Document:

SECURITIES
      PURCHASE AGREEMENT

     

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”),
      dated
      as of July 28, 2006, by and among Michelex Corporation, a Utah corporation,
      with
      headquarters located at 63 Trade Road, Massena, NY 13662 (the “Company”),
      and
      each of the purchasers set forth on the signature pages hereto (the
“Buyers”).

     

    WHEREAS:
      

     

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

     

    B.  Buyers
      desire to purchase and the Company desires to issue and sell, upon the terms
      and
      conditions set forth in this Agreement (i) 6%
      secured convertible notes of the Company, in the form attached hereto as
Exhibit
      “A”,
      in the
      aggregate principal amount of One Million Two Hundred Thousand ($1,200,000)
      (together with any note(s) issued in replacement thereof or as a dividend
      thereon or otherwise with respect thereto in accordance with the terms thereof,
      the “Notes”),
      convertible into shares of common stock, par value $.001 per share, of the
      Company (the “Common
      Stock”),
      upon
      the terms and subject to the limitations and conditions set forth in such Notes
      and (ii) warrants,
      in the form attached hereto as Exhibit
      “B”,
      to
      purchase 10,000,000 shares of Common Stock (the “Warrants”).

     

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

     

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

     

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

     

    1.  PURCHASE
      AND SALE OF NOTES AND WARRANTS.

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

    c.  Closing
      Date.
      Subject
      to the satisfaction (or written waiver) of the conditions thereto set forth
      in
      Section 6 and Section 7 below, the date and time of the issuance and sale of
      the
      Notes and the Warrants pursuant to this Agreement (the “Closing
      Date”)
      shall
      be 12:00 noon, Eastern Standard Time on July 28, 2006, or such other mutually
      agreed upon time. The closing of the transactions contemplated by this Agreement
      (the “Closing”)
      shall
      occur on the Closing Date at such location as may be agreed to by the
      parties.

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    
      
         

      

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

     

    
      
         

      

      
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    h.  Absence
      of Certain Changes.
      Since
      December 31, 2004, there has been no material adverse change and no material
      adverse development in the assets, liabilities, business, properties,
      operations, financial condition, results of operations or prospects of the
      Company or any of its Subsidiaries.

     

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

     

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

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    
      
         

      

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

     

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

     

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

     

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

     

    
      
         

      

      
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    s.  Environmental
      Matters.

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    x.  Solvency.
      The
      Company (after giving effect to the transactions contemplated by this Agreement)
      is solvent (i.e.,
      its
      assets have a fair market value in excess of the amount required to pay its
      probable liabilities on its existing debts as they become absolute and matured)
      and currently the Company has no information that would lead it to reasonably
      conclude that the Company would not, after giving effect to the transaction
      contemplated by this Agreement, have the ability to, nor does it intend to
      take
      any action that would impair its ability to, pay its debts from time to time
      incurred in connection therewith as such debts mature. The Company did not
      receive a qualified opinion from its auditors with respect to its most recent
      fiscal year end and, after giving effect to the transactions contemplated by
      this Agreement, does not anticipate or know of any basis upon which its auditors
      might issue a qualified opinion in respect of its current fiscal
      year.

     

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

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

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

     

    4.  COVENANTS.

     

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

     

    b.  Form
      D; Blue Sky Laws.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary to qualify the Securities
      for sale to the Buyers at the applicable closing pursuant to this Agreement
      under applicable securities or “blue sky” laws of the states of the United
      States (or to obtain an exemption from such qualification), and shall provide
      evidence of any such action so taken to each Buyer on or prior to the Closing
      Date.

     

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

     

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

     

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

     

    
      
         

      

