Document:

Hub Group Singamas Contract

     

    Exhibit
      10.1

    Equipment
      Purchase Contract

    

    This
      Equipment Purchase Contract, together with the exhibits attached hereto (this
      “Contract”) is entered into as of March 8, 2007 by and between Hub City
      Terminals, Inc., located
      at 3050 Highland Parkway Suite 100 Downers Grove, IL 60515, U.S.A. (“Buyer”),
      Singamas Management Services, Ltd., located at P.O. Box 71, Craigmuir Chambers,
      Road Town, Tortola, British Virgin Islands (“Seller”) and, for purposes of
      ARTICLE 11 only, Singamas North America, Inc., located at 2410 Camino Ramon,
      Suite 135, San Ramon, CA 94583 (“Old Seller”).

    

    WHEREAS,
      Buyer and Old Seller entered into that certain Equipment Purchase Contract,
      dated as of March 8, 2006 (the “2006 Purchase Contract”) pursuant to which Buyer
      purchased Containers (as defined hereinafter) from Old Seller;

    

    WHEREAS,
      Old Seller and Seller are corporate affiliates; and

    

    WHEREAS,
      Buyer and Seller desire to enter into this Contract pursuant to which Buyer
      shall purchase Containers from Seller.

    

    Buyer
      and
      Seller agree as follows:

    

    ARTICLE
      1. Specification;
      Equipment; Contract Price; Scheduled Delivery Dates; Pool

    

    (a)  Pursuant
      to ARTICLE 2 of this Contract, Buyer and Seller agree to develop on a joint
      basis the Specification (as defined in ARTICLE 2(a)) for the manufacture of
      the
      steel containers described in Exhibit A (collectively, the “Equipment” and each
      individually, a “Unit” or “Container”).

    

    (b)  Seller
      covenants and agrees to manufacture, at the Singamas plant located at Qingdao,
      China, or at such additional plants as may be approved by Buyer (collectively,
      the “Plant”), the Equipment in accordance with the Specification developed
      pursuant to ARTICLE 2, and shall sell and deliver the Equipment to Buyer at
      Buyer’s depots as set forth in Exhibit A (“Buyer’s Depots”), or to such other
      locations as may be agreed to between Buyer and Seller (collectively, the
“Authorized Delivery Locations”), in accordance with the scheduled delivery
      dates set forth in Exhibit A, as the same may be modified only by mutual
      agreement in writing pursuant to ARTICLE 2(d), 3(b) or 4(a) (as modified,
      the Scheduled Delivery Dates), at Seller’s risk and expense as provided in this
      Contract, all for the consideration
      specified in Exhibit A. The contract price for deliveries of Units during each
      applicable month shall be determined by multiplying the price per Unit purchased
      and delivered during such month (set forth in Exhibit A as the
“Unit
      Price”),
      by the number of Units delivered to Buyer during said month (the
      aggregate price thus computed, the “Contract Price”). Time is of the essence of
      this Contract.

    

    ARTICLE
      2. Specification;
      Prototype; Interpretation; Changes

    

    (a)  On
      or
      before March 10, 2007, Buyer and Seller agree to jointly develop and produce
      design and construction specifications (the “Specification”) for the manufacture
      of the Equipment. The Specification shall satisfy the standards of the
      Association of American Railroads set forth in Exhibit B hereto (as amended
      from
      time to time, the “Standards”). The Specification shall be subject to final
      approval in writing of both Buyer and Seller. The terms and provisions of the
      Specification approved by both Buyer and Seller in writing shall be incorporated
      into this Contract by this reference. Seller agrees that the parts for the
      Equipment will be interchangeable with the parts of the 53 foot containers
      Buyer
      purchased in 2005 and 2006.

    

    (b)  The
      Specification shall define the principal characteristics of the Units of
      Equipment, which at the time of each delivery shall be suitable for commercial
      use in carrying freight in highway and rail transportation. The Specification
      shall be interpreted to accomplish this objective.

    

    (c)  If
      any
      discrepancy, difference or conflict exists between the provisions of this
      Contract and the Specification, then, to the extent of such discrepancy,
      difference or conflict only, the Specification shall be ineffectual and the
      provisions of this Contract shall prevail; but in all other respects, the
      Specification shall be in full force and effect. Any question whether the
      Specification is in conflict with the provisions of this Contract shall be
      brought to the attention of Buyer who shall resolve such conflict or discrepancy
      and give direction in writing to Seller how to proceed, and Seller shall comply
      with such directions. Seller shall not depart from the requirements of the
      Specification without the prior written authorization by Buyer.

    

    (d)  Buyer
      may
      propose a change in the Specification for the Equipment. Within five (5)
      business days after receipt of Buyer’s proposal for a change, Seller shall
      prepare and submit to Buyer an estimate (the “Estimate”) in such detail as Buyer
      may reasonably require, which shall contain (i) a description of the change,
      including any changes to the Specification or in the Equipment, (ii) the net
      increase or decrease in the Unit Price and the Contract Price, and (iii) the
      effect of the change on the Scheduled Delivery Dates. Buyer shall accept or
      reject the Estimate within five (5) business days. If the Estimate is accepted,
      Buyer shall prepare, and Buyer and Seller shall execute, a contract change
      (the
“Contract Change”), which shall contain a description of the change, including
      any changes to the Specification or the Equipment, the effect on the Scheduled
      Delivery Dates and the effect on the Unit Price and the Contract Price. If
      Buyer
      does not notify Seller of Buyer’s acceptance or rejection of any Estimate, or if
      Buyer rejects an Estimate, this Contract and the Specification shall continue
      to
      remain in full force and effect notwithstanding the parties’ failure to agree to
      such Estimate, and the parties’ shall continue to work reasonably and in good
      faith (but shall not be obligated) to reach a mutually acceptable agreement
      with
      respect to such proposed changes.

    

    ARTICLE
      3. Excusable Delay; Extension of Time; Right of Cancellation

    

    (a)  If
      either
      Buyer or Seller is delayed in making or taking delivery of any Unit of Equipment
      as a result of any “Excusable Delay” (as defined in the next
      sentence),
      Buyer
      and Seller shall not be liable for such failure or delay and the Scheduled
      Delivery Dates shall be extended in the event Seller or Buyer shall have given
      written notice to the other party within the time periods specified in ARTICLE
      3(b) of the Excusable Delay (subject however to Buyer’s cancellation rights in
      ARTICLE 3(c)). An “Excusable Delay” as to any party shall mean a delay in the
      delivery of the Equipment caused solely by the other party or by the occurrence
      of an event of delay beyond the control of such party which such party is unable
      to prevent through the exercise of due diligence, which delay is attributable
      to
      (i) acts of God (other than ordinary storms or ordinary inclement weather
      conditions), earthquakes, lightning or flood; (ii) explosions, fire or
      vandalism, provided such explosion, fire or vandalism did not result from the
      gross negligence or willful misconduct of Seller; or (iii) strikes or other
      similar industrial disturbances (not including any strikes or industrial
      disturbances resulting from unilateral changes made by Seller or its affiliated
      companies), riots, insurrections, war, sabotage, blockages or embargoes, and
      epidemics. 

    

    (b)  Upon
      the
      occurrence of an Excusable Delay, written notice shall be given by Seller to
      Buyer within five (5) days (i) after knowledge thereof or (ii) after the date
      on
      which Seller, after reasonably diligent inquiry, should have known of such
      Excusable Delay, whichever is the earlier date. Upon the cessation of any
      Excusable Delay, written notice thereof and of the anticipated effect thereof,
      if any, on the Scheduled Delivery Dates shall be given by Seller to Buyer within
      five (5) days. The failure of Seller to give the required notices within the
      periods specified by this ARTICLE shall constitute a waiver by Seller of its
      right to seek an extension of the Scheduled Delivery Dates. Buyer shall notify
      Seller, within five (5) days after receipt of Seller’s notice, of Buyer’s
      agreement or disagreement with Seller’s claim for extension of the Scheduled
      Delivery Dates. If Buyer and Seller agree on the adjustment of the Scheduled
      Delivery Dates, Buyer shall prepare and Buyer and Seller shall execute a
      Contract Change reflecting such agreement. 

    

    (c)  In
      the
      event that any of the following events shall occur (each a “Cancellation
      Event”), Buyer shall have the right, in addition to any other rights it may have
      under the law or any other provisions of this Contract, to cancel this Contract
      with respect to all remaining undelivered Units of Equipment:

    

    (i)  an
      Excusable Delay shall have occurred and such Excusable Delay shall have
      continued for more than one hundred twenty (120) days; or 

    

    (ii)  Seller
      shall fail to complete the manufacture of any Units and make them available
      for
      inspection by Buyer or Buyer’s Inspectors pursuant to ARTICLES 6(a) and (b), at
      least thirty-five (35) days prior to the respective Scheduled Delivery Dates
      for
      such Units; or 

    

    (iii)  Seller
      shall fail to deliver any Units to Buyer at an Authorized Delivery Location
      pursuant to ARTICLE 7 within sixty (60) days after the respective Scheduled
      Delivery Dates for such Units.

    

    (d)  In
      the
      event of any cancellation of this Contract pursuant to ARTICLE 3(c), Buyer
      shall
      have no liability to Seller for payment of any part of the Contract Price for
      the Units of Equipment which have been cancelled and Seller shall have no
      further liability to Buyer to deliver such Units of Equipment; provided that
      any
      such cancellation shall not terminate any rights that may have accrued to Buyer
      under this Contract prior to cancellation.

    

    ARTICLE
      4. Prototype;
      Inspection and Testing

    

    (a) By
      March
      20, 2007, Seller shall manufacture one prototype Unit of Equipment conforming
      to
      the Specification, this Contract and the Standards (the “Prototype’) and Seller
      shall perform all tests on the Prototype as required to obtain certification
      by
      Buyer’s designated certification and inspection organization (“Buyer’s Survey
      Agency”) and to enable Buyer to determine insofar as is practicable whether the
      Unit of Prototype conforms to the Specification, this Contract and the
      Standards, including without limitation the tests specified in Exhibit C. Seller
      shall bear the expense for inspection and testing of the Prototype. In the
      event
      that, in the sole opinion of Buyer, the Prototype conforms to the Specification,
      this Contract and the Standards, Buyer shall notify Seller that the Prototype
      and Specification are acceptable, the Specification shall not be modified and
      the remaining Units shall be manufactured in accordance with the Specification,
      this Contract and the Standards. In the event that, in the sole opinion of
      Buyer, the Prototype does not conform to the Specification, this Contract or
      the
      Standards, Buyer shall notify Seller in writing as to any deficiencies in the
      Specification and/or the Prototype and Seller shall, at Seller’s expense, (i) in
      respect to any deficiencies in the Specification and/or the Prototype, work
      with
      Buyer to first make any necessary changes to the Specification (which changes
      must be agreed to by Buyer and Seller), and repair or replace the Prototype
      as
      necessary to conform to the Specification as so changed, or (ii) in respect
      to any deficiencies in respect to the Prototype but not the Specification,
      repair or replace the Prototype as necessary to conform to the Specification,
      this Contract and the Standards. Following any repair or replacement of the
      Prototype pursuant to this ARTICLE 4(a), Seller shall perform the tests on
      the
      repaired or replaced Prototype pursuant to this ARTICLE 4(a), and Buyer shall
      be
      entitled to the same rights under this ARTICLE 4(a) in respect to the repaired
      or replaced prototype as the original Prototype.

    

    (b) Within
      fifteen (15) days after confirmation by Buyer that the Prototype conforms to
      the
      Specification, this Contract and the Standards pursuant to ARTICLE 4(a), but
      in
      any event no later than thirty (30) days prior to commencement of production
      of
      the Equipment, Seller shall submit to Buyer four (4) copies of the final
      Specification for the Equipment being purchased under this Contract, consisting
      of the original Specification and any changes pursuant to ARTICLE 2(d) or 4(a).
      The final Specification shall be identified by number and dated, and shall
      include: the Seller’s production model number, list and copies of applicable
      working drawings with drawing number, a general arrangement drawing of the
      Equipment, and a marking drawing for production. Seller shall deliver the final
      Specification and working drawings to Buyer not less than thirty (30) days
      prior
      to commencement of production.

