Document:

EXECUTION
        VERSION

       

      SECURITIES
        PURCHASE AGREEMENT

       

      This
        Securities Purchase Agreement is entered into and dated as of September 22,
        2005 (this “Agreement”),
        by
        and among American United Global, Inc., a Delaware corporation (the
“Company”),
        and
        each of the purchasers identified on the signature pages hereto (each, 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 (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, certain securities of the Company pursuant to the terms
        set
        forth herein.

       

      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, severally and not
        jointly, agree as follows:

       

      ARTICLE
        I.

      DEFINITIONS

       

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

       

      “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.

       

      “Bankruptcy
        Event”
        means
        any of the following events: (a) the Company or any Subsidiary 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 Company or any Subsidiary
        thereof; (b) there is commenced against the Company or any Subsidiary any
        such
        case or proceeding that is not dismissed within 60 days after commencement;
        (c)
        the Company or any Subsidiary is adjudicated insolvent or bankrupt or any
        order
        of relief or other order approving any such case or proceeding is entered;
        (d)
        the Company or any Subsidiary 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 60 days; (e) the Company or any Subsidiary makes a general
        assignment for the benefit of creditors; (f) the Company or any Subsidiary
        fails
        to pay, or states that it is unable to pay or is unable to pay, its debts
        generally as they become due; (g) the Company or any Subsidiary calls a meeting
        of its creditors with a view to arranging a composition, adjustment or
        restructuring of its debts; or (h) the Company or any Subsidiary, 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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      “Business
        Day”
        means
        any day except Saturday, Sunday and any day which shall be a federal legal
        holiday or a day on which banking institutions in the State of New York are
        authorized or required by law or other governmental action to
        close.

       

      “Change
        of Control”
        means
        the occurrence of any of the following in one or a series of related
        transactions: (i) an acquisition after the date hereof by an individual or
        legal
        entity or “group” (as described in Rule 13d-5(b)(1) under the Exchange Act) of
        more than one-third of the voting rights or equity interests in the Company;
        (ii) a replacement of more than one-half of the members of the Company’s board
        of directors that is not approved by those individuals who are members of
        the
        board of directors on the date hereof (or other directors previously approved
        by
        such individuals); (iii) a merger or consolidation of the Company or any
        Subsidiary or a sale of more than one-third of the assets of the Company
        in one
        or a series of related transactions, unless following such transaction or
        series
        of transactions, the holders of the Company’s securities prior to the first such
        transaction continue to hold at least two-thirds of the voting rights and
        equity
        interests in of the surviving entity or acquirer of such assets; (iv) a
        recapitalization, reorganization or other transaction involving the Company
        or
        any Subsidiary that constitutes or results in a transfer of more than one-third
        of the voting rights or equity interests in the Company; (v) consummation
        of a
“Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act with
        respect to the Company, or (vi) the execution by the Company or its controlling
        shareholders of an agreement providing for or reasonably likely to result
        in any
        of the foregoing events.

       

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

       

      “Closing
        Date”
        means
        the date of the Closing.

       

      “Closing
        Price”
        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 an Eligible
        Market
        or any other national securities exchange, the closing bid price per share
        of
        the Common Stock for such date (or the nearest preceding date) on the primary
        Eligible Market or exchange on which the Common Stock is then listed or quoted;
        (b) if prices for the Common Stock are then quoted on the OTC Bulletin Board,
        the closing bid price per share of the Common Stock for such date (or the
        nearest preceding date) so quoted; (c) if prices for the Common Stock are
        then
        reported in the “Pink Sheets” published by the National Quotation Bureau
        Incorporated (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
        a
        majority in interest of the Purchasers.

       

      “Commission”means
        the
        Securities and Exchange Commission.

       

      “Common
        Stock”
        means
        the common stock of the Company, par value $0.01 per share, and any securities
        into which such common stock may hereafter be reclassified.

       

      
        
          
          

        

        
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      “Common
        Stock Equivalents”
        means,
        collectively, Options and Convertible Securities.

       

      “Company
        Counsel”
        means
        Sichenzia Ross Friedman Ference LLP, counsel to the Company.

       

      “Conversion
        Price”
        has the
        meaning set forth in the Notes. 

       

      “Convertible
        Securities”
        means
        any stock or securities (other than Options) convertible into or exercisable
        or
        exchangeable for Common Stock.

       

      “Effective
        Date”
        means
        the date that the Registration Statement is first declared effective by the
        Commission.

       

      “Eligible
        Market”
        means
        any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq
        National Market or the Nasdaq SmallCap Market.

       

      “Exchange
        Act”
        means
        the Securities Exchange Act of 1934, as amended.

       

      “Excluded
        Stock”
        means
        the issuance of Common Stock (A) upon exercise or conversion of any options
        or
        other securities described in Schedule 3.1(g) (provided that such exercise
        or
        conversion occurs in accordance with the terms thereof, without amendment
        or
        modification); (B) in connection with any issuance of shares or grant of
        options
        to employees, officers, directors or consultants of the Company pursuant
        to a
        stock option plan or other incentive stock plan duly or otherwise pursuant
        to
        any employee benefit plan described in Schedule 3.1(g) or hereafter adopted
        by
        the Company and approved by its shareholders or in respect of the issuance
        of
        Common Stock upon exercise of any such options
        or (C)
        in connection with the issuance of 400,000 shares of Common Stock to purchasers
        (other than in connection with the Kraft Financing) at a purchase price of
        $0.50
        per share which such issuance shall occur within 45 days of the Closing Date.
        

       

      “Filing
        Date”
        means
        the earlier of (a) the 30th
        day
        following the completion of the Kraft Financing and (b) the 90th day following
        the Closing Date with respect to the initial Registration Statement required
        to
        be filed hereunder, and, with respect to any additional Registration Statements
        that may be required pursuant to Section
        6.1(f),
        the
        10th day following the date on which the Company first knows, or reasonably
        should have known, that such additional Registration Statement is required
        under
        such Section.

       

      “Kraft
        Financing”means
        the
        convertible debentures in the aggregate principal amount of up to seven million
        five hundred thousand dollars ($7,500,000) convertible into shares of Common
        Stock upon terms similar to those contained in the Notes which such securities
        are to be issued in connection with the acquisition of Kraft Rt., a Hungarian
        corporation.

       

      “Losses”
        means
        any and all losses, claims, damages, liabilities, settlement costs and expenses,
        including without limitation costs of preparation of legal action and reasonable
        attorneys’ fees.

       

      
        
          
          

        

        
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      “Notes”
        means
        the Senior Secured Convertible Notes due March 22, 2007 with an aggregate
        principal face amount of $525,000 issued by the Company to the Purchasers
        hereunder in the form of Exhibit
        A
        hereto.

       

      “Options”
        means
        any rights, warrants or options to subscribe, directly or indirectly for
        or
        purchase Common Stock or Convertible Securities.

       

      “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.

       

      “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.

       

      “Prospectus”
        means
        the prospectus included in the Registration Statement (including, without
        limitation, a prospectus that includes any information previously omitted
        from a
        prospectus filed as part of an effective registration statement in reliance
        upon
        Rule 430A promulgated under the Securities Act), as amended or supplemented
        by
        any prospectus supplement, with respect to the terms of the offering of any
        portion of the Registrable Securities covered by the Registration Statement,
        and
        all other amendments and supplements to the Prospectus including post effective
        amendments, and all material incorporated by reference or deemed to be
        incorporated by reference in such Prospectus.

       

      “Purchaser
        Counsel”
        means
        Proskauer Rose LLP, counsel to Iroquois Master Fund Ltd. 

       

      “Registrable
        Securities”
        means
        any Common Stock (including Underlying Shares) issued or issuable pursuant
        to
        the Transaction Documents, together with any securities issued or issuable
        upon
        any stock split, dividend or other distribution, recapitalization or similar
        event with respect to the foregoing.

       

      “Registration
        Statement”
        means
        the initial registration statement required to be filed under Article VI
        and any
        additional registration statements contemplated by Section 6.1(f), including
        (in
        each case) the Prospectus, amendments and supplements to such registration
        statement or Prospectus, including pre- and post-effective amendments, all
        exhibits thereto, and all material incorporated by reference or deemed to
        be
        incorporated by reference in such registration statement.

       

      “Required
        Effectiveness Date”
        means
        (i) with respect to the initial Registration Statement required to be filed
        hereunder, the 135th day following the Closing Date and (ii) with respect
        to any
        additional Registration Statements that may be required pursuant to Section
        6.1(f),
        the
        45th day following the date on which the Company first knows, or reasonably
        should have known, that such additional Registration Statement is required
        under
        such Section.

       

      “Rule
        144,” “Rule
        415,”
        and
“Rule
        424”
        means
        Rule 144, Rule 415 and Rule 424, respectively, promulgated by the Commission
        pursuant to the Securities Act, as such Rules 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.

       

      
        
          
          

        

        
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      “Securities”
        means
        the Notes, Common Stock and the Underlying Shares issued or issuable (as
        applicable) to the applicable Purchaser pursuant to the Transaction Documents.
        

       

      “Securities
        Act”
        means
        the Securities Act of 1933, as amended.

       

      “Security
        Agreement”
        means
        that certain Security Agreement, dated as of the Closing Date, by and among
        the
        Company, Iroquois Master Fund Ltd. and each of the Purchasers, as the same
        be
        amended, modified or supplemented from time to time, substantially in the
        form
        of Exhibit
        B.

       

      “Shares”
        means
        the shares of Common Stock issued by the Company to the Purchasers hereunder,
        not including the Underlying Shares.

       

      “Subsidiary”
        means
        any subsidiary of the Company that is required to be listed on Schedule
        3.1(a).

       

      “Trading
        Day”
        means
        (a) any day on which the Common Stock is listed or quoted and traded on its
        primary Trading Market, or (b) if the Common Stock is not then listed or
        quoted
        and traded on any Trading Market, then any Business Day. 

       

      “Trading
        Market”
        means
        Nasdaq SmallCap Market or any other Eligible Market or any national securities
        exchange, market or trading or quotation facility on which the Common Stock
        is
        then listed or quoted.

       

      “Transaction
        Documents”
        means
        this Agreement, the Security Agreement, the Notes, the Transfer Agent
        Instructions and any other documents or agreements executed or delivered
        in
        connection with the transactions contemplated hereby.

       

      “Transfer
        Agent Instructions”
        means
        the Company’s transfer agent instructions in the form of Exhibit
        C.

       

      “Underlying
        Shares”
        means
        the shares of Common Stock issuable (i) upon conversion of the Notes
        and
        (ii)  in satisfaction of any other obligation of the Company to issue
        shares of Common Stock pursuant to the Transaction Documents, and in each
        case,
        any securities issued or issuable in exchange for or in respect of such
        securities. 

       

      “VWAP”
        means on
        any particular Trading Day or for any particular period the volume weighted
        average trading price per share of Common Stock on such date or for such
        period
        on an Eligible Market as reported by Bloomberg L.P., or any successor performing
        similar functions; provided,
        however,
        that
        during any period the VWAP is being determined, the VWAP shall be subject
        to
        adjustment from time to time for stock splits, stock dividends, combinations
        and
        similar events as applicable.

       

      
        
          
          

        

        
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      ARTICLE
        II.

      PURCHASE
        AND SALE

       

      2.1 Closing.
        Subject
        to the terms and conditions set forth in this Agreement, at the Closing,
        the
        Company shall issue and sell to each Purchaser, and each Purchaser shall,
        severally and not jointly, purchase from the Company, the Notes and the Shares
        for the aggregate purchase price set forth below such Purchaser’s name on the
        signature pages hereto. The Closing shall take place at the offices of Purchaser
        Counsel or at such other location or time as the parties may agree.

       

      2.2 Closing
        Deliveries.

       

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

       

      (i) a
        Note,
        registered in the name of such Purchaser, in the principal amount indicated
        below such Purchaser’s name on the signature page of this Agreement under the
        heading “Note Principal Amount”;

       

      (ii) a
        stock
        certificate, registered in the name of such Purchaser, in an amount indicated
        below such Purchaser’s name on the signature page of this Agreement under the
        heading “Shares”.

       

      (iii) the
        legal
        opinion of Company Counsel, in the form of Exhibit
        D,
        executed by such counsel and delivered to the Purchasers; 

       

      (iv) the
        Transfer Agent Instructions duly executed by the Company and acknowledged
        by the
        Company’s transfer agent; 

       

      (v) the
        Security Agreement duly executed by the Company in favor of the Purchaser;
        

       

      (vi) proper
        financing statements in form appropriate for filing under the Uniform Commercial
        Code of all jurisdictions that the Purchasers may reasonably deem necessary
        or
        desirable in order to perfect and protect the liens and security interests
        created under the Security Agreement, covering the collateral described in
        the
        Security Agreement; 

       

      (vii) a
        personal guaranty executed by Robert Rubin (“Rubin”)
        in
        favor of the Purchasers in the form attached hereto as Exhibit
        F;
        and

       

      (viii) any
        other
        document reasonably requested by the Purchasers or Purchaser
        Counsel.

       

      (b)
        At
        the
        Closing, each Purchaser shall deliver or cause to be delivered to the Company
        the following 

       

      (i) the
        purchase price indicated below such Purchaser’s name on the signature page of
        this Agreement under the heading “Purchase Price”, in United States dollars and
        in immediately available funds, by wire transfer to an account designated
        in
        writing by the Company for such purpose; and 

       

      (ii) the
        Security Agreement duly executed by such Purchaser.

       

      
        
          
          

        

        
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      ARTICLE
        III.

       

      REPRESENTATIONS
        AND WARRANTIES

       

      3.1 Representations
        and Warranties of the Company.
        The
        Company hereby makes the following representations and warranties to the
        Purchasers:

       

      (a)
        Subsidiaries.
        The
        Company does not directly or indirectly control or own any interest in any
        other
        corporation, partnership, joint venture or other business association or
        entity
        (a “Subsidiary”),
        other
        than those listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a),
        the Company owns, directly or indirectly, all of the capital stock of each
        Subsidiary free and clear of any lien, charge, claim, security interest,
        encumbrance, right of first refusal or other restriction (collectively,
“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.

       

      (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 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,
        individually or in the aggregate, (i) adversely affect the legality, validity
        or
        enforceability of any Transaction Document, (ii) have or result in a material
        adverse effect on the results of operations, assets, prospects, business
        or
        condition (financial or otherwise) of the Company and the Subsidiaries, taken
        as
        a whole, or (iii) adversely impair the Company’s ability to perform fully on a
        timely basis its obligations under any Transaction Document (any of (i),
        (ii) or
        (iii), a “Material
        Adverse Effect”).

       

      (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 hereunder and thereunder. The
        execution and delivery of each of the Transaction Documents by the Company
        and
        the consummation by it of the transactions contemplated hereunder and thereunder
        have been duly authorized by all necessary action on the part of the Company
        and
        no further consent or action is required by the Company, its Board of Directors
        or its stockholders. 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. Neither
        the Company nor any Subsidiary is in violation of any of the provisions of
        its
        certificate or articles of incorporation, by laws or other organizational
        or
        charter documents. 

       

      
        
          
          

        

        
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      (d)
        No
        Conflicts.
        The
        execution, delivery and performance of the Transaction Documents by the Company
        and the consummation by the Company of the transactions contemplated hereby
        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, 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) 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 as do not, individually or in the aggregate, have or are reasonably
        be
        expected to result in a Material Adverse Effect.

       

      (e)
        Filings,
        Consents and Approvals.
        The
        Company is not required to obtain any consent, waiver, authorization or order
        of, give any notice to, or make any filing or registration with, any court
        or
        other federal, state, local or other governmental authority or other Person
        in
        connection with the execution, delivery and performance by the Company of
        the
        Transaction Documents, other than the filing with the Commission of the
        Registration Statement, the application(s) to each Trading Market for the
        listing of the Underlying Shares for trading thereon in the time and manner
        required thereby, and applicable Blue Sky filings (collectively, the “Required
        Approvals”).

       

      (f)
        Issuance
        of the Securities.
        The
        Securities have been duly authorized. The Notes and the Shares have been,
        and
        the Underlying Shares or other securities issuable upon conversion of the
        Notes,
        when so issued in accordance with the terms of the Notes will be, validly
        issued. The Notes and the Shares are, and the Underlying Shares or other
        securities issuable upon conversion of the Notes, when so issued in accordance
        with the terms of the Notes will be, fully paid and nonassessable and free
        of
        preemptive or similar rights. The Notes and the Shares have been, and the
        Underlying Shares or other securities issuable upon conversion of the Notes,
        when so issued in accordance with the terms of the Notes will be, issued
        in
        compliance with applicable securities laws, rules and regulations. The Company
        has reserved from its duly authorized capital stock the maximum number of
        shares
        of Common Stock to be issued to the applicable Purchasers upon conversion
        of the
        Notes or issuable pursuant to the other Transaction Documents.

