Document:

EXHIBIT 4.1

                         EXECUTIVE EMPLOYMENT AGREEMENT

         This EXECUTIVE  EMPLOYMENT  AGREEMENT (the "Agreement") dated March 28,
2005 by and between Callisto Pharmaceuticals,  Inc., a Delaware corporation (the
"Company"), and Pamela Harris, an individual (the "Executive").

         The Company desires to employ the Executive,  and the Executive  wishes
to accept such  employment  with the Company,  upon the terms and conditions set
forth in this Agreement.

         NOW  THEREFORE,  in  consideration  of the  foregoing  facts and mutual
agreements set forth below, the parties, intending to be legally bound, agree as
follows:

         1.  EMPLOYMENT.  The Company  hereby  agrees to employ  Executive,  and
Executive  hereby  accepts  such  employment  and agrees to perform  Executive's
duties  and  responsibilities  in  accordance  with  the  terms  and  conditions
hereinafter set forth.

                  1.1  DUTIES AND  RESPONSIBILITIES.  Executive  shall  serve as
Chief Medical Officer.  During the Employment Term,  Executive shall perform all
duties and accept all  responsibilities  incident  to such  positions  and other
appropriate  duties as may be assigned to Executive by the  Company's  Executive
Vice  President,  Research &  Development  from time to time.  The Company shall
retain full  direction  and  control of the  manner,  means and methods by which
Executive  performs the services for which she is employed  hereunder and of the
place or places at which such services shall be rendered.

                  1.2 EMPLOYMENT TERM. The term of Executive's  employment under
this Agreement  shall commence as of March 28, 2005 (the  "Effective  Date") and
shall  continue for 12 months,  unless  earlier  terminated in  accordance  with
Section 4 hereof.  The term of  Executive's  employment  shall be  automatically
renewed for  successive  one (1) year periods until the Executive or the Company
delivers  to the other party a written  notice of their  intent not to renew the
"Employment  Term," such written notice to be delivered at least sixty (60) days
prior to the expiration of the then-effective  "Employment Term" as that term is
defined  below.  The period  commencing as of the  Effective  Date and ending 12
months thereafter or such later date to which the term of Executive's employment
under the  Agreement  shall have been  extended by mutual  written  Agreement is
referred to herein as the "Employment Term."

                  1.3 EXTENT OF SERVICE.  During the Employment Term,  Executive
agrees  to  use   Executive's   best   efforts  to  carry  out  the  duties  and
responsibilities  under  Section  1.1  hereof  and to devote  substantially  all
Executive's  business  time,  attention and energy  thereto.  Executive  further
agrees not to work either on a part-time or  independent  contracting  basis for
any other business or enterprise  during the  Employment  Term without the prior
written consent of the Company's Board of Directors (the "Board"), which consent
shall not be unreasonably withheld.

                  1.4 BASE SALARY. The Company shall pay Executive a base salary
(the "Base Salary") at the annual rate of $220,000 (U.S.), payable at such times
as the Company  customarily  pays its other senior level  executives (but in any
event no less often than monthly). The Base

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Salary shall be subject to all state, federal, and local payroll tax withholding
and any other withholdings required by law.

                  1.5  INCENTIVE  COMPENSATION.  Executive  shall be eligible to
earn a cash  bonus of up to  $20,000  for each  twelve-month  period  during the
Employment Term based on meeting performance objectives and bonus criteria to be
mutually  identified by Executive and the Executive Vice  President,  Research &
Development.  Executive's  bonus, if any, shall be subject to all applicable tax
and payroll withholdings.

                  1.6  OPTIONS.  The  Company's   Compensation   Committee  (the
"Committee") will make an initial grant of options to the Executive as follows:

                           (a) an  incentive  ten year  option to purchase up to
         200,000  additional Company Common Shares at an exercise price equal to
         the fair  market  value of the  Company's  common  stock on the date of
         grant,  which shall vest pursuant to the following  schedule:  Assuming
         the Executive is employed by the Company on the vesting  dates,  30,000
         options will vest on March 28, 2006,  30,000 options will vest on March
         28, 2007; and 40,000 options will vest on March 28, 2008. The remaining
         100,000  options will vest pursuant to the following  schedule:  30,000
         options  will  vest  upon  the  successful  completion  of a Phase  IIb
         clinical trial for Atiprimod or a comparable  clinical trial  involving
         another  Company drug  candidate,  other than  Atiprimod or  Annamycin,
         30,000 options will vest upon the successful  completion of a Phase IIb
         clinical  trial for  Annamycin  and 40,000  options  will vest upon the
         successful completion of a Phase III clinical trial for Annamycin; and

                           (b) the  Committee  in  exercising  its  unrestricted
         discretion may grant such additional options to the Executive each year
         of the Employment Term as it deems appropriate.

                  1.7 OTHER  BENEFITS.  During the  Employment  Term,  Executive
shall be entitled to participate in all employee benefit plans and programs made
available  to  the  Company's  senior  level  executives  as a  group  or to its
employees  generally,  as such plans or  programs  may be in effect from time to
time (the "Benefit Coverages"),  including, without limitation, medical, dental,
hospitalization,  short-term and long-term  disability and life insurance plans,
accidental  death and  dismemberment  protection and travel accident  insurance.
Executive  shall be provided office space and staff  assistance  appropriate for
Executive's position and adequate for the performance of her duties.

                  1.8  REIMBURSEMENT  OF  EXPENSES;   VACATION;  SICK  DAYS  AND
PERSONAL  DAYS.  Executive  shall be  provided  with  reimbursement  of expenses
related to  Executive's  employment by the Company on a basis no less  favorable
than that which may be  authorized  from time to time by the Board,  in its sole
discretion,  for senior level executives as a group. Executive shall be entitled
to vacation and  holidays in  accordance  with the  Company's  normal  personnel
policies  for  senior  level  executives,  but not less than  three (3) weeks of
vacation per calendar year,  provided  Executive shall not utilize more than ten
(10)  consecutive  business  days  without  the  express  consent  of the  Chief
Executive  Officer.  Unused vacation time will be forfeited as of

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December 31 of each calendar year of the  Employment  Term.  Executive  shall be
entitled to no more than an aggregate  of ten (10 ) sick days and personal  days
per calendar year.

                  1.8 NO OTHER  COMPENSATION.  Except as  expressly  provided in
Sections  1.4  through  1.9,  Executive  shall  not be  entitled  to  any  other
compensation or benefits.

         2. CONFIDENTIAL INFORMATION. Executive recognizes and acknowledges that
by reason of Executive's employment by and service to the Company before, during
and, if  applicable,  after the Employment  Term,  Executive will have access to
certain  confidential  and  proprietary  information  relating to the  Company's
business,  which may  include,  but is not  limited  to,  trade  secrets,  trade
"know-how," product development techniques and plans,  formulas,  customer lists
and  addresses,   financing  services,   funding  programs,   cost  and  pricing
information,  marketing and sales  techniques,  strategy and programs,  computer
programs and software and  financial  information  (collectively  referred to as
"Confidential  Information").  Executive  acknowledges  that  such  Confidential
Information  is a  valuable  and  unique  asset  of the  Company  and  Executive
covenants  that he will not,  unless  expressly  authorized  in  writing  by the
Company,  at any time  during  the  course  of  Executive's  employment  use any
Confidential  Information or divulge or disclose any Confidential Information to
any person,  firm or corporation  except in connection  with the  performance of
Executive's duties for the Company and in a manner consistent with the Company's
policies regarding  Confidential  Information.  Executive also covenants that at
any time after the termination of such  employment,  directly or indirectly,  he
will  not  use  any   Confidential   Information  or  divulge  or  disclose  any
Confidential  Information  to any  person,  firm  or  corporation,  unless  such
information is in the public domain through no fault of Executive or except when
required  to do so  by a  court  of  law,  by  any  governmental  agency  having
supervisory  authority over the business of the Company or by any administrative
or legislative body (including a committee  thereof) with apparent  jurisdiction
to order Executive to divulge, disclose or make accessible such information. All
written Confidential Information (including, without limitation, in any computer
or other electronic  format) which comes into Executive's  possession during the
course of  Executive's  employment  shall  remain the  property of the  Company.
Except as required in the performance of Executive's duties for the Company,  or
unless  expressly  authorized  in writing by the  Company,  Executive  shall not
remove any written Confidential Information from the Company's premises,  except
in connection with the performance of Executive's  duties for the Company and in
a  manner  consistent  with  the  Company's  policies   regarding   Confidential
Information. Upon termination of Executive's employment, the Executive agrees to
return  immediately  to  the  Company  all  written   Confidential   Information
(including,  without limitation,  in any computer or other electronic format) in
Executive's possession.  As a condition of Executive's continued employment with
the Company and in order to protect the Company's  interest in such  proprietary
information,   the   Company   shall   require   Executive's   execution   of  a
Confidentiality  Agreement and Inventions  Agreement in the form attached hereto
as Exhibit "A", and incorporated herein by this reference.

         3. NON-COMPETITION; NON-SOLICITATION.

                  3.1  NON-COMPETE.  The Executive  hereby  covenants and agrees
that during the term of this  Agreement  and for a period of one year  following
the end of the Employment

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Term, the Executive will not,  without the prior written consent of the Company,
indirectly  or  directly,  on his own  behalf or in the  service or on behalf of
others,  whether or not for compensation,  engage in any business  activity,  or
have any  interest in any  person,  firm,  corporation  or  business,  through a
subsidiary or parent entity or other entity  (whether as a  shareholder,  agent,
joint venturer, security holder, trustee, partner, consultant,  creditor lending
credit or money for the purpose of  establishing or operating any such business,
partner or otherwise) with any Competing  Business in the Covered Area.. For the
purpose of this Section 3.1, (i) "Competing Business" means any biotechnology or
pharmaceutical  company, any contract  manufacturer,  any research laboratory or
other  company or entity  (whether or not  organized for profit) that has, or is
seeking  to  develop,  one or more  products  or  therapies  that is  related to
azaspiranes,  anthracyclines  and guanylyl  cyclase  receptor  agonists and (ii)
"Covered  Area"  means all  geographical  areas of the United  States,  Ireland,
Germany and other foreign  jurisdictions  where Company then has offices  and/or
sells its products  directly or  indirectly  through  distributors  and/or other
sales agents. Notwithstanding the foregoing, the Executive may (i) own shares of
companies whose  securities are publicly  traded,  so long as such securities do
not constitute more than one percent (1%) of the  outstanding  securities of any
such company or (ii) be employed by an entity in the  Competing  Business in the
Covered  Area so long as  Executive  is not  directly  working  in the fields of
azaspiranes, anthracyclines or guanylyl cyclase receptor agonists.

         The Company  recognizes that Executive intends to volunteer at Memorial
Sloan-Kettering  Cancer  Center  ("MSKCC")  one-half  day per  week  during  the
Employment  Term.  In the event the  Executive  is  requested to perform work at
MSKCC which is in connection with or related to a Competing Business,  Executive
shall promptly fully inform the Company's  Executive Vice President,  Research &
Development of such assignment.

                  3.2  NON-SOLICITATION.  The Executive  further  agrees that as
long as the  Agreement  remains  in effect and for a period of one (1) year from
its  termination,  the  Executive  will not divert any  business  of the Company
and/or its  affiliates or any  customers or suppliers of the Company  and/or the
Company's  and/or  its  affiliates'  business  to any  other  person,  entity or
competitor,  or induce or attempt to induce, directly or indirectly,  any person
to leave his or her employment with the Company.

                  3.3 REMEDIES.  The Executive  acknowledges and agrees that his
obligations provided herein are necessary and reasonable in order to protect the
Company and its  affiliates  and their  respective  business  and the  Executive
expressly  agrees that monetary  damages  would be inadequate to compensate  the
Company  and/or its  affiliates for any breach by the Executive of his covenants
and  agreements  set  forth  herein.  Accordingly,   the  Executive  agrees  and
acknowledges  that any such violation or threatened  violation of this Section 3
will cause irreparable  injury to the Company and that, in addition to any other
remedies that may be available, in law, in equity or otherwise,  the Company and
its  affiliates  shall be  entitled  to  obtain  injunctive  relief  against  he
threatened  breach of this Section 3 or the  continuation  of any such breach by
the Executive without the necessity of proving actual damages.

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         4. TERMINATION.

                  4.1 BY COMPANY.  The Company, by action of the Chief Executive
Officer or acting by duly adopted resolutions of the Board of Directors, may, in
its discretion and at its option,  terminate the Executive's  employment with or
without Cause,  and without  prejudice to any other right or remedy to which the
Company  or  Executive  may be  entitled  at  law or in  equity  or  under  this
Agreement.  In the  event the  Company  desires  to  terminate  the  Executive's
employment  without  Cause,  the Company  shall give the Executive not less than
sixty (60) days advance  written notice.  Termination of Executive's  employment
hereunder shall be deemed to be "for Cause" in the event that Executive violates
any provisions of this Agreement, is guilty of any criminal act other than minor
traffic  violations,  is guilty of willful misconduct or gross neglect, or gross
dereliction of his duties  hereunder or refuses to perform his duties  hereunder
after notice of such refusal to perform such duties or  directions  was given to
Executive by the Chief Executive Officer or Board of Directors.

                  4.2 BY EXECUTIVE'S  DEATH OR DISABILITY.  This Agreement shall
also be  terminated  upon the  Executive's  death  and/or a finding of permanent
physical or mental disability, such disability expected to result in death or to
be of a  continuous  duration  of no  less  than  twelve  (12)  months,  and the
Executive is unable to perform his usual and essential duties for the Company..

                  4.3  COMPENSATION  ON  TERMINATION.  In the event the  Company
terminates  Executive's  employment,  all payments  under this  Agreement  shall
cease,  except for Base Salary to the extent  already  accrued.  In the event of
termination  by  reason  of  Executive's  death  and/or  permanent   disability,
Executive  or  his  executors,  legal  representatives  or  administrators,   as
applicable,  shall be entitled  to an amount  equal to  Executive's  Base Salary
accrued  through  the date of  termination,  plus a pro rata share of any annual
bonus to which Executive would otherwise be entitled for the year in which death
or permanent disability occurs.  Notwithstanding the foregoing,  in the event of
termination  by reason of  Executive's  permanent  disability,  Executive  shall
continue to be entitled to any  disability  payments  pursuant to any disability
insurance plans provided for the Executive pursuant to Section 4.1 herein.  Upon
termination of Executive, if Executive executes a written release, substantially
in the form  attached  hereto as  Exhibit  "B" (the  "Release"),  of any and all
claims  against the Company and all related  parties with respect to all matters
arising out of  Executive's  employment by the Company  (other than  Executive's
entitlement  under any employee benefit plan or program sponsored by the Company
in  which  Executive  participated),  unless  the  Employment  Term  expires  or
termination is for Cause, the Executive shall receive, in full settlement of any
claims Executive may have related to his employment by the Company,  Base Salary
for 30 calendar days from the date of termination, provided Executive is in full
compliance with the provisions of Sections 2 and 3 of this Agreement.