    

    ARTICLE
      5. Work and Materials; Subcontracting; Production Schedule; Inspection and
      Tests

    

    (a) All
      work
      performed on the Equipment shall be in accordance with good commercial practice
      and all material, supplies and equipment incorporated in the Equipment shall
      be
      new, suitable and of the best quality for the service intended. Seller agrees
      that the standards, test and quality control procedures used in the manufacture
      of the Equipment shall at least equal those demonstrated to Buyer during any
      inspection of the Plant by Buyer, or if Buyer shall not have inspected any
      such
      Plant, then at least equal to those extended or warranted by Seller to its
      other
      customers in the United States. Seller agrees that Buyer’s inspectors or agents
      shall be allowed access to the Plant to witness production and quality control
      at all reasonable times.

    

    (b) Seller
      shall not subcontract its obligations under this Contract to manufacture the
      Equipment without the prior written approval of Buyer. In the event that Seller
      desires to subcontract the manufacturing obligations, Seller shall advise Buyer
      of the name of the proposed subcontractor at least thirty (30) days in advance
      of any initial production and shall provide Buyer with such other information
      about the proposed subcontractor as Buyer may reasonably request. If a
      subcontractor of the Equipment is consented to under this ARTICLE, such
      subcontractor shall be deemed included within the term “Seller” in this Contract
      and Seller and such subcontractor shall be jointly and severally liable for
      any
      and all obligations of Seller and such subcontractor under this Contract, but
      Buyer shall not be required to respond or look to, or deal with, such
      subcontractor and shall be entitled to respond or look only to, and deal only
      with, the original Seller named in this Contract with respect to the performance
      and enforcement of Seller’s and such subcontractor’s obligations and rights
      under this Contract.

    

    (c) All
      Equipment and all workmanship, materials, supplies and equipment incorporated
      therein shall be subject to inspection and tests by Buyer, Buyer’s Survey Agency
      and other inspectors (collectively “Buyer’s Inspectors”) at any reasonable time
      during manufacturing at the Plant. All Equipment, materials, supplies,
      workmanship and equipment not conforming to the requirements of the
      Specification, this Contract and the Standards shall not be permitted, without
      Buyer’s written agreement and approval in its sole discretion. 

    

    ARTICLE
      6. Technical
      Acceptance

    

    (a)  Seller
      will inform Buyer in writing ten (10) days before the date on which Seller
      believes the units will be ready for Buyer’s Inspectors.

    

    (b)  Following
      completion of the manufacture of each Unit at the Plant, Seller shall notify
      Buyer in writing of such completion and Seller shall arrange to allow Buyer’s
      Inspectors to undertake an initial inspection of such Unit to determine whether
      such Unit is in conformance with the Specification, this Contract and the
      Standards.

    

    (c)  If
      Buyer’s Inspectors shall determine that a Unit is in conformance with the
      Specification, this Contract and the Standards following the initial inspection
      at the Plant pursuant to ARTICLE 6(a), Buyer’s Inspectors shall issue and
      deliver to Seller and Buyer a certification in the form attached hereto as
      Exhibit D (the “Inspection Certificate”), or otherwise confirm that in the
      opinion of Buyer’s Inspectors, the Units of Equipment identified therein comply
      with the Specification, this Contract and the Standards.
      If
Buyer’s
      Inspectors determine that the Equipment is not in conformance with the
      Specification, this
      Contract and the Standards, Buyer’s Inspectors shall notify Buyer and Seller of
      their determination in writing, and shall identify any non-conformities, and
      Seller shall promptly repair or replace any non-conforming Units with conforming
      Units, which will then be subject to further inspection pursuant to ARTICLES
      6(a), (b) and (c). 

    

    (d)  Unless
      otherwise agreed by Buyer in writing, the failure of a Unit of Equipment, or
      materials, supplies and equipment thereof, in a test shall, at Buyer’s option,
      be considered the failure of each Unit in the same production series. Seller
      shall bear all costs to test, correct or replace such Units. Seller shall
      promptly correct or replace all rejected Equipment, and materials, supplies
      and
      equipment related thereto, such correction and replacement to be to the
      satisfaction of and without cost to Buyer.

    

    (e)  Buyer
      shall pay the cost of Buyer’s Inspectors under this Contract, other than for the
      costs of tests of the Prototype pursuant to ARTICLE 4(a) and as provided in
      the
      next sentence, which costs shall be paid by Seller. If Buyer’s Inspectors
      determine that a Unit of Equipment fails to conform to the requirements of
      the
      Specification, this Contract, or the Standards, the costs and charges of the
      original tests, any additional tests and work and materials in connection with
      the correction and/or replacement of the Equipment shall be paid by
      Seller.

    

    ARTICLE
      7. Delivery
      of Equipment

    

    (a) Following
      the manufacture of Units and technical acceptance thereof by Buyer pursuant
      to
      ARTICLE 6(c), Seller shall ship such Units to the Authorized Delivery
      Location for delivery to Buyer (or Buyer’s assignee if Buyer shall have assigned
      its rights under this Contract in respect to such Units of Equipment).
      Notwithstanding anything to the contrary contained in this Contract, title
      to
      each of the Units to be delivered to Buyer (or its assignee) at the Authorized
      Delivery Location shall transfer to Buyer (or its assignee) automatically and
      without further action at such time as each such Unit first crosses 125 degrees
      west longitude, and in any event immediately prior to the time the vessel
      carrying such Units leaves international waters and enters the territorial
      waters of the United States of America or of any state thereof. Subject to
      the
      terms of this ARTICLE 7, Seller shall transfer physical possession of the Units
      to Buyer (or its assignee) at the Authorized Delivery location by the applicable
      Scheduled Delivery Date (Units so transferred, the “Delivered Units”).

    

    (b) Following
      arrival of any Units described in ARTICLE 7(a) at the Authorized Delivery
      Location, Buyer shall have an opportunity to re-examine such Units to determine
      that they still conform to the Specification, this Contract and the Standards.
      If such inspection does not disclose any damages to any of the Units, an
      Equipment Interchange Receipt (“EIR”) shall be issued upon release of such Units
      from a discharging terminal to Buyer or Buyer’s motor carrier or drayman at the
      Authorized Delivery Location. Damage occurring prior to and during the lifting
      of any Delivered Units onto a chassis shall be Seller’s
      responsibility.

    

      (c) For
        Units which are delivered to an Authorized Delivery Location in apparent
        good
        order, Buyer’s agent shall issue an EIR for each Delivered Unit with the
        notation “Delivered in apparent good order.” All Delivered Units shall be
        considered delivered upon the earlier of (i) the execution of the EIR by
        Buyer’s agent, or (ii) the date payment of the Contract Price for such
        Units is due and payable pursuant to ARTICLE 11 below, at which time risk
        for
        such Units of accepted Units of Equipment shall pass to Buyer (or Buyer’s
        assignee if Buyer shall have assigned its rights under this Contract in respect
        to such Units of Equipment).

     

    (d) If,
      upon
      arrival of any Units at an Authorized Delivery Location, Buyer or Buyer’s
      Inspectors determine that any of the Units are damaged, Buyer will report such
      damage to Seller immediately and notify such damage to the terminal and Seller
      will repair or replace any damaged Units pursuant to ARTICLE 7(f). In the
      event Seller chooses or is required to replace any damaged Unit under this
      Contract, the prior transfer of title to such damaged Unit pursuant to clause
      (a) hereof shall be rescinded and title to such damaged Unit shall automatically
      revert to Seller without any recourse to, or warranty of, Buyer. In such case,
      Buyer shall have not right, title or interest of any kind to any damaged Unit
      to
      be replaced by Seller pursuant to this clause (d). 

    

    (e) Notwithstanding
      the delivery of a Delivered Unit by Seller to Buyer or issuance of an EIR for
      such Delivered Unit by Buyer pursuant to this ARTICLE 7, if Buyer discovers
      that
      any such Delivered Unit was damaged or otherwise did not conform to the
      Specification, this Contract and the Standards at the time it was delivered
      by
      Seller and Buyer notifies Seller within thirty (30) days following such
      delivery, Seller, at its sole cost and expense, shall promptly repair or replace
      such Delivered Unit. Upon a determination pursuant to clause (f) hereof that
      a
      Unit is non-repairable and, therefore must be replaced, the prior transfer
      of
      title to such Unit shall be rescinded and title shall automatically revert
      to
      Seller, without any recourse to, or warranty of, Buyer. In such case, Buyer
      shall have no right, title or interest of any kind to any damaged Unit to be
      replaced by Seller pursuant to this clause (e).

    

    (f) In
      respect to any Units that Seller is obligated to repair or replace pursuant
      to
      this ARTICLE 7, if the estimated cost of the repair of any Unit in the
      reasonable determination of Buyer is over the Damage Threshold specified in
      Exhibit A (the “Damage Threshold”), such Unit shall be considered non-repairable
      and Seller shall promptly, at Seller’s expense, replace such Unit with a Unit
      that conforms to the Specification, this Contract and the Standards. If the
      estimated cost of the repair of any such Unit in the reasonable determination
      of
      Buyer is not greater than the Damage Threshold, Seller will arrange the repair
      of such Unit at Seller’s expense or Seller will reimburse the repair amount to
      Buyer if Buyer elects to have Buyer or Buyer’s designated repair shop complete
      the repair. The repair shall be accomplished in accordance with the latest
      Institute of International Container Lessors (“IICL”) repair guide. Buyer
      acknowledges that the Equipment cannot be sent back to Seller’s plant in China;
      therefore, both parties agree to use their best efforts to settle the damage
      issues at the Authorized Delivery Location. Seller shall be responsible to
      pay
      all costs for the repair, which shall include the costs of inspection,
      estimation, transportation (including mounting repaired Equipment on chassis
      and
      making same available for interchange to Buyer’s motor carrier or drayman at a
      location reasonably acceptable to Buyer), and repair of, and any other costs
      with respect to the repair of (including chassis costs), the
      Equipment.

    

    (g) Subject
      to ARTICLE 7(h), Seller will provide free storage after discharge of the
      Equipment from the ship at the
      destination location of Southern
      California in accordance with the terminal’s standard free storage days. The
      Buyer shall pay charges for all additional storage after these standard free
      storage days.
      Buyer
      will pay such additional storage charges via wire transfer within ten (10)
      days
      of Buyer’s receipt of invoice from Seller. The additional storage charge shall
      be as per the terminal’s standard tariff. Should Buyer be unable to pickup the
      Equipment at the destination location due to an event caused solely by Seller
      or
      by the occurrence of an event of delay beyond the control of Buyer which Buyer
      is unable to prevent through the exercise of due diligence, which delay is
      attributable to (i) acts of God (other than ordinary storms or ordinary
      inclement weather conditions), earthquakes, lightning or flood; (ii) explosions,
      fire or vandalism, provided such explosion, fire or vandalism did not result
      from the gross negligence or willful misconduct of Seller; or (iii) strikes
      or
      other similar industrial disturbances (not including any strikes or industrial
      disturbances resulting from unilateral changes made by Seller or its affiliated
      companies), riots, insurrections, war, sabotage, blockages or embargoes, and
      epidemics, then the parties agree to confer and share equally the additional
      storage expense.

    

      (h) Notwithstanding
        anything contained in ARTICLE 7(g), if
        the
        Authorized Delivery Location is
        other
        than
        Southern
        California for the delivery of any Equipment, Buyer and Seller acknowledge
        that
Seller
        may not
        be able to obtain twelve (12) calendar days of free storage for Equipment
        at
        such other Authorized
        Delivery
        Locations. Accordingly, for any Equipment delivered to Authorized
        Delivery
        Locations other than Southern
        California, Buyer and Seller agree to negotiate the number of free storage
        days
        for Equipment at such other Authorized
        Delivery
        Locations, and Buyer shall be responsible
        for
        any storage in excess of such free storage pursuant to the payment provisions
        of
        ARTICLE 7(g) above.

     

    (i) At
      the
      end of each calendar month during which Units of Equipment have been discharged
      at port, Seller shall complete a report in respect to Units of Equipment
      delivered during such month in the form set forth in Exhibit E or in a form
      reasonably acceptable to Buyer, and deliver it by facsimile by the third working
      day of the succeeding month to Buyer at Buyer’s address specified in
      ARTICLE 17.

     

    8.
      Reserved 

    

     

    

    9.
      SCHEDULED DELIVERY DATES

    

    Seller
      shall deliver the Equipment to the Buyer as set forth in Exhibit A,

    in
      accordance with the Scheduled Delivery Dates set forth in Exhibit A, at Seller’s
      risk and expense as provided in this Contract, all for the consideration as
      specified in Exhibit A. 

    Buyer
      and
      Seller agree that Seller shall deliver to Buyer 500 units during each of the
      following months: May 2007, June 2007, July 2007 and August 2007. 