      
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    e.  Future
      Offerings.
      Subject
      to the exceptions described below, the Company will not, without the prior
      written consent of a majority-in-interest of the Buyers, negotiate or contract
      with any party to obtain additional equity financing (including debt financing
      with an equity component) that involves (A) the issuance of Common Stock at
      a
      discount to the market price of the Common Stock on the date of issuance (taking
      into account the value of any warrants or options to acquire Common Stock issued
      in connection therewith) or (B) the issuance of convertible securities that
      are
      convertible into an indeterminate number of shares of Common Stock or (C) the
      issuance of warrants during the period (the “Lock-up
      Period”)
      beginning on the Closing Date and ending on the later of (i) two hundred seventy
      (270) days from the Closing Date and (ii) one hundred eighty (180) days from
      the
      date the Registration Statement (as defined in the Registration Rights
      Agreement) is declared effective (plus any days in which sales cannot be made
      thereunder). In addition, subject to the exceptions described below, the Company
      will not conduct any equity financing (including debt with an equity component)
      (“Future
      Offerings”)
      during
      the period beginning on the Closing Date and ending two (2) years after the
      end
      of the Lock-up Period unless it shall have first delivered to each Buyer, at
      least twenty (20) business days prior to the closing of such Future Offering,
      written notice describing the proposed Future Offering, including the terms
      and
      conditions thereof and proposed definitive documentation to be entered into
      in
      connection therewith, and providing each Buyer an option during the fifteen
      (15)
      day period following delivery of such notice to purchase its pro rata share
      (based on the ratio that the aggregate principal amount of Notes purchased
      by it
      hereunder bears to the aggregate principal amount of Notes purchased hereunder)
      of the securities being offered in the Future Offering on the same terms as
      contemplated by such Future Offering (the limitations referred to in this
      sentence and the preceding sentence are collectively referred to as the
“Capital
      Raising Limitations”). 
      In the
      event the terms and conditions of a proposed Future Offering are amended in
      any
      respect after delivery of the notice to the Buyers concerning the proposed
      Future Offering, the Company shall deliver a new notice to each Buyer describing
      the amended terms and conditions of the proposed Future Offering and each Buyer
      thereafter shall have an option during the fifteen (15) day period following
      delivery of such new notice to purchase its pro rata share of the securities
      being offered on the same terms as contemplated by such proposed Future
      Offering, as amended. The foregoing sentence shall apply to successive
      amendments to the terms and conditions of any proposed Future Offering. The
      Capital Raising Limitations shall not apply to any transaction involving (i)
      issuances of securities in a firm commitment underwritten public offering
      (excluding a continuous offering pursuant to Rule 415 under the 1933 Act, an
      equity line of credit or similar financing arrangement) resulting in net
      proceeds to the Company of in excess of $15,000,000, or (ii) issuances of
      securities as consideration for a merger, consolidation or purchase of assets,
      or in connection with any strategic partnership or joint venture (the primary
      purpose of which is not to raise equity capital), or in connection with the
      disposition or acquisition of a business, product or license by the Company.
      The
      Capital Raising Limitations also shall not apply to the issuance of securities
      upon exercise or conversion of the Company’s options, warrants or other
      convertible securities outstanding as of the date hereof or to the grant of
      additional options or warrants, or the issuance of additional securities, under
      any Company stock option or restricted stock plan approved by the shareholders
      of the Company. Notwithstanding anything in this section 4(e) to the contrary,
      in the event the Company’s Board of Directors decides, in good faith, to enter
      into a transaction or relationship in which the Company issues shares of Common
      Stock or other securities of the Company to a person or any entity which is,
      itself or through its subsidiaries, an operating company in a business
      synergistic with the business of the Company and in which the Company received
      benefits in addition to the investment of funds, 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 business is investing in securities,
      the Company shall be permitted to do so.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    f.  Expenses.
      At the
      Closing, the Company shall reimburse Buyers up to $50,000 for expenses incurred
      by them in connection with the negotiation, preparation, execution, delivery
      and
      performance of this Agreement and the other agreements to be executed in
      connection herewith (“Documents”), including, without limitation, attorneys’ and
      consultants’ fees and expenses, transfer agent fees, fees for stock quotation
      services, fees relating to any amendments or modifications of the Documents
      or
      any consents or waivers of provisions in the Documents, fees for the preparation
      of opinions of counsel, escrow fees, and costs of restructuring the transactions
      contemplated by the Documents. When possible, the Company must pay these fees
      directly, otherwise the Company must make immediate payment for reimbursement
      to
      the Buyers for all fees and expenses immediately upon written notice by the
      Buyer or the submission of an invoice by the Buyer If the Company fails to
      reimburse the Buyer in full within three (3) business days of the written notice
      or submission of invoice by the Buyer, the Company shall pay interest on the
      total amount of fees to be reimbursed at a rate of 15% per annum.

     

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

     

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

     

    
      
         

      

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

     

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

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

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

     

    l.  Subsequent
      Investment.
      The
      Company and the Buyers agree that, upon the filing by the Company of the
      Registration Statement to be filed pursuant to the Registration Rights Agreement
      (the “Filing
      Date”),
      the
      Buyers shall purchase additional Notes (the “Filing
      Notes”)
      in the
      aggregate principal amount of Four Hundred Thousand Dollars ($400,000) for
      an
      aggregate purchase price of Four Hundred Thousand Dollars ($400,000), with
      the
      closing of such purchase to occur within five (5) days of the Filing Date;
      provided,
      however,
      that
      the obligation of each Buyer to purchase the Filing Notes is subject to the
      satisfaction, at or before the closing of such purchase and sale, of the
      conditions set forth in Section 7. The Company and the Buyers further agree
      that, upon the declaration of effectiveness of the Registration Statement to
      be
      filed pursuant to the Registration Rights Agreement (the “Effective
      Date”),
      the
      Buyers shall purchase additional notes (the “Effectiveness
      Notes”
and,
      collectively with the Filing Notes, the “Additional
      Notes”)
      in the
      aggregate principal amount of Four Hundred Thousand Dollars ($400,000) for
      an
      aggregate purchase price of Four Hundred Thousand Dollars ($400,000), with
      the
      closing of such purchase to occur within five (5) days of the Effective Date;
      provided,
      however,
      that
      the obligation of each Buyer to purchase the Additional Notes is subject to
      the
      satisfaction, at or before the closing of such purchase and sale, of the
      conditions set forth in Section 7; and, provided,
      further,
      that
      there shall not have been a Material Adverse Effect as of such effective date.
      The terms of the Additional Notes shall be identical to the terms of the Notes
      to be issued on the Closing Date. The Common Stock underlying the Additional
      Notes shall be Registrable Securities (as defined in the Registration Rights
      Agreement) and shall be included in the Registration Statement to be filed
      pursuant to the Registration Rights Agreement.

