Document:

SECURITIES PURCHASE AGREEMENT

      THIS  SECURITIES  PURCHASE  AGREEMENT,  dated as of January 31, 2005 (this
"Agreement"),  is entered into by and between CONSPIRACY ENTERTAINMENT HOLDINGS,
INC.,  a  Utah  corporation  with  headquarters  located  at  612  Santa  Monica
Boulevard, Santa Monica, CA 90401 (the "Company"), and each individual or entity
named on a  signature  page  hereto  (as used  herein,  each such  signatory  is
referred  to as the  "Lender")  (each  agreement  with a Lender  being  deemed a
separate and independent  agreement between the Company and such Lender,  except
that each Lender  acknowledges  and consents to the rights granted to each other
Lender  [each,  an "Other  Lender"]  under such  agreement  and the  Transaction
Agreements, as defined below, referred to therein).

                              W I T N E S S E T H:

      WHEREAS,  the Company and the Lender are  executing  and  delivering  this
Agreement in accordance  with and in reliance upon the exemption from securities
registration for offers and sales to accredited investors afforded,  inter alia,
by Rule 506 under  Regulation D  ("Regulation  D") as  promulgated by the United
States  Securities and Exchange  Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and

      WHEREAS, the Lender wishes to lend to the Company, subject to and upon the
terms and  conditions of this  Agreement and acceptance of this Agreement by the
Company,  the Lender's Purchase Price amount set forth on the Lender's signature
page  hereto,  the  repayment  of  which  will  be  represented  by  5%  Secured
Convertible   Debentures   Series  05-01  of  the  Company   (the   "Convertible
Debentures"),  which  Convertible  Debentures will be convertible into shares of
Common Stock,  $.001 par value per share,  of the Company (the "Common  Stock"),
upon the terms and subject to the  conditions  of such  Convertible  Debentures,
together with the Warrants (as defined  below)  exercisable  for the purchase of
shares of Common Stock;

      NOW THEREFORE,  in  consideration of the premises and the mutual covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

      1.    AGREEMENT TO PURCHASE; PURCHASE PRICE.

      a.    Purchase of the Securities.

      (i) Subject to the terms and  conditions  of this  Agreement and the other
Transaction Agreements, the undersigned hereby agrees to loan to the Company the
principal amount set forth on the Lender's signature page of this Agreement (the
"Purchase  Price"),  out of the aggregate  amount being loaned by all Lenders of
US$650,000 (the "Total Purchase  Price").  The obligation to repay the loan from
the  Lender  shall  be  evidenced  by the  Company's  issuance  of  one or  more
Convertible Debentures to the Lender in such principal amount (the Convertible

<PAGE>

      Debentures  issued to the Lender,  the  "Debentures").  Each Debenture (i)
shall  provide for a  conversion  price (the  "Conversion  Price"),  which shall
initially be the Fixed Conversion  Price (as defined below),  which price may be
adjusted  from time to as provided in the  Debenture,  (ii) shall have the terms
and conditions of, and be substantially in the form attached hereto as, Annex I,
and  (iii)  shall be  secured  pursuant  to the terms of the  Security  Interest
Agreement  substantially in the form annexed hereto as Annex VIII (the "Security
Interest Agreement").(1)

      (ii) The loan to be made by the Lender and the issuance of the  Debentures
and the Warrants  (collectively,  the "Purchased  Securities") to the Lender are
sometimes  referred  to herein and in the other  Transaction  Agreements  as the
purchase and sale of the Debentures and the Warrants.

      b. Certain  Definitions.  As used herein,  each of the following terms has
the meaning set forth below, unless the context otherwise requires:

      "Affiliate"  means,  with respect to a specific  Person referred to in the
relevant provision,  another Person who or which controls or is controlled by or
is under common control with such specified Person.

      "Certificates"  means (i) the Debentures and (ii) the Warrants,  each duly
executed  by the  Company  and  issued  on the  Closing  Date in the name of the
Lender.

      "Closing  Date" means the date of the closing of the  purchase and sale of
the Purchased Securities.

      "Closing  Price" shall mean the 4:00 P.M.  closing bid price of the Common
Stock (in U.S.  Dollars) on the Principal Trading Market on the relevant Trading
Day(s), as reported by the Reporting Service.

      "Company Control Person" means each director, executive officer, promoter,
and such other  Persons as may be deemed in control of the  Company  pursuant to
Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as defined below).

--------------------------------
1     By signing this Agreement, the Lender, subject to acceptance by the Agent
      named in the Security Interest Agreement, agrees to all of the terms and
      conditions of, and becomes a party to, the Security Interest Agreement,
      all of the provisions of which are incorporated herein by this reference
      as if set forth in full.

                                       2
<PAGE>

      "Conversion  Shares"  means  the  shares  of Common  Stock  issuable  upon
conversion of the Debentures  (including,  if relevant,  accrued interest on the
Debentures so converted).

      "Effective  Date" means the date the Registration  Statement  covering the
Registrable Securities is declared effective by the SEC.

      "Escrow  Agent"  means the escrow  agent  identified  in the Joint  Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions").

      "Escrow Funds" means the Purchase  Price  delivered to the Escrow Agent as
contemplated by Sections 1(c) and (d) hereof.

      "Escrow Property" means the Escrow Funds and the Certificates delivered to
the Escrow Agent as contemplated by Section 1(c) hereof.

      "Exercise  Price"  means  the per  share  exercise  price of the  relevant
Warrant, as in effect at the relevant time.

      "Fixed  Conversion  Price"  means $0.05 (as that amount may be adjusted as
provided in the Debenture).

      "Holder" means the Person holding the relevant  Securities at the relevant
time.

      "Issue Date Conversion Shares" means the number of shares of Common Stock
equal to (x) the Purchase Price paid by the Lender, divided by (y) the Fixed
Conversion Price.

      "Last Audited Date" means December 31, 2003.

      "Lender Control Person" means each director,  executive officer, promoter,
and such other  Persons as may be deemed in  control of the Lender  pursuant  to
Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

      "Lender's  Allocable  Share" means, as of the relevant date, the fraction,
of which the  numerator is the Lender's  Purchase  Price  actually paid by or on
behalf of the Lender and the denominator is the Total Purchase Price.

      "Majority  in Interest of the  Holders"  means one or more  Holders  whose
respective  outstanding principal amounts of the Debentures held by each of them
on the relevant  date,  aggregate  more than  seventy-five  percent (75%) of the
total of the Lender's and the Other  Lenders'  aggregate  outstanding  principal
amounts of the Debentures  held by the Lender and the Other Lenders them on that
date.

      "Material  Adverse Effect" means an event or combination of events,  which
individually or in the aggregate,  would reasonably be expected to (w) adversely
affect the legality, validity or enforceability of the Securities or any of the

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<PAGE>

Transaction  Agreements,  (x) have or result in a material adverse effect on the
results of operations,  assets, prospects, or condition (financial or otherwise)
of the Company and its subsidiaries,  taken as a whole, (y) adversely impair the
Company's  ability to perform fully on a timely basis its obligations  under any
of the Transaction  Agreements or the transactions  contemplated thereby, or (z)
materially and adversely affect the value of the rights granted to the Lender in
the Transaction Agreements.

      "New  Common  Stock"  means  shares  of  Common  Stock  and/or  securities
convertible  into,  and/or other rights  exercisable for, the issuance of Common
Stock, which are offered or sold in a New Transaction.

      "New  Investor"  means  the  third  party  investor,  purchaser  or lender
(howsoever denominated) in a New Transaction.

      "New  Transaction"  means the sale of New Common  Stock by or on behalf of
the Company to a New Investor in a transaction  offered or consummated after the
date hereof; provided, however, that it is specifically understood that the term
"New  Transaction"  (1) includes,  but is not limited to, a transaction  for the
sale of Common Stock or of a security convertible into Common Stock or an equity
or  credit  line  transaction,  but (2)  does  not  include  (a) the sale of the
Purchased  Securities to the Lender and the Other  Lenders,  (b) the issuance of
Common Stock upon the exercise or conversion of options, warrants or convertible
securities  outstanding on the date hereof, or in respect of any other financing
agreements  outstanding  on the date hereof and  identified  on Annex V attached
hereto  (provided  the same is not amended  after the date  hereof),  or (c) the
issuance of Common Stock upon the  exercise of any options or warrants  referred
to in the preceding clauses of this paragraph  (provided the same is not amended
after the date hereof).

      "Person"  means  any  living  person  or any  entity,  such  as,  but  not
necessarily limited to, a corporation, partnership or trust.

      "Placement Agent" means Palladium Capital Advisors, LLC.

      "Principal  Trading  Market" means the Over the Counter  Bulletin Board or
such  other  market  on which  the  Common  Stock is  principally  traded at the
relevant time, but shall not include the "pink sheets."

      "Registrable  Securities"  shall have the  meaning  ascribed  to it in the
Registration Rights Agreement.

      "Registration Rights Agreement" means the Registration Rights Agreement in
the form  annexed  hereto as ANNEX IV as  executed by the Lender and the Company
simultaneously with the execution of this Agreement.

      "Registration   Statement"  means  an  effective   registration  statement
covering the Registrable Securities.

                                        4
<PAGE>

      "Reporting  Service"  means  Bloomberg  LP or if that  service is not then
reporting the relevant  information  regarding  the Common  Stock,  a comparable
reporting service of national  reputation  selected by a Majority in Interest of
the Holders and reasonably acceptable to the Company.

      "Securities"  means the Debentures,  the Conversion  Shares, the Warrants,
and the Warrant Shares.

      "Shares" means the shares of Common Stock  representing  any or all of the
Conversion,  the Warrant Shares, the Additional Shares (as defined below) or the
Payment Shares (as defined in the Registration Rights Agreement).

      "State of Incorporation" means Utah.

      "Trading  Day" means any day during  which the  Principal  Trading  Market
shall be open for business.

      "Transaction  Agreements" means this Securities  Purchase  Agreement,  the
Debentures,  the Registration Rights Agreement,  the Joint Escrow  Instructions,
the Security Interest  Agreement,  and the Warrants,  and includes all ancillary
documents referred to in those agreements and documents.

      "Transfer  Agent" means, at any time, the transfer agent for the Company's
Common Stock.

      "Warrants" means the Class A Warrants and the Class B Warrants (as defined
below).

      c.    Form of Payment; Delivery of Certificates.

      (i) The Lender  shall pay the  Purchase  Price by  delivering  immediately
available  good funds in United States Dollars to the Escrow Agent no later than
the date prior to the Closing Date.

      (ii) No later than the Closing Date, but in any event  promptly  following
payment by the Lender to the Escrow  Agent of the  Purchase  Price,  the Company
shall deliver the Certificates to the Escrow Agent.

      (iii) By signing  this  Agreement,  each of the  Lender  and the  Company,
subject  to  acceptance  by the  Escrow  Agent,  agrees  to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.

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<PAGE>

      d. Method of Payment.  Payment into escrow of the Purchase  Price shall be
made by wire transfer of funds to:

      Bank of New York
      350 Fifth Avenue
      New York, New York 10001

      ABA# 021000018
      For credit to the account of Krieger & Prager LLP
      Account No.:    [To be provided by Escrow Agent]
      Re:      CPYE 2/05/[Name of Lender]

      2.  LENDER  REPRESENTATIONS,  WARRANTIES,  ETC.;  ACCESS  TO  INFORMATION;
INDEPENDENT INVESTIGATION.

      The Lender  represents and warrants to, and covenants and agrees with, the
Company as follows:

      a. Without limiting  Lender's right to sell the Securities  pursuant to an
effective  registration  statement or otherwise in compliance with the 1933 Act,
the Lender is purchasing the Securities for its own account for investment  only
and not with a view towards the public sale or distribution thereof and not with
a view to or for sale in connection with any distribution thereof.

      b. The Lender is (i) an  "accredited  investor" as that term is defined in
Rule 501 of the General  Rules and  Regulations  under the 1933 Act by reason of
Rule 501(a)(3),  (ii) experienced in making investments of the kind described in
this Agreement and the related documents,  (iii) able, by reason of the business
and  financial  experience  of its  officers  (if an  entity)  and  professional
advisors (who are not  affiliated  with or compensated in any way by the Company
or any of its  Affiliates  or selling  agents),  to protect its own interests in
connection with the  transactions  described in this Agreement,  and the related
documents,  and to  evaluate  the  merits  and  risks  of an  investment  in the
Securities,  and (iv) able to afford the entire  loss of its  investment  in the
Securities.

      c. All  subsequent  offers and sales of the Securities by the Lender shall
be made pursuant to registration of the relevant  Securities  under the 1933 Act
or pursuant to an exemption from registration.

      d. The Lender  understands  that the Securities are being offered and sold
to it in reliance on specific  exemptions from the registration  requirements of
the 1933 Act and state  securities laws and that the Company is relying upon the
truth and accuracy of, and the Lender's  compliance  with, the  representations,
warranties,  agreements,  acknowledgments  and  understandings of the Lender set
forth herein in order to determine the  availability  of such exemptions and the
eligibility of the Lender to acquire the Securities.

                                       6

<PAGE>

      e. The Lender and its advisors,  if any, have been  furnished with or have
been given  access to all  materials  relating  to the  business,  finances  and
operations  of the Company and  materials  relating to the offer and sale of the
Purchased  Securities  and the Warrants which have been requested by the Lender,
including  those set forth on in any annex attached  hereto.  The Lender and its
advisors,  if any,  have been afforded the  opportunity  to ask questions of the
Company and its management and have received  complete and satisfactory  answers
to any such  inquiries.  Without  limiting the generality of the foregoing,  the
Lender  has also had the  opportunity  to  obtain  and to review  the  Company's
filings on EDGAR listed on Annex VII hereto (the documents  listed on such Annex
VII, to the extent  available  on EDGAR or  otherwise  provided to the Lender as
indicated on said Annex VII, collectively, the "Company's SEC Documents").

      f. The Lender understands that its investment in the Securities involves a
high degree of risk.

      g. The Lender hereby  represents  that, in connection with its purchase of
the  Securities,  it has not relied on any  statement or  representation  by the
Company or the Placement Agent or any of their  respective  officers,  directors
and  employees  or any of  their  respective  attorneys  or  agents,  except  as
specifically set forth herein.  The Placement Agent is a third party beneficiary
of this provision.

      h. The Lender understands that no United States federal or state agency or
any  other  government  or  governmental  agency  has  passed  on  or  made  any
recommendation or endorsement of the Securities.

      i. This Agreement and the other Transaction Agreements to which the Lender
is a party,  and the  transactions  contemplated  thereby,  have  been  duly and
validly authorized, executed and delivered on behalf of the Lender and are valid
and  binding  agreements  of the Lender  enforceable  in  accordance  with their
respective terms,  subject as to enforceability to general  principles of equity
and to bankruptcy,  insolvency,  moratorium and other similar laws affecting the
enforcement of creditors' rights generally.

