Document:

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                                                                     EXHIBIT 4.7
                                                                       EXHIBIT C

      THIS PREFERRED WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
      PREFERRED WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
      STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES
      REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE
      OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
      SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
      AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

                                         Right to Purchase Shares of
                                         Series C Convertible Preferred Stock,
                                         par value $0.01 per share, and Warrants
                                         to Purchase Shares of Common Stock, par
                                         value $0.02 per share

Date: July 1, 2005

                             PDG ENVIRONMENTAL, INC.

                                     WARRANT

                           TO PURCHASE PREFERRED STOCK

                            AND COMMON STOCK WARRANTS

                           OF PDG ENVIRONMENTAL, INC.

      THIS CERTIFIES THAT, for value received, ____________________, or its
registered assigns, is entitled to purchase from PDG Environmental, Inc., a
corporation organized under the laws of the State of Delaware (the "COMPANY"),
at any time or from time to time during the period specified in Section 3
hereof, up to ___________ (____)units (the "ADDITIONAL UNITS"), each Additional
Unit consisting of (1) one (1) fully-paid and nonassessable share (the
"ADDITIONAL PREFERRED SHARES") of the Company's Series C Convertible Preferred
Stock, par value $0.01 per share (the "PREFERRED STOCK"), with the rights and
privileges set forth in the form of Certificate of Designation, Preferences and
Rights attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATIONS") and (2)
(A) a warrant, in the form attached hereto as Exhibit B1, to purchase two
hundred and fifty (250) shares of the Company's common stock, par value $0.02
per share (the "COMMON STOCK"), at an exercise price of One Dollar and Eleven
Cents ($1.11)

<PAGE>

per share, and (B) a warrant, in the form attached hereto as Exhibit B2, to
purchase two hundred and fifty (250) shares of the Company's Common Stock at an
exercise price of One Dollar and Thirty-Three Cents ($1.33) per share (the
"ADDITIONAL WARRANTS"). The exercise price per Additional Unit shall be One
Thousand Dollars ($1,000) (the "EXERCISE PRICE"). The term "PREFERRED WARRANT"
and all references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented, including all Preferred Warrants issued upon
transfer or exchange of this Preferred Warrant as provided herein, and the term
"PREFERRED WARRANTS" means this Preferred Warrant and the other Preferred
Warrants of the Company issued pursuant to that certain Securities Purchase
Agreement, dated as of July 1, 2005, by and among the Company and the other
signatories thereto (the "SECURITIES PURCHASE AGREEMENT").

                                       -2-
<PAGE>

      This Preferred Warrant is subject to the following terms, provisions and
conditions:

1.    Exercise of Preferred Warrant.

      (a) This Preferred Warrant may be exercised, at any time during the
Exercise Period (as defined in Section 3), by the holder hereof, in whole or in
part, by the surrender of this Preferred Warrant, together with a completed
exercise agreement in the form attached hereto (the "EXERCISE AGREEMENT"), to
the Company during normal business hours on any business day at the Company's
principal executive offices (or such other office or agency of the Company as it
may designate by written notice to the holder hereof), and upon payment to the
Company in cash, by certified or official bank check or by wire transfer for the
account of the Company, of the Exercise Price for the Additional Units as to
which this Preferred Warrant is being exercised.

      (b) The Additional Units purchased upon exercise of this Preferred Warrant
in accordance with this Section 1 shall be deemed to be issued to the holder
hereof or the holder's designee, as the record owner of such Additional Units,
and shall be deemed to be outstanding, in each case, as of the close of business
on the date on which this Preferred Warrant shall have been surrendered, the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such Additional Units as set forth above or, if such date is not a
business day, on the next succeeding business day. The Additional Units so
purchased, representing the aggregate number of Additional Units specified in
the Exercise Agreement, shall be delivered to the holder hereof or the holder's
designee within a reasonable time, not exceeding three (3) business days, after
this Preferred Warrant shall have been so exercised (the "DELIVERY PERIOD"). Any
certificates representing Additional Preferred Shares and Additional Warrants
comprising the Additional Units shall be in such denominations as may be
reasonably requested by the holder hereof or the holder's designee and shall be
registered in the name of the holder or such other name as shall be designated
by the holder. If this Preferred Warrant shall have been exercised only in part,
then the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the holder a new Preferred Warrant representing the
number of Additional Units with respect to which this Preferred Warrant shall
not then have been exercised; provided, however, that the holder hereof shall be
entitled to exercise all or any portion of such new Preferred Warrant at any
time following the time at which this Preferred Warrant is exercised, regardless
of whether the Company has actually issued such new Preferred Warrant or
delivered to the holder a certificate therefor.

2.    Delivery of Additional Preferred Shares and Additional Warrants.

      (a) Upon delivery of an Exercise Notice and tender of the Exercise Price
by the holder hereof, the Company shall deliver to the holder hereof (i) (A) a
certificate or certificates in respect of the Additional Preferred Shares and
(B) the Additional Warrants issuable upon such exercise, in each case, in such
name or names and in the denominations as the holder hereof may designate, (ii)
a certificate from an officer of the Company that each representation and
warranty of the Company set forth in Section 3 of the Purchase Agreement is true
and correct as of the Exercise Date as though made on and as of such date, and
each other condition specified in Section 7 of the Purchase Agreement has been
satisfied as of the Exercise Date.

                                       -3-
<PAGE>

      (b) The Company's obligation to issue and deliver Additional Preferred
Shares and Additional Warrants in accordance with the terms hereof is absolute
and unconditional, regardless of any action or inaction by the holder hereof to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any set-off, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the holder hereof or any other Person of any
obligation to the Company or any violation or alleged violation of law by the
holder hereof or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the holder hereof
in connection with the issuance of Additional Units. Nothing herein shall limit
the right of any holder hereof to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to deliver certificates representing Additional Preferred Shares and an
Additional Warrant upon exercise of the Preferred Warrant at the times and in
the form required pursuant to the terms hereof.

3.    Period of Exercise. This Preferred Warrant shall be exercisable at any
time or from time to time during the period (the "EXERCISE PERIOD") commencing
on the date of initial issuance of this Preferred Warrant (the "ISSUE DATE") and
ending at 5:00 p.m., New York City time, on the ninetieth (90th) day after the
later of (a) the date on which the Registration Statement, as defined in and
pursuant to that certain Registration Rights Agreement, dated as of July 1,
2005, by and among the Company and the other signatories thereto, is first
declared effective by the United States Securities and Exchange Commission and
(b) the date on which the Company, pursuant to Section 4(f) of the Securities
Purchase Agreement, shall have (i) obtained stockholder approval of an amendment
to its Certificate of Incorporation increasing the number of authorized shares
of Common Stock from thirty million (30,000,000) shares to at least sixty
million (60,000,000) shares and (ii) taken any and all other actions necessary
to (x) effect such amendment to its Certificate of Incorporation and (y) upon
obtaining such stockholder approval, reserve such number of shares of its
authorized but unissued shares of Common Stock that is equal to (A) the
aggregate number of shares of Common Stock issuable in satisfaction of the
Issuance Obligations (as defined in the Securities Purchase Agreement)
immediately following the consummation of the transactions contemplated by the
Securities Purchase Agreement, multiplied by (B) one hundred and twenty-five
percent (125%).

4.    Issue Tax. The issuance of certificates for Additional Preferred Shares
and the issuance of Additional Warrants upon the exercise of this Preferred
Warrant shall be made without charge to the holder hereof or such shares for any
issuance tax or other costs in respect thereof, provided that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
the holder hereof.

5.    Adjustments. The Conversion Price, Exercise Price and other respective
terms of the Additional Preferred Shares and Additional Warrants issuable upon
exercise of this Preferred Warrant shall be subject to adjustment from time to
time as set forth in the Certificate of Designations or Additional Warrants, as
applicable, and all such terms are incorporated by reference herein. The Company
will deliver to the holder hereof written notice, at the same time that it is
required to give such notice under the Certificate of Designations or the
Additional Warrants, of any event or transaction potentially giving rise to an
adjustment or modification of

                                       -4-
<PAGE>

the terms and provisions of the Additional Preferred Shares or the Additional
Warrants. The Company will take all steps reasonably necessary in order to
insure that the holder hereof is able to exercise this Preferred Warrant prior
to the time of such event or transaction so as to participate in or vote with
respect to such event or transaction.

6.    No Rights or Liabilities as a Shareholder. This Preferred Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Preferred Warrant, in the
absence of affirmative action by the holder hereof to purchase Additional Units
and, thereafter, to purchase shares of Common Stock upon the conversion of the
Additional Preferred Shares or the exercise of the Additional Warrants, and no
mere enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such holder for the Exercise Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

7.    Transfer, Exchange, Redemption and Replacement of Preferred Warrant.

      (a) Restriction on Transfer. This Preferred Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon surrender of
this Preferred Warrant, together with a properly executed assignment in the form
attached hereto, at the office or agency of the Company referred to in Section
9(f) below, provided, however, that any transfer or assignment shall be subject
to the conditions set forth in Sections 7(f) hereof and to the provisions of
Section 5 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Section 8 hereof are assignable only in accordance with the provisions of the
Registration Rights Agreement.

      (b) Preferred Warrant Exchangeable for Different Denominations. This
Preferred Warrant is exchangeable, upon the surrender hereof by the holder
hereof at the office or agency of the Company referred to in Section 9(f) below,
for new Preferred Warrants of like tenor of different denominations representing
in the aggregate the right to purchase the number of Additional Units which may
be purchased hereunder, each of such new Preferred Warrants to represent the
right to purchase such number of Additional Units as shall be designated by the
holder hereof at the time of such surrender.

      (c) Replacement of Preferred Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Preferred Warrant and, in the case of any such loss, theft, or destruction,
upon delivery of an indemnity agreement reasonably satisfactory in form and
amount to the Company, or, in the case of any such mutilation, upon surrender
and cancellation of this Preferred Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Preferred Warrant of like tenor.