                  4.4 VOLUNTARY TERMINATION. Executive may voluntarily terminate
the  Employment  Term upon sixty (60) days' prior written notice for any reason;
provided, however, that no further payments shall be due under this Agreement in
that event except that Executive shall be entitled to any benefits due under any
compensation or benefit plan provided by the Company for executives or otherwise
outside of this Agreement.

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         5.       GENERAL PROVISIONS.

                  5.1  MODIFICATION:  NO WAIVER.  No modification,  amendment or
discharge  of this  Agreement  shall be valid  unless the same is in writing and
signed by all  parties  hereto.  Failure of any party at any time to enforce any
provisions of this Agreement or any rights or to exercise any elections shall in
no way be considered to be a waiver of such provisions,  rights or elections and
shall in no way affect the validity of this Agreement. The exercise by any party
of any of its rights or any of this  elections  under this  Agreement  shall not
preclude or prejudice such party from  exercising the same or any other right it
may have under this Agreement irrespective of any previous action taken.

                  5.2 NOTICES. All notices and other communications  required or
permitted  hereunder or necessary or convenient in connection  herewith shall be
in writing and shall be deemed to have been given when hand  delivered or mailed
by registered or certified  mail as follows  (provided  that notice of change of
address shall be deemed given only when received):

         If to the Company, to:      Callisto Pharmaceuticals, Inc.
                                     420 Lexington Avenue, Suite 1609
                                     New York, NY 10170

         If to Executive, to:        Pamela Harris
                                     150 East 44th Street, Apt. 8B
                                     New York, NY 10017

Or to such other names or addresses as the Company or Executive, as the case may
be, shall  designate by notice to each other person  entitled to receive notices
in the manner specified in this Section.

                  5.3     GOVERNING  LAW. This  Agreement  shall be governed  by
and  construed in accordance  with the laws of the State of Delaware.

                  5.4     FURTHER ASSURANCES. Each party to this Agreement shall
execute all instruments and documents and take all actions as may be  reasonably
required to effectuate this Agreement.

                  5.5 SEVERABILITY.  Should any one or more of the provisions of
this  Agreement or of any agreement  entered into pursuant to this  Agreement be
determined to be illegal or  unenforceable,  then such illegal or  unenforceable
provision  shall be modified  by the proper  court or  arbitrator  to the extent
necessary  and possible to make such  provision  enforceable,  and such modified
provision and all other provisions of this Agreement and of each other agreement
entered into pursuant to this Agreement  shall be given effect  separately  from
the provisions or portion thereof  determined to be illegal or unenforceable and
shall not be affected thereby.

                  5.6  SUCCESSORS  AND  ASSIGNS.  Executive  may not assign this
Agreement  without the prior  written  consent of the  Company.  The Company may
assign its rights without the written  consent of the executive,  so long as the
Company  or its  assignee  complies  with  the  other  material  terms  of  this
Agreement.  The rights and obligations of the Company under this

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Agreement  shall inure to the benefit of and be binding upon the  successors and
permitted  assigns  of the  Company,  and  the  Executive's  rights  under  this
Agreement  shall  inure to the  benefit  of and be  binding  upon his  heirs and
executors. The Company's subsidiaries and controlled affiliates shall be express
third party beneficiaries of this Agreement.

                  5.7 ENTIRE  AGREEMENT.  This  Agreement  supersedes  all prior
agreements  and  understandings   between  the  parties,  oral  or  written.  No
modification,  termination or attempted waiver shall be valid unless in writing,
signed by the party  against whom such  modification,  termination  or waiver is
sought to be enforced.

                  5.8 COUNTERPARTS; FACSIMILE. This Agreement may be executed in
one or more  counterparts,  each of which shall for all purposes be deemed to be
an original,  and all of which taken together shall  constitute one and the same
instrument. This Agreement may be executed by facsimile with original signatures
to follow.

         IN WITNESS  WHEREOF,  the  undersigned,  intending to be legally bound,
have executed this Agreement as of the date first written above.

                                           CALLISTO PHARMACEUTICALS, INC.

                                           By: /s/ GARY S. JACOB
                                               -----------------
                                               Gary S. Jacob, Ph.D.
                                               Chief Executive Officer

                                           /s/ PAMELA HARRIS
                                               -------------
                                               Pamela Harris, M.D.EXHIBIT 10.10

                             SUBSCRIPTION AGREEMENT

      This  Subscription  Agreement  (this  "AGREEMENT")  is entered  into as of
November  3,  2004  by  and  among  Franklin  Capital  Corporation,  a  Delaware
corporation  (together with its successors and permitted assigns, the "ISSUER"),
and the undersigned  investors (each, together with its successors and permitted
assigns,  the "INVESTOR" and  collectively,  together with their  successors and
permitted  assigns,  the "INVESTORS").  Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in SECTION 9.1.

                                    RECITALS

      Subject  to the terms and  conditions  of this  Agreement,  the  Investors
desire to subscribe for and purchase,  and the Issuer  desires to issue and sell
to the Investors,  certain shares of the Issuer's common stock,  par value $1.00
per share (the  "COMMON  STOCK"),  and certain  warrants  to purchase  shares of
Common  Stock.  The Issuer is offering an aggregate of 625,000  shares of Common
Stock,  together  with  warrants  to  purchase  312,500  shares of Common  Stock
issuable upon the exercise of warrants,  in a private placement to the Investors
at a  purchase  price of $8.00 per share and on the other  terms and  conditions
contained in this Agreement (the "Offering"),  PROVIDED that the Issuer reserves
the right to issue and sell a lesser or greater number of shares or warrants.

                               TERMS OF AGREEMENT

      In consideration of the mutual  representations and warranties,  covenants
and agreements contained herein, the parties hereto agree as follows:

1. SUBSCRIPTION AND ISSUANCE OF COMMON STOCK AND WARRANTS.

      1.1  SUBSCRIPTION  AND ISSUANCE OF COMMON STOCK.  Subject to the terms and
conditions of this Agreement,  the Issuer shall issue and sell to each Investor,
and each Investor subscribes for and shall purchase from the Issuer, that number
of shares of Common  Stock set forth on such  Investor's  counterpart  signature
page hereof (the  "SHARES")  and a warrant in  substantially  the form  attached
hereto as EXHIBIT A (each,  a "WARRANT" and  collectively,  the  "WARRANTS")  to
purchase that number of additional  shares of Common Stock (the "WARRANT SHARES"
and, together with the Shares and the Warrants, the "SECURITIES") equal to fifty
percent (50%) of the aggregate number of Shares being purchased by such Investor
pursuant to this Agreement,  for the aggregate  purchase price set forth on such
counterpart signature page, which aggregate purchase price shall be equal to the
product of the number of Shares  subscribed  for by such Investor  multiplied by
the per share purchase  price  specified in the above Recitals to this Agreement
(the "PURCHASE  PRICE").  Except to the extent  permitted under the 1940 Act, as
long as the Issuer is a BDC, the Shares and the Warrants  will not be separately
transferable.

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      1.2 LEGENDS.

            (a) Any  certificate  or  certificates  representing  the  Shares or
Warrant Shares shall bear the following  legend,  in addition to any legend that
may be required by any Requirements of Law:

            THE SHARES REPRESENTED BY THIS CERTIFICATE ARE BEING ISSUED TOGETHER
            WITH WARRANTS TO PURCHASE  ADDITIONAL  SHARES OF COMMON STOCK OF THE
            ISSUER PURSUANT TO A SUBSCRIPTION AGREEMENT WITH THE ISSUER DATED AS
            OF  NOVEMBER  3, 2004,  A COPY OF WHICH IS ON FILE WITH THE  ISSUER.
            EXCEPT TO THE EXTENT  PERMITTED UNDER THE INVESTMENT  COMPANY ACT OF
            1940,  AS  AMENDED  (THE  "1940  ACT"),  AS LONG AS THE  ISSUER IS A
            BUSINESS   DEVELOPMENT  COMPANY  UNDER  THE  1940  ACT,  THE  SHARES
            REPRESENTED  BY THIS  CERTIFICATE  AND THE WARRANT  ISSUED  HEREWITH
            UNDER   SUCH   SUBSCRIPTION   AGREEMENT   WILL  NOT  BE   SEPARATELY
            TRANSFERABLE.

            IN ADDITION,  THE SHARES  REPRESENTED BY THIS CERTIFICATE MAY NOT BE
            SOLD,  TRANSFERRED,  OR OTHERWISE  DISPOSED OF BY THE HOLDER  EXCEPT
            PURSUANT  TO AN  EFFECTIVE  REGISTRATION  STATEMENT  FILED UNDER THE
            SECURITIES  ACT  OF  1933,  AS  AMENDED,   AND  IN  COMPLIANCE  WITH
            APPLICABLE  SECURITIES  LAWS OF ANY STATE WITH RESPECT THERETO OR IN
            ACCORDANCE  WITH  AN  OPINION  OF  COUNSEL  IN  FORM  AND  SUBSTANCE
            SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH  REGISTRATION
            IS  AVAILABLE  AND ALSO MAY NOT BE SOLD,  TRANSFERRED  OR  OTHERWISE
            DISPOSED OF EXCEPT IN COMPLIANCE  WITH ANY  APPLICABLE  RULES OF THE
            SECURITIES AND EXCHANGE COMMISSION.

            (b) The Warrant shall bear the following  legend, in addition to any
legend that may be required by any Requirements of Law:

            THIS WARRANT IS BEING ISSUED TOGETHER WITH SHARES OF COMMON STOCK OF
            THE ISSUER  PURSUANT  TO A  SUBSCRIPTION  AGREEMENT  WITH THE ISSUER
            DATED AS OF  NOVEMBER  3, 2004,  A COPY OF WHICH IS ON FILE WITH THE
            ISSUER.  EXCEPT TO THE EXTENT PERMITTED UNDER THE INVESTMENT COMPANY
            ACT OF 1940, AS AMENDED (THE "1940 ACT"), AS LONG AS THE ISSUER IS A
            BUSINESS  DEVELOPMENT  COMPANY  UNDER THE 1940 ACT, THIS WARRANT AND
            THE SHARES ISSUED  HEREWITH UNDER SUCH  SUBSCRIPTION  AGREEMENT WILL
            NOT BE SEPARATELY TRANSFERABLE.

            IN ADDITION, NEITHER THIS WARRANT NOR THE SHARES OF

                                       2
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            COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED WITH
            THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES  COMMISSION
            OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM  REGISTRATION  UNDER
            THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"), AND,
            ACCORDINGLY,  MAY NOT BE OFFERED,  SOLD,  TRANSFERRED  OR  OTHERWISE
            DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
            UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
            OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
            THE  SECURITIES  ACT  AND  IN  ACCORDANCE  WITH   APPLICABLE   STATE
            SECURITIES  LAWS  AS  EVIDENCED  BY AN  OPINION  OF  COUNSEL  TO THE
            TRANSFEROR TO SUCH EFFECT,  THE FORM AND SUBSTANCE OF WHICH SHALL BE
            ACCEPTABLE TO THE COMPANY.

2. CLOSING.

      2.1  CLOSING.  The closing of the  transactions  contemplated  herein (the
"CLOSING") shall take place on or about November 3, 2004 at the offices of Paul,
Hastings,  Janofsky & Walker LLP, counsel for the Issuer, located at 3579 Valley
Centre  Drive,  San  Diego,  California  92130;  PROVIDED  that,  subject to the
satisfaction  of the conditions set forth in SECTION 8, the Issuer  reserves the
right,  in its  sole  discretion,  to  change  the date of the  Closing.  At the
Closing:  (i) each  Investor  participating  in such  Closing  shall  pay to the
Issuer, by wire transfer of immediately available funds to an account designated
in writing by the Issuer,  the Purchase  Price for the Shares and Warrant  being
purchased by such Investor  hereunder;  (ii) the Issuer shall issue to each such
Investor the Shares being purchased by the Investor  hereunder and shall deliver
or  cause  to be  delivered  to such  Investor  a  certificate  or  certificates
representing  such  Shares  and a Warrant  duly  registered  in the name of such
Investor,  as  specified  on the  signature  pages  hereto;  and (iii) all other
actions  referred to in this  Agreement  which are  required to be taken at such
Closing shall be taken and all other  agreements  and  documents  referred to in
this  Agreement  that are  required  for such  Closing  shall  be  executed  and
delivered.

      2.2 ADDITIONAL CLOSINGS. At any time following the Closing, the Issuer may
sell such additional  Securities as it deems  appropriate in its sole discretion
to any additional investor or investors (each, an "ADDITIONAL  INVESTOR") at one
or more additional  closing(s)  pursuant to this Agreement (each, an "ADDITIONAL
CLOSING").  With respect to each Additional  Closing,  the Issuer, the Investors
and each Additional Investor agree that: (i) the sale and purchase of Securities
at such  Additional  Closing shall be made on the terms and conditions set forth
in this Agreement;  (ii) at such Additional  Closing,  each Additional  Investor
participating  in such  Additional  Closing  shall  pay to the  Issuer,  by wire
transfer of immediately  available funds to an account  designated in writing by
the Issuer,  the Purchase  Price for the Shares and Warrant  being  purchased by
such Additional Investor hereunder; (iii) at such Additional Closing, the Issuer
shall issue to each such  Additional  Investor the Shares being purchased by the
Additional Investor hereunder and shall deliver or cause to be delivered to such
Additional Investor a certificate or certificates representing such Shares and a
Warrant duly registered in the name of

                                       3
<PAGE>

such Additional Investor, as specified on such Additional Investor's counterpart
signature page hereto; (iv) the representations and warranties of the Issuer set
forth in SECTION 3 shall speak only as of the Closing and the Issuer  shall have
no obligation to update any such  representation or warranty,  or any disclosure
set  forth in the  Disclosure  Schedule  (as  defined  below)  relating  to such
representation or warranty, based on events occurring following the Closing; and
(v) the  representations  and warranties of the Additional Investor set forth in
SECTION 4 shall speak as of such  Additional  Closing.  In  connection  with the
foregoing,  notwithstanding  anything to the  contrary  set forth  herein,  this
Agreement  may be amended by the Issuer  without the consent of the Investors to
include any  Additional  Investor as a party  hereto upon the  execution by such
Additional  Investor of a counterpart  signature page hereto,  and upon any such
execution by such  Additional  Investor of a counterpart  signature page hereto,
such  Additional  Investor  shall be deemed to be an "Investor" for all purposes
under this Agreement.

      2.3 TERMINATION. This Agreement may be terminated at any time prior to the
Closing:

            (a) by  mutual  written  consent  of the  Issuer  and the  Investors
purchasing a majority of the Shares issued in connection  with the Offering (the
"MAJORITY INVESTORS");

            (b)  by  the  Majority  Investors,   upon  a  materially  inaccurate
representation or breach of any material warranty,  covenant or agreement on the
part of the Issuer  set forth in this  Agreement,  in either  case such that the
conditions in SECTION 8.1 would be reasonably incapable of being satisfied on or
prior to the date of the Closing; or

            (c) by the Issuer,  upon a materially  inaccurate  representation or
breach  of any  material  warranty,  covenant  or  agreement  on the part of any
Investor set forth in this Agreement, in either case such that the conditions in
SECTION 8.2 would be reasonably  incapable of being satisfied on or prior to the
date  of the  Closing;  PROVIDED  that  in the  event  of  any  such  materially
inaccurate  representation  or breach by an  Investor,  the Issuer  reserves the
right not to issue and sell the Shares and  Warrant to any such  Investor at the
Closing in lieu of terminating the Agreement.