      3. COMPANY  REPRESENTATIONS,  ETC. The Company  represents and warrants to
the  Lender  on the date  hereof  and as of the  Closing  Date  that,  except as
otherwise provided in the Annex VI or in the Company's SEC Documents:

      a. RIGHTS OF OTHERS  AFFECTING THE  TRANSACTIONS.  There are no preemptive
rights of any  shareholder  of the Company,  as such,  to acquire the  Purchased
Securities or the Shares.  No party other has a currently  exercisable  right of
first  refusal  which  would  be  applicable  to any or all of the  transactions
contemplated by the Transaction Agreements.

      b. STATUS.  The Company is a corporation duly organized,  validly existing
and in good standing  under the laws of the State of  Incorporation  and has the
requisite  corporate power to own its properties and to carry on its business as
now being conducted.  The Company is duly qualified as a foreign  corporation to
do business and is in good standing in each jurisdiction where the nature of the

                                       7
<PAGE>

business conducted or property owned by it makes such  qualification  necessary,
other than those jurisdictions in which the failure to so qualify would not have
or result in a Material Adverse Effect. The Company has registered its stock and
is  obligated  to file  reports  pursuant to Section 12 or Section  15(d) of the
Securities  and  Exchange Act of 1934,  as amended (the "1934 Act").  The Common
Stock is quoted on the  Principal  Trading  Market.  The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such quotation on the Principal Trading Market, and the Company
has  maintained  all  requirements  on its  part  for the  continuation  of such
quotation.

      c. AUTHORIZED SHARES.

      (i)  The  authorized   capital  stock  of  the  Company  consists  of  (i)
100,000,000 shares of Common Stock,  $.001 par value ("Common Stock"),  of which
approximately 36,592,259 are outstanding as of the date hereof.

      (ii)  Except as  provided in Annex VI, as of the date hereof and as of the
Closing Date, (1) there are no outstanding securities which are convertible into
shares of Common  Stock,  whether such  conversion is currently  exercisable  or
exercisable  only upon some future date or the  occurrence  of some event in the
future  and (2) the  Company  has not  issued any  warrants  or other  rights to
acquire shares of the Common Stock other than those referred to in the Company's
SEC  Documents.  If any such  securities  are  listed on Annex VI, the number or
amount of each such  outstanding  convertible  security and the conversion terms
thereof or of each such warrant or other right and the terms of its exercise are
set forth in said Annex VI.

      (iii) All issued  and  outstanding  shares of Common  Stock have been duly
authorized and validly issued and are fully paid and non-assessable. The Company
has  sufficient  authorized  and  unissued  shares  of  Common  Stock  as may be
necessary to effect the issuance of the Shares on the Closing Date.

      (iv) As of the Closing Date, the Shares shall have been duly authorized by
all necessary  corporate action on the part of the Company,  and, when issued on
the  Closing  Date or upon  conversion  of the  Debentures  or  exercise  of the
Warrants or pursuant to other relevant provisions of the Transaction Agreements,
in each case in accordance with their respective terms, will be duly and validly
issued, fully paid and non-assessable and will not subject the Holder thereof to
personal liability by reason of being such Holder.

      d. TRANSACTION  AGREEMENTS AND STOCK. This Agreement and each of the other
Transaction  Agreements,  and the transactions  contemplated  thereby, have been
duly and  validly  authorized  by the  Company,  this  Agreement  has been  duly
executed and delivered by the Company and this Agreement is, and the Debentures,
the Warrants and each of the other  Transaction  Agreements,  when  executed and
delivered by the Company,  will be, valid and binding  agreements of the Company
enforceable  in  accordance  with  their   respective   terms,   subject  as  to
enforceability  to general  principles of equity and to bankruptcy,  insolvency,
moratorium,  and other  similar laws  affecting  the  enforcement  of creditors'
rights generally.

                                       8
<PAGE>

      e.  NON-CONTRAVENTION.  The execution  and delivery of this  Agreement and
each of the other  Transaction  Agreements  by the Company,  the issuance of the
Securities,  and the  consummation  by the  Company  of the  other  transactions
contemplated  by this  Agreement,  the  Debentures,  the  Warrants and the other
Transaction  Agreements  do not and will not conflict with or result in a breach
by the Company of any of the terms or  provisions  of, or  constitute  a default
under (i) the certificate of  incorporation  or by-laws of the Company,  each as
currently  in effect,  (ii) any  indenture,  mortgage,  deed of trust,  or other
material  agreement or instrument to which the Company is a party or by which it
or any of its  properties or assets are bound,  including any listing  agreement
for the Common Stock except as herein set forth, or (iii) to its knowledge,  any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or  order  of any  court,  United  States  federal  or  state  regulatory  body,
administrative  agency, or other governmental body having  jurisdiction over the
Company or any of its  properties  or assets,  except such  conflict,  breach or
default which would not have or result in a Material Adverse Effect.

      f.  APPROVALS.  No  authorization,  approval  or  consent  of  any  court,
governmental body,  regulatory agency,  self-regulatory  organization,  or stock
exchange or market or the shareholders of the Company is required to be obtained
by the  Company for the  issuance  and sale of the  Securities  to the Lender as
contemplated  by this  Agreement,  except  such  authorizations,  approvals  and
consents that have been obtained.

      g. FILINGS.  None of the Company's  SEC Documents  contained,  at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated  therein or necessary to make the statements
made  therein in light of the  circumstances  under  which  they were made,  not
misleading.  Since January 1, 2004,  the Company has filed all requisite  forms,
reports and exhibits thereto required to be filed by the Company with the SEC.

      h. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date, there has been
no material adverse change and no Material  Adverse Effect,  except as disclosed
in the Company's SEC Documents.  Since the Last Audited Date, except as provided
in the  Company's  SEC  Documents,  the Company  has not (i)  incurred or become
subject to any material liabilities  (absolute or contingent) except liabilities
incurred in the ordinary course of business consistent with past practices; (ii)
discharged or satisfied any material  lien or  encumbrance  or paid any material
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business  consistent  with past practices;  (iii)
declared  or made any  payment  or  distribution  of cash or other  property  to
shareholders  with respect to its capital  stock,  or purchased or redeemed,  or
made any agreements to purchase or redeem, any shares of its capital stock; (iv)
sold,  assigned or transferred any other tangible assets,  or canceled any debts
owed to the  Company by any third  party or claims of the  Company  against  any
third party,  except in the  ordinary  course of business  consistent  with past
practices;  (v)  waived  any  rights of  material  value,  whether or not in the
ordinary  course of business,  or suffered  the loss of any  material  amount of
existing business;  (vi) made any increases in employee compensation,  except in
the  ordinary  course  of  business  consistent  with past  practices;  or (vii)
experienced  any material  problems with labor or management in connection  with
the terms and conditions of their employment.

      9

<PAGE>

      i. FULL DISCLOSURE.  To the best of the Company's  knowledge,  there is no
fact known to the Company (other than general  economic  conditions known to the
public  generally or as disclosed in the Company's SEC  Documents)  that has not
been  disclosed  in writing to the Lender that would  reasonably  be expected to
have or result in a Material Adverse Effect.

      j. ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or
investigation  before or by any court,  public  board or body pending or, to the
knowledge of the Company,  threatened against or affecting the Company before or
by any governmental authority or nongovernmental department,  commission, board,
bureau,  agency or instrumentality  or any other person,  wherein an unfavorable
decision,  ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability  of, or the authority or ability
of the  Company  to  perform  its  obligations  under,  any  of the  Transaction
Agreements.  The Company is not aware of any valid basis for any such claim that
(either  individually  or in the  aggregate  with  all  other  such  events  and
circumstances)  could  reasonably be expected to have a Material Adverse Effect.
There are no outstanding  or  unsatisfied  judgments,  orders,  decrees,  writs,
injunctions  or  stipulations  to which the Company is a party or by which it or
any of its properties is bound, that involve the transaction contemplated herein
or  that,  alone or in the  aggregate,  could  reasonably  be  expect  to have a
Material Adverse Effect.

      k.  ABSENCE  OF EVENTS OF  DEFAULT.  Except as set forth in  Section  3(e)
hereof,  no Event  of  Default  (or its  equivalent  term),  as  defined  in the
respective  agreement to which the Company or its subsidiary is a party,  and no
event  which,  with the giving of notice or the  passage of time or both,  would
become an Event of  Default  (or its  equivalent  term) (as so  defined  in such
agreement), has occurred and is continuing,  which would have a Material Adverse
Effect.

      l. ABSENCE OF CERTAIN  COMPANY  CONTROL PERSON  ACTIONS OR EVENTS.  To the
Company's knowledge, none of the following has occurred during the past five (5)
years with respect to a Company Control Person:

      (1)   A petition under the federal bankruptcy laws or any state insolvency
            law was filed by or against, or a receiver,  fiscal agent or similar
            officer  was  appointed  by a court for the  business or property of
            such Company  Control  Person,  or any partnership in which he was a
            general  partner  at or  within  two years  before  the time of such
            filing,  or any corporation or business  association of which he was
            an executive  officer at or within two years before the time of such
            filing;

      (2)   Such Company  Control Person was convicted in a criminal  proceeding
            or is a named subject of a pending  criminal  proceeding  (excluding
            traffic violations and other minor offenses);

      (3)   Such Company  Control Person was the subject of any order,  judgment
            or decree, not subsequently  reversed,  suspended or vacated, of any
            court  of  competent   jurisdiction,   permanently   or  temporarily
            enjoining him from, or otherwise limiting, the following activities:

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<PAGE>

            (i)   acting,  as an  investment  advisor,  underwriter,  broker  or
                  dealer in securities,  or as an affiliated person, director or
                  employee of any  investment  company,  bank,  savings and loan
                  association  or  insurance  company,  as a futures  commission
                  merchant,   introducing  broker,  commodity  trading  advisor,
                  commodity  pool  operator,  floor  broker,  any  other  Person
                  regulated by the Commodity Futures Trading Commission ("CFTC")
                  or  engaging  in or  continuing  any  conduct or  practice  in
                  connection with such activity;

            (ii)  engaging in any type of business practice; or

            (iii) engaging in any  activity in  connection  with the purchase or
                  sale of any security or commodity  or in  connection  with any
                  violation  of  federal  or state  securities  laws or  federal
                  commodities laws;

      (4)   Such Company  Control Person was the subject of any order,  judgment
            or decree, not subsequently  reversed,  suspended or vacated, of any
            federal or state authority barring, suspending or otherwise limiting
            for more than 60 days the right of such  Company  Control  Person to
            engage in any activity  described in paragraph  (3) of this item, or
            to be associated with Persons engaged in any such activity; or

      (5)   Such  Company  Control  Person  was  found by a court  of  competent
            jurisdiction  in a  civil  action  or by the  CFTC  or  SEC to  have
            violated  any federal or state  securities  law, and the judgment in
            such  civil  action  or  finding  by the  CFTC or SEC  has not  been
            subsequently reversed, suspended, or vacated.

      m. NO  UNDISCLOSED  LIABILITIES  OR EVENTS.  To the best of the  Company's
knowledge,  the  Company  has no  liabilities  or  obligations  other than those
disclosed in the Transaction  Agreements or the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since the Last Audited
Date,  or which  individually  or in the  aggregate,  do not or would not have a
Material Adverse Effect.  No event or circumstances  has occurred or exists with
respect  to the  Company  or its  properties,  business,  operations,  condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under  consideration  by the Board of Directors or the executive  officers of
the Company  which  proposal  would (x) change the  articles or  certificate  of
incorporation  or other  charter  document  or by-laws of the  Company,  each as
currently in effect,  with or without shareholder  approval,  which change would
reduce or otherwise  adversely  affect the rights and powers of the shareholders
of the Common Stock or (y)  materially  or  substantially  change the  business,
assets or capital of the Company, including its interests in subsidiaries.

      n. NO INTEGRATED  OFFERING.  Neither the Company nor any of its Affiliates
nor any Person acting on its or their behalf has, directly or indirectly, at any
time since August 1, 2004,  made any offer or sales of any security or solicited
any offers to buy any security  under  circumstances  that would  eliminate  the
availability of the exemption from registration under Regulation D in connection
with the offer and sale of the Securities as contemplated hereby.