       

      (g)
        Capitalization.
        The
        number of shares and type of all authorized, issued and outstanding capital
        stock of the Company is set forth in Schedule
        3.1(g).
        No
        securities of the Company are entitled to preemptive or similar rights, and
        no
        Person has any right of first refusal, preemptive right, right of participation,
        or any similar right to participate in the transactions contemplated by the
        Transaction Documents. Except as a result of the purchase and sale of the
        Securities and except as disclosed in Schedule
        3.1(g),
        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 issue 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.

       

      
        
          
          

        

        
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      (h)
        SEC
        Reports; Financial Statements.
        Except
        as disclosed in Schedule
        3.1(h),
        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
        being collectively referred to herein as the “SEC
        Reports”
        and,
        together with the Schedules to this Agreement, the “Disclosure
        Materials”)
        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.
        The
        Company has delivered to the Purchasers a copy of all SEC Reports filed within
        the 10 days preceding the date hereof. 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
        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 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 or the identity of its auditors, (iv) the Company has not declared
        or
        made any dividend or distribution of cash or other property to its stockholders
        or purchased, redeemed or made any agreements to purchase or redeem any shares
        of its capital stock, and (v) the Company has not issued any equity securities
        to any officer, director or Affiliate, except pursuant to existing Company
        stock
        option plans. The Company does not have pending before the Commission any
        request for confidential treatment of information.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (j)
        Litigation.
        Except
        as disclosed in Schedule
        3.1(j),
        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, individually or in the aggregate, have or 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.

       

      (l)
        Compliance.
        Neither
        the Company nor any Subsidiary (i) is in default under or in violation of
        (and
        no event has occurred that has not been waived that, with notice or lapse
        of
        time or both, would result in a default by the Company or any Subsidiary
        under),
        nor has the Company or any Subsidiary received notice of a claim that it
        is in
        default under or that it is in violation of, any 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 relating to taxes,
        environmental protection, occupational health and safety, product quality
        and
        safety and employment and labor matters, except in each case as does not,
        individually or in the aggregate, have or reasonably be expected to result
        in a
        Material Adverse Effect.

       

      (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,
        individually or in the aggregate, have or result in a Material Adverse Effect
        (“Material
        Permits”),
        and
        neither the Company nor any Subsidiary has received any notice of proceedings
        relating to the revocation or modification of any Material Permit.

       

      (n)
        Title
        to Assets.
        The
        Company and the Subsidiaries have good and marketable title in fee simple
        to all
        real property owned by them that is material to the business of the Company
        and
        the Subsidiaries and good and marketable title in all personal property owned
        by
        them that is material to the business of the Company and the Subsidiaries,
        in
        each case free and clear of all Liens, except for 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. 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.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      (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.

       

      (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. Neither the Company nor any Subsidiary has any reason to believe
        that
        it will not be able to renew its existing insurance coverage as and when
        such
        coverage expires or to obtain similar coverage from similar insurers as may
        be
        necessary to continue its business without a significant increase in
        cost.

       

      (q)
        Transactions
        With Affiliates and Employees.
        Except
        as set forth in 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.

       

      (r)
        Internal
        Accounting Controls.
        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)
        Solvency.
        Based
        on the financial condition of the Company as of the Closing Date, (i) the
        Company’s fair saleable value of its assets exceeds the amount that will be
        required to be paid on or in respect of the Company’s existing debts and other
        liabilities (including known contingent liabilities) as they mature; (ii)
        the
        Company’s assets do not constitute unreasonably small capital to carry on its
        business for the current fiscal year as now conducted and as proposed to
        be
        conducted including its capital needs taking into account the particular
        capital
        requirements of the business conducted by the Company, and projected capital
        requirements and capital availability thereof; and (iii) the current cash
        flow
        of the Company, together with the proceeds the Company would receive, were
        it to
        liquidate all of its assets, after taking into account all anticipated uses
        of
        the cash, would be sufficient to pay all amounts on or in respect of its
        debt
        when such amounts are required to be paid. The Company does not intend to
        incur
        debts beyond its ability to pay such debts as they mature (taking into account
        the timing and amounts of cash to be payable on or in respect of its
        debt).

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      (t)
        Certain
        Fees.
        Except
        as described in Schedule
        3.1(t),
        no
        brokerage or finder’s fees or commissions are or will be payable by the Company
        to any broker, financial advisor or consultant, finder, placement agent,
        investment banker, bank or other Person with respect to the transactions
        contemplated by this Agreement. The Purchasers shall have no obligation with
        respect to any fees or with respect to any claims made by or on behalf of
        other
        Persons for fees of a type contemplated in this Section that may be due in
        connection with the transactions contemplated by this Agreement. The Company
        shall indemnify and hold harmless the Purchasers, their employees, officers,
        directors, agents, and partners, and their respective Affiliates, from and
        against all claims, losses, damages, costs (including the costs of preparation
        and attorney’s fees) and expenses suffered in respect of any such claimed or
        existing fees, as such fees and expenses are incurred.

       

      (u)
        Private
        Placement.
        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 and no shareholder approval is required
        for
        the Company to fulfill its obligations under the Transaction
        Documents.

       

      (v)
        Form
        S-3 Eligibility.
        The
        Company is eligible to register the resale of its Common Stock for resale
        by the
        Purchasers under Form S-3 promulgated under the Securities Act (or if the
        Company is not eligible for the use of Form S-3, the Company may use the
        form of
        registration for which it is eligible at that time).

       

      (w)
        Listing
        and Maintenance Requirements.
        Except
        as disclosed in Schedule
        3.1(w),
        the
        Company has not, in the two years preceding the date hereof, received notice
        (written or oral) from any Eligible 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 Eligible Market. The Company
        is,
        and has no reason to believe that it will not in the foreseeable future continue
        to be, in compliance with all such listing and maintenance
        requirements.

       

      (x)
        Registration
        Rights.
        Except
        as described in Schedule
        3.1(x),
        the
        Company has not granted or agreed to grant to any Person any rights (including
        “piggy back” registration rights) to have any securities of the Company
        registered with the Commission or any other governmental authority that have
        not
        been satisfied.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      (y)
        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.

       

      (z)
        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 each of the Purchasers will rely on
        the
        foregoing representations in effecting transactions in securities of the
        Company. All disclosure materials provided to the Purchasers regarding the
        Company, its business and the transactions contemplated hereby, including
        the
        Schedules to this Agreement, furnished by or on behalf of the Company are
        true
        and correct in all material respects 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 the light of the circumstances under which
        they
        were made, not misleading; it being understood that the Company has not provided
        the Purchasers, and the Purchasers are not relying on, any information
        constituting a forecast or projection. No event or circumstance has occurred
        or
        information exists with respect to the Company or any of its Subsidiaries
        or its
        or their business, properties, prospects, operations or financial conditions,
        which, under applicable law, rule or regulation, requires public disclosure
        or
        announcement by the Company but which has not been so publicly announced
        or
        disclosed. The Company acknowledges and agrees that (i) 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
        or
        (ii) any statement, commitment or promise to the Company or, to its knowledge,
        any of its representatives which is or was an inducement to the Company to
        enter
        into this Agreement or otherwise. 

       

      (aa)
        No
        Violation.
        The
        issuance and sale of the Securities contemplated hereby does not conflict
        with
        or violate any rules or regulations of the Trading Market.

       

      (bb)
        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 this Agreement and the
        transactions contemplated hereby. The Company further acknowledges that no
        Purchaser is acting as a financial advisor or fiduciary of the Company or
        any
        other Purchaser (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
        such
        Purchaser’s 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 Company and its
        representatives. The Company further acknowledges that no Purchaser has made
        any
        promises or commitments other than as set forth in this Agreement, including
        any
        promises or commitments for any additional investment by any such Purchaser
        in
        the Company.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      (cc)
        Investment
        Company.
        The
        Company is not, and is not an Affiliate of, an investment company within
        the
        meaning of the Investment Company Act of 1940, as amended.

       

      (dd)
        Ranking.
        Except
        as set forth on Schedule 3.1(dd), as of the date of this Agreement, no
        indebtedness of the Company is senior to or pari passu with the Notes in
        right
        of payment, whether with respect to principal, interest or upon liquidation
        or
        dissolution, or otherwise. 

       

      (ee)
        Sarbanes-Oxley
        Act.
        The
        Company is in compliance with applicable requirements of the Sarbanes-Oxley
        Act
        of 2002 and applicable rules and regulations promulgated by the Commission
        thereunder in effect as of the date of this Agreement, except where such
        noncompliance could not be reasonably expected to have, individually or in
        the
        aggregate, a Material Adverse Effect.

       

      3.2 Representations
        and Warranties of the Purchasers.
        Each
        Purchaser hereby, as to itself only and for no other Purchaser, represents
        and
        warrants 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 the requisite
        corporate, limited liability company 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 hereunder and thereunder.
        The execution, delivery and performance by such Purchaser of this Agreement
        have
        been duly authorized by all necessary corporate or limited liability company
        action on the part of such Purchaser. This Agreement has been duly executed
        by
        such Purchaser and, when delivered by such Purchaser in accordance with terms
        hereof, will constitutes the valid and legally binding obligation of such
        Purchaser, enforceable against it in accordance with its terms.

       

      (b)
        Purchaser
        Status.
        At the
        time such Purchaser was offered the Securities, it was, and at the date hereof
        it is, an “accredited investor” as defined in Rule 501(a) under the Securities
        Act. Such Purchaser is not a registered broker-dealer under Section 15 of
        the
        Exchange Act.

       

      (c)
        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.

       

      (d)
        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.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      The
        Company acknowledges and agrees that each Purchaser does not make and 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 pursuant to an effective registration
        statement under the Securities Act or pursuant to an available exemption
        from
        the registration requirements of the Securities Act, and in compliance with
        any
        applicable state securities laws. In connection with any transfer of Securities
        other than pursuant to an effective registration statement or to the Company
        or
        pursuant to Rule 144(k), except as otherwise set forth herein, the Company
        may
        require the transferor to provide to the Company an opinion of counsel selected
        by the transferor, the form and substance of which opinion shall be reasonably
        satisfactory to the Company, to the effect that such transfer does not require
        registration under the Securities Act. Notwithstanding the foregoing, the
        Company hereby consents to and agrees to register on the books of the Company
        and with its transfer agent, without any such legal opinion, any transfer
        of
        Securities by a Purchaser to an Affiliate of such Purchaser, provided that
        the
        transferee certifies to the Company that it is an “accredited investor” as
        defined in Rule 501(a) 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.

       

      (b)
        The
        Purchasers agree to the imprinting, except as otherwise permitted by Section
        4.1(c), the following legend on any certificate evidencing Securities:

       

      [NEITHER]
        THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
        EXERCISABLE] 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 COMPLIANCE WITH
        APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE
        FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF
        THESE
        SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
        OTHER
        LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      (c)
        Certificates
        evidencing Securities shall not be required to contain the legend set forth
        in
        Section 4.1(b) or any other legend (i) while a Registration Statement covering
        the resale of such Securities is effective under the Securities Act, or (ii)
        following any sale of such Securities pursuant to Rule 144, or (iii) if such
        Securities 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 the legal opinion
        included in the Transfer Agent Instructions to the Company’s transfer agent on
        the Effective Date. Following the Effective Date or at such earlier time
        as a
        legend is no longer required for certain Securities, the Company will no
        later
        than three Trading Days following the delivery by a Purchaser to the Company
        or
        the Company’s transfer agent of a legended certificate representing such
        Securities, deliver or cause to be delivered to such Purchaser a certificate
        representing such Securities that is free from all restrictive and other
        legends. The Company may not make any notation on its records or give
        instructions to any transfer agent of the Company that enlarge the restrictions
        on transfer set forth in Section 4.1(b). For so long as any Purchaser owns
        Securities, the Company will not effect or publicly announce its intention
        to
        effect any exchange, recapitalization or other transaction that effectively
        requires or rewards physical delivery of certificates evidencing the Common
        Stock.

       

      (d)
        The
        Company acknowledges and agrees that a Purchaser may from time to time pledge
        or
        grant a security interest in some or all of the Securities in connection
        with a
        bona fide margin agreement or other loan or financing arrangement secured
        by the
        Securities and, if required under the terms of such agreement, loan or
        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 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 the preparation and filing of any required
        prospectus supplement under Rule 424(b)(3) of the Securities Act or other
        applicable provision of the Securities Act to appropriately amend the list
        of
        selling stockholders thereunder.

       

      4.2 Acknowledgment
        of Dilution.
        The
        Company acknowledges that the issuance of the Securities (including the
        Underlying Shares) will 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 Securities
        (including 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 that the Company may have against any Purchaser.

       

      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. Upon the request of any Purchaser, the Company
        shall deliver to such Purchaser a written certification of a duly authorized
        officer as to whether it has complied with the preceding sentence. As long
        as
        any Purchaser owns Securities, if the Company is not required to file reports
        pursuant to such laws, it will prepare and furnish to the Purchasers and
        make
        publicly available in accordance with paragraph (c) of Rule 144 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 to satisfy the provisions of Rule 144
        applicable to the issuer of securities relating to transactions for the sale
        of
        securities pursuant to Rule 144.

       

      
        
          
          

        

        
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      4.4 Integration.
        The
        Company shall not, and shall use its best efforts to ensure that no Affiliate
        of
        the Company shall, 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 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 (i) in the time and manner required by each Trading Market,
        prepare and file with such Trading Market an additional shares listing
        application covering all of the shares of Common Stock issued or issuable
        under
        the Transaction Documents, (ii) take all steps necessary to cause such shares
        of
        Common Stock to be approved for listing on each 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 each such Trading Market
        or another Eligible Market.

       

      (c)
        In
        the
        case of a breach by the Company of Section 4.5(a), in addition to the other
        remedies available to the Purchasers, the Purchasers shall have the right
        to
        require the Company to either: (i) use its best efforts to obtain the required
        shareholder approval necessary to permit the issuance of such shares of Common
        Stock as soon as is possible, but in any event not later than the 60th day
        after
        such notice, or (ii) within five Trading Days after delivery of a written
        notice, pay cash to such Purchaser, as liquidated damages and not as a penalty,
        in an amount equal to the number of shares of Common Stock not issuable by
        the
        Company times 115% of the average Closing Price over the five Trading Days
        immediately prior to the date of such notice or, if greater, the five Trading
        Days immediately prior to the date of payment (the “Cash
        Amount”).
        If the
        exercising or converting Purchaser elects the first option under the preceding
        sentence and the Company fails to obtain the required shareholder approval
        on or
        prior to the 60th day after such notice, then within three Trading Days after
        such 60th day, the Company shall pay the Cash Amount to such Purchaser, as
        liquidated damages and not as penalty.

       

      4.6 Subsequent
        Placements.

       

      (a)
        Other
        than the Kraft Financing, from the date hereof until the Effective Date,
        the
        Company will not, directly or indirectly, offer, sell, grant any option to
        purchase, or otherwise dispose of (or announce any offer, sale, grant or
        any
        option to purchase or other disposition of) any of its or the Subsidiaries’
        equity or equity equivalent securities, including without limitation any
        debt,
        preferred stock or other instrument or security that is, at any time during
        its
        life and under any circumstances, convertible into or exchangeable or
        exercisable for Common Stock or Common Stock Equivalents (any such offer,
        sale,
        grant, disposition or announcement being referred to as a “Subsequent
        Placement”).
        

       

      
        
          
          

        

        
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      (b)
        Other
        than the Kraft Financing, from the Effective Date until 30 Trading Days after
        the Effective Date (the “Blockout
        Period”),
        the
        Company will not, directly or indirectly, effect any Subsequent Placement
        except
        as set forth in Section 4.6(e).

       

      (c)
        The
        Blockout Period set forth in Section 4.6(b) above shall be extended for the
        number of Trading Days during such period in which (i) trading in the Common
        Stock is suspended by any Trading Market, (ii) the Registration Statement
        is not
        effective, or (iii) the prospectus included in the Registration Statement
        may
        not be used by the Purchasers for the resale of Registrable Securities
        thereunder.

       

      (d)
        From
        the
        end of the Blockout Period and for so long as the Notes are outstanding,
        the
        Company will not, directly or indirectly, effect any Subsequent Placement
        unless
        the Company shall have first complied with this Section 4.6(d).