      2.4 EFFECT OF  TERMINATION.  In the event of termination of this Agreement
pursuant to SECTION 2.3, this Agreement shall forthwith become void, there shall
be no liability on the part of the Issuer or the Investors to each other and all
rights and  obligations  of any party hereto shall cease;  PROVIDED that nothing
herein shall relieve any party from  liability for the willful  breach of any of
its  representations  and warranties,  covenants or agreements set forth in this
Agreement.

3. REPRESENTATIONS AND WARRANTIES OF THE ISSUER.

      As a material inducement to the Investors to enter into this Agreement and
subscribe for and purchase the Shares, the Issuer represents and warrants to the
Investors as follows,  EXCEPT, IN THE CASE OF EACH  REPRESENTATION AND WARRANTY,
AS SET FORTH IN THE DISCLOSURE SCHEDULE DELIVERED TO EACH INVESTOR IN CONNECTION
WITH SUCH INVESTOR'S INVESTMENT IN THE SECURITIES (the "DISCLOSURE SCHEDULE"):

      3.1 CORPORATE STATUS. The Issuer is a corporation duly organized,  validly
existing  and in good  standing  under  the laws of the State of  Delaware.  The
Issuer has full corporate power and authority to own and hold its properties and
to conduct its business as described in the SEC

                                       4
<PAGE>

Reports.  The Issuer is duly qualified to do business and is in good standing in
each  jurisdiction in which the nature of its business  requires  qualification,
except for any failure to be so qualified or be in good  standing that would not
have a  Material  Adverse  Effect on the  Issuer.  The  Issuer is subject to the
provisions of the 1940 Act applicable to a BDC.

      3.2 CORPORATE POWER AND AUTHORITY.  The Issuer has the corporate power and
authority to execute and deliver this  Agreement and to perform its  obligations
hereunder and to consummate the transactions contemplated hereby. At or prior to
the  Closing,  the Issuer  will have  taken all  necessary  corporate  action to
authorize the  execution,  delivery and  performance  of this  Agreement and the
consummation of the transactions contemplated hereby.

      3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered by
the Issuer and (assuming it has been duly authorized,  executed and delivered by
each Investor)  constitutes a legal, valid and binding obligation of the Issuer,
enforceable  against  the Issuer in  accordance  with its terms,  except as such
enforceability may be limited by applicable bankruptcy,  insolvency,  fraudulent
conveyance,  reorganization,  moratorium  or  similar  laws from time to time in
effect  affecting the enforcement of creditors'  rights  generally,  and general
equitable principles, regardless of whether such enforceability is considered in
a proceeding  at law or in equity,  and except for the  indemnity  provisions of
ARTICLE 7 of this  Agreement,  which may not be  enforceable  based upon  public
policy considerations. When executed and delivered pursuant to the terms of this
Agreement,  the Warrants will constitute legal, valid and binding obligations of
the Issuer,  enforceable  against  the Issuer in  accordance  with their  terms,
except  as  such  enforceability  may  be  limited  by  applicable   bankruptcy,
insolvency,  fraudulent conveyance,  reorganization,  moratorium or similar laws
from time to time in effect  affecting  the  enforcement  of  creditors'  rights
generally,  and  general  equitable  principles,   regardless  of  whether  such
enforceability is considered in a proceeding at law or in equity.

      3.4 NO  VIOLATION.  The  execution  and  delivery  by the  Issuer  of this
Agreement,  the consummation of the transactions  contemplated  hereby,  and the
compliance  by the  Issuer  with the terms  and  provisions  hereof  (including,
without limitation,  the Issuer's issuance to the Investors of the Securities as
contemplated  by and in accordance  with this  Agreement),  will not: (i) to the
Issuer's  Knowledge,  result  in a default  under  (or give any other  party the
right,  with the giving of notice or the passage of time (or both), to declare a
default or accelerate any obligation  under) any material  Contract to which the
Issuer is a party (except to the extent such a default or acceleration would not
reasonably be expected to have a Material  Adverse  Effect on the Issuer);  (ii)
materially violate any Requirement of Law applicable to the Issuer, or result in
the creation or imposition  of any material Lien upon any of the capital  stock,
properties  or  assets  of the  Issuer  (except  where  such  violations  of any
Requirement of Law or creations or impositions of any Liens would not reasonably
be expected to have a Material  Adverse Effect on the Issuer);  or (iii) violate
the  Certificate  of  Incorporation  or Bylaws of the  Issuer.  To the  Issuer's
Knowledge,  the Issuer is neither:  (a) in default  under or in violation of any
material Contract to which it is a party or by which it or any of its properties
is  bound,  nor (b) in  violation  of any order of any  Governmental  Authority,
which, in the case of CLAUSES (I) and (II), would reasonably be expected to have
a Material Adverse Effect on the Issuer.

      3.5 CONSENTS/APPROVALS.  Except for the filing of a registration statement
in accordance with ARTICLE 6 hereof,  filings with the SEC as may be required in
connection with an

                                       5
<PAGE>

Incidental Registration, and filings with the SEC, the securities commissions of
the  states in which the  Securities  are to be issued  and the  American  Stock
Exchange (the "AMEX"), no consents, filings,  authorizations or other actions of
any Governmental Authority are required to be obtained or made by the Issuer for
the Issuer's  execution,  delivery and  performance of this Agreement which have
not already been obtained or made. No consent,  approval, waiver or other action
by any Person under any  material  Contract to which the Issuer is a party or by
which the Issuer or any of its  properties  or assets are bound is  required  or
necessary  for the  execution,  delivery  or  performance  by the Issuer of this
Agreement and the consummation of the transactions  contemplated hereby,  except
where the failure to obtain such  consents  would not  reasonably be expected to
have a Material Adverse Effect on the Issuer.

      3.6 VALID  ISSUANCE  OF SHARES AND  WARRANT  SHARES.  Upon  payment of the
Purchase   Price  by  the  Investors  and  delivery  to  the  Investors  of  the
certificates for the Shares, such Shares will be validly issued,  fully paid and
non-assessable  and will be free and clear of all Liens  imposed by the  Issuer.
Upon the exercise of the Warrants and the payment of the exercise price pursuant
to such  Warrants by the  holders  thereof,  the Warrant  Shares will be validly
issued,  fully paid and  non-assessable  and will be free and clear of all Liens
imposed by the Issuer.

      3.7 SEC  FILINGS.  The Issuer has timely made all  filings  required to be
made by it under the Exchange Act. The Issuer has  delivered or made  accessible
to the Investor  true,  accurate and complete  copies of the SEC Reports  which,
when filed,  complied in all material respects with all applicable  requirements
of the Exchange Act and, if and to the extent  applicable,  the 1940 Act and the
rules and regulations of the SEC thereunder  applicable to the SEC Reports. None
of the SEC Reports,  at the time of filing,  contained any untrue statement of a
material fact or omitted to state a material fact required to be stated  therein
or necessary in order to make the statements  therein not misleading in light of
the circumstances in which they were made. To the Issuer's Knowledge, the Issuer
has filed in a timely manner all documents  that the Issuer was required to file
under the Exchange Act during the twelve (12) months  preceding the date of this
Agreement. Each balance sheet included in the SEC Reports (including any related
notes and schedules)  fairly presents in all material  respects the consolidated
financial position of the Issuer as of its date, and each of the other financial
statements  included  in the  SEC  Reports  (including  any  related  notes  and
schedules) fairly presents in all material respects the consolidated  results of
operations of the Issuer for the periods or as of the dates therein set forth in
accordance with GAAP  consistently  applied during the periods  involved (except
that the interim reports are subject to adjustments which might be required as a
result of year end audit and except as otherwise stated therein).

      3.8 CAPITALIZATION. As of the Closing, the authorized capital stock of the
Issuer will consist of 50,000,000  shares of Common Stock and 10,000,000  shares
of Preferred  Stock.  All issued and outstanding  shares of capital stock of the
Issuer have been,  and as of the Closing  will be, duly  authorized  and validly
issued and are (or, as of the Closing,  will be) fully paid and  non-assessable,
have been issued in compliance with all applicable state and federal  securities
laws in all material  respects  and were not issued in violation  of, or subject
to, any  preemptive,  subscription or other similar rights of any stockholder of
the Issuer.  As of  September  23,  2004,  1,046,350  shares of Common Stock and
10,950  shares of  Preferred  Stock were  issued and  outstanding.  There are no
agreements  to which the Issuer is a party or  preemptive  rights  affecting the
Common Stock or equity securities of the Issuer under which the Issuer is bound,

                                       6
<PAGE>

and no outstanding  options,  warrants or rights to acquire from the Issuer,  or
instruments  convertible  into or  exchangeable  for, or  agreements  or, to its
Knowledge, understandings with respect to, the sale or issuance by the Issuer of
any shares of Common Stock or other equity securities of the Issuer.

      3.9 MATERIAL  CHANGES.  Except as set forth in or  contemplated by the SEC
Reports or as otherwise contemplated herein, since June 30, 2004, there has been
no Material  Adverse Effect in respect of the Issuer.  Except as set forth in or
contemplated  by the SEC Reports,  since June 30, 2004,  there has not been: (i)
any direct or indirect  redemption,  purchase or other acquisition by the Issuer
of any  shares of the  Common  Stock;  (ii) any  declaration,  setting  aside or
payment of any dividend or other  distribution by the Issuer with respect to the
Common Stock; (iii) any material liabilities  (absolute,  accrued or contingent)
incurred or assumed by the Issuer,  other than current  liabilities  incurred in
the ordinary course of business, liabilities under Contracts entered into in the
ordinary course of business, and liabilities not required to be reflected on the
Issuer's financial  statements  pursuant to GAAP or required to disclosed in the
SEC  Reports;  (iv) any Lien or adverse  claim on any of the  Issuer's  material
properties  or  assets,  except  for Liens for taxes not yet due and  payable or
otherwise  in the  ordinary  course of  business;  (v) any sale,  assignment  or
transfer by the Issuer of any of its material  assets,  tangible or  intangible,
except in the ordinary course of business; (vi) any default by the Issuer in the
payment of  principal or interest in any  material  amount,  or violation of any
material  covenant,  with respect to any outstanding  debt  obligations that are
material to the Issuer;  (vii) any  material  changes to the  Issuer's  critical
accounting policies or material deviations from historical  accounting and other
practices in connection  with the maintenance of the Issuer's books and records;
or (viii) any agreement or commitment to do any of the foregoing.

      3.10  LITIGATION.  Except as  disclosed  in the SEC  Reports,  there is no
action, suit, proceeding or investigation pending or, to the Issuer's Knowledge,
currently  threatened  against the Issuer that  questions  the  validity of this
Agreement  or the right of the  Issuer to enter  into it, or to  consummate  the
transactions  contemplated  hereby,  or that would  reasonably  be  expected  to
result, either individually or in the aggregate, in a Material Adverse Effect on
the Issuer or any change in the current  equity  ownership  of the  Issuer.  The
Issuer  is not a party to or  subject  to the  provisions  of any  order,  writ,
injunction,  judgment or decree of any court or Governmental Authority. There is
no action,  suit,  proceeding or investigation  by the Issuer currently  pending
that would  reasonably  be  expected  to have a Material  Adverse  Effect on the
Issuer.

      3.11 RIGHTS OF REGISTRATION; ANTI-DILUTION. Except as contemplated in this
Agreement,  the  Issuer  has not  granted  or agreed  to grant any  registration
rights,  including  piggyback  rights,  to  any  Person.  The  issuance  of  the
Securities pursuant to this Agreement does not constitute an anti-dilution event
for any existing security holders of the Issuer, pursuant to which such security
holders  would be  entitled  to  additional  securities  or a  reduction  in the
applicable conversion price or exercise price of any securities.

      3.12 OFFERING. Subject in part to the truth and accuracy of the Investors'
representations and warranties set forth in this Agreement,  the offer, sale and
issuance of the Securities as contemplated by this Agreement are exempt from the
registration  requirements  of the  Securities  Act  and  any  applicable  state
securities laws, and neither the Issuer nor any

                                       7
<PAGE>

authorized  agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.

      3.13 DISCLOSURE.  The Disclosure Documents (as defined in SECTION 4.7), as
of their  respective  dates,  did not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements  therein,
in the light of the circumstances under which they were made, not misleading.

      3.14 LICENSES AND PERMITS. To the Issuer's  Knowledge,  the Issuer has all
Permits under  applicable  Requirements of Law from all applicable  Governmental
Authorities that are necessary to operate its businesses as presently  conducted
and all such  Permits are in full force and effect,  except where the failure to
have any such Permits in full force and effect would not, individually or in the
aggregate,  reasonably  be  expected  to have a Material  Adverse  Effect on the
Issuer.  To the Issuer's  Knowledge,  the Issuer is not in default under,  or in
violation of or  noncompliance  with,  any of such Permits,  except for any such
default,  violation,  or noncompliance  which would not,  individually or in the
aggregate,  reasonably  be  expected  to have a Material  Adverse  Effect on the
Issuer.

      3.15 MATERIAL CONTRACTS. To the Issuer's Knowledge, all material Contracts
to which the Issuer is a party and which are  required to have been filed by the
Issuer on Exhibit 10 to the SEC  Reports  have been filed by the Issuer with the
SEC pursuant to the requirements of the Exchange Act. Neither the Issuer nor, to
the Issuer's  Knowledge,  any other party to any material Contract of the Issuer
is in breach of, or in default under, any such material Contract, except for any
such breach or default which would not reasonably be expected to have a Material
Adverse Effect on the Issuer.

      3.16 TAXES. To the Issuer's  Knowledge,  the Issuer has filed all material
federal,  state and  foreign  income and  franchise  tax returns and has paid or
accrued all taxes shown as due thereon, and the Issuer has no Knowledge of a tax
deficiency  which has been or might be asserted or  threatened  against it which
would reasonably be expected to have a Material Adverse Effect on the Issuer.

      3.17 NO MARKET MANIPULATION.  The Issuer has not taken, and will not take,
directly or  indirectly,  any action  designed to, or that might  reasonably  be
expected to, cause or result in  stabilization  or  manipulation of the price of
the Common Stock to  facilitate  the sale or resale of the  Securities or affect
the price at which the Securities may be issued or resold.

      3.18 NO INTEGRATED  OFFERING.  Neither the Issuer nor any Person acting on
its or their behalf has,  directly or indirectly,  at any time since December 1,
2003,  made any offer or sales of any  security of the Issuer or  solicited  any
offers  to buy  any  security  of the  Issuer  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.

      3.19 SEC COMMENTS.  To the Issuer's  Knowledge,  there are no  outstanding
letters of comment or other issues raised by the staff of the SEC which have not
been fully resolved to the satisfaction of staff of the SEC.

                                       8
<PAGE>

4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.