                                       11

<PAGE>

      o.  DILUTION.  The  number  of  shares  issuable  upon  conversion  of the
Debentures,  or upon  exercise of the Warrants or pursuant to the other terms of
the Transaction Agreements may have a dilutive effect on the ownership interests
of the other shareholders (and Persons having the right to become  shareholders)
of the Company.  The Company's executive officers and directors have studied and
fully  understand the nature of the  Securities  being sold hereby and recognize
that they have such a potential  dilutive effect.  The board of directors of the
Company has concluded,  in its good faith business judgment,  that such issuance
is in the best interests of the Company. The Company  specifically  acknowledges
that its  obligation  to issue the  Conversion  Shares  upon  conversion  of the
Debentures,  the Warrant  Shares upon exercise of the Warrants,  the  Additional
Shares as provided herein or the Payment Shares as provided in the  Registration
Rights  Agreement is binding upon the Company and enforceable  regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company, and the Company will honor such obligations,  including honoring
every Notice of Conversion (as contemplated by the Debentures),  every Notice of
Exercise (as contemplated by the Warrants),  every demand for Additional  Shares
(as  contemplated  by this  Agreement),  every  demand  for  Payment  Shares (as
contemplated  by the  Registration  Rights  Agreement),  unless  the  Company is
subject  to an  injunction  (which  injunction  was not  sought by the  Company)
prohibiting the Company from doing so.

      p.  FEES TO  BROKERS,  FINDERS  AND  OTHERS.  Except  for  payment  of the
Placement  Agent's  Compensation  (as defined below) to the Placement Agent, the
Company has taken no action which would give rise to any claim by any Person for
brokerage  commission,  finder's fees or similar  payments by Lender relating to
this Agreement or the  transactions  contemplated  hereby.  Lender shall have no
obligation with respect to such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type  contemplated  in this paragraph that
may be due in connection with the transactions  contemplated hereby. The Company
shall  indemnify  and hold  harmless each of Lender,  its  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 and when incurred.  The term "Placement Agent's  Compensation"
means, in connection with the consummation of the  transactions  contemplated by
this Agreement, the consideration contemplated by the Joint Escrow Instructions.

      q. DISCLOSURE.  All information  relating to or concerning the Company set
forth in this  Agreement,  in the  Company's  public  filings  with the SEC,  or
provided to the Lender in connection with the transactions  contemplated  hereby
is true and correct in all  material  respects and have not omitted to state any
material fact  necessary in order to make the  statements  made, in light of the
circumstances  under  which  they  were  made,  not  misleading.   No  event  or
circumstance has occurred or exists with respect to the Company or its business,
properties,   prospects,   operations  or  financial  conditions,   which  under
applicable law, rule or regulation,  requires public  disclosure or announcement
by the Company.

                                       12

<PAGE>

      r.  CONFIRMATION.  The Company confirms that all statements of the Company
contained herein shall survive  acceptance of this Agreement by the Lender.  The
Company  agrees that,  if any events occur or  circumstances  exist prior to the
Closing Date which would make any of the Company's representations,  warranties,
agreements or other information set forth herein materially untrue or materially
inaccurate as of such date, the Company shall immediately  notify the Lender and
the Escrow Agent in writing  prior to such date of such fact,  specifying  which
representation, warranty or covenant is affected and the reasons therefor.

      4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

      a. TRANSFER  RESTRICTIONS.  The Lender acknowledges that (1) the Purchased
Securities  have not been and are not being  registered  under the provisions of
the 1933 Act and,  except as provided in the  Registration  Rights  Agreement or
otherwise included in an effective registration  statement,  the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A)  subsequently  registered  thereunder  or (B) the  Lender  shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to be sold
or  transferred  may be sold or  transferred  pursuant to an exemption from such
registration;  (2) any  sale of the  Securities  made in  reliance  on Rule  144
promulgated  under the 1933 Act may be made only in accordance with the terms of
said  Rule and  further,  if said  Rule is not  applicable,  any  resale of such
Securities under  circumstances in which the seller,  or the Person through whom
the sale is made,  may be deemed to be an  underwriter,  as that term is used in
the 1933 Act, may require  compliance  with some other  exemption under the 1933
Act or the rules and  regulations  of the SEC  thereunder;  and (3)  neither the
Company nor any other Person is under any  obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.

      b. RESTRICTIVE LEGEND. The Lender acknowledges and agrees that, until such
time as the  relevant  Shares  have  been  registered  under  the 1933  Act,  as
contemplated by the Registration  Rights Agreement,  and sold in accordance with
an effective  Registration  Statement or  otherwise in  accordance  with another
effective  registration  statement  or until such Shares can  otherwise  be sold
without   restriction,   whichever  is  earlier,   the  Certificates  and  other
instruments  representing any of the Securities shall bear a restrictive  legend
in  substantially  the following form (and a  stop-transfer  order may be placed
against transfer of any such Securities):

      THESE  SECURITIES  HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF
      1933, AS AMENDED,  OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
      OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION STATEMENT
      FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER  EVIDENCE  ACCEPTABLE
      TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

                                       13
<PAGE>

      c.  FILINGS.  The  Company  undertakes  and  agrees to make all  necessary
filings in  connection  with the sale of the  Securities to the Lender under any
United States laws and regulations applicable to the Company, or by any domestic
securities  exchange  or trading  market,  and to provide a copy  thereof to the
Lender promptly after such filing.

      d. REPORTING  STATUS. So long as the Lender owns any of the Securities and
for at least  twenty (20) Trading Days  thereafter,  the Company  shall file all
reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the
1934 Act,  shall take all  reasonable  action  under its  control to ensure that
adequate current public information with respect to the Company,  as required in
accordance with Rule 144(c)(2) of the 1933 Act, is publicly available, and shall
not  terminate  its status as an issuer  required to file reports under the 1934
Act even if the 1934 Act or the rules and  regulations  thereunder  would permit
such termination.  The Company will take all reasonable action under its control
to maintain the continued  listing and quotation and trading of its Common Stock
(including,  without  limitation,  all Registrable  Securities) on the Principal
Trading Market or a listing on the NASDAQ/Small Cap or National Markets, and, to
the extent  applicable  to it, will  comply in all  material  respects  with the
Company's reporting,  filing and other obligations under the by-laws or rules of
the  Principal  Trading  Market  and/or the National  Association  of Securities
Dealers,  Inc.,  as the case may be,  applicable to it at least through the date
which is sixty  (60)  days  after  the later of the date on which (x) all of the
Debentures  have  been  converted  or have  been  paid in full or (y) all of the
Warrants have been exercised or have expired.

      e. USE OF PROCEEDS.  The Company will use the proceeds received  hereunder
for the purposes specified in Annex IX.

      f. WARRANTS.

      (i) The Company  agrees to issue to the Lender on the Closing Date two (2)
separate  transferable  warrants  (each,  a  "Warrant"  and,  collectively,  the
"Warrants"),  designated as Class 2005-A Warrants ("Class A Warrants") and Class
2005-B Warrants ("Class B Warrants"), respectively.

      (ii)  Each  Class A Warrant  shall be for the  purchase  of the  number of
shares of Common Stock equal to the number of Issue Date Conversion Shares. Each
Class A Warrant  shall have a per share  exercise  price (the  "Class A Exercise
Price")  equal to  $0.20,  subject  to  adjustment  as  provided  in the Class A
Warrant. Each Class A Warrant will be exercisable commencing on the Commencement
Date  specified  in the Class A Warrant  and  expire on the date which is on the
last day of the  calendar  month in which the fifth  annual  anniversary  of the
Closing Date occurs.

      (iii)  Each  Class B Warrant  shall be for the  purchase  of the number of
shares of Common Stock equal to the number of Issue Date Conversion Shares. Each
Class B Warrant  shall have a per share  exercise  price (the  "Class B Exercise
Price") equal to the Fixed Conversion  Price,  subject to adjustment as provided
in the Class B Warrant.  Each Class B Warrant will be exercisable  commencing on
the  Commencement  Date  specified in the Class B Warrant and expire on the date
which is the Class B Expiration Date (as defined below). The term "Class B

                                       14
<PAGE>

Expiration  Date"  means  the date  which is  eighteen  (18)  months  after  the
Effective  Date,  but not counting for such  purposes the days,  if any,  during
which sale of Registrable Securities was suspended after the Effective Date.(2)

      (iv) Each of the Warrants shall be in the form annexed hereto as Annex IV.

      (v)  All  Warrant  Shares  shall  be  subject  to  the  provisions  of the
Registration Rights Agreement.

      g. CERTAIN AGREEMENTS.

      (i) (A) The  Company  covenants  and  agrees  that,  subject  to the other
      provisions of this Section 4(g),  during the period (the "New  Transaction
      Period")  from the Closing Date and  continuing  through and including the
      conversion or payment in full of the Debenture,  it will not,  without the
      prior  written  consent of a Majority  in  Interest of the Holders in each
      instance,  which consent is in the sole  discretion of the Holders and may
      withheld  for any  reason or for no reason  whatsoever,  enter  into a New
      Transaction  where either (X) the New Transaction Price (as defined below)
      is or could  be  below  the  Threshold  Price  or (Y) the New  Transaction
      Exercise  Price of any New  Transaction  Warrants (as defined below) is or
      could be lower than the Threshold  Price.  A New  Transaction  meeting the
      conditions  of either or both of  clauses  (X) and (Y) of the  immediately
      preceding sentence is referred to as a "Lower Price Transaction."

      (B)  The  Company  agrees  that,  in the  event  there  is a  Lower  Price
      Transaction during the New Transaction Period, then

      (1)   the then applicable  Conversion Price for any Unconverted  Debenture
            (as defined in the  Debenture")  shall be adjusted to an amount (the
            "Adjusted Conversion Price") equal to the New Transaction Price; but
            in no event shall the Adjusted  Conversion  Price be higher than the
            Conversion  Price in effect  immediately  before  the  relevant  New
            Transaction;

--------------------------------
2     By way of illustration: If the Effective Date is June 30, 2005, the
      initial Class B Expiration Date would be December 31, 2006. If, however,
      the sale of Registrable Securities was suspended in the interim for ten
      (10) days, the applicable Class B Expiration Date will be January 10,
      2007. If on January 5, 2007, the sale of Registrable Securities was
      suspended again for five (5) days, the Class B Expiration Date will be
      January 15, 2007.

                                       15
<PAGE>

      (2)   if the Holder had previously converted any portion of the Debenture,
            the  Company  will issue to the Holder  additional  shares of Common
            Stock ("Additional  Conversion Shares") equal to the excess, if any,
            of (x) (I) the principal of such previously converted Debenture plus
            interest  thereon (unless such interest was paid in cash) divided by
            (II) the Adjusted Per Share Purchase Price,  over (y) the sum of the
            number of Conversion  Shares  (including for such purposes shares of
            Common  Stock  issued in payment  of  interest  on such  Debentures)
            previously issued and the number,  if any, of Additional  Conversion
            Shares previously issued;

      (3)   if the exercise price of the warrants,  option or similar instrument
            (howsoever  denominated;  collectively,  "New Transaction Warrants")
            included  in such New  Transaction  (the "New  Transaction  Exercise
            Price") is lower than the then effective Exercise Price on the Class
            A Warrants or if there is a Lower Price Transaction which results in
            an Adjusted  Conversion  Price,  then (i) the Exercise  Price of the
            Class A Warrants  shall be  adjusted  to equal the lowest of (x) the
            New  Transaction  Exercise Price, or (y) four hundred percent (400%)
            of the Adjusted Conversion Price; and (ii) the Exercise Price of the
            Class B Warrants shall be adjusted to  twenty-five  percent (25%) of
            the adjusted Exercise Price of the Class A Warrants; but in no event
            shall the  Exercise  Price of any Warrant be adjusted to an Exercise
            Price  higher  than the  Exercise  Price for such  Warrant in effect
            immediately before the relevant New Transaction; and

      (4)   if the Holder had previously exercised any portion of either or both
            of the Class A Warrants  or the Class B Warrants,  the Company  will
            issue to the Holder additional  shares of Common Stock  ("Additional
            Warrant Shares") equal to the excess,  if any, of (x) (I) the number
            of shares of the  Exercise  Price paid by the  Holder in  connection
            with such previous  exercise  divided by (II) the adjusted  exercise
            price determined as provided in the immediately preceding clause (3)
            for the relevant class of Warrant, over (y) the sum of the number of
            Warrant  Shares  previously  issued  with  respect  to that class of
            Warrants  and the  number,  if any,  of  Additional  Warrant  Shares
            previously issued with respect to that class of Warrants.

      (C) The Company agrees that,  with respect to any New  Transaction  during
the New  Transaction  Period,  whether or not such  transaction is a Lower Price
Transaction,

      (1)   if the  provisions  of the  preferred  stock,  debenture  or similar
            instrument (howsoever  denominated),  if any, of the New Transaction
            are  more  beneficial  to the  holder  of such  instrument  than the
            corresponding  terms of the  Debenture,(3) or if the terms which are
            beneficial  to the  Company in the  Debentures  (as  provided in the
            Debenture  or in any of the other  Transaction  Agreements)  are not
            included  in the  corresponding  instrument  in the New  Transaction
            (howsoever  denominated),  then,  unless  waived by the Holder,  the
            terms  applicable  to the  Debentures  shall be  modified to reflect
            similar terms (based on the original  issue date of the  Debenture);
            and

--------------------------------
3     Without limiting the foregoing, by way of example: the dividend rate or
      the interest rate, as the case may be, of the instrument in the New
      Transaction is more than the interest rate of the Debentures as in effect
      at the time (after taking into account any prior adjustments thereto).

                                       16
<PAGE>

      (2)   if  the  provisions  of  the  New  Transaction   Warrant,  are  more
            beneficial to the holder of such instrument  than the  corresponding
            terms  of  the  Class  A  Warrant,(4)  or if  the  terms  which  are
            beneficial  to the Company in the  Debentures or the Class A Warrant
            are  not  included  in  the  corresponding  instrument  in  the  New
            Transaction,  then, unless waived by the Holder, the Class A and the
            Class B Warrant  terms shall be modified  to reflect  similar  terms
            (based on the original issue date of the Warrants),  except that, if
            such  modification  effects a later  expiration  date of the Class A
            Warrant,  the Class B Expiration  Date shall be extended by a period
            equal to  fifteen  percent  (15%) of the period by which the Class A
            Warrant expiration date was extended;

      (3)   the number of Class A Warrants issued shall be adjusted to equal the
            number of shares equal to (x) the higher of (I) one hundred  percent
            (100%)  or (II)  the  Alternative  Warrant  Percentage  (as  defined
            below),  of (y) the  Purchase  Price  divided  by the  lower  of the
            Conversion  Price in effect  immediately  before the New Transaction
            or, if  applicable,  the Adjusted  Conversion  Price (such  adjusted
            number, the "Adjusted Class A Warrant Shares"); and

      (4)   provided the Class B Expiration Date has not yet occurred before the
            consummation of the New Transaction,  the number of Class B Warrants
            issued  shall be  adjusted to equal the same number of shares as the
            Adjusted Class A Warrant  Shares,  as determined in accordance  with
            the immediately preceding subparagraph (3) hereof.