       

      (i) The
        Company shall deliver to each Purchaser a written notice (the “Offer”)
        of any
        proposed or intended issuance or sale or exchange of the securities being
        offered (the “Offered
        Securities”)
        in a
        Subsequent Placement, which Offer shall (w) identify and describe
        the
        Offered Securities, (x) describe the price and other terms upon which they
        are
        to be issued, sold or exchanged, and the number or amount of the Offered
        Securities to be issued, sold or exchanged, (y) identify the Persons or entities
        to which or with which the Offered Securities are to be offered, issued,
        sold or
        exchanged and (z) offer to issue and sell to or exchange with each Purchaser
        (A)
        a pro rata portion of the greater of (I) one-third (1/3) of the Offered
        Securities and (II) Offered Securities with an aggregate principal amount
        of
        $2,500,000, in either case, based on such Purchaser’s pro rata portion of the
        aggregate principal amount of the Notes purchased hereunder (the “Basic
        Amount”),
        and
        (B) with respect to each Purchaser that elects to purchase its Basic Amount,
        any
        additional portion of the Offered Securities attributable to the Basic Amounts
        of other Purchasers as such Purchaser shall indicate it will purchase or
        acquire
        should the other Purchasers subscribe for less than their Basic Amounts (the
        “Undersubscription
        Amount”).

       

      (ii) To
        accept
        an Offer, in whole or in part, a Purchaser must deliver a written notice
        to the
        Company prior to the end of the 10 Trading Day period of the Offer, setting
        forth the portion of the Purchaser’s Basic Amount that such Purchaser elects to
        purchase and, if such Purchaser shall elect to purchase all of its Basic
        Amount,
        the Undersubscription Amount, if any, that such Purchaser elects to purchase
        (in
        either case, the “Notice
        of Acceptance”).
        If the
        Basic Amounts subscribed for by all Purchasers are less than the total of
        all of
        the Basic Amounts, then each Purchaser who has set forth an Undersubcription
        Amount in its Notice of Acceptance shall be entitled to purchase, in addition
        to
        the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
        for; provided,
        however,
        that if
        the Undersubscription Amounts subscribed for exceed the difference between
        the
        total of all the Basic Amounts and the Basic Amounts subscribed for (the
        “Available
        Undersubscription Amount”),
        each
        Purchaser who has subscribed for any Undersubscription Amount shall be entitled
        to purchase on that portion of the Available Undersubscription Amount as
        the
        Basic Amount of such Purchaser bears to the total Basic Amounts of all
        Purchasers that have subscribed for Undersubscription Amounts, subject to
        rounding by the Board of Directors to the extent its deems reasonably
        necessary.

       

      
        
          
          

        

        
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      (iii) The
        Company shall have five (5) Trading Days from the expiration of the period
        set
        forth in Section 4.6(d)(ii) above to issue, sell or exchange all or any part
        of
        such Offered Securities as to which a Notice of Acceptance has not been given
        by
        the Purchasers (the “Refused
        Securities”),
        but
        only to the offerees described in the Offer and only upon terms and conditions
        (including, without limitation, unit prices and interest rates) that are
        not
        more favorable to the acquiring Person or Persons or less favorable to the
        Company than those set forth in the Offer.

       

      (iv) In
        the
        event the Company shall propose to sell less than all the Refused Securities
        (any such sale to be in the manner and on the terms specified in Section
        4.6(d)(iii) above), then each Purchaser may, at its sole option and in its
        sole
        discretion, reduce the number or amount of the Offered Securities specified
        in
        its Notice of Acceptance to an amount that shall be not less than the number
        or
        amount of the Offered Securities that the Purchaser elected to purchase pursuant
        to Section 4.6(d)(ii) above multiplied by a fraction, (i) the numerator of
        which
        shall be the number or amount of Offered Securities the Company actually
        proposes to issue, sell or exchange (including Offered Securities to be issued
        or sold to Purchasers pursuant to Section 4.6(d)(ii) above prior to such
        reduction) and (ii) the denominator of which shall be the original amount
        of the
        Offered Securities. In the event that any Purchaser so elects to reduce the
        number or amount of Offered Securities specified in its Notice of Acceptance,
        the Company may not issue, sell or exchange more than the reduced number
        or
        amount of the Offered Securities unless and until such securities have again
        been offered to the Purchasers in accordance with Section 4.6(d)(i)
        above.

       

      (v) Upon
        the
        closing of the issuance, sale or exchange of all or less than all of the
        Refused
        Securities, the Purchasers shall acquire from the Company, and the Company
        shall
        issue to the Purchasers, the number or amount of Offered Securities specified
        in
        the Notices of Acceptance, as reduced pursuant to Section 4.6(d)(iv) above
        if
        the Purchasers have so elected, upon the terms and conditions specified in
        the
        Offer. The purchase by the Purchasers of any Offered Securities is subject
        in
        all cases to the preparation, execution and delivery by the Company and the
        Purchasers of a purchase agreement relating to such Offered Securities
        reasonably satisfactory in form and substance to the Purchasers and their
        respective counsel.

       

      (vi) Any
        Offered Securities not acquired by the Purchasers or other persons in accordance
        with Section 4.6(d)(iii) above may not be issued, sold or exchanged until
        they
        are again offered to the Purchasers under the procedures specified in this
        Agreement.

       

      
        
          
          

        

        
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      (e)
        The
        restrictions contained in paragraphs (b) and (d) of this Section 4.6 shall
        not
        apply to Excluded Stock.

       

      (f)
        Notwithstanding
        anything to the contrary set forth above, the Company shall comply with the
        requirements set forth in Section 4.6(d) above in connection with the Kraft
        Financing.

       

      4.7 Conversion
        Procedures.
        The
        form of Holder Conversion Notice included in the Notes set forth the totality
        of
        the procedures required by the Purchasers in order to convert the Notes.
        No
        additional legal opinion or other information or instructions shall be necessary
        to enable the Purchasers to convert their Notes. The Company shall honor
        conversions of the Notes and shall deliver Underlying Shares in accordance
        with
        the terms, conditions and time periods set forth in the Transaction
        Documents.

       

      4.8 Securities
        Laws Disclosure; Publicity.
        On or
        before 8:30 a.m., New York time, on September 26, 2005, the Company
        shall
        issue a press release acceptable to the Purchasers disclosing all material
        terms
        of the transactions contemplated hereby. Within one Business Day of the date
        of
        this Agreement, the Company shall file a Current Report on Form 8-K with
        the
        Commission (the “8-K
        Filing”)
        describing the terms of the transactions contemplated by the Transaction
        Documents and including as exhibits to such Current Report on Form 8-K this
        Agreement and the form of Notes, in the form required by the Exchange Act.
        Thereafter, the Company shall timely file any filings and notices required
        by
        the Commission or applicable law with respect to the transactions contemplated
        hereby and provide copies thereof to the Purchasers promptly after filing.
        The
        Company shall, at least two Trading Days prior to the filing or dissemination
        of
        any disclosure required by this paragraph, provide a copy thereof to the
        Purchasers for their review. The Company and the Purchasers shall consult
        with
        each other in issuing any press releases or otherwise making public statements
        or filings and other communications with the Commission or any regulatory
        agency
        or Trading Market with respect to the transactions contemplated hereby, and
        neither party shall issue any such press release or otherwise make any such
        public statement, filing or other communication without the prior consent
        of the
        other, 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, filing or other communication. Notwithstanding the
        foregoing, the Company shall not publicly disclose the name of any Purchaser,
        or
        include the name of any Purchaser in any filing with the Commission or any
        regulatory agency or Trading Market, without the prior written consent of
        such
        Purchaser, except to the extent such disclosure (but not any disclosure as
        to
        the controlling Persons thereof) is required by law or Trading Market
        regulations, in which case the Company shall provide the Purchasers with
        prior
        notice of such disclosure. The Company shall not, and shall cause each of
        its
        Subsidiaries and its and each of their respective officers, directors, employees
        and agents not to, provide any Purchaser with any material nonpublic information
        regarding the Company or any of its Subsidiaries from and after the filing
        of
        the 8-K Filing without the express written consent of such Purchaser. In
        the
        event of a breach of the foregoing covenant by the Company, any of its
        Subsidiaries, or any of its or their respective officers, directors, employees
        and agents, in addition to any other remedy provided herein or in the
        Transaction Documents, a Purchaser shall have the right to require the Company
        to make a public disclosure, in the form of a press release, public
        advertisement or otherwise, of such material nonpublic information. No Purchaser
        shall have any liability to the Company, its Subsidiaries, or any of its
        or
        their respective officers, directors, employees, shareholders or agents for
        any
        such disclosure. Subject to the foregoing, neither the Company nor any Purchaser
        shall issue any press releases or any other public statements with respect
        to
        the transactions contemplated hereby; provided, however, that the Company
        shall
        be entitled, without the prior approval of any Purchaser, to make any press
        release or other public disclosure with respect to such transactions (i)
        in
        substantial conformity with the 8-K Filing and contemporaneously therewith
        and
        (ii) as is required by applicable law and regulations (provided that in the
        case
        of clause (i) each Purchaser shall be consulted by the Company in connection
        with any such press release or other public disclosure prior to its release).
        Each press release disseminated during the 12 months prior to the Closing
        Date
        did not at the time of release contain any untrue statement of a material
        fact
        or omit 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.

       

      
        
          
          

        

        
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      4.9 Use
        of
        Proceeds.
        The
        Company shall use the net proceeds from the sale of the Securities hereunder
        for
        working capital purposes and not for the satisfaction of any portion of the
        Company’s debt (other than payment of trade payables and accrued expenses in the
        ordinary course of the Company’s business and prior practices), to redeem any
        Company equity or equity-equivalent securities or to settle any outstanding
        litigation.

       

      4.10 Indebtedness.
        

       

      (a)
        At
        any
        time after the date of this Agreement, neither the Company nor any Subsidiary
        of
        the Company shall incur any indebtedness, liability or obligation that is
        senior
        to or pari passu with the Notes in right of payment, whether with respect
        to
        principal, interest or upon liquidation or dissolution, or otherwise;
provided,
        however,
        that
        notwithstanding the foregoing, the Company may, in the ordinary course of
        business, incur indebtedness secured by purchase money security interests
        (which
        will be senior only as to the underlying assets covered thereby) and
        indebtedness under capital lease obligations (which will be senior only as
        to
        the underlying assets covered thereby) (collectively, “Permitted
        Indebtedness”).

       

      (b)
        The
        provisions of this Section 4.10 shall terminate and be of no further force
        or
        effect upon the conversion or indefeasible repayment in full of the Notes
        and
        any and all expenses or liabilities relating thereto.

       

      4.11 Repayment
        of Notes.
        Each of
        the parties hereto agrees that all repayments of the Notes (including any
        interest thereon) by the Company (other than by conversion of the Notes)
        will be
        paid pro rata to the holders thereof based upon the principal amount then
        outstanding to each of such holders.

       

      4.12 No
        Impairment.
        At all
        times after the date hereof, the Company will not take or permit any action,
        or
        cause or permit any subsidiary to take or permit any action that impairs
        or
        adversely affects the rights of the Purchasers under the Agreement or the
        Notes.

       

      4.13 Fundamental
        Changes.
        In
        addition to any other rights provided by law or set forth herein, from and
        after
        the date of this Agreement and for so long as any Notes remain outstanding,
        the
        Company shall not without first obtaining the approval (by vote or written
        consent, as provided by law) of the holders of a majority of the outstanding
        principal face amount of the Notes:

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      (a)
        purchase,
        redeem (other than pursuant to equity incentive agreements with non-officer
        employees giving the Company the right to repurchase shares upon the termination
        of services) or set aside any sums for the purchase or redemption of, or
        declare
        or pay any dividend (including a dividend payable in stock of the Company)
        or
        make any other distribution with respect to, any shares of capital stock
        or any
        other securities that are convertible into or exercisable for such
        stock;

       

      (b)
        change
        the nature of the Company’s business to any business which is fundamentally
        distinct and separate from the business currently conducted by the Company;
        or

       

      (c)
        cause
        or
        permit any subsidiary of the Company directly or indirectly to take any actions
        described in clauses (a) through (b) above, other than issuing securities
        to the
        Company.

       

      4.14 Indemnification.

       

      (a)
        If
        any
        Purchaser or any of its Affiliates or any officer, director, partner,
        controlling person, employee or agent of a Purchaser or any of its Affiliates
        (a
“Related
        Person”)
        becomes
        involved in any capacity in any Proceeding brought by or against any Person
        in
        connection with or as a result of the transactions contemplated by the
        Transaction Documents, the Company will indemnify and hold harmless such
        Purchaser or Related Person for its reasonable legal and other expenses
        (including the costs of any investigation, preparation and travel) and for
        any
        Losses incurred in connection therewith, as such expenses or Losses are
        incurred, excluding only Losses that result directly from such Purchaser’s or
        Related Person’s gross negligence or willful misconduct. In addition, the
        Company shall indemnify and hold harmless each Purchaser and Related Person
        from
        and against any and all Losses, as incurred, arising out of or relating to
        any
        breach by the Company of any of the representations, warranties or covenants
        made by the Company in this Agreement or any other Transaction Document,
        or any
        allegation by a third party that, if true, would constitute such a breach.
        The
        conduct of any Proceedings for which indemnification is available under this
        paragraph shall be governed by Section 6.4(c) below. The indemnification
        obligations of the Company under this paragraph shall be in addition to any
        liability that the Company may otherwise have and shall be binding upon and
        inure to the benefit of any successors, assigns, heirs and personal
        representatives of the Purchasers and any such Related Persons. If the Company
        breaches its obligations under any Transaction Document, then, in addition
        to
        any other liabilities the Company may have under any Transaction Document
        or
        applicable law, the Company shall pay or reimburse the Purchasers on demand
        for
        all costs of collection and enforcement (including reasonable attorneys fees
        and
        expenses). Without limiting the generality of the foregoing, the Company
        specifically agrees to reimburse the Purchasers on demand for all costs of
        enforcing the indemnification obligations in this paragraph. 

       

      4.15 Shareholders
        Rights Plan.
        No
        claim will be made or enforced by the Company or any other Person that any
        Purchaser is an “Acquiring Person” under any shareholders rights plan or similar
        plan or arrangement in effect or hereafter adopted by the Company, or that
        any
        Purchaser could be deemed to trigger the provisions of any such plan or
        arrangement, by virtue of receiving Underlying Shares under the Transaction
        Documents or under any other agreement between the Company and the
        Purchasers.

       

      
        
          
          

        

        
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      4.16 Delivery
        of Certificates.
        In
        addition to any other rights available to a Purchaser, if the Company fails
        to
        deliver to such Purchaser a certificate representing Common Stock on the
        date on
        which delivery of such certificate is required by any Transaction Document,
        and
        if after such date such Purchaser purchases (in an open market transaction
        or
        otherwise) shares of Common Stock to deliver in satisfaction of a sale by
        such
        Purchaser of the shares that the Purchaser anticipated receiving from the
        Company (a “Buy-In”),
        then
        the Company shall, within three Trading Days after such Purchaser’s request and
        in such Purchaser’s discretion, either (i) pay cash to such Purchaser in an
        amount equal to such Purchaser’s total purchase price (including brokerage
        commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In
        Price”),
        at
        which point the Company’s obligation to deliver such certificate (and to issue
        such Common Stock) shall terminate, or (ii) promptly honor its obligation
        to
        deliver to such Purchaser a certificate or certificates representing such
        Common
        Stock and pay cash to such Purchaser in an amount equal to the excess (if
        any)
        of the Buy-In Price over the product of (A) such number of shares of Common
        Stock, times (B) the Closing Price on the date of the event giving rise to
        the
        Company’s obligation to deliver such certificate.

       

      4.17 The
        Company covenants that from and after the Closing Date, the Company will
        not
        issue any floating Common Stock Equivalents with an effective price or a
        number
        of underlying shares that floats or resets or otherwise varies or is subject
        to
        adjustment based (directly or indirectly) on market prices of the Common
        Stock.

       

      ARTICLE
        V.

      CONDITIONS

       

      5.1 Conditions
        Precedent to the Obligations of the Purchasers.
        The
        obligation of each Purchaser to acquire Securities at the Closing is subject
        to
        the satisfaction or waiver by such Purchaser, at or before the Closing, of
        each
        of the following conditions:

       

      (a)
        Representations
        and Warranties.
        The
        representations and warranties of the Company contained herein shall be true
        and
        correct in all material respects as of the date when made and as of the Closing
        as though made on and as of such date; 

       

      (b)
        Performance.
        The
        Company and each other Purchaser shall have performed, satisfied and complied
        in
        all material respects with all covenants, agreements and conditions required
        by
        the Transaction Documents to be performed, satisfied or complied with by
        it at
        or prior to the Closing;

       

      (c)
        No
        Injunction.
        No
        statute, rule, regulation, executive order, decree, ruling or injunction
        shall
        have been enacted, entered, promulgated or endorsed by any court or governmental
        authority of competent jurisdiction that prohibits the consummation of any
        of
        the transactions contemplated by the Transaction Documents;

       

      
        
          
          

        

        
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      (d)
        Adverse
        Changes.
        Since
        the date of execution of this Agreement, no event or series of events shall
        have
        occurred that reasonably would be expected to have or result in a Material
        Adverse Effect; and

       

      (e)
        No
        Suspensions of Trading in Common Stock; Listing.
        Trading
        in the Common Stock shall not have been suspended by the Commission or any
        Trading Market (except for any suspensions of trading of not more than one
        Trading Day solely to permit dissemination of material information regarding
        the
        Company) at any time since the date of execution of this Agreement, and the
        Common Stock shall have been at all times since such date listed for trading
        on
        an Eligible Market.

