Document:

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                             THOMAS EQUIPMENT, INC.

                              AMENDED AND RESTATED

                   CERTIFICATE OF DESIGNATION OF PREFERENCES,
                             RIGHTS AND LIMITATIONS
                                       OF
                      SERIES A CONVERTIBLE PREFERRED STOCK

        The undersigned, Clifford M. Rhee, does hereby certify that:

                1. He is the President and Secretary of Thomas Equipment, Inc.,
a Delaware corporation (the "Corporation").

                2. The  Corporation is authorized to issue 5,000,000  shares of
preferred  stock, of which no shares have been issued.

                3. The following resolutions were duly adopted by the Board of
Directors:

        WHEREAS, the Certificate of Incorporation of the Corporation provides
for a class of its authorized stock known as preferred stock, comprised of
5,000,000 shares, $0.0001 par value, issuable from time to time in one or more
series;

        WHEREAS, the Board of Directors of the Corporation is authorized to fix
the dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any Series and the
designation thereof, of any of them; and

        WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to fix the rights, preferences,
restrictions and other matters relating to a series of the preferred stock,
which shall consist of, except as otherwise set forth in the Purchase Agreement,
up to 30,000 shares of the preferred stock which the corporation has the
authority to issue, as follows:

        NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for the issuance of a series of preferred stock for cash or exchange of
other securities, rights or property and does hereby fix and determine the
rights, preferences, restrictions and other matters relating to such series of
preferred stock as follows:

<PAGE>

                            TERMS OF PREFERRED STOCK

                  Section 1. Definitions. Capitalized terms used and not
otherwise defined herein that are defined in the Purchase Agreement or
Registration Rights Agreement shall have the meanings given such terms in the
Purchase Agreement or the Registration Rights Agreement. For the purposes
hereof, the following terms shall have the following meanings:

                  "Bankruptcy Event" means any of the following events: (a) the
         Corporation or any Significant Subsidiary (as such term is defined in
         Rule 1.02(s) of Regulation S-X) thereof commences a case or other
         proceeding under any bankruptcy, reorganization, arrangement,
         adjustment of debt, relief of debtors, dissolution, insolvency or
         liquidation or similar law of any jurisdiction relating to the
         Corporation or any Significant Subsidiary thereof; (b) there is
         commenced against the Corporation or any Significant Subsidiary thereof
         any such case or proceeding that is not dismissed within 90 days after
         commencement; (c) the Corporation or any Significant Subsidiary thereof
         is adjudicated insolvent or bankrupt or any order of relief or other
         order approving any such case or proceeding is entered; (d) the
         Corporation or any Significant Subsidiary thereof suffers any
         appointment of any custodian or the like for it or any substantial part
         of its property that is not discharged or stayed within 90 days; (e)
         the Corporation or any Significant Subsidiary thereof makes a general
         assignment for the benefit of creditors; (f) the Corporation or any
         Significant Subsidiary thereof calls a meeting of its creditors with a
         view to arranging a composition, adjustment or restructuring of its
         debts; or (g) the Corporation or any Significant Subsidiary thereof, by
         any act or failure to act, expressly indicates its consent to, approval
         of or acquiescence in any of the foregoing or takes any corporate or
         other action for the purpose of effecting any of the foregoing.

                  "Change of Control Transaction" means the occurrence after the
         date hereof of any of (a) an acquisition (whether by merger,
         consolidation or otherwise) after the date hereof by an individual or
         legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
         under the Exchange Act) of effective control (whether through legal or
         beneficial ownership of capital stock of the Corporation, by contract
         or otherwise) of in excess of 50% of the voting securities of the
         Corporation, or (b) a replacement at one time or within a one year
         period of more than one-half of the members of the Corporation's board
         of directors which is not approved by a majority of those individuals
         who are members of the board of directors on the date hereof (or by
         those individuals who are serving as members of the board of directors
         on any date whose nomination to the board of directors was approved by
         a majority of the members of the board of directors who are members on
         the date hereof), (c) the sale, conveyance, transfer or exchange of all
         or substantially all of the assets of the Company, or (d) the execution
         by the Corporation of an agreement to which the Corporation is a party
         or by which it is bound, providing for any of the events set forth
         above in (a), (b), (c) or (d).

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

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<PAGE>

                   "Commission" means the Securities and Exchange Commission.

                   "Common Stock" means the Corporation's common stock, par
         value $.001 per share, and stock of any other class into which such
         shares may hereafter have been reclassified or changed.

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

                   "Conversion Amount" means the sum of the Stated Value at
         issue.

                  "Conversion Date" shall have the meaning set forth in Section
         6(a).

                  "Conversion Price" shall have the meaning set forth in Section
         6(b).

                  "Conversion Shares" means, collectively, the shares of Common
         Stock into which the shares of Preferred Stock are convertible in
         accordance with the terms hereof.

                  "Conversion Shares Registration Statement" means a
         registration statement that meets the requirements of the Registration
         Rights Agreement and registers the resale of all Conversion Shares by
         the Holder, who shall be named as a "selling stockholder" thereunder,
         all as provided in the Registration Rights Agreement.

                  "Dividend Payment Date" shall have the meaning set forth in
         Section 3(a).

                  "Effective Date" means the date that the Conversion Shares
         Registration Statement is declared effective by the Commission.

                  "Equity Conditions" shall mean, during the period in question,
         (i) the Corporation shall have duly honored all conversions scheduled
         to occur or occurring by virtue of one or more Notices of Conversion,
         if any, (ii) all amounts owing in respect of the Preferred Stock shall
         have been paid; (iii) there is an effective Conversion Shares
         Registration Statement pursuant to which the Holder is permitted to
         utilize the prospectus thereunder to resell all of the shares issuable
         pursuant to the Transaction Documents (and the Corporation believes, in
         good faith, that such effectiveness will continue uninterrupted for the
         foreseeable future), (iv) the Common Stock is trading on the Trading
         Market and all of the shares issuable pursuant to the Transaction
         Documents are listed for trading on a Trading Market (and the
         Corporation believes, in good faith, that trading of the Common Stock
         on a Trading Market will continue uninterrupted for the foreseeable
         future), (v) there is a sufficient number of authorized but unissued
         and otherwise unreserved shares of Common Stock for the issuance of all
         of the shares issuable pursuant to the Transaction Documents, (vi)
         there is then existing no Triggering Event or event which, with the
         passage of time or the giving of notice, would constitute a Triggering
         Event, (vii) all of the shares issued or issuable pursuant to the
         transaction proposed would not violate the limitations set forth in
         Sections 6(c) and (d) and (viii) no public announcement of a pending or
         proposed Fundamental Transaction, Change of Control Transaction or
         acquisition transaction has occurred that has not been consummated.

                                       3
<PAGE>

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

                  "Exempt Issuance" means the issuance of (a) shares of Common
         Stock or options to employees or proposed employees, officers or
         directors of the Corporation pursuant to any stock or option plan or
         agreement duly adopted by a majority of the non-employee members of the
         Board of Directors of the Corporation or a majority of the members of a
         committee of non-employee directors established for such purpose, (b)
         securities upon the exercise of or conversion of any securities issued
         hereunder, convertible securities, options or warrants issued and
         outstanding on the date of this Agreement, provided that such
         securities have not been amended since the date of this Agreement to
         increase the number of such securities, and (c) securities issued
         pursuant to acquisitions or strategic transactions, provided any such
         issuance shall only be to a Person which is, itself or through its
         subsidiaries, an operating company in a business synergistic with the
         business of the Corporation and in which the Corporation receives
         benefits in addition to the investment of funds, but shall not include
         a transaction in which the Corporation is issuing securities primarily
         for the purpose of raising capital or to an entity whose primary
         business is investing in securities.

                  "Fundamental Transaction" shall have the meaning set forth in
         Section 7(e)(iii) hereof.

                  "Holder" shall have the meaning given such term in Section 2
         hereof.

                  "Junior Securities" means the Common Stock and all other
         equity or equity equivalent securities of the Corporation other than
         those securities that are (a) outstanding on the Original Issue Date
         and (b) which are explicitly senior or pari passu in rights or
         liquidation preference to the Preferred Stock.

                  "Optional Redemption Amount" shall mean the sum of (i) (a) if
         an Optional Redemption Date occurs during the fourth year following the
         Original Issue Date, 200% of the Stated Value of the Preferred Stock
         then outstanding; or (b) if an Optional Redemption Date occurs during
         the fifth year following the Original Issue Date, 225% of the Stated
         Value of the Preferred Stock then outstanding, (ii) accrued but unpaid
         dividends and (iii) all damages and other amounts due in respect of the
         Preferred Stock.

                  "Optional Redemption Date" shall have the meaning set forth in
         Section 8(a).

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<PAGE>

                  "Original Issue Date" shall mean the date of the first
         issuance of any shares of the Preferred Stock regardless of the number
         of transfers of any particular shares of Preferred Stock and regardless
         of the number of certificates which may be issued to evidence such
         Preferred Stock.

                  "Person" means a corporation, an association, a partnership,
         an organization, a business, an individual, a government or political
         subdivision thereof or a governmental agency.

                  "Purchase Agreement" means the Securities Purchase Agreement,
         dated as of the Original Issue Date, to which the Corporation and the
         original Holders are parties, as amended, modified or supplemented from
         time to time in accordance with its terms.

                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of the Purchase Agreement, to which the
         Corporation and the original Holder are parties, as amended, modified
         or supplemented from time to time in accordance with its terms.

                   "Securities Act" means the Securities Act of 1933, as
         amended, and the rules and regulations promulgated thereunder.

