        (ii)
        have received all material permits, licenses or other approvals required
        of them
        under applicable Environmental Laws to conduct their respective businesses
        and
        (iii) are in material compliance with all material terms and conditions of
        any
        such permit, license or approval.

      

      (o)     Title. 
         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 are not material and do not interfere with the use
        made
        and proposed to be made of such property and buildings by the Company and
        its
        subsidiaries.

      

      (p)     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 been refused any insurance coverage sought or applied
        for and 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 materially
        and
        adversely affect the condition, financial or otherwise, or the earnings,
        business or operations of the Company and its subsidiaries, taken as a
        whole.

      

      (q)     Regulatory
        Permits.  
        The Company and its subsidiaries possess all material certificates,
        authorizations and permits issued by the appropriate federal, state or foreign
        regulatory authorities necessary to conduct their respective businesses,
        and
        neither the Company nor any such subsidiary has received any notice of
        proceedings relating to the revocation or modification of any such certificate,
        authorization or permit.

      

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

      

      (s)     No
        Material Adverse Breaches, etc. 
         Neither the Company nor any of its subsidiaries is subject to any charter,
        corporate or other legal restriction, or any judgment, decree, order, rule
        or
        regulation which in the judgment of the Company’s officers has or is expected in
        the future to have a material adverse effect on the business, properties,
        operations, financial condition, results of operations or prospects of the
        Company or its subsidiaries. Neither the Company nor any of its subsidiaries
        is
        in breach of any contract or agreement which breach, in the judgment of the
        Company’s officers, has or is expected to have a material adverse effect on the
        business, properties, operations, financial condition, results of operations
        or
        prospects of the Company or its subsidiaries.

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      (t)     Tax
        Status.  
        The Company and each of its subsidiaries has made and filed all federal and
        state income and all other tax returns, reports and declarations required
        by any
        jurisdiction to which it is subject and (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) 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
        provision 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.

      

      (u)     Certain
        Transactions. 
         Except for arm’s length transactions pursuant to which the Company makes
        payments in the ordinary course of business upon terms no less favorable
        than
        the Company could obtain from third parties and other than the grant of stock
        options disclosed in the SEC Documents, none of the officers, directors,
        or
        employees of the Company is presently a party to any transaction with the
        Company (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.

      

      (v)    Fees
        and Rights of First Refusal.  
        The Company is not obligated to offer the securities offered hereunder on
        a
        right of first refusal basis or otherwise to any third parties including,
        but
        not limited to, current or former shareholders of the Company, underwriters,
        brokers, agents or other third parties.

      

      
        	 	
                4.

              	
                COVENANTS.

              

      

      

      (a)     Best
        Efforts. 
         Each party shall use its best efforts to timely satisfy each of the
        conditions to be satisfied by it as provided in Sections 6 and 7 of this
        Agreement.

      

      (b)     Form
        D.  
        The Company agrees to file a Form D with respect to the Conversion Shares
        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
        Conversion Shares, or obtain an exemption for the Conversion Shares for sale
        to
        the Buyers at the Closing pursuant to this Agreement under applicable securities
        or “Blue Sky” laws of the states of the United States, and shall provide
        evidence of any such action so taken to the Buyers on or prior to the Closing
        Date.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      (c)     Reporting
        Status.  
        Until the earlier of (i) the date as of which the Buyer(s) may sell all of
        the
        Conversion Shares without restriction pursuant to Rule 144(k) promulgated
        under
        the Securities Act (or successor thereto), or (ii) the date on which (A)
        the
        Buyer(s) shall have sold all the Conversion Shares and (B) none of the
        Convertible Debentures are outstanding (the “Registration
        Period”),
        the
        Company shall file in a timely manner all reports required to be filed with
        the
        SEC pursuant to the Exchange Act and the regulations of the SEC thereunder,
        and
        the Company shall not terminate its status as an issuer required to file
        reports
        under the Exchange Act even if the Exchange Act or the rules and regulations
        thereunder would otherwise permit such termination.

      

      (d)     Use
        of
        Proceeds. 
         The Company will use the proceeds from the sale of the Convertible
        Debentures for general corporate and working capital purposes.

      

      (e)     Reservation
        of Shares. 
         The Company shall take all action reasonably necessary to at all times
        have authorized, and reserved for the purpose of issuance, such number of
        shares
        of Common Stock as shall be necessary to effect the issuance of the Conversion
        Shares. If at any time the Company does not have available such shares of
        Common
        Stock as shall from time to time be sufficient to effect the conversion of
        all
        of the Conversion Shares, the Company shall call and hold a special meeting
        of
        the shareholders within thirty (30) days of such occurrence, for the sole
        purpose of increasing the number of shares authorized. The Company’s management
        shall recommend to the shareholders to vote in favor of increasing the number
        of
        shares of Common Stock authorized. Management shall also vote all of its
        shares
        in favor of increasing the number of authorized shares of Common
        Stock.