    

    Buyer
      will arrange the necessary chassis to the discharging terminal for stevedoring,
      and all necessary arrangement shall be as per discussion between terminal and
      Buyer, Seller will inform the terminal contacts in advance.

    

    10.
      Reserved 

    

     

    ARTICLE
      11. 
      Payment of the Contract Prices

    

    (a) Payment
      of the Contract Price for Units of Equipment which are purchased by Buyer under
      this Contract shall be made in U.S. Dollars by wire transfer of immediately
      available funds as follows:
      

    

      (i)
      an
      amount equal to the Contract Price set forth in Exhibit A shall be paid to
      Seller’s account specified by Seller in writing;

    

    (ii)
      The
      balance of funds held by the The Bank of New York Trust Company, N.A (“Escrow
      Agent”) pursuant to that certain Escrow Agreement, dated as of April 10, 2006,
      by and among Buyer, Old Seller, and the Escrow Agent (the “2006 Escrow
      Agreement”) at any given time shall be referred to herein as the “Escrow Fund.”
Buyer, Old Seller, Seller and Escrow Agent are concurrently entering into an
      Amendment to Escrow Agreement (the “Escrow Amendment”) in substantially in the
      form attached hereto as Exhibit F pursuant to which the Escrow Fund shall be
      made applicable to this Contract as well as the 2006 Purchase Contract. The
      2006
      Escrow Agreement, as amended by the Escrow Amendment, shall constitute the
      Escrow Agreement. The Escrow Fund shall be disbursed in accordance with the
      terms of the Escrow Agreement. 

    

      (iii)
        Buyer shall make the payments specified in (i) above within ten (10) days
        following the completed discharge and Buyer’s acceptance of Equipment at the
        Authorized Delivery Location specified on Exhibit A (as evidenced by delivery
        of
        an EIR or
        other
        confirmation
        for such
        Units showing delivery in good order in accordance with this Contract),
        and Seller’s presentation of the following documents to the Buyer for each
        Delivered Unit of accepted Equipment:

     

    
      	(i)  	
              Copy
                of Commercial Invoice;

            

    

    

    
      	(ii)  	
              Copy
                of Bill of Lading; 

            

    

     

    
      	(iii)  	
              Inspection
                certificate issued by Buyer’s inspectors; and;

            

    

     

    
      	(iv)  	
              Title
                to the Units.

            

    

     

    

    (b) In
      the
      event that Buyer fails to make payment within the ten (10) day deadline set
      forth in ARTICLE 11(a) above (the “Payment Deadline”) in respect to any
      Containers which are accepted by Buyer, the Buyer originally named in this
      Contract (i.e., Hub City Terminals, Inc.) shall be obligated to pay to Seller
      in
      accordance with ARTICLE 11(a)(i) an additional amount equal to the Late Payment
      Obligation set forth in Exhibit A for each calendar day beyond the Payment
      Deadline that payment in respect to any such Containers is not
      paid.

    

    (c)
       Buyer
      will have 10 days from the date the Units are discharged at an Authorized
      Delivery Location and made available to Buyer to complete any initial inspection
      desired by Buyer. Buyer will note to Seller in writing any defects in the Units
      within such 10 day period and if Buyer fails to note to Seller any defects
      in
      writing with respect to these Units within such 10 day period these Units will
      be deemed to be in acceptable condition upon initial delivery. Nothing in the
      foregoing sentences shall in any way limit Buyer’s other rights under this
      Agreement, including, without limitation, Buyer’s rights under Section 7(e) and
      Section 13.

    

    ARTICLE
      12. Customs
      Charges, Taxes and Delivery Costs

    

    Seller
      shall pay all fees, taxes and delivery charges (including sales, value added,
      income (including U. S. income taxes, gross receipts and similar taxes) payable
      in connection with the manufacture, transportation, exportation, importation,
      delivery and sale of the Equipment including those imposed or assessed by or
      in
      the countries (including states or provinces and other local taxing authorities)
      of origin, manufacture, sale and delivery, except that Buyer shall pay any
      charges for the costs, if applicable, of customs clearance, and duties to the
      United States of America and sales taxes imposed by the United States and any
      state or local taxing authority in the United States. In addition to the
      foregoing Seller payment obligations, Seller shall be responsible to pay all
      taxes imposed in manufacturing country and delivery costs. Seller requires
      that
      Buyer use the Equipment in interstate or foreign commerce. When Seller delivers
      the Equipment to Buyer at Buyer’s Authorized Delivery Location, Buyer intends to
      cause the Equipment to be loaded with freight for transportation in a continuous
      movement to a destination outside California. 

    

    ARTICLE
      13. Warranty

    

    (a) Work
      and Material

    

    (i) Seller
      warrants and represents that the Equipment will be free from defects in material
      and workmanship. Notwithstanding anything contained in this contract to the
      contrary, if at any time from delivery of the Equipment to and acceptance
      thereof by Buyer to the expiration of five (5) years after delivery and Buyer’s
      acceptance, any weakness, deficiency, defect, or breaking down (other than
      repairs necessitated solely as a result of ordinary wear and tear), of the
      Equipment sold to Buyer under this Contract (an “Equipment Defect”) other than
      (i) that caused by the negligence or other improper act of anyone other than
      Seller or Seller’s subcontractor, or (ii) as specified in
      ARTICLE 13(a)(ii), shall be discovered and reported by Buyer (or by an
      independent surveyor as provided ARTICLE 13(b)(ii) below), such Equipment Defect
      shall be corrected by Seller to the satisfaction of Buyer in accordance with
      the
      procedure described in ARTICLE 13(b).

    

    (ii) Seller
      also warrants and represents that the paint and finish on the Equipment and
      on
      the components thereof will be free from coating failures or other defects
      which
      result in rust, corrosion, peeling paint or non-adhesion of paint or other
      coating materials to the surface of the Equipment (collectively, a “Paint
      Defect”). Notwithstanding anything contained in this contract to the contrary,
      if at any time from and after delivery of the Equipment to Buyer to the
      expiration of five (5) years after delivery, any Paint Defect in the Equipment
      sold to Buyer under this Contract, other than that caused by the negligence
      or
      other improper act of anyone other than Seller or Seller’s subcontractors, shall
      be discovered and reported by Buyer (or by an independent surveyor as provided
      in ARTICLE 13(b)(ii)), such Paint Defect shall be corrected by Seller to the
      satisfaction of Buyer in accordance with the procedures described in ARTICLE
      13(b), provided that the foregoing shall not apply to repairs necessitated
      solely as a result of ordinary wear and tear.

    

    (b) Within
      fifteen (15) days after receipt of written notice from Buyer of a claim for
      an
      Equipment Defect or a Paint Defect (collectively, a “Warranty Defect”), Seller
      shall either:

    

    (i) arrange
      for repairs or replacement of the Warranty Defect directly, using Seller’s own
      employees or contractors. Seller shall notify Buyer within such fifteen (15)
      days period of the arrangement made, and such repairs or replacement shall
      commence promptly and be concluded promptly; or

    

    (ii) notify
      Buyer that Seller disputes the claim of a Warranty Defect. If a dispute about
      a
      Warranty Defect is not resolved within ten (10) days after delivery of such
      notice, Seller shall request Buyer to cause a survey of the Equipment to be
      conducted by, at Buyer’s option, Bureau Veritas, American Bureau of Shipping,
      Lloyd’s Registry or other recognized authority reasonably acceptable to the
      parties, whose decision as to the validity of the claim of Warranty Defect
      shall
      be binding. If the claim is found to be a Warranty Defect, Seller shall pay
      for
      the cost of the survey and shall arrange for repairs or replacement in
      accordance with ARTICLE 13(b)(i) within five (5) days of the issuance of such
      decision. If the claim is found not to be a Warranty Defect, Buyer shall pay
      the
      cost of survey. Warranty repairs shall be completed by Seller within 90
      days.

    (c) In
      the
      event Seller fails to take action as described in ARTICLE 13(b)(i) or (ii)
      within the time specified, Buyer, may, but shall not be required to, obtain
      estimates from independent repair contractors as to the cost of repairing the
      Warranty Defects and restoring the Equipment to conform to the requirements
      of
      this Contract, as well as estimates of those costs set forth in ARTICLE 13(d)
      below. If Buyer elects to obtain such estimates, Buyer shall submit each
      estimate to Seller within a reasonable time after receipt by Buyer. Such
      estimates shall conclusively determine the costs incurred by Buyer in connection
      with such Warranty Defects, and Seller shall pay the amount thereof to Buyer
      within thirty (30) days after receipt of each estimate by Seller. If Seller
      has
      not paid Buyer such amount within thirty (30) days after receipt of an estimate
      by Seller, Buyer may withdraw from the Escrow Fund in accordance with the terms
      of the Escrow Agreement an amount equal to (i) the amount of such estimate
      plus
      (ii) any amounts payable pursuant to ARTICLE 13(d). Buyer, at Buyer’s option,
      may use any money paid to Buyer pursuant to this ARTICLE 13(c) or ARTICLE 13(d)
      to reimburse Buyer for the cost of performing the work itself or may contract
      with a third party to have the work performed.

    

    (d) In
      addition to the direct costs of repair described in ARTICLE 13(b), Seller shall
      also pay and /or reimburse Buyer for all costs incurred by Buyer relating to
      repair of such Warranty Defects, including but not limited to, transportation,
      mounting on and dismounting from chassis, chassis use costs, inspection and
      re-inspection, and costs of materials and labor.

    

      (e) Neither
        the inspection or testing as provided in ARTICLE 5, nor technical acceptance
        or
        final acceptance of the Equipment as described
        in ARTICLE 6, nor the issuance of an Inspection Certificate
        or
        an
        EIR,
        as
        described in ARTICLE 6 or 7, nor approval of Seller’s designs and the
        Specification for the Equipment
        by
        Buyer nor any other course of conduct by Buyer shall be deemed to diminish,
        waive or modify any of Buyer’s rights or remedies under this ARTICLE
        13.

    

    ARTICLE
      14. Patent,
      Copyright, Trademarks and Trade Secret Warranty; Infringement

    

    Seller
      warrants that the Equipment will not infringe the patent, copyright, trademark
      and trade secret rights of any third party. Seller shall defend, indemnify
      and
      save harmless Buyer and its affiliates, agents, contractors, servants or
      employees from and against all loss, cost, liability and claims, plus attorneys’
fees, resulting from any claim that the Equipment, or any material used in
      the
      construction of the Equipment or incorporated in the Equipment by Seller,
      infringes any United States or foreign patent, copyright, trademark or trade
      secret rights. If the Equipment or any material incorporated in the Equipment
      by
      Seller shall be held by a court having jurisdiction to constitute such an
      infringement and the use thereof shall be enjoined, Seller shall procure for
      Buyer at Seller’s expense (i) the right to continue using the Equipment with any
      such infringement, (ii) replace infringing material with non-infringing material
      having equal or better utility, function and value, or (iii) modify the
      Equipment so it becomes non-infringing, as may be required to eliminate all
      problems of infringement while maintaining the same or better utility, function
      or value. Prompt written notice of the assertion of any claim or the bringing
      of
      any suit shall be given by Buyer to Seller, and thirty (30) days shall be given
      to Seller from giving of such notice to settle or defend it as Seller may see
      fit provided Seller provides Buyer with an acceptable indemnity in Buyer’s
      discretion. Buyer, at Seller’s expense, shall provide every reasonable
      assistance in settling or defending such claim or suit. If, at the end of thirty
      (30) days, Seller fails to effect such settlement or defense, Buyer may
      undertake settlement or defense as it sees fit, with full reimbursement for
      damages, costs and attorneys’ fees as herein provided. 

