Document:

SECURITIES
      PURCHASE AGREEMENT

     

    

     

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”),
      dated
      as of October 31, 2006, by and among Advanced Biophotonics Inc., a Delaware
      corporation, with headquarters located at 125 Wilbur Place, Suite 120, Bohemia,
      NY 11716 (the “Company”),
      and
      each of the purchasers set forth on the signature pages hereto (the
“Buyers”).

     

    WHEREAS:
      

     

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

     

    B. 
       Buyers
      desire to purchase and the Company desires to issue and sell, upon the terms
      and
      conditions set forth in this Agreement (i) 8%
      secured convertible notes of the Company, in the form attached hereto as
Exhibit
      “A”,
      in the
      aggregate principal amount of Two Million Dollars ($2,000,000) (together with
      any note(s) issued in replacement thereof or as a dividend thereon or otherwise
      with respect thereto in accordance with the terms thereof, the “Notes”),
      convertible into shares of common stock, par value $.001 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 40,000,000 shares of Common Stock (the “Warrants”).

     

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

     

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

     

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

     

    1.  
      PURCHASE
      AND SALE OF NOTES AND WARRANTS.

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

    c.  
      Closing
      Date.
      Subject
      to the satisfaction (or written waiver) of the conditions thereto set forth
      in
      Section 6 and Section 7 below, the date and time of the issuance and sale of
      the
      Notes and the Warrants pursuant to this Agreement (the “Closing
      Date”)
      shall
      be 12:00 noon, Eastern Standard Time on October 31, 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, the Buyer is purchasing the Notes and the shares of Common
      Stock issuable upon conversion of or otherwise pursuant to the Notes (including,
      without limitation, such additional shares of Common Stock, if any, as are
      issuable (i) on
      account of interest on the Notes, (ii) as
      a result of the events described in Sections 1.3 and 1.4(g) of the Notes and
      Section 2(c) of the Registration Rights Agreement or (iii) in
      payment of the Standard Liquidated Damages Amount (as defined in Section 2(f)
      below) pursuant to this Agreement, such shares of Common Stock being
      collectively referred to herein as the “Conversion
      Shares”)
      and
      the Warrants and the shares of Common Stock issuable upon exercise thereof
      (the
“Warrant
      Shares”
and,
      collectively with the Notes, Warrants and Conversion Shares, the “Securities”)
      for
      its own account and not with a present view towards the public sale or
      distribution thereof, except pursuant to sales registered or exempted from
      registration under the 1933 Act; provided,
      however,
      that by
      making the representations herein, the Buyer does not agree to hold any of
      the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act.

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
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    c.  
      Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      200,000,000 shares of Common Stock, of which 30,783,141
      shares
      are issued and outstanding, 33,460,141
      shares are issued, 8,023,360
      shares
      are reserved for issuance pursuant to the Company’s stock option plans,
7,636,628
      shares
      are reserved for issuance pursuant to securities (other than the Notes and
      the
      Warrants) exercisable for, or convertible into or exchangeable for shares of
      Common Stock and 109,826,144
      shares
      are reserved for issuance upon conversion of the Notes and exercise of the
      Warrants (subject to adjustment pursuant to the Company’s covenant set forth in
      Section 4(h) below); and (ii) 3,000,000 shares of Series A convertible preferred
      stock and 7,000,000 shares of Series B convertible preferred stock, of which
      1,550,000 and 1,333,432 shares are issued and outstanding, respectively. All
      of
      such outstanding shares of capital stock are, or upon issuance will be, duly
      authorized, validly issued, fully paid and nonassessable. No shares of capital
      stock of the Company are subject to preemptive rights or any other similar
      rights of the shareholders of the Company or any liens or encumbrances imposed
      through the actions or failure to act of the Company. Except as disclosed in
      Schedule
      3(c),
      as of
      the effective date of this Agreement, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, (ii) there are no agreements or arrangements under
      which the Company or any of its Subsidiaries is obligated to register the sale
      of any of its or their securities under the 1933 Act (except the Registration
      Rights Agreement) and (iii) there are no anti-dilution or price adjustment
      provisions contained in any security issued by the Company (or in any agreement
      providing rights to security holders) that will be triggered by the issuance
      of
      the Notes, the Warrants, the Conversion Shares or Warrant Shares. The Company
      has furnished to the Buyer true and correct copies of the Company’s Certificate
      of Incorporation as in effect on the date hereof (“Certificate
      of Incorporation”),
      the
      Company’s By-laws, as in effect on the date hereof (the “By-laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      of
      the Company and the material rights of the holders thereof in respect thereto.
      The Company shall provide the Buyer with a written update of this representation
      signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
      the Company as of the Closing Date.

     

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

     

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

     

    
      
         

      

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

     

    
      
         

      

      
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    g.  
      SEC
      Documents; Financial Statements.
      Except
      as disclosed in Schedule
      3(g),
      since
      December 31, 2004 the Company has timely filed all reports, schedules, forms,
      statements and other documents required to be filed by it with the SEC pursuant
      to the reporting requirements of the Securities Exchange Act of 1934, as amended
      (the “1934
      Act”)
      (all
      of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements and schedules thereto and documents (other
      than
      exhibits to such documents) incorporated by reference therein, being hereinafter
      referred to herein as the “SEC
      Documents”).
      As of
      their respective dates, the SEC Documents complied in all material respects
      with
      the requirements of the 1934 Act and the rules and regulations of the SEC
      promulgated thereunder applicable to the SEC Documents, and none of the SEC
      Documents, at the time they were filed with the SEC, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. None of the
      statements made in any such SEC Documents is, or has been, required to be
      amended or updated under applicable law (except for such statements as have
      been
      amended or updated in subsequent filings prior the date hereof). As of their
      respective dates, the financial statements of the Company included in the SEC
      Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      United States generally accepted accounting principles, consistently applied,
      during the periods involved (except (i) as may be otherwise indicated in such
      financial statements or the notes thereto, or (ii) in the case of unaudited
      interim statements, to the extent they may not include footnotes or may be
      condensed or summary statements) and fairly present in all material respects
      the
      consolidated financial position of the Company and its consolidated Subsidiaries
      as of the dates thereof and the consolidated results of their operations and
      cash flows for the periods then ended (subject, in the case of unaudited
      statements, to normal year-end audit adjustments). Except as set forth in the
      financial statements of the Company included in the SEC Documents, the Company
      has no liabilities, contingent or otherwise, other than (i) liabilities incurred
      in the ordinary course of business subsequent to December 31, 2004 and (ii)
      obligations under contracts and commitments incurred in the ordinary course
      of
      business and not required under generally accepted accounting principles to
      be
      reflected in such financial statements, which, individually or in the aggregate,
      are not material to the financial condition or operating results of the
      Company.

     

    h.  
      Absence
      of Certain Changes.
      Except
      as set forth in Schedule
      3(h),
      since
      December 31, 2004, there has been no material adverse change and no material
      adverse development in the assets, liabilities, business, properties,
      operations, financial condition, results of operations or prospects of the
      Company or any of its Subsidiaries.

     

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

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

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

     

    r.  
      Permits;
      Compliance.
      The
      Company and each of its Subsidiaries is in possession of all franchises, grants,
      authorizations, licenses, permits, easements, variances, exemptions, consents,
      certificates, approvals and orders necessary to own, lease and operate its
      properties and to carry on its business as it is now being conducted
      (collectively, the “Company
      Permits”),
      and
      there is no action pending or, to the knowledge of the Company, threatened
      regarding suspension or cancellation of any of the Company Permits. Neither
      the
      Company nor any of its Subsidiaries is in conflict with, or in default or
      violation of, any of the Company Permits, except for any such conflicts,
      defaults or violations which, individually or in the aggregate, would not
      reasonably be expected to have a Material Adverse Effect. Since December 31,
      2004, neither the Company nor any of its Subsidiaries has received any
      notification with respect to possible conflicts, defaults or violations of
      applicable laws, except for notices relating to possible conflicts, defaults
      or
      violations, which conflicts, defaults or violations would not have a Material
      Adverse Effect.

     

    s.  
      Environmental
      Matters.

     

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

     

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

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    4.  
      COVENANTS.

     

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

     

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

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    f.  
      Expenses.
      At the
      Closing, the Company shall reimburse Buyers for expenses incurred by them in
      connection with the negotiation, preparation, execution, delivery and
      performance of this Agreement and the other agreements to be executed in
      connection herewith (“Documents”), including, without limitation, attorneys’ and
      consultants’ fees and expenses, transfer agent fees, fees for stock quotation
      services, fees relating to any amendments or modifications of the Documents
      or
      any consents or waivers of provisions in the Documents, fees for the preparation
      of opinions of counsel, escrow fees, and costs of restructuring the transactions
      contemplated by the Documents. When possible, the Company must pay these fees
      directly, otherwise the Company must make immediate payment for reimbursement
      to
      the Buyers for all fees and expenses immediately upon written notice by the
      Buyer or the submission of an invoice by the Buyer. Notwithstanding anything
      herein to the contrary, the Company’s obligation to reimburse Buyers’ expenses
      shall not exceed $50,000 in the aggregate.