      

      (f)     Listings
        or Quotation.  
        The Company shall promptly secure the listing or quotation of the Conversion
        Shares upon each national securities exchange, automated quotation system
        or The
        National Association of Securities Dealers Inc.’s Over-The-Counter Bulletin
        Board (“OTCBB”)
        or
        other market, if any, upon which shares of Common Stock are then listed or
        quoted (subject to official notice of issuance) and shall use its best efforts
        to maintain, so long as any other shares of Common Stock shall be so listed,
        such listing of all Conversion Shares from time to time issuable under the
        terms
        of this Agreement. The Company shall maintain the Common Stock’s authorization
        for quotation on the OTCBB, Nasdaq Capital Market, Nasdaq National Market,
        American Stock Exchange or New York Stock Exchange.

      

      (g)     Fees
        and Expenses.
        

      

      (i)  
Each
        of
        the Company and the Buyer(s) shall pay all costs and expenses incurred by
        such
        party in connection with the negotiation, investigation, preparation, execution
        and delivery of the Transaction Documents. The Company shall pay Yorkville
        Advisors LLC a fee equal to eight percent (8%) of the Purchase Price which
        shall
        be paid pro rata directly from the gross proceeds of each Closing.

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      (ii)          The
        Company shall pay a structuring fee to Yorkville Advisors LLC of Fifteen
        Thousand Dollars ($15,000), which shall be paid directly from the proceeds
        of
        the First Closing. 

      

      (iii)         The
        Company shall pay the Buyers a non-refundable due diligence fee of Five Thousand
        Five Hundred Dollars ($5,000) which shall be paid directly from the proceeds
        of
        the First Closing.

      

      (iv)         The
        Company shall issue to the Buyer warrants as follows: (A) a warrant to purchase
        Three Million Eighty Six Thousand Four Hundred Twenty (3,086,420) shares
        of the
        Company’s Common Stock for a period of five (5) years at an exercise price
        of $.81 per share and a warrant to purchase Two Million Six Hundred Eighty
        Eight
        Thousand One Hundred Seventy Two (2,688,172) shares of the Company’s Common
        Stock for a period of five (5) years at an exercise price of $.93 per share
        (the shares of Common Stock underlying the above warrants shall collectively
        be
        referred to as the “Warrant
        Shares”).
        The
        Warrant Shares shall have “piggy-back” registration rights. 

      

      (h)     Corporate
        Existence. 
         So long as any of the Convertible Debentures remain outstanding, the
        Company shall not directly or indirectly consummate any merger, reorganization,
        restructuring, reverse stock split consolidation, sale of all or substantially
        all of the Company’s assets or any similar transaction or related transactions
        (each such transaction, an “Organizational
        Change”)
        unless, prior to the consummation an Organizational Change, the Company obtains
        the written consent of each Buyer, which consent shall not be unreasonably
        withheld or delayed. In any such case, the Company will make appropriate
        provision with respect to such holders’ rights and interests to insure that the
        provisions of this Section 4(h) will thereafter be applicable to the Convertible
        Debentures.

      

      (i)    Transactions
        With Affiliates. 
         So long as any Convertible Debentures are 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 (a) customary employment arrangements and benefit programs on
        reasonable terms, (b) any investment in an Affiliate of the Company, (c)
        any
        agreement, transaction, commitment, or arrangement on an arms-length basis
        on
        terms no less favorable than terms which would have been obtainable from
        a
        person other than such Related Party, (d) any agreement, transaction,
        commitment, or arrangement which is approved by a majority of the disinterested
        directors of the Company; for purposes hereof, any director who is also an
        officer of the Company or any subsidiary of the Company shall not be a
        disinterested director with respect to any such agreement, transaction,
        commitment, or arrangement. “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.

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      (j)     Transfer
        Agent.  
        The Company covenants and agrees that, in the event that the Company’s agency
        relationship with the transfer agent should be terminated for any reason
        prior
        to a date which is two (2) years after the Closing Date, the Company shall
        immediately appoint a new transfer agent and shall require that the new transfer
        agent execute and agree to be bound by the terms of the Irrevocable Transfer
        Agent Instructions (as defined herein).

