Document:

Exhibit 10.3

        THE  SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
        REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED (THE
        "ACT"). 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.

                        CALLABLE SECURED CONVERTIBLE NOTE

Clinton Township, Michigan
December 31, 2006                                                    $[________]

               FOR VALUE RECEIVED,  MIDNIGHT  HOLDINGS  GROUP,  INC., a Delaware
corporation  (hereinafter called the "BORROWER"),  hereby promises to pay to the
order of [________] or registered assigns (the "HOLDER") the sum of $[________],
on December 31, 2009 (the  "MATURITY  DATE"),  and to pay interest on the unpaid
principal balance hereof at the rate of two percent (2%) per annum from December
31, 2006 (the "ISSUE  DATE") until the same becomes due and payable,  whether at
maturity or upon  acceleration  or by  prepayment  or  otherwise.  Any amount of
principal  or  interest  on this  Note  which is not paid  when due  shall  bear
interest  at the rate of  fifteen  percent  (15%)  per  annum  from the due date
thereof until the same is paid  ("DEFAULT  INTEREST").  Interest  shall commence
accruing on the issue date, shall be computed on the basis of a 365-day year and
the actual  number of days elapsed and shall be payable,  quarterly on March 31,
June 30,  September 30 and December 31 of each year beginning on the last day of
the first full quarter  after Issue Date.  All payments  due  hereunder  (to the
extent not  converted  into common  stock,  $.00005 par value per share,  of the
Borrower (the "COMMON STOCK") in accordance with the terms hereof) shall be made
in lawful money of the United States of America.  All payments  shall be made at
such  address as the Holder  shall  hereafter  give to the  Borrower  by written
notice made in accordance with the provisions of this Note.  Whenever any amount
expressed  to be due by the  terms of this Note is due on any day which is not a
business day, the same shall instead be due on the next  succeeding day which is
a business  day and, in the case of any  interest  payment date which is not the
date on which this Note is paid in full,  the  extension of the due date thereof
shall not be taken  into  account  for  purposes  of  determining  the amount of
interest due on such date. As used in this Note,  the term  "business day" shall
mean any day other than a Saturday, Sunday or a day on which commercial banks in
the city of New York,  New York are  authorized  or required by law or executive
order to

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remain closed.  Each  capitalized term used herein,  and not otherwise  defined,
shall have the meaning  ascribed  thereto in that  certain  Securities  Purchase
Agreement, dated December 31, 2006 (the "PURCHASE AGREEMENT").

        This Note is 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  Borrower  and will not  impose
personal  liability  upon the holder  thereof.  The  obligations of the Borrower
under  this Note  shall be secured by that  certain  Security  Agreement  by and
between the Borrower and the Holder of even date herewith.

        The following terms shall apply to this Note:

                          ARTICLE I. CONVERSION RIGHTS

                1.1     CONVERSION  RIGHT.  The Holder shall have the right from
time to time,  and at any time on or prior to the  earlier  of (i) the  Maturity
Date and (ii) the date of payment of the  Default  Amount (as defined in Article
III) pursuant to Section 1.6(a) or Article III, the Optional  Prepayment  Amount
(as defined in Section 5.1) or (iii) any payments  pursuant to Section 1.7, each
in respect of the remaining outstanding principal amount of this Note to convert
all or any part of the outstanding and unpaid principal amount of this Note into
fully paid and  non-assessable  shares of Common  Stock,  as such  Common  Stock
exists on the Issue Date, or any shares of capital stock or other  securities of
the  Borrower  into  which  such  Common  Stock  shall  hereafter  be changed or
reclassified  at the conversion  price (the  "CONVERSION  PRICE")  determined as
provided herein (a "CONVERSION");  PROVIDED, HOWEVER, that in no event shall the
Holder be entitled to convert any portion of this Note in excess of that portion
of this Note  upon  conversion  of which the sum of (1) the  number of shares of
Common Stock  beneficially  owned by the Holder and its  affiliates  (other than
shares  of Common  Stock  which may be deemed  beneficially  owned  through  the
ownership  of the  unconverted  portion  of the  Notes  or  the  unexercised  or
unconverted  portion of any other security of the Borrower  (including,  without
limitation,  the  warrants  issued  by the  Borrower  pursuant  to the  Purchase
Agreement)  subject to a limitation on  conversion or exercise  analogous to the
limitations  contained  herein)  and (2) the  number of  shares of Common  Stock
issuable  upon the  conversion of the portion of this Note with respect to which
the  determination  of this proviso is being made,  would  result in  beneficial
ownership by the Holder and its affiliates of more than 4.9% of the  outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence,  beneficial  ownership  shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended,  and Regulations 13D-G
thereunder,  except as  otherwise  provided in clause (1) of such  proviso.  The
number of shares of Common Stock to be issued upon each  conversion of this Note
shall be determined by dividing the Conversion  Amount (as defined below) by the
applicable  Conversion  Price then in effect on the date specified in the notice
of  conversion,  in the form  attached  hereto  as  Exhibit  A (the  "NOTICE  OF
CONVERSION"), delivered to the Borrower by the Holder in accordance with Section
1.4 below;  provided that the Notice of Conversion is submitted by facsimile (or
by other means resulting in, or reasonably expected to result in, notice) to the
Borrower  before 6:00 p.m., New York, New York time on such conversion date (the
"CONVERSION  DATE").  The term  "CONVERSION  AMOUNT" means,  with respect to any
conversion of this Note, the sum of (1) the principal  amount of this Note to be
converted in such

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conversion  PLUS (2) accrued  and unpaid  interest,  if any,  on such  principal
amount at the interest rates  provided in this Note to the Conversion  Date PLUS
(3) Default  Interest,  if any, on the  amounts  referred to in the  immediately
preceding  clauses (1) and/or (2) PLUS (4) at the Holder's  option,  any amounts
owed to the Holder  pursuant  to Sections  1.3 and 1.4(g)  hereof or pursuant to
Section 2(c) of that certain Registration Rights Agreement, dated as of December
31, 2006,  executed in connection with the initial issuance of this Note and the
other Notes issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT").

                1.2     CONVERSION PRICE.

                        (a)     CALCULATION OF CONVERSION  PRICE. The Conversion
Price  shall be the  lesser of (i) the  Variable  Conversion  Price (as  defined
herein) and (ii) the Fixed  Conversion  Price (as defined herein)  (subject,  in
each case, to equitable  adjustments for stock splits, stock dividends or rights
offerings  by  the  Borrower  relating  to  the  Borrower's  securities  or  the
securities of any  subsidiary of the Borrower,  combinations,  recapitalization,
reclassifications,   extraordinary   distributions  and  similar  events).   The
"VARIABLE  CONVERSION  PRICE" shall mean the  Applicable  Percentage (as defined
herein) multiplied by the Market Price (as defined herein). "MARKET PRICE" means
the average of the lowest  three (3) Trading  Prices (as defined  below) for the
Common Stock  during the twenty (20)  Trading Day period  ending one Trading Day
prior to the date the  Conversion  Notice is sent by the Holder to the  Borrower
via facsimile (the "CONVERSION  DATE").  "TRADING PRICE" means, for any security
as of any date,  the intraday  trading  price on the  Over-the-Counter  Bulletin
Board (the  "OTCBB")  as  reported  by a  reliable  reporting  service  mutually
acceptable to and  hereafter  designated by Holders of a majority in interest of
the Notes and the Borrower or, if the OTCBB is not the principal  trading market
for such security,  the intraday trading price of such security on the principal
securities  exchange or trading  market where such  security is listed or traded
or, if no intraday  trading  price of such  security is  available in any of the
foregoing  manners,  the average of the  intraday  trading  prices of any market
makers for such  security  that are listed in the "pink  sheets" by the National
Quotation  Bureau,  Inc.  If the Trading  Price  cannot be  calculated  for such
security on such date in the manner provided  above,  the Trading Price shall be
the fair market value as mutually  determined by the Borrower and the holders of
a majority in interest of the Notes being converted for which the calculation of
the Trading Price is required in order to determine the Conversion Price of such
Notes.  "TRADING DAY" shall mean any day on which the Common Stock is traded for
any  period on the  OTCBB,  or on the  principal  securities  exchange  or other
securities  market on which the Common Stock is then being  traded.  "APPLICABLE
PERCENTAGE" shall mean 40%.