      (ii) For  purposes  of this  Agreement,  the  following  terms  shall have
meanings indicated:

      (A) "New  Transaction  Price" means the lower of the Basic New Transaction
      Price or, if the New  Transaction  Warrant  Price is lower  than the Basic
      Threshold Price (as defined below), the New Transaction Warrant Price.

--------------------------------
4     Without limiting the foregoing, by way of example: the expiration date of
      the instrument in the New Transaction is more than five years from its
      original issue date.

                                       17
<PAGE>

      (B) "Basic New Transaction  Price" means,  as may be applicable,  on a per
      share  basis,  the lower of (1) the  lowest  fixed  purchase  price of any
      shares of the New Common Stock  contemplated in the New Transaction or (2)
      the lowest conversion price or put or call price which would be applicable
      under the terms of the New  Transaction;  in each such case,  whether such
      purchase  or  conversion  price or put or call  price is  stated  or could
      result  from  adjustments  or  revisions   contemplated  in  the  relevant
      agreements  for  the New  Transaction  and  whenever  such  adjustment  or
      revision would be applicable (and if no minimum purchase price, conversion
      price  or put or call  price,  as the  case  may be,  is set,  it shall be
      assumed that such minimum purchase price or conversion price is $.01); and
      provided,  further,  that, if the securities issued in the New Transaction
      are issued at a discount,  the New Transaction  Price shall be adjusted to
      reflect such discount.(5)

      (C) "New  Transaction  Exercise Price" means the lowest exercise price per
      share applicable to a New Transaction Warrant, whether such exercise price
      is stated or could result from  adjustments or revisions  contemplated  in
      the relevant agreements for the New Transaction and whenever such exercise
      price would be applicable  (and, if no minimum  exercise  price is set, it
      shall be assumed that such minimum exercise price is $.01).

      (D) "Alternative  Warrant Percentage" means (1) the number of shares which
      are eligible to be purchased under the New Transaction  Warrants,  divided
      by (2) the  aggregate of the shares of New Common Stock issued or issuable
      in such transaction  (excluding the shares issuable on exercise of the New
      Transaction Warrants).

      (E) "Threshold  Price" means (i) for issuances  other than New Transaction
      Warrants  (except  as  contemplated  by clause  (A) above of this  Section
      4(g)(ii)),  the lower of $0.05 per share or the Adjusted  Conversion Price
      (subject in each case to adjustment  in the same manner as the  Conversion
      Price is adjusted  pursuant to the  Debentures,  other than as a result of
      the  application of this Section 4(g)) (the "Basic  Threshold  Price") and
      (ii) for New  Transaction  Warrants,  the lower of $0.20 per share or then
      applicable Exercise Price of the Class A Warrants (subject in each case to
      adjustment in the same manner as the Exercise  Price is adjusted  pursuant
      to the Warrants, other than as a result of the application of this Section
      4(g)).

      (F)  "Additional  Shares" means the Additional  Conversion  Shares and the
      Additional Warrant Shares, if any.

      (iii) Nothing in the foregoing provisions reflects either an obligation on
the part of any Lender to participate in any New  Transaction or a limitation on
any Lender from participating in any New Transaction.

--------------------------------
5     By way of illustration, if convertible preferred shares having a stated
      value of $1 million and a fixed conversion price of $0.05 were sold for a
      purchase price of $800,000, the effective New Transaction Price would be
      $0.04.

                                       18
<PAGE>

      (iv) Any of the  foregoing  provisions  of this  Section 4(g) or any other
provision of this  Agreement or any of the other  Transaction  Agreements to the
contrary  notwithstanding,  the Company shall not engage in any offers, sales or
other  transactions of its securities which would adversely affect the exemption
from registration available for the transactions contemplated by the Transaction
Agreements.

      h.  AVAILABLE  SHARES.  Subject  to the  provisions  of Annex VI  attached
hereto,  the  Company  shall  have at all  times  authorized  and  reserved  for
issuance,  free  from  preemptive  rights,  a number  of  shares  (the  "Minimum
Available Shares") at least equal to (x) one hundred  twenty-five percent (125%)
of the number of shares of Common  Stock  issuable as may be required to satisfy
the conversion rights of the Holders of principal on all outstanding  Debentures
plus (y) one hundred ten percent  (110%) of the number of shares  issuable  upon
exercise of all outstanding  Warrants held by all Holders (in each case, whether
such Debentures or Warrants were originally issued to the Holder,  the Lender or
to any other party). For the purposes of such  calculations,  the Company should
assume that all  Convertible  Debentures  for the Total Purchase Price were then
issued  and  convertible   and  all  related   Warrants  were  then  issued  and
exercisable,  in  each  case  without  regard  to  any  restrictions  (including
restrictions  as to date or amount)  which  might  limit any  Holder's  right to
convert any of the  Convertible  Debentures  or to exercise  any of the Warrants
held by any Holder.

      i. PUBLICITY,  FILINGS,  RELEASES, ETC. Each of the parties agrees that it
will not disseminate any information  relating to the Transaction  Agreements or
the transactions  contemplated  thereby,  including  issuing any press releases,
holding  any  press   conferences  or  other  forums,   or  filing  any  reports
(collectively,  "Publicity"),  without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such  Publicity any statement or statements or other  material to
which the other party reasonably  objects,  unless in the reasonable  opinion of
counsel  to the party  proposing  such  statement,  such  statement  is  legally
required to be  included.  In  furtherance  of the  foregoing,  the Company will
provide to the Lender  drafts of the  applicable  text of the first  filing of a
Current  Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
intended to be made with the SEC which refers to the  Transaction  Agreements or
the transactions  contemplated  thereby as soon as practicable (but at least two
(2)  Trading  Days  before  such  filing  will be made) will not include in such
filing any statement or  statements  or other  material to which the other party
reasonably  objects,  unless in the  reasonable  opinion of counsel to the party
proposing such  statement,  such  statement is legally  required to be included.
Notwithstanding  the  foregoing,  each of the  parties  hereby  consents  to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
as well as any  descriptive  text  accompanying  or part of such filing which is
accurate  and  reasonably  determined  by the  Company's  counsel  to be legally
required.  Notwithstanding,  but subject to, the  foregoing  provisions  of this
Section 4(i), the Company will,  after the Closing Date,  promptly issue a press
release and file a Current Report on Form 8-K or, if appropriate, a quarterly or
annual  report  on  the  appropriate   form,   referring  to  the   transactions
contemplated by the Transaction Agreements.

      j. INDEPENDENT NATURE OF LENDERS'  OBLIGATIONS AND RIGHTS. The obligations
of each Lender under the  Transaction  Agreements are several and not joint with
the  obligations of any other Lender,  and no Lender shall be responsible in any
way for the performance of the obligations of any Other Lender under any one or

                                       19
<PAGE>

more of the Transaction Agreements.  The decision of each Lender or Other Lender
to purchase Purchased Securities pursuant to the Transaction Agreements has been
made by such Lender independently of any Other Lender.  Nothing contained herein
or in any  Transaction  Agreement,  and no action  taken by any Lender  pursuant
thereto, shall be deemed to constitute any two or more Lenders as a partnership,
an  association,  a joint  venture  or any  other  kind of  entity,  or create a
presumption that the Lenders are in any way acting in concert or as a group with
respect to such obligations or the transactions  contemplated by the Transaction
Agreements. Each Lender acknowledges that no Other Lender has acted as agent for
such Lender in  connection  with  making its  investment  hereunder  and that no
Lender  will be  acting  as  agent  of such  Other  Lender  in  connection  with
monitoring  its  investment in the Purchased  Securities or enforcing its rights
under the Transaction Agreements. Each Lender 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  Agreements,  and it shall
not be necessary for any Other Lender to be joined as an additional party in any
proceeding for such purpose.  The Company  acknowledges that each of the Lenders
has been  provided  with the same  Transaction  Agreements  for the  purpose  of
closing a transaction  with multiple  Lenders and not because it was required or
requested to do so by any Lender.

      k. EQUAL TREATMENT OF LENDERS.  No consideration  shall be offered or paid
to any person to amend or consent to a waiver or  modification  of any provision
of any of the  Transaction  Agreements  unless  the same  consideration  is also
offered to all of the parties to the Transaction Agreements.

      l. INDEPENDENT  INVESTMENT DECISION.  No Lender has agreed to act with any
Other Lender for the purpose of acquiring,  holding,  voting or disposing of the
Securities  purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Lender is acting  independently  with respect to its investment in
the  Securities.  The decision of each Lender to purchase  Purchased  Securities
pursuant to this  Agreement  has been made by such Lender  independently  of any
other purchase 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 its subsidiaries which may have made or given by any
Other Lender or by any agent or employee of any Other  Lender,  and no Lender or
any of its agents or employees  shall have any liability to any Other Lender (or
any other person) relating to or arising from any such  information,  materials,
statements or opinions.

      m.  AMENDMENT OF CERTAIN  OUTSTANDING  WARRANTS.  Reference is made to the
Class  2004-B  Common  Stock  Purchase  Warrants  (the  "Existing  Class  2004-B
Warrants")  issued by the Company to the entities  identified on Annex X annexed
hereto (the "Class  2004-B  Warrant  Holders")  on the dates  specified  on said
Annex. The Company hereby agrees that each of the Existing Class 2004-B Warrants
is amended as provided in Annex X. Each of the Class 2004-B Warrant Holders is a
third party beneficiary of this provision.

      5. TRANSFER AGENT INSTRUCTIONS.

                                       20
<PAGE>

      a. The Company  warrants that, with respect to the Securities,  other than
the stop transfer  instructions  to give effect to Section 4(a) hereof,  it will
give the Transfer Agent no instructions  inconsistent with instructions to issue
Common Stock from time to time upon  conversion of the Debentures or exercise of
the Warrants or in connection with the issuance of Additional  Shares or Payment
Shares,  as may be  applicable  from time to time,  in such amounts as specified
from time to time by the Company to the Transfer Agent,  bearing the restrictive
legend  specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act,  registered  in the name of the Lender or its nominee
and in such denominations to be specified by the Holder in connection therewith.
Except as so provided,  the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other  Transaction  Agreements.  Nothing in this Section shall affect in
any way the Lender's  obligations  and  agreement to comply with all  applicable
securities  laws upon  resale of the  Securities.  If the  Lender  provides  the
Company with an opinion of counsel  reasonably  satisfactory to the Company that
registration  of a resale by the Lender of any of the  Securities  in accordance
with clause (1)(B) of Section 4(a) of this  Agreement is not required  under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this  Agreement)  permit the transfer of the Securities  and, in the case of the
Conversion Shares,  Warrant Shares,  Additional Shares or Payment Shares, as may
be  applicable,  promptly  instruct  the  Transfer  Agent to  issue  one or more
certificates  for  Common  Stock  without  legend  in  such  name  and  in  such
denominations as specified by the Lender.

      b. Subject to the  provisions of this  Agreement,  the Company will permit
the Lender to exercise its right to convert the Debentures in the manner provide
in the Debentures and to exercise the Warrants in the manner contemplated by the
Warrants.

      c. (i) The Company  understands that a delay in the issuance of the Shares
of Common  Stock beyond the Delivery  Date (as defined in the  Debenture)  could
result in economic loss to the Lender.  As  compensation  to the Lender for such
loss, the Company agrees to pay late payments to the Lender for late issuance of
Shares upon  conversion in accordance  with the following  schedule  (where "No.
Business Days Late" refers to the number of Trading Days which is beyond two (2)
Trading Days after the Delivery Date):(6)

                                             Late Payment For Each $10,000
No. Business Days Late Being Converted          of Principal or Interest
--------------------------------------          ------------------------

      1                                           $100
      2                                           $200
      3                                           $300

--------------------------------
6     Example: Notice of Conversion is delivered on Monday, August 1, 2005. The
      Delivery Date would be Thursday, August 4 (the third Trading Day after
      such delivery). If the certificate is delivered by Monday, August 8 (2
      Trading Days after the Delivery Date), no payment under this provision is
      due. If the certificates are delivered on August 9, that is 1 "Business
      Day Late" in the table below; if delivered on August 16, that is 6
      "Business Days Late" in the table.

                                       21
<PAGE>

      4                                           $400
      5                                           $500
      6                                           $600
      7                                           $700
      8                                           $800
      9                                           $900
      10                                          $1,000
      >10                                         $1,000  + $200  for  each
                                                   Business Day Late beyond
                                                   10 days

The Company shall pay any payments  incurred  under this Section in  immediately
available  funds upon demand as the Lender's  exclusive  remedy  (other than the
following  provisions  of this  Section  5(c)) for such delay.  Furthermore,  in
addition to any other  remedies  which may be  available  to the Lender,  in the
event that the Company fails for any reason to effect delivery of such shares of
Common  Stock by close of  business  on the  Delivery  Date,  the Lender will be
entitled to revoke the relevant  Notice of  Conversion by delivering a notice to
such effect to the Company,  whereupon  the Company and the Lender shall each be
restored to their  respective  positions  immediately  prior to delivery of such
Notice of Conversion;  provided,  however,  that an amount equal to any payments
contemplated  by this Section  5(c) which have accrued  through the date of such
revocation   notice  shall  remain  due  and  owing  to  the  Converting  Holder
notwithstanding such revocation.