                  "Subscription Amount" shall mean, as to each Purchaser, the
         amount to be paid for the Preferred Stock purchased pursuant to the
         Purchase Agreement as specified below such Purchaser's name on the
         signature page of the Purchase Agreement and next to the heading
         "Subscription Amount", in United States Dollars and in immediately
         available funds.

                  "Subsidiary" shall have the meaning given to such term in the
         Purchase Agreement.

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

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

                  "Transaction Documents" shall have the meaning set forth in
         the Purchase Agreement.

                  "Triggering Event" shall have the meaning set forth in Section
         9(a).

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<PAGE>

                  "Triggering Redemption Amount" for each share of Preferred
         Stock means the sum of (i) 110% of the Stated Value, (ii) all accrued
         but unpaid dividends thereon and (iii) all liquidated damages and other
         amounts due in respect of the Preferred Stock

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the Trading Market on which the Common Stock is then listed or
         quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
         from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
         Common Stock is not then listed or quoted on a Trading Market and if
         prices for the Common Stock are then quoted on the OTC Bulletin Board,
         the volume weighted average price of the Common Stock for such date (or
         the nearest preceding date) on the OTC Bulletin Board; (c) if the
         Common Stock is not then listed or quoted on the OTC Bulletin Board and
         if prices for the Common Stock are then reported in the "Pink Sheets"
         published by the Pink sheets, LLC (or a similar organization or agency
         succeeding to its functions of reporting prices), the most recent bid
         price per share of the Common Stock so reported; or (d) in all other
         cases, the fair market value of a share of Common Stock as determined
         by an independent appraiser selected in good faith by the Purchasers
         and reasonably acceptable to the Corporation.

                  Section 2.   Designation, Amount and Par Value. The series of
         preferred stock shall be designated as its Series A Convertible
         Preferred Stock (the "Preferred Stock") and the number of shares so
         designated shall be 30,000 (which shall not be subject to increase
         without the consent of all of the holders of the Preferred Stock (each,
         a "Holder" and collectively, the "Holders")). Each share of Preferred
         Stock shall have a par value of $0.0001 per share and a stated value
         equal to $1,000 (the "Stated Value"). Capitalized terms not otherwise
         defined herein shall have the meaning given such terms in Section 1
         hereof.

                  Section 3.   Dividends.

                  a) Holders shall be entitled to receive and the Corporation
         shall pay, cumulative dividends at the rate per share (as a percentage
         of the Stated Value per share) of 5% per annum, payable quarterly on
         March 30, June 30, September 30 and December 31, beginning with June
         30, 2005.

                  b) So long as any Preferred Stock shall remain outstanding,
         neither the Corporation nor any subsidiary thereof shall directly or
         indirectly pay or declare any dividend or make any distribution (other
         than a dividend or distribution described in Section 7 or dividends due
         and paid in the ordinary course on preferred stock of the Corporation
         or a subsidiary at such times when the Corporation is in compliance
         with its payment and other obligations hereunder) upon, nor shall any
         distribution be made in respect of, any Junior Securities so long as
         any dividends due on the Preferred Stock remain unpaid, nor shall any
         monies be set aside for or applied to the purchase or redemption
         (through a sinking fund or otherwise) of any Junior Securities or
         shares pari passu with the Preferred Stock.

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<PAGE>

                  Section 4. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the Holders of the shares
of the Preferred Stock then outstanding, (a) alter or change adversely the
powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation (whether by merger, consolidation or otherwise),
(b) authorize or create any class of stock ranking as to dividends, redemption
or distribution of assets upon a Liquidation (as defined in Section 5) senior to
or otherwise pari passu with the Preferred Stock, (c) amend its certificate of
incorporation or other charter documents (whether by merger, consolidation or
otherwise) so as to affect adversely any rights of the Holders, (d) increase the
authorized number of shares of Preferred Stock, or (e) enter into any agreement
with respect to the foregoing.

                  Section 5. Liquidation. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
the Corporation, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value per share plus any accrued
and unpaid dividends thereon and any other fees or liquidated damages owing
thereon before any distribution or payment shall be made to the holders of any
Junior Securities, and if the assets of the Corporation shall be insufficient to
pay in full such amounts, then the entire assets to be distributed to the
Holders shall be distributed among the Holders ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. A Fundamental Transaction or Change of Control
Transaction shall be treated as a Liquidation. The Corporation shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record Holder.

                  Section 6.   Conversion.

                  a) Conversions at Option of Holder. Each share of Preferred
         Stock shall be convertible into that number of shares of Common Stock
         (subject to the limitations set forth in Sections 6(c) and (d))
         determined by dividing the Stated Value of such share of Preferred
         Stock by the Conversion Price, at the option of the Holder, at any time
         and from time to time from and after the Original Issue Date. Holders
         shall effect conversions by providing the Corporation with the form of
         conversion notice attached hereto as Annex A (a "Notice of
         Conversion"). Each Notice of Conversion shall specify the number of
         shares of Preferred Stock to be converted, the number of shares of
         Preferred Stock owned prior to the conversion at issue, the number of
         shares of Preferred Stock owned subsequent to the conversion at issue
         and the date on which such conversion is to be effected, which date may
         not be prior to the date the Holder delivers such Notice of Conversion
         to the Corporation by facsimile (the "Conversion Date"). If no
         Conversion Date is specified in a Notice of Conversion, the Conversion
         Date shall be the date that such Notice of Conversion to the
         Corporation is deemed delivered hereunder. The calculations and entries
         set forth in the Notice of Conversion shall control in the absence of
         manifest or mathematical error. To effect conversions, as the case may
         be, of shares of Preferred Stock, a Holder shall not be required to
         surrender the certificate(s) representing such shares of Preferred
         Stock to the Corporation unless all of the shares of Preferred Stock
         represented thereby are so converted, in which case the Holder shall
         deliver the certificate representing such share of Preferred Stock
         promptly following the Conversion Date at issue. Shares of Preferred
         Stock converted into Common Stock or redeemed in accordance with the
         terms hereof shall be canceled and may not be reissued.

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<PAGE>

                  b) Conversion Price. The conversion price for the Preferred
         Stock shall equal $3.00 (the "Conversion Price"), subject to adjustment
         herein.

                  c) Beneficial Ownership Limitation. The Corporation shall not
         effect any conversion of the Preferred Stock, and the Holder shall not
         have the right to convert any portion of the Preferred Stock to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates), as set forth on the applicable
         Notice of Conversion, would beneficially own in excess of 4.99% of the
         number of shares of the Common Stock outstanding immediately after
         giving effect to such conversion. For purposes of the foregoing
         sentence, the number of shares of Common Stock beneficially owned by
         the Holder and its affiliates shall include the number of shares of
         Common Stock issuable upon conversion of the Preferred Stock with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted Stated
         Value of Preferred Stock beneficially owned by the Holder or any of its
         affiliates and (B) exercise or conversion of the unexercised or
         nonconverted portion of any other securities of the Corporation
         (including the Warrants) subject to a limitation on conversion or
         exercise analogous to the limitation contained herein beneficially
         owned by the Holder or any of its affiliates. Except as set forth in
         the preceding sentence, for purposes of this Section 6(c), beneficial
         ownership shall be calculated in accordance with Section 13(d) of the
         Exchange Act. To the extent that the limitation contained in this
         Section 6(c) applies, the determination of whether the Preferred Stock
         is convertible (in relation to other securities owned by the Holder
         together with any affiliates) and of which shares of Preferred Stock is
         convertible shall be in the sole discretion of such Holder, and the
         submission of a Notice of Conversion shall be deemed to be such
         Holder's determination of whether the shares of Preferred Stock may be
         converted (in relation to other securities owned by such Holder) and
         which shares of the Preferred Stock is convertible, in each case
         subject to such aggregate percentage limitations. To ensure compliance
         with this restriction, the Holder will be deemed to represent to the
         Corporation each time it delivers a Notice of Conversion that such
         Notice of Conversion has not violated the restrictions set forth in
         this paragraph and the Corporation shall have no obligation to verify
         or confirm the accuracy of such determination. For purposes of this
         Section 6(c), in determining the number of outstanding shares of Common
         Stock, the Holder may rely on the number of outstanding shares of
         Common Stock as reflected in the most recent of the following: (A) the
         Corporation's most recent Form 10-Q or Form 10-K, as the case may be,
         (B) a more recent public announcement by the Corporation or (C) any
         other notice by the Corporation or the Corporation's transfer agent
         setting forth the number of shares of Common Stock outstanding. Upon
         the written or oral request of the Holder, the Corporation shall within
         two Trading Days confirm orally and in writing to the Holder the number
         of shares of Common Stock then outstanding. In any case, the number of
         outstanding shares of Common Stock shall be determined after giving
         effect to the conversion or exercise of securities of the Corporation,
         including the Preferred Stock, by the Holder or its affiliates since
         the date as of which such number of outstanding shares of Common Stock
         was reported. The provisions of this Section 6(c) may be waived by the
         Holder upon, at the election of the Holder, not less than 61 days'
         prior notice to the Corporation, and the provisions of this Section
         6(c) shall continue to apply until such 61st day (or such later date,
         as determined by the Holder, as may be specified in such notice of
         waiver).

