Document:

Exhibit 10.1

 

AMENDED AND RE-STATED

EMPLOYMENT AND NON-COMPETITION AGREEMENT

 

This Employment Agreement (this "Agreement") between Horizon
Offshore, Inc., a Delaware corporation ("Company"), and George G. Reuter
("Employee") is dated as of July 1, 2003. 

 

The Company and the Employee agree as follows:

 

1.    
Employment.  The Company has hired the
Employee and the Employee agreed to be employed upon the terms and conditions
hereinafter set forth.

 

2.    
Term.  (a)  Subject to the provisions for
termination as hereinafter provided, Employee's employment pursuant to the terms
of this Agreement shall be for the period of three (3) years from the date of
this Agreement. This three (3) year period of employment is referred to herein
as the "Employment Term." 

 

(b)     If Employee continues to serve as an employee of the
Company after the Employment Term, such continued employment shall be subject to
the terms of this Agreement but shall be terminable at will by either the
Company or Employee. 

 

(c)     Following Employee ceasing for whatever reason to be an
employee of the Company, each party shall have the right to enforce all rights,
and shall be bound by all obligations, of such party that are continuing rights
and obligations under the terms of this Agreement.

 

3.    
Title and Duties. The Employee will have the title
"Senior Vice President and Group Executive of Projects and Proposals" of the
Company's subsidiary, Horizon Offshore Contractors, Inc., and shall perform such
duties, consistent with the Employee's job title, as may be prescribed from time
to time by the Chief Executive Officer.

 

4.    
Compensation and Benefits. The Company will provide
or will cause to be provided to Employee a minimum annual base salary of
$218,000. The Employee shall be entitled to all benefits and perquisites
provided to similarly situated employees of the Company.

 

5.    
    
    Termination of Employment.

 

(a)    During the Employment Term, the Employee's status as an employee will
    terminate immediately and automatically upon the earliest to occur of:

 

(i)    the death or "Disability" (as defined below) of the Employee;
        

 

(ii)    the discharge of the Employee by the Company "For Cause" (as defined
        below);
        

 

(iii)    the expiration of the Employment Term.

 

The Employee hereby accepts such employment subject to the
terms and conditions hereof.

 

(b)    As used herein, "For Cause" shall mean any one or more of the following:

  

(i)    violation by the Employee of the terms of this Agreement or the
        Employee's failure to perform the Employee's duties in a manner
        consistent with the Employee's position;
        

 

(ii)    excessive absenteeism on the part of the Employee that is not
        otherwise protected or allowed by law;
        

 

(iii)    the Employee's conviction of any felony whatsoever, or of any
        misdemeanor that involves fraud, dishonesty or moral turpitude;
        

 

(iv)    the Employee's having detectable traces of drugs, narcotics or any
        controlled substances in his system while at work, and/or misuse of
        prescription medication while working; as well as the possession or
        distribution of drugs, narcotics or any controlled substances at any
        time or place; or
        

 

(v)    the Employee's conducting himself in a way that is contrary to the
        Company's business interests. 

 

Anything in this Agreement to the contrary notwithstanding,
the Employee's employment may not be terminated "For Cause" unless and until
there shall have been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board (without giving effect to the Employee's status as a
director or any vote of the Employee) at a meeting of the Board called and held
for the purpose (after reasonable notice to the Employee and an opportunity for
the Employee to be heard before the Board), finding that in the good faith
opinion of the Board the Employee was culpable of any of the conduct set forth
in clauses (i) through (v) of this subparagraph (b) and specifying the
particulars thereof in detail.

 

(c)     As used herein, "Disability" shall mean a physical or mental impairment
    of the Employee that in the determination of the Board has prevented the
    Employee from performing the duties assigned to the Employee by the company
    for 90 consecutive days or more during any 12 consecutive months. Days of
    absence attributable to leave under the Family Medical Leave Act or as
    reasonable accommodation under the Americans With Disabilities Act, or other
    laws protecting such absences, will not be counted as part of the 90 days in
    determining whether the Employee is disabled within the meaning of this
    definition. The Employee's employment hereunder, except as otherwise agreed
    to in writing between the Company and the Employee, shall cease as of the
    date of such determination. The Employee agrees to submit to medical
    examinations, at the Company's sole cost and expense, to determine whether
    the Employee is substantially unable, with or without reasonable
    accommodation, to perform the essential functions of his position with the
    Company, pursuant to reasonable requests that the Company may make from time
    to time. During the period of any such physical or mental impairment as
    provided above, the salary otherwise payable to the Employee may, in the
    absolute discretion of the Company, be reduced by the amount of any
    disability benefits or payments received by the Employee from the Company or
    any disability or health plan funded in whole or in part by the Company
    (excluding health insurance benefits or other reimbursement of medical
    expenses attributable to insurance policies that have not been funded in any
    part by the Company).

 

(d)     Employee shall have the right to terminate this Agreement
in the event of the acquisition or a public announcement that a person or group
of persons (other than the holders of the Company's common stock on the date of
this Agreement and other than the Company or any of its subsidiaries or any
employee benefit plan of the Company or any such subsidiary) has acquired 30% or
more of the Company's outstanding common stock; or the Company is involved in a
merger or other business combination or sale or transfer of assets or earning
power aggregating more than 50% of the assets or earning power of the Company
and its subsidiaries, taken as a whole, and as a result of such transaction the
Company's equity holders prior to the transaction hold less than fifty (50%)
percent of the surviving or transferee entity.

 

(e)     In the event of termination of this Agreement by Employee
in accordance with Section 5 (d), above, Employee shall be entitled to: (i) a
lump sum payment by Company equal to two hundred (200%) percent of Employee's
annual base salary in effect at the time of termination, (ii) a lump sum payment
by Company equal to the difference between the option exercise price of any
unvested option and the market value of the stock on the date of termination,
and (iii) continued participation in any welfare benefit plans, including
without limit medical, life insurance and disability insurance and continued
receipt of any perquisites Employee is receiving on the date of termination for
a period of two (2) years.

 

(f)     Notwithstanding anything to the contrary in this
Agreement, in the event that any payment, benefit or distribution by Company to
or for the benefit of the Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest or
penalties, are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to the Employee an additional payment (a "Gross-up payment")
in an amount such that after payment by the Employee of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed on any Gross-up Payment, the Employee retains an amount of the
Gross-up Payment equal to the Excise Tax imposed upon the Payments. Company and
the Employee shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment. The Employee
shall notify Company in writing of any claim by the Internal Revenue Service
which, if successful, would require Company to make a Gross-up Payment (or a
Gross-up Payment in excess of that, if any, initially determined by Company and
the Employee) within five days of the receipt of such claim. Company shall
notify the Employee in writing at least ten days prior to the due date of any
response required with respect to such claim if it plans to contest the claim.
If Company decides to contest such claim, the Employee shall cooperate fully
with Company in such action; provided, however, Company shall bear and pay
directly or indirectly all costs and expenses (including additional interest and
penalties) incurred in connection with such action and shall indemnify and hold
the Employee harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
Company's action. If, as a result of Company's action with respect to a claim,
the Employee receives a refund of any amount paid by Company with respect to
such claim, the Employee shall promptly pay such refund to Company. If Company
fails to timely notify the Employee whether it will contest such claim or
Company determines not to contest such claim, then Company shall immediately pay
to the Employee the portion of such claim, if any, which it has not previously
paid to the Employee.

 

6.     Trade Secrets, Etc.  The Employee shall hold, both
during the Employment Term and thereafter, in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its subsidiaries or corporate affiliates and
their respective businesses and operations, which shall have been obtained by
the Employee during the Employee's employment (whether prior to or after the
date hereof) and which shall not have become public knowledge (other than by
acts of the Employee or his representatives in violation of this Agreement). The
Employee agrees (i) that, without the prior written consent of the Company or as
may be otherwise required by law or legal process, he will not communicate or
divulge any such information, knowledge or data to any party other than the
Company and (ii) to deliver promptly to the Company upon its written request any
confidential information, knowledge or data in his possession, whether produced
by the Company or any of its subsidiaries and corporate affiliates or by the
Employee, that relates to the business of the Company or any of its subsidiaries
and joint ventures or any past, current or prospective activity of the Company
or any of its subsidiaries and joint ventures. The Employee shall be permitted
to retain copies of such data as are necessary in order to enable the Employee
to assert any rights under this Agreement, provided that such data shall be used
solely for such purpose.

 

7.     Limited Covenant Not to Compete.  (a)  While Employee
is employed by the Company, the Employee will not, directly or indirectly, own,
manage, operate, control, be employed by, participate in, or be connected in any
manner with the ownership, management, operation or control of any company or
other business enterprise engaged in a line or lines of business similar to that
of the Company or any of its subsidiaries or joint ventures, within the States
of Texas, Louisiana, Mississippi, Alabama or Florida (including any area
offshore in the Gulf of Mexico or any such state) or any other jurisdiction,
whether within or outside the United States in which the business of the Company
or any of its subsidiaries or joint ventures is carried on, so long as the
Company or any of its subsidiaries or joint ventures carries on a like line of
business therein; provided, however, that nothing contained herein shall
prohibit the Employee from making investments in any publicly held company which
do not exceed in the aggregate two percent of the equity interest of such
company.