      (ii) If, by the relevant  Delivery  Date, the Company fails for any reason
to deliver the Shares to be issued upon conversion of a Debenture and after such
Delivery  Date,  the Holder of the  Debentures  being  converted (a  "Converting
Holder")  purchases,  in an arm's-length  open market  transaction or otherwise,
shares of Common  Stock (the  "Covering  Shares")  in order to make  delivery in
satisfaction  of a sale of Common  Stock by the  Converting  Holder  (the  "Sold
Shares"),  which delivery such Converting  Holder  anticipated to make using the
Shares to be issued upon such  conversion (a "Buy-In"),  the  Converting  Holder
shall  have the  right,  in  addition  to and not in lieu of all  other  amounts
contemplated in other provisions of the Transaction Agreements,  including,  but
not limited to, the provisions of the immediately  preceding  Section  5(c)(i)),
the Buy-In Adjustment Amount (as defined below).  The "Buy-In Adjustment Amount"
is the amount equal to the number of Sold Shares  multiplied  by the excess,  if
any, of (x) the Converting  Holder's  total purchase price per share  (including
brokerage commissions, if any) for the Covering Shares over (y) the net proceeds
per share  (after  brokerage  commissions,  if any)  received by the  Converting
Holder  from the sale of the Sold  Shares.  The  Company  shall  pay the  Buy-In
Adjustment  Amount to the  Converting  Holder  in  immediately  available  funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing,  if the Converting  Holder  purchases  shares of
Common Stock having a total purchase price (including brokerage  commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.

      d. In lieu of delivering  physical  certificates  representing  the Common
Stock  issuable upon  conversion of the Debenture or exercise of a Warrant or at
the request of the Holder with respect to any Shares previously issued, provided

                                       22
<PAGE>

the Transfer Agent is participating in the Depository Trust Company ("DTC") Fast
Automated  Securities  Transfer  program,  upon  request  of the  Holder and its
compliance  with the  provisions  contained  in this  paragraph,  so long as the
certificates  therefor  do not  bear a  legend  and the  Holder  thereof  is not
obligated to return such certificate for the placement of a legend thereon,  the
Company shall use its best efforts to cause the Transfer Agent to electronically
transmit  to the  Holder  the  Common  Stock  issuable  upon  conversion  of the
Debenture or exercise of the Warrant or in replacement of any Shares  previously
issued by  crediting  the account of Holder's  Prime Broker with DTC through its
Deposit Withdrawal Agent Commission system.

      e. The Company  shall assume any fees or charges of the Transfer  Agent or
Company  counsel  regarding  (i)  the  removal  of a  legend  or  stop  transfer
instructions  with respect to Registrable  Securities,  and (ii) the issuance of
certificates or DTC registration to or in the name of the Holder or the Holder's
designee  or  to a  transferee  as  contemplated  by an  effective  Registration
Statement.

      f.  The  holder  of any  Debenture  shall  be  entitled  to  exercise  its
conversion   privilege  with  respect  to  the  Debenture   notwithstanding  the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the  Company is a debtor  under the  Bankruptcy  Code,  the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C.  ss.362 in respect of such holder's  conversion  privilege.  The
Company hereby waives, to the fullest extent permitted,  any rights to relief it
may have under 11 U.S.C.  ss.362 in respect of the  conversion of the Debenture.
The  Company  agrees,  without  cost or  expense to such  holder,  to take or to
consent to any and all action  necessary  to  effectuate  relief under 11 U.S.C.
ss.362.

      g. The Company  will  authorize  the  Transfer  Agent to give  information
relating to the Company  directly to the Lender or the Lender's  representatives
upon the  request of the Lender or any such  representative,  to the extent such
information  relates  to (i) the  status of shares  of  Common  Stock  issued or
claimed to be issued to the Lender in connection  with a Notice of Conversion or
a Notice of Exercise,  or (ii) the  aggregate  number of  outstanding  shares of
Common Stock of all  shareholders  (as a group,  and not  individually)  as of a
current or other specified date. At the request of the Lender,  the Company will
provide the Lender  with a copy of the  authorization  so given to the  Transfer
Agent.

6.    CLOSING DATE.

      a. The Closing Date shall occur on the date which is the first Trading Day
after each of the conditions  contemplated by Sections 7 and 8 hereof shall have
either been satisfied or been waived by the party in whose favor such conditions
run.

      b. The closing of the purchase and  issuance of the  Purchased  Securities
shall  occur on the Closing  Date at the  offices of the Escrow  Agent and shall
take  place no later than 3:00  P.M.,  New York time,  on such day or such other
time as is mutually agreed upon by the Company and the Lender.

                                       23
<PAGE>

      c.  Notwithstanding  anything to the contrary contained herein, the Escrow
Agent will be  authorized  to release  the Escrow  Funds to the  Company  and to
others  and to  release  the other  Escrow  Property  on the  Closing  Date upon
satisfaction  of the  conditions  set forth in  Sections  7 and 8 hereof  and as
provided in the Joint Escrow Instructions.

7.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The Lender understands that the Company's obligation to sell the Purchased
Securities  to the Lender  pursuant to this  Agreement  on the  Closing  Date is
conditioned upon:

      a. The execution and delivery of this Agreement by the Lender on or before
the Closing Date;

      b.  Delivery by the Lender to the Escrow Agent by the Closing Date of good
funds as payment in full of an amount equal to the Purchase  Price in accordance
with this Agreement;

      c. The accuracy on such Closing Date of the representations and warranties
of the Lender contained in this Agreement, each as if made on such date, and the
performance by the Lender on or before such date of all covenants and agreements
of the Lender required to be performed on or before such date; and

      d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions  contemplated  hereby,  or requiring any consent or
approval which shall not have been obtained.

8.    CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.

      The Company  understands  that the  Lender's  obligation  to purchase  the
Purchased Securities on the Closing Date is conditioned upon:

      a. The execution and delivery of this Agreement and the other  Transaction
Agreements by the Company on or before the Closing Date;

      b.  Delivery by the  Company to the Escrow  Agent of the  Certificates  in
accordance with this Agreement;

      c. On such Closing Date,  each of the Transaction  Agreements  executed by
the  Company  on or before  such date  shall be in full force and effect and the
Company shall not be in default thereunder;

                                       24
<PAGE>

      d. The  accuracy  in all  material  respects on such  Closing  Date of the
representations and warranties of the Company contained in this Agreement,  each
as if made on such date,  and the  performance  by the Company on or before such
date of all covenants and agreements of the Company  required to be performed on
or before such date;

      e. On such  Closing  Date,  the Lender  shall have  received an opinion of
counsel for the Company,  dated such Closing Date, in form,  scope and substance
reasonably satisfactory to the Lender,  substantially to the effect set forth in
Annex III attached hereto;

      f. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions  contemplated  hereby,  or requiring any consent or
approval which shall not have been obtained; and

      g. From and after the date hereof to and including the Closing Date,  each
of the following conditions will remain in effect: (i) the trading of the Common
Stock  shall  not have been  suspended  by the SEC or on the  Principal  Trading
Market;  (ii) trading in securities  generally on the Principal  Trading  Market
shall not have been  suspended  or limited;  (iii) no minimum  prices shall have
been established for securities traded on the Principal Trading Market; and (iv)
there shall not have been any material adverse change in any financial market.

9.    INDEMNIFICATION AND REIMBURSEMENT.

      a. (i) The Company  agrees to indemnify  and hold  harmless the Lender and
its officers,  directors,  employees, and agents, and each Lender Control Person
from and against any losses, claims,  damages,  liabilities or expenses incurred
(collectively,  "Damages"),  joint or several, and any action in respect thereof
to which the Lender, its partners, Affiliates,  officers, directors,  employees,
and duly authorized  agents,  and any such Lender Control Person becomes subject
to, resulting from, arising out of or relating to any misrepresentation,  breach
of warranty or nonfulfillment of or failure to perform any covenant or agreement
on the  part of  Company  contained  in this  Agreement,  as  such  Damages  are
incurred,  except to the extent such  Damages  result  primarily  from  Lender's
failure to perform any covenant or agreement  contained in this Agreement or the
Lender's or its  officer's,  director's,  employee's,  agent's or Lender Control
Person's  gross  negligence,   recklessness  or  bad  faith  in  performing  its
obligations under this Agreement.

      (ii) The Company  hereby agrees that, if the Lender,  other than by reason
of its gross  negligence,  illegal  or  willful  misconduct  (in each  case,  as
determined by a non-appealable judgment to such effect), (x) becomes involved in
any  capacity  in  any  action,  proceeding  or  investigation  brought  by  any
shareholder  of  the  Company,  in  connection  with  or  as  a  result  of  the
consummation  of the  transactions  contemplated  by this Agreement or the other
Transaction  Agreements,  or if the  Lender  is  impleaded  in any such  action,
proceeding  or  investigation  by any  Person,  or (y)  becomes  involved in any
capacity in any action,  proceeding  or  investigation  brought by the SEC,  any
self-regulatory  organization  or other  body  having  jurisdiction,  against or
involving the Company or in connection  with or as a result of the  consummation
of the  transactions  contemplated  by this  Agreement or the other  Transaction
Agreements,  or (z) is impleaded in any such action, proceeding or investigation
by any Person,  then in any such case, the Company shall  indemnify,  defend and
hold harmless the Lender from and against and in respect of all losses,  claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the

                                       25
<PAGE>

Lender,  directly or  indirectly,  and reimburse  such Lender for its reasonable
legal  and  other  expenses   (including  the  cost  of  any  investigation  and
preparation)  incurred in connection  therewith,  as such expenses are incurred.
The  indemnification  and  reimbursement  obligations  of the Company under this
paragraph  shall be in addition to any liability which the Company may otherwise
have,  shall extend upon the same terms and  conditions to any Affiliates of the
Lender who are actually named in such action,  proceeding or investigation,  and
partners,  directors,  agents, employees and Lender Control Persons (if any), as
the case may be, of the Lender and any such Affiliate, and shall be binding upon
and  inure  to the  benefit  of any  successors,  assigns,  heirs  and  personal
representatives  of the Company,  the Lender,  any such  Affiliate  and any such
Person.  The Company also agrees that neither the Lender nor any such Affiliate,
partner,  director,  agent,  employee or Lender  Control  Person  shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in  connection  with or as a result of the  consummation  of this
Agreement or the other  Transaction  Agreements,  except as may be expressly and
specifically provided in or contemplated by this Agreement.

      b. All claims for  indemnification  by any  Indemnified  Party (as defined
below) under this Section shall be asserted and resolved as follows:

            (i) In the event any claim or demand in  respect of which any Person
claiming  indemnification  under any provision of this Section (an  "Indemnified
Party")  might seek  indemnity  under  paragraph (a) of this Section is asserted
against or sought to be collected from such Indemnified  Party by a Person other
than a party  hereto or an  Affiliate  thereof  (a  "Third  Party  Claim"),  the
Indemnified Party shall deliver a written notification,  enclosing a copy of all
papers  served,  if any, and  specifying  the nature of and basis for such Third
Party Claim and for the Indemnified  Party's claim for  indemnification  that is
being  asserted  under any  provision  of this  Section  against any Person (the
"Indemnifying  Party"),  together  with the  amount  or, if not then  reasonably
ascertainable,  the estimated  amount,  determined in good faith,  of such Third
Party Claim (a "Claim  Notice") with reasonable  promptness to the  Indemnifying
Party.  If the  Indemnified  Party  fails  to  provide  the  Claim  Notice  with
reasonable  promptness after the Indemnified Party receives notice of such Third
Party Claim,  the  Indemnifying  Party shall not be  obligated to indemnify  the
Indemnified  Party with respect to such Third Party Claim to the extent that the
Indemnifying  Party's  ability to defend has been  prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as  practicable  within the period  ending  thirty  (30)  calendar  days
following  receipt  by the  Indemnifying  Party of  either a Claim  Notice or an
Indemnity  Notice  (as  defined  below)  (the  "Dispute   Period")  whether  the
Indemnifying  Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.

      (x) If the  Indemnifying  Party notifies the Indemnified  Party within the
      Dispute  Period  that  the  Indemnifying   Party  desires  to  defend  the
      Indemnified  Party with respect to the Third Party Claim  pursuant to this
      paragraph (b) of this Section,  then the Indemnifying Party shall have the
      right to defend,  with counsel reasonably  satisfactory to the Indemnified
      Party, at the sole cost and expense of the Indemnifying  Party, such Third

                                       26
<PAGE>

      Party Claim by all appropriate  proceedings,  which  proceedings  shall be
      vigorously and diligently  prosecuted by the Indemnifying Party to a final
      conclusion or will be settled at the discretion of the Indemnifying  Party
      (but only with the  consent  of the  Indemnified  Party in the case of any
      settlement that provides for any relief other than the payment of monetary
      damages or that  provides for the payment of monetary  damages as to which
      the  Indemnified  Party  shall  not be  indemnified  in full  pursuant  to
      paragraph (a) of this  Section).  The  Indemnifying  Party shall have full
      control of such  defense and  proceedings,  including  any  compromise  or
      settlement thereof; provided,  however, that the Indemnified Party may, at
      the sole cost and expense of the  Indemnified  Party, at any time prior to
      the  Indemnifying  Party's delivery of the notice referred to in the first
      sentence  of this  subparagraph  (x),  file any  motion,  answer  or other
      pleadings or take any other action that the Indemnified  Party  reasonably
      believes  to be  necessary  or  appropriate  protect  its  interests;  and
      provided  further,  that  if  requested  by the  Indemnifying  Party,  the
      Indemnified  Party will, at the sole cost and expense of the  Indemnifying
      Party,  provide  reasonable  cooperation  to  the  Indemnifying  Party  in
      contesting  any Third Party Claim that the  Indemnifying  Party  elects to
      contest.  The Indemnified  Party may participate in, but not control,  any
      defense  or  settlement  of  any  Third  Party  Claim  controlled  by  the
      Indemnifying  Party  pursuant  to this  subparagraph  (x),  and  except as
      provided in the preceding  sentence,  the Indemnified Party shall bear its
      own costs and expenses with respect to such participation. Notwithstanding
      the  foregoing,  the  Indemnified  Party may take over the  control of the
      defense or settlement of a Third Party Claim at any time if it irrevocably
      waives its right to  indemnity  under  paragraph  (a) of this Section with
      respect to such Third Party Claim.