      As a material  inducement  to the Issuer to enter into this  Agreement and
issue the Securities,  each Investor represents,  warrants, and covenants to the
Issuer as follows:

      4.1 POWER AND AUTHORITY. Such Investor, if other than a natural person, is
an entity duly organized,  validly  existing and in good standing under the laws
of the state of its incorporation or formation. Such Investor has the corporate,
partnership or other power (or, in the case of a natural person, legal capacity)
and authority  under  applicable  law to execute and deliver this  Agreement and
consummate the transactions contemplated hereby, and has all necessary authority
to execute,  deliver and perform its  obligations  under this  Agreement  and to
consummate the  transactions  contemplated  hereby.  Such Investor has taken all
necessary  action to authorize the execution,  delivery and  performance of this
Agreement and the transactions contemplated hereby.

      4.2 NO  VIOLATION.  The  execution  and delivery by such  Investor of this
Agreement,  the consummation of the transactions  contemplated  hereby,  and the
compliance by such Investor with the terms and provisions hereof,  will not: (i)
result in a default under (or give any other party the right, with the giving of
notice or the passage of time (or both),  to declare a default or accelerate any
obligation  under) any Contract to which such Investor is a party or by which it
or its  properties  or assets are bound  (except to the extent such  defaults or
accelerations,  individually  or in  the  aggregate,  would  not  reasonably  be
expected to have a Material  Adverse Effect on such Investor);  (ii) violate any
Requirement  of Law  applicable to such  Investor;  or (iii) if such Investor is
other than a natural person, violate any charter, bylaws or similar documents of
such Investor. At or prior to the Closing, such Investor will have complied with
all  Requirements of Law applicable to it in connection with the Offering and at
all times  thereafter  such  Investor will comply with all  Requirements  of Law
applicable to it in  connection  with any resale or transfer by such Investor of
any Securities acquired by such Investor pursuant to this Agreement.

      4.3 CONSENTS/APPROVALS. No consents, filings, authorizations or actions of
any Governmental Authority are required for such Investor's execution,  delivery
and performance of this Agreement. No consent, approval, waiver or other actions
by any Person under any  Contract to which such  Investor is a party or by which
such  Investor  or any of its  properties  or assets  are bound is  required  or
necessary for the execution,  delivery and  performance by such Investor of this
Agreement and the consummation of the transactions contemplated hereby.

      4.4 ENFORCEABILITY. This Agreement has been duly executed and delivered by
such Investor and (assuming it has been duly authorized, executed, and delivered
by the  Issuer)  constitutes  a legal,  valid  and  binding  obligation  of such
Investor, enforceable against such Investor in accordance with its terms, except
as such  enforceability  may be limited by  applicable  bankruptcy,  insolvency,
fraudulent conveyances, reorganization,  moratorium or similar laws from time to
time in effect  affecting the enforcement of creditor's  rights  generally,  and
general equitable principles, regardless of whether enforceability is considered
in a proceeding at law or in equity, and except for the indemnity  provisions of
ARTICLE 7 of this  Agreement,  which may not be  enforceable  based upon  public
policy considerations.

      4.5  INVESTMENT  INTENT.   Such  Investor  expressly  disclaims  being  an
underwriter  and affirms that such Investor is acquiring the  Securities for its
own account, with no present intention of transferring,  distributing or selling
such Securities in violation of the Securities Act

                                       9
<PAGE>

or any applicable  state  securities law, and no one other than the Investor has
any  beneficial  interest  in the  Securities.  Such  Investor  understands  and
acknowledges that, except to the extent permitted under the 1940 Act, as long as
the Issuer is a BDC, the Shares and Warrant will not be separately transferable.
Such  Investor  agrees that it will not sell or otherwise  dispose of any of the
Securities  unless such sale or other  disposition  (a) is permitted  under this
Agreement and (b) has been registered under the 1940 Act, if applicable,  or the
Securities Act or, in an opinion of counsel  acceptable to the Issuer, is exempt
from registration  under the 1940 Act, if applicable,  or the Securities Act and
has been registered or qualified or, in an opinion of counsel  acceptable to the
Issuer,  is exempt from  registration or  qualification  under  applicable state
securities laws. Such Investor understands that the offer and sale by the Issuer
of the  Securities  being  acquired  by such  Investor  hereunder  has not  been
registered  under  the  Securities  Act  by  reason  of an  exemption  from  the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof,  and that the reliance of the Issuer on such  exemption
from registration is predicated in part on these  representations and warranties
of the Investors.  Such Investor  acknowledges that,  pursuant to SECTION 1.2 of
this Agreement,  a restrictive  legend consistent with the foregoing has been or
will be placed on all certificates  representing the Shares,  the Warrant Shares
and the Warrant issued to such Investor pursuant to this Agreement.

      4.6 ACCREDITED INVESTOR. Such Investor is an "accredited investor" as such
term is defined in Rule 501(a) of Regulation D under the Securities Act. Without
limiting  the  foregoing  representation,  such  Investor  confirms  that it has
reviewed the partial  definition of an "Accredited  Investor"  which is attached
hereto as EXHIBIT B (which is not a complete  definition of the term,  but which
includes the most likely categories of qualification) to confirm the accuracy of
such  representation,  and such Investor has noted by paragraph  number,  on its
signature  page  hereto,  the  category(ies)  pursuant  to which  such  Investor
qualifies as an "Accredited  Investor"  according to the definition set forth in
EXHIBIT B. Such  Investor has not been formed for the purpose of  acquiring  the
Securities.  Such  Investor is not an officer,  director,  employee,  investment
advisor, promoter, general partner, Affiliate or member of the advisory board of
the Issuer.

      4.7 ADEQUATE INFORMATION.  Such Investor has received from the Issuer, and
has  reviewed,   such  information  as  such  Investor  considers  necessary  or
appropriate  to evaluate the risks and merits of an  investment  in, and make an
informed investment decision with respect to, the Securities, including, without
limitation,  the documents listed on EXHIBIT C, which have been received by such
Investor as part of an  informational  packet of materials  from the Issuer (the
"DISCLOSURE  DOCUMENTS").  Such  Investor  acknowledges  that  each  of the  SEC
Reports,   including  the  risk  factors  contained  therein,  are  specifically
incorporated  herein by reference and form an integral  part of this  Agreement.
Such Investor also  acknowledges  that the additional  risk factors set forth on
EXHIBIT  C  and  contained  in  the   Disclosure   Documents  are   specifically
incorporated herein by reference and form an integral part of this Agreement.

      4.8  OPPORTUNITY  TO QUESTION.  Such Investor has had the  opportunity  to
question,  and has  questioned,  to the extent deemed  necessary or appropriate,
representatives  of the  Issuer  so as to  receive  answers  from  the  Issuer's
representatives  regarding  the terms and  conditions  of an  investment  in the
Securities and to verify information obtained in such Investor's  examination of
the Issuer,  including,  without limitation,  the information that such Investor
received and reviewed as referenced in SECTION 4.7 in relation to its investment
in the Securities.

                                       10
<PAGE>

      4.9 NO OTHER REPRESENTATIONS. No oral or written representations have been
made to such  Investor in connection  with such  Investor's  acquisition  of the
Securities which were in any way inconsistent  with the information  reviewed by
such Investor.  Such Investor  acknowledges  that, in deciding  whether to enter
into this Agreement and to acquire the Securities  hereunder,  it has not relied
on any  representations  or  warranties of any type or  description  made by the
Issuer or any of its representatives  with regard to the Issuer or its business,
property or  prospects of the  investment  contemplated  herein,  other than the
representations and warranties of the Issuer set forth in ARTICLE 3 hereof.

      4.10  KNOWLEDGE  AND  EXPERIENCE.   Such  Investor   understands  that  an
investment in the Securities  involves  substantial risk. Such Investor has such
knowledge  and  experience  in financial,  tax and business  matters,  including
substantial  experience  in  evaluating  and investing in common stock and other
securities  (including  the common  stock and other  securities  of  speculative
companies), so as to enable such Investor to utilize the information referred to
in SECTION 4.7 hereof and any other  information made available by the Issuer to
such  Investor in order to evaluate the merits and risks of an investment in the
Securities and to make an informed investment decision with respect thereto.

      4.11 INDEPENDENT  DECISION.  Such Investor is not relying on the Issuer or
on any legal or other  opinion in the  materials  reviewed by such Investor with
respect to the financial or tax  considerations of such Investor relating to its
investment  in  the   Securities.   Such  Investor  has  relied  solely  on  the
representations  and warranties,  covenants and agreements of the Issuer in this
Agreement  (including the exhibits and schedules  hereto) and on its examination
and independent investigation in making its decision to acquire the Securities.

      4.12  COMMISSIONS.  Such Investor has not incurred any  obligation for any
finder's,  broker's  or  agent's  fees or  commissions  in  connection  with the
transactions contemplated hereby.

5. COVENANTS.

      5.1  PUBLIC  ANNOUNCEMENTS.  Each  Investor  agrees not to make any public
announcement  or issue any press release or otherwise  publicly  disseminate any
information  about the  subject  matter of this  Agreement.  Except as  provided
herein,  the Issuer shall have the right to make such public  announcements  and
shall control, in its sole and absolute discretion, the timing, form and content
of all press releases or other public communications of any sort relating to the
subject  matter  of  this  Agreement,  and  the  method  of  their  release,  or
publication  thereof.  If required by law or deemed  advisable  in the  Issuer's
discretion,  the Issuer shall file, on a timely basis,  a Current Report on Form
8-K with the SEC in respect of the transactions  contemplated by this Agreement.
The Issuer also may issue an initial press release  relating to the transactions
contemplated  by this  Agreement,  but shall not  identify  any Investor in such
press release without the consent of such Investor, except as may be required by
any Requirement of Law or AMEX rule.

      5.2 FURTHER  ASSURANCES.  Each of the  parties  hereto  shall  execute and
deliver such  additional  instruments  and other  documents  and shall take such
further  actions as may be reasonably  necessary or  appropriate  to effectuate,
carry out and comply with all of the terms of

                                       11
<PAGE>

this Agreement and the transactions  contemplated  hereby. Each of the Investors
and the  Issuer  shall make on a prompt and  timely  basis all  governmental  or
regulatory  notifications  and filings  required to be made by it with or to any
Governmental  Authority in connection with the  consummation of the transactions
contemplated  hereby.  The Issuer and the Investors  agree to cooperate with one
another in the preparation and filing of all forms,  notifications,  reports and
information,  if any,  required or reasonably  deemed advisable  pursuant to any
Requirement  of  Law  or  AMEX  rules  in  connection   with  the   transactions
contemplated  by  this  Agreement  and  to  use  their  respective  commercially
reasonable  efforts to agree  jointly on a method to overcome any  objections by
any Governmental Authority to any such transactions.

      5.3 NOTIFICATION OF CERTAIN MATTERS.  Prior to the Closing: (a) the Issuer
shall  give  prompt  notice to the  Majority  Investors  of the  occurrence,  or
non-occurrence,  of any event which would be likely to cause any  representation
and warranty of the Issuer herein to be untrue or  inaccurate,  or any covenant,
condition or agreement of or applicable to the Issuer pursuant to this Agreement
not to be complied  with or satisfied;  and (b) each Investor  shall give prompt
notice to the Issuer of the occurrence,  or  non-occurrence,  of any event which
would be likely to cause any representation and warranty of such Investor herein
to be untrue or  inaccurate,  or any  covenant,  condition  or  agreement  of or
applicable to such Investor  pursuant to this  Agreement not to be complied with
or satisfied.

      5.4 CONFIDENTIAL  INFORMATION.  Each Investor confirms that it has entered
into a  confidentiality  agreement  with the  Issuer,  pursuant  to  which  such
Investor has agreed to keep  confidential  certain  information  relating to the
Issuer that has been disclosed by the Issuer to the Investor in connection  with
such  Investor's  investment in the  Securities,  and that such  Investor  shall
continue to be bound by such  confidentiality  agreement  after the Closing.  In
addition,  each Investor agrees that no portion of the Confidential  Information
(as  defined  below)  shall be  disclosed  to third  parties,  except  as may be
required  by law,  without  the prior  express  written  consent of the  Issuer;
PROVIDED that each Investor may share such information with such of its officers
and  professional  advisors as may need to know such  information to assist such
Investor in its evaluation  thereof, on the condition that such parties agree to
be bound by the terms of this SECTION 5.4. "CONFIDENTIAL  INFORMATION" means the
existence and terms of this Agreement, the transactions contemplated hereby, and
the  disclosures  and  other  information   contained   herein,   excluding  any
disclosures or other information that is publicly available.

      5.5  RESERVATION OF WARRANT  SHARES.  On or prior to the Closing Date, the
Issuer  undertakes to reserve,  from its authorized  but unissued  Common Stock,
that  number of shares of Common  Stock  equal to the number of  Warrant  Shares
initially issuable upon exercise of the Warrants.

      5.6 OPINIONS. The Issuer will provide, at the Issuer's expense, such legal
opinions of Issuer's  counsel as may be  reasonably  necessary for the resale of
the Shares,  the exercise of the Warrants and the resale of the Warrant  Shares,
in each case pursuant to the Registration  Statement (which shall not include an
underwritten  public  offering)  or  an  applicable  exemption  from,  or  in  a
transaction not subject to, the registration requirements of the Securities Act.

                                       12
<PAGE>

6. REGISTRATION RIGHTS.

      Each Investor shall have the following registration rights with respect to
the Registrable Securities owned by it:

      6.1  TRANSFER  OF  REGISTRATION  RIGHTS.  Each  Investor  may  assign  the
registration  rights with  respect to the Shares  and/or  Warrant  Shares to any
party or  parties  to which it may from  time to time  transfer  all the  Shares
and/or Warrant Shares in accordance with the terms of this  Agreement;  PROVIDED
that the transferee agrees in writing with the Issuer to be bound by ARTICLES 6,
7, and 9 of this Agreement.  Upon assignment of any registration rights pursuant
to this SECTION 6.1, the  Investor  assigning  such rights shall  deliver to the
Issuer a notice of such assignment, which shall include the identity and address
of any assignee and such other information reasonably requested by the Issuer in
connection with effecting any such registration,  and an agreement,  in form and
substance satisfactory to the Issuer and duly executed by the transferee,  to be
bound by ARTICLES 6, 7 AND 9 of this Agreement (collectively, each Investor, and
each such subsequent transferee who so agrees to be bound, who continues to hold
Registrable Securities is referred to as a "HOLDER").