     

    m.  Key
      Man Insurance.
      The
      Company shall use its best efforts to obtain, on or before five (5) business
      days from the date hereof, key man life insurance on Thomas
      Gramuglia.

     

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

     

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

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    8.  GOVERNING
      LAW; MISCELLANEOUS.
      

     

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

     

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

     

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

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    
      	 	If to the Company:
	 	 
	 	Michelex
              Corporation
              63
                Trade Road

              Massena,
                NY 13662

              Attention:
                President 

              Telephone: 

              Facsimile: 

            
	 	 
	 	With a copy to:
	 	 
	 	
              Gersten
                Savage, LLP

              600
                Lexington Avenue

              New
                York, New York 10022

              Attention:
                Arthur S. Marcus, Esq.

              Telephone:
                (212) 752-9700

              Facsimile:
                (212) 980-5192

            

    

    

    

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

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

     

    
      	 	With copy to:
	 	 
	 	
              Ballard
                Spahr Andrews & Ingersoll, LLP

              1735
                Market Street

              51st
                Floor

              Philadelphia,
                Pennsylvania 19103

              Attention:
                Gerald J. Guarcini, Esq.

              Telephone:
                215-864-8625

              Facsimile:
                215-864-8999

            

    

     

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

     

    g.  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns. Neither the Company nor any Buyer shall assign
      this Agreement or any rights or obligations hereunder without the prior written
      consent of the other. Notwithstanding the foregoing, subject to
      Section 2(f), any Buyer may assign its rights hereunder to any person that
      purchases Securities in a private transaction from a Buyer or to any of its
      “affiliates,” as that term is defined under the 1934 Act, without the consent of
      the Company.

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

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

     

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

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

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

     

    

    

    MICHELEX
      CORPORATION

    

    ________________________________

    Thomas
      Gramuglia

    Chief
      Executive Officer 

    

    

    AJW
      PARTNERS, LLC

    By:
      SMS
      Group, LLC

    

    

    ______________________________________

    Corey
      S.
      Ribotsky

    Manager

    

    

    RESIDENCE:
      Delaware

     

    
      	ADDRESS:	
              1044 Northern Boulevard

            
	 	Suite
              302
              Roslyn,
                New York 11576

              Facsimile:
                (516) 739-7115

              Telephone:
                (516) 739-7110

            
	
            	 
	AGGREGATE SUBSCRIPTION
              AMOUNT:
	 	 
	 	
              Aggregate
                Principal Amount of Notes: 

              Number
                of Warrants: 

              Aggregate
                Purchase Price: 

            	
              $________

                ________

              $________

            
	 	 

    

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    

    AJW
      OFFSHORE, LTD.

    By:
      First
      Street Manager II, LLC

    

    

    ______________________________________

    Corey
      S.
      Ribotsky 

    Manager

    

    

    RESIDENCE: 
      Cayman
      Islands

    
       

      
        	ADDRESS:	
                AJW Offshore, Ltd.

              
	 	
                P.O.
                  Box 32021 SMB

                Grand
                  Cayman, Cayman Island, B.W.I

              
	
              	 
	AGGREGATE SUBSCRIPTION
                AMOUNT:
	 	 
	 	
                Aggregate
                  Principal Amount of Notes: 

                Number
                  of Warrants: 

                Aggregate
                  Purchase Price: 

              	
                $________

                 ________

                $________

              
	 	 

      

       

       

      
        
           

        

        
          25

          
            

          

        

        
           

        

      

    

    

    AJW
      QUALIFIED PARTNERS, LLC

    By:
      AJW
      Manager, LLC

     

    ____________________________________

    Corey
      S.
      Ribotsky 

    Manager

    

    

    RESIDENCE: 
      New
      York

    
       

      
        	ADDRESS:	
                1044 Northern Boulevard

              
	 	Suite
                302
                Roslyn,
                  New York 11576

                Facsimile:
                  (516) 739-7115

                Telephone:
                  (516) 739-7110

              
	
              	 
	AGGREGATE SUBSCRIPTION
                AMOUNT:
	 	 
	 	
                Aggregate
                  Principal Amount of Notes: 

                Number
                  of Warrants: 

                Aggregate
                  Purchase Price: 

              	
                $________

                  ________

                $________

              
	 	 

      

       

       

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

    

    

    NEW
      MILLENNIUM CAPITAL PARTNERS II, LLC 

    By:
      First
      Street Manager II, LLP

     

    ____________________________________

    Corey
      S.
      Ribotsky 

    Manager

    
 

    RESIDENCE: 
      New
      York

    
       