                        (b)     CONVERSION  PRICE  DURING  MAJOR  ANNOUNCEMENTS.
Notwithstanding  anything  contained in Section  1.2(a) to the contrary,  in the
event  the  Borrower  (i)  makes  a  public  announcement  that  it  intends  to
consolidate  or merge with any other  corporation  (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged)  or sell or transfer  all or  substantially  all of the assets of the
Borrower or (ii) any person,  group or entity (including the Borrower)  publicly
announces a tender offer to purchase 50% or more of the Borrower's  Common Stock
(or any other  takeover  scheme)  (the date of the  announcement  referred to in
clause (i) or (ii) is hereinafter referred to as the "ANNOUNCEMENT  DATE"), then
the Conversion Price shall,  effective upon the Announcement Date and continuing
through the Adjusted  Conversion Price  Termination Date (as defined below),  be
equal to the lower of (x) the Conversion  Price which

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would have been applicable for a Conversion  occurring on the Announcement  Date
and (y) the Conversion  Price that would otherwise be in effect.  From and after
the Adjusted  Conversion Price  Termination  Date, the Conversion Price shall be
determined as set forth in this Section 1.2(a).  For purposes hereof,  "ADJUSTED
CONVERSION  PRICE  TERMINATION  DATE" shall mean,  with  respect to any proposed
transaction or tender offer (or takeover scheme) for which a public announcement
as  contemplated  by this Section  1.2(b) has been made, the date upon which the
Borrower  (in the case of clause (i) above) or the  person,  group or entity (in
the case of clause (ii) above) consummates or publicly announces the termination
or abandonment of the proposed  transaction or tender offer (or takeover scheme)
which caused this Section 1.2(b) to become operative.

                1.3     AUTHORIZED  SHARES.  Subject  to the  completion  of the
Charter Amendment Actions (as defined in the Purchase  Agreement),  the Borrower
covenants that during the period the conversion right exists,  the Borrower will
reserve from its  authorized  and unissued  Common Stock a sufficient  number of
shares, free from preemptive rights, to provide for the issuance of Common Stock
upon the full conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement. The Borrower is required at all times to have authorized and
reserved  two times the number of shares  that is  actually  issuable  upon full
conversion  of the  Notes  (based  on the  Conversion  Price of the Notes or the
Exercise  Price of the  Warrants  in effect  from time to time)  (the  "RESERVED
AMOUNT"). The Reserved Amount shall be increased from time to time in accordance
with  the  Borrower's  obligations  pursuant  to  Section  4(h) of the  Purchase
Agreement.  The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable.  In addition, if the Borrower
shall issue any  securities  or make any change to its capital  structure  which
would  change the number of shares of Common Stock into which the Notes shall be
convertible at the then current Conversion Price, the Borrower shall at the same
time make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved,  free from preemptive rights,
for conversion of the outstanding  Notes. The Borrower (i) acknowledges  that it
has  irrevocably  instructed  its transfer agent to issue  certificates  for the
Common Stock  issuable upon  conversion  of this Note,  and (ii) agrees that its
issuance of this Note shall constitute full authority to its officers and agents
who are charged with the duty of  executing  stock  certificates  to execute and
issue the necessary  certificates  for shares of Common Stock in accordance with
the terms and conditions of this Note.

               If,  at any time a  Holder  of this  Note  submits  a  Notice  of
Conversion,  and the Borrower does not have  sufficient  authorized but unissued
shares of Common Stock  available to effect such  conversion in accordance  with
the  provisions of this Article I (a "CONVERSION  DEFAULT"),  subject to Section
4.8,  the  Borrower  shall issue to the Holder all of the shares of Common Stock
which are then  available  to effect such  conversion.  The portion of this Note
which the Holder included in its Conversion  Notice and which exceeds the amount
which is then  convertible  into  available  shares of Common Stock (the "EXCESS
AMOUNT") shall,  notwithstanding  anything to the contrary contained herein, not
be convertible  into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date  additional  shares of Common
Stock are  authorized by the Borrower to permit such  conversion,  at which time
the  Conversion  Price  in  respect  thereof  shall  be the  lesser  of (i)  the
Conversion Price on the Conversion  Default Date (as defined below) and (ii) the
Conversion  Price on the  Conversion  Date  thereafter  elected by the Holder in
respect  thereof.  In addition,  the

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Borrower shall pay to the Holder payments  ("CONVERSION DEFAULT PAYMENTS") for a
Conversion  Default  in the  amount  of (x) the SUM OF (1) the then  outstanding
principal amount of this Note PLUS (2) accrued and unpaid interest on the unpaid
principal amount of this Note through the Authorization  Date (as defined below)
PLUS (3) Default  Interest,  if any,  on the amounts  referred to in clauses (1)
and/or (2),  MULTIPLIED  BY (y) .24,  MULTIPLIED  BY (z) (N/365),  where N = the
number of days from the day the  holder  submits a Notice of  Conversion  giving
rise to a Conversion  Default (the  "CONVERSION  DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares
of Common Stock to effect  conversion of the full outstanding  principal balance
of this Note.  The Borrower shall use its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable following the earlier of
(i) such  time  that the  Holder  notifies  the  Borrower  or that the  Borrower
otherwise becomes aware that there are or likely will be insufficient authorized
and  unissued  shares to allow full  conversion  thereof  and (ii) a  Conversion
Default.  The Borrower shall send notice to the Holder of the  authorization  of
additional  shares of Common  Stock,  the  Authorization  Date and the amount of
Holder's accrued  Conversion  Default Payments.  The accrued  Conversion Default
Payments for each calendar  month shall be paid in cash or shall be  convertible
into Common  Stock (at such time as there are  sufficient  authorized  shares of
Common Stock) at the applicable  Conversion Price, at the Borrower's  option, as
follows:

                        (a)     In the  event the  Borrower  elects to make such
payment in cash,  cash payment shall be made to Holder by the fifth (5th) day of
the month following the month in which it has accrued; and

                        (b)     In the  event the  Borrower  elects to make such
payment in Common Stock,  the Holder may convert such payment amount into Common
Stock at the  Conversion  Price (as in effect at the time of  conversion) at any
time  after  the  fifth  day of the  month  following  the month in which it has
accrued in accordance with the terms of this Article I (so long as there is then
a sufficient number of authorized shares of Common Stock).

                The  Borrower's  election shall be made in writing to the Holder
at any time prior to 6:00 p.m., New York, New York time, on the third day of the
month following the month in which Conversion Default payments have accrued.  If
no  election  is made,  the  Borrower  shall be deemed to have  elected to remit
Common  Stock.  Nothing  herein shall limit the Holder's  right to pursue actual
damages (to the extent in excess of the  Conversion  Default  Payments)  for the
Borrower's  failure to  maintain a  sufficient  number of  authorized  shares of
Common  Stock,  and each  holder  shall  have the right to pursue  all  remedies
available at law or in equity (including degree of specific  performance  and/or
injunctive relief).

                1.4     METHOD OF CONVERSION.

                        (a)     MECHANICS OF CONVERSION. Subject to Section 1.1,
this Note may be  converted  by the  Holder in whole or in part at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable  means of communication  dispatched
on the  Conversion  Date  prior to 6:00 p.m.,  New York,  New

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York  time) and (B)  subject to Section  1.4(b),  surrendering  this Note at the
principal office of the Borrower.

                        (b)     SURRENDER     OF    NOTE    UPON     CONVERSION.
Notwithstanding  anything to the contrary set forth herein,  upon  conversion of
this Note in accordance with the terms hereof,  the Holder shall not be required
to  physically  surrender  this Note to the  Borrower  unless the entire  unpaid
principal amount of this Note is so converted. The Holder and the Borrower shall
maintain records showing the principal amount so converted and the dates of such
conversions  or shall use such  other  method,  reasonably  satisfactory  to the
Holder and the Borrower,  so as not to require  physical  surrender of this Note
upon each such  conversion.  In the event of any  dispute or  discrepancy,  such
records of the Borrower shall be controlling and determinative in the absence of
manifest error.  Notwithstanding  the foregoing,  if any portion of this Note is
converted as aforesaid,  the Holder may not transfer this Note unless the Holder
first  physically  surrenders this Note to the Borrower,  whereupon the Borrower
will forthwith issue and deliver upon the order of the Holder a new Note of like
tenor,  registered as the Holder (upon  payment by the Holder of any  applicable
transfer taxes) may request,  representing in the aggregate the remaining unpaid
principal  amount of this Note.  The Holder and any  assignee,  by acceptance of
this Note,  acknowledge  and agree  that,  by reason of the  provisions  of this
paragraph,  following  conversion  of a portion  of this  Note,  the  unpaid and
unconverted  principal  amount of this Note represented by this Note may be less
than the amount stated on the face hereof.

                        (c)     PAYMENT  OF  TAXES.  The  Borrower  shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and  delivery  of shares  of Common  Stock or other  securities  or
property on  conversion of this Note in a name other than that of the Holder (or
in street name),  and the Borrower shall not be required to issue or deliver any
such  shares or other  securities  or  property  unless  and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's  account)  requesting the issuance thereof shall
have paid to the Borrower  the amount of any such tax or shall have  established
to the satisfaction of the Borrower that such tax has been paid.