     

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

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    h.  
      Authorization
      and Reservation of Shares.
      Subject
      to Stockholder Approval, the Company shall at all times have authorized, and
      reserved for the purpose of issuance, a sufficient number of shares of Common
      Stock to provide for the full conversion or exercise of the outstanding Notes
      and Warrants and issuance of the Conversion Shares and Warrant Shares in
      connection therewith (based on the Conversion Price of the Notes or Exercise
      Price of the Warrants in effect from time to time) and as otherwise required
      by
      the Notes. The Company shall not reduce the number of shares of Common Stock
      reserved for issuance upon conversion of Notes and exercise of the Warrants
      without the consent of each Buyer. The Company shall at all times maintain
      the
      number of shares of Common Stock so reserved for issuance at an amount
      (“Reserved
      Amount”)
      equal
      to no less than two (2) times the number that is then actually issuable upon
      full conversion of the Notes and Additional Notes and upon exercise of the
      Warrants and the Additional Warrants (based on the Conversion Price of the
      Notes
      or the Exercise Price of the Warrants in effect from time to time). If at any
      time the number of shares of Common Stock authorized and reserved for issuance
      (“Authorized
      and Reserved Shares”)
      is
      below the Reserved Amount, the Company will promptly take all corporate action
      necessary to authorize and reserve a sufficient number of shares, including,
      without limitation, calling a special meeting of shareholders to authorize
      additional shares to meet the Company’s obligations under this Section 4(h), in
      the case of an insufficient number of authorized shares, obtain shareholder
      approval of an increase in such authorized number of shares, and voting the
      management shares of the Company in favor of an increase in the authorized
      shares of the Company to ensure that the number of authorized shares is
      sufficient to meet the Reserved Amount. If the Company fails to obtain such
      shareholder approval within thirty (30) days following the date on which the
      number of Reserved Amount exceeds the Authorized and Reserved Shares, the
      Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
      cash or in shares of Common Stock at the option of the Company. 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.
      In
      order to ensure that the Company has authorized a sufficient amount of shares
      to
      meet the Reserved Amount at all times, the Company must deliver to the Buyer
      at
      the end of every month a list detailing (1) the current amount of shares
      authorized by the Company and reserved for the Buyer; and (2) amount of shares
      issuable upon conversion of the Notes and upon exercise of the Warrants and
      as
      payment of interest accrued on the Notes for one year. If the Company fails
      to
      provide such list within ten (10) business days of the end of each month, the
      Company shall pay the Standard Liquidated Damages Amount, in cash or in shares
      of Common Stock at the option of the Company, until the list is delivered.
      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.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    l.  
      Subsequent
      Investment.
      The
      Company and the Buyers agree that, upon the declaration of effectiveness of
      the
      Registration Statement to be filed pursuant to the Registration Rights Agreement
      dated November 14, 2005 (the “Effective
      Date”),
      the
      Buyers shall purchase additional notes (the “Additional
      Notes”)
      in the
      aggregate principal amount of One Million Dollars ($1,000,000) and additional
      warrants (the “Additional
      Warrants”)
      to
      purchase an aggregate of 20,000,000 shares of Common Stock, for an aggregate
      purchase price of One Million Dollars ($1,000,000), with the closing of such
      purchase to occur within two (2) days of the Effective Date; provided,
      however,
      that
      the obligation of each Buyer to purchase the Additional Notes and the Additional
      Warrants is subject to the satisfaction, at or before the closing of such
      purchase and sale, of the conditions set forth in Section 7; and, provided,
      further,
      that
      there shall not have been a Material Adverse Effect as of such effective date.
      The terms of the Additional Notes and the Additional Warrants shall be identical
      to the terms of the Notes and Warrants, as the case may be, to be issued on
      the
      Closing Date. The Common Stock underlying the Additional Notes shall be
      Registrable Securities (as defined in the Registration Rights Agreement) and
      shall be included in the Registration Statement to be filed pursuant to the
      Registration Rights Agreement.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

    8.  
      GOVERNING
      LAW; MISCELLANEOUS.
      

     

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

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    If
      to the
      Company:

    

    Advanced
      Biophotonics Inc.

    125
      Wilbur Place, Suite 120

    Bohemia,
      NY 11716

    Attention:
      Chief Executive Officer

    Telephone:
      (631) 543-3655 

    Facsimile:
      (631) 244-7960

     

    With
      a
      copy to:

     

    Sichenzia
      Ross Friedman Ference LLP

    1065
      Avenue of the Americas

    New
      York,
      NY 10018

    Attention:
      Gregory Sichenzia, Esq.

    Telephone:
      (212) 930-9700

    Facsimile:
      (212) 930-9725

     

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

     

    With
      copy
      to:

    

    Ballard
      Spahr Andrews & Ingersoll, LLP

    1735
      Market Street

    51st
      Floor

    Philadelphia,
      Pennsylvania 19103

    Attention:
      Gerald J. Guarcini, Esq.

    Telephone:
      215-864-8625

    Facsimile:
      215-864-8999

     

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

     

    g.  
      Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns. Neither the Company nor any Buyer shall assign
      this Agreement or any rights or obligations hereunder without the prior written
      consent of the other. Notwithstanding the foregoing, subject to
      Section 2(f), any Buyer may assign its rights hereunder to any person 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.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

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

     

    ADVANCED
      BIOPHOTONICS INC.

    

    /s/
      Denis A.
      O’Connor                                              

    Denis
      A.
      O’Connor

    Chief
      Executive Officer 

     

     

    AJW
      PARTNERS, LLC

    By:
      SMS
      Group, LLC

     

    /s/
      Corey S.
      Ribotsky                                                

    Corey
      S.
      Ribotsky

    Manager

     

    
      	RESIDENCE: 	Delaware

    

    
      	 	 

    

    
      	ADDRESS:	
              1044
                Northern Boulevard

              
                Suite
                  302

                Roslyn,
                  New York 11576

                Facsimile:
                  (516) 739-7115

                Telephone:
                  (516) 739-7110

              

            

    

     

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    

    
      	
              Aggregate
                Principal Amount of Notes: 

            	$________
	
              Number
                of Warrants: 

            	  ________
	
              Aggregate
                Purchase Price: 

            	$________

    

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    AJW
      OFFSHORE, LTD.

    By:
      First
      Street Manager II, LLC

     

    /s/
      Corey S.
      Ribotsky                
        

    Corey
      S.
      Ribotsky 

    Manager

     

    

    
      	RESIDENCE:	Cayman Islands

      	 	 

      	ADDRESS:	
              AJW
                Offshore, Ltd.

              
                P.O.
                  Box 32021 SMB

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

              

            

    

     

    
      AGGREGATE
        SUBSCRIPTION AMOUNT:

       

    

    
      
        	
                Aggregate
                  Principal Amount of Notes: 

              	$________
	
                Number
                  of Warrants: 

              	  ________
	
                Aggregate
                  Purchase Price: 

              	$________

      

       

      
        
           

        

        
          25

          
            

          

        

        
           

        

         

      

    

    AJW
      QUALIFIED PARTNERS, LLC

    By:
      AJW
      Manager, LLC

     

    /s/
      Corey S.
      Ribotsky                               

    Corey
      S.
      Ribotsky 

    Manager

    
      

      
        	RESIDENCE:	New York

        	 	 

        	ADDRESS:	
                1044
                  Northern Boulevard

                Suite
                  302

                Roslyn,
                  New York 11576

                Facsimile: (516)
                  739-7115

                Telephone: (516)
                  739-7110

              

      

    

     

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    
      
         

      

      
        
          	
                  Aggregate
                    Principal Amount of Notes: 

                	$________
	
                  Number
                    of Warrants: 

                	  ________
	
                  Aggregate
                    Purchase Price: 

                	$________

        

         

        
          
             

          

          
            26

            
              

            

          

          
             

          

        

      

    

    

    NEW
      MILLENNIUM CAPITAL PARTNERS II, LLC 

    By:
      First
      Street Manager II, LLP

     

    /s/
      Corey S.
      Ribotsky                                 

    Corey
      S.
      Ribotsky 

    Manager

    
      
        

        
          	RESIDENCE:	New York

          	 	 

          	ADDRESS:	
                  1044
                    Northern Boulevard
                    
                    Suite
                      302

                    Roslyn,
                      New York 11576

                    Facsimile: (516)
                      739-7115

                    Telephone: (516)
                      739-7110

                  

                

        

      

       

      AGGREGATE
        SUBSCRIPTION AMOUNT:

      
        
           

        

        
          
            	
                    Aggregate
                      Principal Amount of Notes: 

                  	$________
	
                    Number
                      of Warrants: 

                  	  ________
	
                    Aggregate
                      Purchase Price: 

                  	$________

          

        

      

    

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

    
      SCHEDULE
        3(c)

      

      Anti
        Dilution as of October 31, 2006 - without the NIR
        transaction

       