      6.2 REQUIRED  REGISTRATION.  As promptly as practicable after the Closing,
but in no event later than ninety (90) days after the date of the  Closing,  the
Issuer agrees to file a Registration Statement to register the resale of all the
Shares and Warrant Shares (which shall not include an underwritten  offering) (a
"REQUIRED REGISTRATION").  Not less than two (2) days prior to the filing of the
Registration  Statement,  the Issuer shall provide each of the Investors (or, if
an Investor shall have so instructed the Issuer,  the investment adviser of such
Investor)  with a copy of the  Registration  Statement  proposed to be filed and
shall  consider  all  (but  shall  not be  obligated  to  give  effect  to  any)
appropriate  comments that are timely provided by such Investors with respect to
the Registration Statement.  The Issuer shall use its reasonable best efforts to
cause the SEC to declare the Registration  Statement effective no later than the
ninetieth (90th) day following the date the Registration Statement is filed with
the SEC. In the event that the  Registration  Statement has not been filed on or
prior to the one  hundred  twentieth  (120th)  day after the date of the Closing
(the "REGISTRATION DEADLINE"),  then in addition to any other rights the Holders
may have hereunder or under applicable law, on each monthly  anniversary of such
Registration  Deadline  until the date on which the  Registration  Statement  is
first  filed,  the  Issuer  shall  pay to each  Holder  an  amount  in cash,  as
liquidated damages and not as a penalty, equal to 1.0% of the aggregate Purchase
Price  originally paid in connection with the acquisition  pursuant to the terms
of this Agreement of the Registrable  Securities then held by such Holder.  Once
the  Registration  Statement  has been  declared  effective,  the  Issuer  shall
thereafter  maintain the  effectiveness of the Registration  Statement until the
earlier  of: (i) the date on which all the Shares and  Warrant  Shares have been
sold  pursuant to the  Registration  Statement or Rule 144; or (ii) such time as
the Issuer  reasonably  determines,  based on the advice of  counsel,  that each
Holder,  acting  independently  of all other  Holders,  will be eligible to sell
under Rule 144 all the  Shares  and  Warrant  Shares  then owned by such  Holder
within the volume limitations  imposed by paragraph (e) of Rule 144 in the three
(3) month period  immediately  following the termination of the effectiveness of
the  Registration  Statement.   Notwithstanding  the  foregoing,   the  Issuer's
obligations  contained in this  SECTION 6.2 shall  terminate on the second (2nd)
anniversary of the date of the Closing.

                                       13
<PAGE>

      6.3 REGISTRATION PROCEDURES.

            (a) The Issuer shall advise the  Investors as to the  initiation  of
the  registration  process  contemplated  SECTION  6.2 and as to the  completion
thereof.  In addition,  subject to SECTION 6.2, the Issuer shall,  to the extent
applicable to the Registration Statement:

                  (i)  prepare  and  file  with  the  SEC  such  amendments  and
supplements  to the  Registration  Statement  as may be  necessary  to keep such
Registration  Statement  continuously  effective  and  free  from  any  material
misstatement or omission of facts necessary to make the statements  therein,  in
light of the  circumstances in which they were made, not misleading,  and comply
with  provisions of the  Securities  Act with respect to the  disposition of all
Registrable  Securities covered thereby during the period referred to in SECTION
6.2;

                  (ii)  notify  the  Holders   promptly  when  the  Registration
Statement  is  declared  effective  by the SEC,  and furnish to each Holder such
number of prospectuses,  including preliminary prospectuses, and other documents
incident  thereto  as the  Majority  Investors,  on behalf of the  Holders,  may
reasonably request from time to time;

                  (iii) use its commercially  reasonable  efforts to register or
qualify such Registrable Securities under such other securities or blue sky laws
of such  jurisdictions  of the United States where an exemption is not available
and as the Majority Investors,  on behalf any Holder or Holders,  may reasonably
request to enable such Holder or Holders to consummate  the  disposition in such
jurisdiction of the Registrable  Securities;  PROVIDED that in no event will the
Issuer be required to: (x) qualify  generally to do business in any jurisdiction
where it would not  otherwise  be  required to be so  qualified;  (y) consent to
general  service of process in any such  jurisdiction;  or (z) subject itself to
taxation in any jurisdiction where it is not already subject to taxation;

                  (iv) notify the Holders at any time when a prospectus relating
to the  Registrable  Securities is required to be delivered under the Securities
Act or, if  applicable,  the 1940 Act, of the happening of any event as a result
of which the  prospectus  included  in the  Registration  Statement  contains an
untrue  statement  of a material  fact or omits any fact  necessary  to make the
statements  therein,  in light of the circumstances in which they were made, not
misleading  and,  subject to SECTION 6.12,  prepare a supplement or amendment to
such  prospectus,  so  that,  as  thereafter  delivered  to  purchasers  of such
Registrable  Securities,  such prospectus will not contain any untrue statements
of a material  fact or omit to state any fact  necessary to make the  statements
therein, in light of the circumstances in which they were made, not misleading;

                  (v) use its commercially  reasonable efforts to cause all such
Registrable  Securities  to be listed on each  securities  exchange on which the
Common Stock is then listed;

                  (vi)  with a view  to  making  available  to the  Holders  the
benefits of certain rules and regulations of the SEC that at any time permit the
sale of the Registrable  Securities to the public without registration,  so long
as any Registrable Securities are outstanding,  use its commercially  reasonable
efforts for a period of two (2) years following the date of the Closing:

                                       14
<PAGE>

                        (1) to make and keep public  information  available,  as
those terms are understood and defined in Rule 144(c); and

                        (2) to file with the SEC in a timely  manner all reports
and other documents required of the Issuer under the Exchange Act.

                  (vii) advise the Holders  promptly after  receiving  notice or
obtaining  knowledge  of the  existence of any stop order by the SEC delaying or
suspending the effectiveness of the Registration  Statement or of the initiation
or threat of any proceeding for that purpose,  use its  commercially  reasonable
efforts to obtain the withdrawal of any order  suspending the  effectiveness  of
the  Registration  Statement at the earliest  possible time, and promptly notify
the Investors of the lifting or withdrawal of any such order.

            (b)  Notwithstanding  anything  stated or implied to the contrary in
SECTION 6.3(A),  the Issuer shall not be required to consent to,  participate or
cooperate  in  connection  with any  underwritten  offering  of the  Registrable
Securities  or to any specific  underwriter  participating  in any  underwritten
public offering of the Registrable Securities.

            (c) Each Holder agrees to deliver a Notice and  Questionnaire in the
form attached hereto as EXHIBIT D (the "NOTICE AND QUESTIONNAIRE") to the Issuer
at least seven (7) Business Days prior to any  distribution by it of Registrable
Securities  under  the  Registration  Statement.  From  and  after  the date the
Registration  Statement is declared effective,  the Issuer shall, as promptly as
is practicable  after the date a Notice and  Questionnaire is delivered,  and in
any event within the later of seven (7) Business  Days after such date, or seven
(7) Business Days after the expiration of any  Suspension  Period in effect when
the Notice and  Questionnaire  are  delivered or which comes into effect  within
seven (7) Business Days of such  delivery:  (i) if required by  applicable  law,
file with the SEC a post-effective  amendment to the  Registration  Statement or
prepare and, if required by  applicable  law,  file a supplement  to the related
prospectus or an amendment or supplement to any document incorporated therein by
reference or file any other required document so that the Holder delivering such
Notice  and  Questionnaire  is named as a  selling  holder  in the  Registration
Statement  and the related  prospectus  and so that such Holder is  permitted to
deliver  such  prospectus  to  purchasers  of  the  Registrable   Securities  in
accordance  with  applicable law and, if the Issuer shall file a  post-effective
amendment to the Registration Statement,  use commercially reasonable efforts to
cause  such  post-effective   amendment  to  be  declared  effective  under  the
Securities Act as promptly as is practicable; (ii) provide such Holder copies of
any  documents  filed  pursuant to this  SECTION  6.3(C);  and (iii) notify such
Holder as promptly as practicable after the  effectiveness  under the Securities
Act or,  if  applicable,  the 1940  Act of any  post-effective  amendment  filed
pursuant to this SECTION 6.3(C);  PROVIDED that if such Notice and Questionnaire
is delivered during a Suspension  Period,  the Issuer shall so inform the Holder
delivering such Notice and Questionnaire and shall take the actions set forth in
CLAUSES (i), (II) and (III) above upon  expiration of the  Suspension  Period in
accordance with SECTION 6.12.  Notwithstanding  anything contained herein to the
contrary, the Issuer shall be under no obligation to name any Person that is not
a  Holder  as  a  selling  holder  in  the  Registration  Statement  or  related
prospectus;  PROVIDED  that any Person  that  becomes a Holder  pursuant  to the
provisions  of SECTION 6.1  (whether or not such Person was a Holder at the time
the Registration  Statement was declared  effective) shall be named as a selling
holder in the

                                       15
<PAGE>

Registration Statement or related prospectus in accordance with the requirements
of this SECTION 6.3(C).

            (d) Each Holder  agrees  that,  upon  receipt of any notice from the
Issuer  of the  happening  of  any  event  of  the  kind  described  in  SECTION
6.3(A)(IV),  and subject to SECTION 6.12, such Holder will forthwith discontinue
such Holder's disposition of Registrable Securities pursuant to the Registration
Statement  until such  Holder's  receipt of the  copies of the  supplemented  or
amended prospectus contemplated by SECTION 6.3(A)(IV) and, if so directed by the
Issuer,  will  deliver to the Issuer at the Issuer's  expense all copies,  other
than permanent file copies, then in such Holder's possession,  of the prospectus
relating to such Registrable  Securities  current at the time of receipt of such
notice.

      6.4 INCIDENTAL REGISTRATION.

            (a)  Subject to SECTION  6.4(B) and SECTION  6.4(C),  if at any time
prior to the filing of a Registration  Statement in connection with the Required
Registration  the Issuer  proposes to register  under the  Securities Act or the
1940 Act, as applicable,  any shares of the same class as any of the Registrable
Securities  (whether in an underwritten public offering or otherwise and whether
or not for the account of the Issuer or for any stockholder of the Issuer), in a
manner that would permit the  registration  under the Securities Act or the 1940
Act, as applicable, of Registrable Securities for sale to the public, the Issuer
will give written notice to each Holder of its intention to do so not later than
ten  (10)  days  prior  to  the  anticipated   filing  date  of  the  applicable
Registration Statement. Any Holder may elect to participate in such registration
on the same basis as the  planned  method of  distribution  contemplated  by the
proposed  Registration  Statement by delivering to the Issuer  written notice of
its election, in the form of the Notice and Questionnaire,  within five (5) days
after its receipt of the  Issuer's  notice  pursuant to this SECTION  6.4(A).  A
Holder's election pursuant to this SECTION 6.4(A) must (i) specify the amount of
Registrable  Securities desired to be included in such Registration Statement by
such Holder and (ii) include any other  information  that the Issuer  reasonably
requests  be  included  in such  Registration  Statement.  Upon its receipt of a
Holder's election pursuant to this SECTION 6.4(A),  the Issuer will,  subject to
SECTION 6.5,  use its  reasonable  best efforts to include in such  Registration
Statement all Registrable  Securities requested to be included. Any registration
of  Registrable  Securities  pursuant  to this  SECTION 6.4 is referred to as an
"INCIDENTAL  REGISTRATION",  and any Holder  whose  Registrable  Securities  are
included at the request of such Holder in an Incidental Registration pursuant to
this SECTION 6.4 is referred to as a "SELLING STOCKHOLDER."

            (b) The Issuer shall have no obligation  under this SECTION 6.4 with
respect to any  registration  effected  pursuant to a registration  statement on
Form S-4 (or any other  registration  statement  registering  shares issued in a
merger,  consolidation,  acquisition, or similar transaction) or Form S-8 or any
successor or comparable  forms, or a registration  statement filed in connection
with an exchange  offer or any  offering of  securities  solely to the  Issuer's
existing  stockholders or otherwise  pursuant to a dividend  reinvestment  plan,
stock purchase plan, or other employee benefit plan.

            (c) The Issuer shall have no obligation  under this SECTION 6.4 with
respect  to  any  registration  initiated  by  one or  more  Third-Party  Demand
Stockholders pursuant to one or

                                       16
<PAGE>

more  registration  rights  agreements  under  which  the  rights  of  all  such
Third-Party Demand Stockholders are PARI PASSU, if:

                  (i) the applicable  registration  rights agreement between the
Issuer and such Third-Party Demand Stockholders  prohibits the inclusion in such
registration of securities other than those offered by such  Third-Party  Demand
Stockholders and the Issuer, and

                  (ii)  no   securities   other  than  those   offered  by  such
Third-Party Demand Stockholders are included in such registration.

      6.5 LIMITATION ON INCLUSION OF REGISTRABLE SECURITIES;  PRIORITIES. If the
proposed method of distribution in connection with an Incidental Registration is
an  underwritten  public  offering  and the lead  managing  underwriter  thereof
determines  in good faith that the amount of  securities  to be included in such
offering would  adversely  affect such offering  (including an adverse effect on
the price at which the securities  proposed to be registered  may be sold),  the
amount of  securities  to be  offered  may be  reduced  or limited to the extent
necessary  to reduce  the total  number of  securities  to be  included  in such
offering to the amount recommended by the lead managing underwriter as follows:

            (a) in  connection  with an offering  initiated  by the  Issuer,  if
securities  are being  offered for the account of other Persons  (including  any
Holders) such reduction shall be made:

                  (i) first, from the securities  intended to be offered by such
other Persons (including any Holders),  on a PRO RATA basis, based on the number
of Registrable Securities and other securities that are requested to be included
in such offering; and

                  (ii) second,  from the number of  securities to be offered for
the account of the Issuer;

            (b) in connection with an offering initiated by a Third-Party Demand
Stockholder, such reduction shall be made:

                  (i) first,  from  securities  held by Persons  who are not (A)
Holders, (B) Third-Party Demand Stockholders or (C) other stockholders  entitled
under any agreement  between them and the Issuer to participate  PARI PASSU with
the Selling  Stockholders in such Incidental  Registration,  and from securities
being  offered for the account of the Issuer,  allocated  between the Issuer and
such  other  Persons  as the Issuer  may  determine,  subject to any  agreements
between the Issuer and such other Persons;

                  (ii)  second,  from  the  number  of  Registrable   Securities
requested to be included in such  offering by the Selling  Stockholders  and any
other stockholders  entitled under any agreements between them and the Issuer to
participate  PARI  PASSU  with  the  Selling  Stockholders  in  such  Incidental
Registration, on a PRO RATA basis, based on the number of Registrable Securities
and other securities which are requested to be included in the registration; and

                                       17
<PAGE>

                  (iii) last, from  securities  being offered by the Third-Party
Demand Stockholders.

      6.6 WITHDRAWAL BY SELLING  STOCKHOLDER.  Each Selling  Stockholder may, no
less than five (5) Business Days before the  anticipated  effective  date of the
applicable Registration Statement for an Incidental Registration,  withdraw some
or  all  of its  Registrable  Securities  from  inclusion  in  the  Registration
Statement.  No such withdrawal shall relieve any withdrawing Selling Stockholder
of its obligation to pay expenses under SECTION 6.10.

      6.7  UNDERWRITERS;   UNDERWRITING   AGREEMENT.   In  connection  with  any
Incidental  Registration involving an underwritten public offering of securities
for the  account  of the Issuer or a  Third-Party  Demand  Stockholder,  (a) the
managing and lead underwriters shall be selected by the Issuer, unless otherwise
provided  in any  agreement  between  the  Issuer  and  any  Third-Party  Demand
Stockholder,  and (b) each Selling  Stockholder  electing to  participate in the
Incidental  Registration  shall, as a condition to the Issuer's obligation under
this ARTICLE 6 to include such Selling Stockholder's  Registrable  Securities in
such Incidental  Registration,  enter into and perform its obligations  under an
underwriting  agreement or other similar  arrangement in customary form with the
managing  underwriter  of such  offering.  Notwithstanding  anything  stated  or
implied to the  contrary in this  ARTICLE 6, the Issuer shall not be required to
consent  to,  participate  or  cooperate  in  connection  with any  underwritten
offering  of  the  Registrable   Securities  or  to  any  specific   underwriter
participating in any underwritten public offering of the Registrable Securities.