      
        	ADDRESS:	
                1044 Northern Boulevard

              
	 	Suite
                302
                Roslyn,
                  New York 11576

                Facsimile:
                  (516) 739-7115

                Telephone:
                  (516) 739-7110

              
	
              	 
	AGGREGATE SUBSCRIPTION
                AMOUNT:
	 	 
	 	
                Aggregate
                  Principal Amount of Notes: 

                Number
                  of Warrants: 

                Aggregate
                  Purchase Price: 

              	
                $________

                  ________

                $________

              
	 	 

      

       

      
        
           

        

        
          27Exhibit
      10.01

     

    Harris
      Loan Authorization Agreement

    

    The
      Company referred to below has applied for, and Harris N.A., Chicago, Illinois
      (“Bank”),
      has
      approved the establishment of, a loan authorization account (“Loan
      Account”)
      from
      which the Company may from time to time request loans up to the maximum amount
      of credit shown below (the “Maximum
      Credit”).
      Interest on such loans is computed at a variable rate which may change daily
      based upon changes in the Bank’s Prime Rate. The Company may make principal
      payments at any time and in any amount. The request by the Company for, and
      the
      making by the Bank of, any loan against the Loan Account shall constitute an
      agreement between the Company and the Bank as follows:

    

    
      	Name
              of Company:	
              SAN
                Holdings, Inc., a Colorado
                corporation

            

    

    

    
      	Address:	
              9800
                Pyramid Court, Suite 130

            

    

    Englewood,
      CO 80112

     

    
      	
              Type
                of Loan Account: 

            	x	
              Revolving,
                which means as principal is repaid, the Company may reborrow subject
                to
                this Agreement.

            

      	 	 	 

      	 	o	Multiple Advances, which means that
              the
              Company may not reborrow any amounts that have been repaid but may
              still
              borrow the difference between the Maximum Credit and the principal
              amounts
              of prior borrowings.

    

     

    Amount
      of
      Maximum Credit: $1,500,000.00

    

    Each
      Loan
      Requested Shall Be At Least: $100,000

    

    
      	
              Variable
                Interest Rate:

            	
              The
                interest rate applicable prior to the Maturity Date equals the rate
                per
                annum announced by the Bank from time to time as its prime commercial
                rate
                (the “Prime
                Rate”).

            

    

    

    Maturity
      Date: The Loan Account terminates, and Loans are payable, ON
      DEMAND.

     

    Periodic
      Statement reflecting accrued interest will be sent and interest will be
      payable:  x Monthly;        o
Quarterly

    

    Payments
      shall be due at the Bank’s principal office in

     

    
      	
              Chicago,
                Illinois, paid to the order of the Bank, and made by: 

            	o	
              Debit
                to Harris Account #______________;

            

      	 	x	By Check

    

     

    
      	
              1.

            	
              Using
                the Account.
                All loans and advances from the Loan Account are referred to in this
                Agreement as “Loans”. Loan requests must be in writing (including by
                facsimile) or by telephone and shall be sent to the Company’s Harris
                Account Officer on or before the date of such proposed borrowing.
                Loan
                proceeds shall be credited to the Company’s deposit account at the Bank
                unless the Bank is directed otherwise by special written directions
                from
                the Company. The amount of each loan requested shall be at least
                the
                minimum amount shown above, and the Bank shall have the right to
                refuse to
                honor any loan requested by the Company which is less than that minimum
                amount, even if the Bank has previously honored a loan request for
                less
                than the minimum amount. The Company shall not request any Loan which,
                when taken together with the Loans then outstanding, would exceed
                the
                Maximum Credit. If Loans are secured directly or indirectly by securities
                traded on a national exchange or by other “margin stock” (as defined by
                the Federal Reserve Board in Regulation U), then the Company promises
                to
                furnish the Bank a duly executed and completed Form U-1 statement and
                agrees that the proceeds of Loans from the Loan Account will not
                be used
                to purchase or carry stock, convertible bonds or warrants unless
                the
                Company has obtained the prior written consent of the
                Bank.

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    
      	 	
              Loans
                will be made available from the Loan Account subject to the Bank’s
                approval on a loan-by-loan basis as and when Loans are requested
                by the
                Company.

            

    

    

    All
      Loans
      shall be made against and evidenced by the Company’s promissory note payable to
      the order of the Bank in the principal amount of $1,500,000.00, such note to
      be
      in the form of Exhibit A attached hereto (the “Note”).
      The
      Bank agrees that notwithstanding the fact that the Note is in the principal
      amount of $1,500,000.00, it shall evidence only the actual unpaid principal
      balance of Loans made under the Loan Account. All Loans made against the Note
      and the status of all amounts evidenced by the Note shall be recorded by the
      Bank on its books and records or, at its option in any instance, endorsed on
      a
      schedule to the Note and the unpaid principal balance and status and rates
      so
      recorded or endorsed by the Bank shall be prima facie evidence in any court
      or
      other proceeding brought to enforce the Note of the principal amount remaining
      unpaid thereon, the status of the Loans evidenced thereby and the interest
      rates
      applicable thereto, absent manifest error; provided that
      the
      failure of the Bank to record any of the foregoing shall not limit or otherwise
      affect the obligation of the Company to repay the principal amount of the Note
      together with accrued interest thereon. 
      The Bank
      agrees that if it transfers or assigns the Note, the Bank will stamp thereon
      a
      statement of the actual principal amount evidenced thereby at the time of
      transfer. The Company agrees that in any action or proceeding instituted to
      collect or enforce collection of the Note, the amount shown as owing the Bank
      on
      its records shall be prima
      facie evidence
      of the unpaid balance of principal and interest on the Note, absent manifest
      error.