      (d) Cancellation; Payment of Expenses. Upon the surrender of this
Preferred Warrant in connection with any transfer, exchange, or replacement as
provided in Section 7(c) hereof, this Preferred Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any,

                                       -5-
<PAGE>

incurred by the holder of this Preferred Warrant or transferees) and charges
payable in connection with the preparation, execution, and delivery of Preferred
Warrants pursuant to Section 7(c) hereof. The Company shall indemnify and
reimburse the holder of this Preferred Warrant for all losses and damages
arising as a result of or related to any breach of the terms of this Preferred
Warrant, including costs and expenses (including legal fees) incurred by such
holder in connection with the enforcement of its rights hereunder.

      (e) Preferred Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Preferred
Warrant, in which the Company shall record the name and address of the person in
whose name this Preferred Warrant has been issued, as well as the name and
address of each transferee and each prior owner of this Preferred Warrant.

      (f) Transfer or Exchange Without Registration. If, at the time of the
surrender of this Preferred Warrant in connection with any transfer or exchange
of this Preferred Warrant, this Preferred Warrant (or, in the case of any
exercise, the Additional Preferred Shares and Additional Warrants issuable
hereunder) shall not be registered under the Securities Act and under applicable
state securities or blue sky laws, the Company may require, as a condition of
allowing such transfer or exchange, (i) that the holder or transferee of this
Preferred Warrant, as the case may be, furnish to the Company a written opinion
of counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such transfer
or exchange may be made without registration under the Securities Act and under
applicable state securities or blue sky laws (the cost of which shall be borne
by the Company if the Company's counsel renders such an opinion, and up to
$1,000 of such cost shall be borne by the Company if the holder's counsel is
required to render such opinion), (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "ACCREDITED INVESTOR" as defined
in Rule 501(a) promulgated under the Securities Act; provided, however, that no
such opinion, letter, or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act.

8.    Registration Rights. The initial holder of this Preferred Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares and Conversion Shares (each as defined
in the Securities Purchase Agreement) as are set forth in the Registration
Rights Agreement, including the right to assign such rights to certain
assignees, as set forth therein.

9.    Miscellaneous.

      (a) Governing Law; Jurisdiction. This Preferred Warrant shall be governed
by and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the exclusive jurisdiction of the United States federal
courts and the state courts located in the County of New Castle, State of
Delaware, in any suit or proceeding based on or arising under this Preferred
Warrant and irrevocably agrees that all claims in respect of such suit or
proceeding ay be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding
in such forum. The Company further agrees

                                       -6-
<PAGE>

that service of process upon the Company mailed by first class mail shall be
deemed in every respect effective service of process upon the Company in any
such suit or proceeding. Nothing herein shall affect the right of the holder to
serve process in any other manner permitted by law. The Company agrees 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.

      (b) Successors and Assigns. This Preferred Warrant shall be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.

      (c) Construction. Whenever the context requires, the gender of any word
used in this Preferred Warrant includes the masculine, feminine or neuter, and
the number of any word includes the singular or plural. Unless the context
otherwise requires, all references to articles and sections refer to articles
and sections of this Preferred Warrant, and all references to schedules are to
schedules attached hereto, each of which is made a part hereof for all purposes.
The descriptive headings of the several articles and sections of this Preferred
Warrant are inserted for purposes of reference only, and shall not affect the
meaning or construction of any of the provisions hereof.

      (d) Severability. If any provision of this Preferred Warrant shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Preferred Warrant or the validity or enforceability of this
Preferred Warrant in any other jurisdiction.

      (e) Entire Agreement; Amendments. This Preferred Warrant contains the
entire understanding of the Company and the holder hereof with respect to the
matters covered herein. Subject to any additional express provisions of this
Preferred Warrant, no provision of this Preferred Warrant may be waived other
than by an instrument in writing signed by the party to be charged with
enforcement, and no provision of this Preferred Warrant may be amended other
than by an instrument in writing signed by the Company and the holder.

      (f) Notices. Any notices required or permitted to be given under the terms
of this Preferred Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally, by nationally recognized overnight
carrier or by confirmed facsimile transmission, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by nationally recognized overnight carrier
or confirmed facsimile transmission, in each case addressed to a party. The
initial addresses for such communications shall be as follows, and each party
shall provide notice to the other parties of any change in such party's address:

                                       -7-
<PAGE>

            (i)   If to the Company:

                  PDG Environmental, Inc.
                  1386 Beulah Road, Building 801
                  Pittsburgh, Pennsylvania 15235
                  Telephone: (412) 243-3200
                  Facsimile: (412) 243-4900
                  Attention: Chief Executive Officer

                  with a copy simultaneously transmitted by like means
                  (which transmittal shall not constitute notice
                  hereunder) to:

                  Cohen & Grigsby, P.C.
                  11 Stanwix Street, 15th Floor
                  Pittsburgh, PA 15222
                  Telephone: (412) 297-4831
                  Facsimile: (412) 209-1825
                  Attention: James D. Chiafullo, Esq.

            (ii)  If to the holder, at such address as shall be set forth in the
Preferred Warrant Register from time to time.

      (g) Successors and Assigns. This Preferred Warrant shall be binding upon
and inure to the benefit of the parties and their successors and assigns. Except
as provided herein, the Company shall not assign this Preferred Warrant or its
obligations hereunder. The holder hereof may assign or transfer this Preferred
Warrant and such holders rights hereunder in accordance with Section 7 hereof.

      (h) Equitable Relief. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder by vitiating the
intent and purpose of this Preferred Warrant. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations hereunder
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Preferred Warrant, that the holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

                [REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]

                                       -8-
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Preferred Warrant to be
signed by its duly authorized officer.

                             PDG ENVIRONMENTAL, INC.

                             By:
                                 -----------------------------------------------
                             Name: John C. Regan
                             Title: President & CEO

                      [SIGNATURE PAGE TO PREFERRED WARRANT]

<PAGE>

                             FORM OF EXERCISE NOTICE

    (TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE PREFERRED WARRANT)

To:   PDG Environmental, Inc.
      1386 Beulah Road, Building 801
      Pittsburgh, Pennsylvania 15235
      Telephone: (412) 243-3200
      Facsimile: (412) 243-4900
      Attention: Chief Executive Officer

1.    The undersigned Holder of Preferred Warrant No. _______ (the "PREFERRED
      WARRANT") issued by PDG Environmental, Inc., a Delaware corporation (the
      "COMPANY"), hereby exercises its right to purchase ____________ Additional
      Units. Capitalized terms used herein and not otherwise defined have the
      respective meanings set forth in the Preferred Warrant.

2.    The Holder shall pay the Exercise Price of $____________ to the Company in
      accordance with the terms of the Preferred Warrant.

3.    The Company shall deliver to the Holder the Additional Preferred Shares
      and Additional Warrants comprising the Additional Units into which this
      Preferred Warrant is exercised in accordance with the terms of the
      Preferred Warrant.

4.    Following the exercise effected hereby, the Preferred Warrant shall be
      exercisable into ______________ Additional Units.

Dated:_________________                     ____________________________________
                                                  Signature of Holder

                                            ____________________________________
                                                  Name of Holder (Print)

                                                   Address:

                                            ____________________________________

                                            ____________________________________

                                            ____________________________________

<PAGE>

                               FORM OF ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Preferred Warrant, with
respect to the number of Additional Preferred Shares and Additional Warrants
covered thereby set forth herein below, to:

<TABLE>
<CAPTION>
Name of Assignee  Address  No. of Shares
----------------  -------  -------------
<S>               <C>      <C>
</TABLE>

, and hereby irrevocably constitutes and appoints
_____________________________________ as agent and attorney-in-fact to transfer
said Preferred Warrant on the books of the within-named corporation, with full
power of substitution in the premises.

Dated: _____________________, ____

In the presence of

____________________

                                 Name:__________________________________________

                                 Signature:_____________________________________
                                 Title of Signing Officer or Agent (if any):

                                 _______________________________________________

                                 Address:_______________________________________

                                         _______________________________________

                                         _______________________________________

                                 Note: The above signature should correspond
                                       exactly with the name on the face of the
                                       within Preferred Warrant.<PAGE>

                                                                    EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

      This Securities Purchase Agreement (this "Agreement") is dated as of July
1, 2005, among PDG Environmental, Inc., a Delaware corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").

      WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

      1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated in this Section 1.1:

            "Action" shall have the meaning ascribed to such term in Section
      3.1(j).

            "Affiliate" means any Person that, directly or indirectly through
      one or more intermediaries, controls or is controlled by or is under
      common control with a Person, as such terms are used in and construed
      under Rule 144 under the Securities Act. With respect to a Purchaser, any
      investment fund or managed account that is managed on a discretionary
      basis by the same investment manager as such Purchaser will be deemed to
      be an Affiliate of such Purchaser.

            "Closing" means the closing of the purchase and sale of the
      Securities pursuant to Section 2.1.

            "Closing Date" means the Trading Day when all of the Transaction
      Documents have been executed and delivered by the applicable parties
      thereto, and all conditions precedent to (i) the Purchasers' obligations
      to pay the Subscription Amount and (ii) the Company's obligations to
      deliver the Securities have been satisfied or waived.

            "Commission" means the Securities and Exchange Commission.

            "Common Stock" means the common stock of the Company, par value
      $0.02 per share, and any securities into which such common stock shall
      hereinafter have been reclassified into.

<PAGE>

            "Common Stock Equivalents" means any securities of the Company or
      the Subsidiaries which would entitle the holder thereof to acquire at any
      time Common Stock, including without limitation, any debt, preferred
      stock, rights, options, warrants or other instrument that is at any time
      convertible into or exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock.

            "Company Counsel" means Cohen & Grigsby, P.C.

            "Disclosure Schedules" shall have the meaning ascribed to such term
      in Section 3.1.

            "Effective Date" means the date that the initial Registration
      Statement filed by the Company pursuant to the Registration Rights
      Agreement is first declared effective by the Commission.

            "Evaluation Date" shall have the meaning ascribed to such term in
      Section 3.1(r).