      (y) If the Indemnifying Party fails to notify the Indemnified Party within
      the Dispute Period that the Indemnifying Party desires to defend the Third
      Party  Claim  pursuant  to  paragraph  (b)  of  this  Section,  or if  the
      Indemnifying Party gives such notice but fails to prosecute vigorously and
      diligently or settle the Third Party Claim, or if the  Indemnifying  Party
      fails to give any notice  whatsoever  within the Dispute Period,  then the
      Indemnified  Party  shall have the right to  defend,  at the sole cost and
      expense  of  the  Indemnifying   Party,  the  Third  Party  Claim  by  all
      appropriate  proceedings,  which  proceedings  shall be  prosecuted by the
      Indemnified  Party in a  reasonable  manner  and in good  faith or will be
      settled at the  discretion of the  Indemnified  Party (with the consent of
      the Indemnifying Party, which consent will not be unreasonably  withheld).
      The  Indemnified  Party  will  have  full  control  of  such  defense  and
      proceedings,  including any  compromise or settlement  thereof;  provided,
      however,  that if requested by the  Indemnified  Party,  the  Indemnifying
      Party  will,  at the sole  cost and  expense  of the  Indemnifying  Party,
      provide reasonable cooperation to the Indemnified Party and its counsel in
      contesting  any  Third  Party  Claim  which  the   Indemnified   Party  is
      contesting.  Notwithstanding the foregoing provisions of this subparagraph
      (y), if the Indemnifying  Party has notified the Indemnified  Party within
      the Dispute Period that the  Indemnifying  Party disputes its liability or
      the  amount of its  liability  hereunder  to the  Indemnified  Party  with
      respect to such Third Party Claim and if such dispute is resolved in favor
      of the Indemnifying Party in the manner provided in subparagraph(z) below,

                                       27
<PAGE>

      the Indemnifying Party will not be required to bear the costs and expenses
      of the Indemnified Party's defense pursuant to this subparagraph (y) or of
      the Indemnifying Party's  participation therein at the Indemnified Party's
      request,  and the Indemnified Party shall reimburse the Indemnifying Party
      in full for all reasonable costs and expenses incurred by the Indemnifying
      Party in  connection  with such  litigation.  The  Indemnifying  Party may
      participate in, but not control,  any defense or settlement  controlled by
      the  Indemnified   Party  pursuant  to  this  subparagraph  (y),  and  the
      Indemnifying  Party shall bear its own costs and expenses  with respect to
      such participation.

      (z) If the Indemnifying  Party notifies the Indemnified Party that it does
      not  dispute  its  liability  or  the  amount  of  its  liability  to  the
      Indemnified  Party with  respect to the Third Party Claim under  paragraph
      (a) of this  Section or fails to notify the  Indemnified  Party within the
      Dispute  Period whether the  Indemnifying  Party disputes its liability or
      the amount of its liability to the Indemnified  Party with respect to such
      Third Party  Claim,  the amount of Damages  specified  in the Claim Notice
      shall be conclusively  deemed a liability of the Indemnifying  Party under
      paragraph  (a) of this  Section and the  Indemnifying  Party shall pay the
      amount  of  such  Damages  to the  Indemnified  Party  on  demand.  If the
      Indemnifying  Party has timely disputed its liability or the amount of its
      liability  with  respect to such  claim,  the  Indemnifying  Party and the
      Indemnified Party shall proceed in good faith to negotiate a resolution of
      such  dispute;  provided,  however,  that if the  dispute is not  resolved
      within thirty (30) days after the Claim  Notice,  the  Indemnifying  Party
      shall be entitled to institute such legal action as it deems appropriate.

            (ii) In the event any  Indemnified  Party  should have a claim under
paragraph  (a) of this  Section  against  the  Indemnifying  Party that does not
involve a Third Party  Claim,  the  Indemnified  Party  shall  deliver a written
notification  of a claim  for  indemnity  under  paragraph  (a) of this  Section
specifying the nature of and basis for such claim,  together with the amount or,
if not then reasonably  ascertainable,  the estimated amount, determined in good
faith, of such claim (an "Indemnity  Notice") with reasonable  promptness to the
Indemnifying  Party. The failure by any Indemnified  Party to give the Indemnity
Notice shall not impair such party's rights  hereunder except to the extent that
the Indemnifying  Party  demonstrates  that it has been  irreparably  prejudiced
thereby.  If the Indemnifying  Party notifies the Indemnified Party that it does
not dispute  the claim or the amount of the claim  described  in such  Indemnity
Notice or fails to notify  the  Indemnified  Party  within  the  Dispute  Period
whether the  Indemnifying  Party  disputes  the claim or the amount of the claim
described  in such  Indemnity  Notice,  the amount of Damages  specified  in the
Indemnity  Notice will be  conclusively  deemed a liability of the  Indemnifying
Party under paragraph (a) of this Section and the  Indemnifying  Party shall pay
the  amount  of  such  Damages  to  the  Indemnified  Party  on  demand.  If the
Indemnifying  Party has  timely  disputed  its  liability  or the  amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall  proceed in good faith to  negotiate a resolution  of such  dispute;
provided,  however,  that if the dispute is not resolved within thirty (30) days

                                       28
<PAGE>

after the Claim Notice,  the  Indemnifying  Party shall be entitled to institute
such legal action as it deems appropriate.

      c. The indemnity  agreements  contained herein shall be in addition to (i)
any cause of action or  similar  rights of the  indemnified  party  against  the
indemnifying  party or others,  and (ii) any liabilities the indemnifying  party
may be subject to.

      10. JURY TRIAL WAIVER.  The Company and the Lender hereby waive a trial by
jury in any action,  proceeding or counterclaim brought by either of the Parties
hereto  against the other in respect of any matter  arising out or in connection
with the Transaction Agreements.

11.   GOVERNING LAW: MISCELLANEOUS.

      a. (i) This Agreement  shall be governed by and  interpreted in accordance
with the laws of the State of New York for  contracts to be wholly  performed in
such state and without  giving effect to the  principles  thereof  regarding the
conflict of laws. Each of the parties consents to the exclusive  jurisdiction of
the federal courts whose districts  encompass any part of the County of New York
or the state  courts of the State of New York  sitting in the County of New York
in connection  with any dispute arising under this Agreement or any of the other
Transaction  Agreements  and hereby waives,  to the maximum extent  permitted by
law, any objection,  including any objection based on forum non  conveniens,  to
the bringing of any such proceeding in such  jurisdictions  or to any claim that
such  venue of the  suit,  action  or  proceeding  is  improper.  To the  extent
determined  by such  court,  the  Company  shall  reimburse  the  Lender for any
reasonable legal fees and disbursements incurred by the Lender in enforcement of
or  protection  of any of its rights  under any of the  Transaction  Agreements.
Nothing in this Section  shall affect or limit any right to serve process in any
other manner permitted by law.

            (ii)  The  Company  and  the  Lender   acknowledge  and  agree  that
irreparable  damage would occur in the event that any of the  provisions of this
Agreement or the other  Transaction  Agreements were not performed in accordance
with their specific terms or were otherwise  breached.  It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure  breaches of the  provisions of this  Agreement  and the other  Transaction
Agreements  and to  enforce  specifically  the terms and  provisions  hereof and
thereof,  this being in addition to any other remedy to which any of them may be
entitled by law or equity.

      b.  Failure  of any  party to  exercise  any right or  remedy  under  this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

      c. This  Agreement  shall inure to the benefit of and be binding  upon the
successors and assigns of each of the parties hereto.

      d.  All  pronouns  and any  variations  thereof  refer  to the  masculine,
feminine or neuter, singular or plural, as the context may require.

                                       29
<PAGE>

      e. A facsimile  transmission  of this signed  Agreement shall be legal and
binding on all parties hereto.

      f. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.

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

      h. If any provision of this Agreement shall be invalid or unenforceable in
any  jurisdiction,  such  invalidity  or  unenforceability  shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

      i. This  Agreement may be amended only by an instrument in writing  signed
by the party to be charged with enforcement thereof.

      j. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.

      12. NOTICES.  Any notice required or permitted hereunder shall be given in
writing  (unless  otherwise  specified  herein) and shall be deemed  effectively
given on the earliest of

      (a)   the date  delivered,  if delivered  by personal  delivery as against
            written receipt therefor or by confirmed facsimile transmission,

      (b)   the fifth Trading Day after deposit,  postage prepaid, in the United
            States Postal Service by registered or certified mail, or

      (c)   the third  Trading Day after  mailing by  domestic or  international
            express courier, with delivery costs and fees prepaid,

in each case,  addressed to each of the other parties thereunto  entitled at the
following  addresses (or at such other  addresses as such party may designate by
ten (10)  days'  advance  written  notice  similarly  given to each of the other
parties hereto):

COMPANY:          At the address set forth at the head of this Agreement.
                  Attn: Chief Financial Officer
                  Telephone No.: (310) 260-6150 x 105
                  Telecopier No.: (310) 260-1450

                                       30
<PAGE>

                  with a copy to:

                  Sichenzia Ross Friedman Ference LLP
                  1065 Avenue of the Americas, 21st Floor
                  New York, NY 10018
                  Attn: Marc Ross, Esq.
                  Telephone No.: (212) 930-9700
                  Telecopier No.: (212) 930-9725

LENDER:           At the address set forth on the signature page
                  of this Agreement.

                  with a copy to:

                  Krieger & Prager LLP, Esqs.
                  39 Broadway
                  Suite 1440
                  New York, NY 10006
                  Attn: Ronald Nussbaum, Esq.
                  Telephone No.: (212) 363-2900
                  Telecopier No.  (212) 363-2999

ESCROW AGENT:     Krieger & Prager LLP, Esqs.
                  39 Broadway
                  Suite 1440
                  New York, NY 10006
                  Attn: Samuel Krieger, Esq.
                  Telephone No.: (212) 363-2900
                  Telecopier No.  (212) 363-2999

      13.  SURVIVAL OF  REPRESENTATIONS  AND  WARRANTIES.  The Company's and the
Lender's  representations  and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the  Certificates and the payment
of the  Purchase  Price,  and shall  inure to the  benefit of the Lender and the
Company and their respective successors and assigns.

                   [BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]

                                       31
<PAGE>

                 [SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]

      IN WITNESS  WHEREOF,  with respect to the Purchase Price specified  below,
each the undersigned  represents that the foregoing  statements made by it above
are true and correct and that it has caused this  Agreement to be duly  executed
on its behalf (if an entity,  by one of its officers  thereunto duly authorized)
as of the date first above written.

PURCHASE PRICE:                                      $
                                                      -------------------------

                                     LENDER:

--------------------------------    ------------------------------------
Address                             Printed Name of Lender
--------------------------------

                                    By:
                                    -------------------------------------
Telecopier No.                     (Signature of Authorized Person)
              -------------------
                                    -------------------------------------
--------------------------------    Printed Name and Title
Jurisdiction of Incorporation
or Organization

                                    COMPANY:

CONSPIRACY ENTERTAINMENT HOLDINGS, INC.

By:       -------------------------------------

Title:    -------------------------------------

<PAGE>

         ANNEX I           FORM OF DEBENTURE

         ANNEX II          JOINT ESCROW INSTRUCTIONS

         ANNEX III         OPINION OF COUNSEL

         ANNEX IV          REGISTRATION RIGHTS AGREEMENT

         ANNEX V           FORM OF WARRANT

         ANNEX VI          COMPANY DISCLOSURE MATERIAL

         ANNEX VII         COMPANY'S SEC DOCUMENTS AVAILABLE ON EDGAR

         ANNEX VIII        SECURITY INTEREST AGREEMENT

         ANNEX IX          SCHEDULE OF USE OF PROCEEDS

         ANNEX X           AMENDMENT OF CLASS 2004-B WARRANTSANNEX I
                                                                              TO
                                                   SECURITIES PURCHASE AGREEMENT
                                                   (PROTOTYPE FOR EACH ISSUANCE)

                                FORM OF DEBENTURE

      THESE  SECURITIES  HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF
      1933, AS AMENDED,  OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
      OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION STATEMENT
      FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER  EVIDENCE  ACCEPTABLE
      TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

No.      05-01- (1)                               US $
         ------------------

                     CONSPIRACY ENTERTAINMENT HOLDINGS, INC.

       5% SECURED CONVERTIBLE DEBENTURE SERIES 05-01 DUE FEBRUARY 9, 2007

      THIS  DEBENTURE  is one of a duly  authorized  issue of up to  $650,000 in
Debentures of CONSPIRACY  ENTERTAINMENT HOLDINGS,  INC., a corporation organized
and existing under the laws of the State of Utah (the  "Company")  designated as
its 5% Secured Convertible Debentures Series 05-01.

      FOR VALUE RECEIVED, the Company promises to pay to , the registered holder
hereof  (the  "Holder"),  the  principal  sum of and 00/100  Dollars  (US $ ) on
February 9, 2007 (the "Maturity  Date") and to pay interest on the principal sum
outstanding  from time to time in arrears at the rate of 5% per annum,  accruing
from  February  9, 2005,  the date of initial  issuance of this  Debenture  (the
"Issue  Date"),  on the date (each,  an  "Interest  Payment  Date") which is the
earlier of (i) a Conversion  Date (as defined  below) or (ii) the Maturity Date,
as the case may be.  Accrual of  interest  shall  commence on the Issue Date and
shall  continue to accrue on a daily basis until  payment  and/or  conversion in
full of the  principal  sum has  been  made or  duly  provided  for.  Additional
provisions  regarding the payment of interest are provided in Section 4(D) below
(the terms of which shall govern as if this  sentence  were not included in this
Debenture).

      This  Debenture  is being issued  pursuant to the terms of the  Securities
Purchase  Agreement,  dated as of January  31,  2005 (the  "Securities  Purchase
Agreement"), to which the Company and the Holder (or the Holder's predecessor in
interest) are parties. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Securities Purchase Agreement.

-------------------------------------------
1     Insert unique Debenture number for each issuance.

<PAGE>

      This Debenture is subject to the following additional provisions:

      1. The Debentures will initially be issued in denominations  determined by
the Company,  but are  exchangeable  for an equal aggregate  principal amount of
Debentures of different  denominations,  as  reasonably  requested by the Holder
surrendering  the same. No service charge will be made for such  registration or
transfer or exchange.

      2. The  Company  shall be  entitled  to  withhold  from  all  payments  of
principal  of, and  interest  on,  this  Debenture  any  amounts  required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.