 

(b)     As part of the consideration for the compensation and
benefits to be paid to the Employee hereunder; to protect the trade secrets and
confidential information of Company and its affiliates that have been and will
in the future be disclosed or entrusted to the Employee, the business good will
of the Company and its affiliates that has been and will in the future be
developed in the Employee, or the business opportunities that have been and will
in the future be disclosed or entrusted to the Employee by the Company and its
affiliates; and, as an additional incentive for the Company to enter in this
Agreement, the Company and the Employee agree to the non-competition obligations
hereunder. The obligations of the Employee set forth in this Section 7 shall
apply during the term of this Agreement and any continued employment of the
Employee by the Company.

 

8.     No Tampering.  While Employee is employed by the
Company and for one year following the termination of Employee's employment with
the Company, the Employee shall not (a) request, induce or attempt to influence
any supplier of goods or services to the Company to curtail or cancel any
business they may transact with the Company; (b) request, induce or attempt to
influence any customers of the Company that have done business with or potential
customers which have been in contact with the Company to curtail or cancel any
business they may transact with the Company; or (c) request, induce or attempt
to influence any employee of the Company to terminate his or her employment with
the Company.

 

9.     Statements Concerning the Company. The Employee
shall refrain, both during the Employment Term and following the termination of
Employee's employment by the Company for any reason, from publishing any oral or
written statements about the Company, any of its affiliates, or any of such
entities' officers, employees, agents or representatives that are slanderous,
libelous, or defamatory; or that disclose private or confidential information
about the Company, any of its affiliates, or any of such entities' business
affairs, officers, employees, agents or representatives; or that constitute an
intrusion into the seclusion or private lives of the Company, any of its
affiliates, or any of such entities' officers, employees, agents or
representatives or that give rise to unreasonable publicity about the private
lives of the Company, any of its affiliates, or any of such entities' officers,
employees, agents or representatives; or that place the Company, any of its
affiliates, or any of such entities' officers, employee, agents or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of the Company, any of its affiliates,
or any of such entities; officers, employees, agents or representatives. A
violation or threatened violation of this prohibition may be enjoined by the
courts. The rights afforded the Company and its affiliates under this provision
are in addition to any and all rights and remedies otherwise afforded by law.

 

10.     Injunctive Relief.  In the event of a breach or
threatened breach by the Employee of the provisions of Sections 6, 7, 8 or 9 of
this Agreement during or after the term of this Agreement, the Company shall be
entitled to injunctive relief restraining the Employee from violation of such
paragraph. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedy at law or in equity it may have in the event of breach
or threatened breach of this Agreement by the Employee.

 

11.     Binding Effect.  (a)  This Agreement shall be
binding upon and inure to the benefit of the Company and any of its successors
or assigns.

 

(b)     This Agreement is personal to the Employee and shall not be assignable by
the Employee without the consent of the Company (there being no obligation to
give such consent) other than such rights or benefits as are transferred by will
or the laws of descent and distribution.

 

(c)     The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to the same extent
as would have been required of the Company had no assignment or succession
occurred, such assumption to be set forth in a writing reasonably satisfactory
to the Employee. In the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such successor or
assign.

 

12.     Notices.  Any notice or other communication
required under this Agreement shall be in writing, shall be deemed to have been
given and received when delivered in person, or, if mailed, shall be deemed to
have been given when deposited in the United States mail, first class,
registered or certified, return receipt requested, with proper postage prepaid,
and shall be deemed to have been received on the third business day thereafter,
and shall be addressed as follows:

	
		If to the Company, addressed to:

		

		Horizon Offshore, Inc.

		2500 City West Boulevard, Suite 2200

		Houston, Texas 77042

		

		If to the Employee, addressed to:

		

		George Reuter

		22307 Fairbay Drive

		Katy, Texas 77450

	

or such other address as to which any party hereto may have
notified the other in writing.

 

13.     Governing Law.  This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Texas.

 

14.     Entire Agreement.  This Agreement and the documents
referred to herein, contain or refer to the entire agreement or understanding
between the Employee and the Company relating to the employment of the Employee
by the company. No provision of the Agreement may be modified or amended except
by an instrument in writing signed by or for both parties hereto. 

 

15.    Severability.  If any term or provision of this
Agreement, or the application thereof to any person or circumstance, shall at
any time or to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term and provision of this Agreement
shall be valid and enforced to the fullest extent permitted by law.

 

16.     Waiver of Breach.  The waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach thereof.

 

17.     Remedies Not Exclusive.  No remedy specified herein
shall be deemed to be such party's exclusive remedy, and accordingly, in
addition to all of the rights and remedies provided for in this Agreement, the
parties shall have all other rights and remedies provided to them by applicable
law, rule or regulation.

 

18.     Beneficiaries.  Whenever this Agreement provides
for any payment to be made to the Employee or his estate, such payment may be
made instead to such beneficiary or beneficiaries as the Employee may have
designated in writing and filed with the Company. The Employee shall have the
right to revoke any such designation from time to time and to re-designate any
beneficiary or beneficiaries by written notice to the Company.

 

19.     
Arbitration.  All disputes arising out of or in
connection with this Agreement or any transaction hereunder shall be finally
settled under the Commercial Arbitration Rules of the American Arbitration
Association. This clause means that the parties hereby waive their right to have
such disputes adjudicated, litigated or tried in a court of law. The
arbitrator's award shall be final and binding. Judgment upon the award rendered
may be entered in any court having jurisdiction over the party against which the
award is rendered. The arbitration shall take place in Houston, Texas. 

 

20.     Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
just above written.

 

	
     
	
    HORIZON OFFSHORE, INC.

     

     
 

	
     
	
    By:
	
    /s/ Bill J. Lam

	
     
	
     
	
    Bill J. Lam

    President

	
     	
     	
     
	
     	
     
	
     
	
    EMPLOYEE:

     

     

	/s/ George G. Reuter

	
     	
    George G. ReuterSTANDBY EQUITY DISTRIBUTION AGREEMENT

         THIS  AGREEMENT  dated  as  of  the  13th  day  of  December  2004 (the
"AGREEMENT")   between  CORNELL  CAPITAL   PARTNERS,   LP,  a  Delaware  limited
partnership (the "INVESTOR"), and NANOSCIENCE TECHNOLOGIES,  INC., a corporation
organized and existing under the laws of the State of Nevada (the "COMPANY").

         WHEREAS,  the parties  desire  that,  upon the terms and subject to the
conditions  contained herein,  the Company shall issue and sell to the Investor,
from time to time as provided  herein,  and the Investor shall purchase from the
Company up to Five Million U.S.  Dollars  ($5,000,000)  of the Company's  common
stock, par value $0.001 per share (the "COMMON STOCK"); and

         WHEREAS,  such investments will be made in reliance upon the provisions
of Regulation D ("REGULATION D") of the Securities Act of 1933, as amended,  and
the regulations  promulgated thereunder (the "SECURITIES ACT"), and or upon such
other exemption from the registration  requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.

         WHEREAS, the Company has engaged Newbridge Securities  Corporation (the
"PLACEMENT  AGENT"),  to act as  the  Company's  exclusive  placement  agent  in
connection with the sale of the Company's Common Stock to the Investor hereunder
pursuant to the Placement Agent Agreement dated the date hereof by and among the
Company, the Placement Agent and the Investor (the "PLACEMENT AGENT AGREEMENT").

         NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I.
                               CERTAIN DEFINITIONS

         Section 1.1.  "ADVANCE" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.

         Section  1.2.  "ADVANCE  DATE"  shall mean the date the David  Gonzalez
Attorney  Trust  Account is in receipt of the funds from the  Investor and David
Gonzalez,  Esq., is in  possession  of free trading  shares from the Company and
therefore  an  Advance  by the  Investor  to the  Company  can be made and David
Gonzalez,  Esq. can release the free trading shares to the Investor. The Advance
Date shall be the first (1st)  Trading Day after  expiration  of the  applicable
Pricing Period for each Advance.

         Section  1.3.  "ADVANCE  NOTICE"  shall  mean a  written  notice to the
Investor  setting  forth the Advance  amount that the Company  requests from the
Investor and the Advance Date.

         Section  1.4.  "ADVANCE  NOTICE  DATE" shall mean each date the Company
delivers to the  Investor an Advance  Notice  requiring  the Investor to advance
funds to the Company,  subject to

<PAGE>

the terms of this Agreement.  No Advance Notice Date shall be less than five (5)
Trading Days after the prior Advance Notice Date.