    

    
      	
              2.

            	
              Interest.
                The
                Company shall pay the Bank interest on the unpaid principal balance
                of
                Loans in accordance with the terms of this Agreement. Accrued interest
                will be billed monthly, and is due by the last day
                of each month (each, an “Interest
                Payment Date”).
                Interest for each billing period is computed by applying a daily
                periodic
                rate based on the Bank’s Prime Rate to each day’s ending Loan balance.
                Interest shall be computed on the basis of a year of 360 days for
                the actual number of days elapsed. The Bank’s Prime Rate reflects market
                rates of interest as well as other factors, and it is not necessarily
                the
                Bank’s best or lowest rate. The daily Loan balance shall be computed by
                taking the principal balance of Loans at the beginning of each day,
                adding
                any Loans posted to the Loan Account that day, and subtracting any
                principal payments posted to the Loan Account as of that day. Interest
                begins to accrue on the date a Loan is posted to the Loan Account.
                The
                principal balance of Loans which remains unpaid after demand for
                repayment
                shall bear interest until paid in full at a post-maturity rate of
                2% per
                annum above the interest rate otherwise applicable to the Loans
                (determined as aforesaid). The interest rate payable under this Agreement
                shall be subject, however, to the limitation that such interest rate
                shall
                never exceed the highest rate which the Company may contract to pay
                under
                applicable law. 

            

    

    

    
      	
              3.

            	
              Fees.
                The Company agrees to pay to the Bank a non-refundable Closing Fee
                in the
                amount of $2,250.

            

    

    

    
      	
              4.

            	
              Guaranty.
                Sun Capital Partners II, LP (the “Guarantor”)
                shall at all times guarantee all
                Loans.

            

    

    

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

       

    

    
      	
              5.

            	
              Maturity
                Date; Payments.
                The Company shall pay to the Bank the principal balance of outstanding
                Loans together with any accrued interest ON
                DEMAND. Payments
                received by
                the Bank
                shall be applied first to accrued interest and then to the principal
                balance of outstanding Loans unless otherwise directed. If any payment
                from the Company under this Agreement becomes due on a Saturday,
                Sunday,
                or a day which is a legal holiday for banks in the State of Illinois,
                such
                payment shall be made on the next bank business day and any such
                extension
                shall be included in computing interest under this
                Agreement.

            

    

    

    
      	
              6.

            	
              Periodic
                Statements.
                The Bank will furnish the Company with a statement for each billing
                period
                (either monthly or quarterly as shown on the front of this Agreement)
                which has any transaction or balance.

            

    

    

    
      	
              7.

            	
              Financial
                Statements.
                The Company agrees to furnish financial information of the Company
                and the
                Guarantor to the Bank upon request of the Bank from time to time.
                Such
                information shall be furnished as soon as reasonably possible, but
                in any
                event within 30 days after request by the Bank. Without any such
                request,
                the Company shall furnish, or cause to be furnished, to the
                Bank:

            

    

    

    (a) as
      soon
      as available, and in any event within 30 days after the last day of each month,
      a copy of the consolidated balance sheet of the Company and its subsidiaries
      as
      of the last day of such month and the consolidated statements of income,
      retained earnings and cash flows of the Company and its subsidiaries for the
      month and the fiscal year-to-date period then ended, each in reasonable detail
      showing in comparative form the figures for the corresponding date and period
      in
      the previous fiscal year, prepared by the Company in accordance with general
      accepted accounting principles (“GAAP”),
      except
      as otherwise stated therein, and certified to by its chief financial officer
      or
      such other officer reasonably acceptable to the Bank;

    

    (b) as
      soon
      as available, and in any event within 90 days after the close of each fiscal
      year of the Company, a copy of the consolidated and consolidating balance sheet
      of the Company and its subsidiaries as of the close of such period and the
      consolidated statements of income, retained earnings and cash flows of the
      Company and its subsidiaries for such period, and accompanying notes thereto,
      each in reasonable detail showing in comparative form the figures for the
      previous fiscal year, accompanied by an unqualified opinion thereon of Ernst
      & Young or another firm of independent public accountants of recognized
      national standing, selected by the Company and reasonably satisfactory to the
      Bank, to the effect that the financial statements have been prepared in
      accordance with GAAP and present fairly in all material respects in accordance
      with GAAP the consolidated financial condition of the Company and its
      Subsidiaries as of the close of such fiscal year and the results of their
      operations and cash flows for the fiscal year then ended;

    