       

      5.2 Conditions
        Precedent to the Obligations of the Company.
        The
        obligation of the Company to sell Securities at the Closing is subject to
        the
        satisfaction or waiver by the Company, at or before the Closing, of each
        of the
        following conditions:

       

      (a)
        Representations
        and Warranties.
        The
        representations and warranties of the Purchasers contained herein shall be
        true
        and correct in all material respects as of the date when made and as of the
        Closing Date as though made on and as of such date; 

       

      (b)
        Performance.
        The
        Purchasers shall have performed, satisfied and complied in all material respects
        with all covenants, agreements and conditions required by the Transaction
        Documents to be performed, satisfied or complied with by the Purchasers at
        or
        prior to the Closing; and

       

      (c)
        No
        Injunction.
        No
        statute, rule, regulation, executive order, decree, ruling or injunction
        shall
        have been enacted, entered, promulgated or endorsed by any court or governmental
        authority of competent jurisdiction that prohibits the consummation of any
        of
        the transactions contemplated by the Transaction Documents.

       

      ARTICLE
        VI.

      REGISTRATION
        RIGHTS 

       

      6.1 Shelf
        Registration.

       

      (a)
        As
        promptly as possible, and in any event on or prior to the Filing Date, the
        Company shall prepare and file with the Commission a “shelf” Registration
        Statement covering the resale of all Registrable Securities for an offering
        to
        be made on a continuous basis pursuant to Rule 415. If for any reason the
        Commission does not permit all of the Registrable Securities to be included
        in
        such Registration Statement, then the Company shall prepare and file with
        the
        Commission a separate Registration Statement with respect to any such
        Registrable Securities not included with the initial Registration Statements,
        as
        expeditiously as possible, but in no event later than the date which is 30
        days
        after the date on which the Commission shall indicate as being the first
        date
        such filing may be made. The Registration Statement shall be on Form S-3
        and
        shall contain (except if otherwise directed by the Purchasers) the “Plan of
        Distribution”, substantially as attached hereto as Exhibit
        E.
        In the
        event the Form S-3 is not available for the registration of the resale of
        Registrable Securities hereunder, the Company shall (i) register the resale
        of
        the Registrable Securities on another appropriate form in accordance herewith
        as
        the Purchasers may consent and (ii) attempt to register the Registrable
        Securities on Form S-3 as soon as such form is available, provided that the
        Company shall maintain the effectiveness of the Registration Statements then
        in
        effect until such time as a Registration Statement on Form S-3 covering the
        Registrable Securities has been declared effective by the Commission.

       

      
        
          
          

        

        
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      (b)
        The
        Company shall use its best efforts to cause the Registration Statement to
        be
        declared effective by the Commission as promptly as possible after the filing
        thereof, but in any event prior to the Required Effectiveness Date, and shall
        use its best efforts to keep the Registration Statement continuously effective
        under the Securities Act until the fifth anniversary of the Effective Date
        or
        such earlier date when all Registrable Securities covered by such Registration
        Statement have been sold publicly (the “Effectiveness
        Period”).

       

      (c)
        The
        Company shall notify each Purchaser in writing promptly (and in any event
        within
        one business day) after receiving notification from the Commission that the
        Registration Statement has been declared effective. 

       

      (d)
        If:
        (i)
        any Registration Statement is not filed on or prior to the Filing Date (if
        the
        Company files such Registration Statement without affording the Purchasers
        the
        opportunity to review and comment on the same as required by Section 6.2(a)
        hereof, the Company shall not be deemed to have satisfied this clause (i)),
        or
        (ii) the Company fails to file with the Commission a request for acceleration
        in
        accordance with Rule 461 promulgated under the Securities Act, within five
        Trading Days after the date that the Company is notified (orally or in writing,
        whichever is earlier) by the Commission that a Registration Statement will
        not
        be “reviewed,” or will not be subject to further review, or (iii) the Company
        fails to respond to any comments made by the Commission within 10 Trading
        Days
        after the receipt of such comments, or (iv) a Registration Statement filed
        hereunder is not declared effective by the Commission by the Required
        Effectiveness Date, or (v) after a Registration Statement is filed with and
        declared effective by the Commission, such Registration Statement ceases
        to be
        effective as to all Registrable Securities to which it is required to relate
        at
        any time prior to the expiration of the Effectiveness Period without being
        succeeded within 10 Trading Days by an amendment to such Registration Statement
        or by a subsequent Registration Statement filed with and declared effective
        by
        the Commission, or (vi) an amendment to a Registration Statement is not filed
        by
        the Company with the Commission within ten Trading Days after the Commission’s
        having notified the Company that such amendment is required in order for
        such
        Registration Statement to be declared effective, or (vii) the Common Stock
        is
        not listed or quoted, or is suspended from trading on the Nasdaq National
        Market
        for a period of three Trading Days (which need not be consecutive Trading
        Days)
        or (vii) the conversion rights of the Purchasers pursuant to the Notes are
        suspended for any reason (any such failure or breach being referred to as
        an
“Event,”
        and
        for purposes of clause (i), (iv) or (viii) the date on which such Event occurs,
        or for purposes of clause (ii) the date on which such five Trading Day period
        is
        exceeded, or for purposes of clauses (iii), (v) or (vi) the date which such
        ten
        Trading Day-period is exceeded, or for purposes of clause (vii) the date
        on
        which such three Trading Day period is exceeded, being referred to as
“Event
        Date”),
        then:
        (x) on each such Event Date the Company shall pay to each Purchaser an amount
        in
        cash, as partial liquidated damages and not as a penalty, equal to 2% of
        the
        aggregate purchase price paid by such Purchaser pursuant to the Purchase
        Agreement; and (y) on each monthly anniversary of each such Event Date thereof
        (if the applicable Event shall not have been cured by such date) until the
        applicable Event is cured, the Company shall pay to each Purchaser an amount
        in
        cash, as partial liquidated damages and not as a penalty, equal to 2% of
        the
        aggregate purchase price paid by such Purchaser pursuant to the Purchase
        Agreement. Such payments shall be in partial compensation to the Purchasers
        and
        shall not constitute the Purchaser’s exclusive remedy for such events. If the
        Company fails to pay any liquidated damages pursuant to this Section in full
        within seven days after the date payable, the Company will pay interest thereon
        at a rate of 18% per annum (or such lesser maximum amount that is permitted
        to
        be paid by applicable law) to the Purchaser, accruing daily from the date
        such
        liquidated damages are due until such amounts, plus all such interest thereon,
        are paid in full.

       

      
        
          
          

        

        
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      (e)
        The
        Company shall not, prior to the Effective Date of the Registration Statement,
        prepare and file with the Commission a registration statement relating to
        an
        offering for its own account or the account of others under the Securities
        Act
        of any of its equity securities.

       

      (f)
        Notwithstanding
        anything to the contrary, each Purchaser shall have the right to cause the
        Company to pay any cash amounts due under Section 6.1(d) in freely tradable
        and
        registered Common Stock, including shares of Common Stock registered under
        the
        Registration Statement but not issued to the Purchasers. In the event that
        a
        Purchaser elects to receive shares of Common Stock, the number of shares
        of
        Common Stock to be issued to such Purchaser as such payment under Section
        6.1(d)
        shall be determined by dividing the aggregate amount of due to such Purchaser
        by
        the Market Price (as defined below) as of the date of payment, and rounding
        up
        to the nearest whole share. The term “Market Price” shall mean 90% of the
        arithmetic average of the VWAP for the 20 Trading Days prior to the applicable
        date of payment (not including such date). 

       

      (g)
        If
        the
        Company issues to the Purchasers any Common Stock pursuant to the Transaction
        Documents that is not included in the initial Registration Statement, then
        the
        Company shall file an additional Registration Statement covering such number
        of
        shares of Common Stock on or prior to the Filing Date and shall use it best
        efforts, but in no event later than the Required Filing Date, to cause such
        additional Registration Statement to become effective by the
        Commission.

       

      6.2 Registration
        Procedures.
        In
        connection with the Company’s registration obligations hereunder, the Company
        shall:

       

      (a)
        Not
        less
        than three Trading Days prior to the filing of a Registration Statement or
        any
        related Prospectus or any amendment or supplement thereto (including any
        document that would be incorporated or deemed to be incorporated therein
        by
        reference), the Company shall (i) furnish to the Purchasers and Purchaser
        Counsel copies of all such documents proposed to be filed, which documents
        (other than those incorporated or deemed to be incorporated by reference)
        will
        be subject to the review of such Purchasers and Purchaser Counsel, and (ii)
        cause its officers and directors, counsel and independent certified public
        accountants to respond to such inquiries as shall be necessary, in the
        reasonable opinion of respective counsel, to conduct a reasonable investigation
        within the meaning of the Securities Act. The Company shall not file a
        Registration Statement or any such Prospectus or any amendments or supplements
        thereto to which Purchasers holding a majority of the Registrable Securities
        shall reasonably object.

       

      
        
          
          

        

        
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      (b)
        (i)
        Prepare and file with the Commission such amendments, including post-effective
        amendments, to each Registration Statement and the Prospectus used in connection
        therewith as may be necessary to keep the Registration Statement continuously
        effective as to the applicable Registrable Securities for the Effectiveness
        Period and prepare and file with the Commission such additional Registration
        Statements in order to register for resale under the Securities Act all of
        the
        Registrable Securities; (ii) cause the related Prospectus to be amended or
        supplemented by any required Prospectus supplement, and as so supplemented
        or
        amended to be filed pursuant to Rule 424; (iii) respond as promptly as
        reasonably possible, and in any event within ten days, to any comments received
        from the Commission with respect to the Registration Statement or any amendment
        thereto and as promptly as reasonably possible provide the Purchasers true
        and
        complete copies of all correspondence from and to the Commission relating
        to the
        Registration Statement; and (iv) comply in all material respects with the
        provisions of the Securities Act and the Exchange Act with respect to the
        disposition of all Registrable Securities covered by the Registration Statement
        during the applicable period in accordance with the intended methods of
        disposition by the Purchasers thereof set forth in the Registration Statement
        as
        so amended or in such Prospectus as so supplemented

       

      (c)
        Notify
        the Purchasers of Registrable Securities to be sold and Purchaser Counsel
        as
        promptly as reasonably possible, and (if requested by any such Person) confirm
        such notice in writing no later than one Trading Day thereafter, of any of
        the
        following events: (i) the Commission notifies the Company whether there will
        be
        a “review” of any Registration Statement; (ii) the Commission comments in
        writing on any Registration Statement (in which case the Company shall deliver
        to each Purchaser a copy of such comments and of all written responses thereto);
        (iii) any Registration Statement or any post-effective amendment is declared
        effective; (iv) the Commission or any other Federal or state governmental
        authority requests any amendment or supplement to any Registration Statement
        or
        Prospectus or requests additional information related thereto; (v) the
        Commission issues any stop order suspending the effectiveness of any
        Registration Statement or initiates any Proceedings for that purpose; (vi)
        the
        Company receives notice of any suspension of the qualification or exemption
        from
        qualification of any Registrable Securities for sale in any jurisdiction,
        or the
        initiation or threat of any Proceeding for such purpose; or (vii) the financial
        statements included or incorporated by reference in any Registration Statement
        become ineligible for inclusion or incorporation therein or any statement
        made
        in any Registration Statement or Prospectus or any document incorporated
        or
        deemed to be incorporated therein by reference is untrue in any material
        respect
        or any revision to a Registration Statement, Prospectus or other document
        is
        required so that it will not contain any untrue statement of a material fact
        or
        omit to state any material fact required to be stated therein or necessary
        to
        make the statements therein, in the light of the circumstances under which
        they
        were made, not misleading.

       

      (d)
        Use
        its
        best efforts to avoid the issuance of or, if issued, obtain the withdrawal
        of
        (i) any order suspending the effectiveness of any Registration Statement,
        or
        (ii) any suspension of the qualification (or exemption from qualification)
        of
        any of the Registrable Securities for sale in any jurisdiction, as soon as
        possible.

       

      (e)
        Furnish
        to each Purchaser and Purchaser Counsel, without charge, at least one conformed
        copy of each Registration Statement and each amendment thereto, including
        financial statements and schedules, all documents incorporated or deemed
        to be
        incorporated therein by reference, and all exhibits to the extent requested
        by
        such Person (including those previously furnished or incorporated by reference)
        promptly after the filing of such documents with the Commission.

       

      
        
          
          

        

        
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      (f)
        Promptly
        deliver to each Purchaser and Purchaser Counsel, without charge, as many
        copies
        of the Prospectus or Prospectuses (including each form of prospectus) and
        each
        amendment or supplement thereto as such Persons may reasonably request. The
        Company hereby consents to the use of such Prospectus and each amendment
        or
        supplement thereto by each of the selling Purchasers in connection with the
        offering and sale of the Registrable Securities covered by such Prospectus
        and
        any amendment or supplement thereto.

       

      (g)
        (i)
        In
        the time and manner required by each Trading Market, prepare and file with
        such
        Trading Market an additional shares listing application covering all of the
        Registrable Securities; (ii) take all steps necessary to cause such Registrable
        Securities to be approved for listing on each Trading Market as soon as possible
        thereafter; (iii) provide to the Purchasers evidence of such listing; and
        (iv)
        maintain the listing of such Registrable Securities on each such Trading
        Market
        or another Eligible Market.

       

      (h)
        Prior
        to
        any public offering of Registrable Securities, use its best efforts to register
        or qualify or cooperate with the selling Purchasers and Purchaser Counsel
        in
        connection with the registration or qualification (or exemption from such
        registration or qualification) of such Registrable Securities for offer and
        sale
        under the securities or Blue Sky laws of such jurisdictions within the United
        States as any Purchaser requests in writing, to keep each such registration
        or
        qualification (or exemption therefrom) effective during the Effectiveness
        Period
        and to do any and all other acts or things necessary or advisable to enable
        the
        disposition in such jurisdictions of the Registrable Securities covered by
        a
        Registration Statement.

       

      (i)
        Cooperate
        with the Purchasers to facilitate the timely preparation and delivery of
        certificates representing Registrable Securities to be delivered to a transferee
        pursuant to a Registration Statement, which certificates shall be free, to
        the
        extent permitted by this Agreement, of all restrictive legends, and to enable
        such Registrable Securities to be in such denominations and registered in
        such
        names as any such Purchasers may request.

       

      (j)
        Upon
        the
        occurrence of any event described in Section 6.2(c)(vii), as promptly as
        reasonably possible, prepare a supplement or amendment, including a
        post-effective amendment, to the Registration Statement or a supplement to
        the
        related Prospectus or any document incorporated or deemed to be incorporated
        therein by reference, and file any other required document so that, as
        thereafter delivered, neither the Registration Statement nor such Prospectus
        will contain an untrue statement of a material fact or omit to state a material
        fact required to be stated therein or necessary to make the statements therein,
        in the light of the circumstances under which they were made, not
        misleading.

       

      (k)
        Cooperate
        with any due diligence investigation undertaken by the Purchasers in connection
        with the sale of Registrable Securities, including, without limitation, by
        making available any documents and information; provided that the Company
        will
        not deliver or make available to any Purchaser material, nonpublic information
        unless such Purchaser specifically requests in advance to receive material,
        nonpublic information in writing.

       

      
        
          
          

        

        
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      (l)
        Comply
        with all applicable rules and regulations of the Commission.

       

      6.3 Registration
        Expenses.
        The
        Company shall pay (or reimburse the Purchasers for) all fees and expenses
        incident to the performance of or compliance with this Agreement by the Company,
        including without limitation (a) all registration and filing fees and expenses,
        including without limitation those related to filings with the Commission,
        any
        Trading Market and in connection with applicable state securities or Blue
        Sky
        laws, (b) printing expenses (including without limitation expenses of printing
        certificates for Registrable Securities and of printing prospectuses requested
        by the Purchasers), (c) messenger, telephone and delivery expenses, (d) fees
        and
        disbursements of counsel for the Company, (e) fees and expenses of all other
        Persons retained by the Company in connection with the consummation of the
        transactions contemplated by this Agreement, and (f) all listing fees to
        be paid
        by the Company to the Trading Market. 