    

    ARTICLE
      15. Seller’s
      Default

    

    (a) Each
      of
      the following shall constitute an act of default by Seller under this Contract
      (a “Seller Default”):

    

    (i) The
      failure of Seller to manufacture the Equipment with such diligence and in such
      manner as required by this Contract and the Specification and/or the Standards
      as will enable it to complete the delivery of the Units in accordance with
      the
      Scheduled Delivery Dates, except and to the extent that such failure is due
      to
      one or more Excusable Delays, which default continues un-remedied for a period
      of thirty (30) days after written notice to Seller thereof;

    

    (ii) If
      due to
      the failure of Seller to perform its obligations hereunder the Units of
      Equipment scheduled for delivery in any month pursuant to the Scheduled Delivery
      Dates have not been delivered within sixty (60) days after the end of the
      month;

    

    (iii) Seller
      fails to repair or replace a Warranty Defect as provided in ARTICLE
      13;

    

    (iv) Any
      other
      material default by Seller to perform or satisfy its obligations and conditions
      under this Contract, which default continues un-remedied for a period of thirty
      (30) days after written notice to Seller thereof;

    

    (v) Any
      breach of any warranty by Seller; or

    

    (vi) Seller
      or
      any affiliate involved in the manufacturing of the Equipment (“Key Affiliate”)
      is dissolved or makes a general assignment for the benefit of its creditors;
      a
      receiver or custodian of any kind whatsoever is appointed, whether or not
      appointed in bankruptcy, common law or equity proceedings, whether temporary
      or
      permanent, for a substantial portion of the property of Seller or a Key
      Affiliate; Seller or a Key Affiliate files a petition for relief under any
      chapter of the U.S. Bankruptcy Code or similar law; a petition for relief is
      filed against Seller or a Key Affiliate and such petition is not dismissed
      by
      the court within sixty (60) days after the date on which such petition was
      filed; the admission by Seller or a Key Affiliate in writing of its inability
      to
      pay debts generally as they become due; the failure of Seller or a Key Affiliate
      generally to pay its debts as they become due; or if Seller fails to assume
      this
      Contract within thirty (30) days after the filing of a petition by or against
      Seller under the U.S. Bankruptcy Code or similar law.

    

    (b) Right
      to Terminate

    

    In
      the
      event that a Seller Default shall occur, at Buyer’s option, Buyer may elect to
      cancel this Contract. 

    

    (c) Additional
      Remedies

    

    The
      rights conferred upon Buyer under the terms of this ARTICLE 15 shall not be
      exclusive of any other remedies in law or equity, which might be otherwise
      available to Buyer (including all rights and remedies of Buyer under the Uniform
      Commercial Code) upon the happening of a Seller Default. The failure of Buyer
      to
      exercise any of the rights conferred upon it in this ARTICLE 15 with respect
      to
      a Seller Default shall not constitute a waiver of any rights of Buyer with
      respect to any other Seller Default under this Contract.

    

    ARTICLE
      16. Buyer’s
      Default; Actions by Seller upon Buyer Default

    

    (a) Buyer
      Default

    

    The
      following shall constitute an act of default by Buyer under this Contract (a
      “Buyer Default”): Failure by Buyer to make any proper payment to Seller required
      under the provisions of this Contract which failure continues unremedied for
      a
      period of thirty (30) days after written notice to Buyer thereof.

    

    (b) Rights
      to Stop Work and to Terminate

    

    In
      the
      event that a Buyer Default shall have occurred and be continuing, Seller, if
      it
      is not in default in the performance of any of its obligations under this
      Contract, (i) shall have, upon prior written notice to Buyer, the right to
      slow
      or to stop production of Units, and the Scheduled Delivery Dates as provided
      in
      ARTICLE 9 shall, without prejudice to Seller’s right to recover damages
      therefor, be extended by additional time equal to the period of the continuance
      of such Buyer Default, and (ii) if such Buyer Default shall continue for more
      than thirty (30) days after written notice thereof by Seller to Buyer, Seller
      may, without prejudice to its rights to recover damages therefor from Buyer,
      terminate this Contract as to the undelivered Units of Equipment by written
      notice to Buyer.

    

    (c) Alternative
      Remedies

    

    The
      right
      conferred upon Seller under the terms of this ARTICLE 16 shall not be exclusive
      of any other remedies in law or equity, which might be otherwise available
      to
      Seller upon the happening of a Buyer Default. The failure of Seller to exercise
      any of the rights conferred upon it in this ARTICLE with respect to a Buyer
      Default shall not constitute a waiver of any right of Seller with respect to
      any
      other Buyer Default under this Contract.

    ARTICLE
      17. Notices

    

    Until
      Seller shall designate otherwise in writing to Buyer, all notices under this
      Contract directed to Seller shall be in writing and shall be (i) personally
      delivered to Seller or (ii) mailed by first class certified mail, return receipt
      requested, postage prepaid, or delivered by facsimile, with confirmation of
      receipt requested, to the following address:

    

    Singamas
      Management
      Services, Ltd.

    Andy
      Chan/Vice President of Marketing 

    c/o
      19/F., Dah Sing Financial Centre,

    108
      Gloucester Road

    Hong
      Kong

    British
      Virgin Islands

    Facsimile
      Number: 852-2598-7847

    Until
      Buyer shall hereafter designate otherwise in writing to Seller, all notices
      under this Contact directed to Buyer shall be in writing and shall be (i)
      personally delivered to Buyer’s CFO (“Buyer’s Authorized Representative”) at the
      address specified below or (ii) mailed by first class certified mail, return
      receipt requested, postage prepaid, or delivered by facsimile, with confirmation
      of receipt requested, to the following address:

    

    
      	
              Hub
                Group, Inc.

            	
              And

            	
              Hub
                Group, Inc.

            
	
              Attn:
                CFO

            	 	
              Attn:
                General Counsel

            
	
              3050
                Highland Parkway

            	 	
              3050
                Highland Parkway

            
	
              Suite
                100

            	 	
              Suite
                100

            
	
              Downers
                Grove, IL 60515

            	 	
              Downers
                Grove, IL 60515

            
	
              Facsimile
                Number 630-964-6475

            	 	
              Facsimile
                Number 630-964-6475

            

    

    

    All
      notices given pursuant to this ARTICLE shall be deemed to have been received
      on
      the date of delivery if delivered in person, upon acknowledgment thereof if
      delivered by facsimile, or on the fifth day after the date of mailing by U.S.
      registered mail, return receipt requested if mailed and the sender has received
      the return receipt with notation thereon of delivery.

    

    ARTICLE
      18. Assignment

    

    (a) This
      Contract shall not be assigned by either party without the written consent
      of
      the other party, which consent shall not be withheld unreasonably except that
      Buyer may, without the consent of Seller, assign this Contract to (i) any
      affiliate of Buyer or (ii) one or more financial institutions that provide
      or
      arrange for the financing of the Equipment for the benefit of Buyer or an
      affiliate of Buyer, whether structured as a secured loan, finance lease or
      lease
      purchase; provided that in the case of any such assignment Buyer shall remain
      bound and liable to Seller for Buyer’s obligations under this Contract. Seller
      will upon request of Buyer cooperate in effecting any assignment authorized
      pursuant to this ARTICLE 18 and will execute any agreements or other instruments
      (including, without limitation, any supplement or amendment to or novation
      of
      this Contract) that may be required in order to give effect to or perfect any
      such assignment.

    

    (b) Notwithstanding
      any assignment by Buyer to a financial institution pursuant to clause (ii)
      of
      paragraph (a) of this ARTICLE 18, the Buyer originally named in this Contract
      (i.e., Hub City Terminals, Inc.), and not any such financial institution, shall
      remain solely responsible for any Late Payment Obligation under ARTICLE 11
      above.

    

    

    ARTICLE
      19. Miscellaneous
      

    

    The
      validity, interpretation and performance of this Contract shall be determined
      in
      accordance with the laws of the State of California, USA, without application
      of
      its conflicts of laws principles.

    

    Jurisdiction.
      Any dispute in any manner relating to the foregoing shall be resolved by final
      and binding arbitration under the rules of the American Arbitration Association.
      The arbitral award may be enforced in any court with jurisdiction over the
      person or the property of the person against whom enforcement is sought;
      provided, however, that with respect to any suit, action or proceeding relating
      to this Contract, each party hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of Illinois and the United States
      District Court for the Northern District of Illinois. Service of process in
      any
      such arbitration may be served in the same manner as notices are required to
      be
      served under Article 17 of this Contract.

    

    Counterparts.
      This Contract may be executed by the parties hereto in separate counterparts,
      each of which when so executed and delivered shall be an original, but all
      such
      counterparts shall together constitute but one and the same
      instrument.

    

    Amendments,
      Etc.; Entire Agreement. This Contract contains the entire agreement of the
      parties with respect to the subject matter hereof, and supersedes all prior
      agreements and understandings between the parties, whether written or oral.
      This
      contract or any of the terms hereof may not be terminated, amended,
      supplemented, waived or modified orally, but only by a written instrument which
      purports to terminate, amend, supplement, waive or modify this Contract, or
      any
      of the terms hereof, signed by the party against which the enforcement of the
      termination, amendment, supplement, waiver or modification is
      sought.

    

    Severability
      of Provisions. Any provision of this Contract which is prohibited or
      unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
      to the extent of such prohibition or unenforceability without invalidating
      the
      remaining provisions hereof or affecting the validity or enforceability of
      such
      provision in any other jurisdiction.

    

    Headings,
      Etc. The headings used herein are for convenience of reference only and shall
      not define or limit any of the terms or provisions hereof.

    

    Further
      Assurances. Seller and Buyer shall do and perform such further acts and execute
      and deliver such further instruments as may be required by applicable law or
      reasonably requested by either party to carry out and effectuate the purposes
      of
      this Contract.

    

    Survival.
      The representations, warranties, covenants and indemnities of the parties
      contained in this Contract shall survive execution and delivery of this
      Contract.

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Buyer
      and
      Seller have caused this Contract to be executed in two counterparts as of the
      date 

    and
      year
      written

    

    
      	
              Hub
                City Terminals, Inc.

            	
              Singamas
                Management Services, Ltd.

            
	
              As
                Buyer 

            	
              As
                Seller

            
	 	 
	
              By:
                /s/ David P. Yeager

            	
              By:
                /s/ Andy Chan

            
	 	 
	
              Name:
                David P. Yeager

            	
              Name: Andy
                Chan

            
	 	 
	
              Title:
                CEO

            	
              Title:
                Vice President of Marketing

            

    

    

    

    

    FOR
      ARTICLE 11 ONLY:

    

    
      	
              Singamas
                North America, Inc.

            
	
              As
                Old Seller

            
	 
	
              By:
                /s/ Young Man Kwak

            
	 
	
              Name:
                Young Man Kwak

            
	 
	
              Title:
                RepresentativeExhibit 4.1 Securities Purchase Agreement

EXHIBIT 4.1

    SECURITIES
      PURCHASE AGREEMENT

     

    

     

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”),
      dated
      as of March 8, 2007, by and among Avitar Inc., a Delaware corporation, with
      headquarters located at 65 Dan Road, Canton, MA 02021 (the “Company”),
      and
      each of the purchasers set forth on the signature pages hereto (the
“Buyers”).

     

    WHEREAS:
      

     

    A.  The
      Company and the Buyers are executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by the rules and
      regulations as promulgated by the United States Securities and Exchange
      Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”);

     

    B.  Buyers
      desire to purchase and the Company desires to issue and sell, upon the terms
      and
      conditions set forth in this Agreement (i) 8%
      secured convertible notes of the Company, in the form attached hereto as
Exhibit
      “A”,
      in the
      aggregate principal amount of Two Hundred Twenty Five Thousand Dollars
      ($225,000) (together with any note(s) issued in replacement thereof or as a
      dividend thereon or otherwise with respect thereto in accordance with the terms
      thereof, the “Notes”),
      convertible into shares of common stock, par value $.01 per share, of the
      Company (the “Common
      Stock”),
      upon
      the terms and subject to the limitations and conditions set forth in such Notes
      and (ii) warrants,
      in the form attached hereto as Exhibit
      “B”,
      to
      purchase 1,000,000 shares of Common Stock (the “Warrants”).

     

    C.  Each
      Buyer wishes to purchase, upon the terms and conditions stated in this
      Agreement, such principal amount of Notes and number of Warrants as is set
      forth
      immediately below its name on the signature pages hereto; and

     

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

     

    NOW
      THEREFORE,
      the
      Company and each of the Buyers severally (and not jointly) hereby agree as
      follows:

     

    1.  PURCHASE
      AND SALE OF NOTES AND WARRANTS.

     

    a.  Purchase
      of Notes and Warrants.
      On the
      Closing Date (as defined below), the Company shall issue and sell to each Buyer
      and each Buyer severally agrees to purchase from the Company such principal
      amount of Notes and number of Warrants as is set forth immediately below such
      Buyer’s name on the signature pages hereto.

     

    b.  Form
      of Payment.
      On the
      Closing Date (as defined below), (i) each
      Buyer shall pay the purchase price for the Notes and the Warrants to be issued
      and sold to it at the Closing (as defined below) (the “Purchase
      Price”)
      by
      wire transfer of immediately available funds to the Company, in accordance
      with
      the Company’s written wiring instructions, against delivery of the Notes in the
      principal amount equal to the Purchase Price and the number of Warrants as
      is
      set forth immediately below such Buyer’s name on the signature pages hereto, and
(ii) the
      Company shall deliver such Notes and Warrants duly executed on behalf of the
      Company, to such Buyer, against delivery of such Purchase Price. 