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<PAGE>

                  d) Limitation on Number of Shares Issuable. If required by any
         exchange on which the Corporation's securities are then traded,
         notwithstanding anything herein to the contrary, the Corporation shall
         not issue to any Holder any shares of Common Stock, including pursuant
         to any rights herein, including, without limitation, any conversion
         rights or right to issue shares of Common Stock in payment of
         dividends, to the extent such shares, when added to the number of
         shares of Common Stock issued (A) upon conversion of any shares of
         Preferred Stock pursuant to Section 6(a) and (B) upon exercise of those
         certain warrants issued pursuant to that certain Securities Purchase
         Agreement would exceed 4,249,788 shares of Common Stock immediately
         prior to the Original Issue Date, or such greater number of shares of
         Common Stock permitted pursuant to the corporate governance rules of
         the Trading Market that is at the time the principal trading exchange
         or market for the Common Stock, based upon share volume, as confirmed
         in writing by counsel to the Corporation (the "Maximum Aggregate Share
         Amount"), unless the Corporation first obtains shareholder approval
         permitting such issuances in accordance with the Trading Market rules
         ("Shareholder Approval"). Each Holder shall be entitled to a portion of
         the Maximum Aggregate Share Amount equal to the quotient obtained by
         dividing (x) such the number of shares of Preferred Stock initially
         purchased by such Holder by (y) the aggregate number of shares
         purchased by all Holders. Such portions shall be adjusted upward
         ratably in the event all of the shares of Preferred Stock of any Holder
         are no longer outstanding. If at any time the number of shares of
         Common Stock which could, notwithstanding the limitation set forth
         herein, be issuable and sold to all Holders during the following 12
         months equals or exceeds the Maximum Aggregate Share Amount, then the
         Corporation shall, subject to any requirements in the Purchase
         Agreement to act sooner, seek to obtain the Shareholder Approval
         applicable to such issuance as soon as is possible, but in any event
         not later than the 90th day after the date in which the Corporation
         determines (or is notified by any Holder) that the Maximum Aggregate
         Share Amount could be exceeded.

                  e) Mechanics of Conversion
<PAGE>

                         i.   Delivery of Certificate Upon Conversion. Not later
                  than three Trading Days after each Conversion Date (the "Share
                  Delivery Date"), the Corporation shall deliver to the Holder a
                  certificate or certificates which, after the Effective Date,
                  shall be free of restrictive legends and trading restrictions
                  (other than those required by the Purchase Agreement)
                  representing the number of shares of Common Stock being
                  acquired upon the conversion of shares of Preferred Stock.
                  After the Effective Date, the Corporation shall, upon request
                  of the Holder, deliver any certificate or certificates
                  required to be delivered by the Corporation under this Section
                  electronically through the Depository Trust Corporation or
                  another established clearing corporation performing similar
                  functions. If in the case of any Notice of Conversion such
                  certificate or certificates are not delivered to or as
                  directed by the applicable Holder by the third Trading Day
                  after the Conversion Date, the Holder shall be entitled to
                  elect by written notice to the Corporation at any time on or
                  before its receipt of such certificate or certificates
                  thereafter, to rescind such conversion, in which event the
                  Corporation shall immediately return the certificates
                  representing the shares of Preferred Stock tendered for
                  conversion.

                         ii.  Obligation Absolute; Partial Liquidated Damages.
                  The Corporation's obligations to issue and deliver the
                  Conversion Shares upon conversion of Preferred Stock in
                  accordance with the terms hereof are absolute and
                  unconditional, irrespective of any action or inaction by the
                  Holder to enforce the same, any waiver or consent with respect
                  to any provision hereof, the recovery of any judgment against
                  any Person or any action to enforce the same, or any setoff,
                  counterclaim, recoupment, limitation or termination, or any
                  breach or alleged breach by the Holder or any other Person of
                  any obligation to the Corporation or any violation or alleged
                  violation of law by the Holder or any other person, and
                  irrespective of any other circumstance which might otherwise
                  limit such obligation of the Corporation to the Holder in
                  connection with the issuance of such Conversion Shares. If the
                  Corporation fails to deliver to the Holder such certificate or
                  certificates pursuant to Section 6(e)(i) within three Trading
                  Days of the Share Delivery Date applicable to such conversion,
                  the Corporation shall pay to such Holder, in cash, as
                  liquidated damages and not as a penalty, for each $5,000 of
                  Stated Value of Preferred Stock being converted, $25 per
                  Trading Day for each Trading Day after the Share Delivery Date
                  until such certificates are delivered. Nothing herein shall
                  limit a Holder's right to pursue actual damages for the
                  Corporation's failure to deliver certificates representing
                  shares of Common Stock upon conversion within the period
                  specified herein and such Holder shall have the right to
                  pursue all remedies available to it hereunder, at law or in
                  equity including, without limitation, a decree of specific
                  performance and/or injunctive relief.

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                         iii. Compensation for Buy-In on Failure to Timely
                  Deliver Certificates Upon Conversion. If the Corporation fails
                  to deliver to the Holder such certificate or certificates
                  pursuant to Section 6(e)(i) by a Share Delivery Date, and if
                  after such Share Delivery Date the Holder purchases (in an
                  open market transaction or otherwise) Common Stock to deliver
                  in satisfaction of a sale by such Holder of the Conversion
                  Shares which the Holder was entitled to receive upon the
                  conversion relating to such Share Delivery Date (a "Buy-In"),
                  then the Corporation shall pay in cash to the Holder the
                  amount by which (x) the Holder's total purchase price
                  (including brokerage commissions, if any) for the Common Stock
                  so purchased exceeds (y) the product of (1) the aggregate
                  number of shares of Common Stock that such Holder was entitled
                  to receive from the conversion at issue multiplied by (2) the
                  price at which the sell order giving rise to such purchase
                  obligation was executed. For example, if the Holder purchases
                  Common Stock having a total purchase price of $11,000 to cover
                  a Buy-In with respect to an attempted conversion of shares of
                  Preferred Stock with respect to which the aggregate sale price
                  giving rise to such purchase obligation is $10,000, under
                  clause (A) of the immediately preceding sentence the
                  Corporation shall be required to pay the Holder $1,000. The
                  Holder shall provide the Corporation written notice indicating
                  the amounts payable to the Holder in respect of the Buy-In,
                  together with applicable confirmations and other evidence
                  reasonably requested by the Corporation. Nothing herein shall
                  limit a Holder's right to pursue any other remedies available
                  to it hereunder, at law or in equity including, without
                  limitation, a decree of specific performance and/or injunctive
                  relief with respect to the Corporation's failure to timely
                  deliver certificates representing shares of Common Stock upon
                  conversion of the shares of Preferred Stock as required
                  pursuant to the terms hereof.

                         iv.  Reservation of Shares Issuable Upon Conversion.
                  The Corporation covenants that it will at all times reserve
                  and keep available out of its authorized and unissued shares
                  of Common Stock solely for the purpose of issuance upon
                  conversion of the Preferred Stock and payment of dividends on
                  the Preferred Stock, each as herein provided, free from
                  preemptive rights or any other actual contingent purchase
                  rights of persons other than the Holders, not less than such
                  number of shares of the Common Stock as shall (subject to any
                  additional requirements of the Corporation as to reservation
                  of such shares set forth in the Purchase Agreement) be
                  issuable (taking into account the adjustments and restrictions
                  of Section 7) upon the conversion of all outstanding shares of
                  Preferred Stock. The Corporation covenants that all shares of
                  Common Stock that shall be so issuable shall, upon issue, be
                  duly and validly authorized, issued and fully paid,
                  nonassessable and, if the Conversion Shares Registration
                  Statement is then effective under the Securities Act,
                  registered for public sale in accordance with such Conversion
                  Shares Registration Statement.

                         v.   Fractional Shares. Upon a conversion hereunder,
                  the Corporation shall not be required to issue stock
                  Certificates representing fractions of shares of the Common
                  Stock, but may if otherwise permitted, make a cash payment in
                  respect of any final fraction of a share based on the VWAP at
                  such time. If the Corporation elects not, or is unable, to
                  make such a cash payment, the Holder shall be entitled to
                  receive, in lieu of the final fraction of a share, one whole
                  share of Common Stock.

                                       11
<PAGE>

                         vi. Transfer Taxes. The issuance of certificates for
                  shares of the Common Stock on conversion of the Preferred
                  Stock shall be made without charge to the Holders thereof for
                  any documentary stamp or similar taxes that may be payable in
                  respect of the issue or delivery of such certificate, provided
                  that the Corporation shall not be required to pay any tax that
                  may be payable in respect of any transfer involved in the
                  issuance and delivery of any such certificate upon conversion
                  in a name other than that of the Holder of such shares of
                  Preferred Stock so converted and the Corporation shall not be
                  required to issue or deliver such certificates unless or until
                  the person or persons requesting the issuance thereof shall
                  have paid to the Corporation the amount of such tax or shall
                  have established to the satisfaction of the Corporation that
                  such tax has been paid.

                  f) Automatic Conversion. Provided the Equity Conditions are
         satisfied, if the VWAP of the Common Stock equals $6.00 (subject to
         adjustment for stock splits, reclassifications, combinations and
         similar adjustments) per share for the 20 consecutive Trading Days
         immediately prior to the Automatic Conversion Notice Date (as defined
         below), and an average of 150,000 shares of Common Stock per day shall
         have been traded during such 20 Trading Days, unless the Holder is
         prohibited from converting the Preferred Stock pursuant to Section 6(c)
         or 6(d) hereof, the Corporation shall have the right to deliver a
         notice to the Holder (an "Automatic Conversion Notice" and the date
         such notice is received by the Holder, the "Automatic Conversion Notice
         Date"), to convert up to 20% of the shares of Preferred Stock then held
         by the Holder into shares of Common Stock at the then-effective
         Conversion Price. To effect an Automatic Conversion hereunder, the
         Holder shall not be required to physically surrender the Preferred
         Stock certificate to the Corporation. Delivery of the certificates for
         the Common Stock by the Corporation to the Holder shall be as set forth
         in Section 6(e) herein. The Company shall only be permitted to deliver
         an Automatic Conversion Notice once per month.