                        (d)     DELIVERY OF COMMON STOCK UPON  CONVERSION.  Upon
receipt by the Borrower  from the Holder of a facsimile  transmission  (or other
reasonable  means  of  communication)  of a Notice  of  Conversion  meeting  the
requirements  for conversion as provided in this Section 1.4, the Borrower shall
issue and  deliver or cause to be issued and  delivered  to or upon the order of
the Holder  certificates  for the Common  Stock  issuable  upon such  conversion
within five (5)  business  days after such receipt  (and,  solely in the case of
conversion of the entire unpaid principal amount hereof, surrender of this Note)
(such second  business day being  hereinafter  referred to as the "DEADLINE") in
accordance with the terms hereof and the Purchase Agreement (including,  without
limitation,  in accordance with the requirements of Section 2(g) of the Purchase
Agreement  that  certificates  for shares of Common Stock issued on or after the
effective date of the Registration  Statement upon conversion of this Note shall
not bear any restrictive legend).

                        (e)     OBLIGATION OF BORROWER TO DELIVER  COMMON STOCK.
Upon  receipt by the  Borrower of a Notice of  Conversion,  the Holder  shall be
deemed  to be the  holder  of  record of the  Common  Stock  issuable  upon such
conversion,  the  outstanding  principal  amount

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and the amount of accrued  and unpaid  interest on this Note shall be reduced to
reflect such  conversion,  and, unless the Borrower  defaults on its obligations
under this  Article I, all rights with respect to the portion of this Note being
so converted  shall forthwith  terminate  except the right to receive the Common
Stock or other  securities,  cash or other assets,  as herein provided,  on such
conversion.  If the Holder shall have given a Notice of  Conversion  as provided
herein,  the  Borrower's  obligation to issue and deliver the  certificates  for
Common Stock shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment,  limitation or  termination,  or any breach or alleged breach by the
Holder  of any  obligation  to  the  Borrower,  and  irrespective  of any  other
circumstance  which might otherwise limit such obligation of the Borrower to the
Holder in connection with such conversion.  The Conversion Date specified in the
Notice  of  Conversion  shall be the  Conversion  Date so long as the  Notice of
Conversion  is received by the  Borrower  before 6:00 p.m.,  New York,  New York
time, on such date.

                        (f)     DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER.
In lieu of  delivering  physical  certificates  representing  the  Common  Stock
issuable  upon   conversion,   provided  the   Borrower's   transfer   agent  is
participating in the Depository Trust Company ("DTC") Fast Automated  Securities
Transfer  ("FAST")  program,  upon request of the Holder and its compliance with
the  provisions  contained  in Section 1.1 and in this Section 1.4, the Borrower
shall  use its  best  efforts  to cause  its  transfer  agent to  electronically
transmit the Common Stock  issuable  upon  conversion to the Holder by crediting
the account of  Holder's  Prime  Broker with DTC through its Deposit  Withdrawal
Agent Commission ("DWAC") system.

                        (g)     FAILURE  TO  DELIVER   COMMON   STOCK  PRIOR  TO
DEADLINE.  Without  in any way  limiting  the  Holder's  right to  pursue  other
remedies,  including actual damages and/or equitable  relief,  the parties agree
that if delivery of the Common Stock  issuable  upon  conversion of this Note is
more  than two (2) days  after the  Deadline  (other  than a failure  due to the
circumstances described in Section 1.3 above, which failure shall be governed by
such Section) the Borrower  shall pay to the Holder $2,000 per day in cash,  for
each day beyond the  Deadline  that the  Borrower  fails to deliver  such Common
Stock.  Such cash  amount  shall be paid to Holder by the fifth day of the month
following  the month in which it has accrued or, at the option of the Holder (by
written notice to the Borrower by the first day of the month following the month
in which it has accrued),  shall be added to the principal  amount of this Note,
in which event  interest  shall accrue  thereon in accordance  with the terms of
this Note and such additional  principal amount shall be convertible into Common
Stock in accordance with the terms of this Note.

                1.5     CONCERNING  THE  SHARES.  The  shares  of  Common  Stock
issuable upon conversion of this Note may not be sold or transferred  unless (i)
such shares are sold pursuant to an effective  registration  statement under the
Act or (ii) the Borrower or its transfer agent shall have been furnished with an
opinion  of  counsel  (which  opinion  shall be in  form,  substance  and  scope
customary for opinions of counsel in comparable transactions) to the effect that
the shares to be sold or transferred  may be sold or transferred  pursuant to an
exemption  from such  registration  or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a

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successor  rule)  ("RULE  144")  or  (iv)  such  shares  are  transferred  to an
"affiliate"  (as  defined  in Rule 144) of the  Borrower  who  agrees to sell or
otherwise  transfer the shares only in accordance  with this Section 1.5 and who
is an  Accredited  Investor  (as defined in the Purchase  Agreement).  Except as
otherwise  provided  in the  Purchase  Agreement  (and  subject  to the  removal
provisions  set forth  below),  until  such time as the  shares of Common  Stock
issuable  upon  conversion  of this Note have been  registered  under the Act as
contemplated  by the  Registration  Rights  Agreement or  otherwise  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,  each  certificate for
shares of Common Stock  issuable upon  conversion of this Note that has not been
so included in an  effective  registration  statement  or that has not been sold
pursuant to an effective  registration  statement  or an exemption  that permits
removal of the legend,  shall bear a legend substantially in the following form,
as appropriate:

        "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 UNLESS SOLD  PURSUANT TO RULE 144 OR REGULATION S UNDER
        SAID ACT."

                The legend set forth  above  shall be removed  and the  Borrower
shall issue to the Holder a new certificate therefor free of any transfer legend
if (i) the  Borrower or its  transfer  agent  shall have  received an opinion of
counsel,  in form,  substance  and scope  customary  for  opinions of counsel in
comparable  transactions,  to the effect  that a public sale or transfer of such
Common Stock may be made without  registration  under the Act and the shares are
so sold or  transferred,  (ii) such Holder provides the Borrower or its transfer
agent with reasonable  assurances that the Common Stock issuable upon conversion
of this Note (to the extent such  securities are deemed to have been acquired on
the  same  date)  can be sold  pursuant  to Rule 144 or (iii) in the case of the
Common Stock issuable upon  conversion of this Note, such security is registered
for sale by the Holder under an effective registration statement filed under the
Act or otherwise 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.  Nothing in this Note shall (i) limit the Borrower's  obligation under the
Registration Rights Agreement or (ii) affect in any way the Holder's obligations
to comply with applicable  prospectus  delivery  requirements upon the resale of
the securities referred to herein.

                1.6     EFFECT OF CERTAIN EVENTS.

                        (a)     EFFECT OF  MERGER,  CONSOLIDATION,  ETC.  At the
option  of  the  Holder,   the  sale,   conveyance  or  disposition  of  all  or
substantially  all of  the  assets  of the  Borrower,  the  effectuation  by the
Borrower of a transaction or series of related  transactions  in which more than
50% of the voting power of the  Borrower is disposed  of, or the  consolidation,
merger or other  business  combination  of the  Borrower  with or into any other
Person (as defined below) or Persons when the Borrower is not the survivor shall
either:  (i) be deemed to be an

                                       8
<PAGE>

Event of Default (as  defined in Article  III)  pursuant  to which the  Borrower
shall  be  required  to pay to the  Holder  upon  the  consummation  of and as a
condition to such  transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated  pursuant to Section 1.6(b) hereof.  "PERSON"
shall mean any individual,  corporation, limited liability company, partnership,
association, trust or other entity or organization.

                        (b)     ADJUSTMENT  DUE TO MERGER,  CONSOLIDATION,  ETC.
If, at any time when this Note is issued and outstanding and prior to conversion
of all of the Notes,  there  shall be any  merger,  consolidation,  exchange  of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Note shall
thereafter  have the right to receive  upon  conversion  of this Note,  upon the
basis and upon the  terms and  conditions  specified  herein  and in lieu of the
shares of Common Stock immediately  theretofore  issuable upon conversion,  such
stock, securities or assets which the Holder would have been entitled to receive
in such  transaction had this Note been converted in full  immediately  prior to
such  transaction  (without  regard to any  limitations  on conversion set forth
herein), and in any such case appropriate  provisions shall be made with respect
to the  rights  and  interests  of the  Holder  of this Note to the end that the
provisions hereof (including,  without limitation,  provisions for adjustment of
the Conversion Price and of the number of shares issuable upon conversion of the
Note)  shall  thereafter  be  applicable,  as  nearly as may be  practicable  in
relation to any securities or assets thereafter  deliverable upon the conversion
hereof. The Borrower shall not effect any transaction  described in this Section
1.6(b) unless (a) it first gives,  to the extent  practicable,  thirty (30) days
prior written  notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if  there  is  no  such  record  date,   the   consummation   of,  such  merger,
consolidation,  exchange of shares,  recapitalization,  reorganization  or other
similar event or sale of assets  (during which time the Holder shall be entitled
to convert this Note) and (b) the  resulting  successor or acquiring  entity (if
not the Borrower) assumes by written  instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.