     

    c.  Closing
      Date.
      Subject
      to the satisfaction (or written waiver) of the conditions thereto set forth
      in
      Section 6 and Section 7 below, the date and time of the issuance and sale of
      the
      Notes and the Warrants pursuant to this Agreement (the “Closing
      Date”)
      shall
      be 12:00 noon, Eastern Standard Time on March 8, 2007, or such other mutually
      agreed upon time. The closing of the transactions contemplated by this Agreement
      (the “Closing”)
      shall
      occur on the Closing Date at such location as may be agreed to by the
      parties.

     

    2.  BUYERS’
      REPRESENTATIONS AND WARRANTIES.
      Each
      Buyer severally (and not jointly) represents and warrants to the Company solely
      as to such Buyer that:

     

    a.  Investment
      Purpose.
      As of
      the date hereof, the Buyer is purchasing the Notes and the shares of Common
      Stock issuable upon conversion of or otherwise pursuant to the Notes (including,
      without limitation, such additional shares of Common Stock, if any, as are
      issuable (i) on
      account of interest on the Notes, (ii) as
      a result of the events described in Sections 1.3 and 1.4(g) of the Notes and
      Section 2(c) of the Registration Rights Agreement or (iii) in
      payment of the Standard Liquidated Damages Amount (as defined in Section 2(f)
      below) pursuant to this Agreement, such shares of Common Stock being
      collectively referred to herein as the “Conversion
      Shares”)
      and
      the Warrants and the shares of Common Stock issuable upon exercise thereof
      (the
“Warrant
      Shares”
and,
      collectively with the Notes, Warrants and Conversion Shares, the “Securities”)
      for
      its own account and not with a present view towards the public sale or
      distribution thereof, except pursuant to sales registered or exempted from
      registration under the 1933 Act; provided,
      however,
      that by
      making the representations herein, the Buyer does not agree to hold any of
      the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act.

     

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

     

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

     

    d.  Information.
      The
      Buyer and its advisors, if any, have been, and for so long as the Notes and
      Warrants remain outstanding will continue to be, furnished with all materials
      relating to the business, finances and operations of the Company and materials
      relating to the offer and sale of the Securities which have been requested
      by
      the Buyer or its advisors. The Buyer and its advisors, if any, have been, and
      for so long as the Notes and Warrants remain outstanding will continue to be,
      afforded the opportunity to ask questions of the Company. Notwithstanding the
      foregoing, the Company has not disclosed to the Buyer any material nonpublic
      information and will not disclose such information unless such information
      is
      disclosed to the public prior to or promptly following such disclosure to the
      Buyer. Neither such inquiries nor any other due diligence investigation
      conducted by Buyer or any of its advisors or representatives shall modify,
      amend
      or affect Buyer’s right to rely on the Company’s representations and warranties
      contained in Section 3 below. The Buyer understands that its investment in
      the
      Securities involves a significant degree of risk. The Buyers are not aware
      of
      any facts that may constitute a breach of any of the Company’s representations
      and warranties made herein.

     

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

     

    f.  Transfer
      or Re-sale.
      The
      Buyer understands that (i) except
      as provided in the Registration Rights Agreement, the sale or re-sale of the
      Securities has not been and is not being registered under the 1933 Act or any
      applicable state securities laws, and the Securities may not be transferred
      unless (a) the
      Securities are sold pursuant to an effective registration statement under the
      1933 Act, (b) the
      Buyer shall have delivered to the Company an opinion of counsel reasonably
      acceptable to the Company and its counsel that shall be in form, substance
      and
      scope customary for opinions of counsel in comparable transactions to the effect
      that the Securities to be sold or transferred may be sold or transferred
      pursuant to an exemption from such registration, which opinion shall be accepted
      by the Company, (c) the
      Securities are sold or transferred to an “affiliate” (as defined in Rule 144
      promulgated under the 1933 Act (or a successor rule) (“Rule
      144”))
      of
      the Buyer who agrees to sell or otherwise transfer the Securities only in
      accordance with this Section 2(f) and who is an Accredited Investor,
(d) the
      Securities are sold pursuant to Rule 144, or (e) the
      Securities are sold pursuant to Regulation S under the 1933 Act (or a successor
      rule) (“Regulation
      S”),
      and
      the Buyer shall have delivered to the Company an opinion of counsel reasonably
      acceptable to the Company and its counsel that shall be in form, substance
      and
      scope customary for opinions of counsel in corporate transactions, which opinion
      shall be accepted by the Company; (ii) any sale of such Securities made in
      reliance on Rule 144 may be made only in accordance with the terms of said
      Rule
      and further, if said Rule is not applicable, any re-sale of such Securities
      under circumstances in which the seller (or the person through whom the sale
      is
      made) may be deemed to be an underwriter (as that term is defined in the 1933
      Act) may require compliance with some other exemption under the 1933 Act or
      the
      rules and regulations of the SEC thereunder; and (iii) neither the Company
      nor
      any other person is under any obligation to register such Securities under
      the
      1933 Act or any state securities laws or to comply with the terms and conditions
      of any exemption thereunder (in each case, other than pursuant to the
      Registration Rights Agreement). Notwithstanding the foregoing or anything else
      contained herein to the contrary, the Securities may be pledged as collateral
      in
      connection with a bona fide
      margin
      account or other lending arrangement. In the event that the Company does not
      accept the opinion of counsel provided by the Buyer with respect to the transfer
      of Securities pursuant to an exemption from registration, such as Rule 144 or
      Regulation S, within three (3) business days of delivery of the opinion to
      the
      Company, the Company shall pay to the Buyer liquidated damages of two percent
      (2%) of the outstanding amount of the Notes per month plus accrued and unpaid
      interest on the Notes, prorated for partial months, in cash or shares at the
      option of the Company (“Standard
      Liquidated Damages Amount”).
      If
      the Company elects to be pay the Standard Liquidated Damages Amount in shares
      of
      Common Stock, such shares shall be issued at the Conversion Price at the time
      of
      payment. Notwithstanding anything herein to the contrary, in the event the
      Company has to pay the Standards Liquidated Damages Amount pursuant to any
      provision of this Agreement, the Buyers shall first have to give the Company
      advance written notice of such breach and in such event, the Company shall
      have
      30 days from the receipt of such notice to cure such breach before the Standard
      Liquidated Damages Amount shall be due and payable to the Buyers.

     

    g.  Legends.
      The
      Buyer understands that the Notes and the Warrants and, until such time as the
      Conversion Shares and Warrant Shares have been registered under the 1933 Act
      as
      contemplated by the Registration Rights Agreement or otherwise may be sold
      pursuant to Rule 144 or Regulation S without any restriction as to the number
      of
      securities as of a particular date that can then be immediately sold, the
      Conversion Shares and Warrant Shares may bear a restrictive legend in
      substantially the following form (and a stop-transfer order may be placed
      against transfer of the certificates for such Securities):

     

    “The
      securities represented by this certificate have not been registered under the
      Securities Act of 1933, as amended. The securities may not be sold, transferred
      or assigned in the absence of an effective registration statement for the
      securities under said Act, or an opinion of counsel, in form, substance and
      scope customary for opinions of counsel in comparable transactions, that
      registration is not required under said Act or unless sold pursuant to Rule
      144
      or Regulation S under said Act.”

     

    The
      legend set forth above shall be removed and the Company shall issue a
      certificate without such legend to the holder of any Security upon which it
      is
      stamped, if, unless otherwise required by applicable state securities laws,
      (a)
      such Security is registered for sale under an effective registration statement
      filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
      Regulation S without any restriction as to the number of securities as of a
      particular date that can then be immediately sold, or (b) such holder provides
      the Company with an opinion of counsel, in form, substance and scope customary
      for opinions of counsel in comparable transactions, which opinion shall be
      reasonably acceptable to the Company’s counsel, to the effect that a public sale
      or transfer of such Security may be made without registration under the 1933
      Act, which opinion shall be accepted by the Company so that the sale or transfer
      is effected or (c) such holder provides the Company with reasonable assurances
      that such Security can be sold pursuant to Rule 144 or Regulation S. The Buyer
      agrees to sell all Securities, including those represented by a certificate(s)
      from which the legend has been removed, in compliance with applicable prospectus
      delivery requirements, if any.

     

    h.  Authorization;
      Enforcement.
      This
      Agreement and the Registration Rights Agreement have been duly and validly
      authorized. This Agreement has been duly executed and delivered on behalf of
      the
      Buyer, and this Agreement constitutes, and upon execution and delivery by the
      Buyer of the Registration Rights Agreement, such agreement will constitute,
      valid and binding agreements of the Buyer enforceable in accordance with their
      terms.

     

    i.  Residency.
      The
      Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
      name on the signature pages hereto. 

     

    3.  REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.
      The
      Company represents and warrants to each Buyer that:

     

    a.  Organization
      and Qualification.
      The
      Company and each of its Subsidiaries (as defined below), if any, is a
      corporation duly organized, validly existing and in good standing under the
      laws
      of the jurisdiction in which it is incorporated, with full power and authority
      (corporate and other) to own, lease, use and operate its properties and to
      carry
      on its business as and where now owned, leased, used, operated and conducted.
      Schedule
      3(a)
      sets
      forth a list of all of the Subsidiaries of the Company and the jurisdiction
      in
      which each is incorporated. The Company and each of its Subsidiaries is duly
      qualified as a foreign corporation to do business and is in good standing in
      every jurisdiction in which its ownership or use of property or the nature
      of
      the business conducted by it makes such qualification necessary except where
      the
      failure to be so qualified or in good standing would not have a Material Adverse
      Effect. “Material
      Adverse Effect”
means
      any of (i) a material and adverse effect on the legality, validity or
      enforceability of any document executed in connection with this financing,
      (ii)
      a material and adverse effect on the results of operations, assets, prospects,
      business or condition (financial or otherwise) of the Company and the
      Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s
      ability to perform under any of the documents executed in connection with this
      financing. “Subsidiaries”
means
      any corporation or other organization, whether incorporated or unincorporated,
      in which the Company owns, directly or indirectly, any equity or other ownership
      interest.

     

    b.  Authorization;
      Enforcement.
      (i) The
      Company has all requisite corporate power and authority to enter into and
      perform this Agreement, the Registration Rights Agreement, the Notes and the
      Warrants and to consummate the transactions contemplated hereby and thereby
      and
      to issue the Securities, in accordance with the terms hereof and thereof, (ii)
      the execution and delivery of this Agreement, the Registration Rights Agreement,
      the Notes and the Warrants by the Company and the consummation by it of the
      transactions contemplated hereby and thereby (including without limitation,
      the
      issuance of the Notes and the Warrants and the issuance and reservation for
      issuance of the Conversion Shares and Warrant Shares issuable upon conversion
      or
      exercise thereof) have been duly authorized by the Company’s Board of Directors
      and no further consent or authorization of the Company, its Board of Directors,
      or its shareholders is required, (iii) this Agreement has been duly executed
      and
      delivered by the Company by its authorized representative, and such authorized
      representative is the true and official representative with authority to sign
      this Agreement and the other documents executed in connection herewith and
      bind
      the Company accordingly, and (iv) this Agreement constitutes, and upon execution
      and delivery by the Company of the Registration Rights Agreement, the Notes
      and
      the Warrants, each of such instruments will constitute, a legal, valid and
      binding obligation of the Company enforceable against the Company in accordance
      with its terms.

