Document:

Exhibit 10.5

            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

Troy, Michigan
April 4, 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
April 4, 2009 (the "MATURITY DATE"), and to pay interest on the unpaid principal
balance  hereof at the rate of ten  percent  (10%) per annum  from April 4, 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

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York,  New York are  authorized or required by law or executive  order to remain
closed. Each capitalized term used herein, and not otherwise defined, shall have
the meaning  ascribed  thereto in that certain  Securities  Purchase  Agreement,
dated  April 4, 2006,  pursuant  to which this Note was  originally  issued (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

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conversion of this Note, the sum of (1) the principal  amount of this Note to be
converted in such  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 January 26, 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
25%; provided, however, that the Applicable Percentage shall be increased to (i)
30% in the event that the Registration Statement (as defined in the Registration
Rights  Agreement)  is filed on or before  the  Filing  Date (as  defined in the
Registration  Rights  Agreement) and (ii) 40% in the event that the Registration
Statement (as defined in the Registration Rights Agreement) becomes effective on
or before the  Effectiveness  Deadline  (as defined in the  Registration  Rights
Agreement).

                (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

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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  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,

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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 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  Holder  elects to take 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  Holder  elects to take 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  Holder's  election  shall be made in writing to the Borrower 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 Holder shall be deemed to have elected to receive cash.
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.

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                (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 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).

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<PAGE>

                (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 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

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<PAGE>

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 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

                                       8

<PAGE>

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 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.

                                       9

<PAGE>

                (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 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 $[_______] [SUGGEST],  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 FAILURE TO TIMELY FILE REGISTRATION OR EFFECT REGISTRATION.  The
Borrower  fails  to file the  Registration  Statement  within  sixty  (60)  days
following  the Closing  Date (as defined in the  Purchase  Agreement)  or obtain
effectiveness  with the Securities and Exchange  Commission of the  Registration
Statement  within two hundred  fifty (250) days  following  the Closing Date (as
defined in the Purchase  Agreement)  or such  Registration  Statement  lapses in
effect (or sales  cannot  otherwise  be made  thereunder  effective,  whether by
reason of the Borrower's failure to amend or supplement the prospectus  included
therein in accordance with the  Registration  Rights Agreement or otherwise) for
more than twenty (20)  consecutive  days or forty (40) days in any twelve  month
period after the Registration Statement becomes effective;

            3.4 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;

            3.5 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;

            3.6  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;

                                       14

<PAGE>

            3.7 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;

            3.8 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;

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

            3.10 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,

                                       15

<PAGE>

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.

            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 3872 Rochester
Road, Troy, MI 48083,  facsimile number:  586-783-1367.  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

                                       16

<PAGE>

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,  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

                                       17

<PAGE>

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.

            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.

                                       18

<PAGE>

                             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 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 4th day of April, 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 April 4, 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 10.16

                          SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (this  "AGREEMENT"),  dated as of July 5,
2006, by and among Midnight Auto Holdings,  Inc., a Delaware  corporation,  with
headquarters located at 3872 Rochester Road, Troy, MI 48083 (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 Three Hundred  Thousand  Dollars  ($300,000)
(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 Six Hundred  Thousand  (600,000) 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
July 5, 2006,  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.

                                       2

<PAGE>

               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 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

                                       3

<PAGE>

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
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.

                                       4

<PAGE>

               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.

         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,  subject  to the
completion  of the Charter  Amendment  Actions,  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

                                       5

<PAGE>

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
the date 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 [ ] 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, 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

                                       6

<PAGE>

(including, without limitation, the issuance and reservation for issuance of the
Conversion  Shares and Warrant Shares) will not (i) conflict with or result in a
violation of any provision of the  Certificate  of  Incorporation  or By-laws or
(ii) violate or conflict  with,  or result in a breach of any  provision  of, or
constitute  a default  (or an event  which with  notice or lapse of time or both
could  become a default)  under,  or give to others  any rights of  termination,
amendment,  acceleration or cancellation of, any agreement,  indenture,  patent,
patent license or instrument to which the Company or any of its  Subsidiaries is
a party,  or (iii) 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).  Except
for the  failure  of the  Company  to  deliver a portion of the shares of Common
Stock  to  the  stockholders  of  Midnight  Auto  Holdings,   Inc.,  a  Michigan
corporation,  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 for the completion of
the Charter Amendment  Actions,  as specifically  contemplated by this Agreement
and as required under the 1933 Act and any applicable state securities laws, the
Company is not  required to obtain any  consent,  authorization  or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for  it to  execute,  deliver  or  perform  any of its  obligations  under  this
Agreement,  the  Registration  Rights  Agreement,  the Notes or the  Warrants in
accordance  with the terms  hereof or thereof or to issue and sell the Notes and
Warrants in accordance with the terms hereof and to issue the Conversion  Shares
upon  conversion  of the Notes  and the  Warrant  Shares  upon  exercise  of the
Warrants.  Except  for the  taking  of the  Charter  Amendment  Actions  and 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

                                       7

<PAGE>

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
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.

                                       8
<PAGE>

               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  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.

                                       9

<PAGE>

               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,  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.

                                       10

<PAGE>

                   (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 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

                                       11

<PAGE>

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 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

                                       12
<PAGE>

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
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

                                       13

<PAGE>

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

                                       14

<PAGE>

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 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

                                       15
<PAGE>

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  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.

                                       16
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                       17

<PAGE>

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.

               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

                                       18

<PAGE>

party, may be delivered to the other party hereto by facsimile transmission of a
copy of this  Agreement  bearing the signature of the party so  delivering  this
Agreement.

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

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

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

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

                                       19

<PAGE>

                           If to the Company:

                                    Midnight Auto Holdings, Inc.
                                    3872 Rochester Road
                                    Troy, MI 48083
                                    Attention:  Chief Executive Officer
                                    Telephone:
                                    Facsimile:   586-783-1367

                           With a copy to:

                                    Reitler Brown & Rosenblatt LLP
                                    800 Third Avenue, 21st Floor
                                    New York, NY  10022
                                    Attention:  Robert Steven Brown, Esq.
                                    Telephone:  212-209-3014
                                    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.

               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.

                                       20

<PAGE>

               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  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]

                                       21

<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 AUTO HOLDINGS, 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):                      $

                                       22

<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):                     $

                                       23

<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):                     $

                                       24

<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):                     $

                                       25

<PAGE>

                                                                       EXHIBIT A

                                  FORM OF NOTE

                                 (See Attached)

                                       26

<PAGE>

                                                                       EXHIBIT B

                                 FORM OF WARRANT

                                 (See Attached)

                                       27
<PAGE>

                                                                       EXHIBIT C

                      FORM OF REGISTRATION RIGHTS AGREEMENT

                                 (See Attached)

                                       28

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