            "Exchange Act" means the Securities Exchange Act of 1934, as
      amended.

            "Exempt Issuance" means the issuance of (a) shares of Common Stock
      or options to employees, consultants, officers or directors of the Company
      pursuant to any stock or option plan duly adopted by a majority of the
      non-employee members of the Board of Directors of the Company or a
      majority of the members of a committee of non-employee directors
      established for such purpose (provided, however, that any such issuances
      to consultants of the Company shall not exceed 2% of the issued and
      outstanding Common Stock as of the date hereof), (b) Common Stock upon the
      exercise of or conversion of any Securities issued hereunder, or
      convertible securities, options or warrants issued and outstanding on the
      date of this Agreement (including Common Stock issuable pursuant to
      anti-dilution provisions contained in such securities prior to the
      execution of this Agreement), provided that such securities have not been
      amended since the date of this Agreement to increase the number of such
      securities or to decrease the exercise or conversion price of any such
      securities, (c) shares of the Company's preferred stock or warrants issued
      pursuant to that certain Securities Purchase Agreement dated July 1, 2005
      (the "Preferred Stock Purchase Agreement")(and any shares of Common Stock
      issuable upon exercise thereof)(including Common Stock issuable pursuant
      to anti-dilution provisions contained in such securities), (d) securities
      issued pursuant to acquisitions or strategic transactions, but shall not
      include a transaction in which the Company is issuing securities primarily
      for the purpose of raising capital or to an entity whose primary business
      is investing in securities, (e) up to an amount of nonconvertible debt
      issued to a lending institution, which financing may include warrants
      issuable to such lender to purchase up to 500,000 shares of Common Stock
      as partial consideration for such loan transaction, provided, however,
      such debt may only be incurred by the Company to the extent the aggregate
      Subscription Amounts hereunder are equal to or less than $7,000,000, in
      which case the amount of such debt plus the aggregate Subscription Amounts
      shall not exceed $7,000,000. If the aggregate Subscription Amounts
      hereunder are $7,000,000 or more, no securities may be issuable pursuant
      to subsection (e) above.

                                       2
<PAGE>

            "FW" means Feldman Weinstein LLP with offices at 420 Lexington
      Avenue, Suite 2620, New York, New York 10170-0002.

            "GAAP" shall have the meaning ascribed to such term in Section
      3.1(h).

            "Intellectual Property Rights" shall have the meaning ascribed to
      such term in Section 3.1(o).

            "Legend Removal Date" shall have the meaning ascribed to such term
      in Section 4.1(c).

            "Liens" means a lien, charge, security interest, encumbrance, right
      of first refusal, preemptive right or other restriction.

            "Material Adverse Effect" shall mean (i) any circumstance affecting,
      change in or effect on the Company and its Subsidiaries that is, or
      imminently shall be, materially adverse to the business, properties,
      assets, liabilities (absolute, accrued, or contingent), operations or
      results of operation of the Company and its Subsidiaries, taking the
      Company together with its subsidiaries as a whole, (ii) a material adverse
      effect on the legality, validity or enforceability of any Transaction
      Document; or (iii) a material adverse effect on the Company's ability to
      perform in any material respect on a timely basis its obligations under
      any Transaction Document; provided, however, that none of the following
      shall be deemed, in themselves, either alone or in combination, to
      constitute a Material Adverse Effect, and none of the following shall be
      taken into account in determining whether there has been or shall be a
      Material Adverse Effect: (a) any change in the market price or trading
      volume of the Common Stock of the Company after the date hereof or (b) any
      adverse circumstance, change or effect resulting directly from conditions
      affecting the industries in which the Company participates in their
      entirety, the U.S. economy as a whole, or foreign economies as a whole in
      any countries where the Company or any of its Subsidiaries has material
      operations.

            "Material Permits" shall have the meaning ascribed to such term in
      Section 3.1(m).

            "Participation Maximum" shall have the meaning ascribed to such term
      in Section 4.12.

            "Permitted Liens" means (i) minor imperfections of title, if any,
      none of which, individually or in the aggregate, are substantial in
      amount, materially detract from the value or impair use of the property
      subject thereto, or impair the operations of the Company or any of its
      subsidiaries and which have arisen only in the ordinary course of business
      and consistent with past practices since the Balance Sheet Date; (ii)
      Liens for taxes, fees, assessments or other similar charges or levies of
      governmental entities, the payment of which is neither delinquent nor
      subject to penalties; (iii) Liens consisting of deposits or pledges to
      secure the payment of worker's compensation, unemployment insurance or
      other social security benefits or obligations, or to secure the
      performance of

                                       3
<PAGE>

      bids, trade contracts, leases, public or statutory obligations, surety or
      appeal bonds or other obligations of a like nature incurred in the
      ordinary course of business; (iv) easements, rights of way, servitudes or
      zoning or building restrictions and other minor encumbrances on real
      property and irregularities in the time to such property or risk the loss
      or forfeiture of title thereto; (v) Liens upon or in any property acquired
      or held by the Company to secure the purchase price of such property or
      indebtedness incurred solely for the purpose of financing the acquisition
      of such property, or existing on such property so acquired and
      improvements thereon; (vi) statutory Liens of landlords or equipment
      lessors against any property of the Company or its Subsidiaries existing
      as of the date of the Purchase Agreement in favor of suppliers, mechanics,
      carriers, materialmen, warehousemen or workmen and (vii) Liens listed on
      Schedule 3.1(n).

            "Per Share Purchase Price" equals $0.90, subject to adjustment for
      reverse and forward stock splits, stock dividends, stock combinations and
      other similar transactions of the Common Stock that occur after the date
      of this Agreement, but prior to Closing.

            "Person" means an individual or corporation, partnership, trust,
      incorporated or unincorporated association, joint venture, limited
      liability company, joint stock company, government (or an agency or
      subdivision thereof) or other entity of any kind.

            "Pre-Notice" shall have the meaning ascribed to such term in Section
      4.12.

            "Proceeding" means an action, claim, suit, investigation or
      proceeding (including, without limitation, an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

            "Purchaser Party" shall have the meaning ascribed to such term in
      Section 4.10.

            "Registration Rights Agreement" means the Registration Rights
      Agreement, dated the date hereof, among the Company and the Purchasers, in
      the form of Exhibit A attached hereto.

            "Registration Statement" means a registration statement meeting the
      requirements set forth in the Registration Rights Agreement and covering
      the resale of the Shares and Warrant Shares by each Purchaser as provided
      for in the Registration Rights Agreement.

            "Required Approvals" shall have the meaning ascribed to such term in
      Section 3.1(e).

            "Required Minimum" means, as of any date, the maximum aggregate
      number of shares of Common Stock then issued or potentially issuable in
      the future pursuant to the Transaction Documents, including any Warrant
      Shares issuable upon exercise in full of all Warrants, ignoring any
      exercise limits set forth therein, and assuming that the exercise price of
      such Warrants is at all times on and after the date of determination 75%
      of the then exercise price on the Trading Day immediately prior to the
      date of determination.

                                       4
<PAGE>

            "Rule 144" means Rule 144 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same effect as such Rule.

            "SEC Reports" shall have the meaning ascribed to such term in
      Section 3.1(h).

            "Securities" means the Shares the Warrants, the Warrant Shares.

            "Securities Act" means the Securities Act of 1933, as amended.

            "Shares" means the shares of Common Stock issued or issuable to each
      Purchaser pursuant to this Agreement.

            "Short Sales" shall include all "short sales" as defined in Rule 200
      of Regulation SHO under the Exchange Act.

            "Subscription Amount" means, as to each Purchaser, the amount to be
      paid for Shares and Warrants purchased hereunder as specified below such
      Purchaser's name on the signature page of this Agreement and next to the
      heading "Subscription Amount", in United States Dollars and in immediately
      available funds.

            "Subsequent Financing" shall have the meaning ascribed to such term
      in Section 4.12.

            "Subsequent Financing Notice" shall have the meaning ascribed to
      such term in Section 4.12.

            "Subsidiary" means any subsidiary of the Company as set forth on
      Schedule 3.1(a).

            "Trading Day" means a day on which the Common Stock is traded on a
      Trading Market

            "Trading Market" means the following markets or exchanges on which
      the Common Stock is listed or quoted for trading on the date in question:
      the Nasdaq SmallCap Market, the American Stock Exchange, the New York
      Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

            "Transaction Documents" means this Agreement, the Warrants, the
      Registration Rights Agreement and any other documents or agreements
      executed in connection with the transactions contemplated hereunder.

            "VWAP" means, for any date, the price determined by the first of the
      following clauses that applies: (a) if the Common Stock is then listed or
      quoted on a Trading Market, the daily volume weighted average price of the
      Common Stock for such date (or the nearest preceding date) on the primary
      Trading Market on which the Common Stock

                                       5
<PAGE>

      is then listed or quoted as reported by Bloomberg Financial L.P. (based on
      a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
      function; (b) if the Common Stock is not then listed or quoted on the
      Trading Market and if prices for the Common Stock are then reported in the
      "Pink Sheets" published by the Pink Sheets, LLC (or a similar organization
      or agency succeeding to its functions of reporting prices), the most
      recent bid price per share of the Common Stock so reported; or (c) in all
      other cases, the fair market value of a share of Common Stock as
      determined by a nationally recognized-independent appraiser selected in
      good faith by Purchasers holding a majority of the Shares.

            "Warrants" means collectively the Common Stock purchase warrants, in
      the form of Exhibit B delivered to the Purchasers at the Closing in
      accordance with Section 2.2(a) hereof.

            "Warrant Shares" means the shares of Common Stock issuable upon
      exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

      2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to
$4,000,000, in the aggregate, of Subscription Amount of Shares and Warrants.
Each Purchaser shall deliver to the Company via wire transfer or a certified
check immediately available funds equal to their Subscription Amount and the
Company shall deliver to each Purchaser their respective Shares and Warrants as
determined pursuant to Section 2.2(a) and the other items set forth in Section
2.2 issuable at the Closing. Upon satisfaction of the conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of FW, or such
other location as the parties shall mutually agree.