      6.8 REGISTRATION PROCEDURES.

            (a) Whenever the Issuer is  obligated by the  provisions  of SECTION
6.4(A)  to effect  the  registration  of any  Registrable  Securities  under the
Securities Act, the Issuer shall, to the extent  applicable to the  Registration
Statement:

                  (i) use its  reasonable  best efforts to cause the  applicable
Registration  Statement to become  effective as promptly as practicable,  and to
prepare and file with the SEC any amendments and supplements to the Registration
Statement and to the prospectus used in connection therewith as may be necessary
to keep the Registration Statement and such prospectus effective, current and in
compliance with the provisions of the Securities Act during the periods when the
Issuer is required,  pursuant to the applicable  registration  rights  agreement
between the Issuer and Third-Party Demand Stockholders or otherwise, to keep the
Registration Statement effective and current;

                  (ii)  notify  the  Selling  Stockholders   promptly  when  the
Registration Statement is declared effective by the SEC, and furnish such number
of  prospectuses,   including  preliminary  prospectuses,  and  other  documents
incident thereto as the Selling Stockholders may reasonably request from time to
time;

                  (iii) use its commercially  reasonable  efforts to register or
qualify such Registrable Securities under such other securities or blue sky laws
of such  jurisdictions  of the United States where an exemption is not available
and as the  Persons  holding  a  majority  of the  securities  covered  by  such
Registration Statement may reasonably request to enable such Person

                                       18
<PAGE>

or Persons to consummate the disposition of the  Registrable  Securities in such
jurisdiction;  PROVIDED  that in no event  will the Issuer be  required  to: (x)
qualify to do business as a foreign  corporation  in any  jurisdiction  where it
would not  otherwise  be  required  to be so  qualified;  (y) consent to general
service of process in any such  jurisdiction;  or (z) subject itself to taxation
in any jurisdiction where it is not already subject to taxation;

                  (iv)  notify  the  Selling  Stockholders  at any  time  when a
prospectus  relating to the  Registrable  Securities is required to be delivered
under the  Securities  Act of the  happening of a Suspension  Event or any other
event as a result of which the prospectus included in the Registration Statement
contains or would  contain an untrue  statement  of a material  fact or omits or
would omit any fact necessary to make the statements therein not misleading and,
subject to SECTION 6.12,  prepare a supplement or amendment to such  prospectus,
so that, as thereafter  delivered to purchasers of such Registrable  Securities,
such  prospectus  will not contain any untrue  statements  of a material fact or
omit to state any fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;

                  (v) use its commercially  reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Issuer are then listed;

                  (vi) Advise the Selling Stockholders  promptly after receiving
notice or  obtaining  knowledge  of the  existence  of any stop order by the SEC
delaying or suspending the effectiveness of the Registration Statement or of the
initiation or threat of any  proceeding for that purpose,  use its  commercially
reasonable  efforts  to  obtain  the  withdrawal  of any  order  suspending  the
effectiveness of the Registration  Statement at the earliest  possible time, and
promptly notify the Investors of the lifting or withdrawal of any such order.

            (b) Each Selling Stockholder agrees that, upon receipt of any notice
from the Issuer of the  happening of any event of the kind  described in SECTION
6.8(A)(IV),  such Selling  Stockholder  will forthwith  discontinue such Selling
Stockholder's disposition of Registrable Securities pursuant to the Registration
Statement  until  such  Selling  Stockholder's  receipt  of  the  copies  of the
supplemented or amended prospectus contemplated by SECTION 6.8(A)(IV) and, if so
directed by the Issuer,  will deliver to the Issuer at the Issuer's  expense all
copies,  other than  permanent file copies,  then in such Selling  Stockholder's
possession, of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice.

      6.9 DELAY OR  WITHDRAWAL  OF  REGISTRATION.  The Issuer  may,  without the
consent of any  Holder,  delay,  suspend,  abandon,  or  withdraw  any  proposed
registration  in which any  Holder  has  requested  inclusion  of such  Holder's
Registrable Securities pursuant to this ARTICLE 6.

      6.10  EXPENSES.  Except as required by law, all  expenses  incurred by the
Issuer in complying  with this ARTICLE 6,  including,  without  limitation,  all
registration,   application,   qualification,   filing,  listing,  transfer  and
registrar  fees;  printing  expenses;  fees and  disbursements  of  counsel  and
accountants for the Issuer;  and blue sky fees and expenses  (including fees and
disbursements of counsel related to all blue sky matters) incurred in connection
with any  registration,  qualification or compliance  pursuant to this ARTICLE 6
shall be borne by the  Issuer.  All  underwriting  or  brokerage  discounts  and
selling commissions applicable to a sale incurred in

                                       19
<PAGE>

connection with any  registration  of Registrable  Securities and the legal fees
and other  expenses  of a Holder or Selling  Stockholder  shall be borne by such
Holder or Selling Stockholder.

      6.11  FURTHER  INFORMATION.  Each  Holder,  in  the  case  of  a  Required
Registration,  and  each  Selling  Stockholder,  in the  case  of an  Incidental
Registration, shall cooperate with the Issuer in connection with the preparation
of the  Registration  Statement,  and for so long as the Issuer is  obligated to
keep the Registration  Statement effective,  such Holder or Selling Stockholder,
as the case may be,  will  provide to the  Issuer,  in  writing,  for use in the
Registration  Statement,  all  information  regarding  such  Holder  or  Selling
Stockholder,  as the case may be,  its  intended  method of  disposition  of the
applicable Registrable Securities,  and such other information as the Issuer may
reasonably request to prepare the Registration Statement and prospectus covering
the  Registrable  Securities  and to maintain  the  currency  and  effectiveness
thereof.  Each Holder and each Selling  Stockholder  shall  indemnify the Issuer
with respect to such information in accordance with SECTION 7.2.

      6.12 RIGHT OF SUSPENSION.

            (a)  Notwithstanding  any other  provision of this  Agreement or any
related agreement to the contrary, the Issuer shall have the right, at any time,
to suspend  the  availability  of the  Registration  Statement  and the  related
prospectus and offers and sales of the Registrable  Securities  pursuant thereto
whenever,  in the  good-faith  judgment of the  management  of the  Issuer:  (i)
continuing  such   availability  or  permitting  such  offers  and  sales  could
reasonably  be  expected  to have an adverse  effect  upon a pending or proposed
significant  corporate event, or negotiations,  discussions or pending proposals
with respect  thereto;  (ii) there exists a material  development or a potential
material  development  with respect to or  involving  the Issuer that the Issuer
would be obligated to disclose in the  prospectus  used in  connection  with the
Registration  Statement,  which  disclosure,  in the good-faith  judgment of the
Issuer,  after  consultation  with  counsel,  would be  premature  or  otherwise
inadvisable  at such  time;  or (iii)  the  Registration  Statement  or  related
prospectus or any document  incorporated or deemed to be incorporated therein by
reference  contains an untrue  statement of a material  fact or omits to state a
material fact required to be stated  therein or necessary to make the statements
therein,  in light of the  circumstances,  not  misleading  (each of the  events
described in CLAUSES (I), (II) and (III),  a "SUSPENSION  EVENT").  In the event
that a Suspension  Event shall occur and the Issuer  shall  determine to suspend
the  availability  of the  Registration  Statement  and  offers and sales of the
Registrable  Securities  pursuant  thereto,  the Issuer  shall,  in  addition to
performing  those  acts  required  to  be  performed  under  the  1940  Act,  if
applicable,  the Securities  Act and/or the Exchange Act or deemed  advisable by
the Issuer,  deliver to the Holders or the Selling Stockholders,  as applicable,
written notice thereof, signed by an officer of the Issuer. Upon receipt of such
notice,  the  Holders  or  the  Selling  Stockholders,   as  applicable,   shall
discontinue   disposition  of  the  Registrable   Securities   pursuant  to  the
Registration   Statement   and   prospectus   until  such   Holders  or  Selling
Stockholders:  (A) are  advised in  writing  by the  Issuer  that the use of the
Registration  Statement and prospectus (and offers and sales  thereunder) may be
resumed;  (B) have received copies of a supplemental or amended  prospectus,  if
applicable;  and (C) have  received  copies of any  additional  or  supplemental
filings which are  incorporated  or deemed to be  incorporated by reference into
such  prospectus.  The Issuer will  exercise  reasonable  commercial  efforts to
ensure that the use of the Registration  Statement and prospectus may be resumed
as quickly as practicable.

                                       20
<PAGE>

            (b)  The  Issuer's  right  to  suspend  the   effectiveness  of  the
Registration  Statement and the offers and sales of the  Registrable  Securities
pursuant thereto, as described in SECTION 6.12(A), shall be for a period of time
(the  "SUSPENSION  PERIOD")  beginning  on the  date  of the  occurrence  of the
Suspension  Event and expiring on the earlier to occur of: (i) the date on which
the Suspension Event ceases;  or (ii) forty-five (45) days after the date of the
occurrence of the Suspension  Event;  PROVIDED that there shall not be more than
two (2) Suspension Periods in any twelve (12) month period.

      6.13  TRANSFER OF SHARES.  Except to the extent  permitted  under the 1940
Act,  as long as the Issuer is a BDC,  the Shares  and the  Warrant  will not be
separately transferable.  Subject to the foregoing restriction,  an Investor may
transfer all or any part of its Securities to any Person under common management
with such Investor,  PROVIDED that: (a) such  transferee  agrees in writing with
the Issuer to be bound by  ARTICLES  6, 7 and 9 of this  Agreement;  and (b) any
such transfer shall be effected in full compliance  with all applicable  federal
and state securities laws, including, without limitation, the Securities Act and
the  rules of the SEC  promulgated  thereunder.  The  Issuer  will  effect  such
transfer of restricted certificates and, if the Securities to be transferred are
Registrable  Securities  registered under an effective  Registration  Statement,
then upon  receipt of the  Notice and  Questionnaire  from the  transferee,  the
Issuer will promptly  amend the  prospectus  forming a part of the  Registration
Statement to add such  transferee as a Selling  Stockholder in the  Registration
Statement,  PROVIDED that such  transferor and  transferee  shall be required to
provide  the Issuer  with the  information  requested  of such  Investor in this
Agreement, information reasonably necessary for the Issuer to determine that the
transfer  was  effected  in  accordance  with all  applicable  federal and state
securities laws, including, without limitation, the 1940 Act, the Securities Act
and the  rules of the SEC  promulgated  thereunder,  and all  other  information
reasonably  requested  by the Issuer  from time to time in  connection  with any
transfer, registration, qualification or compliance referred to in SECTION 6.11.

7. INDEMNIFICATION.

      7.1  INDEMNIFICATION  BY THE ISSUER.  The Issuer will  indemnify  and hold
harmless  each Holder or Selling  Stockholder  of Shares and/or  Warrant  Shares
covered by a Registration Statement pursuant to the provisions of ARTICLE 6, any
Person who controls such Holder or Selling Stockholder within the meaning of the
Securities Act, and any officer, director,  investment adviser, employee, agent,
partner,  member or Affiliate  of such Holder or Selling  Stockholder  (each,  a
"HOLDER/SELLING  STOCKHOLDER  INDEMNIFIED  PARTY"),  from and against,  and will
reimburse each such  Holder/Selling  Stockholder  Indemnified Party with respect
to, any and all claims, actions,  demands, losses, damages,  liabilities,  costs
and expenses to which such Holder/Selling Stockholder or any such Holder/Selling
Stockholder  Indemnified  Party may become  subject under the  Securities Act or
otherwise,   insofar  as  such  claims,  actions,   demands,   losses,  damages,
liabilities,  costs or expenses  arise out of or are based upon:  (a) any untrue
statement or alleged  untrue  statement of any material  fact  contained in such
registration  statement,  any prospectus  contained  therein or any amendment or
supplement  thereto;  (b) the  omission or alleged  omission to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein (in the case of any  preliminary  prospectus or prospectus,  in light of
the  circumstances  under  which  they  were  made) not  misleading;  or (c) any
materially  inaccurate  representation  or  breach  of  any  material  warranty,
agreement or covenant of the Issuer contained  herein;  PROVIDED that the Issuer
will not be liable in any such case to the

                                       21
<PAGE>

extent that any such claim,  action,  demand, loss, damage,  liability,  cost or
expense  arises out of or is based upon an untrue  statement  or alleged  untrue
statement or omission or alleged omission (i) made in reliance on and conformity
with  information  furnished  by  any  Holder/Selling   Stockholder  in  writing
specifically  for use in the  preparation  thereof or (ii) which was cured in an
amendment or  supplement  to the  prospectus  (or any  amendment  or  supplement
thereto) delivered to the Holder/Selling Stockholder on a timely basis to permit
proper delivery  thereof prior to the date on which any Shares or Warrant Shares
were transferred or sold.

      7.2 INDEMNIFICATION BY THE HOLDER OR SELLING STOCKHOLDER.  Each Holder and
each  Selling   Stockholder  of  Shares  and/or  Warrant  Shares  covered  by  a
Registration  Statement  pursuant to the  provisions of ARTICLE 6 will indemnify
and hold  harmless the Issuer,  any Person who  controls  the Issuer  within the
meaning of the  Securities  Act, and any  officer,  director,  employee,  agent,
partner, member or Affiliate of the Issuer (each, an "ISSUER INDEMNIFIED PARTY")
from and against, and will reimburse the Issuer Indemnified Parties with respect
to, any and all claims, actions, demands, losses, damages, liabilities, costs or
expenses to which such Issuer  Indemnified  Parties may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or  expenses  arise out of or are based upon:  (a) any untrue or alleged  untrue
statement of any material fact  contained in such  Registration  Statement,  any
prospectus  contained therein or any amendment or supplement thereto; or (b) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein,  (in the case of any
preliminary prospectus or prospectus,  in light of the circumstances under which
they were  made) not  misleading,  in each case to the  extent,  but only to the
extent,  that such untrue  statement or alleged untrue  statement or omission or
alleged  omission  was so  made  in  reliance  on and  conformity  with  written
information furnished by such Holder or Selling Stockholder specifically for use
in the preparation thereof; PROVIDED that the liability of any Holder or Selling
Stockholder  pursuant  to this  SECTION 7.2 shall be limited to an amount not to
exceed the net proceeds received by such Holder or Selling  Stockholder from the
sale of Registrable  Securities  pursuant to the  Registration  Statement  which
gives rise to such obligation to indemnify.