      On
        December 14, 2004, the Company completed a private placement of 1,550,000
        shares
        of its series A convertible preferred stock and warrants to purchase 465,000
        shares of its common stock at $1.10 per share. The Company received gross
        proceeds of $1,550,000. The Company allocated $387,667 of the gross proceeds
        to
        the warrants based on estimated fair value. In accordance with EITF Issue
        No.
        00-27 "Application of EITF Issue No. 98-5 to Certain Convertible Instruments,"
        ("EITF 00-27") the Company recorded a non-cash charge of $1,161,249 to deficit
        accumulated during the development stage in fiscal 2004. The non-cash charge
        measures the difference between the relative fair value of the series A
        convertible preferred stock and the fair market value of the Company's common
        stock issuable pursuant to the conversion terms on the date of issuance.
        Holders
        of the series A convertible preferred stock are entitled to receive a cumulative
        dividend of 4% per annum, payable either in cash or, at the Company's option,
        additional shares of series A convertible preferred stock. As a result of
        anti-dilution provisions relating to the series A convertible preferred stock
        and the warrants that were triggered by the subscription rights offering
        consummated on August 10, 2005, the conversion price of its series A convertible
        preferred stock was reduced to $0.50 per share and the exercise of the warrants
        was reduced to $0.50 per share. As a result of the reduction in the series
        A
        convertible preferred stocks conversion price, the Company recorded a non-cash
        charge of approximately $703,000 during the third quarter of 2005 in accordance
        with EITF 00-27. On October 28, 2005, as anti-dilution protection, the Company
        issued additional five year warrants to purchase 1,550,000 shares of its
        common
        stock to the December 2004 private placement investors. The warrants have
        an
        exercise price of $0.75 per share and will expire August 9, 2010. The Company
        recorded a deemed dividend charge of $449,500 for the fair value of those
        warrants during the fourth quarter of 2005. As a result of the November 14,
        2005
        Securities Purchase Agreement the series A preferred stock conversion price
        was
        reduced to $0.44 per share pursuant to the anti-dilution clause of the
        certificate of designation. Prior
        to
        the November 14, 2005 Securities Purchase agreement, 1 share of series A
        preferred stock converted into 2 shares of common stock. Anti-dilution provision
        was triggered again on January 3, 2006, after the sale of an additional
        $1,000,000 of securities and on May 10, 2006 after the sale of $600,000 of
        securities under the Securities Purchase Agreement, the conversion price
        of the
        series A preferred stock was reduced further to $0.36 per share. The original
        investment price of $1.00 per share for the series A preferred stock is then
        divided by the $0.36 per share and result in the conversion of every 1 share
        of
        series A preferred stock held can be converted into 2.78 shares of common
        stock
        for a total of 5,146,956 shares of common stock.  On
        July
        25, 2006, after the sale of $500,000 of securities under the Securities Purchase
        Agreement, the conversion price of the series A preferred stock was reduced
        further to $0.34 per share. The original investment price of $1.00 per share
        for
        the series A preferred stock is then divided by the $0.34 per share and result
        in the conversion of every 1 share of series A preferred stock held can be
        converted into 2.94 shares of common stock for a total of 5,443,184 shares
        of
        common stock. On September 12, 2006, the Company entered into a new Securities
        Purchase Agreement with the purchasers which further triggered anti-dilution.
        On
        September 12, 2006, after the sale of $275,000 of securities and on October
        4,
        2006, after the sale of $250,000 under the Securities Purchase Agreement,
        the
        conversion price of the series A preferred stock was reduced further to $0.33
        and $0.31 per share, respectively. . The original investment price of $1.00
        per
        share for the series A preferred stock is then divided by the $0.31 per share
        and result in the conversion of every 1 share of series A preferred stock
        held
        can be converted into 3.23 shares of common stock for a total of 5,980,096
        shares of common stock. The conversion price of the Series A preferred stock
        was
        adjusted based on a calculation as set forth in the certificate of designation.
        The price was determined by multiplying: (i) the conversion price in effect
        immediately prior thereto; by (ii) a fraction, (A) the numerator of which
        shall
        be the sum of the number of shares of common stock outstanding immediately
        prior
        to the issuance of such dilutive securities and the number of shares of common
        stock which the aggregate consideration received for the issuance of such
        dilutive securities would purchase at the Reference Price which is the 30-day
        volume-weighted average price of the Company’s common stock and (B) the
        denominator of which shall be the number of shares of common stock outstanding
        immediately after the issuance of such dilutive securities (assuming the
        conversion to common stock of all such dilutive securities that are derivative
        securities). 

       

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

       

      On
        August
        10, 2005 the Company consummated a subscription rights offering to existing
        stockholders of the Company, for which the Company received gross proceeds
        of
        $703,934, issued 1,407,867 shares of series B convertible preferred stock
        convertible originally on a one-to-one basis of the Company's common stock
        and
        five year warrants to purchase 703,934 shares of common stock. In accordance
        with EITF 00-27 the Company recorded a non-cash charge of approximately $420,000
        during the third quarter of 2005 associated with the sale of our series B
        convertible preferred stock. The charge measures the difference between the
        relative fair value of the series B convertible preferred stock and the fair
        market value of the shares of our common stock issuable pursuant to the
        conversion terms on the date of issuance. As a result of the November 14,
        2005
        Securities Purchase Agreement the series B preferred stock conversion price
        was
        reduced from $0.50 per share to $0.44 per share pursuant to the anti-dilution
        clause of the certificate of designation. Prior
        to
        the November 14, 2005 Securities Purchase agreement, 1 share of series B
        preferred stock converted into 1 share of common stock. Anti-dilution provision
        was triggered again on January 3, 2006, after the sale of an additional
        $1,000,000 of securities and on May 10, 2006 after the sale of $600,000 of
        securities under the Securities Purchase Agreement, the conversion price
        of the
        series A preferred stock was reduced further to $0.36 per share.  The
        original investment price of $0.50 per share for the series B preferred stock
        is
        then divided by the $0.36 per share and result in the conversion of 1 share
        of
        series B preferred stock into 1.39 shares of common stock for a total of
        1,853,470 shares of common stock as of September 30, 2006. On July 25, 2006,
        after the sale of $500,000 of securities under the Securities Purchase
        Agreement, the conversion price of the series B preferred stock was reduced
        further to $0.34 per share. The original investment price of $0.50 per share
        for
        the series B preferred stock is then divided by the $0.34 per share and result
        in the conversion of every 1 share of series B preferred stock held can be
        converted into 1.47 shares of common stock for a total of 1,960,145 shares
        of
        common stock. On September 12, 2006, the Company entered into a new Securities
        Purchase Agreement with the purchasers which further triggered anti-dilution.
        On
        September 12, 2006, after the sale of $275,000 of securities and on October
        4,
        2006, after the sale of $250,000 under the Securities Purchase Agreement,
        the
        conversion price of the series B preferred stock was reduced further to $0.33
        and $0.31 per share, respectively. . The original investment price of $0.50
        per
        share for the series B preferred stock is then divided by the $0.31 per share
        and result in the conversion of every 1 share of series B preferred stock
        held
        can be converted into 1.61 shares of common stock for a total of 2,146,826
        shares of common stock. The conversion price of the Series B preferred stock
        was
        adjusted based on a calculation as set forth in the certificate of designation.
        The price was determined by multiplying: (i) the conversion price in effect
        immediately prior thereto; by (ii) a fraction, (A) the numerator of which
        shall
        be the sum of the number of shares of common stock outstanding immediately
        prior
        to the issuance of such dilutive securities and the number of shares of common
        stock which the aggregate consideration received for the issuance of such
        dilutive securities would purchase at the Reference Price which is the 30-day
        volume-weighted average price of the Company’s common stock and (B) the
        denominator of which shall be the number of shares of common stock outstanding
        immediately after the issuance of such dilutive securities (assuming the
        conversion to common stock of all such dilutive securities that are derivative
        securities). 

      

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

       

      
        SCHEDULE
          3(f)

        

        

        Authorizations
          or Consents Necessary

         

        None.

         

      

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

    

    SCHEDULE
      3(g)

    

    

    SEC
      Filings that Haven’t Been Filed in a Timely Manner

     

    None

     

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

    SCHEDULE
      3(h)

    

    

    Material
      Adverse Changes to Assets, Liabilities or Operations

     

    (Extracted
      from October 10, 2006 Form 8-K filing)

     

    On
      October 9, 2006, after analyzing the results from its recently concluded
      clinical trials using its patented BioScanIR®
      System,
      together with its proprietary DIRI®
      dynamic
      infrared imaging software platform in a reconstructive surgery application,
      the
      Company announced that those clinical trials did not meet the primary endpoint
      for efficacy.

     

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

    SCHEDULE
      3(i)

    

    

    Litigations

     

    None.

     

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    SCHEDULE
      3(j)

    

    

    Infringement
      Claim against the Company’s Technology needed to Operate the
      Business

     

    None.

     

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    

      SCHEDULE
        3(l)

      

      

      Delinquent
        Tax Filings or Returns Currently being Audited

       

      None.

       

      
        
           

        

        
          35

          
            

          

        

        
           

        

      

    

     

    
      SCHEDULE
        3(m)

       

       

      Related
        Party Transactions

       

      (Extracted
        from current SB2 filing) 

       

      Among
        the
        purchasers of the Company's series A convertible preferred stock were Jed
        Schutz
        and Joseph T. Casey, each of whom is a director of the Company. Mr. Schutz
        purchased 250,000 shares of series A convertible preferred stock for a purchase
        price of $250,000, and was issued warrants to purchase 75,000 shares of common
        stock. Mr. Casey purchased 250,000 shares of series A convertible preferred
        stock for a purchase price of $250,000, and was issued warrants to purchase
        75,000 shares of common stock. A former director, George Benedict invested
        $100,000 and received 100,000 shares of series A convertible preferred stock
        and
        warrants to purchase 30,000 shares of common stock at an exercise price of
        $0.50. Mr. Benedict resigned from our board effective December 31, 2005.
        The
        purchase price of the shares was determined with reference to the then current
        market price of the Company's common stock. In October 2005, each investor
        in
        the December 2004 private placement, as anti dilution protection, received
        additional five year warrants to purchase the Company's common stock at an
        exercise price of $0.75 per share which if unexercised will expire on August
        9,
        2010. Mr. Schutz and Mr. Casey each received 250,000 additional warrants.
        Mr.
        Benedict received 100,000 additional warrants.