      2.2 Deliveries.

            a)    On the Closing Date, the Company shall deliver or cause to be
                  delivered to each Purchaser the following:

                  (i)   this Agreement duly executed by the Company;

                  (ii)  a copy of the irrevocable instructions to the Company's
                        transfer agent instructing the transfer agent to
                        deliver, on an expedited basis, a certificate evidencing
                        a number of Shares equal to such Purchaser's
                        Subscription Amount divided by the Per Share Purchase
                        Price, registered in the name of such Purchaser;

                  (iii) a Warrant registered in the name of such Purchaser to
                        purchase up to a number of shares of Common Stock equal
                        to 25% of the

                                       6
<PAGE>

                        number of Shares purchased, with an exercise price equal
                        to $1.11, subject to adjustment as set forth therein and
                        exercisable immediately for a term of five years;

                  (iv)  a Warrant registered in the name of such Purchaser to
                        purchase up to a number of shares of Common Stock equal
                        to 25% of the number of Shares purchased, with an
                        exercise price equal to $1.33, subject to adjustment as
                        set forth therein and exercisable immediately for a term
                        of five years;

                  (v)   the Registration Rights Agreement duly executed by the
                        Company; and

                  (vi)  a legal opinion of Company Counsel, in the form of
                        Exhibit C attached hereto.

            b)    On the Closing Date, each Purchaser shall deliver or cause to
                  be delivered to the Company the following:

                  (i)   this Agreement duly executed by such Purchaser;

                  (ii)  such Purchaser's Subscription Amount by wire transfer to
                        the account as specified in writing by the Company; and

                  (iii) the Registration Rights Agreement duly executed by such
                        Purchaser.

      2.3 Closing Conditions.

            a)    The obligations of the Company hereunder in connection with
                  the Closing are subject to the following conditions being met:

                  (i)   the accuracy in all material respects when made and on
                        the Closing Date of the representations and warranties
                        of the Purchasers contained herein, except to the extent
                        that such representations and warranties refer to a
                        specific date, in which case such representations and
                        warranties shall have been accurate as of such date;

                  (ii)  all obligations, covenants and agreements of the
                        Purchasers required to be performed at or prior to the
                        Closing Date shall have been performed in all material
                        respects; and

                  (iii) the delivery by the Purchasers of the items set forth in
                        Section 2.2(b) of this Agreement.

            b)    The respective obligations of the Purchasers hereunder in
                  connection with

                                       7
<PAGE>

                  the Closing are subject to the following conditions being met:

                  (i)   the accuracy in all material respects on the Closing
                        Date of the representations and warranties of the
                        Company contained herein, except to the extent that such
                        representations and warranties refer to a specific date,
                        in which case such representations and warranties shall
                        have been accurate as of such date;

                  (ii)  all obligations, covenants and agreements of the Company
                        required to be performed at or prior to the Closing Date
                        shall have been performed in all material respects;

                  (iii) the delivery by the Company of the items set forth in
                        Section 2.2(a) of this Agreement;

                  (iv)  there shall have been no Material Adverse Effect with
                        respect to the Company since the date hereof; and

                  (v)   From the date hereof to the Closing Date, trading in the
                        Common Stock shall not have been suspended by the
                        Commission (except for any suspension of trading of
                        limited duration agreed to by the Company, which
                        suspension shall be terminated prior to the Closing),
                        and, at any time prior to the Closing Date, trading in
                        securities generally as reported by Bloomberg Financial
                        Markets shall not have been suspended or limited, or
                        minimum prices shall not have been established on
                        securities whose trades are reported by such service, or
                        on any Trading Market, nor shall a banking moratorium
                        have been declared either by the United States or New
                        York State authorities.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

      3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below as of the date hereof and as of
the Closing Date to each Purchaser.

            (a) Subsidiaries. All of the direct and indirect subsidiaries of the
      Company are set forth on Schedule 3.1(a). The Company owns, directly or
      indirectly, all of the capital stock or other equity interests of each
      Subsidiary free and clear of any Liens, and all the issued and outstanding
      shares of capital stock of each Subsidiary are validly issued and are
      fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities. If the Company has no subsidiaries,
      then references in the Transaction Documents to the Subsidiaries will be
      disregarded.

                                       8
<PAGE>

            (b) Organization and Qualification. The Company and each of the
      Subsidiaries is an entity duly incorporated or otherwise organized,
      validly existing and in good standing under the laws of the jurisdiction
      of its incorporation or organization (as applicable), with the requisite
      power and authority to own and use its properties and assets and to carry
      on its business as currently conducted. Neither the Company nor any
      Subsidiary is in violation or default of any of the provisions of its
      respective certificate or articles of incorporation, bylaws or other
      organizational or charter documents. Each of the Company and the
      Subsidiaries is duly qualified to conduct business and is in good standing
      as a foreign corporation or other entity in each jurisdiction in which the
      nature of the business conducted or property owned by it makes such
      qualification necessary, except where the failure to be so qualified or in
      good standing, as the case may be, could not have or reasonably be
      expected to result in a Material Adverse Effect and no Proceeding has been
      instituted in any such jurisdiction revoking, limiting or curtailing or
      seeking to revoke, limit or curtail such power and authority or
      qualification.

            (c) Authorization; Enforcement. The Company has the requisite
      corporate power and authority to enter into and to consummate the
      transactions contemplated by each of the Transaction Documents and
      otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary corporate action on the part of the Company
      and no further corporate action is required by the Company in connection
      therewith other than in connection with the Required Approvals. Each
      Transaction Documents has been (or upon delivery will have been) duly
      executed by the Company and, when delivered in accordance with the terms
      hereof, will constitute the valid and binding obligation of the Company
      enforceable against the Company in accordance with its terms except (i) as
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      and other laws of general application affecting enforcement of creditors'
      rights generally, (ii) as limited by laws relating to the availability of
      specific performance, injunctive relief or other equitable remedies and
      (iii) in so far as indemnification and contribution provisions may be
      limited by applicable law.

            (d) No Conflicts. The execution, delivery and performance of the
      Transaction Documents by the Company, the issuance and sale of the Shares
      and the consummation by the Company of the other transactions contemplated
      thereby do not and will not: (i) conflict with or violate any provision of
      the Company's or any Subsidiary's certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or
      (ii) conflict with, or constitute a default (or an event that with notice
      or lapse of time or both would become a default) under, result in the
      creation of any Lien upon any of the properties or assets of the Company
      or any Subsidiary, or give to others any rights of termination, amendment,
      acceleration or cancellation (with or without notice, lapse of time or
      both) of, any material agreement (as defined in Item 601(b) of Regulation
      S-K of the rules and regulations of the Commission) to which the Company
      or any Subsidiary is a party or by which any property or asset of the
      Company or any Subsidiary is bound or affected, or (iii) subject to the
      Required Approvals, conflict with or result in a violation of any law,
      rule, regulation, order, judgment, injunction, decree or other restriction
      of any

                                       9
<PAGE>

      court or governmental authority to which the Company or a Subsidiary is
      subject (including federal and state securities laws and regulations), or
      by which any property or asset of the Company or a Subsidiary is bound or
      affected; except in the case of each of clauses (ii) and (iii), such as
      could not have or reasonably be expected to result in a Material Adverse
      Effect.

            (e) Filings, Consents and Approvals. The Company is not required to
      obtain any consent, waiver, authorization or order of, give any notice to,
      or make any filing or registration with, any court or other federal,
      state, local or other governmental authority or other Person in connection
      with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (a)(i) filings required pursuant to
      Section 4.6, (ii) the filing with the Commission of the Registration
      Statement, (iii) the notice and/or application(s) to each applicable
      Trading Market for the issuance and sale of the Shares and Warrants and
      the listing of the Shares and Warrant Shares for trading thereon in the
      time and manner required thereby, (iv) the filing of Form D with the
      Commission and such filings as are required to be made under applicable
      state securities laws, (v) filings, consents or approvals set forth on
      Schedule 3.1(e) (collectively, the "Required Approvals") or (b) filings,
      consents or approvals that could not reasonably be expected to have a
      Material Adverse Effect on the Company.

            (f) Issuance of the Securities. The Securities are duly authorized
      and, when issued and paid for in accordance with the applicable
      Transaction Documents, will be duly and validly issued, fully paid and
      nonassessable, free and clear of all Liens imposed by the Company other
      than restrictions on transfer provided for in the Transaction Documents or
      imposed by applicable federal or state securities laws. The Warrant
      Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and
      clear of all Liens imposed by the Company other than restrictions on
      transfer provided for in the Transaction Documents or imposed by
      applicable federal or state securities laws. The Company has reserved from
      its duly authorized capital stock a number of shares of Common Stock for
      issuance of the Warrant Shares at least equal to the Required Minimum on
      the date hereof.

            (g) Capitalization. The capitalization of the Company is as set
      forth on Schedule 3.1(g). The Company has not issued any capital stock
      since its most recently filed periodic report under the Exchange Act,
      other than pursuant to the exercise of employee stock options under the
      Company's stock option plans, the issuance of shares of Common Stock to
      employees pursuant to the Company's employee stock purchase plan and
      pursuant to the conversion or exercise of outstanding Common Stock
      Equivalents. No Person has any right of first refusal, preemptive right,
      right of participation, or any similar right to participate in the
      transactions contemplated by the Transaction Documents. Except as a result
      of the purchase and sale of the Securities, there are no outstanding
      options, warrants, script rights to subscribe to, calls or commitments of
      any character whatsoever relating to, or securities, rights or obligations
      convertible into or exchangeable for, or giving any Person any right to
      subscribe for or acquire, any shares of Common Stock, or contracts,
      commitments, understandings or arrangements by which the Company or any
      Subsidiary is or may become bound to issue

                                       10
<PAGE>

      additional shares of Common Stock or Common Stock Equivalents. The
      issuance and sale of the Securities will not obligate the Company to issue
      shares of Common Stock or other securities to any Person (other than the
      Purchasers) and will not result in a right of any holder of Company
      securities to adjust the exercise, conversion, exchange or reset price
      under such securities. All of the outstanding shares of capital stock of
      the Company are validly issued, fully paid and nonassessable, have been
      issued in compliance with all federal and state securities laws, and none
      of such outstanding shares was issued in violation of any preemptive
      rights or similar rights to subscribe for or purchase securities. No
      further approval or authorization of any stockholder, the Board of
      Directors of the Company or others is required for the issuance and sale
      of the Securities. There are no stockholders agreements, voting agreements
      or other similar agreements with respect to the Company's capital stock to
      which the Company is a party or, to the knowledge of the Company, between
      or among any of the Company's stockholders.