      7.3 PROCEDURES.  Promptly after receipt by a party indemnified pursuant to
the  provisions of SECTION 7.1 or SECTION 7.2 of notice of the  commencement  of
any action involving the subject matter of the foregoing  indemnity  provisions,
such  indemnified  party  will,  if a claim  thereof is to be made  against  the
indemnifying  party  pursuant to the  provisions  of SECTION 7.1 or SECTION 7.2,
notify the indemnifying party of the commencement thereof; PROVIDED the omission
to so notify the indemnifying party will not relieve it from any liability which
it may have to an  indemnified  party  otherwise  than under this ARTICLE 7, and
shall not relieve the  indemnifying  party from liability  under this ARTICLE 7,
except to the extent that such  indemnifying  party is materially  prejudiced by
such omission.  In case such action is brought against any indemnified party and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party  shall have the right to  participate  in,  and, to the extent that it may
wish, jointly with any other indemnifying  party similarly  notified,  to assume
the defense thereof,  with counsel  reasonably  satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election to assume the defense thereof,  the indemnifying  party will not be
liable to such  indemnified  party  pursuant to the provisions of SECTION 7.1 or
SECTION  7.2 for any  legal  or  other  expense  subsequently  incurred  by such
indemnified party in connection with the defense thereof.  No indemnifying party
shall be liable to an indemnified party for any

                                       22
<PAGE>

settlement of any action or claim without the consent of the indemnifying party.
No  indemnifying  party will  consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of an unconditional  release
from all liability in respect to such action, claim or litigation.

8. CONDITIONS TO CLOSING.

      8.1 CONDITIONS TO THE OBLIGATIONS OF THE INVESTORS.  The obligation of the
Investors to proceed with the Closing is subject to the following conditions any
and all of which  may be  waived on  behalf  of all  Investors  by the  Majority
Investors, in whole or in part, to the extent permitted by applicable law:

            (a) REPRESENTATIONS AND WARRANTIES.  Each of the representations and
warranties  of the Issuer  contained  in this  Agreement,  as  qualified  by the
Disclosure  Schedule,  shall be true and correct in all material  respects as of
the Closing as though  made on and as of the  Closing,  except:  (i) for changes
specifically  permitted by this Agreement;  (ii) that those  representations and
warranties  which address matters only as of a particular date shall remain true
and correct as of such date;  and (iii) for such failures to be true and correct
which would not,  individually  or in the aggregate,  be reasonably  expected to
have a Material  Adverse  Effect on the Issuer.  Unless the  Majority  Investors
receive  written  notice to the contrary at the Closing,  each Investor shall be
entitled to assume that the  preceding  sentence is accurate in all  respects at
the Closing.

            (b)  AGREEMENT  AND  COVENANTS.  The Issuer shall have  performed or
complied in all material respects with all agreements and covenants  required by
this  Agreement  to be  performed  or  complied  with by it on or  prior  to the
Closing. Unless the Majority Investors receive written notice to the contrary at
the  Closing,  each  Investor  shall be entitled  to assume  that the  preceding
sentence is accurate in all respects at the Closing.

            (c) NO ORDER. No Governmental Authority shall have enacted,  issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in  effect  and  which  materially  restricts,  prevents  or  prohibits
consummation of the Closing or any transaction contemplated by this Agreement.

            (d) APPROVALS OF ISSUER'S  STOCKHOLDERS.  The Issuer's  stockholders
shall have approved at the special meeting of stockholders to be held on October
22,  2004  proposals  nos. 2 and 7 set forth in the  Issuer's  definitive  proxy
statement  on  Schedule  14A filed with the SEC on  October 1, 2004 (the  "PROXY
STATEMENT").

            (e)  TRADING.  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
AMEX;  (ii)  trading  in  securities  generally  on the AMEX shall not have been
suspended or limited;  (iii) no minimum prices shall have been  established  for
securities traded on the AMEX.

                                       23
<PAGE>

      8.2  CONDITIONS TO THE  OBLIGATIONS  OF THE ISSUER.  The obligation of the
Issuer to proceed with the Closing is subject to the  following  conditions  any
and all of which may be waived by the Issuer, in whole or in part, to the extent
permitted by applicable law:

            (a) REPRESENTATIONS AND WARRANTIES.  Each of the representations and
warranties of each of the Investors  contained in this  Agreement  shall be true
and correct as of the Closing as though made on and as of the  Closing,  except:
(i) for changes  specifically  permitted by this Agreement;  and (ii) that those
representations  and  warranties  which address  matters only as of a particular
date shall remain true and correct as of such date.  Unless the Issuer  receives
written  notification  to the  contrary  at the  Closing,  the  Issuer  shall be
entitled to assume that the  preceding  sentence is accurate in all  respects at
the Closing.

            (b) AGREEMENT AND  COVENANTS.  Each Investor shall have performed or
complied in all material respects with all agreements and covenants  required by
this  Agreement  to be  performed  or  complied  with by it on or  prior  to the
Closing.  Unless the Issuer receives written notification to the contrary at the
Closing,  the Issuer shall be entitled to assume that the preceding  sentence is
accurate in all respects at the Closing.

            (c) NO ORDER. No Governmental Authority shall have enacted,  issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in  effect  and  which  materially  restricts,  prevents  or  prohibits
consummation of the Closing or any transaction contemplated by this Agreement.

            (d) APPROVALS OF ISSUER'S  STOCKHOLDERS.  The Issuer's  stockholders
shall have approved at the special meeting of stockholders to be held on October
22, 2004 proposals nos. 2 and 7 set forth in the Proxy Statement.

            (e) APPROVAL OF ISSUER'S BOARD OF DIRECTORS.  This Agreement and the
transactions  contemplated  herein shall have been duly approved by the Issuer's
Board of Directors.

            (f) AMENDMENT TO CERTIFICATE OF  INCORPORATION.  An amendment to the
Certificate of Incorporation  providing for, among other things, the increase in
the  authorized  number  of  shares of Common  Stock  from  5,000,000  shares to
50,000,000 shares shall have been filed with the Secretary of State of the State
of Delaware.

9. MISCELLANEOUS.

      9.1  DEFINED  TERMS.  As used  herein the  following  terms shall have the
following meanings:

            (a) "1940 ACT" means the Investment Company Act of 1940, as amended.

            (b) "ADDITIONAL CLOSING" has the meaning specified in SECTION 2.2 of
this Agreement.

                                       24
<PAGE>

            (c) "ADDITIONAL  INVESTOR" has the meaning  specified in SECTION 2.2
of this Agreement.

            (d) "AFFILIATE" has the meaning  ascribed to it in Rule 12b-2 of the
General Rules and  Regulations  under the Exchange Act, as in effect on the date
hereof.

            (e)  "AGREEMENT"  has the meaning  specified in the preamble to this
Agreement.

            (f)  "AMEX"  has  the  meaning  specified  in  SECTION  3.5 of  this
Agreement.

            (g) "BDC"  means a  business  development  company as defined in the
Investment Company Act of 1940, as amended.

            (h) "BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal  legal  holiday or a day on which either (i) the SEC or
(ii) banking institutions in the State of New York are authorized or required by
law or other governmental action to close.

            (i)  "BYLAWS"  means the  Bylaws of the  Issuer,  as the same may be
supplemented, amended, or restated from time to time.

            (j) "CERTIFICATE OF INCORPORATION" means the Issuer's Certificate of
Incorporation, as the same may be supplemented, amended or restated from time to
time.

            (k)  "CLOSING"  has the  meaning  specified  in SECTION  2.2 of this
Agreement.

            (l) "COMMON STOCK" has the meaning specified in the Recitals to this
Agreement.

            (m) "CONFIDENTIAL  INFORMATION" has the meaning specified in SECTION
5.4 of this Agreement.

            (n) "CONTRACT" means any indenture, lease, sublease, loan agreement,
mortgage, note, restriction, commitment, obligation or other contract, agreement
or instrument.

            (o) "DISCLOSURE  DOCUMENTS" has the meaning specified in SECTION 4.7
of this Agreement.

            (p) "DISCLOSURE  SCHEDULE" has the meaning specified in SECTION 3 of
this Agreement.

            (q)  "EXCHANGE  ACT" means the  Securities  Exchange Act of 1934, as
amended.

            (r) "GAAP" means generally accepted accounting  principles in effect
in the United States of America.

                                       25
<PAGE>

            (s)  "GOVERNMENTAL  AUTHORITY"  means any nation or government,  any
state or  other  political  subdivision  thereof,  and any  entity  or  official
exercising  executive,  legislative,   judicial,  regulatory  or  administrative
functions of or pertaining to government.

            (t)  "HOLDER"  has the  meaning  specified  in  SECTION  6.1 of this
Agreement.

            (u) "HOLDER/SELLING  STOCKHOLDER  INDEMNIFIED PARTY" has the meaning
specified in SECTION 7.1 of this Agreement.

            (v) "INCIDENTAL  REGISTRATION"  has the meaning specified in SECTION
6.4(A) of this Agreement.

            (w)  "INVESTOR"  has the meaning  specified  in the preamble to this
Agreement.

            (x)  "ISSUER"  means  Franklin  Capital   Corporation,   a  Delaware
corporation.

            (y) "ISSUER  INDEMNIFIED PARTY" has the meaning specified in SECTION
7.2 of this Agreement.

            (z)  "KNOWLEDGE"  means,  with  respect  to the  Issuer,  the actual
knowledge of Milton "Todd" Ault III.

            (aa)  "LIEN"  means  any  mortgage,   pledge,   security   interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing  statement under the Uniform  Commercial Code or
comparable law of any  jurisdiction  in connection  with such mortgage,  pledge,
security interest, encumbrance, lien or charge).

            (bb)  "LOI"  has  the  meaning  specified  in  SECTION  3.9 of  this
Agreement.

            (cc)  "MAJORITY  INVESTORS"  has the  meaning  specified  in SECTION
2.2(A) of this Agreement.

            (dd) "MATERIAL  ADVERSE  EFFECT" means a material and adverse change
in, or effect on, the  financial  condition,  properties,  assets,  liabilities,
rights, obligations, operations or business, of a Person.

            (ee) "NOTICE AND QUESTIONNAIRE" has the meaning specified in SECTION
6.3(C) of this Agreement.

            (ff)  "OFFERING"  has the meaning  specified in the Recitals to this
Agreement.

            (gg)  "PERMIT"  means any permit,  certificate,  consent,  approval,
authorization,  order, license, variance,  franchise or other similar indicia of
authority issued or granted by any Governmental Authority.

                                       26
<PAGE>

            (hh)  "PERSON"  means a natural  person,  partnership,  corporation,
limited liability company,  business trust, joint stock company,  estate, trust,
unincorporated  association,  joint  venture,  Governmental  Authority  or other
entity, of whatever nature.

            (ii) "PROXY  STATEMENT" has the meaning  specified in SECTION 8.1(E)
of this Agreement.

            (jj)  "PURCHASE  PRICE" has the meaning  specified in SECTION 1.1 of
this Agreement.

            (kk)  "REGISTER",   "REGISTERED"  and  "REGISTRATION"   refer  to  a
registration  of the  offering  and sale or resale of Common  Stock  effected by
preparing and filing a registration  statement in compliance with the Securities
Act and the declaration or ordering of the  effectiveness  of such  registration
statement.

            (ll)  "REGISTRABLE  SECURITIES"  means all Shares and Warrant Shares
acquired by the  Investors  pursuant to this  Agreement  and any other shares of
Common  Stock or other  securities  issued in respect of such  Shares or Warrant
Shares  by way of a stock  dividend  or  stock  split  or in  connection  with a
combination or subdivision of the Common Stock or by way of a  recapitalization,
merger or consolidation or reorganization of the Issuer; PROVIDED that as to any
particular  securities,  such securities will cease to be Registrable Securities
when  they (i) have been  sold  pursuant  to a  Registration  Statement  or in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities  Act or (ii) can then be sold by the Holder without  registration
under the Securities Act pursuant to Rule 144 under the Securities Act.

            (mm)  "REGISTRATION  DEADLINE" has the meaning  specified in SECTION
6.2 of this Agreement.

            (nn)  "REGISTRATION   STATEMENT"  means  a  registration   statement
(including the related prospectus) of the Issuer under the Securities Act or, if
applicable,  the 1940 Act on any form  selected  by the Issuer for which it then
qualifies  and which  permits  the sale  thereunder  of the  number  and type of
Registrable  Securities (and any other  securities of the Issuer) to be included
therein in  accordance  with this  Agreement  by the  applicable  sellers in the
manner described therein.  The term "REGISTRATION  STATEMENT" also shall include
all exhibits,  financial statements and schedules and documents  incorporated by
reference in such  Registration  Statement when it becomes  effective  under the
Securities Act, and in the case of the references to the Registration  Statement
as of a date  subsequent to its effective date, as amended or supplemented as of
such date.

            (oo) "REQUIRED  REGISTRATION"  has the meaning  specified in SECTION
6.2 of this Agreement.

            (pp)  "REQUIREMENTS OF LAW" means as to any Person,  the certificate
of incorporation, by-laws or other organizational or governing documents of such
Person,  and any  domestic or foreign  and  federal,  state or local law,  rule,
regulation,  statute or ordinance or  determination of any arbitrator or a court
or other  Governmental  Authority,  in each case applicable to, or binding upon,
such  Person  or any of its  properties  or to which  such  Person or any of its
property is subject.

                                       27
<PAGE>

            (qq) "RULE 144" means Rule 144 promulgated under the Securities Act,
or any successor thereto.

            (rr) "SEC" means the Securities and Exchange Commission.

            (ss)  "SEC  REPORTS"  means  each of the  following  documents:  (i)
Issuer's annual report on Form 10-K for the fiscal year ended December 31, 2003;
(ii) Issuer's  quarterly  report on Form 10-Q for the fiscal quarter ended March
31, 2004;  (iii) Issuer's  quarterly  report on Form 10-Q for the fiscal quarter
ended June 30, 2004; (ii) Issuer's current report on Form 8-K filed with the SEC
on April 1, 2004;  (iii) Issuer's  current report on Form 8-K filed with the SEC
on May 25, 2004; (iv) Issuer's  current report on Form 8-K filed with the SEC on
June 2, 2004; (v) Issuer's current report on Form 8-K filed with the SEC on June
24, 2004; (vi) Issuer's current report on Form 8-K filed with the SEC on July 9,
2004;  (vii) Issuer's  current report on Form 8-K filed with the SEC on July 23,
2004; (viii) Issuer's current report on Form 8-K filed with the SEC on August 4,
2004; (ix) Issuer's  current report on Form 8-K filed with the SEC on August 27,
2004;  (x) Issuer's  current  report on Form 8-K filed with the SEC on September
21,  2004;  (xi)  Issuer's  current  report  on Form 8-K  filed  with the SEC on
September 30, 2004; and (xii) the Proxy Statement.

            (tt)  "SECURITIES" has the meaning  specified in SECTION 1.2 of this
Agreement.

            (uu)  "SELLING  STOCKHOLDER"  has the meaning  specified  in SECTION
6.4(A) of this Agreement.

            (vv) "SECURITIES ACT" means the Securities Act of 1933, as amended.

            (ww)  "SHARES"  has the  meaning  specified  in SECTION  1.1 of this
Agreement.

            (xx) "SUSPENSION EVENT" has the meaning specified in SECTION 6.12(A)
of this Agreement.

            (yy)  "SUSPENSION  PERIOD"  has the  meaning  specified  in  SECTION
6.12(B) of this Agreement.