      3. This Debenture has been issued subject to investment representations of
the  original  purchaser  hereof and may be  transferred  or  exchanged  only in
compliance  with the Securities  Act of 1933, as amended (the "Act"),  and other
applicable  state and foreign  securities  laws and the terms of the  Securities
Purchase  Agreement  . The Holder  shall  deliver  prior  written  notice to the
Company of any  proposed  transfer  of this  Debenture.  In no event  shall such
transfer by a Holder be for less than  $50,000 of  principal  of the  Debentures
held  by the  Holder  or  the  remaining  outstanding  balance  of the  Holder's
Debentures,  whichever is less.  In the event of any  proposed  transfer of this
Debenture,  the Company may require, prior to issuance of a new Debenture in the
name of such other person,  that it receive reasonable  transfer  documentation,
including  legal  opinions,  that is  sufficient  to evidence that such proposed
transfer complies with the Act and other applicable state and foreign securities
laws  and  the  terms  of  the  Securities  Purchase  Agreement.  Prior  to  due
presentment  for  transfer of this  Debenture,  the Company and any agent of the
Company may treat the person in whose name this Debenture is duly  registered on
the  Company's  Debenture  Register  as the  owner  hereof  for the  purpose  of
receiving payment as herein provided and for all other purposes,  whether or not
this  Debenture be overdue,  and neither the Company nor any such agent shall be
affected by notice to the contrary.

      4. A. (i) At any time on or after the Commencement Date (as defined below)
and  prior to the time this  Debenture  is paid in full in  accordance  with its
terms  (including  without  limitation  after  the  Maturity  Date and after the
occurrence  of an Event of  Default,  as  defined  below),  the  Holder  of this
Debenture is entitled,  at its option,  subject to the  following  provisions of
this  Section 4, to convert  this  Debenture  at any time into  shares of Common
Stock,  $0.001 par value ("Common Stock"),  of the Company of the Company at the
Conversion Price (as defined below) per share.

                  (ii) The term "Conversion  Price" means US $0.05 (which amount
is subject to adjustment as provided herein).

                  (iii) The term  "Commencement  Date"  means the earlier of (i)
the date  which is  sixty-five  (65)  days  after the  Issue  Date,  or (ii) the
Effective Date.

                                       2
<PAGE>

            B. Conversion shall be effectuated either by delivery to the Company
or by facsimile  transmission  (as provided in Section 12 hereof) of a completed
and duly  executed  Notice of  Conversion  (as defined  below) to the address or
facsimile  number  provided  in the  Notice  of  Exercise  (as such  address  or
facsimile  number may be revised by notice given by the Company as  contemplated
by the Section  headed  "NOTICES" in the  Securities  Purchase  Agreement).  The
notice of conversion ("Notice of Conversion") shall be executed by the Holder of
this  Debenture  and shall  evidence  such  Holder's  intention  to convert this
Debenture or a specified portion hereof in the form annexed hereto as Exhibit A.
If paid in Common Stock as  contemplated  hereby,  interest  accrued or accruing
from the Issue  Date to the  relevant  Interest  Payment  Date  shall be paid in
Common Stock at the  Conversion  Price  applicable as of such  Interest  Payment
Date. No fractional  shares of Common Stock or scrip  representing  fractions of
shares will be issued on conversion,  but the number of shares issuable shall be
rounded to the nearest  whole share.  The date on which Notice of  Conversion is
given (the "Conversion Date") shall be deemed to be the date on which the Holder
faxes or otherwise  delivers the Notice of  Conversion to the Company so that it
is received by the Company on or before such specified  date,  provided that, if
such conversion would convert the entire remaining  principal of this Debenture,
the Holder shall deliver to the Company the original  Debentures being converted
no later than five (5) Trading Days thereafter. Facsimile delivery of the Notice
of Conversion shall be accepted by the Company by hand, mail or courier delivery
at the address  specified in said Exhibit A or at the facsimile number specified
in said Exhibit A (each of such  address or  facsimile  number may be changed by
notice  given to the Holder in the manner  provided in the  Securities  Purchase
Agreement).  Certificates representing Common Stock upon conversion ("Conversion
Certificates")  will be delivered to the Holder at the address  specified in the
Notice  of  Conversion  (which  may be  the  Holder's  address  for  notices  as
contemplated by the Securities Purchase Agreement or a different  address),  via
express courier, by electronic  transfer or otherwise,  within three (3) Trading
Days (such third Trading Day, the  "Delivery  Date") after the date on which the
Notice of  Conversion  is  delivered  to the  Company  as  contemplated  in this
paragraph  B, and, if interest is paid by Common  Stock,  the  Interest  Payment
Date.  The Holder shall be deemed to be the holder of the shares  issuable to it
in accordance with the provisions of this Section 4(B) on the Conversion Date.

            C. Notwithstanding any other provision hereof or of any of the other
Transaction Agreements,  in no event (except (i) as specifically provided herein
as an exception to this  provision,  or (ii) while there is outstanding a tender
offer for any or all of the  shares of the  Company's  Common  Stock)  shall the
Holder be  entitled  to  convert  any  portion of this  Debenture,  or shall the
Company have the obligation to convert such Debenture (and the Company shall not
have the right to pay interest  hereon in shares of Common  Stock) to the extent
that, after such conversion or issuance of stock in payment of interest, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its  affiliates  (other  than  shares  of  Common  Stock  which  may  be  deemed
beneficially  owned  through the  ownership  of the  unconverted  portion of the
Debentures  or other  convertible  securities or of the  unexercised  portion of
warrants or other rights to purchase Common Stock), and (2) the number of shares
of Common Stock issuable upon the  conversion of the Debentures  with respect to
which  the  determination  of this  proviso  is  being  made,  would  result  in
beneficial  ownership by the Holder and its affiliates of more than 4.99% of the
outstanding  shares of Common Stock (after  taking into account the shares to be
issued to the Holder upon such  conversion).  For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in

                                       3
<PAGE>

accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended,  except as  otherwise  provided  in clause  (1) of such  sentence.  The
Holder,  by its acceptance of this Debenture,  further agrees that if the Holder
transfers or assigns any of the  Debentures to a party who or which would not be
considered  such an  affiliate,  such  assignment  shall be made  subject to the
transferee's or assignee's  specific  agreement to be bound by the provisions of
this Section 4(C) as if such  transferee  or assignee  were the original  Holder
hereof.  Aside from any  restrictions  imposed by applicable law, nothing herein
shall preclude the Holder from disposing of a sufficient  number of other shares
of Common Stock  beneficially owned by the Holder so as to thereafter permit the
continued conversion of this Debenture.

            D. (i)  Subject to the terms of Section  4(C) and to the other terms
of this  Section  4(D),  interest  on the  principal  amount  of this  Debenture
converted  pursuant to a Notice of Conversion  shall be due and payable,  at the
option of the Company, in cash or Common Stock on the Interest Payment Date.

                  (ii) If the interest is to be paid in cash,  the Company shall
make such payment within three (3) Trading Days of the Interest Payment Date. If
the interest is not paid by such third Trading Day, the interest must be paid in
Common Stock in accordance with the provisions of Section 4(D)(i) hereof, unless
the Holder consents otherwise in each specific instance.

                  (iii)  Notwithstanding  the foregoing,  the Company's right to
issue shares in payment of such interest is applicable if, and only if, there is
then a currently  effective  Registration  Statement  covering the resale of the
shares to be issued to the Holder in payment of such interest.

                  (iv) The  number of  shares  of  Common  Stock to be issued in
payment of such  interest  shall be  determined by dividing the dollar amount of
the  interest to be so paid by the  Conversion  Price on the  relevant  Interest
Payment  Date.  Such Common  Stock  shall be  delivered  to the  Holder,  or per
Holder's  instructions,   on  the  Delivery  Date  for  the  related  Conversion
Certificates pursuant to Section 4(B) hereof.

                  (iv) If the Company  elects to have the interest paid in cash,
the  Company  shall  make such  payment  within  three (3)  Trading  Days of the
Interest  Payment  Date.  If such  payment is not made in cash by such date,  it
shall be deemed that,  subject to the  provisions  of Section  4(C) hereof,  the
Company  has  elected  to pay the  interest  in  stock,  if,  but only  if,  the
Registration Statement covering the shares being issued is effective on the date
such shares are issued.

      E. Anything herein to the contrary  notwithstanding,  in the circumstances
contemplated  by said Section 4(g) of the  Securities  Purchase  Agreement,  the
Conversion  Price and the other terms of the  Unconverted  Debenture (as defined
below)  may be  adjusted  in the manner  provided  in said  Section  4(g) of the
Securities  Purchase  Agreement.  The term  "Unconverted  Debenture"  means  the
principal  amount  of this  Debenture  which  has not been  converted  as of the
relevant date.

                                       4
<PAGE>

      5. A.  Subject  to the  terms of the  Securities  Purchase  Agreement,  no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and  unconditional,  to pay the principal of, and interest on,
this  Debenture  at the time,  place,  and rate,  and in the coin or currency or
where  contemplated  herein in shares of its Common  Stock,  as  applicable,  as
herein  prescribed.  This  Debenture and all other  Debentures  now or hereafter
issued of similar terms are direct obligations of the Company.

            B. Payment of this Debenture is secured pursuant to the terms of the
Security Interest  Agreement of even date herewith  executed by the Company,  as
debtor,  in favor of the Lender and the Other Lenders,  as secured parties.  The
terms of the Security Interest Agreement are incorporated herein by reference.

            C. This Debenture may not be prepaid in whole or in part at any time
prior to the Maturity Date,  except with the prior written consent of the Holder
in each  instance,  which consent is in the sole and absolute  discretion of the
Holder and may be withheld for any reason or for no reason whatsoever.

      6. No recourse  shall be had for the payment of the  principal  of, or the
interest  on, this  Debenture,  or for any claim based  hereon,  or otherwise in
respect hereof, against any incorporator,  shareholder,  officer or director, as
such,  past,  present or future,  of the Company or any  successor  corporation,
whether  by  virtue  of any  constitution,  statute  or rule  of law,  or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance  hereof and as part of the consideration for the issue hereof,
expressly waived and released.

      7. All payments  contemplated hereby to be made "in cash" shall be made in
immediately  available  good funds of United States of America  currency by wire
transfer to an account designated in writing by the Holder to the Company (which
account may be changed by notice similarly given). All payments of cash and each
delivery of shares of Common Stock issuable to the Holder as contemplated hereby
shall be made to the  Holder at the  address  last  appearing  on the  Debenture
Register  of the  Company as  designated  in writing by the Holder  from time to
time;  except  that the  Holder  can  designate,  by  notice to the  Company,  a
different delivery address for any one or more specific payments or deliveries.

      8. If, for as long as this  Debenture  remains  outstanding,  the  Company
enters into a merger (other than where the Company is the  surviving  entity) or
consolidation with another  corporation or other entity or a sale or transfer of
all or  substantially  all of  the  assets  of the  Company  to  another  person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
such transaction,  that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into
a Sale and the  holders  of the Common  Stock are  entitled  to  receive  stock,
securities or property in respect of or in exchange for Common Stock,  then as a
condition  of such  Sale,  the  Company  and any such  successor,  purchaser  or
transferee  will agree that the  Debenture  may  thereafter  be converted on the
terms and subject to the  conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger,  consolidation,  sale
or transfer by a holder of the number of shares of Common  Stock into which this

                                       5
<PAGE>

Debenture   might  have  been   converted   immediately   before  such   merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be  practicable.  In the event of any such proposed  Sale, (i)
the Holder  hereof  shall have the right to  convert by  delivering  a Notice of
Conversion to the Company  within fifteen (15) days of receipt of notice of such
Sale  from the  Company,  except  that  Section  4(C)  shall  not  apply to such
conversion.

      9.  If,  at  any  time  while  any  portion  of  this  Debenture   remains
outstanding,  the Company spins off or otherwise divests itself of a part of its
business  or  operations  or  disposes  of all or of a part of its  assets  in a
transaction (the "Spin Off") in which the Company,  in addition to or in lieu of
any other  compensation  received and retained by the Company for such business,
operations  or  assets,  causes  securities  of  another  entity  (the "Spin Off
Securities") to be issued to security holders of the Company,  the Company shall
cause (i) to be reserved Spin Off  Securities  equal to the number thereof which
would  have  been  issued  to the  Holder  had  all of the  Holder's  Debentures
outstanding  on the record date (the "Record Date") for  determining  the amount
and  number  of Spin Off  Securities  to be issued to  security  holders  of the
Company  (the  "Outstanding  Debentures")  been  converted  as of the  close  of
business on the Trading Day  immediately  before the Record Date (the  "Reserved
Spin Off Shares"),  and (ii) to be issued to the Holder on the conversion of all
or any of the  Outstanding  Debentures,  such  amount of the  Reserved  Spin Off
Shares equal to (x) the Reserved  Spin Off Shares  multiplied by (y) a fraction,
of which (I) the numerator is the principal amount of the Outstanding Debentures
then being  converted,  and (II) the denominator is the principal  amount of the
Outstanding Debentures.

      10.  If,  at  any  time  while  any  portion  of  this  Debenture  remains
outstanding, the Company effectuates a stock split, combination or reverse stock
split of its Common Stock or issues a dividend on its Common Stock consisting of
shares of Common Stock, the Conversion Price and any other amounts calculated as
contemplated  hereby  or by any of the  other  Transaction  Agreements  shall be
equitably  adjusted to reflect such action.  By way of illustration,  and not in
limitation,  of the foregoing, (i) if the Company effectuates a 2:1 split of its
Common Stock,  thereafter,  with respect to any conversion for which the Company
issues shares after the record date of such split, the Conversion Price shall be
deemed to be one-half of what it had been immediately  prior to such split; (ii)
if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter,
with respect to any  conversion  for which the Company  issues  shares after the
record date of such reverse split,  the  Conversion  Price shall be deemed to be
ten times what it had been calculated to be immediately prior to such split; and
(iii) if the Company  declares a stock dividend of one share of Common Stock for
every 10 shares  outstanding,  thereafter,  with respect to any  conversion  for
which the Company  issues  shares  after the record date of such  dividend,  the
Conversion Price shall be deemed to be such amount multiplied by a fraction,  of
which the  numerator  is the  number of shares (10 in the  example)  for which a
dividend share will be issued and the  denominator is such number of shares plus
the dividend share(s) issuable or issued thereon (11 in the example).