      

      (k)     Restriction
        on Issuance of the Capital Stock.  
        So long as any Convertible Debentures are outstanding, except for exercises
        or
        conversions of currently outstanding options and warrants disclosed in the
        SEC
        Documents or the disclosure schedules hereto, the Company shall not, except
        for
        Permitted Issuances, without the prior written consent of the Buyer(s), which
        consent shall not be unreasonably withheld or delayed (i) issue or sell shares
        of Common Stock or Preferred Stock without consideration or for a consideration
        per share less than the Bid Price of the Common Stock (the “Bid
        Price”),
        as
        quoted by Bloomberg, LP, determined immediately prior to its issuance, (ii)
        issue any preferred stock, warrant, option, right, contract, call, or other
        security or instrument granting the holder thereof the right to acquire Common
        Stock without consideration or for a consideration less than such Common
        Stock’s
        Bid Price determined immediately prior to it’s issuance, (iii) enter into any
        security instrument, except Permitted Liens, granting the holder a security
        interest in any and all assets of the Company, or (iv) file any registration
        statement on Form S-8.
        “Permitted Issuances” shall mean (i) securities
        issuable pursuant to any agreement in effective as of the date hereof and
        as set
        forth in the Disclosure Schedule (which is an exhaustive list); (ii) up to
        5
        million securities (or options to purchase such securities) issuable to
        officers, directors, employees, or consultants to the Company pursuant to a
        stock option/stock incentive plan to be approved by the Company's Board of
        Directors and shareholders; and (iii) securities
        issuable to Stonegate Securities, Inc. pursuant to the Placement Agency
        Agreement dated October 21, 2005, as amended December 29, 2005.
        “Permitted Liens” shall mean (i) liens
        in
        effect on the date hereof (and renewals and replacements thereof); (ii) liens
        arising from purchase money liens or the interests of lessors under capital
        leases to the extent that such liens or interests secure purchase money
        indebtedness and so long as such Lien attaches only to the asset purchased
        or
        acquired and the proceeds thereof; and (iii) liens granted as security for
        surety or appeal bonds in connection with obtaining such bonds in the ordinary
        course of business.

      

      (l)     Neither
        the Buyer(s) nor any of its affiliates have an open short position in the
        Common
        Stock of the Company, and the Buyer(s) agrees that it shall not, and that
        it
        will cause its affiliates not to, engage in any short sales of or hedging
        transactions with respect to the Common Stock as long as any Convertible
        Debentures shall remain outstanding. 

      

      (m)     Rights
        of First Refusal.  
        For
        a
        period of 12 months from the date of the First Closing, if the Company intends
        to raise additional capital by the issuance or sale of capital stock of the
        Company, including without limitation shares of any class of common stock,
        any
        class of preferred stock, options, warrants or any other securities convertible
        or exercisable into shares of common stock (whether the offering is conducted
        by
        the Company, underwriter, placement agent or any third party) the Company
        shall
        be obligated to offer to the Buyers such issuance or sale of capital stock,
        by
        providing in writing the principal amount of capital it intends to raise
        and
        outline of the material terms of such capital raise, prior to the offering
        such
        issuance or sale of capital stock  to any third parties including, but not
        limited to, current or former officers or directors, current or former
        shareholders and/or investors of the obligor, underwriters, brokers, agents
        or
        other third parties.  The Buyers shall have five (5) business days from
        receipt of such notice of the sale or issuance of capital stock to exercise
        their right during
        the five (5) business days following receipt of the notice to purchase up
        all or
        a portion of such offered Common
        Stock, any class of preferred stock, options, warrants or any other securities
        convertible or exercisable into shares of Common Stock
        in
        accordance with the terms and conditions set forth in the notice of sale
        in the
        same proportion as their portion of the purchase price bears to the total
        purchase price. 

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      (n)     Stockholder
        Approval.  
        The Company shall file a proxy or information statement with the SEC no later
        than January 13, 2006 and use its best efforts to obtain, on or before March
        31,
        2006, such approvals of the Company’s stockholders as may be required to issue
        all of the shares of common stock issuable upon conversion or exercise of
        the
        Convertible Debentures and Warrants in accordance with General Corporate
        Law of
        the State of Nevada and any applicable rules or regulations of the OTCBB
        and/or
        Nasdaq through an increase in authorized capital (the “Stockholder
        Approval”).
        The
        Company shall comply with the filing and disclosure requirements of Section
        14
        under the 1934 Act in connection with the Stockholder Approval. The Company
        represents and warrants that its Board of Directors has approved the proposal
        contemplated by this Section 4(n) and shall indicate such approval in the
        proxy
        or information statement used in connection with the Stockholder
        Approval.

      

      (o)     Following
        the Stockholder Approval, the Company shall pledge to the Buyer the Pledged
        Shares in accordance with the terms of the Company Pledge and Escrow Agreement
        in exchange for the return of the shares of the Company’s Common Stock pledged
        to Buyer by Philipp Buschmann and Michael Piazza. 