    (c) as
      soon
      as available, and in any event within 45 days after the last day of each month,
      a certificate as of such date in the form, or substantially the form of
      Exhibit B hereto, properly completed and certified by the
      Guarantor;

    

    (d) as
      soon
      as available, and in any event within 45 days after the close of each fiscal
      quarter of the Guarantor, a copy of the Guarantor’s balance sheet as of the last
      day of such fiscal quarter and its statements of income, retained earnings
      and
      cash flows for the fiscal quarter and for the fiscal year-to-date period then
      ended, each in reasonable detail showing in comparative form the figures for
      the
      corresponding date and period in the previous fiscal year, prepared by the
      Guarantor in accordance with GAAP and certified to by its chief financial
      officer or such other officer reasonably acceptable to the Bank;
      and

    

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

       

    

    (e) as
      soon
      as available, and in any event within 90 days after the close of each
      fiscal year of the Guarantor, a copy of the Guarantor’s balance sheet as of the
      last day of the fiscal year then ended and its statements of income, retained
      earnings and cash flows for the fiscal year then ended, and accompanying notes
      thereto, each in reasonable detail showing in comparative form the figures
      for
      the previous fiscal year, accompanied by an unqualified opinion of Grant
      Thornton or another firm of independent public accountants of recognized
      standing, selected by the Guarantor and reasonably satisfactory to the Bank
      to
      the effect that the financial statements have been prepared in accordance with
      GAAP and present fairly in all material respects in accordance with GAAP the
      consolidated financial condition of the Guarantor as of the close of such fiscal
      year and the results of our operations and cash flows for the fiscal year then
      ended.

    

    
      	
              8.

            	
              Representations
                and Warranties. In
                consideration of establishing and maintaining the Loan Account, the
                Company hereby represents and warrants to the Bank that: (a) the
                Company is a corporation duly
                organized, validly existing, and in good standing under the laws
                of its
                state of incorporation; (b) the execution, delivery, and performance
                by the Company of this Agreement and the Note are within its powers,
                have
                been duly authorized by all necessary action, and do not contravene
                the
                Company’s articles of incorporation or by-laws or any law or contractual
                restriction binding on or affecting the Company; (c) no authorization
                or approval or other action by, and no notice to or filing with,
                any
                governmental authority or regulatory body is required for the Company’s
                due execution, deliver, and performance of this Agreement or the
                Note;
                (d) this Agreement is, and the Note when executed and delivered by
                the Company will be, the Company’s legal, valid, and binding obligation
                enforceable against the Company in accordance with its terms except
                as
                such enforceability may be limited by bankruptcy, insolvency,
                reorganization, moratorium or similar state or federal debtor relief
                laws
                from time to time in effect which affect the enforcement of creditors’
                rights in general and the availability of equitable remedies; (e) the
                Company is not engaged in the business of extending credit for the
                purpose
                of purchasing or carrying margin stock (within the meaning of
                Regulation U issued by the Board of Governors of the Federal Reserve
                System), and no proceeds of the Loans will be used to purchase or
                carry
                any margin stock or to extend credit to others for the purpose of
                purchasing or carrying any margin stock; and (f) there is no pending
                or threatened action or proceeding affecting the Company before any
                court,
                governmental agency or arbitrator, which may materially adversely
                affect
                the Company’s financial condition or operations or which purports to
                affect the legality, validity, or enforceability of this Agreement
                or the
                Note.

            

    

    

    
      	
              9.

            	
              
                DEMAND OBLIGATION;
                  ENFORCEMENT.
                  THE LOANS ARE PAYABLE “ON DEMAND.” ACCORDINGLY, THE BANK CAN DEMAND
                  PAYMENT IN FULL OF THE LOANS AT ANY TIME IN ITS SOLE DISCRETION
                  EVEN IF
                  THE COMPANY HAS COMPLIED WITH ALL OF THE TERMS OF THIS
                  AGREEMENT.

              

            

    

    

    No
      delay
      by the Bank in the exercise of any right or remedy shall operate as a waiver
      thereof, and no single or partial exercise by the Bank of any right or remedy
      shall preclude any other or further exercise thereof or the exercise of any
      other right or remedy. The Company agrees to pay to the Bank all reasonable
      expenses incurred or paid by the Bank in connection with the establishment
      and
      maintenance of the Loan Account and the collection of the Loans and any court
      costs and other reasonable amounts due under this Agreement, including, without
      limitation, reasonable attorneys’ fees. The Bank shall have the right at any
      time to set-off the balance of any deposit account that the Company may at
      any
      time maintain with the Bank against any amounts at any time owing under this
      Agreement, whether or not the balance of Loans under this Agreement is then
      due.

    

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

       

    

    
      	
              10.