                        (c)     ADJUSTMENT DUE TO DISTRIBUTION.  If the Borrower
shall declare or make any  distribution  of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend,  stock  repurchase,  by way of
return of capital or otherwise  (including any dividend or  distribution  to the
Borrower's  shareholders  in cash or shares  (or  rights to  acquire  shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a  "DISTRIBUTION"),  then the
Holder of this Note shall be entitled,  upon any  conversion  of this Note after
the date of record for determining  shareholders  entitled to such Distribution,
to receive the amount of such assets which would have been payable to the Holder
with respect to the shares of Common Stock  issuable  upon such  conversion  had
such Holder  been the holder of such  shares of Common  Stock on the record date
for the determination of shareholders entitled to such Distribution.

                        (d)     ADJUSTMENT DUE TO DILUTIVE ISSUANCE.  If, at any
time when any Notes are issued and outstanding, the Borrower issues or sells, or
in accordance  with this Section

                                       9
<PAGE>

1.6(d)  hereof is deemed to have issued or sold,  any shares of Common Stock for
no  consideration  or  for  a  consideration  per  share  (before  deduction  of
reasonable  expenses or commissions or  underwriting  discounts or allowances in
connection therewith) less than the Fixed Conversion Price in effect on the date
of such  issuance  (or  deemed  issuance)  of such  shares  of  Common  Stock (a
"DILUTIVE  ISSUANCE"),  then immediately upon the Dilutive  Issuance,  the Fixed
Conversion  Price will be reduced to the amount of the  consideration  per share
received  by the  Borrower in such  Dilutive  Issuance;  PROVIDED  that only one
adjustment will be made for each Dilutive Issuance.

                The  Borrower  shall be deemed to have  issued or sold shares of
Common Stock if the Borrower in any manner issues or grants any warrants, rights
or options,  whether or not  immediately  exercisable,  to  subscribe  for or to
purchase Common Stock or other  securities  convertible into or exchangeable for
Common Stock  ("CONVERTIBLE  SECURITIES") (such warrants,  rights and options to
purchase Common Stock or Convertible  Securities are hereinafter  referred to as
"OPTIONS")  and the price per share for which Common Stock is issuable  upon the
exercise of such Options is less than the Fixed Conversion Price then in effect,
then the Fixed  Conversion  Price  shall be equal to such price per  share.  For
purposes of the preceding sentence,  the "price per share for which Common Stock
is issuable upon the exercise of such Options" is determined by dividing (i) the
total amount,  if any,  received or receivable by the Borrower as  consideration
for the  issuance or granting of all such  Options,  plus the minimum  aggregate
amount of  additional  consideration,  if any,  payable to the Borrower upon the
exercise  of all  such  Options,  plus,  in the case of  Convertible  Securities
issuable  upon the exercise of such  Options,  the minimum  aggregate  amount of
additional  consideration payable upon the conversion or exchange thereof at the
time such Convertible  Securities first become  convertible or exchangeable,  by
(ii) the  maximum  total  number of shares of  Common  Stock  issuable  upon the
exercise  of  all  such  Options   (assuming  full   conversion  of  Convertible
Securities,  if applicable).  No further adjustment to the Conversion Price will
be made upon the actual  issuance of such Common Stock upon the exercise of such
Options or upon the  conversion or exchange of Convertible  Securities  issuable
upon exercise of such Options.

                Additionally,  the  Borrower  shall be deemed to have  issued or
sold shares of Common  Stock if the  Borrower in any manner  issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Fixed Conversion Price then in effect,  then the Fixed Conversion Price shall be
equal to such price per share. For the purposes of the preceding  sentence,  the
"price per share for which  Common  Stock is issuable  upon such  conversion  or
exchange" is determined by dividing (i) the total  amount,  if any,  received or
receivable by the Borrower as consideration for the issuance or sale of all such
Convertible  Securities,   plus  the  minimum  aggregate  amount  of  additional
consideration,  if any,  payable to the Borrower upon the conversion or exchange
thereof at the time such  Convertible  Securities  first become  convertible  or
exchangeable,  by (ii) the  maximum  total  number of  shares  of  Common  Stock
issuable upon the conversion or exchange of all such Convertible Securities.  No
further  adjustment to the Fixed  Conversion  Price will be made upon the actual
issuance of such Common Stock upon  conversion  or exchange of such  Convertible
Securities.

                                       10
<PAGE>

                        (e)     PURCHASE RIGHTS.  If, at any time when any Notes
are issued and  outstanding,  the Borrower issues any convertible  securities or
rights to purchase stock, warrants,  securities or other property (the "PURCHASE
RIGHTS") pro rata to the record  holders of any class of Common Stock,  then the
Holder of this Note will be entitled to acquire,  upon the terms  applicable  to
such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon  complete  conversion of this Note (without  regard to any  limitations  on
conversion  contained herein)  immediately  before the date on which a record is
taken for the grant,  issuance  or sale of such  Purchase  Rights or, if no such
record is taken,  the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.

                        (f)     NOTICE OF  ADJUSTMENTS.  Upon the  occurrence of
each  adjustment  or  readjustment  of the  Conversion  Price as a result of the
events  described  in this  Section 1.6,  the  Borrower,  at its expense,  shall
promptly  compute such adjustment or readjustment and prepare and furnish to the
Holder of a  certificate  setting  forth such  adjustment  or  readjustment  and
showing in detail the facts upon which such adjustment or readjustment is based.
The Borrower shall, upon the written request at any time of the Holder,  furnish
to  such  Holder  a like  certificate  setting  forth  (i)  such  adjustment  or
readjustment,  (ii) the  Conversion  Price at the time in  effect  and (iii) the
number of shares of Common Stock and the amount,  if any, of other securities or
property which at the time would be received upon conversion of the Note.

                1.7     TRADING  MARKET  LIMITATIONS.  Unless  permitted  by the
applicable rules and regulations of the principal securities market on which the
Common Stock is then listed or traded, in no event shall the Borrower issue upon
conversion  of or  otherwise  pursuant to this Note and the other  Notes  issued
pursuant to the  Purchase  Agreement  more than the maximum  number of shares of
Common Stock that the Borrower can issue  pursuant to any rule of the  principal
United  States  securities  market on which the Common Stock is then traded (the
"MAXIMUM SHARE AMOUNT"),  which shall be 19.99% of the total shares  outstanding
on the Closing Date (as defined in the Purchase Agreement), subject to equitable
adjustment from time to time for stock splits,  stock  dividends,  combinations,
capital  reorganizations  and  similar  events  relating  to  the  Common  Stock
occurring  after the date hereof.  Once the Maximum Share Amount has been issued
(the date of which is hereinafter referred to as the "MAXIMUM CONVERSION DATE"),
if the Borrower fails to eliminate any prohibitions  under applicable law or the
rules or  regulations of any stock  exchange,  interdealer  quotation  system or
other self-regulatory organization with jurisdiction over the Borrower or any of
its  securities  on the  Borrower's  ability to issue  shares of Common Stock in
excess of the Maximum Share Amount (a "TRADING  MARKET  PREPAYMENT  EVENT"),  in
lieu of any further right to convert this Note, and in full  satisfaction of the
Borrower's  obligations  under this Note,  the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum  Conversion  Date (the "TRADING
MARKET PREPAYMENT  DATE"), an amount equal to 130% TIMES the SUM of (a) the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, PLUS (b) accrued and unpaid  interest on the unpaid  principal
amount of this Note to the  Trading  Market  Prepayment  Date,  PLUS (c) Default
Interest,  if any,  on the  amounts  referred to in clause (a) and/or (b) above,
PLUS  (d)  any  optional  amounts  that  may be  added  thereto  at the  Maximum
Conversion  Date by the Holder in  accordance  with the terms  hereof  (the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, PLUS the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred

                                       11
<PAGE>

to as the "REMAINING CONVERTIBLE AMOUNT"). With respect to each Holder of Notes,
the Maximum  Share  Amount shall refer to such  Holder's PRO RATA share  thereof
determined  in accordance  with Section 4.8 below.  In the event that the sum of
(x) the  aggregate  number of shares of Common Stock issued upon  conversion  of
this Note and the other Notes issued pursuant to the Purchase Agreement PLUS (y)
the  aggregate  number of  shares of Common  Stock  that  remain  issuable  upon
conversion  of this Note and the other Notes  issued  pursuant  to the  Purchase
Agreement,  represents at least one hundred  percent (100%) of the Maximum Share
Amount (the "TRIGGERING  EVENT"), the Borrower will use its best efforts to seek
and  obtain  Shareholder  Approval  (or obtain  such other  relief as will allow
conversions  hereunder  in  excess  of the  Maximum  Share  Amount)  as  soon as
practicable  following the  Triggering  Event and before the Maximum  Conversion
Date. As used herein,  "SHAREHOLDER APPROVAL" means approval by the shareholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount.