      

      
        	 	
                5.

              	
                TRANSFER
                  AGENT INSTRUCTIONS.

              

      

      

      (a)     The
        Company shall issue the Irrevocable Transfer Agent Instructions to its transfer
        agent irrevocably appointing David Gonzalez, Esq. as the Company’s agent for
        purpose of having certificates issued, registered in the name of the Buyer(s)
        or
        its respective nominee(s), for the Conversion Shares representing such amounts
        of Convertible Debentures as specified from time to time by the Buyer(s)
        to the
        Company upon conversion of the Convertible Debentures, for interest owed
        pursuant to the Convertible Debenture, and for any and all Liquidated Damages
        (as this term is defined in the Investor Registration Rights Agreement).
        David
        Gonzalez, Esq. shall be paid a cash fee of Fifty Dollars ($50) for every
        occasion they act pursuant to the Irrevocable Transfer Agent Instructions.
        The
        Company shall not change its transfer agent unless the subsequent transfer
        agent
        agrees to be bound by the terms of the Irrevocable Transfer Agent Instructions.
        Prior to registration of the Conversion Shares under the Securities Act,
        all
        such certificates shall bear the restrictive legend specified in Section
        2(g) of
        this Agreement. The Company warrants that no instruction other than the
        Irrevocable Transfer Agent Instructions referred to in this Section 5, and
        stop
        transfer instructions to give effect to Section 2(g) hereof (in the case
        of the
        Conversion Shares prior to registration of such shares under the Securities
        Act)
        will be given by the Company to its transfer agent and that the Conversion
        Shares shall otherwise be freely transferable on the books and records of
        the
        Company as and to the extent provided in this Agreement and the Investor
        Registration Rights Agreement. Nothing in this Section 5 shall affect in
        any way
        the Buyer’s obligations and agreement to comply with all applicable securities
        laws upon resale of Conversion Shares. If the Buyer(s) provides the Company
        with
        an opinion of counsel, in form, scope and substance customary for opinions
        of
        counsel in comparable transactions and reasonably satisfactory to the Company
        to
        the effect that registration of a resale by the Buyer(s) of any of the
        Conversion Shares is not required under the Securities Act, the Company shall
        within two (2) business days instruct its transfer agent to issue one or
        more
        certificates in such name and in such denominations as specified by the Buyer.
        The Company acknowledges that a breach by it of its obligations hereunder
        will
        cause irreparable harm to the Buyer by vitiating the intent and purpose of
        the
        transaction contemplated hereby. Accordingly, the Company acknowledges that
        the
        remedy at law for a breach of its obligations under this Section 5 will be
        inadequate and agrees, in the event of a breach or threatened breach by the
        Company of the provisions of this Section 5, that the Buyer(s) shall be
        entitled, in addition to all other available remedies, to an injunction
        restraining any breach and requiring immediate issuance and transfer, without
        the necessity of showing economic loss and without any bond or other security
        being required.

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      
        	 	
                6.

              	
                CONDITIONS
                  TO THE COMPANY’S OBLIGATION TO
                  SELL.

              

      

      

      The
        obligation of the Company hereunder to issue and sell the Convertible Debentures
        to the Buyer(s) at the Closings is subject to the satisfaction, at or before
        the
        Closing Dates, of each of the following conditions, 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)     Each
        Buyer shall have executed the Transaction Documents and delivered them to
        the
        Company.

      

      (b)     The
        Buyer(s) shall have delivered to the Escrow Agent the Purchase Price for
        Convertible Debentures in respective amounts as set forth next to each Buyer
        as
        outlined on Schedule I attached hereto and the Escrow Agent shall have delivered
        the net proceeds to the Company by wire transfer of immediately available
        U.S.
        funds pursuant to the wire instructions provided by the Company.

      

      (c)     The
        representations and warranties of the Buyer(s) shall be true and correct
        in all
        material respects as of the date when made and as of the Closing Dates as
        though
        made at that time (except for representations and warranties that speak as
        of a
        specific date), and the Buyer(s) 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(s)
        at or
        prior to the Closing Dates. 

      

      (d)     To
        the
        Buyer’s knowledge, 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. 

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      

      
        	 	
                7.

              	
                CONDITIONS
                  TO THE BUYER’S OBLIGATION TO PURCHASE.

              

      

      

      (a)     The
        obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
        at
        the First Closing is subject to the satisfaction, at or before the First
        Closing
        Date, of each of the following conditions:

      

      (i)        
          The
        Company shall have executed the Transaction Documents and delivered the same
        to
        the Buyer(s).

      

      (ii)         
        The
        Common Stock shall be authorized for quotation on the OTCBB, trading in the
        Common Stock shall not have been suspended for any reason. 