       

      Among
        the
        purchasers of the Company's series B convertible preferred stock were Jed
        Schutz, Joseph T. Casey,Dr. Michael Davis, each of whom is a director of
        the
        Company and former director George Benedict. Mr. Schutz and Mr. Benedict
        each
        purchased 100,000 shares of series B convertible preferred stock for a purchase
        price of $50,000, and issued warrants to purchase 50,000 shares of common
        stock.
        Mr. Casey purchased 150,000 shares of series B convertible preferred stock
        for a
        purchase price of $75,000, and was issued warrants to purchase 75,000 shares
        of
        common stock. Dr. Davis purchased 10,000 shares of series B convertible
        preferred stock for a purchase price of $5,000, and was issued warrants to
        purchase 5,000 shares of common stock.

       

      On
        January 3, 2006, we issued shares of our series A and series B convertible
        preferred stock as dividends in-kind to the holders of our series A and B
        convertible preferred stock. Dividends were payable to holders of record
        as they
        appear in the stockholder records of our company at the close of business
        on the
        applicable record date, which was December 15, 2005. Joseph Casey, as co-trustee
        for the Casey Living Trust, and Jed Schutz each received 48,616 shares of
        series
        A convertible preferred stock as dividends. Our former director, George Benedict
        received 19,447 shares of series A convertible preferred stock as dividends.
        Joseph Casey, as co-trustee for the Casey Living Trust was issued 8,869 shares
        of series B preferred stock as dividends. Jed Schutz and George Benedict
        each
        received 5,913 shares and Michael Davis received 591 shares of series B
        preferred stock as dividends.

       

      
        
           

        

        
          36

          
            

          

        

        
           

        

      

       

      On
        March
        9, 2005, in settlement of an arbitration proceeding arising from the December
        13, 2004 termination of his employment agreement as President and Chief
        Executive Officer, the Company entered into a consulting agreement with Mark
        A.
        Fauci, a member of our board of directors. The agreement, which terminates
        Mr.
        Fauci's previous employment with the Company, provides that Mr. Fauci will
        perform consulting services for the Company for a retroactive two-year period
        in
        exchange for consulting fees of $200,000 per year during the term of the
        agreement which expires December 2006. Mr. Fauci will be nominated at the
        next
        two annual meetings of stockholders to continue as a board member. The agreement
        also provides for a three-year payout schedule of the obligation to pay Mr.
        Fauci's deferred accrued salary under his previous employment agreement,
        in the
        amount of $625,000. Those payments commenced on October 1, 2005. This amount
        is
        payable at the rate of $10,000 per month for the initial 12 months and $20,000
        per month thereafter.

       

      Under
        a
        Guaranty and Pledge Agreement entered into on November 14, 2005, the Company's
        President and Chief Executive Officer, agreed (i) to unconditionally guarantee
        the timely and full satisfaction of all obligations, whether matured or
        unmatured, now or hereafter existing or created and becoming due and payable
        to
        the Purchasers , their successors, endorsees, transferees or assigns under
        the
        Securities Purchase Agreement and other transaction documents to the extent
        of
        2,677,000 shares of the Company's common stock issued in the Company's name,
        and
        (ii) to grant to ,their successors, endorsees, transferees or assigns a security
        interest in the 2,677,000 shares, as collateral security for such
        obligations.

       

      During
        2005, Dr. Michael Davis, the Chairperson of the Executive Committee of the
        Board
        of Directors was compensated $95,000 for his service in this role to the
        Company. By unanimous consent of the Board of Directors on December 13, 2005,
        the Executive Committee was disbanded effective December 31, 2005 in keeping
        with the long term strategic plan to reorganize and restructure our Board.
        The
        Company offered Dr. Davis a new consulting contract in January 2006, whereby
        he
        will provide medical and scientific expertise for the Company. Dr, Davis
        will be
        compensated $5,000 per month for his consulting services. This agreement
        was
        amended in May 2006. Dr. Davis' compensation will be reduced to $2,500 per
        month
        during June, July and August 2006.

      

      
        
           

        

        
          37

          
            

          

        

        
           

        

      

      

      SCHEDULE
        3(q)

      

      

      Finders’
        Fees and Commissions related to this Transaction

      

      The
        Company entered into an Agreement with Axiom Capital Management, Inc. (“Axiom”)
        on September 23, 2005, which was amended on November 8, 2005, whereby the
        Company shall pay to Axiom: (i) an amount in cash equal to 6.5% of the dollar
        value of any securities issued by the Company which are purchased by NIR;
        and
        (ii) warrants to purchase a number of shares of common stock of the Company
        as
        shall equal 8% of the number of shares sold in that Transaction. The number
        of
        shares sold in that Transaction shall be computed by dividing the total dollar
        investment by the Initial Market Price as defined by NIR (100% of the volume
        weighed average price of the Company’s common stock for the five days
        immediately prior to closing). Warrants shall have a five year term from
        date of
        issuance, exercise price equal to $0.65 per share, cashless exercise will
        be
        permitted in the event there is not an effective registration
        statement.

       

      
        
           

        

        
          38

          
            

          

        

        
           

        

      

    

    
      

        SCHEDULE
          3(s)

        

        

        Violations
          of Environmental Laws

         

        None.

         

         

        Hazardous
          Materials Used in Products

         

        None.

         

         

        Underground
          Storage Tanks on Owned or Leased Property

         

        None.

         

        
          
             

          

          
            39

            
              

            

          

          
             

          

        

        

          
            	
                    SCHEDULE
                      3(t)

                  
	 
	
                    Good
                      and Marketable Title to Real and Personal
                      Property

                  
	 	 	 	 	 	 
	
                    1.
                      Real Property

                  
	
                    No
                      Real Property Owned.

                  
	 	 	 	 	 	 
	
                    2.
                      Personal Property

                  
	 	 	 	 	 	 
	 	
                    9/30/2006

                  	 	
                    9/30/2006

                  	 	
                    9/30/2006

                  
	 	
                    Balance

                  	 	
                    Accumulated
                      

                  	 	
                    Net
                      Asset 

                  
	 	
                    Assets

                  	 	
                    Depreciation

                  	 	 
	 	 	 	 	 	 
	
                    Office
                      Computers

                  	
                    73,907

                  	 	
                    45,831

                  	 	
                    28,075
                      

                  
	 	 	 	 	 	 
	
                    Capital
                      Equipment

                  	
                    886,540

                  	 	
                    743,703

                  	 	
                    142,837
                      

                  
	 	 	 	 	 	 
	
                    Leasehold
                      Improvements

                  	
                    21,075

                  	 	
                    7,844

                  	 	
                    13,231
                      

                  
	 	 	 	 	 	 
	
                    Furniture
                      and Fixtures

                  	
                    26,805

                  	 	
                    11,416

                  	 	
                    15,389
                      

                  
	 	 	 	 	 	 
	 	
                    1,008,326

                  	 	
                    808,794

                  	 	
                    199,532
                      

                  

          

           

          
            
               

            

            
              40

              
                

              

            

            
               

            

          

          SCHEDULE
            3(z)

          

          

          Rights
            Granted by Company to have Securities Registered which have not been
            Registered

           

          The
            Company entered into an Agreement (the “Agreement”) with Axiom Capital
            Management, Inc. (“Axiom”) on September 23, 2005, whereby the Company was
            required to pay Axiom: (i) an amount in cash equal to 8% of the dollar
            value of
            any securities issued by the Company which are purchased by NIR; and
            (ii)
            warrants to purchase a number of shares of common stock of the Company
            as shall
            equal 8% of the number of shares sold in that Transaction. As a result
            of the
            transaction between the Company and The NIR Group contemplated herein,
            this
            Agreement was amended on November 8, 2005, whereby the Company shall
            pay to
            Axiom and Axiom has agreed to accept: (i) an amount in cash equal to
            6.5% of the
            dollar value of any securities issued by the Company which are purchased
            by NIR;
            and (ii) warrants to purchase a number of shares of common stock of the
            Company
            as shall equal 8% of the number of shares sold in that Transaction. The
            number
            of shares sold in that Transaction shall be computed by dividing the
            total
            dollar investment by the Initial Market Price as defined by NIR (100%
            of the
            volume weighed average price of the Company’s common stock for the five days
            immediately prior to closing). Warrants shall have a five year term from
            date of
            issuance, exercise price equal to $0.65 per share, cashless exercise
            will be
            permitted in the event there is not an effective registration
            statement.

           

          
            
               

            

            
              41

              
                

              

            

            
               

            

          

          SCHEDULE
            4(d)

          

          

          Use
            of Proceeds

          

          The
            Company intends to use the proceeds from this transaction for commercialization
            of the Company’s product and to continue operations.