                  Section 7.        Certain Adjustments.

                  a) Stock Dividends and Stock Splits. If the Corporation, at
         any time while the Preferred Stock is outstanding: (A) shall pay a
         stock dividend or otherwise make a distribution or distributions on
         shares of its Common Stock or any other equity or equity equivalent
         securities payable in shares of Common Stock (which, for avoidance of
         doubt, shall not include any shares of Common Stock issued by the
         Corporation pursuant to this Preferred Sock), (B) subdivide outstanding
         shares of Common Stock into a larger number of shares, (C) combine
         (including by way of reverse stock split) outstanding shares of Common
         Stock into a smaller number of shares, or (D) issue by reclassification
         of shares of the Common Stock any shares of capital stock of the
         Corporation, then the Conversion Price shall be multiplied by a
         fraction of which the numerator shall be the number of shares of Common
         Stock (excluding treasury shares, if any) outstanding before such event
         and of which the denominator shall be the number of shares of Common
         Stock outstanding after such event. Any adjustment made pursuant to
         this Section shall become effective immediately after the record date
         for the determination of stockholders entitled to receive such dividend
         or distribution and shall become effective immediately after the
         effective date in the case of a subdivision, combination or
         re-classification.

                                       13
<PAGE>

                  b) Subsequent Equity Sales. Other than pursuant to an Exempt
         Issuance, if the Corporation at any time while Preferred Stock is
         outstanding, shall sell or grant any option to purchase or otherwise
         dispose of or issue any Common Stock or Common Stock Equivalents
         entitling any Person to acquire shares of Common Stock, at an effective
         price per share less than the then Conversion Price (such lower price,
         the "Base Conversion Price" and such issuances individually and
         collectively, a "Dilutive Issuance"), as adjusted hereunder (if the
         holder of the Common Stock or Common Stock Equivalents so issued shall
         at any time, whether by operation of purchase price adjustments, reset
         provisions, floating conversion, exercise or exchange prices or
         otherwise, or due to warrants, options or rights per share which is
         issued in connection with such issuance, be entitled to receive shares
         of Common Stock at an effective price per share which is less than the
         Conversion Price, such issuance shall be deemed to have occurred for
         less than the Conversion Price), then, the Conversion Price shall be
         reduced by multiplying the Conversion Price by a fraction, the
         numerator of which is the number of shares of Common Stock issued and
         outstanding immediately prior to the Dilutive Issuance plus the number
         of shares of Common Stock and Common Stock Equivalents which the
         aggregate consideration received or receivable by the Corporation in
         connection with such Dilutive Issuance would purchase at the then
         effective Conversion Price, and the denominator of which shall be the
         sum of the number of shares of Common Stock issued and outstanding
         immediately prior to the Dilutive Issuance plus the number of shares of
         Common Stock and Common Stock Equivalents so issued or issuable in
         connection with the Dilutive Issuance. Such adjustment shall be made
         whenever such Common Stock or Common Stock Equivalents are issued. The
         Corporation shall notify the Holder in writing, no later than the
         Business Day following the issuance of any Common Stock or Common Stock
         Equivalents subject to this section, indicating therein the applicable
         issuance price, or of applicable reset price, exchange price,
         conversion price and other pricing terms (such notice the "Dilutive
         Issuance Notice"). For purposes of clarification, whether or not the
         Corporation provides a Dilutive Issuance Notice pursuant to this
         Section 7(b), upon the occurrence of any Dilutive Issuance, after the
         date of such Dilutive Issuance the Holder is entitled to receive a
         number of Conversion Shares based upon the Base Conversion Price
         regardless of whether the Holder accurately refers to the Base
         Conversion Price in the Notice of Conversion.

                  c) Pro Rata Distributions. If the Corporation, at any time
         while Preferred Stock is outstanding, shall distribute to all holders
         of Common Stock (and not to Holders) evidences of its indebtedness or
         assets or rights or warrants to subscribe for or purchase any security,
         then in each such case the Conversion Price shall be determined by
         multiplying such Conversion Price in effect immediately prior to the
         record date fixed for determination of stockholders entitled to receive
         such distribution by a fraction of which the denominator shall be the
         VWAP determined as of the record date mentioned above, and of which the
         numerator shall be such VWAP on such record date less the then fair
         market value at such record date of the portion of such assets or
         evidence of indebtedness so distributed applicable to one outstanding
         share of the Common Stock as determined by the Board of Directors in
         good faith. In either case the adjustments shall be described in a
         statement provided to the Holders of the portion of assets or evidences
         of indebtedness so distributed or such subscription rights applicable
         to one share of Common Stock. Such adjustment shall be made whenever
         any such distribution is made and shall become effective immediately
         after the record date mentioned above.

                                       13
<PAGE>

                  d) Calculations. All calculations under this Section 7 shall
         be made to the nearest cent or the nearest 1/100th of a share, as the
         case may be. The number of shares of Common Stock outstanding at any
         given time shall not include shares owned or held by or for the account
         of the Corporation, and the description of any such shares of Common
         Stock shall be considered on issue or sale of Common Stock. For
         purposes of this Section 7, the number of shares of Common Stock deemed
         to be issued and outstanding as of a given date shall be the sum of the
         number of shares of Common Stock (excluding treasury shares, if any)
         issued and outstanding.

                  e) Notice to Holders.

                         i.   Adjustment to Conversion Price. Whenever the
                  Conversion Price is adjusted pursuant to any of this Section
                  7, the Corporation shall promptly mail to each Holder a notice
                  setting forth the Conversion Price after such adjustment and
                  setting forth a brief statement of the facts requiring such
                  adjustment. If the Corporation issues a variable rate
                  security, the Corporation shall be deemed to have issued
                  Common Stock or Common Stock Equivalents at the lowest
                  possible conversion or exercise price at which such securities
                  may be converted or exercised.

                         ii.  Notice to Allow Conversion by Holder. If (A) the
                  Corporation shall declare a dividend (or any other
                  distribution) on the Common Stock; (B) the Corporation shall
                  declare a special nonrecurring cash dividend on or a
                  redemption of the Common Stock; (C) the Corporation shall
                  authorize the granting to all holders of the Common Stock
                  rights or warrants to subscribe for or purchase any shares of
                  capital stock of any class or of any rights; (D) the approval
                  of any stockholders of the Corporation shall be required in
                  connection with any reclassification of the Common Stock, any
                  consolidation or merger to which the Corporation is a party,
                  any sale or transfer of all or substantially all of the assets
                  of the Corporation, of any compulsory share exchange whereby
                  the Common Stock is converted into other securities, cash or
                  property; (E) the Corporation shall authorize the voluntary or
                  involuntary dissolution, liquidation or winding up of the
                  affairs of the Corporation; then, in each case, the
                  Corporation shall cause to be filed at each office or agency
                  maintained for the purpose of conversion of the Preferred
                  Stock, and shall cause to be mailed to the Holders at their
                  last addresses as they shall appear upon the stock books of
                  the Corporation, at least 20 calendar days prior to the
                  applicable record or effective date hereinafter specified, a
                  notice stating (x) the date on which a record is to be taken
                  for the purpose of such dividend, distribution, redemption,
                  rights or warrants, or if a record is not to be taken, the
                  date as of which the holders of the Common Stock of record to
                  be entitled to such dividend, distributions, redemption,
                  rights or warrants are to be determined or (y) the date on
                  which such reclassification, consolidation, merger, sale,
                  transfer or share exchange is expected to become effective or
                  close, and the date as of which it is expected that holders of
                  the Common Stock of record shall be entitled to exchange their
                  shares of the Common Stock for securities, cash or other
                  property deliverable upon such reclassification,
                  consolidation, merger, sale, transfer or share exchange;
                  provided, that the failure to mail such notice or any defect
                  therein or in the mailing thereof shall not affect the
                  validity of the corporate action required to be specified
                  in such notice. Holders are entitled to convert the Conversion
                  Amount of Preferred Stock during the 20-day period commencing
                  the date of such notice to the effective date of the event
                  triggering such notice.