      

      (iii)         The
        representations and warranties of the Company shall be true and correct in
        all
        material respects (except to the extent that any of such representations
        and
        warranties is already qualified as to materiality in Section 3 above, in
        which
        case, such representations and warranties shall be true and correct without
        further qualification) as of the date when made and as of the First Closing
        Date
        as though made at that time (except for representations and warranties that
        speak as of a specific date) and the Company shall have performed, satisfied
        and
        complied in all material respects with the covenants, agreements and conditions
        required by this Agreement to be performed, satisfied or complied with by
        the
        Company at or prior to the First Closing Date. If requested by the Buyer,
        the
        Buyer shall have received a certificate, executed by the President of the
        Company, dated as of the First Closing Date, to the foregoing effect and
        as to
        such other matters as may be reasonably requested by the Buyer including,
        without limitation an update as of the First Closing Date regarding the
        representation contained in Section 3(c) above.

      

      (iv)         The
        Company shall have executed and delivered to the Buyer(s) the Convertible
        Debentures in the respective amounts set forth opposite each Buyer(s) name
        on
        Schedule I attached hereto.

      

      (v)         
        The
        Buyer(s) shall have received an opinion of counsel from the Company’s counsel in
        a form satisfactory to the Buyer(s).

      

      (vi)         The
        Company shall have provided to the Buyer(s) a certificate of good standing
        from
        the secretary of state from the state in which the company is
        incorporated.

      

      (vii)        The
        Company or the Buyer shall have filed a form UCC-1 or such other forms as
        may be
        required to perfect the Buyer’s interest in the Pledged Property as detailed in
        the Security Agreement dated the date hereof and provided proof of such filing
        to the Buyer(s).

      

      (viii)       The
        Company shall have delivered to the Escrow Agent the Pledged Shares as well
        as
        executed and medallion guaranteed stock powers as required pursuant to the
        Insider Pledge and Escrow Agreement.

      

      (ix)         
        The
        Company shall have provided to the Buyer an acknowledgement, to the satisfaction
        of the Buyer, from the Company’s independent certified public accountants as to
        its ability to provide all consents required in order to file a registration
        statement in connection with this transaction.

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      (x)         
        The
        Company shall have reserved out of its authorized and unissued Common Stock,
        solely for the purpose of effecting the conversion of the Convertible
        Debentures, shares of Common Stock to effect the conversion of all of the
        Conversion Shares then outstanding. 

      

      (xi)         
        The
        Irrevocable Transfer Agent Instructions, in form and substance satisfactory
        to
        the Buyer, shall have been delivered to and acknowledged in writing by the
        Company’s transfer agent.

      

      (b)     The
        obligation of the Buyer(s) hereunder to accept the Convertible Debentures
        at the
        Second Closing is subject to the satisfaction, at or before the Second Closing
        Date, of each of the following conditions:

      

      (i)      
            The
        Common Stock shall be authorized for quotation on the OTCBB, trading in the
        Common Stock shall not have been suspended for any reason. 

      

      (ii)         
        The
        representations and warranties of the Company shall be true and correct in
        all
        material respects (except to the extent that any of such representations
        and
        warranties is already qualified as to materiality in Section 3 above, in
        which
        case, such representations and warranties shall be true and correct without
        further qualification) as of the date when made and as of the Second Closing
        Date as though made at that time (except for representations and warranties
        that
        speak as of a specific date) and the Company shall have performed, satisfied
        and
        complied in all material respects with the covenants, agreements and conditions
        required by this Agreement to be performed, satisfied or complied with by
        the
        Company at or prior to the Second Closing Date. If requested by the Buyer,
        the
        Buyer shall have received a certificate, executed by the President of the
        Company, dated as of the Second Closing Date, to the foregoing effect and
        as to
        such other matters as may be reasonably requested by the Buyer including,
        without limitation an update as of the Second Closing Date regarding the
        representation contained in Section 3(c) above.

      

      (iii)        
        The
        Company shall have executed and delivered to the Buyer(s) the Convertible
        Debentures in the respective amounts set forth opposite each Buyer(s) name
        on
        Schedule I attached hereto.

      

      (iv)        
        The
        Company shall have certified that all conditions to the Second Closing have
        been
        satisfied and that the Company will file the Registration Statement with
        the SEC
        in compliance with the rules and regulations promulgated by the SEC for filing
        thereof two (2) business days after the Second Closing. If requested by the
        Buyer, the Buyer shall have received a certificate, executed by the President
        of
        the Company, dated as of the Second Closing Date, to the foregoing effect.
        