         Section 1.5. "BID PRICE" shall mean, on any date, the closing bid price
(as reported by Bloomberg  L.P.) of the Common Stock on the Principal  Market or
if the Common Stock is not traded on a Principal  Market,  the highest  reported
bid price for the Common  Stock,  as furnished by the  National  Association  of
Securities Dealers, Inc.

         Section 1.6. "CLOSING" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.

         Section 1.7.  "COMMITMENT AMOUNT" shall mean the aggregate amount of up
to Five  Million  U.S.  Dollars  ($5,000,000)  which the  Investor has agreed to
provide to the Company in order to purchase the Company's  Common Stock pursuant
to the terms and conditions of this Agreement.

         Section 1.8.  "COMMITMENT  PERIOD" shall mean the period  commencing on
the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the  Investor  may  mutually  agree in writing,  and expiring on the
earliest to occur of (x) the date on which the Investor  shall have made payment
of Advances  pursuant to this Agreement in the aggregate  amount of Five Million
U.S. Dollars ($5,000,000), (y) the date this Agreement is terminated pursuant to
Section  2.4,  or (z) the date  occurring  twenty-four  (24)  months  after  the
Effective Date.

         Section 1.9.  "COMMON STOCK" shall mean the Company's common stock, par
value $0.001 per share.

         Section 1.10. "CONDITION  SATISFACTION DATE" shall have the meaning set
forth in Section 7.2.

         Section 1.11. "DAMAGES" shall mean any loss, claim, damage,  liability,
costs and expenses (including,  without limitation,  reasonable  attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).

         Section  1.12.  "EFFECTIVE  DATE"  shall mean the date on which the SEC
first declares effective a Registration  Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).

         Section 1.13.  "ESCROW AGREEMENT" shall mean the escrow agreement among
the Company, the Investor, and David Gonzalez, Esq., dated the date hereof.

         Section 1.14.  "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.

         Section  1.15.  "MATERIAL  ADVERSE  EFFECT"  shall mean any  condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this  Agreement  or the  Registration  Rights  Agreement  in any  material
respect.

                                       2
<PAGE>

         Section 1.16.  "MARKET  PRICE" shall mean the lowest VWAP of the Common
Stock during the Pricing Period.

         Section  1.17.  "MAXIMUM  ADVANCE  AMOUNT"  shall be Two Hundred  Fifty
Thousand U.S. Dollars (US$250,000) per Advance Notice.

         Section 1.18. "NASD" shall mean the National  Association of Securities
Dealers, Inc.

         Section 1.19.  "PERSON"  shall mean an  individual,  a  corporation,  a
partnership, an association, a trust or other entity or organization,  including
a government or political subdivision or an agency or instrumentality thereof.

         Section  1.20.   "PLACEMENT  AGENT"  shall  mean  Newbridge  Securities
Corporation, a registered broker-dealer.

         Section  1.21.  "PRICING  PERIOD"  shall mean the five (5)  consecutive
Trading Days after the Advance Notice Date.

         Section 1.22. "PRINCIPAL MARKET" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange,  the OTC Bulletin Board
or the New York Stock Exchange,  whichever is at the time the principal  trading
exchange or market for the Common Stock.

         Section  1.23.  "PURCHASE  PRICE" shall be set at ninety seven  percent
(97%) of the Market Price during the Pricing Period.

         Section 1.24. "REGISTRABLE  SECURITIES" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration  Statement
has not been declared  effective by the SEC, (ii) which have not been sold under
circumstances  meeting  all of the  applicable  conditions  of Rule  144 (or any
similar  provision then in force) under the Securities Act ("RULE 144") or (iii)
which have not been otherwise  transferred to a holder who may trade such shares
without  restriction  under the Securities  Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.

         Section  1.25.   "REGISTRATION   RIGHTS   AGREEMENT"   shall  mean  the
Registration Rights Agreement dated the date hereof, regarding the filing of the
Registration  Statement for the resale of the  Registrable  Securities,  entered
into between the Company and the Investor.

         Section  1.26.  "REGISTRATION  STATEMENT"  shall  mean  a  registration
statement  on Form S-1 or SB-2  (if use of such  form is then  available  to the
Company  pursuant  to the  rules  of the SEC and,  if not,  on such  other  form
promulgated  by the SEC for which the Company then  qualifies  and which counsel
for the Company  shall deem  appropriate,  and which form shall be available for
the  resale  of  the  Registrable  Securities  to be  registered  thereunder  in
accordance  with the  provisions of this Agreement and the  Registration  Rights
Agreement,  and in accordance  with the intended  method of distribution of such
securities),  for  the  registration  of  the  resale  by  the  Investor  of the
Registrable Securities under the Securities Act.

                                       3
<PAGE>

         Section  1.27.  "REGULATION  D" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.28. "SEC" shall mean the Securities and Exchange Commission.

         Section 1.29.  "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.30. "SEC DOCUMENTS" shall mean Annual Reports on Form 10-KSB,
Quarterly  Reports  on  Form  10-QSB,  Current  Reports  on Form  8-K and  Proxy
Statements  of the  Company as  supplemented  to the date  hereof,  filed by the
Company for a period of at least twelve (12) months  immediately  preceding  the
date  hereof or the  Advance  Date,  as the case may be,  until such time as the
Company  no  longer  has  an  obligation  to  maintain  the  effectiveness  of a
Registration Statement as set forth in the Registration Rights Agreement.

         Section  1.31.  "TRADING  DAY" shall mean any day during  which the New
York Stock Exchange shall be open for business.

         Section 1.32.  "VWAP" shall mean the volume  weighted  average price of
the Company's Common Stock as quoted by Bloomberg, LP.

                                   ARTICLE II.
                                    ADVANCES

         Section 2.1.      INVESTMENTS.

                  (a) ADVANCES.  Upon the terms and  conditions set forth herein
(including,  without  limitation,  the provisions of Article VII hereof), on any
Advance  Notice Date the  Company may request an Advance by the  Investor by the
delivery  of an Advance  Notice.  The number of shares of Common  Stock that the
Investor  shall  receive for each Advance  shall be  determined  by dividing the
amount of the Advance by the  Purchase  Price.  No  fractional  shares  shall be
issued.  Fractional  shares  shall be rounded to the next higher whole number of
shares.  The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.

         Section 2.2.      MECHANICS.

                  (a) ADVANCE NOTICE. At any time during the Commitment  Period,
the  Company  may  deliver an  Advance  Notice to the  Investor,  subject to the
conditions  set forth in Section  7.2;  provided,  however,  the amount for each
Advance as designated by the Company in the applicable Advance Notice, shall not
be more than the Maximum  Advance Amount.  The aggregate  amount of the Advances
pursuant to this Agreement shall not exceed the Commitment  Amount.  The Company
acknowledges  that the  Investor may sell shares of the  Company's  Common Stock
corresponding  with a particular Advance Notice on the day the Advance Notice is
received by the  Investor.  There  shall be a minimum of five (5)  Trading  Days
between each Advance Notice Date.

                                       4
<PAGE>

                  (b) DATE OF  DELIVERY  OF ADVANCE  NOTICE.  An Advance  Notice
shall be deemed  delivered on (i) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 12:00 noon Eastern
Time,  or (ii) the  immediately  succeeding  Trading  Day if it is  received  by
facsimile or otherwise  after 12:00 noon Eastern Time on a Trading Day or at any
time on a day  which is not a  Trading  Day.  No  Advance  Notice  may be deemed
delivered on a day that is not a Trading Day.

                  (c)  PRE-CLOSING  SHARE  CREDIT.  Within two (2) business days
after the Advance  Notice Date, the Company shall credit shares of the Company's
Common Stock to the  Investor's  counsel's  balance  account with The Depository
Trust Company through its Deposit  Withdrawal At Custodian  system, in an amount
equal to the amount of the requested Advance divided by the closing Bid Price of
the Company's Common Stock as of the Advance Notice Date multiplied by one point
one  (1.1).  Any  adjustments  to the  number of shares to be  delivered  to the
Investor at the Closing as a result of  fluctuations in the closing Bid Price of
the  Company's  Common  Stock shall be made as of the date of the  Closing.  Any
excess  shares  shall be  credited  to the next  Advance.  In no event shall the
number of shares  issuable  to the  Investor  pursuant  to an Advance  cause the
Investor  to own  in  excess  of  nine  and  9/10  percent  (9.9%)  of the  then
outstanding Common Stock of the Company.

                  (d)  HARDSHIP.  In the event the Investor  sells the Company's
Common Stock  pursuant to subsection  (c) above and the Company fails to perform
its obligations as mandated in Section 2.5 and 2.2 (c), and  specifically  fails
to  provide  the  Investor  with the shares of Common  Stock for the  applicable
Advance,  the Company  acknowledges  that the Investor  shall  suffer  financial
hardship  and  therefore  shall be liable for any and all  losses,  commissions,
fees, or financial hardship caused to the Investor.