       

      6.4 Indemnification.

       

      (a)
        Indemnification
        by the Company.
        The
        Company shall, notwithstanding any termination of this Agreement, indemnify
        and
        hold harmless each Purchaser, the officers, directors, partners, members,
        agents, brokers (including brokers who offer and sell Registrable Securities
        as
        principal as a result of a pledge or any failure to perform under a margin
        call
        of Common Stock), investment advisors and employees of each of them, each
        Person
        who controls any such Purchaser (within the meaning of Section 15 of the
        Securities Act or Section 20 of the Exchange Act) and the officers, directors,
        partners, members, agents and employees of each such controlling Person,
        to the
        fullest extent permitted by applicable law, from and against any and all
        Losses,
        as incurred, arising out of or relating to any untrue or alleged untrue
        statement of a material fact contained in the Registration Statement, any
        Prospectus or any form of prospectus or in any amendment or supplement thereto
        or in any preliminary prospectus, or arising out of or relating to any omission
        or alleged omission of a material fact required to be stated therein or
        necessary to make the statements therein (in the case of any Prospectus or
        form
        of prospectus or supplement thereto, in the light of the circumstances under
        which they were made) not misleading, except to the extent, but only to the
        extent, that (i) such untrue statements, alleged untrue statements, omissions
        or
        alleged omissions are based solely upon information regarding such Purchaser
        furnished in writing to the Company by such Purchaser expressly for use therein,
        or to the extent that such information relates to such Purchaser or such
        Purchaser’s proposed method of distribution of Registrable Securities and was
        reviewed and expressly approved in writing by such Purchaser expressly for
        use
        in the Registration Statement, such Prospectus or such form of Prospectus
        or in
        any amendment or supplement thereto or (ii) in the case of an occurrence
        of an
        event of the type specified in Section 6.2(c)(v)-(vii), the use by such
        Purchaser of an outdated or defective Prospectus after the Company has notified
        such Purchaser in writing that the Prospectus is outdated or defective and
        prior
        to the receipt by such Purchaser of the Advice contemplated in Section 6.5.
        In
        no event shall the liability of any selling Purchaser hereunder be greater
        in
        amount than the dollar amount by which the net proceeds received by such
        Purchaser upon the sale of the Registrable Securities giving rise to such
        indemnification obligation exceeds the amount paid, directly or indirectly,
        by
        such Purchaser for such Registrable Securities.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      (b)
        Indemnification
        by Purchasers.
        Each
        Purchaser shall, severally and not jointly, indemnify and hold harmless the
        Company, its directors, officers, agents and employees, each Person who controls
        the Company (within the meaning of Section 15 of the Securities Act and Section
        20 of the Exchange Act), and the directors, officers, agents or employees
        of
        such controlling Persons, to the fullest extent permitted by applicable law,
        from and against all Losses (as determined by a court of competent jurisdiction
        in a final judgment not subject to appeal or review) arising solely out of
        any
        untrue statement of a material fact contained in the Registration Statement,
        any
        Prospectus, or any form of prospectus, or in any amendment or supplement
        thereto, or arising solely out of any omission of a material fact required
        to be
        stated therein or necessary to make the statements therein (in the case of
        any
        Prospectus or form of prospectus or supplement thereto, in the light of the
        circumstances under which they were made) not misleading to the extent, but
        only
        to the extent, that such untrue statement or omission is contained in any
        information so furnished in writing by such Purchaser to the Company
        specifically for inclusion in such Registration Statement or such Prospectus
        or
        to the extent that (i) such untrue statements or omissions are based solely
        upon
        information regarding such Purchaser furnished in writing to the Company
        by such
        Purchaser expressly for use therein, or to the extent that such information
        relates to such Purchaser or such Purchaser’s proposed method of distribution of
        Registrable Securities and was reviewed and expressly approved in writing
        by
        such Purchaser expressly for use in the Registration Statement, such Prospectus
        or such form of Prospectus or in any amendment or supplement thereto or (ii)
        in
        the case of an occurrence of an event of the type specified in Section
        6.2(c)(v)-(vii), the use by such Purchaser of an outdated or defective
        Prospectus after the Company has notified such Purchaser in writing that
        the
        Prospectus is outdated or defective and prior to the receipt by such Purchaser
        of the Advice contemplated in Section 6.5. In no event shall the liability
        of
        any selling Purchaser hereunder be greater in amount than the dollar amount
        of
        the net proceeds received by such Purchaser upon the sale of the Registrable
        Securities giving rise to such indemnification obligation.

       

      (c)
        Conduct
        of Indemnification Proceedings.
        If any
        Proceeding shall be brought or asserted against any Person entitled to indemnity
        hereunder (an “Indemnified
        Party”),
        such
        Indemnified Party shall promptly notify the Person from whom indemnity is
        sought
        (the “Indemnifying
        Party”)
        in
        writing, and the Indemnifying Party shall assume the defense thereof, including
        the employment of counsel reasonably satisfactory to the Indemnified Party
        and
        the payment of all fees and expenses incurred in connection with defense
        thereof; provided, that the failure of any Indemnified Party to give such
        notice
        shall not relieve the Indemnifying Party of its obligations or liabilities
        pursuant to this Agreement, except (and only) to the extent that it shall
        be
        finally determined by a court of competent jurisdiction (which determination
        is
        not subject to appeal or further review) that such failure shall have
        proximately and materially adversely prejudiced the Indemnifying
        Party.

       

      An
        Indemnified Party shall have the right to employ separate counsel in any
        such
        Proceeding and to participate in the defense thereof, but the fees and expenses
        of such counsel shall be at the expense of such Indemnified Party or Parties
        unless: (i) the Indemnifying Party has agreed in writing to pay such fees
        and
        expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
        the defense of such Proceeding and to employ counsel reasonably satisfactory
        to
        such Indemnified Party in any such Proceeding; or (iii) the named parties
        to any
        such Proceeding (including any impleaded parties) include both such Indemnified
        Party and the Indemnifying Party, and such Indemnified Party shall have been
        advised by counsel that a conflict of interest is likely to exist if the
        same
        counsel were to represent such Indemnified Party and the Indemnifying Party
        (in
        which case, if such Indemnified Party notifies the Indemnifying Party in
        writing
        that it elects to employ separate counsel at the expense of the Indemnifying
        Party, the Indemnifying Party shall not have the right to assume the defense
        thereof and such counsel shall be at the expense of the Indemnifying Party).
        The
        Indemnifying Party shall not be liable for any settlement of any such Proceeding
        effected without its written consent, which consent shall not be unreasonably
        withheld. No Indemnifying Party shall, without the prior written consent
        of the
        Indemnified Party, effect any settlement of any pending Proceeding in respect
        of
        which any Indemnified Party is a party, unless such settlement includes an
        unconditional release of such Indemnified Party from all liability on claims
        that are the subject matter of such Proceeding.

       

      
        
          
          

        

        
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      All
        fees
        and expenses of the Indemnified Party (including reasonable fees and expenses
        to
        the extent incurred in connection with investigating or preparing to defend
        such
        Proceeding in a manner not inconsistent with this Section) shall be paid
        to the
        Indemnified Party, as incurred, within ten Trading Days of written notice
        thereof to the Indemnifying Party (regardless of whether it is ultimately
        determined that an Indemnified Party is not entitled to indemnification
        hereunder; provided, that the Indemnifying Party may require such Indemnified
        Party to undertake to reimburse all such fees and expenses to the extent
        it is
        finally judicially determined that such Indemnified Party is not entitled
        to
        indemnification hereunder). 

       

      (d)
        Contribution.
        If a
        claim for indemnification under Section 6.4(a) or (b) is unavailable to an
        Indemnified Party (by reason of public policy or otherwise), then each
        Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
        contribute to the amount paid or payable by such Indemnified Party as a result
        of such Losses, in such proportion as is appropriate to reflect the relative
        fault of the Indemnifying Party and Indemnified Party in connection with
        the
        actions, statements or omissions that resulted in such Losses as well as
        any
        other relevant equitable considerations. The relative fault of such Indemnifying
        Party and Indemnified 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 of a material
        fact,
        has been taken or made by, or relates to information supplied by, such
        Indemnifying Party or Indemnified Party, and the parties’ relative intent,
        knowledge, access to information and opportunity to correct or prevent such
        action, statement or omission. The amount paid or payable by a party as a
        result
        of any Losses shall be deemed to include, subject to the limitations set
        forth
        in Section 6.4(c), any reasonable attorneys’ or other reasonable fees or
        expenses incurred by such party in connection with any Proceeding to the
        extent
        such party would have been indemnified for such fees or expenses if the
        indemnification provided for in this Section was available to such party
        in
        accordance with its terms.

       

      The
        parties hereto agree that it would not be just and equitable if contribution
        pursuant to this Section 6.4(d) were determined by pro rata allocation or
        by any
        other method of allocation that does not take into account the equitable
        considerations referred to in the immediately preceding paragraph.
        Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall
        be
        required to contribute, in the aggregate, any amount in excess of the amount
        by
        which the proceeds actually received by such Purchaser from the sale of the
        Registrable Securities subject to the Proceeding exceeds the amount of any
        damages that such Purchaser has otherwise been required to pay by reason
        of such
        untrue or alleged untrue statement or omission or alleged omission. No Person
        guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
        of
        the Securities Act) shall be entitled to contribution from any Person who
        was
        not guilty of such fraudulent misrepresentation.

       

      
        
          
          

        

        
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      The
        indemnity and contribution agreements contained in this Section are in addition
        to any liability that the Indemnifying Parties may have to the Indemnified
        Parties.

       

      6.5 Dispositions.
        Each
        Purchaser agrees that it will comply with the prospectus delivery requirements
        of the Securities Act as applicable to it in connection with sales of
        Registrable Securities pursuant to the Registration Statement. Each Purchaser
        further agrees that, upon receipt of a notice from the Company of the occurrence
        of any event of the kind described in Sections 6.2(c)(v), (vi) or (vii),
        such
        Purchaser will discontinue disposition of such Registrable Securities under
        the
        Registration Statement until such Purchaser’s receipt of the copies of the
        supplemented Prospectus and/or amended Registration Statement contemplated
        by
        Section 6.2(j), or until it is advised in writing (the “Advice”) by the Company
        that the use of the applicable Prospectus may be resumed, and, in either
        case,
        has received copies of any additional or supplemental filings that are
        incorporated or deemed to be incorporated by reference in such Prospectus
        or
        Registration Statement. The Company may provide appropriate stop orders to
        enforce the provisions of this paragraph.

       

      6.6 No
        Piggyback on Registrations.
        Except
        as set forth on Schedule 3.1(x) neither the Company nor any of its security
        holders (other than the Purchasers in such capacity pursuant hereto) may
        include
        securities of the Company in the Registration Statement other than the
        Registrable Securities, and the Company shall not after the date hereof enter
        into any agreement providing any such right to any of its security
        holders.

       

      6.7 Piggy-Back
        Registrations.
        If at
        any time during the Effectiveness Period there is not an effective Registration
        Statement covering all of the Registrable Securities and the Company shall
        determine to prepare and file with the Commission a registration statement
        relating to an offering for its own account or the account of others under
        the
        Securities Act of any of its equity securities, other than on Form S-4 or
        Form
        S-8 (each as promulgated under the Securities Act) or their then equivalents
        relating to equity securities to be issued solely in connection with any
        acquisition of any entity or business or equity securities issuable in
        connection with stock option or other employee benefit plans, then the Company
        shall send to each Purchaser written notice of such determination and if,
        within
        fifteen days after receipt of such notice, any such Purchaser shall so request
        in writing, the Company shall include in such registration statement all
        or any
        part of such Registrable Securities such Purchaser requests to be
        registered.

       

      ARTICLE
        VII.

      MISCELLANEOUS
        

       

      7.1 Termination.
        This
        Agreement may be terminated by the Company or any Purchaser, by written notice
        to the other parties, if the Closing has not been consummated by the third
        Trading Day following the date of this Agreement; provided that no such
        termination will affect the right of any party to sue for any breach by the
        other party (or parties).

       

      
        
          
          

        

        
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      7.2 Fees
        and Expenses.
        At the
        Closing, the Company shall pay to Iroquois Master Fund Ltd. an aggregate
        of
        $25,000 for their legal fees and expenses incurred in connection with the
        preparation and negotiation of this Agreement. In lieu of the foregoing
        remaining payment, Iroquois Master Fund Ltd. may retain such amount at the
        Closing. 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.

       

      7.3 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. At or after the Closing, and
        without further consideration, the Company will execute and deliver to the
        Purchasers such further documents as may be reasonably requested in order
        to
        give practical effect to the intention of the parties under the Transaction
        Documents.

       

      7.4 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 (i) the date of transmission, if such notice or communication
        is delivered via facsimile at the facsimile number specified in this Section
        prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the Trading
        Day
        after the date of transmission, if such notice or communication is delivered
        via
        facsimile at the facsimile number specified in this Agreement later than
        6:30
        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 Trading 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. The address for
        such
        notices and communications shall be as follows:

       

      
      

      
        33

        
          

        

      

       

      
      

      
        	
                If
                  to the Company:

              	
                American
                  United Global, Inc..

              
	 	
                108
                  Village Square - #327

              
	 	
                Somers,
                  NY 10589

              
	 	
                Attn: Robert
                  Rubin, CEO

              
	 	
                Fax
                  No.:  (631)
                  254-2136

              
	 	 
	
                With
                  a copy to:

              	
                With
                  a copy to:

              
	 	
                Sichenzia
                  Ross Friedman Ference LLP

              
	 	
                1065
                  Avenue of the Americas

              
	 	
                New
                  York, New York 10018

              
	 	
                Attn:
                   Richard
                  A. Friedman, Esq.

              
	 	
                Fax
                  No.:  212-930-9725

              
	 	 
	
                If
                  to the Purchasers:

              	
                To
                  the address set forth under such Purchaser’s name on the signature pages
                  attached hereto.

              
	 	 

      

      or
        such
        other address as may be designated in writing hereafter, in the same manner,
        by
        such Person.
        

      

      7.5 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 of
        the
        Purchasers 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. Notwithstanding the foregoing, a waiver
        or consent to depart from the provisions hereof with respect to a matter
        that
        relates exclusively to the rights of Purchasers under Article VI and that
        does
        not directly or indirectly affect the rights of other Purchasers may be given
        by
        Purchasers holding at least a majority of the Registrable Securities to which
        such waiver or consent relates.

       

      7.6 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.

       

      7.7 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 the Purchasers. Any Purchaser may assign its rights under this
        Agreement to any Person to whom such Purchaser assigns or transfers any
        Securities, provided such transferee agrees in writing to be bound, with
        respect
        to the transferred Securities, by the provisions hereof that apply to the
        “Purchasers.” Notwithstanding anything to the contrary herein, Securities may be
        assigned to any Person in connection with a bona fide margin account or other
        loan or financing arrangement secured by such Securities.

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

      7.8 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 that each Related
        Person is an intended third party beneficiary of Section 4.14 and each
        Indemnified Party is an intended third party beneficiary of Section 6.4 and
        (in
        each case) may enforce the provisions of such Sections directly against the
        parties with obligations thereunder.

       

      7.9 Governing
        Law; Venue; Waiver of Jury Trial.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Agreement 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 exclusively in the
        state
        and federal courts sitting in the City of New York, Borough of Manhattan.
        Each
        party hereto 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 this Agreement), 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. Each party hereto 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. 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 Agreement
        or any
        of the Transaction Documents or the transactions contemplated hereby or thereby.
        If either party shall commence an action or proceeding to enforce any provisions
        of this Agreement or any Transaction Document, then the prevailing party
        in such
        action or proceeding shall be reimbursed by the other party for its reasonable
        attorneys fees and other reasonable costs and expenses incurred with the
        investigation, preparation and prosecution of such action or
        proceeding.

       

      7.10 Survival.
        The
        representations, warranties, agreements and covenants contained herein shall
        survive the Closing and the delivery, exercise and/or conversion of the
        Securities, as applicable.

       

      7.11 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) the same
        with
        the same force and effect as if such facsimile signature page were an original
        thereof.

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

      7.12 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.

       

      7.13 Rescission
        and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) the Transaction Documents, whenever any Purchaser
        exercises a right, election, demand or option under a Transaction Document
        and
        the Company does not timely perform its related obligations within the periods
        therein provided, then such Purchaser may rescind or withdraw, in its sole
        discretion from time to time upon written notice to the Company, any relevant
        notice, demand or election in whole or in part without prejudice to its future
        actions and rights.