      

      (v)         
        The
        Company shall have provided to the Buyer evidence satisfactory to the Buyer
        demonstrating that it has obtained the irrevocable votes or consents from
        its
        shareholders necessary increase its number of authorized shares of Common
        Stock
        to a number satisfactory to the Buyer. 

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      (vi)         No
        Events
        of Default shall have occurred under any of the Transaction Documents.

      

      (c)     The
        obligation of the Buyer(s) hereunder to accept the Convertible Debentures
        at the
        Third Closing is subject to the satisfaction, at or before the Third Closing
        Date, of each of the following conditions:

      

      (i)         
          The
        Common Stock shall be authorized for quotation on the OTCBB, trading in the
        Common Stock shall not have been suspended for any reason. 

      

      (ii)         
        The
        representations and warranties of the Company shall be true and correct in
        all
        material respects (except to the extent that any of such representations
        and
        warranties is already qualified as to materiality in Section 3 above, in
        which
        case, such representations and warranties shall be true and correct without
        further qualification) as of the date when made and as of the Third Closing
        Date
        as though made at that time (except for representations and warranties that
        speak as of a specific date) and the Company shall have performed, satisfied
        and
        complied in all material respects with the covenants, agreements and conditions
        required by this Agreement to be performed, satisfied or complied with by
        the
        Company at or prior to the Third Closing Date. If requested by the Buyer,
        the
        Buyer shall have received a certificate, executed by the President of the
        Company, dated as of the Third Closing Date, to the foregoing effect and
        as to
        such other matters as may be reasonably requested by the Buyer including,
        without limitation an update as of the Third Closing Date regarding the
        representation contained in Section 3(c) above.

      

      (iii)        
        The
        Company shall have executed and delivered to the Buyer(s) the Convertible
        Debentures in the respective amounts set forth opposite each Buyer(s) name
        on
        Schedule I attached hereto.

      

      (iv)        
        The
        Company shall have certified that all conditions to the Third Closing have
        been
        satisfied, the Company has answered any and all comments to the Registration
        Statement with the SEC and shall within two (2) business days after the Third
        Closing request acceleration of the Registration Statement. If requested
        by the
        Buyer, the Buyer shall have received a certificate, executed by the President
        of
        the Company, dated as of the Third Closing Date, to the foregoing effect.
        

      

      
        	 	
                8.

              	
                INDEMNIFICATION.

              

      

      

      (a)    In
        consideration of the Buyer’s execution and delivery of this Agreement and
        acquiring the Convertible Debentures and the Conversion Shares hereunder,
        and in
        addition to all of the Company’s other obligations under this Agreement, the
        Company shall defend, protect, indemnify and hold harmless the Buyer(s) and
        each
        other holder of the Convertible Debentures and the Conversion Shares, and
        all of
        their officers, directors, employees and agents (including, without
        limitation, those retained in connection with the transactions contemplated
        by
        this Agreement) (collectively, the “Buyer
        Indemnitees”)
        from
        and against any and all actions, causes of action, suits, claims, losses,
        costs,
        penalties, fees, liabilities and damages, and expenses in connection therewith,
        and including reasonable attorneys’ fees and disbursements (the “Indemnified
        Liabilities”),
        incurred by the Buyer Indemnitees or any of them as a result of, or arising
        out
        of, or relating to (a) any misrepresentation or breach of any representation
        or
        warranty made by the Company in this Agreement, the Convertible Debentures
        or
        the Investor Registration Rights Agreement or any other certificate, instrument
        or document contemplated hereby or thereby, (b) any breach of any covenant,
        agreement or obligation of the Company contained in this Agreement, or the
        Investor Registration Rights Agreement or any other certificate, instrument
        or
        document contemplated hereby or thereby, or (c) any cause of action, suit
        or
        claim brought or made against such Indemnitee based on material
        misrepresentations or due to a material breach and arising out of or resulting
        from the execution, delivery, performance or enforcement of this Agreement
        or
        any other instrument, document or agreement executed pursuant hereto by any
        of
        the parties hereto, any transaction financed or to be financed in whole or
        in
        part, directly or indirectly, with the proceeds of the issuance of the
        Convertible Debentures or the status of the Buyer or holder of the Convertible
        Debentures or the Conversion Shares, as a Buyer of Convertible Debentures
        in the
        Company; provided, however, that indemnification shall not apply to Indemnified
        Liabilities resulting from the gross negligence or willful misconduct of
        Buyer(s). To the extent that the foregoing undertaking by the Company may
        be
        unenforceable for any reason, the Company shall make the maximum contribution
        to
        the payment and satisfaction of each of the Indemnified Liabilities, which
        is
        permissible under applicable law.