         Section 2.3.  CLOSINGS.  On each Advance Date, which shall be the first
(1st) Trading Day after  expiration of the  applicable  Pricing  Period for each
Advance,  (i) the Company shall deliver to the  Investor's  Counsel,  as defined
pursuant  to the  Escrow  Agreement,  shares  of  the  Company's  Common  Stock,
representing  the amount of the Advance by the Investor  pursuant to Section 2.1
herein,  registered in the name of the Investor  which shall be delivered to the
Investor,  or otherwise in  accordance  with the Escrow  Agreement  and (ii) the
Investor shall deliver to David  Gonzalez,  Esq. (the "ESCROW AGENT") the amount
of the Advance  specified in the Advance  Notice by wire transfer of immediately
available  funds  which shall be  delivered  to the  Company,  or  otherwise  in
accordance with the Escrow  Agreement.  In addition,  on or prior to the Advance
Date,  each of the Company and the Investor  shall  deliver to the other through
the Investor's Counsel,  all documents,  instruments and writings required to be
delivered by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Payment of funds to the Company and
delivery of the Company's Common Stock to the Investor shall occur in accordance
with the conditions set forth above and those contained in the Escrow Agreement;
PROVIDED,  HOWEVER,  that to the  extent  the  Company  has not paid  the  fees,
expenses,  and disbursements of the Investor,  Reitler Brown & Rosenblatt LLC in
accordance  with  Section  12.4,  the  amount  of  such  fees,   expenses,   and
disbursements may be deducted by the Investor (and shall be paid to the relevant
party) from the amount of the Advance  with no reduction in the amount of shares
of the Company's Common Stock to be delivered on such Advance Date.

                                       5
<PAGE>

         Section 2.4. TERMINATION OF INVESTMENT.  The obligation of the Investor
to make an Advance to the Company  pursuant to this  Agreement  shall  terminate
permanently  (including  with  respect  to an  Advance  Date  that  has  not yet
occurred)  in the event that (i) there shall occur any stop order or  suspension
of the  effectiveness  of the  Registration  Statement for an aggregate of fifty
(50)  Trading  Days,  other  than due to the acts of the  Investor,  during  the
Commitment  Period,  and (ii) the Company  shall at any time fail  materially to
comply with the  requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written  notice from the  Investor,  PROVIDED,
HOWEVER,  that  this  termination  provision  shall  not  apply  to  any  period
commencing upon the filing of a  post-effective  amendment to such  Registration
Statement  and ending upon the date on which such post  effective  amendment  is
declared effective by the SEC.

         Section 2.5.      AGREEMENT TO ADVANCE FUNDS.

                  (a) The Investor agrees to advance the amount specified in the
Advance  Notice to the Company  after the  completion  of each of the  following
conditions and the other conditions set forth in this Agreement:

                           (i) the  execution  and delivery by the Company,  and
the Investor, of this Agreement and the Exhibits hereto;

                           (ii)  Investor's  Counsel  shall  have  received  the
shares of Common  Stock  applicable  to the Advance in  accordance  with Section
2.2(c) hereof;

                           (iii)  the  Company's   Registration  Statement  with
respect to the resale of the Registrable Securities in accordance with the terms
of the Registration  Rights Agreement shall have been declared  effective by the
SEC;

                           (iv) the Company  shall have  obtained  all  material
permits and  qualifications  required by any applicable  state for the offer and
sale of the Registrable Securities, or shall have the availability of exemptions
therefrom.  The sale and issuance of the Registrable Securities shall be legally
permitted by all laws and regulations to which the Company is subject;

                           (v) the Company shall have filed with the  Commission
in a timely  manner all  reports,  notices  and other  documents  required  of a
"reporting   company"   under  the  Exchange  Act  and   applicable   Commission
regulations;

                           (vi)     the fees as set forth in Section  12.4 below
shall have been paid or can be withheld as provided in Section 2.3; and

                           (vii) the  conditions  set forth in Section 7.2 shall
have been satisfied.

                           (viii)  the  Company   shall  have  provided  to  the
Investor  an  acknowledgement,  from HJ &  Associates,  LLC as to its ability to
provide all  consents  required  in order to file a  registration  statement  in
connection with this transaction;

                           (ix)  The  Company's  transfer  agent  shall  be DWAC
eligible.

                                       6
<PAGE>

         Section 2.6.      LOCK UP PERIOD.

                           (i) During the Commitment  Period,  the Company shall
not,  without  providing  the Investor with at least ten (10) days prior written
notice,  issue  or  sell  (i)  any  Common  Stock  or  Preferred  Stock  without
consideration  or for a  consideration  per share less than the Bid Price on the
date of issuance or (ii) issue or sell any  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 per share less
than the Bid Price on the date of  issuance;  except that (i) the  Company  may,
without  the  consent of the  Investor,  provided,  however,  fifteen  (15) days
written notice is given to the Investor, issue or sell shares of Common Stock or
warrants, options or other rights to purchase in the aggregate up to one million
(1,000,000)  shares of Common  Stock to its  executive  officer,  directors  and
employees  pursuant  to a Board  approved  option  plan or as  otherwise  may be
approved by the Board of  Directors  of the Company and (ii)  commencing  on the
date hereof and  terminating  thirty (30) days  following  the date hereof,  the
Company shall be permitted to issue or sell any Common Stock or Preferred  Stock
without  restriction  or limitation  up to an aggregate  amount of Three Million
Dollars ($3,000,000),  provided, however, that the Company provides the Investor
with at least ten (10) days prior written notice of such issuance (the "DEFERRAL
PERIOD").  Upon request, the Company shall provide the Investor with any and all
information or documentation  without limitation evidencing such issuance during
the  Deferral  Period.   Following  the  declaration  of  effectiveness  by  the
Securities and Exchange Commission of the registration  statement filed pursuant
to the Investor Registration Rights Agreement of even date herewith, the Company
shall be permitted to issue or sell any Common Stock or Preferred  Stock without
restriction  or  limitation  in order to raise  amounts  not  raised  during the
Deferral Period up to an aggregate amount of Three Million Dollars ($3,000,000),
provided the Company  provides  the  Investor  with at least ten (10) days prior
written notice of such  issuance.  The Investor shall be entitled to any and all
information and documentation without limitation.

                           (ii) On the date  hereof,  the Company  shall  obtain
from each officer and director a lock-up  agreement,  as defined  below,  in the
form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with the
volume limitation of Rule 144.

                                  ARTICLE III.
                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

         Investor  hereby  represents  and  warrants  to, and agrees  with,  the
Company  that the  following  are true and as of the date  hereof and as of each
Advance Date:

         Section  3.1.  ORGANIZATION  AND  AUTHORIZATION.  The  Investor is duly
incorporated  or  organized  and  validly  existing in the  jurisdiction  of its
incorporation  or  organization  and has all  requisite  power and  authority to
purchase and hold the securities issuable hereunder.  The decision to invest and
the execution and delivery of this Agreement by such Investor,  the  performance
by such  Investor of its  obligations  hereunder  and the  consummation  by such
Investor of the transactions  contemplated  hereby have been duly authorized and
requires no other  proceedings on the part of the Investor.  The undersigned has
the right,  power and  authority to execute and deliver this  Agreement  and all
other  instruments  (including,  without  limitations,  the Registration  Rights
Agreement), on behalf of the Investor. This Agreement has been duly

                                       7
<PAGE>

executed and delivered by the Investor and,  assuming the execution and delivery
hereof and acceptance  thereof by the Company,  will constitute the legal, valid
and binding  obligations  of the Investor,  enforceable  against the Investor in
accordance with its terms.

         Section 3.2.  EVALUATION OF RISKS.  The Investor has such knowledge and
experience in financial tax and business  matters as to be capable of evaluating
the  merits  and risks of,  and  bearing  the  economic  risks  entailed  by, an
investment  in the Company and of protecting  its  interests in connection  with
this  transaction.  It recognizes that its investment in the Company  involves a
high degree of risk.

         Section  3.3.  NO  LEGAL   ADVICE  FROM  THE   COMPANY.   The  Investor
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.  The Investor 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.

         Section 3.4. INVESTMENT PURPOSE.  The securities are being purchased by
the  Investor for its own account,  for  investment  and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part.  The Investor  agrees not to assign or in any way transfer the  Investor's
rights to the  securities  or any  interest  therein and  acknowledges  that the
Company  will not  recognize  any  purported  assignment  or transfer  except in
accordance with applicable  Federal and state  securities  laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor  agrees not to sell,  hypothecate or otherwise  transfer the Investor's
securities  unless the securities  are  registered  under Federal and applicable
state securities laws or unless,  in the opinion of counsel  satisfactory to the
Company, an exemption from such laws is available.

         Section  3.5.  ACCREDITED  INVESTOR.  The  Investor  is an  "ACCREDITED
INVESTOR"  as that term is  defined in Rule  501(a)(3)  of  Regulation  D of the
Securities Act.