            (h) SEC Reports; Financial Statements. The Company has filed all
      reports, schedules, forms, statements and other documents required to be
      filed by it under the Securities Act and the Exchange Act, including
      pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
      the date hereof (or such shorter period as the Company was required by law
      to file such material) (the foregoing materials, including the exhibits
      thereto and documents incorporated by reference therein, being
      collectively referred to herein as the "SEC Reports") on a timely basis or
      has received a valid extension of such time of filing and has filed any
      such SEC Reports prior to the expiration of any such extension. As of
      their respective dates, the SEC Reports complied in all material respects
      with the requirements of the Securities Act and the Exchange Act and the
      rules and regulations of the Commission promulgated thereunder, and none
      of the SEC Reports, when filed, 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. The
      financial statements of the Company included in the SEC Reports as of
      their respective dates (or if amended or supplemented in an SEC Report
      filed prior to the date of this Agreement, as of the date amended or
      supplemented) (i) comply in all material respects with applicable
      accounting requirements and the rules and regulations of the Commission
      with respect thereto as in effect at the time of filing, (ii) were
      prepared in accordance with United States generally accepted accounting
      principles applied on a consistent basis during the periods involved
      ("GAAP"), except as may be otherwise specified in such financial
      statements or the notes thereto and except that unaudited financial
      statements may not contain all footnotes required by GAAP, and (iii)
      fairly present in all material respects the financial position of the
      Company and its consolidated subsidiaries as of and for the dates thereof
      and the results of operations and cash flows for the periods then ended,
      subject, in the case of unaudited statements, to normal, immaterial,
      year-end audit adjustments.

            (i) Material Changes. Since the date of the latest audited financial
      statements included within the SEC Reports, except as specifically
      disclosed in the SEC Reports, (i) there has been no event, occurrence or
      development that has had or that could reasonably be expected to result in
      a Material Adverse Effect, (ii) the Company has not incurred any

                                       11
<PAGE>

      liabilities (contingent or otherwise) other than (A) trade payables and
      accrued expenses incurred in the ordinary course of business consistent
      with past practice, (B) liabilities not required to be reflected in the
      Company's financial statements pursuant to GAAP or required to be
      disclosed in filings made with the Commission or (C) which could not
      reasonably be expected to have a Material Adverse Effect on the Company,
      (iii) the Company has not adopted any material change to its accounting
      methods other than changes required by GAAP or applicable law, (iv) the
      Company has not declared or made any dividend or distribution of cash or
      other property to its stockholders or purchased, redeemed or made any
      agreements to purchase or redeem any shares of its capital stock and (v)
      the Company has not issued any equity securities to any officer, director
      or Affiliate, except pursuant to existing Company stock option plans. The
      Company does not have pending before the Commission any request for
      confidential treatment of information.

            (j) Litigation. There is no action, suit, inquiry, notice of
      violation, proceeding or investigation pending or, to the knowledge of the
      Company, threatened against or affecting the Company, any Subsidiary or
      any of their respective properties before or by any court, arbitrator,
      governmental or administrative agency or regulatory authority (federal,
      state, county, local or foreign) (collectively, an "Action") which (i)
      adversely affects or challenges the legality, validity or enforceability
      of any of the Transaction Documents or the Securities or (ii) could, if
      there were an unfavorable decision, have or reasonably be expected to
      result in a Material Adverse Effect. Neither the Company nor any
      Subsidiary, nor any director or officer thereof, is or has been the
      subject of any Action involving a claim of violation of or liability under
      federal or state securities laws or a claim of breach of fiduciary duty.
      There has not been, and to the knowledge of the Company, there is not
      pending or contemplated, any investigation by the Commission involving the
      Company or any current or former director or officer of the Company. The
      Commission has not issued any stop order or other order suspending the
      effectiveness of any registration statement filed by the Company or any
      Subsidiary under the Exchange Act or the Securities Act.

            (k) Labor Relations. No material labor dispute exists or, to the
      knowledge of the Company, is imminent with respect to any of the employees
      of the Company which could reasonably be expected to result in a Material
      Adverse Effect.

            (l) Compliance. Neither the Company nor any Subsidiary (i) is in
      default under or in violation of (and no event has occurred that has not
      been waived that, with notice or lapse of time or both, would result in a
      default by the Company or any Subsidiary under), nor has the Company or
      any Subsidiary received notice of a claim that it is in default under or
      that it is in violation of, any "Material Agreement" (as defined in
      Regulation S-K) of the Company, (ii) is in violation of any order of any
      court, arbitrator or governmental body, or (iii) is or has been in
      violation of any statute, rule or regulation of any governmental
      authority, including without limitation all foreign, federal, state and
      local laws applicable to its business except in each case as could not
      have a Material Adverse Effect.

                                       12
<PAGE>

            (m) Regulatory Permits. The Company and the Subsidiaries possess all
      certificates, authorizations and permits issued by the appropriate
      federal, state, local or foreign regulatory authorities necessary to
      conduct their respective businesses as described in the SEC Reports,
      except where the failure to possess such permits could not have or
      reasonably be expected to result in a Material Adverse Effect ("Material
      Permits"), and neither the Company nor any Subsidiary has received any
      notice of proceedings relating to the revocation or modification of any
      Material Permit.

            (n) Title to Assets. The Company and the Subsidiaries have good and
      marketable title in fee simple to all real property owned by them that is
      material to the business of the Company and the Subsidiaries and good and
      marketable title in all personal property owned by them that is material
      to the business of the Company and the Subsidiaries, in each case free and
      clear of all Liens, except for Permitted Liens. Any real property and
      facilities held under lease by the Company and the Subsidiaries are held
      by them under valid, subsisting and enforceable leases of which the
      Company and the Subsidiaries are in compliance.

            (o) Patents and Trademarks. The Company and the Subsidiaries have,
      or have rights to use, all patents, patent applications, trademarks,
      trademark applications, service marks, trade names, copyrights, licenses
      and other similar rights necessary or material for use in connection with
      their respective businesses as described in the SEC Reports and which the
      failure to so have could have a Material Adverse Effect (collectively, the
      "Intellectual Property Rights"). Neither the Company nor any Subsidiary
      has received a written notice that the Intellectual Property Rights used
      by the Company or any Subsidiary violates or infringes upon the rights of
      any Person. To the knowledge of the Company, all such Intellectual
      Property Rights are enforceable and there is no existing infringement by
      another Person of any of the Intellectual Property Rights of others.

            (p) Insurance. The Company and the Subsidiaries are insured by
      insurers of recognized financial responsibility against such losses and
      risks and in such amounts as are prudent and customary in the businesses
      in which the Company and the Subsidiaries are engaged, including, but not
      limited to, directors and officers insurance coverage at least equal to
      the aggregate Subscription Amount. To the best of Company's knowledge,
      such insurance contracts and policies are accurate and complete. Neither
      the Company nor any 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 without a significant increase in cost.

            (q) Transactions With Affiliates and Employees. Except as set forth
      in the SEC Reports, none of the officers or directors of the Company and,
      to the knowledge of the Company, none of the employees of the Company is
      presently a party to any transaction with the Company or any Subsidiary
      (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

                                       13
<PAGE>

      employee or, to the knowledge of the Company, any entity in which any
      officer, director, or any such employee has a substantial interest or is
      an officer, director, trustee or partner, in each case in excess of
      $60,000 other than (i) for payment of salary or consulting fees for
      services rendered, (ii) reimbursement for expenses incurred on behalf of
      the Company and (iii) for other employee benefits, including stock option
      agreements under any stock option plan of the Company.

            (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in
      material compliance with all provisions of the Sarbanes-Oxley Act of 2002
      which are applicable to it as of the Closing Date. The Company and the
      Subsidiaries maintain a system of internal accounting controls sufficient
      to provide reasonable assurance that (i) transactions are executed in
      accordance with management's general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP 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. The
      Company has established disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
      such disclosure controls and procedures to ensure that material
      information relating to the Company, including its Subsidiaries, is made
      known to the certifying officers by others within those entities,
      particularly during the period in which the Company's most recently filed
      periodic report under the Exchange Act, as the case may be, is being
      prepared. The Company's certifying officers have evaluated the
      effectiveness of the Company's controls and procedures as of the date
      prior to the filing date of the most recently filed periodic report under
      the Exchange Act (such date, the "Evaluation Date"). The Company presented
      in its most recently filed periodic report under the Exchange Act the
      conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the Company's internal controls (as such term is defined in
      Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
      knowledge, in other factors that could significantly affect the Company's
      internal controls.

            (s) Certain Fees. No brokerage or finder's fees or commissions are
      or will be payable by the Company to any broker, financial advisor or
      consultant, finder, placement agent, investment banker, bank or other
      Person with respect to the transactions contemplated by this Agreement.
      The Purchasers shall have no obligation with respect to any fees or with
      respect to any claims made by or on behalf of other Persons for fees of a
      type contemplated in this Section that may be due in connection with the
      transactions contemplated by this Agreement.

            (t) Private Placement. Assuming the accuracy of the Purchasers
      representations and warranties set forth in Section 3.2, no registration
      under the Securities Act is required for the offer and sale of the
      Securities by the Company to the Purchasers

                                       14
<PAGE>

      as contemplated hereby. The issuance and sale of the Securities hereunder
      does not contravene the rules and regulations of the Trading Market.