           

          
            
               

            

            
              42Exhibit
      10-1

    LOAN
      SALE AGREEMENT

     

    THIS
      LOAN
      SALE AGREEMENT (“Agreement”) is made and entered into as of the ____ day
      of_____________, 2006, by and between NATIONAL LOAN INVESTORS, L.P. (“NLI” and
“Seller”), and LOGISTICAL SUPPORT, LLC, a California limited liability company
      (“LOGISTICAL” and “Buyer”).

     

    RECITALS

     

    A. Seller
      is
      the owner and holder of a certain Loan, as evidenced by the Loan Documents
      more
      hilly described below.

     

    B. Buyer
      wishes to purchase the Loan from Seller, and Seller wishes to sell the Loan
      to
      Buyer, all on the terms and conditions contained herein.

     

    AGREEMENT

     

    NOW,
      THEREFORE,
      in
      consideration of the above recitals, which are hereby made a contractual part
      hereof, the payments, provisions and mutual promises contained herein, and.
      for
      other good and valuable consideration, the receipt and sufficiency of which
      is
      hereby acknowledged by the parties hereto, the parties hereto hereby agree
      as
      follows:

     

    ARTICLE
      1

     

    PURCHASE
      AND SALE OF THE LOAN

     

    Section
      1.1 Agreement
      to Sell and Purchase the Loan. Subject to and. upon the terms and conditions
      of
      this Agreement, Seller agrees to sell, and Buyer agrees to purchase, all of
      Sellers right, title and interest in and to the Loan and the Loan
      Documents.

     

    Section
      1.2 Purchase
      Price. The purchase price (the “Purchase Price”) for the Loan shall be as
      follows:

     

    
      	 	
              1.

            	
              Buyer
                shall make an initial deposit of $25,000.00 by cashier’s check or money
                order on or before November 30,
                2006;

            

    

     

    
      	 	
              2.

            	
              Buyer
                shall make a second deposit of $66,666.66 by cashier’s check or money
                order on or before December 15,
                2006;

            

    

     

    
      	 	
              3.

            	
              Buyer
                shall have the option to make a third payment of $108,333.34 by cashier’s
                check or money order on or before December 31, 2006, for a total
                purchase
                price of $200,000.00. If Buyer does not make the balloon payment
                referenced herein, then Buyer shall pay as
                follows:

            

    

     

    
      	
            	A.	
              Buyer
                shall make a third deposit of $66,666.67 by cashier’s check or money order
                on or before January 15, 2007; and

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
            	B.	
              Buyer
                shall make a fourth and final payment of $66,666.67 by cashier’s check or
                money order on or before February 15, 2007, for a total purchase
                price of
                $225,000.00.

            

    

     

    ARTICLE
      2

     

    BUYER’S
      REPRESENTATIONS, WARRANTIES, COVENANTS AND ACKNOWLEDGMENTS

     

    Section
      2.1 Buyer’s
      Representations and Warranties. Buyer hereby represents, warrants, covenants
      and
      acknowledges that, as of the date hereof, and as of the Closing
      Date:

     

    
      	 	
              (a)

            	
              Buyer
                acknowledges that none of Seller’s employees, attorneys or agents has been
                authorized to make, and that Buyer has not relied upon, any statements
                or
                representations other than those specifically contained in this Agreement.
                Buyer acknowledges that the Loan is being sold “AS IS, WHERE IS”, arid
                without recourse to Seller or Seller’s officers, directors, employees,
                agents, attorneys, loan services, successors or
                assigns.

            

    

     

    
      	 	
              (b)

            	
              Buyer
                has taken all necessary action to authorize the execution, delivery
                and
                performance of this Agreement and has the power and authority to
                execute,
                deliver and perform this Agreement and all of the transactions
                contemplated hereby.

            

    

     

    
      	 	
              (c)

            	
              The
                execution and delivery of this Agreement and the performance of Buyer’s
                obligations hereunder will not conflict with any provisions of any
                law,
                regulation, order or decree to which Buyer is subject, or conflict
                with or
                result in a breach of or constitute a default under any of the terms,
                conditions, or provisions of any agreement or instrument to which
                Buyer is
                a party or by which it is bound.

            

    

     

    
      	 	
              (d)

            	
              There
                is no action, suit or proceeding pending against Buyer in any court
                or by
                or before any other governmental agency or instrumentality which
                would
                materially affect the ability of Buyer to carry out the transactions
                contemplated by this Agreement.

            

    

     

    
      	 	
              (e)

            	
              Buyer
                acknowledges that one or more environmental engineering, surveying,
                appraisal, title, lien search or similar reports may be contained
                in the
                Loan File evidencing the results of surveys, investigations, examinations,
                studies or appraisals performed with respect to the Mortgaged Property.
                Buyer understands and acknowledges that any such reports contained
                in the
                Loan File or otherwise provided or made available by Seller or its
                officers, employees, agents, loan servicers, contractors, or
                representatives, is provided without any representations or warranties
                as
                to any matter expressed in such reports, including, without limitation,
                the qualifications or expertise of the author or authors thereof
                or the
                completeness or accuracy of the facts, assumptions and conclusions
                contained therein.

            

    

     

    
      
         

      

      
        Page
          5

        
          

        

      

      
         

      

       

    

    ARTICLE
      3

     

    SELLER’S
      REPRESENTATIONS, WARRANTIES AND COVENANTS

     

    Section
      3.1 Seller’s
      Representations and Warranties. Seller hereby represents and warrants to Buyer
      as of the date hereof and as of the Closing Date:

     

    
      	 	
              (a)

            	
              Seller
                has taken all necessary action to authorize the execution, delivery
                and
                performance of this Agreement and has the power and authority to
                execute,
                deliver and perform this Agreement and all the transactions contemplated
                hereby.

            

    

     

    
      	 	
              (b)

            	
              The
                execution and delivery of this Agreement and the performance of Sellers
                obligations hereunder will not conflict with any provisions of any
                law,
                regulation, order or decree to which Seller is subject, or conflict
                with
                or result in a breach of or constitute a default under any of the
                terms,
                conditions or provisions of any agreement or instrument to which
                Seller is
                a party or by which it is bound.

            

    

     

    
      	 	
              (c)

            	
              There
                is no action, suit or proceeding pending against Seller in any court
                or by
                or before any other governmental agency or instrumentality which
                would
                materially affect the ability of Seller to carry out the transacbon5
                contemplated by this Agreement.

            

    

     

    
      	 	
              (d)

            	
              Seller
                is the sole owner and holder of the Loan and the Loan
                Documents.

            

    

     

    
      	 	
              (e)

            	
              The
                balance due on the Loan is $338, 365.45 (principal $313,381.21, accrued
                interest of $17,928.27, late charges of $935.16, legal fees of $3,120.81,
                and Seller is unaware of any rights of offset which could. be alleged
                by
                borrowers, or guarantors against enforcement of the
                Loan.

            

    

     

    ARTICLE
      4

     

    CONDITIONS
      PRECEDENT TO CLOSING

     

    Section
      4.1 Deposits
      of Buyer. On or before the Closing Date (either December 31, 2006 or February
      15, 2007), Buyer shall pay:

     

    
      	 	
              (a)

            	
              the
                balance of the Purchase Price (the “Balance of the Purchase Price”) by
                cashier’s check or wire transfer of federal
                funds;

            

    

     

    
      	 	
              (b)

            	
              all
                other amounts required to be paid by Buyer at or in connection with
                the
                Closing hereunder; and,

            

    

     

    Section
      4.2 

     

    
      	 	
              (a)

            	
              On
                or before the Dosing Date, Seller shall have prepared the following
                documents or instruments with respect to the Loan. to be transferred
                to
                Seller by Buyer:

            

    

     

    
      	 	
              (i)

            	
              the
                Note with an executed Allonge;

            

    

     

    
      
         

      

      
        Page
          6

        
          

        

      

      
         

      

    

     

    
      	 	
              (ii)

            	
              the
                original Assignment of Security executed by Seller in recordable
                form;

            

    

     

    
      	 	
              (iii)

            	
              any
                other loan documents to be as
                appropriate.

            

    

     

    Section
      4.3 Closing.
      Upon Seller’s receipt of the Balance of the Purchase Price from Buyer and upon
      Seller’s receipt of all documents and other items required to be deposited with
      the Seller by Buyer, Seller shall close by:

     

    
      	 	
              (a)

            	
              delivering
                to Buyer an original of the Assignment of Security and then delivering
                the
                same to Buyer;

            

    

     

    
      	 	
              (b)

            	
              delivering
                to Buyer the Note with an executed Allonge and a duplicate original
                of the
                Assignment of Loan Documents;

            

    

     

    
      	 	
              (c)

            	
              delivering
                any assignments of other loan documents as appropriate, including,
                but not
                limited to UCC-1 filings.

            

    

     

    
      	 	
              (d)

            	
              Within
                a reasonable amount of time thereafter, Seller shall deliver to buyer
                the
                Credit Loan File, at Seller’s expense, to Buyer’s address. Seller and its
                agents, independent contractors, attorneys and Loan servicers shall
                have
                no further responsibility for servicing the Loan and shall have no
                other
                obligation of any kind concerning the Loan. Seller makes no
                representations or warranties with respect to the accuracy or completeness
                of the servicing records contained in the Credit Loan Pile, other
                than the
                balance due under the Loan as of November 30,
                2006.

            

    

     

    Section
      4.4 Closing
      and Other Costs.