       

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

       

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

       

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

       

      7.17 Usury.
        To the
        extent it may lawfully do so, the Company hereby agrees not to insist upon
        or
        plead or in any manner whatsoever claim, and will resist any and all efforts
        to
        be compelled to take the benefit or advantage of, usury laws wherever enacted,
        now or at any time hereafter in force, in connection with any claim, action
        or
        proceeding that may be brought by any Purchaser in order to enforce any right
        or
        remedy under any Transaction Document. Notwithstanding any provision to the
        contrary contained in any Transaction Document, it is expressly agreed and
        provided that the total liability of the Company under the Transaction Documents
        for payments in the nature of interest shall not exceed the maximum lawful
        rate
        authorized under applicable law (the “Maximum
        Rate”),
        and,
        without limiting the foregoing, in no event shall any rate of interest or
        default interest, or both of them, when aggregated with any other sums in
        the
        nature of interest that the Company may be obligated to pay under the
        Transaction Documents exceed such Maximum Rate. It is agreed that if the
        maximum
        contract rate of interest allowed by law and applicable to the Transaction
        Documents is increased or decreased by statute or any official governmental
        action subsequent to the date hereof, the new maximum contract rate of interest
        allowed by law will be the Maximum Rate of interest applicable to the
        Transaction Documents from the effective date forward, unless such application
        is precluded by applicable law. If under any circumstances whatsoever, interest
        in excess of the Maximum Rate is paid by the Company to any Purchaser with
        respect to indebtedness evidenced by the Transaction Documents, such excess
        shall be applied by such Purchaser to the unpaid principal balance of any
        such
        indebtedness or be refunded to the Company, the manner of handling such excess
        to be at such Purchaser’s election.

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

      7.18 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. The decision of each Purchaser
        to
        purchase Notes pursuant to this Agreement has been made by such Purchaser
        independently of any other Purchaser and independently of any information,
        materials, statements or opinions as to the business, affairs, operations,
        assets, properties, liabilities, results of operations, condition (financial
        or
        otherwise) or prospects of the Company or of the Subsidiary which may have
        been
        made or given by any other Purchaser or by any agent or employee of any other
        Purchaser, and no Purchaser or any of its agents or employees shall have
        any
        liability to any other Purchaser (or any other person) relating to or arising
        from any such information, materials, statements or opinions. 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. The Company hereby confirms that it understands and
        agrees
        that the Purchasers are not acting as a “group” as that term is used in Section
        13(d) of the Exchange Act. Each Purchaser acknowledges that no other Purchaser
        has acted as agent for such Purchaser in connection with making its investment
        hereunder and that no other Purchaser will be acting as agent of such Purchaser
        in connection with monitoring its investment hereunder. 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 represents that it has been represented by its own separate legal
        counsel in its review and negotiations of this Agreement and the Transaction
        Documents and each party represents and confirms that Proskauer Rose LLP
        represents only Iroquois Master Trust, Ltd. in connection with this Agreement
        and the Transaction Documents.

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

      7.19 Adjustments
        in Share Numbers and Prices.
        In the
        event of any stock split, subdivision, dividend or distribution payable in
        shares of Common Stock (or other securities or rights convertible into, or
        entitling the holder thereof to receive directly or indirectly shares of
        Common
        Stock), combination or other similar recapitalization or event occurring
        after
        the date hereof, each reference in this Agreement to a number of shares or
        a
        price per share shall be amended to appropriately account for such
        event.

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGES FOLLOW]

       

      
        
          
          

        

        
          38

          
            

          

        

        
          
          

        

      

      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.

       

      
        	 	 	 
	 	
                AMERICAN
                  UNITED GLOBAL, INC.

              
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

              
	 	Title: 

      

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGES OF PURCHASERS FOLLOW.]

       

      
        
          
          

        

        
          39

          
            

          

        

        
          
          

        

      

       

      
        
          	 	 	 
	 	
                  IROQUOIS
                    MASTER FUND LTD.

                
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                  

                
	 	Title: 
	 	 
	 	
                  Purchase
                    Price: $175,000 

                
	 	 
	 	
                  Notes
                    Principal Amount: $175,000 

                
	 	 
	 	
                  Shares: 175,000 

                
	 	 
	 	
                  Address
                    for Notice: 

                
	 	 
	 	
                  Iroquois
                    Master Fund Ltd. 

                
	 	
                  641
                    Lexington Avenue 

                
	 	
                  26th
                    Floor 

                
	 	
                  New
                    York, NY 10022 

                
	 	
                  Facsimile
                    No.: (212)
                    207-3452 

                
	 	
                  Telephone
                    No.: (212)
                    974-3070 

                
	 	
                  Attn.: Joshua
                    Silverman 

                
	 	 
	 	With a copy to: 
	 	 
	 	
                  Proskauer
                    Rose LLP 

                
	 	
                  1585
                    Broadway 

                
	 	
                  New
                    York, NY 10036-8299

                
	 	
                  Facsimile
                    No.: (212) 969-2900

                
	 	
                  Attn:
                    Adam J. Kansler, Esq.

                

        

         

        
          
            
            

          

          
            40

            
              

            

          

          
            
            

          

        

      

       

      
        	 	 	 
	 	LILAC
                VENTURES MASTER FUND
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

              
	 	Title: 
	 	 
	 	
                Purchase
                  Price:  $175,000 

              
	 	 
	 	
                Notes
                  Principal Amount:  $175,000 

              
	 	 
	 	
                Shares: 175,000 

              
	 	 
	 	
                Address
                  for Notice:

                 

                Lilac
                  Ventures Master Fund

                650
                  Fifth Avenue, 24th
                  Floor

                New
                  York, NY 10019

                Facsimile
                  No.: (212) 258-2315

                Telephone
                  No.: (212) 258-2300

                Attn:
                  Bruce Bernstein 

              
	 	 
	 	 
	 	 
	 	 

      

      
         

         

        
          
            
            

          

          
            41

            
              

            

          

          
            
            

          

        

         

      

      
        	 	 	 
	 	
                SMITHFIELD
                  FIDUCIARY LLC

              
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

              
	 	Title: 
	 	 
	 	
                Purchase
                  Price:  $175,000 

              
	 	 
	 	
                Notes
                  Principal Amount:  $175,000 

              
	 	 
	 	
                Shares: 175,000 

              
	 	 
	 	
                Address
                  for Notice:

                 

                Smithfield
                  Fiduciary LLC

                c/o
                  Highbridge Capital Management LLC

                9
                  West 57th
                  Street, 27th
                  Floor

                New
                  York, NY 10019

                Facsimile
                  No.: (212) 751-0755

                Telephone
                  No.: (212) 287-4720

                Attn:
                  Adam Chill  

              

      

       

      
        
          
          

        

        
          42

          
            

          

        

        
          
          

        

      

       

      Exhibits:

       

      
        	A.	
                Form
                  of Note

              

      

       

      
        	B.	
                Security
                  Agreement

              

      

       

      
        	C.	
                Transfer
                  Agent Instructions

              

      

       

      
        	D.	
                Opinion
                  of Company Counsel

              

      

       

      
        	E.	
                Plan
                  of Distribution

              

      

       

      
        	F.	
                Personal
                  Guaranty

              

      

       

      Schedules:

       

      
        	3.1(a)	
                Subsidiaries

              

      

       

      
        	3.1(g)	
                Capitalization

              

      

       

      
        	3.1(h)	
                SEC
                  Reports; Financial Statements

              

      

       

      
        	3.1(j)	
                Litigation

              

      

       

      
        	3.1(t)	
                Certain
                  Fees

              

      

       

      
        	3.1(x)	
                Registration
                  Rights

              

      

       

      
        	3.1(w)	
                Listing
                  and Maintenance Requirements

              

      

       

      
        	3.1(dd)	
                Ranking

              

      

       

      
        
          
          

        

        
          43EXECUTION
        VERSION

       

      EXHIBIT
        A

       

      NEITHER
        THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
        HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
        SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
        REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
        ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
        EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
        AN
        AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
        REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
        SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE
        SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES
        MAY
        BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
        FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

       

      
        	No.
                [               ]	
                 $[                ]

              

      

      Date:
        September 21, 2005

       

      AMERICAN
        UNITED GLOBAL, INC.

      SENIOR
        SECURED CONVERTIBLE NOTE DUE 

      March
        20, 2007

       

      THIS
        NOTE
        is one of a series of duly authorized and issued Notes of American United
        Global, Inc., a Delaware corporation (the “Company”),
        designated as its Senior Secured Convertible Notes due March 21, 2007, in
        the
        aggregate principal amount of $525,000 (the “Notes”).

       

      FOR
        VALUE
        RECEIVED, the Company promises to pay to the order of [Holder] or its registered
        assigns (the “Holder”),
        the
        principal sum of [__________] $(__________), on March 21, 2007 (the
“Maturity
        Date”),
        or
        such earlier date as the Notes are required or permitted to be repaid as
        provided hereunder. Notwithstanding the foregoing, the Company hereby
        unconditionally promises to pay to the order of the Holder interest on any
        principal payable hereunder that shall not be paid in full when due, whether
        at
        the time of any stated maturity or by prepayment, acceleration or declaration
        or
        otherwise, for the period from and including the due date of such payment
        to but
        excluding the date the same is paid in full, at a rate of 18% per annum (but
        in
        no event in excess of the maximum rate permitted under applicable law).

       

      Interest
        payable under this Note shall be computed on the basis of a year of 360 days
        and
        actual days elapsed (including the first day but excluding the last day)
        occurring in the period for which interest is payable. 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Payments
        of principal and interest shall be made in lawful money of the United States
        of
        America to the Holder at its address as provided in Section 14
        or by
        wire transfer to such account specified from time to time by the Holder hereof
        for such purpose as provided in Section 14.

       

      The
        Holder of this Note is entitled to the benefits of the Security
        Agreement.

       

      1.  Definitions.
        In
        addition to the terms defined elsewhere in this Note, (a) capitalized
        terms
        that are not otherwise defined herein have the meanings given to such terms
        in
        the Securities Purchase Agreement, dated as of September 21, 2005, among
        the
        Company and the Purchasers identified therein (the “Purchase
        Agreement”),
        and
        (b) the following terms have the meanings indicated:

       

      “Conversion
        Date”
        means
        the date a Conversion Notice is delivered to the Company together with the
        Conversion Schedule pursuant to Section
        6(a).

       

      “Conversion
        Notice”
        means a
        written notice in the form attached hereto as Schedule 1. 

       

      “Conversion
        Price”means
        50%
        of the Closing Price on the Trading Day immediately preceding the date on
        which
        the applicable Conversion Notice is delivered.

       

      “Equity
        Conditions”
        means,
        with respect to a specified issuance of Common Stock, that each of the following
        conditions is satisfied: (i) the number of authorized but unissued and otherwise
        unreserved shares of Common Stock is sufficient for such issuance; (ii) such
        shares of Common Stock are registered for resale by the Holder and may be
        sold
        by the Holder pursuant to an effective Registration Statement covering the
        Underlying Shares or all such shares may be sold without volume restrictions
        pursuant to Rule 144(k) under the Securities Act; (iii) the Common Stock
        is
        listed or quoted (and is not suspended from trading) on an Eligible Market
        and
        such shares of Common Stock are approved for listing upon issuance; (iv)
        such
        issuance would be permitted in full without violating Section
        6(b)
        hereof
        or the rules or regulations of any Trading Market; (v) no Bankruptcy Event
        has
        occurred; (vi) the Company is not in default with respect to any material
        obligation hereunder or under any other Transaction Document; and
        (vii) no
        public announcement of a pending or proposed Change of Control transaction
        has
        occurred that has not been consummated.

       

      “Event
        Equity Value”
        means
        115% of the average of the Closing Prices for the five Trading Days preceding
        the date of delivery of the notice requiring payment of the Event Equity
        Value,
provided
        that if
        the Company does not make such required payment (together with any other
        payments, expenses and liquidated damages then due and payable under the
        Transaction Documents) when due or, in the event the Company disputes in
        good
        faith the occurrence of the Triggering Event pursuant to which such notice
        relates, does not instead deposit such required payment (together with such
        other payments, expenses and liquidated damages then due) in escrow with
        an
        independent third-party escrow agent within five Trading Days of the date
        such
        required payment is due, then the Event Equity Value shall be 115% of the
        greater of (a) the average of the Closing Prices for the five Trading Days
        preceding the date of delivery of the notice requiring payment of the Event
        Equity Value and (b) the average of the Closing Prices for the five Trading
        Days
        preceding the date on which such required payment (together with such other
        payments, expenses and liquidated damages) is paid in full.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “Original
        Issue Date”
        means
        the date of the first issuance of any Notes, regardless of the number of
        transfers of any particular Note.

       

      “Triggering
        Event”
        means
        any of the following events: (a) the Common Stock is not listed or quoted,
        or is
        suspended from trading, on an Eligible Market for a period of five or more
        Trading Days (which need not be consecutive Trading Days); (b) the Company
        fails
        for any reason to deliver a certificate evidencing any Securities to a Purchaser
        within five Trading Days after delivery of such certificate is required pursuant
        to any Transaction Document or the exercise or conversion rights of the Holders
        pursuant to any Transaction Document are otherwise suspended for any reason;
        (c)
        the Company fails to have available a sufficient number of authorized but
        unissued and otherwise unreserved shares of Common Stock available to issue
        Underlying Shares upon any exercise of the Note; (d) at any time after the
        Closing Date, any Common Stock issuable pursuant to the Transaction Documents
        is
        not listed on an Eligible Market; (e) the Company effects or publicly announces
        its intention to effect any exchange, recapitalization or other transaction
        that
        effectively requires or rewards physical delivery of certificates evidencing
        the
        Common Stock; (f) the
        effectiveness of the Registration Statement lapses for any reason or the
        Holder
        shall not be permitted to resell any Underlying Shares under the Registration
        Statement, in either case, for five or more Trading Days (which need not
        be
        consecutive Trading Days); (g) the
        Company fails to make any cash payment required under the Transaction Documents
        and such failure is not cured within five days after notice of such default
        is
        first given to the Company by a Purchaser; (h) the Company defaults in the
        timely performance of any obligation under the Transaction Documents and
        such
        default continues uncured for a period of 20 days after the date on which
        notice
        of such default is first given to the Company by a Purchaser (it being
        understood that no prior notice need be given in the case of a default that
        cannot reasonably be cured within 20 days); or (i) the Company materially
        breaches any of its representations or warranties under the Transaction
        Documents.

       

      2.  Principal
        Payment upon Maturity.

       

      (a)
          Subject
        to the conditions and limitations set forth below and at the option of the
        Purchasers, the Company may pay principal on this Note in (i) cash or (ii)
        shares of Common Stock. The Company must deliver written notice to the Holder
        indicating the manner in which it intends to pay principal at least 30 Trading
        Days prior to the Maturity Date. Failure to timely provide such written notice
        shall be deemed an election by the Company to pay the amount of principal
        in
        cash. 

       

      (b)
          Notwithstanding
        the foregoing, the Company may not pay principal by issuing shares of Common
        Stock unless all of the Equity Conditions are then satisfied with respect
        to all
        shares of Common Stock then issuable upon conversion of all outstanding
        Notes.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      (c)
          In
        the
        event that the Company pays principal in shares of Common Stock, the number
        of
        shares of Common Stock to be issued to each Holder as such principal shall
        be
        (i) determined by dividing the total principal then payable to such Holder
        by
        the lower of (y) the Conversion Price (as adjusted in accordance herewith)
        and
        (z) the Market Price as of the such date, and rounding up to the nearest
        whole
        share, and (ii) paid to such Holder in accordance with Section 2(d) below.
        The
        term “Market
        Price”
        shall
        mean 85% of the arithmetic average of the VWAP for the 20 Trading Days
        immediately prior to the date on which such payment is made. In
        no
        event shall the Market Price or the Conversion Price be less than $0.40 (as
        adjusted pursuant to Section 10, the “Floor
        Price”)
        if the
        Holder elects to be paid in Common Stock pursuant to this Section
        2.

       

      (d)
          In
        the
        event that any principal is paid in Common Stock, the Company shall within
        three
        days following the date on which such amount was due (i) issue and deliver
        to
        such Holder a certificate, free of restrictive legends, registered in the
        name
        of the Holder or its designee, for the number of shares of Common Stock to
        which
        the Holder shall be entitled, or (ii) at all times after the Holder has notified
        the Company that this clause (ii) shall apply, credit the number of shares
        of
        Common Stock to which the Holder shall be entitled to the Holder’s or its
        designee’s balance account with The Depository Trust Company through its Deposit
        Withdrawal Agent Commission System.

       

      (e)
          The
        Notes
        may not be repaid in whole or part absent written consent from the
        Holder.