            (u) Investment Company. The Company is not, and is not an Affiliate
      of, and immediately after receipt of payment for the Securities, will not
      be or be an Affiliate of, an "investment company" within the meaning of
      the Investment Company Act of 1940, as amended. The Company shall conduct
      its business in a manner so that it will not become subject to the
      Investment Company Act.

            (v) Registration Rights. Other than each of the Purchasers, no
      Person has any right to cause the Company to effect the registration under
      the Securities Act of any securities of the Company.

            (w) Listing and Maintenance Requirements. The Common Stock is
      registered pursuant to Section 12(g) of the Exchange Act, and the Company
      has taken no action designed to, or which to its knowledge is likely to
      have the effect of, terminating the registration of the Common Stock under
      the Exchange Act nor has the Company received any notification that the
      Commission is contemplating terminating such registration. The Company has
      not, in the 12 months preceding the date hereof, received notice from any
      Trading Market on which the Common Stock is or has been listed or quoted
      to the effect that the Company is not in compliance with the listing or
      maintenance requirements of such Trading Market. The Company is, and has
      no reason to believe that it will not in the foreseeable future continue
      to be, in compliance with all such listing and maintenance requirements.

            (x) Application of Takeover Protections. The Company and its Board
      of Directors have taken all necessary action, if any, in order to render
      inapplicable any control share acquisition, business combination, poison
      pill (including any distribution under a rights agreement) or other
      similar anti-takeover provision under the Company's Certificate of
      Incorporation (or similar charter documents) or the laws of its state of
      incorporation that is or could become applicable to the Purchasers as a
      result of the Purchasers and the Company fulfilling their obligations or
      exercising their rights under the Transaction Documents, including without
      limitation as a result of the Company's issuance of the Securities and the
      Purchasers' ownership of the Securities.

            (y) Disclosure. The Company confirms that neither it nor any other
      Person acting on its behalf has provided any of the Purchasers or their
      agents or counsel with any information that constitutes or might
      constitute material, nonpublic information. The Company understands and
      confirms that the Purchasers will rely on the foregoing representations
      and covenants in effecting transactions in securities of the Company. All
      disclosure provided to the Purchasers regarding the Company, its business
      and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, furnished by or on behalf of the Company with
      respect to the representations and warranties made herein are true and
      correct with respect to such representations and warranties and do not
      contain any untrue statement of a material fact or omit to state any
      material fact necessary in order to make the statements made therein, in
      light of the

                                       15
<PAGE>

      circumstances under which they were made, not misleading. The Company
      acknowledges and agrees that no Purchaser makes or has made any
      representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in Section 3.2
      hereof.

            (z) No Integrated Offering. Assuming the accuracy of the Purchasers'
      representations and warranties set forth in Section 3.2, 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 of any
      security or solicited any offers to buy any security, under circumstances
      that would cause this offering of the Securities to be integrated with
      prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provisions, including, without limitation,
      under the rules and regulations of any Trading Market on which any of the
      securities of the Company are listed or designated.

            (aa) Solvency. Based on the financial condition of the Company as of
      the Closing Date after giving effect to the receipt by the Company of the
      proceeds from the sale of the Securities hereunder, (i) the Company's fair
      saleable value of its assets exceeds the amount that will be required to
      be paid on or in respect of the Company's existing debts and other
      liabilities (including known contingent liabilities) as they mature; (ii)
      the Company's assets do not constitute unreasonably small capital to carry
      on its business for the current fiscal year as now conducted and as
      proposed to be conducted including its capital needs taking into account
      the particular capital requirements of the business conducted by the
      Company, and projected capital requirements and capital availability
      thereof; and (iii) the current cash flow of the Company, together with the
      proceeds the Company would receive, were it to liquidate all of its
      assets, after taking into account all anticipated uses of the cash, would
      be sufficient to pay all amounts on or in respect of its debt when such
      amounts are required to be paid. The Company does not intend to incur
      debts beyond its ability to pay such debts as they mature (taking into
      account the timing and amounts of cash to be payable on or in respect of
      its debt). The Company has no knowledge of any facts or circumstances
      which lead it to believe that it will file for reorganization or
      liquidation under the bankruptcy or reorganization laws of any
      jurisdiction within one year from the Closing Date. The SEC Reports set
      forth as of the dates thereof all outstanding secured and unsecured
      Indebtedness of the Company or any Subsidiary, or for which the Company or
      any Subsidiary has commitments. For the purposes of this Agreement,
      "Indebtedness" shall mean (a) any liabilities for borrowed money or
      amounts owed in excess of $50,000 (other than trade accounts payable
      incurred in the ordinary course of business), (b) all guaranties,
      endorsements and other contingent obligations in respect of Indebtedness
      of others, whether or not the same are or should be reflected in the
      Company's balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of any lease payments in excess of $50,000 due under leases required to be
      capitalized in accordance with GAAP. Neither the Company nor any
      Subsidiary is in default with respect to any Indebtedness.

            (bb) [RESERVED].

                                       16
<PAGE>

            (cc) Tax Status. Except for matters that would not, individually or
      in the aggregate, have or reasonably be expected to result in a Material
      Adverse Effect, the Company and each Subsidiary has filed all necessary
      federal, state and foreign income and franchise tax returns required to be
      filed by it and has paid, accrued or reserved all taxes shown as due
      thereon, and the Company has no knowledge of a tax deficiency which has
      been asserted or threatened against the Company or any Subsidiary.

            (dd) No General Solicitation. Neither the Company nor any person
      acting on behalf of the Company has offered or sold any of the Securities
      by any form of general solicitation or general advertising. The Company
      has offered the Securities for sale only to the Purchasers and certain
      other "accredited investors" within the meaning of Rule 501 under the
      Securities Act.

            (ee) Foreign Corrupt Practices. Neither the Company, nor to the
      knowledge of the Company, any agent or other person acting on behalf of
      the Company, has (i) directly or indirectly, used any funds for unlawful
      contributions, gifts, entertainment or other unlawful expenses related to
      foreign or domestic political activity, (ii) made any unlawful payment to
      foreign or domestic government officials or employees or to any foreign or
      domestic political parties or campaigns from corporate funds, (iii) failed
      to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in
      violation of law, or (iv) violated in any material respect any provision
      of the Foreign Corrupt Practices Act of 1977, as amended

            (ff) Accountants. The Company's accountants are set forth on
      Schedule 3.1(ff) of the Disclosure Schedule. To the Company's knowledge,
      such accountants, who the Company expects will express their opinion with
      respect to the financial statements to be included in the Company's Annual
      Report on Form 10-K for the year ended January 31, 2005 are a registered
      public accounting firm as required by the Securities Act.

            (gg) No Disagreements with Accountants and Lawyers. There are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the Company to arise, between the accountants and lawyers formerly or
      presently employed by the Company and the Company is current with respect
      to any fees owed to its accountants and lawyers.

            (hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
      The Company acknowledges and agrees that each of the Purchasers is acting
      solely in the capacity of an arm's length purchaser with respect to the
      Transaction Documents and the transactions contemplated hereby. The
      Company further acknowledges that no Purchaser 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
      advice given by any Purchaser or any of their respective representatives
      or agents in connection with this Agreement and the transactions
      contemplated hereby is merely incidental to the Purchasers' purchase of
      the Securities. The Company further represents to each Purchaser that the
      Company's decision to enter into this Agreement has been based solely

                                       17
<PAGE>

      on the independent evaluation of the transactions contemplated hereby by
      the Company and its representatives.

            (ii) Acknowledgement Regarding Purchasers' Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary
      notwithstanding (except for Section 4.17 hereof), it is understood and
      agreed by the Company (i) that none of the Purchasers have been asked to
      agree, nor has any Purchaser agreed, to desist from purchasing or selling,
      long and/or short, securities of the Company, or "derivative" securities
      based on securities issued by the Company or to hold the Securities for
      any specified term; (ii) that past or future open market or other
      transactions by any Purchaser, including Short Sales, and specifically
      including, without limitation, Short Sales or "derivative" transactions,
      before or after the closing of this or future private placement
      transactions, may negatively impact the market price of the Company's
      publicly-traded securities; (iii) that any Purchaser, and counter parties
      in "derivative" transactions to which any such Purchaser is a party,
      directly or indirectly, presently may have a "short" position in the
      Common Stock, and (iv) that each Purchaser shall not be deemed to have any
      affiliation with or control over any arm's length counter-party in any
      "derivative" transaction.

      3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

            (a) Organization; Authority. Such Purchaser is an entity duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its organization with full right, corporate or partnership
      power and authority to enter into and to consummate the transactions
      contemplated by the Transaction Documents and otherwise to carry out its
      obligations thereunder. The execution, delivery and performance by such
      Purchaser of the transactions contemplated by this Agreement have been
      duly authorized by all necessary corporate or similar action on the part
      of such Purchaser. Each Transaction Documents to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in accordance with the terms hereof, will constitute the valid and legally
      binding obligation of such Purchaser, enforceable against it in accordance
      with its terms, except (i) as limited by general equitable principles and
      applicable bankruptcy, insolvency, reorganization, moratorium and other
      laws of general application affecting enforcement of creditors' rights
      generally, (ii) as limited by laws relating to the availability of
      specific performance, injunctive relief or other equitable remedies and
      (iii) insofar as indemnification and contribution provisions may be
      limited by applicable law.

            (b) Own Account. Such Purchaser understands that the Securities are
      "restricted securities" and have not been registered under the Securities
      Act or any applicable state securities law and is acquiring the Securities
      as principal for its own account and not with a view to or for
      distributing or reselling such Securities or any part thereof, has no
      present intention of distributing any of such Securities and has no
      arrangement or understanding with any other persons regarding the
      distribution of such Securities (this representation and warranty not
      limiting such Purchaser's right to sell the

                                       18
<PAGE>

      Securities pursuant to the Registration Statement or otherwise in
      compliance with applicable federal and state securities laws). Such
      Purchaser is acquiring the Securities hereunder in the ordinary course of
      its business. Such Purchaser does not have any agreement or understanding,
      directly or indirectly, with any Person to distribute any of the
      Securities.