     

    
      	 	
              (a)

            	
              Buyer
                shall pay (i) any governmental registration, documentary transfer
                or
                transaction taxes or fees due in connection with the transfer of
                the Loan
                from Seller to Buyer, (ii) any filing or recording fees or costs
                incurred
                costs incurred or charged by any title company, and (iii) any sales
                or use
                taxes determined to be payable in connection with this transaction,
                (iv)
                be responsible for the payment of any unpaid real estate taxes associated
                with the collateral properties (if
                any).

            

    

     

    
      	 	
              (b)

            	
              Each
                party hereto shall pay its own legal fees and other costs in this
                transaction.

            

    

     

    Section
      4.5 Conformity
      to Law. Buyer agrees to abide by all applicable state and federal laws, rules,
      and regulations regarding the handling and maintenance of all documents and
      records relating to the Loan purchased hereunder, including, without limitation,
      the length of time such documents and records are required to be
      retained.

     

    Section
      4.6 Seller’s
      Access to Loan File. Alter the transfer of the Credit Loan File to Buyer
      pursuant to the terms of this Agreement, Seller, at Seller’s expense, shall have
      the continuing right to use, inspect or make copies of any such documents or
      records which remain in the possession or control of Buyer or Buyer’s successors
      or assigns, upon Seller’s reasonable notice to Buyer or Buyer’s successors or
      assigns, as the case may be. Buyer, on behalf of itself and all of its
      successors or assigns. agrees to allow Seller, at Seller’s expense, the
      temporary possession, custody, and use of original documents which remain in
      the
      possession or control of Buyer or Buyer’s successors or assigns for any lawful
      purpose and upon reasonable terms and conditions and upon reasonable notice
      to
      Buyer or Buyer’s successors or assigns.

     

    
      
         

      

      
        Page
          7

        
          

        

      

      
         

      

       

    

    Section
      4.7 Buyer’s
      right to Due Diligence. Notwithstanding the payment of the deposit of $25,000.00
      on or before December 5, 2006, Buyer shall have the right to review Seller’s
      loan file and related documents and perform its own due diligence with reference
      to the enforceability of the documents that buyer is purchasing. buyer shall
      review such documents at Seller’s counsel’s office prior to December 8, 2006. To
      the extend that Buyer identifies any issues relating to the enforceability
      of
      the documents, Buyer will attempt to resolve any such issues with Seller. If
      no
      resolution is reached, Buyer has the right to withdraw and nullify the
      transaction by notice given to Seller, as set forth below, by December 8, 2006.
      If Buyer withdraws, Seller shall retain the $25,000.00 deposit as payment
      against the existing Loan as set forth in Section 6.16, and the parties shall
      retain all rights and remedies as if this transaction had never
      occurred.

     

    ARTICLE
      5

     

    WAIVER
      AND RELEASE

     

    Section
      5.1 Waiver
      and Release. Subject to the provisions of Section 4.7, Buyer, on behalf of
      itself and all of its successors and assigns, hereby waives and relinquishes
      any
      Claim any of them may now or in the future have against Seller or Seller’s
      predecessors in interest or against any officers, directors, employees,
      attorneys, agents, contractors, Loan servicers, successors or assigns of Seller
      or Seller’s predecessors in interest (collectively, the “Released Persons”), in
      any way related to the Loan, the Secured Property, including, without
      limitation, any Claim for indemnification or contribution arising under any
      federal, state or local statute, regulation, ordinance or rule of law relating
      to liability for environmental matters, and Buyer hereby releases the Released
      Persons from any such Claim; provided, however, that this waiver and release
      shall not bar Buyer from (i) obtaining credit: against the Hill Industries
      Loan
      amount pursuant to Section 6.16. Buyer has waived and does hereby waive any
      and all other remedies for Seller’s breach of this Agreement, including, without
      limitation, any right to sue for actual, consequential or any other
      damages.

     

    ARTICLE
      6

     

    MISCELLANEOUS
      PROVISIONS

     

    Section
      6.1 Notices.
      All notices and other communications required or permitted hereunder shall
      be in
      writing and shall be given by registered or certified mail (return receipt
      requested), personal delivery, or overnight commercial courier service,
      addressed to the recipient as follows (or at such other address as the recipient
      may specify by written notice to the other parties):

     

    
      
         

      

      
        Page
          8

        
          

        

      

      
         

      

    

     

    
      	
              If
                to the Buyer:

               

              Bruce
                Littell

              Logistical
                Support, LLC

              19734
                Dearborn Street

              Chatsworth,
                CA 91311

               

            
	
              with
                a copy to:

               

              James
                K Felton, Esq.

              Greenberg
                & Bass

              16000
                Ventura Blvd., Suite 1000

              Encino,
                CA 91436

               

            
	
              If
                to Seller:

               

              National
                Loan Investors, L.P.

              3030
                NW. Expressway

              Suite
                1313

              Oklahoma
                City, Oklahoma 73112

              Attention: Dewayne
                Horton

               

            
	
              with
                a copy to:

               

              Verus
                Law Group

              Holly
                Walker

              3122
                Santa Monica Blvd., Suite 302

              Santa
                Monica, CA 90404

            

    

    

    For
      the
      purposes hereof, the date of personal delivery, three (3) Business Days after
      the date the notice is deposited in U.S. mail or one (1) Business Day after
      the
      date the notice is deposited with the overnight commercial courier service,
      as
      applicable, shall be deemed to be the date upon which notice is given
      hereunder

     

    Section
      6.2 Severability.
      In the event that any provision of this Agreement is found by any court or
      other
      authority of competent jurisdiction to be illegal or unenforceable, such
      provision shall be deemed deleted from this Agreement or modified to the extent
      necessary to render this Agreement fully enforceable, and as so altered or
      modified, this Agreement shall continue in full force and effect.

     

    Section
      6.3 Rights
      Cumulative; Waivers. The rights of each of the parties under this Agreement
      are
      cumulative. The rights of each of the parties hereunder shall not be capable
      of
      being waived or modified other than by an express written waiver or
      modification. Any failure to exercise or any delay in exercising any of such
      rights shall not operate as a waiver or modification of that or any other such
      right. Any defective or partial exercise of any of such rights shall not
      preclude any other or further exercise of that or any other such right. No
      act
      or course of conduct or negotiation on the part of any party shall in any way
      preclude such party from exercising any such right or constitute a waiver,
      suspension or modification of any such right.

     

    
      
         

      

      
        Page
          9

        
          

        

      

      
         

      

    

    Section
      6.4 Brokerage
      Commissions and Finder’s Fees. Each party to this Agreement warrants to the
      other that no person or entity is entitled to any commission, finder’s fee,
      acquisition fee or other brokerage-type compensation (collectively, a
“Commission”) based upon the acts of that person or entity with respect to any
      transaction contemplated by this Agreement. Each party hereby agrees to
      indemnify and defend the other against, and to hold the other harmless for,
      from
      and against any and all loss, cost, liability or expense (including, without
      limitation, attorneys’ fees and Commissions) resulting from or relating to any
      Claim for a Commission by any person or entity.

     

    Section
      6.5 Article
      and Section Headings. The Article and Section headings in this Agreement are
      for
      reference purposes only and shall not affect in any way the meaning or
      interpretation of this Agreement.

     

    Section
      6.6 Construction.
      Unless the context otherwise requires, when used herein, the singular shall
      be
      deemed to include the plural, the plural shall be deemed to include each of
      the
      singular, and pronouns of one or no gender shall be deemed to include the
      equivalent pronoun of the other or no gender.

     

    Section
      6.7 Benefit;
      Successors Bound. This Agreement, including the exhibits hereto, shall be
      binding upon, and shall inure to the benefit of, the undersigned parties and
      their respective heirs, legal representatives, successors, and permitted
      assigns. This Agreement shall (to the extent specifically provided herein)
      also
      inure to the benefit of all Released Persons. It is the specific intention
      of
      the parties that neither this Agreement nor anything contained herein shall
      benefit any person or entity other than those indicated in this
      Section.

     

    Section
      6.8 Assignment.
      The rights and obligations of Buyer under this Agreement shall not be assignable
      without the prior written consent of Seller, except that Buyer may, without
      the
      prior written consent of Seller, assign this Agreement to an entity controlled
      by or which controls Buyer or which is under the common control of the person
      or
      entity controlled by Buyer, provided that such person or entity executes an
      assumption agreement pursuant to which such entity assumes Buyer’s obligations
      hereunder and which is satisfactory in form and substance to Seller. Buyer
      hereby acknowledges and agrees that in the event of such assignment, Buyer
      shall
      not be released from its obligations hereunder and shall remain liable
      hereunder.

     

    Section
      6.9 Amendment.
      This Agreement may be amended only by an instrument in writing executed by
      au.
      of the parties hereto.

     

    Section
      6.10 Entire
      Agreement. This Agreement represents a complete integration of all the prior
      and
      contemporaneous agreements and understandings of the parties with respect to
      the
      subject matter of this Agreement. Any and all such prior agreements and
      understandings are hereby superseded by this Agreement.

     

    Section
      6.11 Counterparts.
      This Agreement may be executed in counterparts and via facsimile, each of which
      shall be deemed an original but all of which shall constitute one and the same
      instrument.