                                       14
<PAGE>

                         iii. Fundamental Transaction. If, at any time while
                  this Preferred Stock is outstanding, (A) the Corporation
                  effects any merger or consolidation of the Corporation with or
                  into another Person, (B) the Corporation effects any sale of
                  all or substantially all of its assets in one or a series of
                  related transactions, (C) any tender offer or exchange offer
                  (whether by the Corporation or another Person) is completed
                  pursuant to which holders of Common Stock are permitted to
                  tender or exchange their shares for other securities, cash or
                  property, or (D) the Corporation effects any reclassification
                  of the Common Stock or any compulsory share exchange pursuant
                  to which the Common Stock is effectively converted into or
                  exchanged for other securities, cash or property (in any such
                  case, a "Fundamental Transaction"), then upon any subsequent
                  conversion of this Preferred Stock, the Holder shall have the
                  right to receive, for each Conversion Share that would have
                  been issuable upon such conversion absent such Fundamental
                  Transaction, the same kind and amount of securities, cash or
                  property as it would have been entitled to receive upon the
                  occurrence of such Fundamental Transaction if it had been,
                  immediately prior to such Fundamental Transaction, the holder
                  of one share of Common Stock (the "Alternate Consideration").
                  For purposes of any such conversion, the determination of the
                  Conversion Price shall be appropriately adjusted to apply to
                  such Alternate Consideration based on the amount of Alternate
                  Consideration issuable in respect of one share of Common Stock
                  in such Fundamental Transaction, and the Corporation shall
                  apportion the Conversion Price among the Alternate
                  Consideration in a reasonable manner reflecting the relative
                  value of any different components of the Alternate
                  Consideration. If holders of Common Stock are given any choice
                  as to the securities, cash or property to be received in a
                  Fundamental Transaction, then the Holder shall be given the
                  same choice as to the Alternate Consideration it receives upon
                  any conversion of this Preferred Stock following such
                  Fundamental Transaction. To the extent necessary to effectuate
                  the foregoing provisions, any successor to the Corporation or
                  surviving entity in such Fundamental Transaction shall file a
                  new Certificate of Designations with the same terms and
                  conditions and issue to the Holder new preferred stock
                  consistent with the foregoing provisions and evidencing the
                  Holder's right to convert such preferred stock into Alternate
                  Consideration. The terms of any agreement pursuant to which a
                  Fundamental Transaction is effected shall include terms
                  requiring any such successor or surviving entity to comply
                  with the provisions of this paragraph (e)(iii) and insuring
                  that this Preferred Stock (or any such replacement security)
                  will be similarly adjusted upon any subsequent transaction
                  analogous to a Fundamental Transaction.

                                       15
<PAGE>

                         iv.  Exempt Issuance. Notwithstanding the foregoing,
                  no adjustment will be made under this Section 7 in respect of
                  an Exempt Issuance.

                  Section 8.  Redemption

                  a) Optional Redemption. Subject to the provisions of this
         Section 8, the Corporation may at any time commencing three years after
         the Original Issue Date deliver a notice to the Holders (an "Optional
         Redemption Notice" and the date such notice is deemed delivered
         hereunder, the "Optional Redemption Notice Date") of its irrevocable
         election to redeem, all or in part, the then outstanding Preferred
         Stock, for an amount, in cash, equal to the Optional Redemption Amount
         on a date within 20 Trading Days following the Optional Redemption
         Notice Date (such date, the "Optional Redemption Date" and such
         redemption, the "Optional Redemption"). The Optional Redemption Amount
         is due in full on the Optional Redemption Date. The Corporation may
         only effect an Optional Redemption if from the Optional Redemption
         Notice Date through to the Optional Redemption Date, all of the Equity
         Conditions are fulfilled. The Holders may not convert their shares of
         Preferred Stock on or after the date of the Optional Redemption Notice;
         provided, however, that if the Corporation elects to redeem less than
         all outstanding shares of Preferred Stock, the Holder may elect to
         convert such number of shares which do not include shares for which and
         Optional Redemption Notice shall have been delivered.

                  b) Redemption Procedure. The payment of cash pursuant to an
         Optional Redemption shall be made on the Optional Redemption Date. If
         any portion of the cash payment for an Optional Redemption shall not be
         paid by the Corporation by the respective due date, interest shall
         accrue thereon at the rate of 10% per annum (or the maximum rate
         permitted by applicable law, whichever is less) until the payment of
         the Optional Redemption Amount, plus all amounts owing thereon is paid
         in full. In addition, if any portion of the Optional Redemption Amount
         remains unpaid after such date, the Holders subject to such redemption
         may elect, by written notice to the Corporation given at any time
         thereafter, to invalidate ab initio such redemption, ----------
         notwithstanding anything herein contained to the contrary.
         Notwithstanding anything to the contrary in this Section 8, the
         Corporation's determination to redeem in cash shall be applied ratably
         among the Holders based upon the value of the Preferred Stock initially
         purchased by each Holder, adjusted upward ratably in the event all of
         the shares of Preferred Stock of any Holder are no longer outstanding.

                                       16
<PAGE>

                  Section 9.        Redemption Upon Triggering Events.

                  a) "Triggering Event" means any one or more of the following
         events (whatever the reason and whether it shall be voluntary or
         involuntary or effected by operation of law or pursuant to any
         judgment, decree or order of any court, or any order, rule or
         regulation of any administrative or governmental body):

                         i.   the failure of a Conversion Shares Registration
                  Statement to be declared effective by the Commission on or
                  prior to the date which is one year after the Original Issue
                  Date;

                         ii.  if, during the Effectiveness Period, the
                  effectiveness of the Conversion Shares Registration Statement
                  lapses for any reason for more than an aggregate of 30
                  calendar days (which need not be consecutive days) during any
                  12 month period, or the Holder shall not be permitted to
                  resell Registrable Securities under the Conversion Shares
                  Registration Statement for more than an aggregate of 30
                  calendar days (which need not be consecutive days) during any
                  12 month period;

                         iii. the Corporation shall fail to deliver certificates
                  representing Conversion Shares issuable upon a conversion
                  hereunder that comply with the provisions hereof prior to the
                  5th Trading Day after such shares are required to be delivered
                  hereunder, or the Corporation shall provide written notice to
                  any Holder, including by way of public announcement, at any
                  time, of its intention not to comply with requests for
                  conversion of any shares of Preferred Stock in accordance with
                  the terms hereof;

                         iv.  the Corporation shall fail for any reason to pay
                  in full the amount of cash due pursuant to a Buy-In within 10
                  days after notice therefor is delivered hereunder or shall
                  fail to pay all amounts owed on account of an Event within ten
                  days of the date due;

                         v.   the Corporation shall fail to have available a
                  sufficient number of authorized and unreserved shares of
                  Common Stock to issue to such Holder upon a conversion
                  hereunder;

                         vi.  the Corporation shall fail to observe or perform
                  any other covenant, agreement or warranty contained in, or
                  otherwise commit any breach of the Transaction Documents, and
                  such failure or breach shall not, if subject to the
                  possibility of a cure by the Corporation, have been remedied
                  within 30 calendar days after the date on which written notice
                  of such failure or breach shall have been given;

                                       17
<PAGE>

                         vii.  any breach of the agreements delivered to the
                  initial Holders at the Closing pursuant to Section 2.2(a)(iv)
                  of the Purchase Agreement;

                         viii. the Corporation shall redeem any Junior
                  Securities;

                         ix.   there shall have occurred a Bankruptcy Event;

                         x.    Five years shall have lapsed from the Original
                  Issue Date.

b)       Upon the occurrence of a Triggering Event, each Holder shall (in
         addition to all other rights it may have hereunder or under applicable
         law) have the right, exercisable at the sole option of such Holder, to
         require the Corporation to redeem all of the Preferred Stock then held
         by such Holder for a redemption price, in cash, equal to the Triggering
         Redemption Amount. The Triggering Redemption Amount shall be due and
         payable within 10 Trading Days of the date on which the notice for the
         payment therefor is provided by a Holder (the "Triggering Redemption
         Payment Date").

                  Section 10.       Miscellaneous.

                  a) Notices. Any and all notices or other communications or
         deliveries to be provided by the Holders hereunder, including, without
         limitation, any Notice of Conversion, shall be in writing and delivered
         personally, by facsimile, sent by a nationally recognized overnight
         courier service, addressed to the Corporation, at the address set forth
         above, facsimile number (312) 873-3739, Attn: David Marks, Chairman, or
         such other address or facsimile number as the Corporation may specify
         for such purposes by notice to the Holders delivered in accordance with
         this Section. Any and all notices or other communications or deliveries
         to be provided by the Corporation hereunder shall be in writing and
         delivered personally, by facsimile, sent by a nationally recognized
         overnight courier service addressed to each Holder at the facsimile
         telephone number or address of such Holder appearing on the books of
         the Corporation, or if no such facsimile telephone number or address
         appears, at the principal place of business of the Holder. Any notice
         or other communication or deliveries hereunder shall be deemed given
         and effective on the earliest of (i) the date of transmission, if such
         notice or communication is delivered via facsimile at the facsimile
         telephone number specified in this Section prior to 5:30 p.m. (New York
         City time), (ii) the date after the date of transmission, if such
         notice or communication is delivered via facsimile at the facsimile
         telephone number specified in this Section later than 5:30 p.m. (New
         York City time) on any date and earlier than 11:59 p.m. (New York City
         time) on such date, (iii) the second Business Day following the date of
         mailing, if sent by nationally recognized overnight courier service, or
         (iv) upon actual receipt by the party to whom such notice is required
         to be given.