     

    c.  Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      100,000,000 shares of Common Stock, of which 21,480,981 shares are issued and
      outstanding, 179,079 shares are reserved for issuance pursuant to the Company’s
      stock option plans, 16,438,544 shares are reserved for issuance pursuant to
      securities (other than the Notes and the Warrants) exercisable for, or
      convertible into or exchangeable for shares of Common Stock and, 61,901,396
      shares are reserved for issuance upon conversion of the Notes and exercise
      of
      the Warrants (subject to adjustment pursuant to the Company’s covenant set forth
      in Section 4(h) below); and (ii) 5,000,000 shares of preferred stock, of which
      629,857 shares are issued and outstanding. All of such outstanding shares of
      capital stock are, or upon issuance will be, duly authorized, validly issued,
      fully paid and nonassessable. No shares of capital stock of the Company are
      subject to preemptive rights or any other similar rights of the shareholders
      of
      the Company or any liens or encumbrances imposed through the actions or failure
      to act of the Company. Except as disclosed in Schedule
      3(c),
      as of
      the effective date of this Agreement, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, (ii) there are no agreements or arrangements under
      which the Company or any of its Subsidiaries is obligated to register the sale
      of any of its or their securities under the 1933 Act (except the Registration
      Rights Agreement) and (iii) there are no anti-dilution or price adjustment
      provisions contained in any security issued by the Company (or in any agreement
      providing rights to security holders) that will be triggered by the issuance
      of
      the Notes, the Warrants, the Conversion Shares or Warrant Shares. The Company
      has furnished to the Buyer true and correct copies of the Company’s Articles of
      Incorporation as in effect on the date hereof (“Articles
      of Incorporation”),
      the
      Company’s By-laws, as in effect on the date hereof (the “By-laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      of
      the Company and the material rights of the holders thereof in respect thereto.
      The Company shall provide the Buyer with a written update of this representation
      signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
      the Company as of the Closing Date.

     

    d.  Issuance
      of Shares.
      The
      Conversion Shares and Warrant Shares are duly authorized and reserved for
      issuance and, upon conversion of the Notes and exercise of the Warrants in
      accordance with their respective terms, will be validly issued, fully paid
      and
      non-assessable, and free from all taxes, liens, claims and encumbrances with
      respect to the issue thereof and shall not be subject to preemptive rights
      or
      other similar rights of shareholders of the Company and will not impose personal
      liability upon the holder thereof.

     

    e.  Acknowledgment
      of Dilution.
      The
      Company understands and acknowledges the potentially dilutive effect to the
      Common Stock upon the issuance of the Conversion Shares and Warrant Shares
      upon
      conversion of the Note or exercise of the Warrants. The Company further
      acknowledges that its obligation to issue Conversion Shares and Warrant Shares
      upon conversion of the Notes or exercise of the Warrants in accordance with
      this
      Agreement, the Notes and the Warrants is absolute and unconditional regardless
      of the dilutive effect that such issuance may have on the ownership interests
      of
      other shareholders of the Company.

     

    f.  No
      Conflicts.
      The
      execution, delivery and performance of this Agreement, the Registration Rights
      Agreement, the Notes and the Warrants by the Company and the consummation by
      the
      Company of the transactions contemplated hereby and thereby (including, without
      limitation, the issuance and reservation for issuance of the Conversion Shares
      and Warrant Shares) will not (i) conflict with or result in a violation of
      any
      provision of the Certificate of Incorporation or By-laws or (ii) violate or
      conflict with, or result in a breach of any provision of, or constitute a
      default (or an event which with notice or lapse of time or both could become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of, any agreement, indenture, patent, patent
      license or instrument to which the Company or any of its Subsidiaries is a
      party, or (iii) to the Company’s knowledge, result in a violation of any law,
      rule, regulation, order, judgment or decree (including federal and state
      securities laws and regulations and regulations of any self-regulatory
      organizations to which the Company or its securities are subject) applicable
      to
      the Company or any of its Subsidiaries or by which any property or asset of
      the
      Company or any of its Subsidiaries is bound or affected (except for such
      conflicts, defaults, terminations, amendments, accelerations, cancellations
      and
      violations as would not, individually or in the aggregate, have a Material
      Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
      of its Certificate of Incorporation, By-laws or other organizational documents
      and neither the Company nor any of its Subsidiaries is in default (and no event
      has occurred which with notice or lapse of time or both could put the Company
      or
      any of its Subsidiaries in default) under, and neither the Company nor any
      of
      its Subsidiaries has taken any action or failed to take any action that would
      give to others any rights of termination, amendment, acceleration or
      cancellation of, any agreement, indenture or instrument to which the Company
      or
      any of its Subsidiaries is a party or by which any property or assets of the
      Company or any of its Subsidiaries is bound or affected, except for possible
      defaults as would not, individually or in the aggregate, have a Material Adverse
      Effect. The businesses of the Company and its Subsidiaries, if any, are not
      being conducted, and shall not be conducted so long as a Buyer owns any of
      the
      Securities, in violation of any law, ordinance or regulation of any governmental
      entity. Except as specifically contemplated by this Agreement and as required
      under the 1933 Act and any applicable state securities laws, the Company is
      not
      required to obtain any consent, authorization or order of, or make any filing
      or
      registration with, any court, governmental agency, regulatory agency, self
      regulatory organization or stock market or any third party in order for it
      to
      execute, deliver or perform any of its obligations under this Agreement, the
      Registration Rights Agreement, the Notes or the Warrants in accordance with
      the
      terms hereof or thereof or to issue and sell the Notes and Warrants in
      accordance with the terms hereof and to issue the Conversion Shares upon
      conversion of the Notes and the Warrant Shares upon exercise of the Warrants.
      Except as disclosed in Schedule
      3(f),
      all
      consents, authorizations, orders, filings and registrations which the Company
      is
      required to obtain pursuant to the preceding sentence have been obtained or
      effected on or prior to the date hereof. The Company is not in violation of
      the
      quotation requirements of the Over-the-Counter Bulletin Board (the “OTCBB”)
      and
      does not reasonably anticipate that the Common Stock will be removed by the
      OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware
      of
      any facts or circumstances which might give rise to any of the foregoing.

     

    g.  SEC
      Documents; Financial Statements.
      Except
      as disclosed in Schedule
      3(g),
      since
      September 30, 2004 the Company has timely filed all reports, schedules, forms,
      statements and other documents required to be filed by it with the SEC pursuant
      to the reporting requirements of the Securities Exchange Act of 1934, as amended
      (the “1934
      Act”)
      (all
      of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements and schedules thereto and documents (other
      than
      exhibits to such documents) incorporated by reference therein, being hereinafter
      referred to herein as the “SEC
      Documents”).
      As of
      their respective dates, the SEC Documents complied in all material respects
      with
      the requirements of the 1934 Act and the rules and regulations of the SEC
      promulgated thereunder applicable to the SEC Documents, and none of the SEC
      Documents, at the time they were filed with the SEC, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. None of the
      statements made in any such SEC Documents is, or has been, required to be
      amended or updated under applicable law (except for such statements as have
      been
      amended or updated in subsequent filings prior the date hereof). As of their
      respective dates, the financial statements of the Company included in the SEC
      Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      United States generally accepted accounting principles, consistently applied,
      during the periods involved (except (i) as may be otherwise indicated in such
      financial statements or the notes thereto, or (ii) in the case of unaudited
      interim statements, to the extent they may not include footnotes or may be
      condensed or summary statements) and fairly present in all material respects
      the
      consolidated financial position of the Company and its consolidated Subsidiaries
      as of the dates thereof and the consolidated results of their operations and
      cash flows for the periods then ended (subject, in the case of unaudited
      statements, to normal year-end audit adjustments). Except as set forth in the
      financial statements of the Company included in the SEC Documents, the Company
      has no liabilities, contingent or otherwise, other than (i) liabilities incurred
      in the ordinary course of business subsequent to September 30, 2006 and (ii)
      obligations under contracts and commitments incurred in the ordinary course
      of
      business and not required under generally accepted accounting principles to
      be
      reflected in such financial statements, which, individually or in the aggregate,
      are not material to the financial condition or operating results of the
      Company.

     

    h.  Absence
      of Certain Changes.
      Except
      as set forth in Schedule
      3(h),
      since
      September 30, 2006, there has been no material adverse change and no material
      adverse development in the assets, liabilities, business, properties,
      operations, financial condition, results of operations or prospects of the
      Company or any of its Subsidiaries.

     

    i.  Absence
      of Litigation.
      There
      is no action, suit, claim, proceeding, inquiry or investigation before or by
      any
      court, public board, government agency, self-regulatory organization or body
      pending or, to the knowledge of the Company or any of its Subsidiaries,
      threatened against or affecting the Company or any of its Subsidiaries, or
      their
      officers or directors in their capacity as such, that could have a Material
      Adverse Effect. Schedule
      3(i)
      contains
      a complete list and summary description of any pending or, to the knowledge
      of
      the Company, threatened proceeding against or affecting the Company or any
      of
      its Subsidiaries, without regard to whether it would have a Material Adverse
      Effect. The Company and its Subsidiaries are unaware of any facts or
      circumstances which might give rise to any of the foregoing.

     

    j.  Patents,
      Copyrights, etc.
      The
      Company and each of its Subsidiaries owns or possesses the requisite licenses
      or
      rights to use all patents, patent applications, patent rights, inventions,
      know-how, trade secrets, trademarks, trademark applications, service marks,
      service names, trade names and copyrights (“Intellectual
      Property”)
      necessary to enable it to conduct its business as now operated (and, except
      as
      set forth in Schedule
      3(j)
      hereof,
      to the best of the Company’s knowledge, as presently contemplated to be operated
      in the future); there is no claim or action by any person pertaining to, or
      proceeding pending, or to the Company’s knowledge threatened, which challenges
      the right of the Company or of a Subsidiary with respect to any Intellectual
      Property necessary to enable it to conduct its business as now operated (and,
      except as set forth in Schedule
      3(j)
      hereof,
      to the best of the Company’s knowledge, as presently contemplated to be operated
      in the future); to the best of the Company’s knowledge, the Company’s or its
      Subsidiaries’ current and intended products, services and processes do not
      infringe on any Intellectual Property or other rights held by any person; and
      the Company is unaware of any facts or circumstances which might give rise
      to
      any of the foregoing. The Company and each of its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of their Intellectual Property.

     

    k.  No
      Materially Adverse Contracts, Etc.
      Neither
      the Company nor any of its Subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company’s officers has or is expected in the future
      to have a Material Adverse Effect. Neither the Company nor any of its
      Subsidiaries is a party to any contract or agreement which in the judgment
      of
      the Company’s officers has or is expected to have a Material Adverse
      Effect.

     

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

     

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

     

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

     

    o.  Acknowledgment
      Regarding Buyers’ Purchase of Securities.
      The
      Company acknowledges and agrees that the Buyers are acting solely in the
      capacity of arm’s length purchasers with respect to this Agreement and the
      transactions contemplated hereby. The Company further acknowledges that no
      Buyer
      is acting as a financial advisor or fiduciary of the Company (or in any similar
      capacity) with respect to this Agreement and the transactions contemplated
      hereby and any statement made by any Buyer or any of their respective
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereby is not advice or a recommendation and is merely incidental
      to the Buyers’ purchase of the Securities. The Company further represents to
      each Buyer that the Company’s decision to enter into this Agreement has been
      based solely on the independent evaluation of the Company and its
      representatives.

     

    p.  No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales in any security
      or
      solicited any offers to buy any security under circumstances that would require
      registration under the 1933 Act of the issuance of the Securities to the Buyers.
      The issuance of the Securities to the Buyers will not be integrated with any
      other issuance of the Company’s securities (past, current or future) for
      purposes of any shareholder approval provisions applicable to the Company or
      its
      securities.

     

    q.  No
      Brokers.
      Except
      as set forth in Schedule
      3(q),
      the
      Company has taken no action which would give rise to any claim by any person
      for
      brokerage commissions, transaction fees or similar payments relating to this
      Agreement or the transactions contemplated hereby. 

     

    r.  Permits;
      Compliance.
      The
      Company and each of its Subsidiaries is in possession of all franchises, grants,
      authorizations, licenses, permits, easements, variances, exemptions, consents,
      certificates, approvals and orders necessary to own, lease and operate its
      properties and to carry on its business as it is now being conducted
      (collectively, the “Company
      Permits”),
      and
      there is no action pending or, to the knowledge of the Company, threatened
      regarding suspension or cancellation of any of the Company Permits. Neither
      the
      Company nor any of its Subsidiaries is in conflict with, or in default or
      violation of, any of the Company Permits, except for any such conflicts,
      defaults or violations which, individually or in the aggregate, would not
      reasonably be expected to have a Material Adverse Effect. Since September 30,
      2004, neither the Company nor any of its Subsidiaries has received any
      notification with respect to possible conflicts, defaults or violations of
      applicable laws, except for notices relating to possible conflicts, defaults
      or
      violations, which conflicts, defaults or violations would not have a Material
      Adverse Effect.

     

    s.  Environmental
      Matters.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    x.  Solvency.
      The
      Company (after giving effect to the transactions contemplated by this Agreement)
      is solvent (i.e.,
      its
      assets have a fair market value in excess of the amount required to pay its
      probable liabilities on its existing debts as they become absolute and matured)
      and currently the Company has no information that would lead it to reasonably
      conclude that the Company would not, after giving effect to the transaction
      contemplated by this Agreement, have the ability to, nor does it intend to
      take
      any action that would impair its ability to, pay its debts from time to time
      incurred in connection therewith as such debts mature. 