       

      3.  Ranking
        and Covenants.
        

       

      (a)
          Except
        as
        set forth in Schedule
        3.1(dd)
        (the
“Existing
        Indebtedness”)
        or as
        otherwise permitted in Section 4.10(a) of the Purchase Agreement (“Permitted
        Indebtedness”),
        no
        indebtedness of the Company is senior to this Note in right of payment, whether
        with respect to principal, interest, damages or upon liquidation or dissolution
        or otherwise. Other than the Existing Indebtedness and Permitted Indebtedness
        and any renewal, refinancing or replacement thereof that does not exceed
        the
        aggregate amount of the Existing Indebtedness and the borrowing availability
        under the related credit or loan agreements on the date hereof, the Company
        will
        not, and will not permit any Subsidiary to, directly or indirectly, enter
        into,
        create, incur, assume or suffer to exist any indebtedness of any kind, that
        is
        senior or pari passu in any respect to the Company’s obligations under the
        Notes, other than indebtedness secured by purchase money security interests
        (which will be senior only as to the underlying assets covered thereby) and
        indebtedness under capital lease obligations (which will be senior only as
        to
        the assets covered thereby). The Company will not, and will not permit any
        Subsidiary to, directly or indirectly, incur any Lien on or with respect
        to any
        of its property or assets now owned or hereafter acquired or any interest
        therein or any income or profits therefrom.

       

      (b)
          So
        long
        as any Notes are outstanding, neither the Company nor any Subsidiary shall,
        directly or indirectly, (i) redeem, purchase or otherwise acquire any capital
        stock or set aside any monies for such a redemption, purchase or other
        acquisition or (ii) issue any Floating Price Security (as defined in Section
        10(d)(ii)). 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (c)
          The
        Company covenants that it will at all times reserve and keep available out
        of
        its authorized but unissued and otherwise unreserved Common Stock, solely
        for
        the purpose of enabling it to issue Underlying Shares as required hereunder,
        the
        number of Underlying Shares which are then issuable and deliverable upon
        the
        conversion of (and otherwise in respect of) this entire Note (taking into
        account the adjustments set forth in Section
        10
        and
        disregarding any limitations set forth in Section
        6(b)),
        free
        from preemptive rights or any other contingent purchase rights of Persons
        other
        than the Holder. The Company covenants that all Underlying Shares so issuable
        and deliverable shall, upon issuance in accordance with the terms hereof,
        be
        duly and validly authorized and issued and fully paid and
        nonassessable.

       

      4.  Registration
        of Notes.
        The
        Company shall register the Notes upon records to be maintained by the Company
        for that purpose (the “Note
        Register”)
        in the
        name of each record holder thereof from time to time. The Company may deem
        and
        treat the registered Holder of this Note as the absolute owner hereof for
        the
        purpose of any conversion hereof or any payment of principal hereon, and
        for all
        other purposes, absent actual notice to the contrary.

       

      5.  Registration
        of Transfers and Exchanges.
        The
        Company shall register the transfer of any portion of this Note in the Note
        Register upon surrender of this Note to the Company at its address for notice
        set forth herein. Upon any such registration or transfer, a new Note, in
        substantially the form of this Note (any such new Note, a “New
        Note”),
        evidencing the portion of this Note so transferred shall be issued to the
        transferee and a New Note evidencing the remaining portion of this Note not
        so
        transferred, if any, shall be issued to the transferring Holder. The acceptance
        of the New Note by the transferee thereof shall be deemed the acceptance
        by such
        transferee of all of the rights and obligations of a holder of a Note. This
        Note
        is exchangeable for an equal aggregate principal amount of Notes of different
        authorized denominations, as requested by the Holder surrendering the same.
        No
        service charge or other fee will be imposed in connection with any such
        registration of transfer or exchange.

       

      6.  Conversion.

       

      (a)
          At
        the
        Option of the Holder.
        All or
        any portion of this Note shall be convertible into shares of Common Stock
        (subject to the limitations set forth in Section
        6(b)),
        at the
        option of the Holder, at any time and from time to time from and after the
        Original Issue Date. The
        number of Underlying Shares issuable upon any conversion hereunder shall
        equal
        the outstanding principal amount of this Note to be converted divided by
        the
        Conversion Price on the Conversion Date. The
        Holder shall effect conversions under this Section
        6(a)
        by
        delivering to the Company a Conversion Notice together with a schedule in
        the
        form of Schedule
        2
        attached
        hereto (the “Conversion
        Schedule”).
        If
        the Holder is converting less than all of the principal amount of this Note,
        or
        if a conversion hereunder may not be effected in full due to the application
        of
Section
        6(b),
        the
        Company shall honor such conversion to the extent permissible hereunder and
        shall promptly deliver to the Holder a Conversion Schedule indicating the
        principal amount which has not been converted. In no event shall the Conversion
        Price be less than the Floor Price if the Holder elects to convert pursuant
        to
        this Section 6.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (b)
          Certain
        Conversion Restrictions.
        

       

      (i)
        Relating
        to the Number of Shares.

       

      (A)
        Subject to Section 6(b)(i)(B), the number of shares of Common Stock
        that
        may be acquired by a Holder upon any conversion of Notes (or otherwise in
        respect hereof) shall be limited to the extent necessary to insure that,
        following such conversion (or other issuance), the total number of shares
        of
        Common Stock then beneficially owned by such Holder and its Affiliates and
        any
        other Persons whose beneficial ownership of Common Stock would be aggregated
        with such Holder’s for purposes of Section 13(d) of the Exchange Act, does not
        exceed 4.999% (the “Threshold
        Percentage”)
        or
        9.999% (the “Maximum
        Percentage”)
        of the
        total number of issued and outstanding shares of Common Stock (including
        for
        such purpose the shares of Common Stock issuable upon such conversion). For
        such
        purposes, beneficial ownership shall be determined in accordance with Section
        13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
        Each delivery of a Conversion Notice hereunder will constitute a representation
        by the applicable Holder that it has evaluated the limitations set forth
        in this
Section 6(b)(i)(A)
        and has
        determined that issuance of the full number of Underlying Shares issuable
        in
        respect of such Conversion Notice does not violate the restrictions contained
        in
        this Section
        6(b)(i)(A).

       

      (B)
        Notwithstanding the provisions of Section 6(b)(i)(A), by written notice
        to
        the Company, the Holder shall
        have the right (x) at any time and from time to time to reduce its Maximum
        Percentage immediately upon notice to the Company in the event and only to
        the
        extent that Section 16 of the Exchange Act or the rules promulgated thereunder
        (or any successor statute or rules) is changed to reduce the beneficial
        ownership percentage threshold thereunder to a percentage less than 9.999%
        and
        (y) at any time and from time to time, to
        waive
        the provisions of this Section insofar as they relate to the Threshold
        Percentage or to
        increase its Threshold Percentage (but
        not
        in excess of the Maximum Percentage) unless
        the Holder shall have, by written instrument delivered to the Company,
        irrevocably waived its rights to so increase its Threshold
        Percentage,
        but (i)
        any such waiver or increase will not be effective until the 61st day after
        such
        notice is delivered to the Company, and (ii) any such waiver or increase
        or
        decrease will apply only to the Holder and not to any other holder of Notes.
        

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      (C)
        If
        the
        Company has not previously obtained Shareholder Approval (as defined below),
        then the Company may not issue in excess of the Issuable Maximum upon
        conversions of the Notes. The "Issuable
        Maximum"
        means a
        number of shares equal to 19.99% of the of the Company's outstanding shares
        on
        the Closing Date. Each Holder shall be entitled to a portion of the Issuable
        Maximum equal to the quotient obtained by dividing: (x) the principal amount
        of
        Notes issued and sold to such Holder on the Original Issue Date by (y) the
        aggregate principal amount of Notes issued and sold by the Company on the
        Original Issue Date. If any Holder shall no longer hold Notes, then such
        Holder's remaining portion of the Issuable Maximum shall be allocated pro-rata
        among the remaining Holders. If on any Conversion Date: (A) the aggregate
        number
        of shares of Common Stock that would then be issuable upon conversion in
        full of
        all then outstanding principal amount of Notes would exceed the Issuable
        Maximum, and (B) the Company shall not have previously obtained the vote
        of
        shareholders, as may be required by the applicable rules and regulations
        of its
        Trading Market (or any successor entity) applicable to approve the issuance
        of
        shares of Common Stock in excess of the Issuable Maximum pursuant to the
        terms
        hereof (the "Shareholder
        Approval"),
        then,
        the Company shall issue to the converting Holder a number of shares of Common
        Stock equal to such Holder's pro-rata portion (which shall be calculated
        pursuant to the terms hereof) of the Issuable Maximum and, with respect to
        the
        remainder of the principal amount of Notes then held by such Holder for which
        a
        conversion would result in an issuance of shares of Common Stock in excess
        of
        such Holder's pro-rata portion (which shall be calculated pursuant to the
        terms
        hereof) of the Issuable Maximum (the "Excess
        Principal Amount"),
        the
        applicable Holder shall have the right to require the Company to either:
        (1) obtain the Shareholder Approval applicable to such issuance as
        soon as
        is possible, but in any event not later than the 60th day after such request,
        or
        (2) pay cash, in an amount equal to the Excess Principal Amount. If a Holder
        shall have elected the first option pursuant to the immediately preceding
        sentence and the Company shall have failed to obtain the Shareholder Approval
        on
        or prior to the 60th day after such request, then within three (3) days of
        such
        90th day, the Company shall pay cash to such Holder an amount equal to Excess
        Principal Amount. Notwithstanding anything herein to the contrary, if on
        any
        date other than a Conversion Date: (A) the aggregate number of shares of
        Common
        Stock that would then be issuable upon conversion in full of all then
        outstanding principal amount of Notes would exceed the Issuable Maximum,
        and (B)
        the Company shall not have previously obtained the Shareholder Approval,
        then,
        the Holder shall be entitled to require the Company to pay to it in cash
        an
        amount equal to the principal amount of Notes then held by such Holder for
        which
        a potential conversion on such date would result in an issuance of shares
        of
        Common Stock in excess of such Holder's pro-rata portion (which shall be
        calculated pursuant to the terms hereof) of the Issuable Maximum. The
        outstanding principal amount of Notes shall be reduced by the Excess Principal
        Amount upon the Holder’s receipt of the Excess Principal Amount pursuant to the
        terms hereof. The Company and the Holder understand and agree that shares
        of
        Common Stock issued to and then held by the Holder as a result of conversions
        of
        Notes shall not be entitled to cast votes on any resolution to obtain
        Shareholder Approval pursuant hereto.

      

      7.  Mechanics
        of Conversion.

       

      (a)
          Upon
        conversion of this Note, the Company shall promptly (but in no event later
        than
        three Trading Days after the Conversion Date) issue or cause to be issued
        and
        cause to be delivered to or upon the written order of the Holder and in such
        name or names as the Holder may designate a certificate for the Underlying
        Shares issuable upon such conversion, free of restrictive legends unless
        a
        registration statement covering the resale of the Underlying Shares and naming
        the Holder as a selling stockholder thereunder is not then effective and
        such
        Underlying Shares are not then freely transferable without volume restrictions
        pursuant to Rule 144 under the Securities Act. The Holder, or any Person
        so
        designated by the Holder to receive Underlying Shares, shall be deemed to
        have
        become holder of record of such Underlying Shares as of the Conversion Date.
        The
        Company shall, upon request of the Holder, use its best efforts to deliver
        Underlying Shares hereunder electronically through the Depository Trust
        Corporation or another established clearing corporation performing similar
        functions. 

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      (b)
          The
        Holder shall not be required to deliver the original Note in order to effect
        a
        conversion hereunder. Execution and delivery of the Conversion Notice shall
        have
        the same effect as cancellation of the original Note and issuance of a New
        Note
        representing the remaining outstanding principal amount. Upon surrender of
        this
        Note following one or more partial conversions, the Company shall promptly
        deliver to the Holder a New Note representing the remaining outstanding
        principal amount.

       

      (c)
          The
        Company’s obligations to issue and deliver Underlying Shares upon conversion of
        this Note 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 set-off,
        counterclaim, recoupment, limitation or termination, or any breach or alleged
        breach by the Holder or any other Person of any obligation to the Company
        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 Company to the Holder in connection with the issuance of
        such
        Underlying Shares.

       

      (d)
          If
        by the
        third Trading Day after a Conversion Date the Company fails to deliver to
        the
        Holder such Underlying Shares in such amounts and in the manner required
        pursuant to Section
        7(a),
        then
        the Holder will have the right to rescind such conversion.

       

      (e)
          If
        by the
        third Trading Day after a Conversion Date the Company fails to deliver to
        the
        Holder such Underlying Shares in such amounts and in the manner required
        pursuant to Section
        7(a),
        and if
        after such third Trading Day the Holder purchases (in an open market transaction
        or otherwise) shares of Common Stock to deliver in satisfaction of a sale
        by
        such Holder of the Underlying Shares which the Holder anticipated receiving
        upon
        such conversion (a “Buy-In”),
        then
        the Company shall either
        (i) pay cash to such Purchaser in an amount equal to such Purchaser's total
        purchase price (including brokerage commissions, if any) for the shares of
        Common Stock so purchased (the “Buy-In
        Price”),
        at
        which point the Company's obligation to deliver such certificate (and to
        issue
        such Common Stock) shall terminate, or (ii) promptly honor its obligation
        to
        deliver to such Purchaser a certificate or certificates representing such
        Common
        Stock and pay cash to such Purchaser in an amount equal to the excess (if
        any)
        of the Buy-In Price over the product of (A) such number of shares of Common
        Stock, times (B) the Closing Price on the date of the event giving rise to
        the
        Company's obligation to deliver such certificate. 

       

      8.  Events
        of Default.

       

      (a)
          “Event
        of Default”
        means
        any one 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)  any
        default in the payment (free of any claim of subordination) of principal
        or
        liquidated damages in respect of any Notes, as and when the same becomes
        due and
        payable (whether on the date on which the obligations under the Note mature
        or
        by acceleration, redemption, prepayment or otherwise);

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      (ii)  the
        Company or any Subsidiary defaults in any of its obligations under any other
        note or any mortgage, credit agreement or other facility, indenture agreement,
        factoring agreement or other instrument under which there may be issued,
        or by
        which there may be secured or evidenced, any indebtedness for borrowed money
        or
        money due under any long term leasing or factoring arrangement of the Company
        or
        any Subsidiary in an amount exceeding $50,000, whether such indebtedness
        now
        exists or is hereafter created, and such default results in such indebtedness
        becoming or being declared due and payable prior to the date on which it
        would
        otherwise become due and payable;

       

      (iii)  the
        occurrence of a Triggering Event; or

       

      (iv)  the
        occurrence of a Bankruptcy Event.

       

      (b)
          At
        any
        time or times following the occurrence of an Event of Default, the Holder
        shall
        have the option to elect, by notice to the Company (an “Event
        Notice”),
        to
        require the Company to repurchase all or any portion of (i) the outstanding
        principal amount of this Note, at a repurchase price equal to the greater
        of (A)
        115% of such outstanding principal amount, or (B) the Event Equity Value
        of the
        Underlying Shares issuable upon conversion of such principal amount, and
        (ii)
        any Underlying Shares issued to such Holder upon conversion of Notes and
        then
        owned by the Holder, at a price per share equal to the Event Equity Value
        of
        such issuable and issued Underlying Shares. The aggregate amount payable
        pursuant to the preceding sentence is referred to as the “Event
        Price.”
        The
        Company shall pay the Event Price to the Holder no later than the third Trading
        Day following the date of delivery of the Event Notice, and upon receipt
        thereof
        the Holder shall deliver this Note and certificates evidencing any Underlying
        Shares so repurchased to the Company (to the extent such certificates have
        been
        delivered to the Holder). 

       

      (c)
          Upon
        the
        occurrence of any Bankruptcy Event, all amounts pursuant to Section
        10(b)
        shall
        immediately become due and payable in full in cash, without any further action
        by the Holder.

       

      (d)
          In
        connection with any Event of Default, the Holder need not provide and the
        Company hereby waives any presentment, demand, protest or other notice of
        any
        kind, and the Holder may immediately and without expiration of any grace
        period
        enforce any and all of its rights and remedies hereunder and all other remedies
        available to it under applicable law. Any such declaration may be rescinded
        and
        annulled by the Holder at any time prior to payment hereunder. No such
        rescission or annulment shall affect any subsequent Event of Default or impair
        any right consequent thereto.

       

      9.  Charges,
        Taxes and Expenses.
        Issuance of certificates for Underlying Shares upon conversion of (or otherwise
        in respect of) this Note shall be made without charge to the Holder for any
        issue or transfer tax, withholding tax, transfer agent fee or other incidental
        tax or expense in respect of the issuance of such certificate, all of which
        taxes and expenses shall be paid by the Company; provided,
        however,
        that
        the Company shall not be required to pay any tax which may be payable in
        respect
        of any transfer involved in the registration of any certificates for Underlying
        Shares or Notes in a name other than that of the Holder. The Holder shall
        be
        responsible for all other tax liability that may arise as a result of holding
        or
        transferring this Note or receiving Underlying Shares in respect
        hereof.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      10.  Certain
        Adjustments.
        The
        Conversion Price is subject to adjustment from time to time as set forth
        in this
Section
        10.