                1.8     STATUS AS  SHAREHOLDER.  Upon  submission of a Notice of
Conversion by a Holder,  (i) the shares covered  thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's
allocated  portion of the  Reserved  Amount or Maximum  Share  Amount)  shall be
deemed  converted into shares of Common Stock and (ii) the Holder's  rights as a
Holder of such  converted  portion  of this  Note  shall  cease  and  terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies  provided herein or otherwise  available at law or in equity
to such Holder  because of a failure by the Borrower to comply with the terms of
this  Note.  Notwithstanding  the  foregoing,  if  a  Holder  has  not  received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the  expiration  of the Deadline  with respect to a conversion  of any
portion of this Note for any reason, then (unless the Holder otherwise elects to
retain its status as a holder of Common Stock by so notifying  the Borrower) the
Holder  shall  regain the  rights of a Holder of this Note with  respect to such
unconverted   portions  of  this  Note  and  the  Borrower  shall,  as  soon  as
practicable,  return such unconverted Note to the Holder or, if the Note has not
been  surrendered,  adjust its records to reflect that such portion of this Note
has not been converted.  In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion  Default and any subsequent  Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent  conversions  determined in
accordance with Section 1.3) for the Borrower's failure to convert this Note.

                         ARTICLE II. CERTAIN COVENANTS

                2.1     DISTRIBUTIONS  ON CAPITAL STOCK. So long as the Borrower
shall have any  obligation  under this Note,  the Borrower shall not without the
Holder's  written  consent (a) pay,  declare or set apart for such payment,  any
dividend or other distribution  (whether in cash,  property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of  additional  shares of Common Stock or (b) directly or indirectly
or through any subsidiary  make any other payment or  distribution in respect of
its capital stock except for distributions  pursuant to any shareholders' rights
plan which is approved by a majority of the Borrower's disinterested directors.

                                       12
<PAGE>

                2.2     RESTRICTION  ON  STOCK  REPURCHASES.   So  long  as  the
Borrower  shall have any  obligation  under this Note,  the  Borrower  shall not
without the Holder's  written  consent redeem,  repurchase or otherwise  acquire
(whether for cash or in exchange for property or other  securities or otherwise)
in any one transaction or series of related  transactions  any shares of capital
stock of the Borrower or any warrants,  rights or options to purchase or acquire
any such shares.

                2.3     BORROWINGS.  So  long as the  Borrower  shall  have  any
obligation under this Note, the Borrower shall not, without the Holder's written
consent,  create,  incur,  assume or suffer to exist any  liability for borrowed
money in excess of $50,000,  except (a)  borrowings in existence or committed on
the date hereof and of which the Borrower has informed  Holder in writing  prior
to  the  date  hereof,   (b)   indebtedness  to  trade  creditors  or  financial
institutions incurred in the ordinary course of business or (c) borrowings,  the
proceeds of which shall be used to repay this Note.

                2.4     SALE OF ASSETS.  So long as the Borrower  shall have any
obligation under this Note, the Borrower shall not, without the Holder's written
consent,  sell,  lease or otherwise  dispose of any  significant  portion of its
assets outside the ordinary  course of business.  Any consent to the disposition
of any  assets  may be  conditioned  on a  specified  use  of  the  proceeds  of
disposition.

                2.5     ADVANCES AND LOANS.  So long as the Borrower  shall have
any obligation  under this Note,  the Borrower  shall not,  without the Holder's
written consent,  lend money, give credit or make advances to any person,  firm,
joint  venture  or  corporation,   including,   without  limitation,   officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances  (a) in  existence or committed on the date hereof and which
the Borrower has informed  Holder in writing prior to the date hereof,  (b) made
in the ordinary course of business or (c) not in excess of $50,000.

                2.6     CONTINGENT  LIABILITIES.  So long as the Borrower  shall
have any  obligation  under this Note,  the  Borrower  shall  not,  without  the
Holder's written consent,  assume,  guarantee,  endorse,  contingently  agree to
purchase or otherwise  become liable upon the  obligation  of any person,  firm,
partnership,  joint  venture  or  corporation,  except  by  the  endorsement  of
negotiable  instruments  for  deposit  or  collection  and  except  assumptions,
guarantees,  endorsements and contingencies (a) in existence or committed on the
date hereof and which the Borrower has informed  Holder in writing  prior to the
date hereof, and (b) similar transactions in the ordinary course of business.

                         ARTICLE III. EVENTS OF DEFAULT

                If any of the following  events of default  (each,  an "EVENT OF
DEFAULT") shall occur:

                3.1     FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails
to pay the principal hereof or interest  thereon when due on this Note,  whether
at maturity,  upon a Trading  Market  Prepayment  Event pursuant to Section 1.7,
upon acceleration or otherwise;

                                       13
<PAGE>

                3.2     CONVERSION  AND THE SHARES.  The Borrower fails to issue
shares of Common Stock to the Holder (or announces or threatens that it will not
honor its  obligation  to do so) upon  exercise by the Holder of the  conversion
rights of the Holder in accordance  with the terms of this Note (for a period of
at least  sixty  (60)  days,  if such  failure  is  solely  as a  result  of the
circumstances governed by Section 1.3 and the Borrower is using its best efforts
to  authorize  a  sufficient  number  of  shares  of  Common  Stock  as  soon as
practicable),  fails  to  transfer  or cause  its  transfer  agent  to  transfer
(electronically  or in  certificated  form) any certificate for shares of Common
Stock issued to the Holder upon conversion of or otherwise pursuant to this Note
as and when required by this Note or the Registration Rights Agreement, or fails
to remove any restrictive legend (or to withdraw any stop transfer  instructions
in respect  thereof) on any certificate for any shares of Common Stock issued to
the Holder upon  conversion  of or  otherwise  pursuant to this Note as and when
required  by this  Note or the  Registration  Rights  Agreement  (or  makes  any
announcement,  statement  or  threat  that it  does  not  intend  to  honor  the
obligations  described in this  paragraph)  and any such failure shall  continue
uncured (or any  announcement,  statement or threat not to honor its obligations
shall not be rescinded  in writing)  for ten (10) days after the Borrower  shall
have been notified thereof in writing by the Holder;

                3.3     BREACH OF COVENANTS.  The Borrower breaches any material
covenant or other  material term or condition  contained in Sections 1.3, 1.6 or
1.7 of this Note, or Sections 4(c),  4(e), 4(h), 4(i), 4(j) or 5 of the Purchase
Agreement and such breach  continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;

                3.4     BREACH   OF   REPRESENTATIONS   AND   WARRANTIES.    Any
representation  or warranty  of the  Borrower  made herein or in any  agreement,
statement  or  certificate  given in writing  pursuant  hereto or in  connection
herewith  (including,   without  limitation,  the  Purchase  Agreement  and  the
Registration  Rights  Agreement),  shall be false or  misleading in any material
respect  when made and the breach of which has (or with the passage of time will
have) a material adverse effect on the rights of the Holder with respect to this
Note, the Purchase Agreement or the Registration Rights Agreement;

                3.5     RECEIVER OR TRUSTEE.  The Borrower or any  subsidiary of
the Borrower shall make an assignment for the benefit of creditors, or apply for
or  consent  to  the  appointment  of a  receiver  or  trustee  for  it or for a
substantial  part of its  property  or  business,  or such a receiver or trustee
shall otherwise be appointed;

                3.6     JUDGMENTS.  Any money judgment,  writ or similar process
shall be entered or filed against the Borrower or any subsidiary of the Borrower
or any of its property or other assets for more than  $50,000,  and shall remain
unvacated,  unbonded  or  unstayed  for a period  of  twenty  (20)  days  unless
otherwise  consented to by the Holder,  which  consent will not be  unreasonably
withheld;

                3.7     BANKRUPTCY.  Bankruptcy,  insolvency,  reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the  relief of debtors  shall be  instituted  by or  against  the
Borrower or any subsidiary of the Borrower;

                3.8     DELISTING OF COMMON  STOCK.  The Borrower  shall fail to
maintain  the  listing  of the  Common  Stock on at least one of the OTCBB or an
equivalent replacement

                                       14
<PAGE>

exchange,  the Nasdaq National Market,  the Nasdaq SmallCap Market, the New York
Stock Exchange, or the American Stock Exchange; or