         Section  3.6.  INFORMATION.  The  Investor  and its  advisors  (and its
counsel),  if any,  have  been  furnished  with all  materials  relating  to the
business,  finances  and  operations  of the Company and  information  it deemed
material  to  making an  informed  investment  decision.  The  Investor  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  Investor  or its  advisors,  if any,  or its
representatives  shall modify,  amend or affect the Investor's  right to rely on
the Company's  representations and warranties  contained in this Agreement.  The
Investor  understands  that its  investment  involves a high degree of risk. The
Investor is in a position  regarding the Company,  which, based upon employment,
family  relationship  or economic  bargaining  power,  enabled and enables  such
Investor to obtain  information from the Company in order to evaluate the merits
and risks of this investment. The Investor has sought such accounting, legal and
tax  advice,  as it has  considered  necessary  to make an  informed  investment
decision with respect to this transaction.

                                       8
<PAGE>

         Section 3.7.  RECEIPT OF  DOCUMENTS.  The Investor and its counsel have
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto;  (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 year ended  Septemeber 30, 2003 and Form
10-QSB for the period ended June 30, 2004; and (iv) answers to all questions the
Investor  submitted to the Company  regarding an investment in the Company;  and
the Investor has relied on the  information  contained  therein and has not been
furnished any other documents, literature, memorandum or prospectus.

         Section 3.8.  REGISTRATION  RIGHTS AGREEMENT AND ESCROW AGREEMENT.  The
parties have  entered  into the  Registration  Rights  Agreement  and the Escrow
Agreement, each dated the date hereof.

         Section 3.9. 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 shares of Common Stock offered hereby.

         Section  3.10.  NOT AN  AFFILIATE.  The  Investor  is  not an  officer,
director  or  a  person  that  directly,  or  indirectly  through  one  or  more
intermediaries,  controls or is controlled  by, or is under common  control with
the Company or any  "AFFILIATE"  of the Company (as that term is defined in Rule
405 of the Securities Act).  Neither the Investor nor its Affiliates has an open
short position in the Common Stock of the Company,  and the Investor agrees that
it will 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, PROVIDED that
the Company  acknowledges  and agrees that upon receipt of an Advance Notice the
Investor  will sell the  Shares to be issued  to the  Investor  pursuant  to the
Advance Notice, even if the Shares have not been delivered to the Investor.

         Section 3.11.  TRADING  ACTIVITIES.  The Investor's  trading activities
with  respect to the  Company's  Common  Stock shall be in  compliance  with all
applicable  federal and state  securities  laws,  rules and  regulations and the
rules and  regulations  of the Principal  Market on which the  Company's  Common
Stock is listed or traded.  Neither the Investor nor its  affiliates has an open
short  position  in the Common  Stock of the  Company  and,  except as set forth
below, the Investor shall not and will cause its affiliates not to engage in any
short  sale  as  defined  in any  applicable  SEC  or  National  Association  of
Securities Dealers rules on any hedging  transactions with respect to the Common
Stock. Without limiting the foregoing,  the Investor agrees not to engage in any
naked  short  transactions  in  excess  of the  amount  of  shares  owned (or an
offsetting long position)  during the Commitment  Period.  The Investor shall be
entitled to sell Common Stock during the applicable Pricing Period.

                                   ARTICLE IV.
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         Except as stated below, on the disclosure  schedules attached hereto or
in the SEC Documents (as defined  herein),  the Company  hereby  represents  and
warrants to, and  covenants  with,  the Investor that the following are true and
correct as of the date hereof:

                                       9
<PAGE>

         Section  4.1.  ORGANIZATION  AND  QUALIFICATION.  The  Company  is duly
incorporated  or  organized  and  validly  existing in the  jurisdiction  of its
incorporation  or  organization  and  has  all  requisite  power  and  authority
corporate  power to own its properties and to carry on its 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.

         Section  4.2.   AUTHORIZATION,   ENFORCEMENT,   COMPLIANCE  WITH  OTHER
INSTRUMENTS.  (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement,  the Registration  Rights Agreement,  the
Escrow Agreement,  the Placement Agent Agreement and any related agreements,  in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement,  the Registration  Rights Agreement,  the Escrow Agreement,  the
Placement  Agent  Agreement  and any related  agreements  by the Company and the
consummation by it of the  transactions  contemplated  hereby and thereby,  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) this Agreement,  the  Registration  Rights  Agreement,  the
Escrow Agreement,  the Placement Agent Agreement and any related agreements have
been duly  executed  and  delivered  by the Company,  (iv) this  Agreement,  the
Registration  Rights  Agreement,  the  Escrow  Agreement,  the  Placement  Agent
Agreement and assuming the execution and delivery  thereof and acceptance by the
Investor and any related agreements 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.

         Section  4.3.  CAPITALIZATION.  As of the date hereof,  the  authorized
capital stock of the Company consists of 100,000,000 shares of Common Stock, par
value $0.001 per share, of which  10,846,946  shares of Common Stock were issued
and outstanding. All of such outstanding shares have been validly issued and are
fully paid and  nonassessable.  Except as  disclosed  in the SEC  Documents,  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. Except
as  disclosed  in the SEC  Documents,  as of the date  hereof,  (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  (iii) there are no outstanding  registration
statements  other  than  on  Form  S-8  and  (iv)  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).  There are no  securities  or
instruments  containing   anti-dilution  or  similar  provisions  that  will  be
triggered by this Agreement or any

                                       10
<PAGE>

related  agreement or the consummation of the  transactions  described herein or
therein.  The Company has furnished to the Investor  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.

         Section 4.4. NO CONFLICT.  The execution,  delivery and  performance of
this  Agreement  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 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  Principal  Market  on which  the  Common  Stock is  quoted)
applicable  to the Company or any of its  subsidiaries  or by which any material
property or asset of the Company or any of its subsidiaries is bound or affected
and which would cause a Material Adverse Effect.  Except as disclosed in the SEC
Documents,  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  in  violation  of any  material  law,  ordinance,  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 fact or
circumstance which might give rise to any of the foregoing.

         Section 4.5. SEC DOCUMENTS;  FINANCIAL STATEMENTS. Since June 30, 2004,
the  Company  has filed all  reports,  schedules,  forms,  statements  and other
documents required to be filed by it with the SEC under of the Exchange Act. The
Company has delivered to the Investor or its 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 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

                                       11
<PAGE>

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  Investor  which is not  included in the SEC  Documents  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.

         Section  4.6.  10B-5.  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.

         Section 4.7. NO DEFAULT. Except as disclosed in the SEC Documents,  the
Company is not in default  in the  performance  or  observance  of any  material
obligation,  agreement,  covenant  or  condition  contained  in  any  indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it is or its  property is bound and  neither the  execution,
nor the  delivery  by the  Company,  nor the  performance  by the Company of its
obligations  under this Agreement or any of the exhibits or  attachments  hereto
will  conflict  with or result in the breach or violation of any of the terms or
provisions  of, or  constitute a default or result in the creation or imposition
of any lien or  charge on any  assets or  properties  of the  Company  under its
Articles of Incorporation,  By-Laws, any material indenture,  mortgage,  deed of
trust or other  material  agreement  applicable  to the Company or instrument to
which the  Company is a party or by which it is bound,  or any  statute,  or any
decree, judgment, order, rules or regulation of any court or governmental agency
or body having  jurisdiction  over the Company or its  properties,  in each case
which  default,  lien or charge is likely to cause a Material  Adverse Effect on
the Company's business or financial condition.

         Section 4.8. ABSENCE OF EVENTS OF DEFAULT. Except for matters described
in the SEC Documents and/or this Agreement,  no Event of Default,  as defined in
the  respective  agreement to which the Company is a party,  and no event which,
with the giving of notice or the passage of time or both,  would become an Event
of Default (as so defined),  has occurred and is continuing,  which would have a
Material  Adverse  Effect  on the  Company's  business,  properties,  prospects,
financial condition or results of operations.

         Section  4.9.   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

                                       12
<PAGE>

and its subsidiaries are unaware of any facts or circumstances  which might give
rise to any of the foregoing.

         Section 4.10.  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.

         Section 4.11.  ENVIRONMENTAL LAWS. The Company and its subsidiaries are
(i) in compliance with any and all applicable material 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 permits, licenses
or other  approvals  required  of them under  applicable  Environmental  Laws to
conduct their  respective  businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.

         Section  4.12.  TITLE.  Except as set forth in the SEC  Documents,  the
Company has good and  marketable  title to its  properties  and material  assets
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable  interest other than such as are not material to the business
of the Company. 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.

         Section 4.13.  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.

         Section  4.14.  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.

         Section 4.15. 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,

                                       13
<PAGE>

(iii) access to assets is permitted only in accordance with management's general
or specific  authorization  and (iv) the recorded  accountability  for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

         Section 4.16. NO MATERIAL ADVERSE BREACHES, ETC. Except as set forth in
the SEC Documents, 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.  Except as set forth in the SEC  Documents,
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.