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      (b)    In
        consideration of the Company’s execution and delivery of this Agreement, and in
        addition to all of the Buyer’s other obligations under this Agreement, the Buyer
        shall defend, protect, indemnify and hold harmless the Company and all of
        its
        officers, directors, employees and agents (including, without limitation,
        those
        retained in connection with the transactions contemplated by this Agreement)
        (collectively, the “Company
        Indemnitees”)
        from
        and against any and all Indemnified Liabilities incurred by the Indemnitees
        or
        any of them as a result of, or arising out of, or relating to (a) any
        misrepresentation or breach of any representation or warranty made by the
        Buyer(s) in this Agreement, instrument or document contemplated hereby or
        thereby executed by the Buyer, (b) any breach of any covenant, agreement
        or
        obligation of the Buyer(s) contained in this Agreement, the Investor
        Registration Rights Agreement or any other certificate, instrument or document
        contemplated hereby or thereby executed by the Buyer, or (c) any cause of
        action, suit or claim brought or made against such Company Indemnitee based
        on
        material misrepresentations or due to a material breach and arising out of
        or
        resulting from the execution, delivery, performance or enforcement of this
        Agreement, the Investor Registration Rights Agreement or any other instrument,
        document or agreement executed pursuant hereto by any of the parties hereto.
        To
        the extent that the foregoing undertaking by each Buyer may be unenforceable
        for
        any reason, each Buyer shall make the maximum contribution to the payment
        and
        satisfaction of each of the Indemnified Liabilities, which is permissible
        under
        applicable law.

      

      
        	 	
                9.

              	
                GOVERNING
                  LAW: MISCELLANEOUS.

              

      

      

      (a)     Governing
        Law.  
        This Agreement shall be governed by and interpreted in accordance with the
        laws
        of the State of New Jersey without regard to the principles of conflict of
        laws.
        The parties further agree that any action between them shall be heard in
        Hudson
        County, New Jersey, and expressly consent to the jurisdiction and venue of
        the
        Superior Court of New Jersey, sitting in Hudson County and the United States
        District Court for the District of New Jersey sitting in Newark, New Jersey
        for
        the adjudication of any civil action asserted pursuant to this
        Paragraph.

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

      (b)     Counterparts.  
        This Agreement may be executed in two or more identical 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. In the event any signature page is delivered by facsimile transmission,
        the party using such means of delivery shall cause four (4) additional original
        executed signature pages to be physically delivered to the other party, except
        for signature pages to the Convertible Debentures and Warrants within five
        (5)
        days of the execution and delivery hereof.

      

      (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 in that jurisdiction
        or the
        validity or enforceability of any provision of this Agreement in any other
        jurisdiction.

      

      (e)     Entire
        Agreement, Amendments.  
        This Agreement supersedes all other prior oral or written agreements between
        the
        Buyer(s), the Company, their affiliates and persons acting on their behalf
        with
        respect to the matters discussed herein, and this Agreement and the instruments
        referenced herein contain the entire understanding of the parties with respect
        to the matters covered herein and therein and, except as specifically set
        forth
        herein or therein, neither the Company nor any Buyer makes any representation,
        warranty, covenant or undertaking with respect to such matters. No provision
        of
        this Agreement may be waived or amended other than by an instrument in writing
        signed by the party to be charged with enforcement.

      

      (f)     Notices.  
        Any notices, consents, waivers, or other communications required or permitted
        to
        be given under the terms of this Agreement must be in writing and will be
        deemed
        to have been delivered (i) upon receipt, when delivered personally; (ii)
        upon
        confirmation of receipt, when sent by facsimile; (iii) three (3) days after
        being sent by U.S. certified mail, return receipt requested, or (iv) one
        (1) day
        after deposit with a nationally recognized overnight delivery service, in
        each
        case properly addressed to the party to receive the same. The addresses and
        facsimile numbers for such communications shall be:

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      

      
        	
                If
                  to the Company, to:

              	
                Ignis
                  Petroleum Group, Inc.

              
	 	
                100
                  Crescent Court - 7th
                  Floor

              
	 	
                Dallas,
                  TX 75201

              
	 	
                Attention:     
                  Michael
                  Piazza

              
	 	
                Telephone:   
                  (214)
                  459-8188

              
	 	
                Facsimile:      
                  (214)
                  459-3101

              
	 	 
	
                With
                  a copy to:

              	
                Sichenzia
                  Ross Friedman Ference LLP

              
	 	
                1065
                  Avenue of the Americas - 21st
                  Floor

              
	 	
                New
                  York, NY 10018

              
	 	
                Attention:     
                  Gregory
                  Sichenzia, Esq.