       

      (a)
          Stock
        Dividends and Splits.
        If the
        Company, at any time while this Note is outstanding, (i) pays a stock dividend
        on its Common Stock or otherwise makes a distribution on any class of capital
        stock that is payable in shares of Common Stock, (ii) subdivides outstanding
        shares of Common Stock into a larger number of shares, or (iii) combines
        outstanding shares of Common Stock into a smaller number of shares, then
        in each
        such case the Conversion Price shall be multiplied by a fraction of which
        the
        numerator shall be the number of shares of Common Stock outstanding immediately
        before such event and of which the denominator shall be the number of shares
        of
        Common Stock outstanding immediately after such event. Any adjustment made
        pursuant to clause (i) of this Section
        10(a)
        shall
        become effective immediately after the record date for the determination
        of
        stockholders entitled to receive such dividend or distribution, and any
        adjustment pursuant to clause (ii) or (iii) of this Section
        10(a)
        shall
        become effective immediately after the effective date of such subdivision
        or
        combination. 

       

      (b)
          Pro
        Rata Distributions.
        If the
        Company, at any time while this Note is outstanding, distributes to holders
        of
        Common Stock (i) evidences of its indebtedness, (ii) any security (other
        than a
        distribution of Common Stock covered by the preceding paragraph),
        (iii) rights or warrants to subscribe for or purchase any security,
        or (iv)
        any other asset (in each case, “Distributed
        Property”),
        then
        in each such case the Conversion Price in effect immediately prior to the
        record
        date fixed for determination of stockholders entitled to receive such
        distribution shall be adjusted (effective on such record date) to equal the
        product of such Conversion Price times a fraction of which the denominator
        shall
        be the average of the Closing Prices for the five Trading Days immediately
        prior
        to (but not including) such record date and of which the numerator shall
        be such
        average less the then fair market value of the Distributed Property distributed
        in respect of one outstanding share of Common Stock, as determined by the
        Company’s independent certified public accountants that regularly examine the
        financial statements of the Company (an “Appraiser”).
        In
        such event, the Holder, after receipt of the determination by the Appraiser,
        shall have the right to select an additional appraiser (which shall be a
        nationally recognized accounting firm), in which case such fair market value
        shall be deemed to equal the average of the values determined by each of
        the
        Appraiser and such appraiser. As an alternative to the foregoing adjustment
        to
        the Conversion Price, at the request of the Holder delivered before the 90th
        day
        after such record date, the Company will deliver to such Holder, within five
        Trading Days after such request (or, if later, on the effective date of such
        distribution), the Distributed Property that such Holder would have been
        entitled to receive in respect of the Underlying Shares for which this Note
        could have been converted immediately prior to such record date. If such
        Distributed Property is not delivered to a Holder pursuant to the preceding
        sentence, then upon expiration of or any conversion of the Note that occurs
        after such record date, such Holder shall remain entitled to receive, in
        addition to the Underlying Shares otherwise issuable upon such conversion
        (if
        applicable), such Distributed Property. 

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      (c)
          Fundamental
        Changes.
        If, at
        any time while this Note is outstanding, (i) the Company effects any merger
        or
        consolidation of the Company with or into another Person, (ii) the Company
        effects any sale of all or substantially all of its assets in one or more
        transactions, (iii) any tender offer or exchange offer (whether by the Company
        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 (iv) the Company 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
        (other than as a result of a subdivision or combination of shares of Common
        Stock described in Section
        10(a))
        (in any
        such case, a “Fundamental
        Change”),
        then
        upon any subsequent conversion of this Note, the Holder shall have the right
        to
        receive, for each Underlying Share that would have been issuable upon such
        conversion absent such Fundamental Change, the same kind and amount of
        securities, cash or property as it would have been entitled to receive upon
        the
        occurrence of such Fundamental Change if it had been, immediately prior to
        such
        Fundamental Change, the holder of one share of Common Stock (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 Change, then the Holder shall be
        given
        the same choice as to the Alternate Consideration it receives upon any
        conversion of this Note following such Fundamental Change. In the event of
        a
        Fundamental Change, the Company or the successor or purchasing Person, as
        the
        case may be, shall execute with the Holder a written agreement providing
        that:

       

      (x)
         this
        Note
        shall thereafter entitle the Holder to purchase the Alternate
        Consideration,

      

      (y) in
        the
        case of any such successor or purchasing Person, upon such consolidation,
        merger, statutory exchange, combination, sale or conveyance such successor
        or
        purchasing Person shall be jointly and severally liable with the Company
        for the
        performance of all of the Company's obligations under this Note and the Purchase
        Agreement, and 

      

      (z) if
        registration or qualification is required under the Exchange Act or applicable
        state law for the public resale by the Holder of shares of stock and other
        securities so issuable upon conversion of this Note, such registration or
        qualification shall be completed prior to such reclassification, change,
        consolidation, merger, statutory exchange, combination or sale. 

      

      If,
        in
        the case of any Fundamental Change, the Alternate Consideration includes
        shares
        of stock, other securities, other property or assets of a Person other than
        the
        Company or any such successor or purchasing Person, as the case may be, in
        such
        Fundamental Change, then such written agreement shall also be executed by
        such
        other Person and shall contain such additional provisions to protect the
        interests of the Holder as the Board of Directors of the Company shall
        reasonably consider necessary by reason of the foregoing. At the Holder’s
        request, any successor to the Company or surviving Person in such Fundamental
        Change shall issue to the Holder a new Note consistent with the foregoing
        provisions and evidencing the Holder’s right to convert such Note into Alternate
        Consideration. The terms of any agreement pursuant to which a Fundamental
        Change
        is effected shall include terms requiring any such successor or surviving
        Person
        to comply with the provisions of this Section
        10(c)
        and
        insuring that this Note (or any such replacement security) will be similarly
        adjusted upon any subsequent transaction analogous to a Fundamental Change.
        If
        any Fundamental Change constitutes or results in a Change of Control, then
        at
        the request of the Holder delivered before the 90th day after such Fundamental
        Change, the Company (or any such successor or surviving entity) will purchase
        this Note from the Holder for a purchase price, payable in cash within five
        Trading Days after such request (or, if later, on the effective date of the
        Fundamental Transaction), equal to the Black Scholes value of the remaining
        unconverted portion of this Note on the date of such request. 

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      (d)
          Subsequent
        Equity Sales.

       

      (i)  If,
        at
        any time while this Note is outstanding, the Company or any Subsidiary issues
        additional shares of Common Stock or rights, warrants, options or other
        securities or debt convertible, exercisable or exchangeable for shares of
        Common
        Stock or otherwise entitling any Person to acquire shares of Common Stock
        (collectively, “Common
        Stock Equivalents”)
        at an
        effective net price to the Company per share of Common Stock (the “Effective
        Price”)
        less
        than the Floor Price (as adjusted hereunder to such date), then the Conversion
        Price shall be reduced to equal the Effective Price. If, at any time while
        this
        Note is outstanding, the Company or any Subsidiary issues Common Stock or
        Common
        Stock Equivalents at an Effective Price greater than the Conversion Price
        (as
        adjusted hereunder to such date) but less than the average Closing Price
        over
        the five Trading Days prior to such issuance (the “Adjustment
        Price”),
        then
        the Conversion Price shall be reduced to equal the product of (A) the Conversion
        Price in effect immediately prior to such issuance of Common Stock or Common
        Stock Equivalents times (B) a fraction, the numerator of which is the sum
        of (1)
        the number of shares of Common Stock outstanding immediately prior to such
        issuance, plus (2) the number of shares of Common Stock which the aggregate
        Effective Price of the Common Stock issued (or deemed to be issued) would
        purchase at the Adjustment Price, and the denominator of which is the aggregate
        number of shares of Common Stock outstanding or deemed to be outstanding
        immediately after such issuance. For purposes of this paragraph, in connection
        with any issuance of any Common Stock Equivalents, (A) the maximum number
        of
        shares of Common Stock potentially issuable at any time upon conversion,
        exercise or exchange of such Common Stock Equivalents (the “Deemed
        Number”)
        shall
        be deemed to be outstanding upon issuance of such Common Stock Equivalents,
        (B)
        the Effective Price applicable to such Common Stock shall equal the minimum
        dollar value of consideration payable to the Company to purchase such Common
        Stock Equivalents and to convert, exercise or exchange them into Common Stock
        (net of any discounts, fees, commissions and other expenses), divided by
        the
        Deemed Number, and (C) no further adjustment shall be made to the Conversion
        Price upon the actual issuance of Common Stock upon conversion, exercise
        or
        exchange of such Common Stock Equivalents.

       

      (ii)  If,
        at
        any time while this Note is outstanding, the Company or any Subsidiary issues
        Common Stock Equivalents with an Effective Price or a number of underlying
        shares that floats or resets or otherwise varies or is subject to adjustment
        based (directly or indirectly) on market prices of the Common Stock (a
“Floating
        Price Security”),
        then
        for purposes of applying the preceding paragraph in connection with any
        subsequent conversion, the Effective Price will be determined separately
        on each
        Conversion Date and will be deemed to equal the lowest Effective Price at
        which
        any holder of such Floating Price Security is entitled to acquire Common
        Stock
        on such Conversion Date (regardless of whether any such holder actually acquires
        any shares on such date).

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      (iii)  Notwithstanding
        the foregoing, no adjustment will be made under this paragraph (d) in respect
        of
        (A) the issuance of Common Stock upon exercise or conversion of any Common
        Stock
        Equivalents described in Schedule
        3.1(g)
        to the
        Purchase Agreement (provided that such exercise or conversion occurs in
        accordance with the terms thereof, without amendment or modification, and
        that
        the applicable exercise or conversion price or ratio is described in such
        schedule); (B) to officers, directors or employees of, or advisers, consultants
        or independent contractors acting in a similar capacity to, the Company pursuant
        to restricted stock issuances, stock grants, stock options or similar employee
        stock incentives, in each case approved by the Board of Directors of the
        Company; or (C) the issuance of securities in connection with a bona fide
        joint
        venture or development agreement or strategic partnership or similar agreement
        approved by the Company’s board of directors, the primary purpose of which is
        not to raise equity capital.

       

      (e)
          Calculations.
        All
        calculations under this Section
        10
        shall be
        made to the nearest cent or the nearest 1/100th of a share, as applicable.
        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 Company, and the disposition
        of any such shares shall be considered an issue or sale of Common
        Stock.

       

      (f)
          Notice
        of Adjustments.
        Upon
        the occurrence of each adjustment pursuant to this Section
        10,
        the
        Company at its expense will promptly compute such adjustment in accordance
        with
        the terms hereof and prepare and deliver to the Holder a certificate describing
        in reasonable detail such adjustment and the transactions giving rise thereto,
        including all facts upon which such adjustment is based.

       

      (g)
          Notice
        of Corporate Events.
        If the
        Company (i) declares a dividend or any other distribution of cash, securities
        or
        other property in respect of its Common Stock, including without limitation
        any
        granting of rights or warrants to subscribe for or purchase any capital stock
        of
        the Company or any Subsidiary, (ii) authorizes or approves, enters into any
        agreement contemplating or solicits stockholder approval for any Fundamental
        Change or (iii) authorizes the voluntary dissolution, liquidation or winding
        up
        of the affairs of the Company, then the Company shall deliver to the Holder
        a
        notice describing the material terms and conditions of such transaction,
        at
        least 20 Trading Days prior to the applicable record or effective date on
        which
        a Person would need to hold Common Stock in order to participate in or vote
        with
        respect to such transaction, and the Company will take all steps reasonably
        necessary in order to insure that the Holder is given the practical opportunity
        to convert this Note prior to such time so as to participate in or vote with
        respect to such transaction; provided, however, that the failure to deliver
        such
        notice or any defect therein shall not affect the validity of the corporate
        action required to be described in such notice. 

       

      11.  No
        Fractional Shares.
        The
        Company shall not issue or cause to be issued fractional Underlying Shares
        on
        conversion of this Note. If any fraction of an Underlying Share would, except
        for the provisions of this Section
        11,
        be
        issuable upon conversion of this Note, the number of Underlying Shares to
        be
        issued will be rounded up to the nearest whole share.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      12.  Notices.
        Any and
        all notices or other communications or deliveries hereunder (including any
        Conversion Notice) shall be in writing and 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 number specified in this
Section 12
        prior
        to
        6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day
        after
        the date of transmission, if such notice or communication is delivered via
        facsimile at the facsimile number specified in this Section
        12
        on a day
        that is not a Trading Day or later than 6:30 p.m. (New York City time) on
        any
        Trading Day, (iii) the Trading 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. The addresses for
        such
        communications shall be: (i) if to the Company, to 108 Village Square - #327,
        Somers, NY 10589, facsimile: 631-254-2136, attention Robert Rubin, CEO, or
        (ii)
        if to the Holder, to the address or facsimile number appearing on the Company’s
        Noteholder records or such other address or facsimile number as the Holder
        may
        provide to the Company in accordance with this Section 12.

       

      13.  Miscellaneous.

       

      (a)
          This
        Note
        shall be binding on and inure to the benefit of the parties hereto and their
        respective successors and permitted assigns. The Company shall not be permitted
        to assign this Note.

       

      (b)
          Subject
        to Section
        13(a),
        nothing
        in this Note shall be construed to give to any person or corporation other
        than
        the Company and the Holder any legal or equitable right, remedy or cause
        under
        this Note.

       

      (c)
          Governing
        Law; Venue; Waiver Of Jury Trial.
        all
        questions concerning the construction, validity, enforcement and interpretation
        of this Note 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 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. 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 company hereby waives all rights to a trial by
        jury.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

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

       

      (e)
          In
        case
        any one or more of the provisions of this Note shall be invalid or unenforceable
        in any respect, the validity and enforceability of the remaining terms and
        provisions of this Note shall not in any way be affected or impaired thereby
        and
        the parties will attempt in good faith to agree upon a valid and enforceable
        provision which shall be a commercially reasonable substitute therefor, and
        upon
        so agreeing, shall incorporate such substitute provision in this
        Note.

       

      (f)
          In
        the
        event of any stock split, subdivision, dividend or distribution payable in
        shares of Common Stock (or other securities or rights convertible into, or
        entitling the holder thereof to receive directly or indirectly shares of
        Common
        Stock), combination or other similar recapitalization or event occurring
        after
        the date hereof, each reference in this Note to a price shall be amended
        to
        appropriately account for such event.

       

      (g)
          No
        provision of this Note may be waived or amended except in a written instrument
        signed, in the case of an amendment, by the Company and the Holder or, or,
        in
        the case of a waiver, by the Holder. No waiver of any default with respect
        to
        any provision, condition or requirement of this Note 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. 

       

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

       

      SIGNATURE
        PAGE FOLLOWS]

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, the Company has caused this Note to be duly executed by
        a duly
        authorized officer as of the date first above indicated.

       

      
        	 	 	 
	 	
                AMERICAN
                  UNITED GLOBAL, INC.

              
	 
 	 
 	 
 
	Date: 	By:  	/s/ 
	 	
                

              
	 	Title 

      

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      Schedule
        1

       

      FORM
        OF CONVERSION NOTICE

       

      (To
        be
        executed by the registered Holderin
        order
        to convert Note)

       

      The
        undersigned hereby elects to convert the specified principal amount of Senior
        Secured Convertible Notes (the “Notes”)
        into
        shares of common stock, no par value (the “Common
        Stock”),
        of
        American United Global, Inc., a Delaware corporation, according to the
        conditions hereof, as of the date written below.

       

      
        	 	 	 
	 	 	 
	 	
                Date
                  to Effect Conversion

              	 
	 	 	 
	 	 	 
	 	
                Principal
                  amount of Notes owned prior to conversion

              	 
	 	 	 
	 	 	 
	 	
                Principal
                  amount of Notes to be converted

              	 
	 	 	 
	 	 	 
	 	
                Number
                  of shares of Common Stock to be Issued

              	 
	 	 	 
	 	 	 
	 	
                Applicable
                  Conversion Price 

              	 
	 	 	 
	 	 	 
	 	
                Principal
                  amount of Notes owned subsequent to Conversion

              	 
	 	 	 
	 	 	 
	 	
                Name
                  of Holder

              	 
	 	 	 
	 	
                By

              	 
	 	
                Name:

              	 
	 	
                Title:
                  

              	 

      

      

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      Schedule
        2

       

      CONVERSION
        SCHEDULE

       

      This
        Conversion Schedule reflects conversions of the Senior Secured Convertible
        Notes
        issued by American United Global, Inc.

       

      
        	
                Date
                  of Conversion

              	 	
                Amount
                  of Conversion

              	 	
                Aggregate
                  Principal Amount 

                Remaining
                  Subsequent to Conversion

              
	 	 	 	 	 
	 	 	 	 	 
	
                 

              	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

      

      

       

      
        
          
          

        

        
          18

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