                3.9     DEFAULT  UNDER  OTHER  NOTES.  An Event of  Default  has
occurred and is continuing  under any of the other Notes issued  pursuant to the
Purchase Agreement, then, upon the occurrence and during the continuation of any
Event of Default  specified in Section 3.1,  3.2,  3.3,  3.4,  3.5, 3.7, 3.9, or
3.10,  at the option of the  Holders of a majority  of the  aggregate  principal
amount of the  outstanding  Notes  issued  pursuant  to the  Purchase  Agreement
exercisable  through  the  delivery  of written  notice to the  Borrower by such
Holders (the "DEFAULT  NOTICE"),  and upon the occurrence of an Event of Default
specified  in Section 3.6 or 3.8,  the Notes shall  become  immediately  due and
payable and the Borrower shall pay to the Holder,  in full  satisfaction  of its
obligations hereunder,  an amount equal to the greater of (i) 130% TIMES the SUM
of (w) the then  outstanding  principal amount of this Note PLUS (x) accrued and
unpaid  interest  on the  unpaid  principal  amount  of this Note to the date of
payment (the "MANDATORY  PREPAYMENT DATE") PLUS (y) Default Interest, if any, on
the amounts  referred to in clauses (w) and/or (x) PLUS (z) any amounts  owed to
the Holder  pursuant  to Sections  1.3 and 1.4(g)  hereof or pursuant to Section
2(c) of the Registration Rights Agreement (the then outstanding principal amount
of this Note to the date of payment PLUS the amounts referred to in clauses (x),
(y) and (z)  shall  collectively  be  known  as the  "DEFAULT  SUM") or (ii) the
"parity  value" of the Default Sum to be prepaid,  where  parity value means (a)
the highest  number of shares of Common Stock  issuable  upon  conversion  of or
otherwise  pursuant to such Default Sum in  accordance  with Article I, treating
the Trading Day  immediately  preceding  the  Mandatory  Prepayment  Date as the
"Conversion Date" for purposes of determining the lowest  applicable  Conversion
Price,  unless the Default  Event arises as a result of a breach in respect of a
specific  Conversion  Date in  which  case  such  Conversion  Date  shall be the
Conversion  Date),  MULTIPLIED  BY (b) the highest  Closing Price for the Common
Stock during the period  beginning on the date of first  occurrence of the Event
of  Default  and  ending  one day prior to the  Mandatory  Prepayment  Date (the
"DEFAULT  AMOUNT") and all other amounts  payable  hereunder  shall  immediately
become due and payable, all without demand,  presentment or notice, all of which
hereby  are  expressly  waived,  together  with all  costs,  including,  without
limitation,  legal fees and  expenses,  of  collection,  and the Holder shall be
entitled  to  exercise  all other  rights and  remedies  available  at law or in
equity. If the Borrower fails to pay the Default Amount within five (5) business
days of written  notice  that such  amount is due and  payable,  then the Holder
shall  have the right at any time,  so long as the  Borrower  remains in default
(and so long and to the extent that there are sufficient  authorized shares), to
require the Borrower,  upon written notice, to immediately issue, in lieu of the
Default  Amount,  the number of shares of Common Stock of the Borrower  equal to
the Default Amount divided by the Conversion Price then in effect.

                            ARTICLE IV. MISCELLANEOUS

                4.1     FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the  part of the  Holder  in the  exercise  of any  power,  right  or  privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise  thereof or of any other  right,  power or  privileges.  All rights and
remedies existing  hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

                                       15
<PAGE>

                4.2     NOTICES.  Any notice herein  required or permitted to be
given shall be in writing and may be  personally  served or delivered by courier
or sent by United  States  mail and shall be  deemed  to have  been  given  upon
receipt if  personally  served  (which shall include  telephone  line  facsimile
transmission)  or sent by courier or three (3) days after being deposited in the
United States mail, certified,  with postage pre-paid and properly addressed, if
sent by mail.  For the  purposes  hereof,  the address of the Holder shall be as
shown on the records of the Borrower;  and the address of the Borrower  shall be
22600  Hall  Road,  Suite 205  Clinton  Township,  MI 48036,  facsimile  number:
586-468-8768.  Both the Holder and the  Borrower  may  change  the  address  for
service by service of written notice to the other as herein provided.

                4.3     AMENDMENTS.  This Note and any provision hereof may only
be amended by an  instrument  in writing  signed by the Borrower and the Holder.
The term "Note" and all reference  thereto,  as used throughout this instrument,
shall mean this  instrument (and the other Notes issued pursuant to the Purchase
Agreement) as originally executed, or if later amended or supplemented,  then as
so amended or supplemented.

                4.4     ASSIGNABILITY.  This  Note  shall  be  binding  upon the
Borrower and its  successors  and assigns,  and shall inure to be the benefit of
the Holder and its successors and assigns.  Each transferee of this Note must be
an  "accredited  investor"  (as  defined  in  Rule  501(a)  of  the  1933  Act).
Notwithstanding  anything in this Note to the contrary, this Note may be pledged
as  collateral in  connection  with a BONA FIDE margin  account or other lending
arrangement.

                4.5     COST OF COLLECTION. If default is made in the payment of
this  Note,  the  Borrower  shall pay the  Holder  hereof  costs of  collection,
including reasonable attorneys' fees.

                4.6     GOVERNING LAW. THIS NOTE 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  BORROWER  HEREBY  SUBMITS TO THE
EXCLUSIVE  JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE  ARISING  UNDER THIS NOTE,  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 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 NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,

                                       16
<PAGE>

INCLUDING  ATTORNEYS' FEES,  INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH
SUCH DISPUTE.

                4.7     CERTAIN  AMOUNTS.  Whenever  pursuant  to this  Note the
Borrower  is required  to pay an amount in excess of the  outstanding  principal
amount (or the portion  thereof  required to be paid at that time) plus  accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder  agree that the actual  damages  to the Holder  from the  receipt of cash
payment on this Note may be difficult to determine  and the amount to be so paid
by the Borrower represents  stipulated damages and not a penalty and is intended
to  compensate  the Holder in part for loss of the  opportunity  to convert this
Note and to earn a return from the sale of shares of Common Stock  acquired upon
conversion  of this Note at a price in excess of the price paid for such  shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated  damages is not plainly  disproportionate  to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.

                4.8     ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT.
The Maximum  Share Amount and Reserved  Amount shall be allocated pro rata among
the Holders of Notes based on the principal  amount of such Notes issued to each
Holder.  Each increase to the Maximum Share Amount and Reserved  Amount shall be
allocated pro rata among the Holders of Notes based on the  principal  amount of
such Notes held by each Holder at the time of the increase in the Maximum  Share
Amount  or  Reserved  Amount.  In the  event a Holder  shall  sell or  otherwise
transfer any of such Holder's Notes,  each  transferee  shall be allocated a pro
rata portion of such transferor's  Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved  Amount which remains  allocated
to any person or entity  which does not hold any Notes shall be allocated to the
remaining Holders of Notes, pro rata based on the principal amount of such Notes
then held by such Holders.

                4.9     DAMAGES  SHARES.  The shares of Common Stock that may be
issuable to the Holder  pursuant to Sections 1.3 and 1.4(g)  hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be
treated as Common Stock  issuable upon  conversion of this Note for all purposes
hereof and shall be subject to all of the  limitations  and  afforded all of the
rights of the other shares of Common Stock issuable hereunder, including without
limitation,  the  right  to be  included  in the  Registration  Statement  filed
pursuant to the  Registration  Rights  Agreement.  For  purposes of  calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein,  amounts  convertible  into Damages Shares ("DAMAGES  AMOUNTS")
shall not bear  interest but must be converted  prior to the  conversion  of any
outstanding  principal amount hereof,  until the outstanding  Damages Amounts is
zero.

                4.10    DENOMINATIONS.  At  the  request  of  the  Holder,  upon
surrender  of this Note,  the  Borrower  shall  promptly  issue new Notes in the
aggregate  outstanding  principal  amount  hereof,  in the form hereof,  in such
denominations of at least $50,000 as the Holder shall request.

                4.11    PURCHASE AGREEMENT. By its acceptance of this Note, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.

                                       17
<PAGE>

                4.12    NOTICE OF CORPORATE EVENTS. Except as otherwise provided
below,  the Holder of this Note shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Note into Common Stock.  The
Borrower shall provide the Holder with prior  notification of any meeting of the
Borrower's  shareholders  (and copies of proxy  materials and other  information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower,  the Borrower shall mail a notice to the Holder,  at least twenty (20)
days prior to the record  date  specified  therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
4.12.

                4.13    REMEDIES.  The Borrower acknowledges that a breach by it
of its  obligations  hereunder  will cause  irreparable  harm to the Holder,  by
vitiating  the  intent  and  purpose  of the  transaction  contemplated  hereby.
Accordingly,  the Borrower  acknowledges  that the remedy at law for a breach of
its obligations under this Note will be inadequate and agrees, in the event of a
breach or threatened breach by the Borrower of the provisions of this Note, that
the Holder 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
Note and to enforce  specifically the terms and provisions thereof,  without the
necessity of showing  economic loss and without any bond or other security being
required.