                                       18
<PAGE>

                  b) Absolute Obligation. Except as expressly provided herein,
         no provision of this Certificate of Designation shall alter or impair
         the obligation of the Corporation, which is absolute and unconditional,
         to pay the liquidated damages (if any) on, the shares of Preferred
         Stock at the time, place, and rate, and in the coin or currency, herein
         prescribed.

                  c) Lost or Mutilated Preferred Stock Certificate. If a
         Holder's Preferred Stock certificate shall be mutilated, lost, stolen
         or destroyed, the Corporation shall execute and deliver, in exchange
         and substitution for and upon cancellation of a mutilated certificate,
         or in lieu of or in substitution for a lost, stolen or destroyed
         certificate, a new certificate for the shares of Preferred Stock so
         mutilated, lost, stolen or destroyed but only upon receipt of evidence
         of such loss, theft or destruction of such certificate, and of the
         ownership hereof, and indemnity, if requested, all reasonably
         satisfactory to the Corporation.

                  d) Governing Law. All questions concerning the construction,
         validity, enforcement and interpretation of this Certificate of
         Designation shall be governed by and construed and enforced in
         accordance with the internal laws of the State of New York, without
         regard to the principles of conflicts of law thereof. Each party agrees
         that all legal proceedings concerning the interpretations, enforcement
         and defense of the transactions contemplated by any of the Transaction
         Documents (whether brought against a party hereto or its respective
         affiliates, directors, officers, shareholders, employees or agents)
         shall be commenced in the state and federal courts sitting in the City
         of New York, Borough of Manhattan (the "New York Courts"). Each party
         hereto hereby irrevocably submits to the exclusive jurisdiction of the
         New York Courts for the adjudication of any dispute hereunder or in
         connection herewith or with any transaction contemplated hereby or
         discussed herein (including with respect to the enforcement of any of
         the Transaction Documents), and hereby irrevocably waives, and agrees
         not to assert in any suit, action or proceeding, any claim that it is
         not personally subject to the jurisdiction of any such court, or such
         New York Courts are improper or inconvenient venue for such proceeding.
         Each party hereby irrevocably waives personal service of process and
         consents to process being served in any such suit, action or proceeding
         by mailing a copy thereof via registered or certified mail or overnight
         delivery (with evidence of delivery) to such party at the address in
         effect for notices to it under this Certificate of Designation and
         agrees that such service shall constitute good and sufficient service
         of process and notice thereof. Nothing contained herein shall be deemed
         to limit in any way any right to serve process in any manner permitted
         by law. Each party hereto hereby irrevocably waives, to the fullest
         extent permitted by applicable law, any and all right to trial by jury
         in any legal proceeding arising out of or relating to this Certificate
         of Designation or the transactions contemplated hereby. If either party
         shall commence an action or proceeding to enforce any provisions of
         this Certificate of Designation, then the prevailing party in such
         action or proceeding shall be reimbursed by the other party for its
         attorneys fees and other costs and expenses incurred with the
         investigation, preparation and prosecution of such action or
         proceeding.

                                       19
<PAGE>

                  e) Waiver. Any waiver by the Corporation or the Holder of a
         breach of any provision of this Certificate of Designation shall not
         operate as or be construed to be a waiver of any other breach of such
         provision or of any breach of any other provision of this Certificate
         of Designation. The failure of the Corporation or the Holder to insist
         upon strict adherence to any term of this Certificate of Designation on
         one or more occasions shall not be considered a waiver or deprive that
         party of the right thereafter to insist upon strict adherence to that
         term or any other term of this Certificate of Designation. Any waiver
         must be in writing.

                  f) Severability. If any provision of this Certificate of
         Designation is invalid, illegal or unenforceable, the balance of this
         Certificate of Designation shall remain in effect, and if any provision
         is inapplicable to any person or circumstance, it shall nevertheless
         remain applicable to all other persons and circumstances. If it shall
         be found that any interest or other amount deemed interest due
         hereunder violates applicable laws governing usury, the applicable rate
         of interest due hereunder shall automatically be lowered to equal the
         maximum permitted rate of interest.

                  g) Next Business Day. Whenever any payment or other obligation
         hereunder shall be due on a day other than a Business Day, such payment
         shall be made on the next succeeding Business Day.

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

                              *********************

                                       20
<PAGE>

RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and
the secretary or any assistant secretary, of the Corporation be and they hereby
are authorized and directed to prepare and file a Certificate of Designation of
Preferences, Rights and Limitations in accordance with the foregoing resolution
and the provisions of Nevada law.

        IN WITNESS WHEREOF, the undersigned have executed this Certificate this
18th day of April, 2005.

/s/ CLIFFORD M. RHEE
--------------------
Name: Clifford M. Rhee
Title:   President and Secretary

                                       21
<PAGE>

                                     ANNEX A

                              NOTICE OF CONVERSION

              (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO
                       CONVERT SHARES OF PREFERRED STOCK)

The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $.001 per share (the "Common Stock"), of Thomas Equipment, Inc., a
Delaware corporation (the "Corporation"), according to the conditions hereof, as
of the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Corporation in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.

Conversion calculations:

   Date to Effect Conversion: __________________________________________________

   Number of shares of Preferred Stock owned prior to Conversion: ______________

   Number of shares of Preferred Stock to be Converted: ________________________

   Stated Value of shares of Preferred Stock to be Converted: __________________

   Number of shares of Common Stock to be Issued: ______________________________

   Applicable Conversion Price:

   _____________________________________________________________________________

   Number of shares of Preferred Stock subsequent to Conversion: _______________

                                           [HOLDER]

                                           By:__________________________________
                                              Name:
                                              Title:

                                       22SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "Agreement") is dated as of
April 19, 2005, by and among Thomas Equipment, Inc., a Delaware corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").

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

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

                                    ARTICLE I
                                   DEFINITIONS

         1.1      Definitions. In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:

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

                  "Actual Minimum" means, as of any date, the maximum aggregate
         number of shares of Common Stock then issued or potentially issuable in
         the future pursuant to the Transaction Documents, includingny
         Underlying Shares issuable upon exercise or conversion in full of all
         Warrants and shares of Preferred Stock, ignoring any conversion or
         exercise limits set forth therein, and assuming that any previously
         unconverted shares of Preferred Stock are held until the fourth
         anniversary of the date of determination and all dividends are paid in
         shares of Common Stock until such fourth anniversary.

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

                  "Certificate of Designation" means the Certificate of
         Designation to be filed prior to the Closing by the Company with the
         Secretary of State of Delaware, in the form of Exhibit A attached
         hereto.
<PAGE>

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

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

                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock of the Company, par
         value $.001 per share, and any securities into which such common stock
         shall hereinafter have been reclassified into.

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

                  "Company Counsel" means Sichenzia Ross Friedman Ference LLP.

                  "Conversion Price" shall have the meaning ascribed to such
         term in the Certificate of Designation.

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

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

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

                  "Exempt Issuance" means the issuance of (a) shares of Common
         Stock or options to employees, officers or directors of the Company
         pursuant to any stock or option plan duly adopted by a majority of the
         non-employee members of the Board of Directors of the Company or a
         majority of the members of a committee of non-employee directors
         established for such purpose, (b) securities upon the exercise of or
         conversion of any securities issued hereunder, convertible securities,
         options or warrants issued and outstanding on the date of this
         Agreement, provided that such securities have not been amended since
         the date of this Agreement to increase the number of such securities,
         and (c) securities issued pursuant to acquisitions or strategic
         transactions, provided any such issuance shall only be to a Person
         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 receives 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 primary business is investing in securities.

                                       2
<PAGE>

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

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

                  "Material Adverse Effect" shall have the meaning assigned to
         such term in Section 3.1(b).

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

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

                  "Preferred Stock" means the up to 30,000 shares of the
         Company's Series A Convertible Preferred Stock issued hereunder having
         the rights, preferences and privileges set forth in the Certificate of
         Designation.

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

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

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

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

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

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

                  "Securities" means the Preferred Stock, the Warrants and the
         Underlying Shares.

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

                                       3
<PAGE>

                  "Shareholder Approval" means such approval as may be required
         by the applicable rules and regulations of the Trading Market (or any
         successor entity) from the shareholders of the Company with respect to
         the transactions contemplated by the Transaction Documents, including
         the issuance of all of the Underlying Shares and shares of Common Stock
         issuable upon exercise of the Warrants in excess of 19.99% of the
         issued and outstanding Common Stock on the Closing Date.

                  "Stated Value" means $1,000 per share of Preferred Stock.

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

                  "Subsequent Financing" shall have the meaning ascribed to such
         term in Section 4.13.

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

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

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

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

                  "Underlying Shares" means the shares of Common Stock issuable
         upon conversion of the Preferred Stock, upon exercise of the Warrants
         and issued and issuable in lieu of the cash payment of dividends on the
         Preferred Stock.

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the Trading Market on which the Common Stock is then listed or
         quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
         from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
         Common Stock is not then listed or quoted on a Trading Market and if
         prices for the Common Stock are then quoted on the OTC Bulletin Board,
         the volume weighted average price of the Common Stock for such date (or
         the nearest preceding date) on the OTC Bulletin Board; (c) if the
         Common Stock is not then listed or quoted on the OTC Bulletin Board and
         if prices for the Common Stock are then reported in the "Pink Sheets"
         published by the Pink Sheets, LLC (or a similar organization or agency
         succeeding to its functions of reporting prices), the most recent bid
         price per share of the Common Stock so reported; or (c) in all other
         cases, the fair market value of a share of Common Stock as determined
         by an independent appraiser selected in good faith by the Purchasers
         and reasonably acceptable to the Company.

                                       4
<PAGE>

                  "Warrants" means collectively the Common Stock purchase
         warrants, in the form of Exhibit C delivered to the Purchasers at the
         Closing in accordance with Section 2.2(a) hereof, which Warrants shall
         be exercisable immediately and have a term of exercise equal to 5
         years.

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

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1      Closing. On the Closing Date, upon the terms and subject to
the conditions set forth herein, concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and each
Purchaser agrees to purchase in the aggregate, severally and not jointly, up to
$30,000,000 of shares of Preferred Stock with an aggregated Stated Value equal
to such Purchaser's Subscription Amount and Warrants as determined by pursuant
to Section 2.2(a)(iii). The aggregate number of shares of Preferred Stock sold
hereunder shall be up to 30,000. Each Purchaser shall deliver to the Company via
wire transfer or a certified check immediately available funds equal to their
Subscription Amount and the Company shall deliver to each Purchaser their
respective shares of Preferred Stock and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of Company Counsel, or such other location as
the parties shall mutually agree.