            	
              Termination;
                Renewal.
                The availability of additional Loans under this Agreement will
                automatically terminate ON
                DEMAND.
                The Bank reserves the right at any time without notice to terminate
                the
                Loan Account, suspend the Company’s borrowing privileges or refuse any
                Loan request even though the Company has complied with all of the
                terms
                under this Agreement. The Company may terminate this Agreement at
                any time
                effective upon receipt by the Bank of at least 15 days prior written
                notice. No termination under this Section shall affect the Bank’s rights
                or the Company’s obligations regarding payment or default under this
                Agreement. Such termination shall not affect the Company’s obligation to
                pay all Loans and the interest accrued through the date of final
                payment.
                The Bank may also elect to honor Loan requests after termination
                of this
                Agreement, and the Company agrees that any such payment by the Bank
                shall
                constitute a Loan to Company under this
                Agreement.

            

    

    

    
      	
              11.

            	
              Notices.
                The
                Bank may rely on instructions from the Company with respect to any
                matters
                relating to this Agreement or the Loan Account, including telephone
                loan
                requests (including by facsimile) which are made by persons whom
                the Bank
                reasonably believes to be the persons authorized by the Company to
                make
                such loan requests. All
                notices and statements to be furnished by the Bank shall be sufficient
                if
                delivered to any such person at the billing address for the Loan
                Account
                shown on the records of the Bank. All notices from the Company shall
                be
                sent to the Bank at P.O. Box 755, Chicago, Illinois 60690, to the
                attention of the Loan Accounting Division. The Company waives presentment
                and notice of dishonor. This Agreement constitutes the entire
                understanding of the parties with respect to the subject matter hereof
                and
                any prior agreements, whether written or oral, with respect thereto
                are
                superseded hereby. No amendment or waiver of any provision of this
                Agreement or the Note, nor consent to any departure by the Company
                therefrom, shall in any event be effective unless the same shall
                be in
                writing and signed by the Bank and no amendment of any provision
                of this
                Agreement or the Note shall be effective without the prior written
                consent
                of the Guarantor. If any part of this Agreement is unenforceable,
                that
                will not make any other part unenforceable. This Agreement shall
                be
                governed by the laws of the State of
                Illinois.

            

    

    

    
      	
              12.

            	
              Consent
                to Jurisdiction. THE
                COMPANY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES
                DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS
                STATE COURT SITTING IN COOK COUNTY, ILLINOIS, FOR PURPOSES OF ALL
                LEGAL
                PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
                TRANSACTIONS CONTEMPLATED
                HEREBY.

            

    

    

    
      	
              13.

            	
              Jury
                Trial Waiver. THE
                COMPANY AND THE BANK WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
                ANY LEGAL
                PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
                TRANSACTIONS CONTEMPLATED
                HEREBY.

            

    

    

    *
      * * *
      *

    

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    The
      Company Agrees to the Terms Set Forth Above. 

    

    Signed
      by
      Company on October 27, 2006.

     

    
      	 	
              
                SAN
                  HOLDINGS, INC.

              

               

               

              By:
                /s/
                Robert C. Ogden

              Name:
                Robert C. Ogden

              Its:
                Chief Financial Officer and
                Secretary

            

    

    

    Accepted
      and agreed to this 27th day of October, 2006.

     

    
      	 	
              HARRIS
                N.A.

              

              

              By:
                /s/
                Denise Sidlo

              Printed
                Name: Denise Sidlo

              Its:
                Vice President

            

    

    
       

      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A

    

    DEMAND
      NOTE

     

    
      	
              $1,500,000.00

            	
              _____________,
                2006

            

    

    

    ON DEMAND,
      for
      value received, the undersigned, SAN
      HOLDINGS, INC.,
      a
      Colorado corporation, promises to pay to the order of HARRIS N.A.
      (the
“Bank”)
      at its
      offices at 111 West Monroe Street, Chicago, Illinois, the principal sum of
      One
      Million Five Hundred Thousand Dollars ($1,500,000.00) or, if less, the amount
      outstanding under the Harris Loan Authorization Agreement referred to below
      together with interest payable at the times and at the rates and in the manner
      set forth in the Harris Loan Authorization Agreement referred to
      below.

    

    This
      Note
      evidences borrowings by the undersigned under that certain Harris Loan
      Authorization Agreement dated as of ______________, 2006, between the
      undersigned and the Bank; and this Note and the holder hereof are entitled
      to
      all the benefits provided for under the Harris Loan Authorization Agreement,
      to
      which reference is hereby made for a statement thereof. The undersigned hereby
      waives presentment and notice of dishonor. The undersigned agrees to pay to
      the
      holder hereof all court costs and other reasonable expenses, legal or otherwise,
      incurred or paid by such holder in connection with the collection of this Note.
      It is agreed that this Note and the rights and remedies of the holder hereof
      shall be construed in accordance with and governed by the laws of the State
      of
      Illinois.

     

    
      	 	
              
                SAN
                  HOLDINGS, INC.