                             ARTICLE V. CALL OPTION

                5.1     CALL  OPTION.  Notwithstanding  anything to the contrary
contained  in this  Article  V, so long as (i) no Event of  Default  or  Trading
Market Prepayment Event shall have occurred and be continuing, (ii) the Borrower
has a  sufficient  number of  authorized  shares of Common  Stock  reserved  for
issuance  upon full  conversion  of the Notes,  then at any time after the Issue
Date,  and (iii) the Common  Stock is  trading  at or below $.04 per share,  the
Borrower  shall have the right,  exercisable  on not less than ten (10)  Trading
Days prior  written  notice to the Holders of the Notes (which notice may not be
sent to the Holders of the Notes until the  Borrower is  permitted to prepay the
Notes pursuant to this Section 5.1), to prepay all of the  outstanding  Notes in
accordance  with this  Section  5.1.  Any  notice of  prepayment  hereunder  (an
"OPTIONAL  PREPAYMENT")  shall be delivered to the Holders of the Notes at their
registered  addresses  appearing  on the books and records of the  Borrower  and
shall state (1) that the Borrower is  exercising  its right to prepay all of the
Notes  issued on the Issue Date and (2) the

                                       18
<PAGE>

date of prepayment  (the "OPTIONAL  PREPAYMENT  NOTICE").  On the date fixed for
prepayment (the "OPTIONAL  PREPAYMENT DATE"), the Borrower shall make payment of
the Optional  Prepayment  Amount (as defined  below) to or upon the order of the
Holders as  specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional  Prepayment  Date. If the Borrower  exercises
its right to prepay the Notes, the Borrower shall make payment to the holders of
an amount in cash (the  "OPTIONAL  PREPAYMENT  AMOUNT") equal to either (i) 135%
(for prepayments occurring within thirty (30) days of the Issue Date), (ii) 145%
for prepayments  occurring  between  thirty-one (31) and ninety (90) days of the
Issue Date, or (iii) 150% (for prepayments  occurring after the ninetieth (90th)
day following the Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid
principal  amount of this Note to the Optional  Prepayment Date PLUS (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) PLUS (z) any
amounts  owed to the  Holder  pursuant  to  Sections  1.3 and  1.4(g)  hereof or
pursuant  to  Section  2(c)  of the  Registration  Rights  Agreement  (the  then
outstanding  principal  amount  of this  Note to the  date of  payment  PLUS the
amounts  referred to in clauses (x), (y) and (z) shall  collectively be known as
the  "OPTIONAL   PREPAYMENT  SUM").   Notwithstanding   notice  of  an  Optional
Prepayment, the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Notes in accordance with
Article I and any  portion of Notes so  converted  after  receipt of an Optional
Prepayment  Notice and prior to the Optional  Prepayment  Date set forth in such
notice and payment of the aggregate Optional Prepayment Amount shall be deducted
from the  principal  amount of Notes which are  otherwise  subject to prepayment
pursuant to such notice. If the Borrower delivers an Optional  Prepayment Notice
and fails to pay the Optional  Prepayment Amount due to the Holders of the Notes
within two (2)  business  days  following  the  Optional  Prepayment  Date,  the
Borrower  shall forever  forfeit its right to redeem the Notes  pursuant to this
Section 5.1.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19
<PAGE>

                IN WITNESS  WHEREOF,  Borrower has caused this Note to be signed
in its name by its duly authorized officer this 31st day of December, 2006.

                                        MIDNIGHT HOLDINGS GROUP, INC.

                                        By: _______________________________
                                              Nicholas Cocco
                                              Chief Executive Officer

                                       20
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                         in order to Convert the Notes)

                The undersigned hereby irrevocably elects to convert $__________
principal  amount of the Note (defined  below) into shares of common stock,  par
value $.00005 per share ("COMMON STOCK"),  of Midnight  Holdings Group,  Inc., a
Delaware  corporation  (the  "BORROWER")  according  to  the  conditions  of the
convertible  Notes of the Borrower  dated as of December 31, 2006 (the "Notes"),
as of the date written  below.  If securities  are to be issued in the name of a
person other than the  undersigned,  the undersigned will pay all transfer taxes
payable with respect thereto and is delivering  herewith such  certificates.  No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Note is attached  hereto (or  evidence of loss,  theft or
destruction thereof).

                The  Borrower  shall  electronically  transmit  the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit  Withdrawal Agent Commission  system
("DWAC TRANSFER").

        Name of DTC Prime Broker:
                                 -----------------------------------------------
        Account Number:
                       ---------------------------------------------------------

                In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of  Conversion by way of a DWAC  Transfer,  the  undersigned  hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which  numbers are based on the Holder's
calculation  attached hereto) in the name(s) specified  immediately below or, if
additional space is necessary, on an attachment hereto:

        Name:
             -------------------------------------------------------------------
        Address:
                ----------------------------------------------------------------

               The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned upon conversion
of the Notes shall be made pursuant to registration of the securities  under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.

               Date of Conversion:______________________________________
               Applicable Conversion Price:_____________________________
               Number of Shares of Common Stock to be Issued Pursuant to
               Conversion of the Notes:_________________________________
               Signature:_______________________________________________
               Name:____________________________________________________
               Address:_________________________________________________

                                       21
<PAGE>

The  Borrower  shall issue and deliver  shares of Common  Stock to an  overnight
courier not later than three  business  days  following  receipt of the original
Note(s) to be converted,  and shall make payments  pursuant to the Notes for the
number of business days such issuance and delivery is late.

                                       22Exhibit 10.4

                          SECURITIES PURCHASE AGREEMENT

        SECURITIES  PURCHASE AGREEMENT (this  "AGREEMENT"),  dated as of January
18, 2007, by and among Midnight  Holdings Group,  Inc., a Delaware  corporation,
with headquarters  located at 22600 Hall Road, Suite 205, Clinton  Township,  MI
48036 (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) 10% secured
convertible notes of the Company, in the form attached hereto as EXHIBIT "A", in
the aggregate principal amount of Four Hundred Fifty Thousand Dollars ($450,000)
(together  with any note(s)  issued in  replacement  thereof or  otherwise  with
respect thereto in accordance with the terms thereof, the "NOTES"),  convertible
into shares of common stock,  par value  $.00005 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 an aggregate of Nine Hundred Thousand  (900,000) 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.

<PAGE>

        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 (less the purchase  price paid
with respect to any Bridge Note) 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
January 18, 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,  such  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, such 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.  Such  Buyer  is  an  "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").

            c.  RELIANCE  ON  EXEMPTIONS.   Such  Buyer   understands  that  the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United

                                       2

<PAGE>

States  federal and state  securities  laws and that the Company is relying upon
the  truth  and   accuracy   of,  and  such   Buyer's   compliance   with,   the
representations,  warranties, agreements,  acknowledgments and understandings of
such  Buyer set forth  herein in order to  determine  the  availability  of such
exemptions and the eligibility of such Buyer to acquire the Securities.

            d.  INFORMATION.  Such Buyer and its  respective  advisors,  if any,
have been  furnished with all materials  relating to the business,  finances and
operations  of the Company and  materials  relating to the offer and sale of the
Securities  which have been reasonably  requested by such Buyer or its advisors.
Such  Buyer  and  its  respective  advisors,  if any,  have  been  afforded  the
opportunity to ask questions of the Company.  Notwithstanding the foregoing, the
Company has not disclosed to such 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 such Buyer.  Neither
such inquiries nor any other due diligence investigation conducted by such Buyer
or any of its  respective  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.  Such Buyer understands that its investment in the
Securities involves a significant degree of risk.

            e.  GOVERNMENTAL  REVIEW.  Such  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.  Such Buyer  understands that (i) except as
provided  in the  Registration  Rights  Agreement,  the sale or  re-sale  of the
Securities have not been and are 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) such Buyer shall have delivered to the Company
an opinion of 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 such Buyer
who agrees to sell or otherwise  transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited  Investor,  or (d) the Securities are
sold pursuant to Rule 144, and such Buyer shall have delivered to the Company an
opinion of 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, subject to applicable law, 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 an opinion of counsel
provided by such Buyer with respect to the transfer of Securities pursuant to an
exemption  from  registration,  such as Rule 144, and such opinion is correct in
form and substance, within three (3) business days of delivery of the opinion to
the Company,  the Company  shall pay to such Buyer  liquidated  damages of three

                                       3

<PAGE>

percent (3%) of the outstanding amount of the Notes held by such Buyer 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 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.

            g.  LEGENDS.  Such 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 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,  assigned,  or  otherwise
                        disposed  of 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  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 without any restriction as
        to the number of  securities  as of a  particular  date that can then be
        immediately  sold, (b) such holder  provides the Company with an opinion
        of counsel,  in form,  substance  and scope  customary  for  opinions of
        counsel in comparable transactions,  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 shall be sold pursuant to
        Rule 144.  Such 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 such  Buyer,  and this  Agreement
constitutes,  and upon execution and delivery by such Buyer of the  Registration
Rights  Agreement,  such agreement  will  constitute,  legal,  valid and binding
agreements of such Buyer enforceable in accordance with their respective terms.

            i.  RESIDENCY.  Such Buyer is a  resident  of the  jurisdiction  set
forth immediately below such Buyer's name on the signature pages hereto.