              
	 	
                Telephone:    
                  (212)
                  930-9700

              
	 	
                Facsimile:       
                  (212)
                  930-9725

              
	 	 
	 	
                                         
                  and

              
	 	 
	 	
                Cantey
                  & Hanger, LLP

              
	 	
                801
                  Cherry Street, Suite 2100

              
	 	
                Fort
                  Worth, Texas 76102

              
	 	
                Attention:       
                  Douglas
                  W. Clayton, Esq.

              
	 	
                Telephone:     
                  (817)
                  877-2890

              
	 	
                Facsimile:        
                  (817)
                  877-2807

              
	 	 

      

      

      If
        to the
        Buyer(s), to its address and facsimile number on Schedule I, with copies
        to the
        Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5)
        days’ prior written notice to the other party of any change in address or
        facsimile number.

      

      (g)     Successors
        and Assigns. 
         This Agreement shall be binding upon and inure to the benefit of the
        parties and their respective 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 party hereto.

      

      (h)     No
        Third Party Beneficiaries.  
        This Agreement is intended for the benefit of the parties hereto and their
        respective permitted successors and assigns, and is not for the benefit of,
        nor
        may any provision hereof be enforced by, any other person.

      

      (i)              
        Survival.  
        Unless this Agreement is terminated under Section 9(l), the representations
        and
        warranties of the Company and the Buyer(s) contained in Sections 2 and 3,
        the
        agreements and covenants set forth in Sections 4, 5 and 9, and the
        indemnification provisions set forth in Section 8, shall survive the Closing
        for
        a period of two (2) years following the date on which the Convertible Debentures
        are converted, redeemed or otherwise disposed of in full. The Buyer(s) shall
        be
        responsible only for its own representations, warranties, agreements and
        covenants hereunder.

      

      (j)               
        Publicity.  
        The Company and the Buyer(s) shall have the right to approve, before issuance
        any press release or any other public statement with respect to the transactions
        contemplated hereby made by any party; provided, however, that the Company
        shall
        be entitled, without the prior approval of the Buyer(s), to issue any press
        release or other public disclosure with respect to such transactions required
        under applicable securities or other laws or regulations (the Company shall
        use
        its best efforts to consult the Buyer(s) in connection with any such press
        release or other public disclosure prior to its release and Buyer(s) shall
        be
        provided with a copy thereof upon release thereof).

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

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

      

      (l)     Termination.  
        In the event that the Closing shall not have occurred with respect to the
        Buyers
        on or before five (5) business days from the date hereof due to the Company’s or
        the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7
        above (and the non-breaching party’s failure to waive such unsatisfied
        condition(s)), the non-breaching party shall have the option to terminate
        this
        Agreement with respect to such breaching party at the close of business on
        such
        date without liability of any party to any other party; provided, however,
        that
        if this Agreement is terminated by the Buyer(s) pursuant to this Section
        9(l),
        the Company shall remain obligated to reimburse the Buyer(s) for the fees
        and
        expenses of Yorkville Advisors LLC described in Section 4(g)(ii) and (iii)
        above.

      

      (m)    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.

      

      [REMAINDER
        PAGE INTENTIONALLY LEFT BLANK]

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

      

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

      

      
        	 	
                COMPANY:

              
	 	
                IGNIS
                  PETROLEUM GROUP, INC. 

              
	 	 
	 	
                By:
                  /s/
                  MICHAEL PIAZZA

              
	 	
                Name: Michael
                  Piazza

              
	 	
                Title: President
                  & CEO

              

      

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

      SCHEDULE
        I

      

      SCHEDULE
        OF BUYERS 

      

      
        	
                Name

              	 	
                Signature

              	 	
                Address/Facsimile
                  

                Number
                  of Buyer

              	 	
                Amount
                  of

                Subscription

              
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	
                Cornell
                  Capital Partners, LP

              	 	
                By: Yorkville
                  Advisors, LLC

              	 	
                101
                  Hudson Street - Suite 3700

              	 	
                $5,000,000

              
	 	 	
                Its: General
                  Partner

              	 	
                Jersey
                  City, NJ 07303

              	 	 
	 	 	 	 	
                Facsimile:     
                     (201)
                  985-8266

              	 	 
	 	 	 	 	 	 	 
	 	 	
                By: /s/ MARK
                  ANGELO  

              	 	 	 	 
	 	 	
                Name: Mark
                  Angelo

              	 	 	 	 
	 	 	
                Its: Portfolio
                  Manager

              	 	 	 	 
	 	 	 	 	 	 	 
	
                With
                  a copy to: 

              	 	
                David
                  Gonzalez, Esq.

              	 	
                101
                  Hudson Street - Suite 3700

              	 	 
	 	 	 	 	
                Jersey
                  City, NJ 07302

              	 	 
	 	 	 	 	
                Facsimile:     
                     (201) 985-8266

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