     

    
      
         

      

      
        Page
          10

        
          

        

      

      
         

      

    

    Section
      6.12 Survival.
      Each and every representation, warranty, covenant, acknowledgment, and
      indemnification herein above made by Buyer or Seller shall survive the Closing
      and shall not merge into the Closing Documents, but instead shall be
      independently enforceable in accordance with the terms of this
      Agreement.

     

    Section
      6.13 Construction
      of Agreement. Each party acknowledges that it has participated in the
      negotiation of this Agreement and the Closing Documents, and no provision of
      this Agreement or the Closing Documents shall be construed against or
      interpreted to the disadvantage of any party hereto or thereto by reason of
      such
      party having or being deemed to have drafted such provision; and that each
      of
      the parties hereto at all times has had access to an attorney in the negotiation
      of the terms of and in the preparation and execution of this Agreement and
      the
      Closing Documents.

     

    Section
      6.14 Time
      is
      of the Essence. The parties acknowledge and agree that time is of the essence
      with respect to every provision contained in this Agreement.

     

    Section
      6.15 Governing
      Law. This Agreement shall be construed and enforced in accordance with, and
      shall be governed by, the laws of the State of California.

     

    Section
      6.16 Default
      in Payments. In the event that Buyer defaults in the making of payments
      hereinunder, then this Agreement shall be null and void. Seller shall have
      no
      duty to return arty payments made by Buyer to Seller prior to default however,
      any arid all such payments made prior to breach shall be allocated as a payment
      on the underlying Loan to be applied in accordance with the terms of the Hill
      Industries Promissory Note. Buyer further acknowledges and agrees to the
      application of such payments made hereunder to the Loan amounts due and owing
      under the terms of the Hill Industries Promissory Note given its liability
      for
      such payments as a successor guarantor of the Hill Industries Promissory Note
      buy virtue of the merger which occurred on March 30, 2006 between Logistical
      Support, LLC, and Hill Aerospace & Defense, LLC.

     

    
      
         

      

      
        Page
          11

        
          

        

      

      
         

      

    

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

     

    
      	 	
              Buyer:

               

              Logistical
                Support, LLC, 

              a
                California limited liability company

               

               

              By:________________________________

              Print
                Name: ______________________

              Title:___________________________

               

               

            
	 	
              Seller:

               

              National
                Loan Investors, L.P.

               

               

              By:____________________________

              Print
                Name: Pau G. Heafy

              Title:___________________________

               

            

    

     

    
 

    
      
         

      

      
        Page
          12

        
          

        

      

      
         

      

    

    LIST
      OF EXHIBITS

     

    
      	EXHIBIT
              “A”	
              Form
                of Allonge

            

    

     

    
      	EXHIBIT
              “B”	
              Form
                of UCC-2 Assignments

            

    

     

    
      	EXHIBIT
              “C”	
              Promissory
                Note

            

    

     

    
      	EXHIBIT
              “D”	
              List
                of Security Instruments

            

    

     

    

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
      “A”

    ALLONGE
      NOTE ENDORSEMENT

     

    
      	NoteDate:	
              9/15/1999

            

    

     

    
      	LoanAmount:	
              $900,000.00

            

    

     

    
      	Customer(s):	
              Hill
                Industries, Inc.

            

    

     

    

    Pay,
      without recourse or warranty to the order of Logistical Support, L.L.C. on
      July 21, 2006.

     

    
      	 	
              NATIONAL
                LOAN INVESTORS, L.P.

               

               

              By:/s/
                Pau G.
                Heafy                                                    
                

              Pau
                G. Heafy

              Managing
                General Partner

               

            

    

     

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

      
        EXHIBIT
          “B”

         

      

    

    [Letterhead]

    NLI
      National Loan Investors, L.P.

    3030
      N.
      W. Expressway - Suite 1313, Oklahoma City, Oklahoma 73112

    (405)
      947-6171 Extension 244 Email: lertel@nli.com

    
 

    July21.
      2006

    
 

    Logistical
      Support, L.L.C.

    19734
      Dearborn Street

    Chatsworth,
      California 91311

     

    

    
      	Subject:	
              Borrower/Obligator(s)
                Hill Industries, Inc. Hill Aviation Logistics,
                LLC

            

    

    Loan
      Number: 74400100

    Transaction: Transfers

     

    

    

    National
      Loan Investors, L.P. (NLI) hereby authorize Logistical Support, L.L.C. to file
      financing statement amendment(s) in order to assign the below listed financing
      statement(s) that does not contain NLI’s signature, where permitted by law in
      connection with the above transaction for purposes of perfecting your security
      interest under the current Uniform Commercial Code:

     

    
      	
              Financing
                Statement Number

            	
              Filing
                Office

            
	
              9835860181

            	
              SS,
                California

            
	
              9835860184

            	
              SS,
                California

            
	
              9835860155

            	
              SS,
                California

            
	
              9913260284

            	
              SS,
                California

            
	
              9835860186

            	
              SS,
                California

            

    

    

    Logistical
      Support, L.L.C. shall, as soon as practicable following closing, but in no
      event
      more than thirty (30) days after the Closing Date, properly file and record,
      in
      the appropriate public offices, all Financing Statement Assignments above
      mentioned.

     

    

    
      	 	
              NATIONAL
                LOAN INVESTORS, L.P.

               

               

              By:/s/
                M. Lisa
                Ertel                                                
                

              M.
                Lisa Ertel

              Documentation
                Division

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
      “C”

    LOAN
      #2000316198

     

    SECURED
      PROMISSORY NOTE

     

    
      	$900,000.00	
              Dated
                as of

            

    September
      15, 1999

    

    1. INDEBTEDNESS.
      FOR VALUE RECEIVED, the undersigned, HILL
      INDUSTRIES, INC.,
      a
      California corporation (“Maker”) promises to pay to SANTA
      MONICA BANK,
      a
      California banking corporation (hereinafter referred to as “Bank”), on order, at
      1324 Fifth Street, Santa Monica, California 90406-1075 or such other place
      as
      may be designated in writing by the holder of this Secured Promissory Note
      (hereinafter referred to as this “Note”), the principal sum of Nine Hundred
      Thousand and 00/100 Dollars ($900000.00), or such lesser amount as may be
      outstanding from time to time, together with interest accrued thereon. This
      Note
      evidences revolving advances made by Bank to Maker pursuant to
      Sections 2.1A of that certain Amended and Restated Loan and Security
      Agreement, of even date herewith, between Bank and Maker, as amended from time
      to time (the “Loan Agreement”).

     

    2. INTEREST.
      Commencing on the date hereof the unpaid principal balance of this Note shall
      bear interest at a rate two (2.00) percentage points in excess of the prime
      rate
      of interest (the highest variable rate of interest, per annum, published daily
      as the “prime rate” in the Money Rates Section of the Western Edition of the
      Wall Street Journal - hereinafter referred to as the “Prime Rate”). In the event
      that such a rate is no longer published, then the “Prime Rate” shall mean the
      variable rate of interest, per annum, most recently announced by Bank at its
      office in Santa Monica, as its “prime rate”, with the understanding that Bank’s
“prime rate” is one of its base rates and serves as a basis upon which effective
      rates of interest are calculated for loans making reference thereto and may
      not
      be the lowest of Bank’s base rates). In the event that any installment required
      pursuant to Section 3 of this Note is not paid when due, or any other default
      occurs under the terms of this Note, and without affecting any of Bank’s rights
      and remedies provided herein, the unpaid principal balance of this Note shall
      thereafter bear interest at a rate seven (7.00) percentage points above the
      Prime Rate. In the event that the Prime Rate is, from time to time hereafter,
      changed, adjustments in the rate of interest payable hereunder shall be made
      as
      of 12:01 A.M. on the effective date of the change in the Prime Rate. Interest
      chargeable hereunder shall be calculated on the basis of a three hundred sixty
      (360) day year for actual days elapsed.

     

    3. PAYMENT.
      Principal and interest shall be due and payable on the dates and in the manner
      as follows:

     

    (a) Commencing
      on the first (1st) day of October, 1999, and continuing on the same day of
      each
      and every calendar month thereafter, Maker shall make monthly payments of
      interest accrued on the unpaid principal balance hereof,

     

    (b) Commencing
      on the first (1st)
      day of
      October, 1999, and continuing on the same day of each and every calendar month
      thereafter, Maker shall make a monthly principal payment in the amount of
      Seventy Five Thousand Dollars ($75,000.00).

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

       

    

    (c) On
      the
      first (1st) day of February, 2000, Maker shall make payment in full of the
      unpaid principal balance hereof remaining unpaid on such date, together with
      any
      and all accrued and unpaid interest hereunder.

     

    4. REDUCTION
      IN THE MAXIMUM CREDIT LINE. The monthly installments of principal required
      under
      Section 3b of this Note shall constitute a permanent reduction in the
      Maximum Credit Line (as that term is defined in the Loan Agreement). Maker
      shall
      not be entitled to reborrow the installment payments made pursuant to such
      Section.

     

    5. PREPAYMENT.
      Maker may prepay all or part of the principal balance due under this Note,
      without premium or penalty. With each prepayment Maker shall also pay the
      interest accrued on the principal amount being prepaid to the date of such
      prepayment. So long as not event of default shall have occurred under the Loan
      Agreement, subject to the provisions of Section 4 of this Note, Maker may
      request advances from Bank following the prepayment of any amounts
      hereunder.