      11. The Holder of the Debenture,  by acceptance  hereof,  agrees that this
Debenture is being  acquired for investment and that such Holder will not offer,
sell or  otherwise  dispose  of this  Debenture  or the  shares of Common  Stock

                                       6
<PAGE>

issuable  upon  conversion  thereof  except under  circumstances  which will not
result in a  violation  of the Act or any  applicable  state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

      12. Any notice  required or permitted  hereunder  shall be given in manner
provided in the Section headed "NOTICES" in the Securities  Purchase  Agreement,
the terms of which are incorporated herein by reference.

      13. A. This  Debenture  shall be governed by and  construed in  accordance
with the laws of the State of New York for  contracts to be wholly  performed in
such state and without  giving effect to the  principles  thereof  regarding the
conflict of laws. Each of the parties consents to the exclusive  jurisdiction of
the federal courts whose districts  encompass any part of the County of New York
or the state  courts of the State of New York  sitting in the County of New York
in connection  with any dispute  arising under this Debenture and hereby waives,
to the maximum extent  permitted by law, any objection,  including any objection
based on forum non  coveniens,  to the bringing of any such  proceeding  in such
jurisdictions or to any claim that such venue of the suit,  action or proceeding
is improper. To the extent determined by such court, the Company shall reimburse
the  Holder for any  reasonable  legal fees and  disbursements  incurred  by the
Holder  in  enforcement  of or  protection  of  any  of its  rights  under  this
Debenture.  Nothing  in this  Section  shall  affect or limit any right to serve
process in any other manner permitted by law.

            B. The Company and the Holder acknowledge and agree that irreparable
damage  would occur in the event that any of the  provisions  of this  Debenture
were not performed in accordance  with their  specific  terms or were  otherwise
breached.  It is  accordingly  agreed that the  parties  shall be entitled to an
injunction or  injunctions to prevent or cure breaches of the provisions of this
Debenture and to enforce  specifically  the terms and  provisions  hereof,  this
being in  addition  to any other  remedy to which any of them may be entitled by
law or equity.

      14. JURY TRIAL WAIVER.  The Company and the Holder hereby waive a trial by
jury in any action,  proceeding or counterclaim brought by either of the Parties
hereto  against  the  other  in  respect  of  any  matter  arising  out of or in
connection with this Debenture.

      15. The following shall constitute an "Event of Default":

            a.    The  Company  shall  default in the  payment of  principal  or
                  interest on this Debenture, or any other amount due hereunder,
                  and,  in any such  instance,  the same  shall  continue  for a
                  period of five (5) Trading Days; or

            b.    Any of the  representations  or warranties made by the Company
                  herein,  in the  Securities  Purchase  Agreement or any of the
                  other  Transaction  Agreements shall be false or misleading in
                  any material respect at the time made; or

            c.    Subject to the terms of the Securities Purchase Agreement, the
                  Company  fails to authorize or to cause its Transfer  Agent to
                  issue  shares of Common  Stock upon  exercise by the Holder of
                  the  conversion  rights of the Holder in  accordance  with the
                  terms of this  Debenture,  fails to  transfer  or to cause its
                  Transfer  Agent to  transfer  any  certificate  for  shares of
                  Common  Stock  issued to the Holder  upon  conversion  of this

                                       7
<PAGE>

                  Debenture  and  when   required  by  this   Debenture  or  the
                  Registration Rights Agreement,  and such transfer is otherwise
                  lawful,  or fails to  remove  any  restrictive  legend  on any
                  certificate  or fails to cause  its  Transfer  Agent to remove
                  such  restricted  legend,  in each case where such  removal is
                  lawful, as and when required by this Debenture,  the Agreement
                  or the  Registration  Rights  Agreement,  and any such failure
                  shall continue uncured for ten (10) Trading Days; or

            d.    The Company shall fail to perform or observe,  in any material
                  respect, any covenant, term, provision,  condition,  agreement
                  or  obligation  of the  Company  under any of the  Transaction
                  Agreements  and such  failure  shall  continue  uncured  for a
                  period  of thirty  (30) days  after  written  notice  from the
                  Holder of such failure; or

            e.    The Company  shall (1) admit in writing its  inability  to pay
                  its debts generally as they mature; (2) make an assignment for
                  the  benefit of  creditors  or  commence  proceedings  for its
                  dissolution; or (3) apply for or consent to the appointment of
                  a trustee, liquidator or receiver for its or for a substantial
                  part of its property or business; or

            f.    A trustee,  liquidator or receiver  shall be appointed for the
                  Company or for a substantial  part of its property or business
                  without its consent and shall not be  discharged  within sixty
                  (60) days after such appointment; or

            g.    Any governmental agency or any court of competent jurisdiction
                  at  the  instance  of any  governmental  agency  shall  assume
                  custody or control of the whole or any substantial  portion of
                  the  properties  or  assets  of the  Company  and shall not be
                  dismissed within sixty (60) days thereafter; or

            h.    Any money judgment, writ or warrant of attachment,  or similar
                  process in excess of Two Hundred Thousand  Dollars  ($200,000)
                  in the aggregate shall be entered or filed against the Company
                  or any of its  properties  or other  assets  and shall  remain
                  unpaid, unvacated,  unbonded or unstayed for a period of sixty
                  (60) days or in any event  later  than five (5) days  prior to
                  the date of any proposed sale thereunder; or

            j.    Bankruptcy,   reorganization,    insolvency   or   liquidation
                  proceedings  or  other   proceedings   for  relief  under  any
                  bankruptcy  law or any law for the relief of debtors  shall be
                  instituted  by or  against  the  Company  and,  if  instituted
                  against the Company,  shall not be dismissed within sixty (60)
                  days after such institution or the Company shall by any action
                  or answer  approve of,  consent to, or  acquiesce  in any such
                  proceedings or admit the material  allegations  of, or default
                  in answering a petition filed in any such proceeding; or

                                       8
<PAGE>

            k.    The Company shall have its Common Stock suspended from trading
                  on, or delisted  from,  the  Principal  Trading  Market for in
                  excess of ten (10) Trading Days; or

            l.    Any event defined in another provision of this Debenture as an
                  Event of Default shall have occurred.

If an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent  default)  at the  option  of the  Holder  and in the  Holder's  sole
discretion,  the Holder may consider this Debenture  immediately due and payable
(and the Maturity Date shall be accelerated  accordingly),  without presentment,
demand,  protest  or notice of any  kinds,  all of which  are  hereby  expressly
waived,  anything  herein or in any note or other  instruments  contained to the
contrary notwithstanding,  and the Holder may immediately enforce any and all of
the Holder's rights and remedies provided herein or any other rights or remedies
afforded by law.

      16. Nothing  contained in this Debenture  shall be construed as conferring
upon the  Holder  the right to vote or to  receive  dividends  or to  consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights  whatsoever  as a  shareholder  of the Company,  unless and to the extent
converted in accordance with the terms hereof.

                   [Balance of page intentionally left blank]

                                       9
<PAGE>

      17. In the event for any  reason,  any payment by or act of the Company or
the Holder  shall  result in payment of interest  which  would  exceed the limit
authorized  by or be in violation of the law of the  jurisdiction  applicable to
this Debenture, then ipso facto the obligation of the Company to pay interest or
perform such act or requirement  shall be reduced to the limit  authorized under
such law,  so that in no event shall the  Company be  obligated  to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest  in excess of the limit so  authorized.  In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further  agreement or notice between or by the Company or the Holder,  be deemed
applied to the payment of principal,  if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically  designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture.  If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section or
otherwise,  such  excess  shall be deemed to be an  interest-free  loan from the
Company to the Holder,  which loan shall be payable  immediately  upon demand by
the Company.  The provisions of this Section shall control every other provision
of this Debenture.

      IN WITNESS  WHEREOF,  the Company has caused  this  instrument  to be duly
executed by an officer thereunto duly authorized.

Dated: ___________________, 20___

                                  CONSPIRACY ENTERTAINMENT HOLDINGS, INC.

                                  By:
                                  ------------------------------------------

                                  ------------------------------------------
                                  (Print Name)

                                  ------------------------------------------
                                  (Title)

                                       10

<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION
                                       OF
       5% SECURED CONVERTIBLE DEBENTURE SERIES 05-01 DUE FEBRUARY 9, 2007

   (To be Executed by the Registered Holder in Order to Convert the Debenture)

TO:      CONSPIRACY ENTERTAINMENT HOLDINGS, INC.
         612 Santa Monica Boulevard
         Santa Monica, CA 90401
         Attn: CEO                                 VIA FAX:  (310) 260-1450
                                                   ------------------------

FROM: __________________________________________________ ("Holder")

DATE: __________________________________________________ (the "Conversion Date")

RE:   Conversion of $___________ principal amount (the "Converted Debenture") of
      the 5% Secured Convertible  Debenture Series 05-01-__ Due February 9, 2007
      (the  "Debenture")  of  CONSPIRACY   ENTERTAINMENT   HOLDINGS,  INC.  (the
      "Company") into _______________ shares (the "Conversion Shares") of Common
      Stock (defined below)

      The captioned  Holder hereby gives notice to the Company,  pursuant to the
captioned  Debenture  that the Holder elects to convert the Converted  Debenture
into fully paid and non-assessable shares of Common Stock, $0.001 par value (the
"Common Stock"),  of the Company as of the Conversion Date specified above. Said
conversion shall be based on the following  Conversion Price (check one and fill
in blank)

      |_|   $__________,  representing the original Conversion Price (as defined
            in the Debenture)

      |_|   $__________,  representing the original Conversion Price (as defined
            in the Debenture), adjusted in accordance with the provisions of the
            Debenture.

                                       1
<PAGE>

Based on this Conversion  Price, the number of Conversion Shares indicated above
should be issued in the following name(s):

      Name and Record Address                     Conversion Shares

      --------------------------------------      ----------------

      --------------------------------------      ----------------

      --------------------------------------      ----------------

      It is the intention of the Holder to comply with the provisions of Section
4(C) of the Debenture  regarding certain limits on the Holder's right to convert
thereunder. Based on the analysis on the attached Worksheet Schedule, the Holder
believe this  conversion  complies  with the  provisions  of said Section  4(C).
Nonetheless, to the extent that, pursuant to the conversion effected hereby, the
Holder would have more shares than  permitted  under said  Section,  this notice
should be amended and revised, ab initio, to refer to the conversion which would
result in the issuance of shares consistent with such provision.  Any conversion
above such amount is hereby deemed void and revoked.

      As contemplated by the Debenture,  this Notice of Conversion is being sent
by facsimile to the telecopier number and officer indicated above.

      If this  Notice  of  Conversion  represents  the  full  conversion  of the
outstanding  balance  of the  Converted  Debenture,  the  Holder  either (1) has
previously surrendered the Converted Debenture, duly endorsed, to the Company or
(2) will surrender (or cause to be surrendered)  the Converted  Debenture,  duly
endorsed,  to the  Company at the  address  indicated  above by express  courier
within five (5) Trading Days after  delivery or facsimile  transmission  of this
Notice of Conversion.

      The certificates  representing the Conversion Shares should be transmitted
by the Company to the Holder (check one)

      |_|   via express courier or

      |_|   by electronic transfer (DTC)

within the time contemplated by the Debenture and Securities  Purchase Agreement
after  receipt  of this  Notice of  Conversion  (by  facsimile  transmission  or
otherwise) to:

      --------------------------------------

      --------------------------------------

      --------------------------------------

                                       2

<PAGE>

      The  Holder  has  determined  that  accrued  but  unpaid  interest  on the
Converted  Debenture  through  the  Conversion  Date  is   $____________________
(subject to further  accrual if payment not timely made). As contemplated by the
Debenture,  the Company should also pay all such accrued but unpaid  interest on
the Converted Debenture to the Holder.

      --    If the  Company  elects to pay such  interest  in Common  Stock,  as
            contemplated by and subject to the provisions of the Debenture, such
            shares  should be issued in the name of the Holder and  delivered in
            the same manner as, and together with, the Conversion Shares.

      --    If the Company  elects or is required  to pay the  interest  paid in
            cash, such payment should be made by wire transfer as follows:

      --------------------------------------

      --------------------------------------

      --------------------------------------

                                       -----------------------------------
                                       (Print name of Holder)

                                       By
                                       -----------------------------------
                                       (Signature of Authorized Person)

                                       -----------------------------------
                                       (Printed Name and Title)

                                       3

<PAGE>

                              NOTICE OF CONVERSION
                               WORKSHEET SCHEDULE

1.    Current Common Stock holdings of Holder and Affiliates
                                                              -----------------
2.    Shares to be issued on current conversion (1)
                                                              -----------------

3.    Other  shares to be issued on other  current  conversion(s)
      and other current exercise(s)(2)
                                                              -----------------

4.    Other  shares  eligible to be acquired  within next 60 days
      without restriction
                                                              -----------------

5.    Total [sum of Lines 1 through 4]
                                                              -----------------

6.    Outstanding shares of Common Stock(3)
                                                              -----------------

7.    Adjustments to Outstanding

      a.    Shares known to Holder as previously issued to Holder
            or others but not included in Line 6
                                                              -----------------

      b.    Shares to be issued per Line(s) 2 and 3
                                                              -----------------

      c.    Total Adjustments [Lines 7a and 7b]
                                                              -----------------

8.    Total Adjusted Outstanding [Lines 6 plus 7c]
                                                              -----------------

9.    Holder's Percentage [Line 5 divided by Line 8]
                                                              --------------- %
      [Note: Line 9 not to be above 4.99%]

--------
1     Includes  conversion of stated value and assumes  interest will be paid in
      Common Stock at the Conversion Price.

2     Includes   shares   issuable  on  conversion  of  convertible   securities
      (including  assumed payment of interest or dividends) or exercise of other
      rights, including other warrants or options

3     Based on latest SEC filing by Company or information provided by executive
      officer of Company, counsel to Company or transfer agent.

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