              

              

              

              By:
                _____________________________________

              Printed
                Name __________________________

              Its:
                __________________________________

            

    

    
       

      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    

      EXHIBIT
        B

      

      CERTIFICATE
        OF STATUS

      OF

      SUN
        CAPITAL PARTNERS II, LP 

       

    

    

      SUN
        CAPITAL PARTNERS II, LP, a
        Delaware limited partnership (the “Guarantor”),
        does
        hereby certify that:

    

    

    1.
      Michael
      McConvery is Vice President (the “VP”)
      of
SUN
      CAPITAL PARTNERS, LLC,
      a
      Delaware limited liability company (the “Management
      Company”),
      which
      is the general partner of  SUN
      CAPITAL ADVISORS II, LP (the
      “General
      Partner”),
      which
      is the general partner of the Guarantor.

    

    2.
      This
      Certificate is being delivered to Harris N.A. (the “Bank”)
      in
      connection with, and may be relied upon by the Bank in connection with, its
      extension of credit from time to time to SAN Holdings, Inc., a Colorado
      corporation (the “Company”),
      and
      the guaranty of that credit from the Guarantor to the Bank (the “Guaranty”).

    

    3.
      The
      VP,
      as the Vice President and authorized signatory of the Management Company, and
      the Management Company, in its capacity as general partner of the General
      Partner, and the General Partner, in its capacity as general partner of the
      Guarantor, have each secured proper authorization to enter into the Guaranty
      and
      to execute all instruments and documents in connection therewith, in compliance
      with the Guarantor’s Agreement of Limited Partnership, dated as of April 19,
      2001 (the “Guarantor’s
      Agreement of Limited Partnership”).
      The
      Guarantor has incurred indebtedness and become liable on guarantees, and will
      continue to incur indebtedness and become liable on guarantees, in each case
      only to the extent the same can be done in compliance with the Guarantor’s
      Agreement of Limited Partnership, including, without limitation, the limitations
      therein on indebtedness and guarantees set forth in Section 6.2 thereof.
      The VP’s actions and the General Partner’s actions, each on behalf of the
      Guarantor, have been taken in compliance with the General Partner’s Agreement of
      Limited Partnership, dated as of April 19, 2001 (as amended from time to
      time, the “General
      Partner’s Operating Agreement”).

    

    4.
      The
      aggregate amount of outstanding indebtedness (after giving effect to the
      Guaranty) of the Guarantor as of the date hereof is
      $_________________.

    

    5.
      The
      aggregate amount of Commitments to the Guarantor as of the date hereof is
      $_______________.

    

    6.
      The
      aggregate amount of outstanding guarantees (after giving effect to the Guaranty)
      on which the Guarantor is liable as of the date hereof is $_________________.
      

    

    7.
      The
      aggregate amount of uncalled Commitments to the Guarantor as of the date hereof
      is $_________________ (including $_________________ of bridge financing which
      is
      re-callable per the Guarantor’s Agreement of Limited Partnership).

    

    8.
      The
      aggregate amount of Capital Contributions made to the Guarantor as of the date
      hereof is $_________________ (including $_________________ of bridge financing
      which is re-callable per the Guarantor’s Agreement of Limited
      Partnership).

    

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

       

    

    9.
      The
      aggregate amount of outstanding indebtedness (and together with the aggregate
      amount of outstanding guarantees of the Guarantor to the extent such aggregate
      amount of outstanding guarantees exceeds the aggregate amount of uncalled
      Commitments to the Guarantor) does not as of the date hereof and will not at
      any
      time hereafter exceed 20% of the Guarantor’s aggregate Commitments.

    

    10.
      The
      aggregate amount of outstanding indebtedness of the Guarantor and all
      outstanding guarantees of the Guarantor (including without limitation guarantees
      in favor of the Bank) does not as of the date hereof and will not at any time
      hereafter exceed 100% of the Guarantor’s aggregate uncalled
      Commitments.

    

    11.
      The
      Guarantor’s Agreement of Limited Partnership and the General Partner’s Operating
      Agreement have not been
      amended or otherwise modified except by instruments, true and correct copies
      of
      which previously have been delivered to the Bank.

    

    12.
      The
      aggregate amount of Capital Call Notices made on the Guarantor’s partners since
      the most recently completed fiscal quarter of the Guarantor is
      $_________________.

    

    13.
      The
      aggregate amount of distributions made by the Guarantor in respect of equity
      interest therein since the most recently completed fiscal quarter of the
      Guarantor is $_________________.

    

    14.
      The
      undersigned is an officer of the General Partner.

    

    The
      Guarantor hereby agrees to notify the Bank in the event of any change which
      would cause any of the above representations and warranties to cease to be
      true
      and correct in any material respect.

    

    The
      Guarantor agrees to promptly notify the Bank of any capital calls or
      distributions.

    

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    All
      capitalized terms used above without definition shall have the same meanings
      herein as such terms have in the Guarantor’s Agreement of Limited
      Partnership.

    

    Dated:
      _________________, 2006.

     

    
      	 	
              
                SUN
                  CAPITAL PARTNERS II, LP

              

               

              By:
                Sun
                Capital Advisors II, LP

              Its: General
                Partner

              

              By:
                Sun
                Capital Partners, LLC

              Its: General
                Partner

              

              

              By:
                ____________________________________

              Name:
                Michael McConvery

              Title:
                Vice President

            

    

     

    
      
        
        

      

      
        -10-

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