                                       4
<PAGE>

                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  (as  defined  below) of the  Company and the
jurisdiction  in  which  each  is  incorporated.  The  Company  and  each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business  conducted by it makes such  qualification  necessary
except where the failure to be so qualified or in good standing would not have a
Material  Adverse Effect.  "MATERIAL  ADVERSE EFFECT" means any material adverse
effect on the business,  operations, assets, financial condition or prospects of
the  Company  or  its  Subsidiaries,  if  any,  taken  as a  whole,  or  on  the
transactions  contemplated  hereby or by the  agreements  or  instruments  to be
entered into in connection  herewith.  "SUBSIDIARIES"  means any  corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, all of the equity or other ownership interests.

            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, subject to the
adoption of necessary resolutions by the Board of Directors and the stockholders
of the Company 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 respective terms.

            c.  CAPITALIZATION. Except as set forth on SCHEDULE 3(c), as of June
30, 2006 hereof,  the  authorized  capital stock of the Company  consists of (i)
1,000,000,000  shares of Common Stock, par value $0.00005,  of which 470,050,001
shares are issued and outstanding and (ii) 10,000,000 shares of preferred stock,
par value  $0.001,  of which no 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 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,

                                       5
<PAGE>

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 made  available  to each
Buyer true copies of the Certificate of  Incorporation  as in effect on the date
hereof, 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.

            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

                                       6
<PAGE>

or any of its  Subsidiaries  is a party,  or (iii)  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  currently  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,  which  violation  would  cause a  Material  Adverse  Effect.  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.  All  consents,  authorizations,
orders,  filings  and  registrations  which the  Company is  required  to obtain
pursuant  to the  preceding  sentence  have been  obtained  or will be  obtained
promptly after Closing effected on or prior to the date hereof.

            g.  ABSENCE OF CERTAIN  CHANGES.  Since December 31, 2005, 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.

            h.  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(h)  contains  a  complete  list and  summary  description  of any  pending  or
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.

            i.  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, 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,  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.

            j.  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

                                       7
<PAGE>

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.

            k.  TAX STATUS.  Except as set forth on SCHEDULE  3(k),  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.  To the  Company's  knowledge,  there are no unpaid taxes in any material
amount  claimed  to be due by the  taxing  authority  of any  jurisdiction.  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(K), none of the Company's tax returns is
presently being audited by any taxing authority.

            l.  CERTAIN  TRANSACTIONS.  Except as set forth on SCHEDULE 3(l) 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.

            m.  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, to the knowledge of the Company,  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. To the
knowledge of the Company,  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).

            n.  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

                                       8
<PAGE>

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.

            o.  NO  INTEGRATED  OFFERING.  Except for sales of securities to the
Buyers and affiliates thereof heretofore  consummated,  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.

            p.  NO BROKERS.  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.

            q.  PERMITS; COMPLIANCE. The Company and each of its Subsidiaries is
in  possession of all material  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  December 31,
2005,  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.

            r.  ENVIRONMENTAL MATTERS.

                        (i)     There  are,  to the  Company's  knowledge,  with
        respect to the Company or any of its  Subsidiaries or any predecessor of
        the Company,  no 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 material 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,

                                       9
<PAGE>

        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)   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.

            s.  TITLE TO  PROPERTY.  Except as set forth on SCHEDULE  3(s),  the
Company and its Subsidiaries have good and marketable title 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 and  encumbrances  and, to the  knowledge of the Company,
defects or such as would not have a Material Adverse Effect. To the knowledge of
the Company,  any real property and  facilities  held under lease by the Company
and its  Subsidiaries  are held by them under valid,  subsisting and enforceable
leases with such exceptions as would not have a Material Adverse Effect.

            t.  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. The Company has provided to Buyer true and correct copies of all
policies  relating to directors' and officers'  liability  coverage,  errors and
omissions coverage, and commercial general liability coverage.

            u.  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.

            v.  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

                                       10
<PAGE>

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.

            w.  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.

            x.  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.

            y.  BREACH OF REPRESENTATIONS  AND WARRANTIES BY THE COMPANY. If the
Company  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 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 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  agreed to thereby  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 make available a
copy thereof to each Buyer  promptly after such filing.  The Company shall,  on,
before or promptly after the Closing Date, take such action as the Company shall
reasonably  determine  is necessary  to qualify the  Securities  for sale to the
Buyers  under  applicable  securities  or "blue  sky" laws of the  states of the
United  States (or to obtain an exemption  from such  qualification),  and shall
make available evidence of any such action so taken to each Buyer on or prior to
the Closing Date.

            c.  REPORTING STATUS; ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM S-1.
The Company  represents  and warrants that it shall use its best efforts to meet
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 any Buyer beneficially owns any of the Securities, the Company shall use
its best  efforts to 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

                                       11
<PAGE>

the rules and regulations thereunder would permit such termination.  The Company
further  agrees that it shall use its best efforts 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 materials  terms of the
transaction  contemplated  hereby as soon as  practicable  following the Closing
Date but in no event more than five (5) 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  proceeds  from the
sale of the Notes and the  Warrants  for general  working  capital  purposes and
shall  not,  directly  or  indirectly,  use  such  proceeds  for 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.

            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,  not to 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 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) 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

                                       12
<PAGE>

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 in an
amount not to exceed  $30,000.  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.  If the  Company  fails to
reimburse the Buyer in full within three (3) business days of the written notice
or  submission  of invoice by the Buyer,  the Company  shall pay interest on the
total amount of fees to be reimbursed at a rate of 15% per annum.

            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.  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 sixty (60) days following the
date on which the number of Reserved  Amount exceeds the Authorized and Reserved
Shares,  the Company  shall pay to the

                                       13
<PAGE>

Buyers the Standard  Liquidated  Damages Amount,  in cash or in shares of Common
Stock at the option of each  Buyer.  If a 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  shall  use  its  best  efforts  to  deliver  to a
representative for the Buyers at the end of every month a list detailing (1) the
current amount of shares  authorized by the Company and reserved for the Buyers;
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 having
received  a  written  demand  therefor,  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 use its best  efforts to 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 use best efforts to obtain
and, so long as any Buyer owns any of the  Securities,  maintain the listing and
trading of its Common Stock on 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.  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

                                       14
<PAGE>

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,  subject to and to the extent  provided in this
        Agreement and the Registration Rights Agreement. Nothing in this Section
        shall affect in any way each 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 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.

                                       15
<PAGE>

            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
Articles 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.

                                       16
<PAGE>

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

            g.  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 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
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

                                       17
<PAGE>

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:

                              Midnight Holdings Group, Inc.
                              22600 Hall Road, Suite 205
                              Clinton Township, MI  48036
                              Attention: Chief Executive Officer
                              Telephone: 586-468-8741
                              Facsimile: 586-468-8768

                      With a copy to:

                              Reitler Brown & Rosenblatt LLC
                              800 Third Avenue, 21st Floor
                              New York, NY  10022
                              Attention: Robert Steven Brown, Esq.
                              Telephone: 212-209-3060
                              Facsimile: 212-371-5500

        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
                              Email: guarcini@ballardspahr.com

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

                                       18
<PAGE>

            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.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights  hereunder to any person who is an  "Accredited  Investor" that purchases
Securities in a private  transaction from a Buyer or to any of its "affiliates,"
as that term is defined under the 1934 Act, without the consent of the Company.

            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
reasonable 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

                                       19
<PAGE>

specifically the terms and provisions  hereof,  without the necessity of showing
economic loss and without any bond or other security being required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       20
<PAGE>

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

MIDNIGHT HOLDINGS GROUP, INC.

--------------------------------
Nicholas Cocco
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 Remaining Purchase Price (after
        accounting for any principal of Bridge Note):             $

                                       21
<PAGE>

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 Remaining Purchase Price (after
        accounting for any principal of Bridge Note):             $

                                       22
<PAGE>

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 Remaining Purchase Price (after
        accounting for any principal of Bridge Note):             $

                                       23
<PAGE>

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 Remaining Purchase Price (after
        accounting for any principal of Bridge Note):             $

                                       24
<PAGE>

                                                                       EXHIBIT A

                                  FORM OF NOTE
                                  ------------

                                 (See Attached)

                                       25
<PAGE>

                                                                       EXHIBIT B

                                 FORM OF WARRANT
                                 ---------------

                                 (See Attached)

                                       26
<PAGE>

                                                                       EXHIBIT C

                      FORM OF REGISTRATION RIGHTS AGREEMENT
                      -------------------------------------

                                 (See Attached)

                                       27

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