     

    6. COMPOUND
      INTEREST. Interest not paid when due may be added to the unpaid principal
      balance hereof and shall thereafter bear interest at the same rate as principal.
      All payments hereunder are to be applied first to the payment of accrued
      interest and the balance remaining applied to the payment of principal. All
      principal and interest due hereunder is payable in lawful money of the United
      States of America.

     

    7. LATE
      CHARGE. If a payment of principal or interest is ten (10) days or more late,
      Maker will be charged five percent (5.00%) of the amount of such payment. The
      late charge payable by Maker hereunder is in addition to, and not in lieu of,
      all other rights and remedies of Bank.

     

    8. WAIVERS.
      Maker, for itself, its legal representatives, successors and assigns, expressly
      waives presentment, protest, demand, notice of dishonor, notice of nonpayment,
      notice of maturity, notice of protest, presentment for the purpose of
      accelerating maturity, and diligence in collection, and consents that Bank
      may
      extend the time for payment or otherwise modify the terms of payment of any
      part
      or the whole of the debt evidenced hereby. To the fullest extent permitted
      by
      law, Maker waives the statute of limitations in any action brought by Bank
      in
      connection with this Note.

     

    9. ACCELERATION.
      IT IS EXPRESSLY AGREED THAT UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT UNDER
      THE TERMS OR CONDITIONS OF THE LOAN AGREEMENT, THEN THE UNPAID PRINCIPAL BALANCE
      OF THIS NOTE, TOGETHER WITH INTEREST ACCRUED THEREON, SHALL THEREUPON BE
      IMMEDIATELY DUE AND PAYABLE AT THE OPTION OF THE HOLDER HEREOF, WITHOUT
      PRESENTMENT, DEMAND, PROTEST OR NOTICE OF PROTEST OF ANY KIND, ALL OF WHICH
      ARE
      HEREBY EXPRESSLY WAIVED.

     

    10. ATTORNEYS’
      FEES AND CHOICE OF LAW. In the event it should become necessary to employ
      counsel to collect this Note, Maker agrees to pay the reasonable attorney’s fees
      and paralegals’ fees (including allocated costs for in-house legal services
      provided and attorneys’ fees and paralegals’ fees in all bankruptcy proceedings)
      and cost of the holder hereof, whether or not suit is brought. This Note and
      all
      transactions hereunder and/or evidenced hereby shall be governed by, construed
      under and enforced in accordance with the laws of the State of
      California.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    11. PARTICIPATION.
      Bank reserves the right to sell, assign, transfer, negotiate, or grant
      participation interests in all or any part of, or any interest in Bank’s rights
      and benefits hereunder. In connection therewith, Bank may disclose all documents
      and information which Bank now or hereafter may have relating to
      Maker.

     

    12. MODIFICATION.
      This Note may not be changed, modified, amended or terminated
      orally.

     

    13. WAIVER
      OF
      JURY TRIAL. MAKER AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
      OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT
      OR
      ANY OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY
      DEALINGS BETWEEN MAKER AND BANK RELATING TO THIS AGREEMENT, WHETHER SOUNDING
      IN
      CONTRACT, TORT OR OTHERWISE MAKER AND BANK EACH ACKNOWLEDGE THAT THIS WAIVER
      IS
      A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH OF MAKER
      AND BANK HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT
      AND
      THAT EACH OF MAKER AND BANK WILL CONTINUE TO RELY ON THIS WAIVER IN ANY RELATED
      FUTURE DEALINGS BETWEEN MAKER AND BANK. MAKER AND BANK FURTHER WARRANT AND
      REPRESENT THAT THEY EACH KNOWINGLY AND VOLUNTARILY WAIVE THEIR RESPECTIVE JURY
      TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

     

    
      	 	
              HILL
                INDUSTRIES, INC.,

              a
                California corporation

               

               

              By:/s/
[illegible]                                      
                

              Title: Pres.

               

            

    

    

    SANTA
      MONICA BANK hereby accepts this Note and agrees to the provisions contained
      in
      Section 13 of the Note.

     

    
      	 	
              SANTA
                MONICA BANK,

              a
                California banking corporation

               

               

              By:/s/
[illegible]                                       
                

              Title: Senior
                Vice President

            

    

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

       

    

    ALLONGE

     

     

    Pay
      to
      the order of National
      Loan Investors, LP.
      (“NLI”),
      WITHOUT
      REPRESENTATION, WARRANTY OR RECOURSE except for any representation, warranty
      or
      recourse explicitly stated in that certain Loan Purchase Agreement dated March
      20, 2002 between NLI and the undersigned.

     

    

    
      	 	
              U.S.
                Bank National Association, f/k/a Firstar Bank, National Association,
                successor by mergert to U.S. Bank National Association, successor
                in
                merger to Santa Monica Bank

               

              By:/s/
                Patrick T.
                Morrissey                                                   

              Patrick
                t. Morrissey, Attorney-In-Fact

               

            

    

    

    

    ID
      105,
      74400100, 200, HILL INDUSTRIES, INC. ET AL

    

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
      “D”

     

    
      	
              1.

            	
              Amended
                and Restated Loan and Security Agreement dated
                9/15/99

            

    

    
      	
              2.

            	
              Extension
                and Modification Agreement dated
                11/7/01

            

    

    
      	
              3.

            	
              Forbearance
                and Modification Agreement dated
                12/1/02

            

    

    
      	
              4.

            	
              Second
                Forbearance and Modification Agreement dated
                2/1/04

            

    

    
      	
              5.

            	
              Loan
                Modification Agreement dated
                1/26/05

            

    

    
      	
              6.

            	
              Commercial
                Security Agreement dated 2/8/99 (Hill Worldwide,
                LLC)

            

    

    
      	
              7.

            	
              Commercial
                Security Agreement dated 2/8/99 (Hill Aerospace & Defense,.
                LLC)

            

    

    
      	
              8.

            	
              Commercial
                Security Agreement dated 2/8/99 (Hill Aviation & Logistics,
                LLC)

            

    

    
      	
              9.

            	
              Commercial
                Security Agreement dated 2/8/99 (Hill industries,
                Inc.)

            

    

    
      	
              10.

            	
              Commercial
                Security Agreement dated 2/8/99 (Hill industries,
                LLC)

            

    

    
      	
              11.

            	
              Security
                Agreement dated 9/15/99 by Hill Industries,
                LLC

            

    

    
      	
              12.

            	
              Security
                Agreement dated 9/15/99 by Hill Aerospace & Defense,
                LLC

            

    

    
      	
              13.

            	
              Security
                Agreement dated 9/15/99 by Hill Aviation Logistics,
                LLC

            

    

    
      	
              14.

            	
              Security
                Agreement dated 9/15/99 by Hill Worldwide,
                LLC

            

    

    
      	
              15.

            	
              Financing
                Statement #9835860181 and all supplementals pertaining
                thereto

            

    

    
      	
              16.

            	
              Financing
                Statement #9835860155 and all supplementals pertaining
                thereto

            

    

    
      	
              17.

            	
              Financing
                Statement #9913260283 and all supplementals pertaining
                thereto

            

    

    
      	
              18.

            	
              Financing
                Statement #9835860186 and all supplementals pertaining
                thereto

            

    

    
      	
              19.

            	
              First
                Amended and Restated Guaranty dated
                1/26/05

            

    

    
      	
              20.

            	
              Continuing
                Guaranty dated 9/15/99 by Harry
                Lebovitz

            

    

    
      	
              21.

            	
              Continuing
                Guaranty dated 9/15/99 by G. Scott Littell, as
                Trustee

            

    

    
      	
              22.

            	
              Continuing
                Guaranty dated 9/15/99 by Hill Industries,
                LLC

            

    

    
      	
              23.

            	
              Continuing
                Guaranty dated 9/15/99 by Hill Aviation Logistics,
                LLC

            

    

    
      	
              24.

            	
              Continuing
                Guaranty dated 9/15/99 by Hill Worldwide,
                LLC

            

    

    
      	
              25.

            	
              Continuing
                Guaranty dated 9/15/99 by Hill Aerospace & Defense,
                LLC

            

    

    
      	
              26.

            	
              Commercial
                Guaranty dated 2/8/99 by Harry
                Lebovitz

            

    

    
      	
              27.

            	
              Commercial
                Guaranty dated 8/7/97 by Harry
                Lebovitz

            

    

    
      	
              28.

            	
              Commercial
                Guaranty dated 2/8/99 by Hill Aviation Logistics,
                LLC

            

    

    
      	
              29.

            	
              Commercial
                Guaranty dated 8/7/97 by Hill Aviation Logistics,
                LLC

            

    

    
      	
              30.

            	
              Commercial
                Guaranty dated 2/8/99 by Hill Worldwide,
                LLC

            

    

    
      	
              31.

            	
              Commercial
                Guaranty dated 8/7/97 by Hill Worldwide,
                LLC

            

    

    
      	
              32.

            	
              Commercial
                Guaranty dated 2/8/99 by Hill Aerospace & Defense,
                LLC

            

    

    
      	
              33.

            	
              Commercial
                Guaranty dated 8/7/97 by Hill Aerospace & Defense,
                LLC

            

    

    
      	
              34.

            	
              Commercial
                Guaranty dated 2/8/99 by Hill Industries,
                LLC

            

    

    
      	
              35.

            	
              Commercial
                Guaranty dated 8/7/97 by Hill Industries,
                LLC

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]