         Section  4.17.  ABSENCE OF  LITIGATION.  Except as set forth in the SEC
Documents, 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) except as expressly disclosed in the SEC
Documents,  have  a  Material  Adverse  Effect  on  the  business,   operations,
properties,  financial  condition or results of operation of the Company and its
subsidiaries taken as a whole.

         Section 4.18.  SUBSIDIARIES.  Except as disclosed in the SEC Documents,
the Company  does not  presently  own or control,  directly or  indirectly,  any
interest in any other  corporation,  partnership,  association or other business
entity.

         Section 4.19. TAX STATUS. Except as disclosed in the SEC Documents, the
Company  and each of its  subsidiaries  has made or 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.

         Section  4.20.  CERTAIN  TRANSACTIONS.  Except  as set forth 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

                                       14
<PAGE>

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.

         Section  4.21.  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.

         Section  4.22.  USE OF PROCEEDS.  The Company  represents  that the net
proceeds  from  this  offering  will be used  for  general  corporate  purposes.
However,  in no event shall the net proceeds  from this  offering be used by the
Company for the  payment  (or loaned to any such person for the  payment) of any
judgment,  or other  liability,  incurred  by any  executive  officer,  officer,
director or  employee  of the  Company,  except for any  liability  owed to such
person for services rendered,  or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.

         Section 4.23. FURTHER REPRESENTATION AND WARRANTIES OF THE COMPANY. For
so  long as any  securities  issuable  hereunder  held  by the  Investor  remain
outstanding, the Company acknowledges,  represents,  warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market.

         Section 4.24.   OPINION OF COUNSEL. Investor  shall  receive an opinion
letter from the Company's counsel on the date hereof.

         Section  4.25.  OPINION OF  COUNSEL.  The  Company  will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably  required in order to sell the securities  issuable hereunder without
restriction.

         Section  4.26.  DILUTION.  The Company is aware and  acknowledges  that
issuance  of shares of the  Company's  Common  Stock  could  cause  dilution  to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.

                                   ARTICLE V.
                                 INDEMNIFICATION

         The Investor and the Company  represent to the other the following with
respect to itself:

         Section 5.1.      INDEMNIFICATION.

                  (a) In consideration of the Investor's  execution and delivery
of this  Agreement,  and in addition to all of the Company's  other  obligations
under this  Agreement,  the Company  shall defend,  protect,  indemnify and hold
harmless the Investor, and all of its officers,  directors,  partners, employees
and agents (including, without limitation, those retained in connection with the
transactions  contemplated  by  this  Agreement)  (collectively,  the  "INVESTOR
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  (irrespective of whether any such Investor Indemnitee is a
party  to the  action  for  which  indemnification

                                       15
<PAGE>

hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"),  incurred by the Investor 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  or  the  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  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 Investor  Indemnitee  not arising out of any
action or inaction of an Investor  Indemnitee,  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 Investor  Indemnitees.  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.

                  (b) In consideration  of the Company's  execution and delivery
of this Agreement,  and in addition to all of the Investor's  other  obligations
under this  Agreement,  the Investor shall defend,  protect,  indemnify and hold
harmless the Company and all of its officers, directors, shareholders, 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  Company  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  Investor  in this  Agreement,  the  Registration  Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant,  agreement or obligation of the
Investor(s)  contained in this Agreement,  the Registration  Rights Agreement or
any other  certificate,  instrument or document  contemplated  hereby or thereby
executed by the Investor,  or (c) any cause of action,  suit or claim brought or
made against such Company  Indemnitee  based on  misrepresentations  or due to a
breach by the  Investor  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  Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason,  the Investor shall make the maximum  contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

                           (c) The  obligations  of the parties to  indemnify or
make contribution under this Section 5.1 shall survive termination.

                                   ARTICLE VI.
                            COVENANTS OF THE COMPANY

         Section  6.1.   REGISTRATION   RIGHTS.  The  Company  shall  cause  the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.

                                       16
<PAGE>

         Section 6.2.  LISTING OF COMMON STOCK.  The Company shall  maintain the
Common  Stock's  authorization  for  quotation  on the National  Association  of
Securities Dealers Inc.'s Over the Counter Bulletin Board.

         Section  6.3.  EXCHANGE  ACT  REGISTRATION.  The Company will cause its
Common Stock to continue to be  registered  under  Section 12(g) of the Exchange
Act, will file in a timely manner all reports and other documents required of it
as a reporting  company  under the  Exchange Act and will not take any action or
file any  document  (whether  or not  permitted  by  Exchange  Act or the  rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Exchange Act.

         Section  6.4.  TRANSFER  AGENT  INSTRUCTIONS.  Not  later  than two (2)
business  days after each Advance  Notice Date and prior to each Closing and the
effectiveness  of the  Registration  Statement and resale of the Common Stock by
the Investor,  the Company will deliver  instructions  to its transfer  agent to
issue shares of Common Stock free of restrictive legends.

         Section  6.5.  CORPORATE  EXISTENCE.  The  Company  will take all steps
necessary to preserve and continue the corporate existence of the Company.

         Section  6.6.   NOTICE  OF  CERTAIN  EVENTS   AFFECTING   REGISTRATION;
SUSPENSION OF RIGHT TO MAKE AN ADVANCE.  The Company will immediately notify the
Investor  upon its  becoming  aware of the  occurrence  of any of the  following
events in respect of a registration  statement or related prospectus relating to
an offering of Registrable Securities: (i) receipt of any request for additional
information  by the SEC or any other  Federal  or state  governmental  authority
during the period of effectiveness of the Registration  Statement for amendments
or supplements to the  registration  statement or related  prospectus;  (ii) the
issuance by the SEC or any other Federal or state governmental  authority of any
stop order suspending the  effectiveness  of the  Registration  Statement or the
initiation  of  any  proceedings   for  that  purpose;   (iii)  receipt  of  any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction  or the  initiation  or  threatening  of any  proceeding  for  such
purpose;  (iv) the happening of any event that makes any  statement  made in the
Registration  Statement or related  prospectus of any document  incorporated  or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration  Statement,  related
prospectus or documents so that, in the case of the Registration  Statement,  it
will not contain any untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  and that in the case of the related prospectus, it will
not  contain  any  untrue  statement  of a  material  fact or omit to state  any
material fact required to be stated  therein or necessary to make the statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the  Registration  Statement would be appropriate;  and the Company
will promptly make available to the Investor any such supplement or amendment to
the related  prospectus.  The  Company  shall not  deliver to the  Investor  any
Advance Notice during the continuation of any of the foregoing events.

         Section 6.7.  EXPECTATIONS  REGARDING ADVANCE NOTICES.  Within ten (10)
days after the commencement of each calendar quarter occurring subsequent to the
commencement of the

                                       17
<PAGE>

Commitment Period, the Company must notify the Investor,  in writing,  as to its
reasonable  expectations as to the dollar amount it intends to raise during such
calendar  quarter,  if any,  through  the  issuance  of  Advance  Notices.  Such
notification  shall  constitute only the Company's good faith estimate and shall
in no way obligate the Company to raise such amount, or any amount, or otherwise
limit its  ability to deliver  Advance  Notices.  The  failure by the Company to
comply with this provision can be cured by the Company's notifying the Investor,
in writing,  at any time as to its reasonable  expectations  with respect to the
current calendar quarter.

         Section  6.8.   RESTRICTION  ON  SALE  OF  CAPITAL  STOCK.  During  the
Commitment Period, the Company shall not, without providing the Investor with at
least ten (10) days prior written notice,  issue or sell (i) any Common Stock or
Preferred Stock without consideration or for a consideration per share less than
the bid price of the Common Stock determined  immediately prior to its issuance,
(ii) issue or sell 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  per share less than
such Common Stock's Bid Price determined  immediately prior to its issuance,  or
(iii) file any registration statement on Form S-8.

         Section 6.9. CONSOLIDATION;  MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into,  or a transfer  of all or  substantially  all the assets of the Company to
another  entity (a  "CONSOLIDATION  EVENT")  unless the  resulting  successor or
acquiring  entity  (if  not the  Company)  assumes  by  written  instrument  the
obligation to deliver to the Investor such shares of stock and/or  securities as
the Investor is entitled to receive pursuant to this Agreement.

         Section 6.10.  ISSUANCE OF THE COMPANY'S  COMMON STOCK. The sale of the
shares of Common  Stock  shall be made in  accordance  with the  provisions  and
requirements of Regulation D and any applicable state securities law.

                                  ARTICLE VII.
                CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING

         Section 7.1.  CONDITIONS  PRECEDENT TO THE  OBLIGATIONS OF THE COMPANY.
The  obligation  hereunder of the Company to issue and sell the shares of Common
Stock to the Investor  incident to each Closing is subject to the  satisfaction,
or  waiver  by the  Company,  at or before  each  such  Closing,  of each of the
conditions set forth below.