     

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

     

    z.  Certain
      Registration Matters.
      Assuming the accuracy of the Buyers' representations and warranties set forth
      in
      Section 3, no registration under the Securities Act is required for the offer
      and sale of the Conversion Shares and Warrant Shares by the Company to the
      Buyers under the transaction documents. Except as specified in Schedule
      3(z),
      the
      Company has not granted or agreed to grant to any Person any rights (including
      "piggy-back" registration rights) to have any securities of the Company
      registered with the Commission or any other governmental authority that have
      not
      been satisfied.

     

    aa.  Breach
      of Representations and Warranties by the Company.
      If the
      Company materially breaches any of the representations or warranties set forth
      in this Section 3, and in addition to any other remedies available to the Buyers
      pursuant to this Agreement, the Company shall pay to the Buyer the Standard
      Liquidated Damages Amount in cash or in shares of Common Stock at the option
      of
      the Company, until such breach is cured. If the Company elects to pay the
      Standard Liquidated Damages Amounts in shares of Common Stock, such shares
      shall
      be issued at the Conversion Price at the time of payment.

     

    4.  COVENANTS.

     

    a.  Best
      Efforts.
      The
      parties shall use their best efforts to satisfy timely each of the conditions
      described in Section 6 and 7 of this Agreement. 

     

    b.  Form
      D; Blue Sky Laws.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary to qualify the Securities
      for sale to the Buyers at the applicable closing pursuant to this Agreement
      under applicable securities or “blue sky” laws of the states of the United
      States (or to obtain an exemption from such qualification), and shall provide
      evidence of any such action so taken to each Buyer on or prior to the Closing
      Date; provided,
      however,
      that
      the Company shall not be required in connection therewith or as a condition
      thereto to (a) qualify
      to do business in any jurisdiction where it would not otherwise be required
      to
      qualify but for this Section 4(b), (b) subject
      itself to general taxation in any such jurisdiction, (c) file
      a general consent to service of process in any such jurisdiction, (d) provide
      any undertakings that cause the Company undue expense or burden, or (e) make
      any change in its charter or bylaws, which in each case the Board of Directors
      of the Company determines to be contrary to the best interests of the Company
      and its shareholders.

     

    c.  Reporting
      Status; Eligibility to Use Form S-3, SB-2 or Form 

     

    S-1. The
      Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
      Company represents and warrants that it meets the requirements for the use
      of
      Form S-3 (or if the Company is not eligible for the use of Form S-3 as of the
      Filing Date (as defined in the Registration Rights Agreement), the Company
      may
      use the form of registration for which it is eligible at that time) for
      registration of the sale by the Buyer of the Registrable Securities (as defined
      in the Registration Rights Agreement). So long as the Buyer beneficially owns
      any of the Securities, the Company shall timely file all reports required to
      be
      filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
      its status as an issuer required to file reports under the 1934 Act even if
      the
      1934 Act or the rules and regulations thereunder would permit such termination.
      The Company further agrees to file all reports required to be filed by the
      Company with the SEC in a timely manner so as to become eligible, and thereafter
      to maintain its eligibility, for the use of Form S-3. The Company shall issue
      a
      press release describing the material terms of the transaction contemplated
      hereby as soon as practicable following the Closing Date but in no event more
      than two (2) business days of the Closing Date, which press release shall be
      subject to prior review by the Buyers. The Company agrees that such press
      release shall not disclose the name of the Buyers unless expressly consented
      to
      in writing by the Buyers or unless required by applicable law or regulation,
      and
      then only to the extent of such requirement.

     

    d.  Use
      of Proceeds.
      The
      Company shall use the net proceeds from the sale of the Notes and the Warrants
      in the manner set forth in Schedule
      4(d)
      attached
      hereto and made a part hereof and shall not, directly or indirectly, use such
      proceeds for (i) any loan to or investment in any other corporation,
      partnership, enterprise or other person (except in connection with its currently
      existing direct or indirect Subsidiaries); (ii) the satisfaction of any portion
      of the Company’s debt (other than payment of trade payables and accrued expenses
      in the ordinary course of the Company’s business and consistent with prior past
      practices), or (iii) the redemption of any Common Stock.

     

    e.  Future
      Offerings.
      Subject
      to the exceptions described below, the Company will not, without the prior
      written consent of a majority-in-interest of the Buyers, which consent shall
      not
      be unreasonably withheld, negotiate or contract with any party to obtain
      additional equity financing (including debt financing with an equity component)
      that involves (A) the issuance of Common Stock for cash at a discount to the
      market price of the Common Stock on the date of issuance (taking into account
      the value of any warrants or options to acquire Common Stock issued in
      connection therewith) or (B) the issuance of convertible securities that are
      convertible into an indeterminate number of shares of Common Stock or (C) the
      issuance of warrants during the period (the “Lock-up
      Period”)
      beginning on the Closing Date and ending on the later of (i) two hundred seventy
      (270) days from the Closing Date and (ii) one hundred eighty (180) days from
      the
      date the Registration Statement (as defined in the Registration Rights
      Agreement) is declared effective (plus any days in which sales cannot be made
      thereunder). In addition, subject to the exceptions described below, the Company
      will not conduct any equity financing (including debt with an equity component)
      (“Future
      Offerings”)
      during
      the period beginning on the Closing Date and ending two (2) years after the
      end
      of the Lock-up Period unless it shall have first delivered to each Buyer, at
      least twenty (20) business days prior to the closing of such Future Offering,
      written notice describing the proposed Future Offering, including the terms
      and
      conditions thereof and proposed definitive documentation to be entered into
      in
      connection therewith, and providing each Buyer an option during the fifteen
      (15)
      day period following delivery of such notice to purchase its pro rata share
      (based on the ratio that the aggregate principal amount of Notes purchased
      by it
      hereunder bears to the aggregate principal amount of Notes purchased hereunder)
      of the securities being offered in the Future Offering on the same terms as
      contemplated by such Future Offering (the limitations referred to in this
      sentence and the preceding sentence are collectively referred to as the
“Capital
      Raising Limitations”). 
      In the
      event the terms and conditions of a proposed Future Offering are amended in
      any
      respect after delivery of the notice to the Buyers concerning the proposed
      Future Offering, the Company shall deliver a new notice to each Buyer describing
      the amended terms and conditions of the proposed Future Offering and each Buyer
      thereafter shall have an option during the fifteen (15) day period following
      delivery of such new notice to purchase its pro rata share of the securities
      being offered on the same terms as contemplated by such proposed Future
      Offering, as amended. The foregoing sentence shall apply to successive
      amendments to the terms and conditions of any proposed Future Offering. The
      Capital Raising Limitations shall not apply to any transaction involving (i)
      issuances of securities in a firm commitment underwritten public offering
      (excluding a continuous offering pursuant to Rule 415 under the 1933 Act, an
      equity line of credit or similar financing arrangement) resulting in net
      proceeds to the Company of in excess of $1,500,000, or (ii) issuances of
      securities as consideration for a merger, consolidation or purchase of assets,
      or in connection with any strategic partnership or joint venture (the primary
      purpose of which is not to raise equity capital), or in connection with the
      disposition or acquisition of a business, product or license by the Company.
      The
      Capital Raising Limitations also shall not apply to the issuance of securities
      upon exercise or conversion of the Company’s options, warrants or other
      convertible securities outstanding as of the date hereof or to the grant of
      additional options or warrants, or the issuance of additional securities, under
      any Company stock option or restricted stock plan approved by the shareholders
      of the Company. 

     

    f.  Expenses.
      At the
      Closing, the Company shall reimburse Buyers for expenses incurred by them in
      connection with the negotiation, preparation, execution, delivery and
      performance of this Agreement and the other agreements to be executed in
      connection herewith (“Documents”), including, without limitation, attorneys’ and
      consultants’ fees and expenses, transfer agent fees, fees for stock quotation
      services, fees relating to any amendments or modifications of the Documents
      or
      any consents or waivers of provisions in the Documents, fees for the preparation
      of opinions of counsel, escrow fees, and costs of restructuring the transactions
      contemplated by the Documents. When possible, the Company must pay these fees
      directly, otherwise the Company must make immediate payment for reimbursement
      to
      the Buyers for all fees and expenses immediately upon written notice by the
      Buyer or the submission of an invoice by the Buyer. Notwithstanding anything
      herein to the contrary, the Company’s obligation to reimburse Buyers’ expenses
      shall not exceed $20,000 in the aggregate.

     

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

     

    h.  Authorization
      and Reservation of Shares.
      Subject
      to Stockholder Approval, the Company shall at all times have authorized, and
      reserved for the purpose of issuance, a sufficient number of shares of Common
      Stock to provide for the full conversion or exercise of the outstanding Notes
      and Warrants and issuance of the Conversion Shares and Warrant Shares in
      connection therewith (based on the Conversion Price of the Notes or Exercise
      Price of the Warrants in effect from time to time) and as otherwise required
      by
      the Notes. The Company shall not reduce the number of shares of Common Stock
      reserved for issuance upon conversion of Notes and exercise of the Warrants
      without the consent of each Buyer. The Company shall at all times maintain
      the
      number of shares of Common Stock so reserved for issuance at an amount
      (“Reserved
      Amount”)
      equal
      to no less than two (2) times the number that is then actually issuable upon
      full conversion of the Notes and upon exercise of the Warrants (based on the
      Conversion Price of the Notes or the Exercise Price of the Warrants in effect
      from time to time). If at any time the number of shares of Common Stock
      authorized and reserved for issuance (“Authorized
      and Reserved Shares”)
      is
      below the Reserved Amount, the Company will promptly take all corporate action
      necessary to authorize and reserve a sufficient number of shares, including,
      without limitation, calling a special meeting of shareholders to authorize
      additional shares to meet the Company’s obligations under this Section 4(h), in
      the case of an insufficient number of authorized shares, obtain shareholder
      approval of an increase in such authorized number of shares, and voting the
      management shares of the Company in favor of an increase in the authorized
      shares of the Company to ensure that the number of authorized shares is
      sufficient to meet the Reserved Amount. If the Company fails to obtain such
      shareholder approval within thirty (30) days following the date on which the
      number of Reserved Amount exceeds the Authorized and Reserved Shares, the
      Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
      cash or in shares of Common Stock at the option of the Buyer. If the Buyer
      elects to be paid the Standard Liquidated Damages Amount in shares of Common
      Stock, such shares shall be issued at the Conversion Price at the time of
      payment. In order to ensure that the Company has authorized a sufficient amount
      of shares to meet the Reserved Amount at all times, the Company must deliver
      to
      the Buyer at the end of every month a list detailing (1) the current amount
      of
      shares authorized by the Company and reserved for the Buyer; and (2) amount
      of
      shares issuable upon conversion of the Notes and upon exercise of the Warrants
      and as payment of interest accrued on the Notes for one year. If the Company
      fails to provide such list within five (5) business days of the end of each
      month, the Company shall pay the Standard Liquidated Damages Amount, in cash
      or
      in shares of Common Stock at the option of the Buyer, until the list is
      delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
      in shares of Common Stock, such shares shall be issued at the Conversion Price
      at the time of payment.

     

    i.  Listing.
      The
      Company shall promptly secure the listing of the Conversion Shares and Warrant
      Shares upon each national securities exchange or automated quotation system,
      if
      any, upon which shares of Common Stock are then listed (subject to official
      notice of issuance) and, so long as any Buyer owns any of the Securities, shall
      maintain, so long as any other shares of Common Stock shall be so listed, such
      listing of all Conversion Shares and Warrant Shares from time to time issuable
      upon conversion of the Notes or exercise of the Warrants. The Company will
      obtain and, so long as any Buyer owns any of the Securities, maintain the
      listing and trading of its Common Stock on the OTCBB or any equivalent
      replacement exchange, the Nasdaq National Market (“Nasdaq”),
      the
      Nasdaq SmallCap Market (“Nasdaq
      SmallCap”),
      the
      New York Stock Exchange (“NYSE”),
      or
      the American Stock Exchange (“AMEX”)
      and
      will comply in all respects with the Company’s reporting, filing and other
      obligations under the bylaws or rules of the National Association of Securities
      Dealers (“NASD”)
      and
      such exchanges, as applicable. The Company shall promptly provide to each Buyer
      copies of any notices it receives from the OTCBB and any other exchanges or
      quotation systems on which the Common Stock is then listed regarding the
      continued eligibility of the Common Stock for listing on such exchanges and
      quotation systems.