         2.2      Deliveries.

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

                         (i) this Agreement duly executed by the Company;

                         (ii) a certificate evidencing a number of shares of
                  Preferred Stock equal to such Purchaser's Subscription Amount
                  divided by the Stated Value, registered in the name of such
                  Purchaser;

                         (iii) a Warrant registered in the name of such
                  Purchaser to purchase up to a number of shares of Common Stock
                  equal to 25% of such Purchaser's Subscription Amount divided
                  by the Conversion Price immediately prior to the Closing Date,
                  with an exercise price equal to $3.75, subject to adjustment
                  therein;

                                       5
<PAGE>

                         (iv) the Registration Rights Agreement duly executed by
                  the Company;

                         (v) a legal opinion of Company Counsel, in the form of
                  Exhibit D attached hereto; and

                         (vi) a certificate, dated the Closing Date, duly
                  executed by an officer of the Company to the effect that the
                  conditions specified in Sections 2.3(b)(i) and 2.3(b)(ii) have
                  been satisfied.

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

                         (i) this Agreement duly executed by such Purchaser;

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

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

         2.3      Closing Conditions.

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

                         (i) the accuracy in all material respects when made and
                  on the Closing Date of the representations and warranties of
                  the Purchasers contained herein;

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

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

               b) The respective obligations of the Purchasers hereunder in
                  connection with the Closing are subject to the following
                  conditions being met:

                         (i) the accuracy in all material respects on the
                  Closing Date of the representations and warranties of the
                  Company contained herein;

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

                                       6
<PAGE>

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

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

                         (v) From the date hereof to the Closing Date, trading
                  in the Common Stock shall not have been suspended by the
                  Commission (except for any suspension of trading of limited
                  duration agreed to by the Company, which suspension shall be
                  terminated prior to the Closing), and, at any time prior to
                  the Closing Date, trading in securities generally as reported
                  by Bloomberg Financial Markets shall not have been suspended
                  or limited, or minimum prices shall not have been established
                  on securities whose trades are reported by such service, or on
                  any Trading Market, nor shall a banking moratorium have been
                  declared either by the United States or New York State
                  authorities nor shall there have occurred any material
                  outbreak or escalation of hostilities or other national or
                  international calamity of such magnitude in its effect on, or
                  any material adverse change in, any financial market which, in
                  each case, in the reasonable judgment of each Purchaser, makes
                  it impracticable or inadvisable to purchase the Preferred
                  Stock at the Closing.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

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

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

                                       7
<PAGE>

                  (b) Organization and Qualification. Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation or default of any of the
         provisions of its respective certificate or articles of incorporation,
         bylaws or other organizational or charter documents. Each of the
         Company and the Subsidiaries is duly qualified to conduct business and
         is in good standing as a foreign corporation or other entity in each
         jurisdiction in which the nature of the business conducted or property
         owned by it makes such qualification necessary, except where the
         failure to be so qualified or in good standing, as the case may be,
         could not have or reasonably be expected to result in (i) a material
         adverse effect on the legality, validity or enforceability of any
         Transaction Document, (ii) a material adverse effect on the results of
         operations, assets, business, prospects or financial condition of the
         Company and the Subsidiaries, taken as a whole, or (iii) a material
         adverse effect on the Company's ability to perform in any material
         respect on a timely basis its obligations under any Transaction
         Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and
         no Proceeding has been instituted in any such jurisdiction revoking,
         limiting or curtailing or seeking to revoke, limit or curtail such
         power and authority or qualification.

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

                  (d) No Conflicts. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the other transactions contemplated thereby do not and will
         not: (i) conflict with or violate any provision of the Company's or any
         Subsidiary's certificate or articles of incorporation, bylaws or other
         organizational or charter documents, or (ii) conflict with, or
         constitute a default (or an event that with notice or lapse of time or
         both would become a default) under, result in the creation of any Lien
         upon any of the properties or assets of the Company or any Subsidiary,
         or give to others any rights of termination, amendment, acceleration or
         cancellation (with or without notice, lapse of time or both) of, any
         agreement, credit facility, debt or other instrument (evidencing a
         Company or Subsidiary debt or otherwise) or other understanding to
         which the Company or any Subsidiary is a party or by which any property
         or asset of the Company or any Subsidiary is bound or affected, or
         (iii) subject to the Required Approvals, conflict with or result in a
         violation of any law, rule, regulation, order, judgment, injunction,
         decree or other restriction of any court or governmental authority to
         which the Company or a Subsidiary is subject (including federal and
         state securities laws and regulations), or by which any property or
         asset of the Company or a Subsidiary is bound or affected; except in
         the case of each of clauses (ii) and (iii), such as could not have or
         reasonably be expected to result in a Material Adverse Effect.

                                       8
<PAGE>

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

                  (f) Issuance of the Securities. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         applicable Transaction Documents, will be duly and validly issued,
         fully paid and nonassessable, free and clear of all Liens imposed by
         the Company other than restrictions on transfer provided for in the
         Transaction Documents. The Underlying Shares, when issued in accordance
         with the terms of the Transaction Documents, will be validly issued,
         fully paid and nonassessable, free and clear of all Liens imposed by
         the Company. The Company has reserved from its duly authorized capital
         stock a number of shares of Common Stock for issuance of the Underlying
         Shares at least equal to the Actual Minimum on the date hereof. The
         Company has not, and to the knowledge of the Company, no Affiliate of
         the Company has sold, offered for sale or solicited offers to buy or
         otherwise negotiated in respect of any security (as defined in Section
         2 of the Securities Act) that would be integrated with the offer or
         sale of the Securities in a manner that would require the registration
         under the Securities Act of the sale of the Securities to the
         Purchasers, or that would be integrated with the offer or sale of the
         Securities for purposes of the rules and regulations of any Trading
         Market.

                  (g) Capitalization. The capitalization of the Company is as
         described in the Company's most recent report filed with the
         Commission. The Company has not issued any capital stock since such
         filing other than pursuant to the employee stock option plan. No Person
         has any right of first refusal, preemptive right, right of
         participation, or any similar right to participate in the transactions
         contemplated by the Transaction Documents which shall not have been
         waived prior to Closing. Except as disclosed in the Company's reports
         filed with the Commission, issued pursuant to the Company's stock
         inventive plan or as a result of the purchase and sale of the
         Securities, there are no outstanding options, warrants, script rights
         to subscribe to, calls or commitments of any character whatsoever
         relating to, or securities, rights or obligations convertible into or
         exchangeable for, or giving any Person any right to subscribe for or
         acquire, any shares of Common Stock, or contracts, commitments,
         understandings or arrangements by which the Company or any Subsidiary
         is or may become bound to issue additional shares of Common Stock, or
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issuance and sale of the Securities will not obligate the
         Company to issue shares of Common Stock or other securities to any
         Person (other than the Purchasers) and will not result in a right of
         any holder of Company securities to adjust the exercise, conversion,
         exchange or reset price under such securities. All of the outstanding
         shares of capital stock of the Company are validly issued, fully paid
         and nonassessable, have been issued in compliance with all federal and
         state securities laws, and none of such outstanding shares was issued
         in violation of any preemptive rights or similar rights to subscribe
         for or purchase securities, except as set forth on Schedule 3.1(g). No
         further approval or authorization of any stockholder, the Board of
         Directors of the Company or others is required for the issuance and
         sale of the shares of Preferred Stock.

                                       9
<PAGE>

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

                  (i) Material Changes. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         specifically disclosed in the SEC Reports, (i) there has been no event,
         occurrence or development that has had or that could reasonably be
         expected to result in a Material Adverse Effect, (ii) the Company has
         not incurred any liabilities (contingent or otherwise) other than (A)
         trade payables and accrued expenses incurred in the ordinary course of
         business consistent with past practice and (B) liabilities not required
         to be reflected in the Company's financial statements pursuant to GAAP
         or required to be disclosed in filings made with the Commission, (iii)
         the Company has not altered its method of accounting, (iv) the Company
         has not declared or made any dividend or distribution of cash or other
         property to its stockholders or purchased, redeemed or made any
         agreements to purchase or redeem any shares of its capital stock and
         (v) the Company has not issued any equity securities to any officer,
         director or Affiliate, except pursuant to existing Company stock option
         plan or restricted stock plan. The Company does not have pending before
         the Commission any request for confidential treatment of information.

                                       10
<PAGE>

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

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

                  (l) Compliance. Except as set forth in the SEC Reports,
         neither the Company nor any Subsidiary (i) is in default under or in
         violation of (and no event has occurred that has not been waived that,
         with notice or lapse of time or both, would result in a default by the
         Company or any Subsidiary under), nor has the Company or any Subsidiary
         received notice of a claim that it is in default under or that it is in
         violation of, any indenture, loan or credit agreement or any other
         agreement or instrument to which it is a party or by which it or any of
         its properties is bound (whether or not such default or violation has
         been waived), (ii) is in violation of any order of any court,
         arbitrator or governmental body, or (iii) is or has been in violation
         of any statute, rule or regulation of any governmental authority,
         including without limitation all foreign, federal, state and local laws
         applicable to its business except in each case as could not have a
         Material Adverse Effect.

                                       11
<PAGE>

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

                  (n) Title to Assets. Except as set forth on Schedule 3.1(n),
         the Company and the Subsidiaries have good and marketable title in fee
         simple to all real property owned by them that is material to the
         business of the Company and the Subsidiaries and good and marketable
         title in all personal property owned by them that is material to the
         business of the Company and the Subsidiaries, in each case free and
         clear of all Liens, except for Liens as do not materially affect the
         value of such property and do not materially interfere with the use
         made and proposed to be made of such property by the Company and the
         Subsidiaries and Liens for the payment of federal, state or other
         taxes, the payment of which is neither delinquent nor subject to
         penalties. Any real property and facilities held under lease by the
         Company and the Subsidiaries are held by them under valid, subsisting
         and enforceable leases of which the Company and the Subsidiaries are in
         compliance.