                  (a) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The  representations and warranties of the Investor shall be true and correct in
all material respects.

                  (b)  PERFORMANCE  BY THE  INVESTOR.  The  Investor  shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions  required by this Agreement and the Registration Rights Agreement
to be performed,  satisfied or complied with by the Investor at or prior to such
Closing.

         Section  7.2.  CONDITIONS  PRECEDENT  TO THE  RIGHT OF THE  COMPANY  TO
DELIVER AN ADVANCE NOTICE AND THE OBLIGATION OF THE INVESTOR TO PURCHASE  SHARES
OF COMMON STOCK.  The right of the Company to deliver an Advance  Notice and the
obligation  of the  Investor  hereunder  to  acquire  and pay for  shares of the
Company's  Common Stock  incident to a Closing is subject to the

                                       18
<PAGE>

fulfillment  by the Company,  on (i) the date of delivery of such Advance Notice
and (ii) the applicable Advance Date (each a "CONDITION  SATISFACTION DATE"), of
each of the following conditions:

                  (a) REGISTRATION OF THE COMMON STOCK WITH THE SEC. The Company
shall have  filed  with the SEC a  Registration  Statement  with  respect to the
resale  of the  Registrable  Securities  in  accordance  with  the  terms of the
Registration  Rights  Agreement.   As  set  forth  in  the  Registration  Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition  Satisfaction  Date and (i) neither the
Company nor the Investor  shall have received  notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the  SEC  otherwise  has  suspended  or  withdrawn  the   effectiveness  of  the
Registration  Statement,  either  temporarily or permanently,  or intends or has
threatened  to do so (unless  the SEC's  concerns  have been  addressed  and the
Investor  is  reasonably  satisfied  that the SEC no  longer is  considering  or
intends  to take  such  action),  and  (ii) no  other  suspension  of the use or
withdrawal  of  the  effectiveness  of the  Registration  Statement  or  related
prospectus  shall exist.  The  Registration  Statement  must have been  declared
effective by the SEC prior to the first Advance Notice Date.

                  (b) AUTHORITY. The Company shall have obtained all permits and
qualifications   required  by  any  applicable  state  in  accordance  with  the
Registration  Rights  Agreement  for the offer and sale of the  shares of Common
Stock,  or shall have the  availability  of exemptions  therefrom.  The sale and
issuance of the shares of Common  Stock shall be legally  permitted  by all laws
and regulations to which the Company is subject.

                  (c) FUNDAMENTAL CHANGES. There shall not exist any fundamental
changes to the information set forth in the  Registration  Statement which would
require  the  Company to file a  post-effective  amendment  to the  Registration
Statement.

                  (d)  PERFORMANCE  BY  THE  COMPANY.  The  Company  shall  have
performed,  satisfied and complied in all material  respects with all covenants,
agreements  and  conditions  required  by  this  Agreement  (including,  without
limitation, the conditions specified in Section 2.5 hereof) and the Registration
Rights  Agreement to be performed,  satisfied or complied with by the Company at
or prior to each Condition Satisfaction Date.

                  (e) NO INJUNCTION.  No statute,  rule,  regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  that  prohibits  or  directly  and  adversely  affects  any of the
transactions  contemplated by this Agreement,  and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely  affecting any of
the transactions contemplated by this Agreement.

                  (f) NO  SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
The trading of the Common  Stock is not  suspended  by the SEC or the  Principal
Market (if the Common  Stock is traded on a Principal  Market).  The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder  approval  requirements of the Principal  Market (if the
Common  Stock is traded  on a  Principal  Market).  The  Company  shall not

                                       19
<PAGE>

have received any notice  threatening the continued  listing of the Common Stock
on the Principal Market (if the Common Stock is traded on a Principal Market).

                  (g) MAXIMUM ADVANCE AMOUNT. The amount of an Advance requested
by the Company shall not exceed the Maximum Advance Amount.  In addition,  in no
event shall the number of shares issuable to the Investor pursuant to an Advance
cause the Investor to own in excess of nine and 9/10 percent  (9.9%) of the then
outstanding Common Stock of the Company.

                  (h) NO  KNOWLEDGE.  The Company has no  knowledge of any event
which  would  be more  likely  than  not to have  the  effect  of  causing  such
Registration Statement to be suspended or otherwise ineffective.

                  (i) OTHER. On each Condition  Satisfaction  Date, the Investor
shall have received the certificate executed by an officer of the Company in the
form of EXHIBIT A attached hereto.

                                  ARTICLE VIII.
         DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION

         Section  8.1.  DUE  DILIGENCE  REVIEW.  Prior  to  the  filing  of  the
Registration  Statement the Company  shall make  available  for  inspection  and
review by the Investor,  its advisors and  representatives,  and any underwriter
participating in any disposition of the Registrable  Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement  thereto or any blue sky,  NASD or other filing,  all
financial and other  records,  all SEC Documents and other filings with the SEC,
and all other  corporate  documents  and  properties  of the  Company  as may be
reasonably  necessary  for the purpose of such review,  and cause the  Company's
officers,  directors  and  employees to supply all such  information  reasonably
requested by the Investor or any such representative,  advisor or underwriter in
connection with such Registration Statement (including,  without limitation,  in
response to all questions and other  inquiries  reasonably  made or submitted by
any of them),  prior to and from time to time after the filing and effectiveness
of the Registration  Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct  initial and ongoing due diligence  with respect to the
Company and the accuracy of the Registration Statement.

         Section 8.2.      NON-DISCLOSURE OF NON-PUBLIC INFORMATION.

                  (a) The Company shall not disclose  non-public  information to
the Investor,  its advisors, or its representatives,  unless prior to disclosure
of such information the Company  identifies such information as being non-public
information and provides the Investor,  such advisors and  representatives  with
the  opportunity to accept or refuse to accept such  non-public  information for
review. The Company may, as a condition to disclosing any non-public information
hereunder,  require the Investor's  advisors and representatives to enter into a
confidentiality agreement in form reasonably satisfactory to the Company and the
Investor.

                  (b)  Nothing  herein  shall  require  the  Company to disclose
non-public  information to the Investor or its advisors or representatives,  and
the Company  represents that it does not disseminate  non-public  information to
any investors who purchase stock in the

                                       20
<PAGE>

Company in a public  offering,  to money  managers  or to  securities  analysts,
provided,  however,  that notwithstanding  anything herein to the contrary,  the
Company  will,  as  hereinabove  provided,  immediately  notify the advisors and
representatives of the Investor and, if any,  underwriters,  of any event or the
existence of any  circumstance  (without any obligation to disclose the specific
event or  circumstance)  of  which it  becomes  aware,  constituting  non-public
information  (whether or not requested of the Company  specifically or generally
during the course of due diligence by such persons or entities),  which,  if not
disclosed in the prospectus  included in the Registration  Statement would cause
such  prospectus to include a material  misstatement  or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading.  Nothing contained
in this  Section 8.2 shall be  construed  to mean that such  persons or entities
other than the Investor  (without the written  consent of the Investor  prior to
disclosure of such  information)  may not obtain  non-public  information in the
course  of  conducting  due  diligence  in  accordance  with  the  terms of this
Agreement  and nothing  herein shall  prevent any such persons or entities  from
notifying  the Company of their opinion that based on such due diligence by such
persons  or  entities,  that  the  Registration  Statement  contains  an  untrue
statement of material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.

                                   ARTICLE IX.
                           CHOICE OF LAW/JURISDICTION

         Section 9.1.  GOVERNING  LAW. This  Agreement  shall be governed by and
interpreted in accordance with the laws of the State of Nevada 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,  New Jersey and the United States  District Court of New Jersey,
sitting in Newark, New Jersey, for the adjudication of any civil action asserted
pursuant to this paragraph.

                                   ARTICLE X.
                             ASSIGNMENT; TERMINATION

         Section 10.1. ASSIGNMENT.  Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.

         Section  10.2.  TERMINATION.  The  obligations  of the Investor to make
Advances under Article II hereof shall terminate  twenty-four  (24) months after
the Effective Date. Notwithstanding the foregoing, provided there are no Advance
Notices pending, the Company may terminate this Agreement at any time during the
Commitment  Period by  providing  written  notice  thereof  to the  Investor  in
accordance with Section 11.1.