     

    j.  Corporate
      Existence.
      So long
      as a Buyer beneficially owns any Notes or Warrants, the Company shall maintain
      its corporate existence and shall not sell all or substantially all of the
      Company’s assets, except in the event of a merger or consolidation or sale of
      all or substantially all of the Company’s assets, where the surviving or
      successor entity in such transaction (i) assumes the Company’s obligations
      hereunder and under the agreements and instruments entered into in connection
      herewith and (ii) is a publicly traded corporation whose Common Stock is listed
      for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

     

    k.  No
      Integration.
      The
      Company shall not make any offers or sales of any security (other than the
      Securities) under circumstances that would require registration of the
      Securities being offered or sold hereunder under the 1933 Act or cause the
      offering of the Securities to be integrated with any other offering of
      securities by the Company for the purpose of any stockholder approval provision
      applicable to the Company or its securities.

     

    l.  Restriction
      on Short Sales.
      The
      Buyers agree that, so long as any of the Notes remain outstanding, but in no
      event less than two (2) years from the date hereof, the Buyers will not enter
      into or effect any “short sales” (as such term is defined in Rule 3b-3 of the
      1934 Act) of the Common Stock or hedging transaction which establishes a net
      short position with respect to the Common Stock.

     

    m.  Breach
      of Covenants.
      If the
      Company breaches any of the covenants set forth in this Section 4, and in
      addition to any other remedies available to the Buyers pursuant to this
      Agreement, the Company shall pay to the Buyers the Standard Liquidated Damages
      Amount, in cash or in shares of Common Stock at the option of the Company,
      until
      such breach is cured. If the Company elects to pay the Standard Liquidated
      Damages Amount in shares, such shares shall be issued at the Conversion Price
      at
      the time of payment.

     

    5.  TRANSFER
      AGENT INSTRUCTIONS.
      The
      Company shall issue irrevocable instructions to its transfer agent to issue
      certificates, registered in the name of each Buyer or its nominee, for the
      Conversion Shares and Warrant Shares in such amounts as specified from time
      to
      time by each Buyer to the Company upon conversion of the Notes or exercise
      of
      the Warrants in accordance with the terms thereof (the “Irrevocable
      Transfer Agent Instructions”).
      Prior
      to registration of the Conversion Shares and Warrant Shares under the 1933
      Act
      or the date on which the Conversion Shares and Warrant Shares may be sold
      pursuant to Rule 144 without any restriction as to the number of Securities
      as
      of a particular date that can then be immediately sold, all such certificates
      shall bear the restrictive legend specified in Section 2(g) of this Agreement.
      The Company warrants that no instruction other than the Irrevocable Transfer
      Agent Instructions referred to in this Section 5, and stop transfer instructions
      to give effect to Section 2(f) hereof (in the case of the Conversion Shares
      and
      Warrant Shares, prior to registration of the Conversion Shares and Warrant
      Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
      Shares may be sold pursuant to Rule 144 without any restriction as to the number
      of Securities as of a particular date that can then be immediately sold), will
      be given by the Company to its transfer agent and that the Securities shall
      otherwise be freely transferable on the books and records of the Company as
      and
      to the extent provided in this Agreement and the Registration Rights Agreement.
      Nothing in this Section shall affect in any way the Buyer’s obligations and
      agreement set forth in Section 2(g) hereof to comply with all applicable
      prospectus delivery requirements, if any, upon re-sale of the Securities. If
      a
      Buyer provides the Company with (i) an opinion of counsel reasonably acceptable
      to the Company and its counsel in form, substance and scope customary for
      opinions in comparable transactions, to the effect that a public sale or
      transfer of such Securities may be made without registration under the 1933
      Act
      and such sale or transfer is effected or (ii) the Buyer provides reasonable
      assurances that the Securities can be sold pursuant to Rule 144, the Company
      shall permit the transfer, and, in the case of the Conversion Shares and Warrant
      Shares, promptly instruct its transfer agent to issue one or more certificates,
      free from restrictive legend, in such name and in such denominations as
      specified by such Buyer. The Company acknowledges that a breach by it of its
      obligations hereunder will cause irreparable harm to the Buyers, by vitiating
      the intent and purpose of the transactions contemplated hereby. Accordingly,
      the
      Company acknowledges that the remedy at law for a breach of its obligations
      under this Section 5 may be inadequate and agrees, in the event of a breach
      or
      threatened breach by the Company of the provisions of this Section, that the
      Buyers shall be entitled, in addition to all other available remedies, to an
      injunction restraining any breach and requiring immediate transfer, without
      the
      necessity of showing economic loss and without any bond or other security being
      required.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    c.  The
      Irrevocable Transfer Agent Instructions, in form and substance satisfactory
      to a
      majority-in-interest of the Buyers, shall have been delivered to and
      acknowledged in writing by the Company’s Transfer Agent.

     

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

     

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

     

    f.  No
      event
      shall have occurred which could reasonably be expected to have a Material
      Adverse Effect on the Company.

     

    g.  The
      Conversion Shares and Warrant Shares shall have been authorized for quotation
      on
      the OTCBB and trading in the Common Stock on the OTCBB shall not have been
      suspended by the SEC or the OTCBB.

     

    h.  The
      Buyer
      shall have received an opinion of the Company’s counsel, dated as of the Closing
      Date, in form, scope and substance reasonably satisfactory to the Buyer and
      in
      substantially the same form as Exhibit
      “D”
      attached
      hereto.

     

    i.  The
      Buyer
      shall have received an officer’s certificate described in Section 3(c) above,
      dated as of the Closing Date.

     

    8.  GOVERNING
      LAW; MISCELLANEOUS.
      

     

    a.  Governing
      Law.
      THIS
      AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
      ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
      LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
      UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO
      ANY
      DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
      HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
      IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
      SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
      UPON
      A PARTY MAILED BY REGISTERED FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT
      EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING.
      NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER
      MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT
      IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
      JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY
      WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE
      RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES,
      INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

     

    b.  Counterparts;
      Signatures by Facsimile.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original but all of which shall constitute one and the same agreement
      and shall become effective when counterparts have been signed by each party
      and
      delivered to the other party. This Agreement, once executed by a party, may
      be
      delivered to the other party hereto by facsimile transmission of a copy of
      this
      Agreement bearing the signature of the party so delivering this
      Agreement.

     

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

     

    d.  Severability.
      In the
      event that any provision of this Agreement is invalid or unenforceable under
      any
      applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law. Any provision hereof
      which
      may prove invalid or unenforceable under any law shall not affect the validity
      or enforceability of any other provision hereof.

     

    e.  Entire
      Agreement; Amendments.
      This
      Agreement and the instruments referenced herein contain the entire understanding
      of the parties with respect to the matters covered herein and therein and,
      except as specifically set forth herein or therein, neither the Company nor
      the
      Buyer makes any representation, warranty, covenant or undertaking with respect
      to such matters. No provision of this Agreement may be waived or amended other
      than by an instrument in writing signed by the party to be charged with
      enforcement. 

     

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

     

    If
      to the
      Company:

    

    Avitar
      Inc.

     

    65
      Dan
      Road

     

    Canton,
      MA 02021

     

    Attention:
      Chief Executive Officer

     

    Telephone:
      (781) 821-2440  

     

    Facsimile:
      (781) 

     

    With
      a
      copy to:

     

    Dolgenos
      Newman & Cronin LLP

    1001
      Avenue of the Americas

    New
      York,
      NY 10018

    Attention:
      Eugene Cronin, Esq.

    Telephone:
      (212) 925-2800

    Facsimile:
      (212) 925-0690

     

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

     

    With
      copy
      to:

    

    Ballard
      Spahr Andrews & Ingersoll, LLP

     

    1735
      Market Street

     

    51st
      Floor

     

    Philadelphia,
      Pennsylvania 19103

     

    Attention:
      Gerald J. Guarcini, Esq.

     

    Telephone:
      215-864-8625

     

    Facsimile:
      215-864-8999

     

    

     

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

     

    g.  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns. Neither the Company nor any Buyer shall assign
      this Agreement or any rights or obligations hereunder without the prior written
      consent of the other. 

     

    h.  Third
      Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

    i.  Survival.
      The
      representations and warranties of the Company and the agreements and covenants
      set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
      notwithstanding any due diligence investigation conducted by or on behalf of
      the
      Buyers. The Company agrees to indemnify and hold harmless each of the Buyers
      and
      all their officers, directors, employees and agents for loss or damage arising
      as a result of or related to any breach or alleged breach by the Company of
      any
      of its representations, warranties and covenants set forth in Sections 3 and
      4
      hereof or any of its covenants and obligations under this Agreement or the
      Registration Rights Agreement, including advancement of expenses as they are
      incurred.

     

    j.  Publicity.
      The
      Company and each of the Buyers shall have the right to review a reasonable
      period of time before issuance of any press releases, SEC, OTCBB or NASD
      filings, or any other public statements with respect to the transactions
      contemplated hereby; provided,
      however,
      that
      the Company shall be entitled, without the prior approval of each of the Buyers,
      to make any press release or SEC, OTCBB (or other applicable trading market)
      or
      NASD filings with respect to such transactions as is required by applicable
      law
      and regulations (although each of the Buyers shall be consulted by the Company
      in connection with any such press release prior to its release and shall be
      provided with a copy thereof and be given an opportunity to comment
      thereon).

     

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

     

    l.  No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    m.  Remedies.
      The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to the Buyers by vitiating the intent and purpose of the
      transaction contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for a breach of its obligations under this Agreement will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Agreement, that the Buyers shall be entitled,
      in addition to all other available remedies at law or in equity, and in addition
      to the penalties assessable herein, to an injunction or injunctions restraining,
      preventing or curing any breach of this Agreement and to enforce specifically
      the terms and provisions hereof, without the necessity of showing economic
      loss
      and without any bond or other security being required.

     

    
      
        

        

         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

    

    

    AVITAR
      INC.

    

    ________________________________

    Peter
      Phildius

    Chief
      Executive Officer 

    

    

    AJW
      PARTNERS, LLC

    By:
      SMS
      Group, LLC

    

    

    ______________________________________

    Corey
      S.
      Ribotsky

    Manager

    

    

    RESIDENCE:
      Delaware

    

    ADDRESS: 1044
      Northern Boulevard

    Suite
      302

    Roslyn,
      New York 11576

    Facsimile:
      (516) 739-7115

    Telephone:
      (516) 739-7110

    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    

    Aggregate
      Principal Amount of Notes: $________

    Number
      of
      Warrants: 
      ________

    Aggregate
      Purchase Price: $________

    
      
        

        

         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    

    AJW
      OFFSHORE, LTD.

    By:
      First
      Street Manager II, LLC

    

    

    ______________________________________

    Corey
      S.
      Ribotsky 

    Manager

    

    

    RESIDENCE: 
      Cayman
      Islands

    

    ADDRESS: AJW
      Offshore, Ltd.

    P.O.
      Box
      32021 SMB

    Grand
      Cayman, Cayman Island, B.W.I. 

    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    

    Aggregate
      Principal Amount of Notes: $_______

    Number
      of
      Warrants:  _______

    Aggregate
      Purchase Price: $_______

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    AJW
      QUALIFIED PARTNERS, LLC

     

    By:
      AJW
      Manager, LLC

     

    ____________________________________

     

    Corey
      S.
      Ribotsky 

     

    Manager

     

    

    

    RESIDENCE: 
      New
      York

    

    ADDRESS: 1044
      Northern Boulevard

    Suite
      302

    Roslyn,
      New York 11576

    Facsimile: (516)
      739-7115

    Telephone: (516)
      739-7110

    

    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    

    Aggregate
      Principal Amount of Notes: $________

    Number
      of
      Warrants: ________

    Aggregate
      Purchase Price: $________

    

    
      
         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    NEW
      MILLENNIUM CAPITAL PARTNERS II, LLC 

     

    By:
      First
      Street Manager II, LLP

     

    ____________________________________

     

    Corey
      S.
      Ribotsky 

     

    Manager

     

    

    

    RESIDENCE: 
      New
      York

    

    ADDRESS: 1044
      Northern Boulevard

    Suite
      302

    Roslyn,
      New York 11576

    Facsimile: (516)
      739-7115

    Telephone: (516)
      739-7110

    

    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    

    Aggregate
      Principal Amount of Notes: $______

    Number
      of
      Warrants: ______

    Aggregate
      Purchase Price: $______

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