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

                  (p) Insurance. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as are prudent and customary in the
         businesses in which the Company and the Subsidiaries are engaged. To
         the best of Company's knowledge, such insurance contracts and policies
         are accurate and complete. Neither the Company nor any Subsidiary has
         any reason to believe that it will not be able to renew its existing
         insurance coverage as and when such coverage expires or to obtain
         similar coverage from similar insurers as may be necessary to continue
         its business without a significant increase in cost.

                                       12
<PAGE>

                  (q) Transactions With Affiliates and Employees. Except as set
         forth in the SEC Reports, none of the officers or directors of the
         Company and, to the knowledge of the Company, none of the employees of
         the Company is presently a party to any transaction with the Company or
         any Subsidiary (other than for services as employees, officers and
         directors), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any officer, director or such employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner, in each case in excess of $60,000 other
         than (i) for payment of salary or consulting fees for services
         rendered, (ii) reimbursement for expenses incurred on behalf of the
         Company and (iii) for other employee benefits, including stock option
         agreements under any stock option plan of the Company and restricted
         stock agreements under any restricted stock plan of the Company.

                  (r) Sarbanes-Oxley; Internal Accounting Controls. Except as
         set forth in the SEC Reports, the Company is in material compliance
         with all provisions of the Sarbanes-Oxley Act of 2002 which are
         applicable to it as of the Closing Date. The Company and the
         Subsidiaries maintain a system of internal accounting controls
         sufficient to provide reasonable assurance that (i) transactions are
         executed in accordance with management's general or specific
         authorizations, (ii) transactions are recorded as necessary to permit
         preparation of financial statements in conformity with GAAP and to
         maintain asset accountability, (iii) access to assets is permitted only
         in accordance with management's general or specific authorization, and
         (iv) the recorded accountability for assets is compared with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences.

                  (s) Certain Fees. No brokerage or finder's fees or commissions
         are or will be payable by the Company to any broker, financial advisor
         or consultant, finder, placement agent, investment banker, bank or
         other Person with respect to the transactions contemplated by this
         Agreement, except as set forth on Schedule 3.1(s). The Purchasers shall
         have no obligation with respect to any fees or with respect to any
         claims made by or on behalf of other Persons for fees of a type
         contemplated in this Section that may be due in connection with the
         transactions contemplated by this Agreement.

                  (t) Private Placement. Assuming the accuracy of the Purchasers
         representations and warranties set forth in Section 3.2, no
         registration under the Securities Act is required for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby. The issuance and sale of the Securities hereunder does not
         contravene the rules and regulations of the Trading Market.

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

                                       13
<PAGE>

                  (v) Listing and Maintenance Requirements. The Company's Common
         Stock is registered pursuant to Section 15(d) of the Exchange Act, and
         the Company has taken no action designed to, or which to its knowledge
         is likely to have the effect of, terminating the registration of the
         Common Stock under the Exchange Act nor has the Company received any
         notification that the Commission is contemplating terminating such
         registration. The Company has not, in the 12 months preceding the date
         hereof, received notice from any Trading Market on which the Common
         Stock is or has been listed or quoted to the effect that the Company is
         not in compliance with the listing or maintenance requirements of such
         Trading Market. The Company is, and has no reason to believe that it
         will not in the foreseeable future continue to be, in compliance with
         all such listing and maintenance requirements.

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

                  (x) Disclosure. The Company confirms that neither it nor any
         other Person acting on its behalf has provided any of the Purchasers or
         their agents or counsel with any information that constitutes or might
         constitute material, nonpublic information. The Company understands and
         confirms that the Purchasers will rely on the foregoing representations
         and covenants in effecting transactions in securities of the Company.
         All disclosure provided to the Purchasers regarding the Company, its
         business and the transactions contemplated hereby, including the
         Disclosure Schedules to this Agreement, furnished by or on behalf of
         the Company with respect to the representations and warranties made
         herein are true and correct with respect to such representations and
         warranties and do not contain any untrue statement of a material fact
         or omit to state any material fact necessary in order to make the
         statements made therein, in light of the circumstances under which they
         were made, not misleading. The Company acknowledges and agrees that no
         Purchaser makes or has made any representations or warranties with
         respect to the transactions contemplated hereby other than those
         specifically set forth in Section 3.2 hereof.

                  (y) No Integrated Offering. Assuming the accuracy of the
         Purchasers' representations and warranties set forth in Section 3.2,
         neither the Company, nor any of its affiliates, nor any Person acting
         on its or their behalf has, directly or indirectly, made any offers or
         sales of any security or solicited any offers to buy any security,
         under circumstances that would cause this offering of the Securities to
         be integrated with prior offerings by the Company for purposes of the
         Securities Act or any applicable shareholder approval provisions,
         including, without limitation, under the rules and regulations of any
         exchange or automated quotation system on which any of the securities
         of the Company are listed or designated.

                                       14
<PAGE>

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

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

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

                  (cc) Accountants. The Company's accountants are set forth on
         Schedule 3.1(cc) of the Disclosure Schedule. To the Company's
         knowledge, such accountants, who the Company expects will express their
         opinion with respect to the financial statements to be included in the
         Company's Annual Report on Form 10-KSB for the year ending June 30,
         2005 are a registered public accounting firm as required by the
         Securities Act.

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

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

                                       15
<PAGE>

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

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

                  (b) Purchaser Representation. Such Purchaser understands that
         the Securities are "restricted securities" and have not been registered
         under the Securities Act or any applicable state securities law and is
         acquiring the Securities as principal for its own account and not with
         a view to or for distributing or reselling such Securities or any part
         thereof, has no present intention of distributing any of such
         Securities and has no arrangement or understanding with any other
         persons regarding the distribution of such Securities (this
         representation and warranty not limiting such Purchaser's right to sell
         the Securities pursuant to the Registration Statement or otherwise in
         compliance with applicable federal and state securities laws). Such
         Purchaser is acquiring the Securities hereunder in the ordinary course
         of its business. Such Purchaser does not have any agreement or
         understanding, directly or indirectly, with any Person to distribute
         any of the Securities.

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

                                       16
<PAGE>

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

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

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

                                   ARTICLE IV
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 Transfer Restrictions.

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

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

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

                                       17
<PAGE>

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

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

                                       18
<PAGE>

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

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

         4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

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

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

                                       19
<PAGE>

         4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto. The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication.

         4.7 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

         4.8 Use of Proceeds. Except as set forth on Schedule 4.8 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes.

         4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses (collectively, "Losses"),
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representation,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action the
Purchaser Party reasonable concludes that, either (x) one or more defenses are
available to the Purchaser Party that are not available to the Company or (y) a
conflict or potential conflict exists between the Company, on the one hand, and
such Purchaser Party, on the other hand, that would make such separate
representation advisable. The Company will not be liable to any Purchaser Party
under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by the
Purchasers in this Agreement or in the other Transaction Documents.

                                       20
<PAGE>

         4.10 Contribution. If the indemnification provided for in this Article
IV from the Company is unavailable to a Purchaser Party hereunder in respect of
any Losses referred to herein, then the Company, in lieu of indemnifying such
Purchaser Party, shall contribute to the amount paid or payable by such
Purchaser Party as a result of such Losses in such proportion as is appropriate
to reflect the relative fault of the Company and Purchaser Party in connection
with the actions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative faults of the Company and such Purchaser
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, the Company or such Purchaser
Party, and the parties relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the Losses referred to above shall be deemed to include any
legal or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding.

         4.11     Reservation and Listing of Securities.

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

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

                                       21
<PAGE>

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

                                    ARTICLE V
                                  MISCELLANEOUS

         5.1      Termination. This Agreement may be terminated by any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated on or before April 20, 2005; provided that no such termination will
affect the right of any party to sue for any breach by the other party (or
parties).

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

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

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

                                       22
<PAGE>

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

         5.6      Construction. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

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

         5.8      No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.

         5.9      Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

                                       23
<PAGE>

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

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

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

         5.13     Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

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

                                       24
<PAGE>

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

                            [SIGNATURE PAGE FOLLOWS]

                                       25
<PAGE>

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

THOMAS EQUIPMENT, INC.                              Address for Notice:
                                                    -------------------

By:                                                 Thomas Equipment, Inc.
   ----------------------------------               1818 N. Farwell Ave.
   Name:   David Marks                              Milwaukee, WI 53202
   Title:  Chairman

With a copy to (which shall not constitute notice):
Thomas A. Rose, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018

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

                                       26
<PAGE>

          [PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

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

Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Authorized Signatory:________________________________
Tax ID number of Investing Entity:__________________________________

Address for Notice of Investing Entity:

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

Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:

                           [SIGNATURE PAGES CONTINUE]

                                       27
<PAGE>

                                                                         Annex A

                                CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $30,000,000 of Preferred Stock and
Warrants from Thomas Equipment, Inc. (the "Company"). All funds will be
disbursed in accordance with this Closing Statement.

Disbursement Date:    April___, 2005
--------------------------------------------------------------------------------

I.   PURCHASE PRICE

                         Gross Proceeds to be Received                 $

II.  DISBURSEMENTS

                                                                       $
                                                                       $
                                                                       $
                                                                       $
                                                                       $

Total Amount Disbursed:                                                $

WIRE INSTRUCTIONS:

To:
    -------------------------------------

To:
    -------------------------------------

                                       28

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