            (c) Purchaser Status. At the time such Purchaser was offered the
      Securities, it was, and at the date hereof it is, and on each date on
      which it exercises any Warrants it will be either: (i) an "accredited
      investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8)
      under the Securities Act or (ii) a "qualified institutional buyer" as
      defined in Rule 144A(a) under the Securities Act. Such Purchaser is not
      required to be registered as a broker-dealer under Section 15 of the
      Exchange Act. Such Purchaser also represents that it has not been
      organized solely for the purpose of acquiring the Securities

            (d) Experience of Such Purchaser. Such Purchaser, either alone or
      together with its representatives, has such knowledge, sophistication and
      experience in business and financial matters so as to be capable of
      evaluating the merits and risks of the prospective investment in the
      Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of
      such investment.

            (e) General Solicitation. Such Purchaser is not purchasing the
      Securities as a result of any advertisement, article, notice or other
      communication regarding the Securities published in any newspaper,
      magazine or similar media or broadcast over television or radio or
      presented at any seminar or any other general solicitation or general
      advertisement.

            (f) Short Sales. Other than the transaction contemplated hereunder,
      such Purchaser has not directly or indirectly, nor has any Person acting
      on behalf of or pursuant to any understanding with such Purchaser,
      executed any disposition, including Short Sales (but not including the
      location and/or reservation of borrowable shares of Common Stock), in the
      securities of the Company during the period commencing from the time that
      such Purchaser first received a term sheet from the Company or any other
      Person setting forth the material terms of the transactions contemplated
      hereunder until the date hereof ("Discussion Time"). Notwithstanding the
      foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of
      such Purchaser's assets and the portfolio managers have no direct
      knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the representation set
      forth above shall only apply with respect to the portion of assets managed
      by the portfolio manager that made the investment decision to purchase the
      Securities covered by this Agreement.

            (g) Information. Such Purchaser acknowledges that it has received
      all the information it considers necessary or appropriate for deciding
      whether to acquire the Securities. The Purchaser further represents that
      it has had an opportunity to ask questions and receive answers from the
      Company regarding the terms and conditions of

                                       19
<PAGE>

      the offering of the Securities.

            (h) No Legal, Tax or Investment Advice. The Purchaser understands
      that nothing in this Agreement constitutes legal, tax or investment
      advice. The Purchaser has consulted such legal, tax and investment
      advisors as it, in its sole discretion, has deemed necessary or
      appropriate in connection with the purchase of the Securities.

            The Company acknowledges and agrees that each Purchaser does not
      make or has not made any representations or warranties with respect to the
      transactions contemplated hereby other than those specifically set forth
      in this Section 3.2.

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

      4.1 Transfer Restrictions.

            (a) The Securities may only be disposed of in compliance with state
      and federal securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or Rule 144, to
      the Company or to an affiliate of a Purchaser or in connection with a
      pledge as contemplated in Section 4.1(b), the Company may require the
      transferor thereof to provide to the Company an opinion of counsel
      selected by the transferor and reasonably acceptable to the Company, the
      form and substance of which opinion shall be reasonably satisfactory to
      the Company, to the effect that such transfer does not require
      registration of such transferred Securities under the Securities Act. As a
      condition of transfer, any such transferee shall agree in writing to be
      bound by the terms of this Agreement and shall have the rights of a
      Purchaser under this Agreement and the Registration Rights Agreement.

            (b) The Purchasers agree to the imprinting, so long as is required
      by this Section 4.1(b), of a legend on any of the Securities in the
      following form:

      [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
      ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
      AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
      RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
      OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
      UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
      A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
      THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
      THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
      SECURITIES MAY BE PLEDGED IN CONNECTION WITH

                                       20
<PAGE>

      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

            The Company acknowledges and agrees that a Purchaser may from time
      to time pledge pursuant to a bona fide margin agreement with a registered
      broker-dealer or grant a security interest in some or all of the
      Securities to a financial institution that is an "accredited investor" as
      defined in Rule 501(a) under the Securities Act and who agrees to be bound
      by the provisions of this Agreement and the Registration Rights Agreement
      and, if required under the terms of such arrangement, such Purchaser may
      transfer pledged or secured Securities to the pledgees or secured parties.
      Such a pledge or transfer would not be subject to approval of the Company
      and no legal opinion of legal counsel of the pledgee, secured party or
      pledgor shall be required in connection therewith. Further, no notice
      shall be required of such pledge. At the appropriate Purchaser's expense,
      the Company will execute and deliver such reasonable documentation as a
      pledgee or secured party of Securities may reasonably request in
      connection with a pledge or transfer of the Securities, including, if the
      Securities are subject to registration pursuant to the Registration Rights
      Agreement, the preparation and filing of any required prospectus
      supplement under Rule 424(b)(3) under the Securities Act or other
      applicable provision of the Securities Act to appropriately amend the list
      of Selling Stockholders thereunder.

            (c) Certificates evidencing the Shares and Warrant Shares shall not
      contain any legend (including the legend set forth in Section 4.1(b)
      hereof): (i) while a registration statement (including the Registration
      Statement) covering the resale of such security is effective under the
      Securities Act, or (ii) following any sale of such Shares and Warrant
      Shares pursuant to Rule 144, or (iii) if such Shares and Warrant Shares
      are eligible for sale under Rule 144(k), or (iv) if such legend is not
      required under applicable requirements of the Securities Act (including
      judicial interpretations and pronouncements issued by the staff of the
      Commission). The Company shall cause its counsel to issue a legal opinion
      to the Company's transfer agent promptly after the Effective Date if
      required by the Company's transfer agent to effect the removal of the
      legend hereunder. If all or any portion of a Warrant is exercised at a
      time when there is an effective registration statement to cover the resale
      of the Warrant Shares, or if such Warrant Shares may be sold under Rule
      144(k) or if such legend is not otherwise required under applicable
      requirements of the Securities Act (including judicial interpretations
      thereof) then such Warrant Shares shall be issued free of all legends. The
      Company agrees that following the Effective Date or at such time as such
      legend is no longer required under this Section 4.1(c), it will, no later
      than three Trading Days following the delivery by a Purchaser to the
      Company or the Company's transfer agent of a certificate representing the
      Shares and Warrant Shares, as applicable, issued with a restrictive legend
      (such third Trading Day, the "Legend Removal Date"), deliver or cause to
      be delivered to such Purchaser a certificate representing such Securities
      that is free from all restrictive and other legends. The Company may not
      make any notation on its records or give instructions to any transfer
      agent of the Company that enlarge the restrictions on transfer set forth
      in this Section. Certificates for Securities subject to legend removal
      hereunder

                                       21
<PAGE>

      shall be transmitted by the transfer agent of the Company to the
      Purchasers by crediting the account of the Purchaser's prime broker with
      the Depository Trust Company System.

            (d) In addition to such Purchaser's other available remedies, the
      Company shall pay to a Purchaser, in cash, as partial liquidated damages
      and not as a penalty, for each $1,000 of Shares and Warrant Shares (based
      on the VWAP of the Common Stock on the date such Securities are submitted
      to the Company's transfer agent) delivered for removal of the restrictive
      legend and subject to this Section 4.1(c), $10 per Trading Day (increasing
      to $20 per Trading Day 5 Trading Days after such damages have begun to
      accrue) for each Trading Day after the second Trading Day following the
      Legend Removal Date until such certificate is delivered without a legend.
      Nothing herein shall limit such Purchaser's right to pursue actual damages
      for the Company's failure to deliver certificates representing any
      Securities as required by the Transaction Documents, and such Purchaser
      shall have the right to pursue all remedies available to it at law or in
      equity including, without limitation, a decree of specific performance
      and/or injunctive relief.

            (e) Each Purchaser, severally and not jointly with the other
      Purchasers, agrees that the removal of the restrictive legend from
      certificates representing Securities as set forth in this Section 4.1 is
      predicated upon the Company's reliance that the Purchaser will sell any
      Securities pursuant to either the registration requirements of the
      Securities Act, including any applicable prospectus delivery requirements,
      or an exemption therefrom.

            (f) Until the earlier of (i) the 12 month anniversary of the Closing
      Date and (ii) the date that each Purchaser holds less than 20% of the
      Shares initially purchased hereunder by such Purchaser, the Company shall
      not undertake a reverse or forward stock split or reclassification of the
      Common Stock without the prior written consent of the Purchasers holding a
      majority in interest of the Shares.

      4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Warrant
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

      4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further

                                       22
<PAGE>

covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

      4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers.

      4.5 Exercise Procedures. The form of Notice of Exercise included in the
Warrants sets forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants. No additional legal opinion or other information
or instructions shall be required of the Purchasers to exercise their Warrants.
The Company shall honor exercises of the Warrants and shall deliver Warrant
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

      4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto. The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).

      4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.

      4.8 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any

                                       23
<PAGE>

information that the Company believes constitutes material non-public
information (other than a Subsequent Financing Notice if requested by such
Purchaser pursuant to Section 4.12), unless prior thereto such Purchaser shall
have executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.

      4.9 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder as set forth on Schedule 4.9 hereto and, except as
set forth on such schedule (regarding potential payments to the Company's
revolving debt), not for the satisfaction of any portion of the Company's debt
(other than payment of trade payables in the ordinary course of the Company's
business and prior practices), to redeem any Common Stock or Common Stock
Equivalents or to settle any outstanding litigation.

      4.10 Indemnification of Purchasers. Subject to the provisions of this
Section 4.10, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.

                                       24
<PAGE>

      4.11 Reservation and Listing of Securities.

            (a) The Company shall maintain a reserve from its duly authorized
      shares of Common Stock for issuance pursuant to the Transaction Documents
      in such amount as may be required to fulfill its obligations in full under
      the Transaction Documents.