                                   ARTICLE XI.
                                     NOTICES

         Section  11.1.  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

                                       21
<PAGE>

be deemed to have been delivered (i) upon receipt,  when  delivered  personally;
(ii) upon  receipt,  when sent by  facsimile,  provided a copy is mailed by U.S.
certified mail, return receipt requested;  (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:

If to the Company, to:         Nanoscience Technologies, Inc.
                               45 Rockefeller Plaza - Suite 2000
                               New York, NY 10111
                               Attention:  David Rector
                               Telephone:  (212) 332-3443
                               Facsimile:  (212) 332-3401

With a copy to:                Reitler Brown & Rosenblatt LLC
                               800 Third Avenue, 21st Floor
                               New York, NY 10022
                               Attention:  Robert S. Brown, Esq.
                               Telephone:  (212) 209-3050
                               Facsimile:  (212) 371-5500

If to the Investor(s):         Cornell Capital Partners, LP
                               101 Hudson Street -Suite 3700
                               Jersey City, NJ 07302
                               Attention:  Mark Angelo
                                           Portfolio Manager
                               Telephone:  (201) 985-8300
                               Facsimile:  (201) 985-8266

With a Copy to:                David Gonzalez, Esq.
                               101 Hudson Street - Suite 3700
                               Jersey City, NJ 07302
                               Telephone:  (201) 985-8300
                               Facsimile:  (201) 985-8266

Each party shall provide five (5) days' prior written  notice to the other party
of any change in address or facsimile number.

                                  ARTICLE XII.
                                  MISCELLANEOUS

         Section 12.1.  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

                                       22
<PAGE>

delivered to the other party within five (5) days of the  execution and delivery
hereof,  though  failure to deliver such copies shall not affect the validity of
this Agreement.

         Section 12.2. ENTIRE AGREEMENT;  AMENDMENTS.  This Agreement supersedes
all other prior oral or written  agreements  between the Investor,  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  the  Investor  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.

         Section  12.3.  REPORTING  ENTITY FOR THE COMMON  STOCK.  The reporting
entity relied upon for the  determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this  Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the  Investor  and the Company  shall be required to employ any other  reporting
entity.

         Section 12.4.  FEES AND EXPENSES.  The Company hereby agrees to pay the
following fees:

                  (a)  STRUCTURING  FEES.  Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants,  appraisers
or others  engaged by such  party) in  connection  with this  Agreement  and the
transactions contemplated hereby, except that the Company will pay a structuring
fee of Fifteen Thousand Dollars ($15,000) to Yorkville Advisors Management, LLC,
which shall be paid directly from the gross proceeds of the First Closing of the
Convertible  Debenture transaction pursuant to the Securities Purchase Agreement
dated the date hereof.  Subsequently  on each Advance Date, the Company will pay
Yorkville  Advisors  Management,  LLC a structuring  fee of Five Hundred Dollars
($500) and any outstanding  fees of Reitler Brown & Rosenblatt  directly out the
proceeds of any Advances hereunder.

                  (b) DUE DILIGENCE FEES. In addition,  the Company shall pay to
the Investor a  non-refundable  due  diligence  fee of Two Thousand Five Hundred
Dollars ($2,500).

                  (c) COMMITMENT FEES.

                           (i) On each Advance Date the Company shall pay to the
Investor,  directly from the gross  proceeds held in escrow,  an amount equal to
five percent (5%) of the amount of each Advance.  The Company hereby agrees that
if such  payment,  as is  described  above,  is not made by the  Company  on the
Advance  Date,  such  payment  will be made at the  direction of the Investor as
outlined and mandated by Section 2.3 of this Agreement.

                           (ii) Upon the execution of this Agreement the Company
shall issue to the Investor One Hundred Twenty Five Thousand (125,000) shares of
the Company's Common Stock (the "INVESTOR'S SHARES").

                                       23
<PAGE>

                           (iii) FULLY EARNED.  The  Investor's  Shares shall be
deemed fully earned as of the date hereof.

                           (iv) REGISTRATION  RIGHTS. The Investor's Shares will
have "piggy-back" registration rights.

         Section 12.5. BROKERAGE.  Each of the parties hereto represents that it
has had no  dealings  in  connection  with this  transaction  with any finder or
broker who will demand  payment of any fee or  commission  from the other party.
The  Company on the one hand,  and the  Investor,  on the other  hand,  agree to
indemnify  the  other  against  and hold  the  other  harmless  from any and all
liabilities  to any person  claiming  brokerage  commissions or finder's fees on
account  of  services   purported  to  have  been  rendered  on  behalf  of  the
indemnifying  party  in  connection  with  this  Agreement  or the  transactions
contemplated hereby.

         Section  12.6.  CONFIDENTIALITY.  If for any  reason  the  transactions
contemplated by this Agreement are not  consummated,  each of the parties hereto
shall keep  confidential  any information  obtained from any other party (except
information  publicly  available  or in such  party's  domain  prior to the date
hereof,  and except as required by court order) and shall promptly return to the
other  parties  all  schedules,  documents,  instruments,  work  papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       24
<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have caused this Standby Equity
Distribution  Agreement  to be  executed  by  the  undersigned,  thereunto  duly
authorized, as of the date first set forth above.

                                        COMPANY:
                                        NANOSCIENCE TECHNOLOGIES, INC.

                                        By: /s/ David Rector
                                            ------------------------------------
                                        Name: David Rector
                                        Title: President & CEO

                                        INVESTOR:
                                        CORNELL CAPITAL PARTNERS, LP

                                        BY:  YORKVILLE ADVISORS, LLC
                                        ITS: GENERAL PARTNER

                                        By: /s/ Mark Angelo
                                            ------------------------------------
                                        Name: Mark Angelo
                                        Title: Portfolio Manager

                                       25
<PAGE>

                                    EXHIBIT A

                      ADVANCE NOTICE/COMPLIANCE CERTIFICATE

                         NANOSCIENCE TECHNOLOGIES, INC.

         The  undersigned,  David Rector hereby  certifies,  with respect to the
sale  of  shares  of  Common  Stock  of  NANOSCIENCE  TECHNOLOGIES,   INC.  (the
"COMPANY"),  issuable in  connection  with this  Advance  Notice and  Compliance
Certificate dated ___________________ (the "NOTICE"),  delivered pursuant to the
Standby Equity Distribution Agreement (the "AGREEMENT"), as follows:

         1.  The  undersigned  is the  duly  elected  President  and  CEO of the
Company.

         2. There are no fundamental changes to the information set forth in the
Registration  Statement which would require the Company to file a post effective
amendment to the Registration Statement.

         3. The Company has performed in all material respects all covenants and
agreements  to be  performed  by the  Company  on or prior to the  Advance  Date
related  to the  Notice  and has  complied  in all  material  respects  with all
obligations and conditions contained in the Agreement.

         4. The undersigned  hereby  represents,  warrants and covenants that it
has made all  filings  ("SEC  FILINGS")  required  to be made by it  pursuant to
applicable securities laws (including,  without limitation, all filings required
under the Securities  Exchange Act of 1934, which include Forms 10-Q, 10-K, 8-K,
etc.  All  SEC  Filings  and  other  public  disclosures  made  by the  Company,
including,  without limitation, all press releases, analysts meetings and calls,
etc. (collectively,  the "PUBLIC DISCLOSURES"),  have been reviewed and approved
for release by the Company's attorneys and, if containing financial information,
the Company's  independent  certified public accountants.  None of the Company's
Public  Disclosures  contain any untrue  statement of a material fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made, not misleading.

         5. The Advance requested is _____________________.

         The  undersigned  has  executed  this  Certificate  this  ____  day  of
_________________.

                                       NANOSCIENCE TECHNOLOGIES, INC.

                                       By:
                                          --------------------------------------
                                       Name: David Rector
                                       Title: President & CEO

                                       26
<PAGE>

                                  SCHEDULE 2.6

                         NANOSCIENCE TECHNOLOGIES, INC.

         The undersigned  hereby agrees that for a period commencing on the date
hereof and expiring on the  termination of the Agreement dated December __, 2004
between  Nanoscience  Technologies,  Inc., (the "COMPANY"),  and Cornell Capital
Partners,  LP, (the "INVESTOR") (the "LOCK-UP PERIOD"),  he, she or it will not,
directly or  indirectly,  without  the prior  written  consent of the  Investor,
issue,  offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except  pursuant to Rule 144 of the General Rules and  Regulations
under the  Securities  Act of 1933,  any  securities  of the Company,  including
common  stock or  options,  rights,  warrants  or other  securities  underlying,
convertible  into,  exchangeable  or exercisable  for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the  undersigned),  or  any  beneficial  interest  therein  (collectively,   the
"SECURITIES").

         In  order  to  enable  the  aforesaid  covenants  to be  enforced,  the
undersigned  hereby  consents  to the  placing of legends  and/or  stop-transfer
orders with the transfer agent of the Company's  securities  with respect to any
of the  Securities  registered in the name of the  undersigned  or  beneficially
owned by the undersigned,  and the undersigned hereby confirms the undersigned's
investment in the Company.

Dated: _______________, 2004

                                      Signature

                                      ------------------------------------------

                                      Address:
                                              ----------------------------------
                                      City, State, Zip Code:
                                                            --------------------

                                      ------------------------------------------
                                      Print Social Security Number
                                      or Taxpayer I.D. Number

                                       27

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00075-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00075-of-00352.parquet"}]]