            (b) If, on any date, the number of authorized but unissued (and
      otherwise unreserved) shares of Common Stock is less than the Required
      Minimum on such date, then the Board of Directors of the Company shall use
      commercially reasonable efforts to amend the Company's certificate or
      articles of incorporation to increase the number of authorized but
      unissued shares of Common Stock to at least the Required Minimum at such
      time, as soon as possible and in any event not later than the 75th day
      after such date.

            (c) The Company shall, if applicable: (i) in the time and manner
      required by the Trading Market, prepare and file with such Trading Market
      an additional shares listing application covering a number of shares of
      Common Stock at least equal to the Required Minimum on the date of such
      application, (ii) take all steps necessary to cause such shares of Common
      Stock to be approved for listing on the Trading Market as soon as possible
      thereafter, (iii) provide to the Purchasers evidence of such listing, and
      (iv) maintain the listing of such Common Stock on any date at least equal
      to the Required Minimum on such date on such Trading Market or another
      Trading Market.

      4.12 Participation in Future Financing.

            (a) From the date hereof until the one year anniversary of the
      Effective Date, upon any financing by the Company or any of its
      Subsidiaries of Common Stock or Common Stock Equivalents (a "Subsequent
      Financing"), each Purchaser shall have the right to participate in up to
      50% of the Subsequent Financing (the "Participation Maximum").

            (b) At least 5 Trading Days prior to the closing of the Subsequent
      Financing, the Company shall deliver to each Purchaser a written notice of
      its intention to effect a Subsequent Financing ("Pre-Notice"), which
      Pre-Notice shall ask such Purchaser if it wants to review the details of
      such financing (such additional notice, a "Subsequent Financing Notice").
      Upon the request of a Purchaser, and only upon a request by such
      Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
      but no later than 1 Trading Day after such request, deliver a Subsequent
      Financing Notice to such Purchaser. The Subsequent Financing Notice shall
      describe in reasonable detail the proposed terms of such Subsequent
      Financing, the amount of proceeds intended to be raised thereunder, the
      Person with whom such Subsequent Financing is proposed to be effected, and
      attached to which shall be a term sheet or similar document relating
      thereto.

            (c) Any Purchaser desiring to participate in such Subsequent
      Financing must provide written notice to the Company by not later than
      5:30 p.m. (New York City time) on the 5th Trading Day after all of the
      Purchasers have received the Pre-Notice that the Purchaser is willing to
      participate in the Subsequent Financing, the amount of the

                                       25
<PAGE>

      Purchaser's participation, and that the Purchaser has such funds ready,
      willing, and available for investment on the terms set forth in the
      Subsequent Financing Notice. If the Company receives no notice from a
      Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
      have notified the Company that it does not elect to participate.

            (d) If by 5:30 p.m. (New York City time) on the fifth Trading Day
      after all of the Purchasers have received the Pre-Notice, notifications by
      the Purchasers of their willingness to participate in the Subsequent
      Financing (or to cause their designees to participate) is, in the
      aggregate, less than the total amount of the Subsequent Financing, then
      the Company may effect the remaining portion of such Subsequent Financing
      on the terms and to the Persons set forth in the Subsequent Financing
      Notice.

            (e) If by 5:30 p.m. (New York City time) on the fifth Trading Day
      after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers
      seeking to purchase more than the aggregate amount of the Participation
      Maximum, each such Purchaser shall have the right to purchase the greater
      of (a) their Pro Rata Portion (as defined below) of the Participation
      Maximum and (b) the difference between the Participation Maximum and the
      aggregate amount of participation by all other Purchasers. "Pro Rata
      Portion" is the ratio of (x) the Subscription Amount of Securities
      purchased by a participating Purchaser and (y) the sum of the aggregate
      Subscription Amount of all participating Purchasers. Notwithstanding
      anything herein to the contrary, the Purchasers shall not have the right
      to participate in a Subsequent Financing in an aggregate amount greater
      than the Participation Maximum pursuant to this Section 4.12.

            (f) The Company must provide the Purchasers with a second Subsequent
      Financing Notice, and the Purchasers will again have the right of
      participation set forth above in this Section 4.12, if the Subsequent
      Financing subject to the initial Subsequent Financing Notice is not
      consummated for any reason on the terms set forth in such Subsequent
      Financing Notice within 60 Trading Days after the date of the initial
      Subsequent Financing Notice.

            (g) Notwithstanding the foregoing, this Section 4.12 shall not apply
      in respect of an Exempt Issuance.

      4.13 Subsequent Equity Sales.

            (a) From the date hereof until 45 days after the Effective Date,
      neither the Company nor any Subsidiary shall issue shares of Common Stock
      or Common Stock Equivalents; provided, however, the 45 day period set
      forth in this Section 4.13 shall be extended for the number of Trading
      Days during such period in which (i) trading in the Common Stock is
      suspended by any Trading Market, or (ii) following the Effective Date, the
      Registration Statement is not effective or the prospectus included in the
      Registration Statement may not be used by the Purchasers for the resale of
      the Shares or Warrant Shares.

                                       26
<PAGE>

            (b) From the date hereof until such time as no Purchaser holds any
      of the Securities, the Company shall be prohibited from effecting or
      entering into an agreement to effect any Subsequent Financing involving a
      "Variable Rate Transaction" or an "MFN Transaction" (each as defined
      below). The term "Variable Rate Transaction" shall mean a transaction in
      which the Company issues or sells (i) any debt or equity securities that
      are convertible into, exchangeable or exercisable for, or include the
      right to receive additional shares of Common Stock either (A) at a
      conversion, exercise or exchange rate or other price that is based upon
      and/or varies with the trading prices of or quotations for the shares of
      Common Stock at any time after the initial issuance of such debt or equity
      securities, or (B) with a conversion, exercise or exchange price that is
      subject to being reset at some future date after the initial issuance of
      such debt or equity security or upon the occurrence of specified or
      contingent events directly or indirectly related to the business of the
      Company or the market for the Common Stock or (ii) enters into any
      agreement, including, but not limited to, an equity line of credit,
      whereby the Company may sell securities at a future determined price. The
      term "MFN Transaction" shall mean a transaction in which the Company
      issues or sells any securities in a capital raising transaction or series
      of related transactions which grants to an investor the right to receive
      additional shares based upon future transactions of the Company on terms
      more favorable than those granted to such investor in such offering.

            (c) Notwithstanding the foregoing, this Section 4.13 shall not apply
      in respect of an Exempt Issuance, except that no Variable Rate Transaction
      or MFN Transaction shall be an Exempt Issuance; provided, however, that
      for purposes of this Section 4.13(c), the issuance of any securities
      pursuant to the Preferred Stock Purchase Agreement will be deemed to be an
      Exempt Issuance.

      4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Share holders and the shareholders as a
class and shall not in any way be construed as the Purchasers acting in concert
or as a group with respect to the purchase, disposition or voting of Securities
or otherwise.

      4.15 Delivery of Securities After Closing. The Company shall deliver, or
cause to be delivered, the respective Shares and Warrants purchased by each
Purchaser to such Purchaser within 3 Trading Days of the Closing Date.

      4.16 Short Sales and Confidentiality. Each Purchaser covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period after the
Discussion Time until prior to the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain, the confidentiality of all disclosures made

                                       27
<PAGE>

to it in connection with this transaction (including the existence and terms of
this transaction). Each Purchaser understands and acknowledges, severally and
not jointly with any other Purchaser, that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock "against the
box" prior to the Effective Date of the Registration Statement with the
Securities is a violation of Section 5 of the Securities Act, as set forth in
Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will not
engage in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

                                   ARTICLE V.
                                  MISCELLANEOUS

      5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before July
1, 2005; provided, however, that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

      5.2 Fees and Expenses. The Company shall deliver, prior to the Closing, a
completed and executed copy of the Closing Statement, attached hereto as Annex
A. Except as expressly set forth in the Transaction Documents to the contrary,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any Securities.

      5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

      5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of

                                       28
<PAGE>

transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

      5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the holders of at least 66% of the Securities then outstanding
or, in the case of a waiver, by the party against whom enforcement of any such
waiver is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.

      5.6 Headings The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.

      5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

      5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.10.

      5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and

                                       29
<PAGE>

agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
The parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

      5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.

      5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

      5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

      5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Documents and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of an exercise of a Warrant, the Purchaser
shall be required to return any shares of Common Stock subject to any such
rescinded conversion or exercise notice.

      5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably

                                       30
<PAGE>

satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.

      5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

      5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

      5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Rodman & Renshaw, LLC, the placement agent in the
transaction. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.

      5.18 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of

                                       31
<PAGE>

the Company and shall not terminate until all unpaid partial liquidated damages
and other amounts have been paid notwithstanding the fact that the instrument or
security pursuant to which such partial liquidated damages or other amounts are
due and payable shall have been canceled.

      5.19 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

                            (Signature Pages Follow)

                                       32
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

PDG ENVIRONMENTAL, INC.                                 Address for Notice:

By:  /s/ John C. Regan
     -----------------------------
     Name:  John C. Regan
     Title: President & CEO

With a copy to (which shall not constitute notice):

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                       33
<PAGE>

        [PURCHASER SIGNATURE PAGES TO PDGE SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: ________________________________________________
Signature of Authorized Signatory of Purchaser: ___________________
Name of Authorized Signatory: _____________________________________
Title of Authorized Signatory: ____________________________________
Email Address of Purchaser:________________________________________

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount:

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

                                       34
<PAGE>

                                                                         ANNEX A

                                CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $4,000,000, in the aggregate, of
Subscription Amount of Shares and Warrants from PDG Environmental, Inc. (the
"Company"). All funds will be wired into a trust account maintained by
____________, counsel to the Company. All funds will be disbursed in accordance
with this Closing Statement.

DISBURSEMENT DATE:    July ___, 2005

I.   PURCHASE PRICE

   GROSS PROCEEDS TO BE RECEIVED IN TRUST                  $

II.  DISBURSEMENTS

                                                           $
                                                           $
                                                           $
                                                           $
                                                           $

TOTAL AMOUNT DISBURSED:                                    $

WIRE INSTRUCTIONS:

To: _____________________________________

To: _____________________________________

                                       35

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