            (zz) "THIRD-PARTY  DEMAND  STOCKHOLDER"  means any Person having the
right to require that the Issuer effect a registration  under the Securities Act
of securities owned by such Person,  other than pursuant to this Agreement,  and
any other Person exercising  incidental  rights of registration  pursuant to the
agreement under which such first Person has the right to require registration.

            (aaa)  "WARRANTS"  has the meaning  specified in SECTION 1.2 of this
Agreement.

            (bbb) "WARRANT  SHARES" has the meaning  specified in SECTION 1.2 of
this Agreement.

                                       28
<PAGE>

      9.2 OTHER DEFINITIONAL PROVISIONS.

            (a) All terms  defined  in this  Agreement  shall  have the  defined
meanings  when used in any  certificates,  reports  or other  documents  made or
delivered pursuant hereto or thereto, unless the context otherwise requires.

            (b) Terms  defined in the singular  shall have a comparable  meaning
when used in the plural, and vice versa.

            (c)  All  accounting  terms  shall  have  a  meaning  determined  in
accordance with GAAP.

            (d) The  words  "hereof,"  "herein"  and  "hereunder,"  and words of
similar  import,  when used in this Agreement shall refer to this Agreement as a
whole  (including  any exhibits and schedules  hereto) and not to any particular
provision of this Agreement.

      9.3  NOTICES.   All  notices,   requests,   demands,   claims,  and  other
communications hereunder shall be in writing and shall be delivered by certified
or  registered  mail  (first  class  postage  pre-paid),   guaranteed  overnight
delivery,  or  facsimile  transmission  if such  transmission  is  confirmed  by
delivery by  certified or  registered  mail (first  class  postage  pre-paid) or
guaranteed  overnight delivery,  to the following addresses and telecopy numbers
(or to  such  other  addresses  or  telecopy  numbers  which  such  party  shall
subsequently designate in writing to the other party):

            (a)   if to the Issuer to:

                  Franklin Capital Corporation
                  c/o Milton "Todd" Ault III
                  100 Wilshire Blvd.
                  15th Floor
                  Santa Monica, CA 90401
                  Facsimile: (310) 752-1481

                  with a copy to:

                  Paul, Hastings, Janofsky & Walker
                  3579 Valley Centre Drive
                  San Diego, California 92111
                  Attention: Leigh Ryan, Esq.
                  Facsimile: (858) 720-2555

            (b) if to an  Investor,  to the  address  set  forth  next  to  such
Investor's name on such Investor's counterpart signature page hereto.

      Each such  notice or other  communication  shall for all  purposes of this
Agreement  be treated as  effective  or having  been  given  when  delivered  if
delivered by hand,  by messenger or by courier,  or if sent by  facsimile,  upon
confirmation of receipt.

      9.4 ENTIRE AGREEMENT. This Agreement (including the exhibits and schedules
attached  hereto) and other documents  delivered at the Closing pursuant hereto,
contain the entire

                                       29
<PAGE>

understanding  of the parties in respect of its subject matter and supersede all
prior  agreements  and  understandings  between the parties with respect to such
subject matter.

      9.5 EXPENSES;  TAXES. Except as otherwise provided in this Agreement,  the
parties shall pay their own fees and expenses, including their own counsel fees,
incurred in  connection  with this  Agreement  or any  transaction  contemplated
hereby;  PROVIDED that the Issuer shall pay at the Closing the reasonable  legal
fees (up to a maximum of $20,000) of a single special  counsel to the Investors.
Any sales tax, stamp duty, deed transfer or other tax (except taxes based on the
income of the Investors)  arising out of the issuance of the Securities (but not
with  respect  to  subsequent  transfers)  by the  Issuer to the  Investors  and
consummation of the transactions contemplated by this Agreement shall be paid by
the Issuer.

      9.6  AMENDMENT;  WAIVER.  This  Agreement  may not be  modified,  amended,
supplemented,  canceled or discharged,  except by written instrument executed by
the Holders of a majority of the Registrable Securities. No failure to exercise,
and no delay in exercising,  any right,  power or privilege under this Agreement
shall  operate  as a waiver,  nor shall any single or  partial  exercise  of any
right,  power or privilege  hereunder  preclude the exercise of any other right,
power or privilege.  No waiver of any breach of any provision shall be deemed to
be a waiver  of any  preceding  or  succeeding  breach  of the same or any other
provision,  nor shall any waiver be implied  from any course of dealing  between
the parties.  No extension of time for  performance of any  obligations or other
acts hereunder or under any other  agreement  shall be deemed to be an extension
of the time for  performance  of any other  obligations  or any other acts.  The
rights and remedies of the parties  under this  Agreement are in addition to all
other  rights and  remedies,  at law or equity,  that they may have against each
other.

      9.7  BINDING  EFFECT;  ASSIGNMENT.  The  rights  and  obligations  of this
Agreement  shall  bind  and  inure  to the  benefit  of the  parties  and  their
respective  successors  and legal  assigns.  The rights and  obligations  of the
Issuer pursuant to this Agreement may not be assigned to any third party without
the prior  written  consent  of the  Holders of a  majority  of the  Registrable
Securities.

      9.8 COUNTERPARTS;  FACSIMILE SIGNATURE.  This Agreement may be executed by
facsimile signature and in any number of counterparts, each of which shall be an
original but all of which together shall constitute one and the same instrument.

      9.9 HEADINGS. The headings contained in this Agreement are for convenience
of reference  only and are not to be given any legal effect and shall not affect
the meaning or interpretation of this Agreement.

      9.10 GOVERNING LAW;  INTERPRETATION.  This Agreement shall be construed in
accordance  with and  governed  for all  purposes  by the  laws of the  State of
California  applicable to contracts  executed and to be wholly  performed within
such state.

      9.11 SEVERABILITY.  The parties stipulate that the terms and provisions of
this  Agreement  are  fair  and  reasonable  as of the  date of this  Agreement.
However,  any  provision of this  Agreement  shall be  determined  by a court of
competent  jurisdiction to be invalid,  void or unenforceable,  the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or

                                       30
<PAGE>

invalidated.  If,  moreover,  any of those  provisions  shall for any  reason be
determined  by a court of competent  jurisdiction  to be  unenforceable  because
excessively  broad or vague as to  duration,  activity or  subject,  it shall be
construed by limiting, reducing or defining it, so as to be enforceable.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       31
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto  have  caused this  Subscription
Agreement to be duly executed and delivered as of the date set forth below.

                                        ISSUER:

                                        FRANKLIN CAPITAL CORPORATION

                                        By: ____________________________________
                                            MILTON "TODD" AULT III
                                            Chairman and Chief Executive Officer

<PAGE>

                      [INVESTOR COUNTERPART SIGNATURE PAGE]

NAME OF INVESTOR (please print)              ADDRESS FOR NOTICE (please print)
                                             ___________________________________
________________________________________     ___________________________________
                                             ___________________________________
                                             Attention:_________________________
                                             Tax Identification #:______________
SIGNATURE

By:_____________________________________

Name:___________________________________

Title:__________________________________

Date:___________________________________

Exact name to appear on stock certificate:   Number of Shares subscribed for:

________________________________________     ___________________________________

Aggregate Purchase Price (see SECTION 1.1):  Categories pursuant to which
                                             Investor qualifies as an Accredited
                                             Investor as defined in EXHIBIT B to
                                             this Agreement (please indicate the
                                             applicable section numbers noted on
                                             EXHIBIT B to this Agreement):

$_______________________________________     ___________________________________

<PAGE>

                                    EXHIBIT A

                                 FORM OF WARRANT

<PAGE>

                                    EXHIBIT B

                       DEFINITION OF "ACCREDITED INVESTOR"

      "ACCREDITED  INVESTOR"  shall mean any person who comes  within any of the
following categories,  or who the Issuer reasonably believes comes within any of
the  following  categories,  at the time of the sale of the  Securities  to that
person:

            1. Any bank as defined in section 3(a)(2) of the Act, or any savings
and loan  association or other  institution as defined in section  3(a)(5)(A) of
the Act whether  acting in its individual or fiduciary  capacity;  any broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of 1934;
any  insurance  company as defined in section  2(13) of the Act; any  investment
company  registered  under  the  Investment  Company  Act of 1940 or a  business
development  company  as  defined in  section  2(a)(48)  of that Act;  any Small
Business  Investment Company licensed by the U.S. Small Business  Administration
under section  301(c) or (d) of the Small  Business  Investment Act of 1958; any
plan established and maintained by a state, its political  subdivisions,  or any
agency or  instrumentality  of a state or its  political  subdivisions,  for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;
any employee benefit plan within the meaning of the Employee  Retirement  Income
Security Act of 1974 if the investment decision is made by a plan fiduciary,  as
defined in section 3(21) of such act,  which is either a bank,  savings and loan
association,  insurance company,  or registered  investment  adviser,  or if the
employee  benefit  plan has  total  assets  in  excess  of  $5,000,000  or, if a
self-directed  plan, with  investment  decisions made solely by persons that are
Accredited Investors;

            2. Any private  business  development  company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;

            3. Any organization  described in section  501(c)(3) of the Internal
Revenue  Code,   corporation,   Massachusetts  or  similar  business  trust,  or
partnership,  not formed for the specific  purpose of acquiring  the  securities
offered, with total assets in excess of $5,000,000;

            4. Any  director,  executive  officer,  or  general  partner  of the
Issuer,  or any director,  executive  officer,  or general  partner of a general
partner of the Issuer;

            5. Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;

            6. Any  natural  person  who had an  individual  income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse  in  excess  of  $300,000  in each of those  years  and has a  reasonable
expectation of reaching the same income level in the current year;

            7. Any trust, with total assets in excess of $5,000,000,  not formed
for the specific purpose of acquiring the Securities, whose purchase is directed
by a sophisticated person as described in 230.506(b)(2)(ii); and

            8. Any  entity  in which all of the  equity  owners  are  Accredited
Investors.

<PAGE>

                                    EXHIBIT C

                              DISCLOSURE DOCUMENTS

EACH INVESTOR IS URGED TO REVIEW THE FOLLOWING  DOCUMENTS AND DISCLOSURES  WHICH
ARE  DELIVERED  HEREWITH AND  INCORPORATED  BY  REFERENCE  HEREIN AS IF RESTATED
HEREIN:

1.    Annual Report on Form 10-K for the year ended December 31, 2003

2.    Quarterly Report on Form 10-Q for the quarter ended March 31, 2004

3.    Quarterly Report on Form 10-Q for the quarter ended June 30, 2004

4.    Definitive Proxy Statement on Schedule 14A filed on October 1, 2004

5.    Current Report on Form 8-K dated April 1, 2004

6.    Current Report on Form 8-K dated May 25, 2004

7.    Current Report on Form 8-K dated June 2, 2004

8.    Current Report on Form 8-K dated June 24, 2004

9.    Current Report on Form 8-K dated July 9, 2004

10.   Current Report on Form 8-K dated July 23, 2004

11.   Current Report on Form 8-K dated August 4, 2004

12.   Current Report on Form 8-K dated August 27, 2004

13.   Current Report on Form 8-K dated September 21, 2004

14.   Current Report on Form 8-K dated September 30, 2004

                                  RISK FACTORS

WE  ARE  NOT   CURRENTLY  IN   COMPLIANCE   WITH  CERTAIN  LEGAL  OR  REGULATORY
REQUIREMENTS.

As  described  in greater  detail in the SEC  Reports,  we are not  currently in
compliance with the continued  listing  standards of AMEX. As of the date of the
Closing,  AMEX has granted us an extension that permits the continued listing of
our Common Stock until December 26, 2005,  subject to our satisfactory  progress
(as  determined by AMEX) with respect to the plan we submitted to AMEX outlining
our proposed efforts to regain compliance with AMEX's

<PAGE>

continued  listing  standards.  AMEX has  notified  us that any  failure to make
progress  consistent  with the plan or to regain  compliance  with the continued
listing  standards  by December  26, 2005 could  result in the  delisting of our
securities  from  AMEX,  and no  assurances  can be made that we will be able to
maintain our listing.

As of the date of Closing,  we may not be in compliance with certain  provisions
of the 1940 Act applicable to us. Although we are taking  corrective  action, no
prediction  can be made as to when,  or whether,  we will be in full  compliance
with the applicable provisions of the 1940 Act.

SALES OR THE  PERCEPTION  OF FUTURE  SALES OF OUR COMMON  STOCK MAY  DEPRESS OUR
STOCK PRICE.

Sales of substantial numbers of shares of our Common Stock in the public market,
or the perception that significant sales are likely,  could adversely affect the
market  price of our  Common  Stock.  Compliance  with the  registration  rights
provisions of this  Subscription  Agreement could create the perception that all
Shares  and  Warrant  Shares  that  are a part of  this  Offering  will  soon be
available for sale. This number of Shares and Warrant Shares (i.e.,  937,500) is
not only far greater  than the average  trading  volume for shares of our Common
Stock,  but only  slightly  fewer than the number of shares of our Common  Stock
outstanding prior to this Offering (i.e.,  1,046,350 shares).  No prediction can
be made as to the effect,  if any,  that market sales of such Shares and Warrant
Shares will have on the market price of our Common Stock.  Sales of  substantial
amounts of such Shares and Warrant  Shares in the public market could  adversely
affect the market price of our Common Stock.

THE  OFFERING  PRICE OF THE  SECURITIES  MAY NOT BEAR  ANY  RELATIONSHIP  TO OUR
ASSETS,  BOOK VALUE,  EARNINGS  HISTORY,  OR OTHER  ESTABLISHED  CRITERIA.  AS A
RESULT, YOU MAY EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

The offering price of the Securities  was  established  based on such factors as
our capital  requirements,  financial  conditions and  prospects,  percentage of
ownership  to be held by  investors  following  this  Offering,  and the general
condition of securities markets at the time of the Offering.  The offering price
does not necessarily bear any relationship to our assets,  book value,  earnings
history or other established  criteria of value. As a result, you may experience
immediate and substantial dilution.

WE ARE UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION  STATEMENT TO BE
FILED WITH THE SEC WILL BE DECLARED EFFECTIVE. CONSEQUENTLY, YOU MAY NOT BE ABLE
TO SELL YOUR SHARES OR WARRANT SHARES FOR A SUBSTANTIAL PERIOD OF TIME.

Although we have undertaken to register the Shares and Warrant Shares for resale
by you, you should be aware that we are unable to determine  with certainty when
the Registration  Statement to be filed with the SEC will become  effective.  In
addition, the SEC may seek to review our Registration  Statement, in which case,
the period necessary to achieve effectiveness of the Registration Statement with
the SEC will be  affected  by our  ability  to provide  the SEC with  sufficient
disclosures  satisfactory  to the SEC.  The length of the SEC review  process is
uncertain

<PAGE>

and may extend to a number of months.  As you are aware,  the Shares and Warrant
Shares  being  sold in this  Offering  are  restricted  in nature and may not be
publicly  resold  absent the  effectiveness  of the  Registration  Statement  or
pursuant to an applicable exemption from registration. Consequently, you may not
be able to sell your Shares and Warrant Shares for a substantial period of time.

WE MAY ALLOCATE THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.

We will  have  broad  discretion  in how we apply  the net  proceeds  from  this
Offering.  Because the net  proceeds  of this  Offering  are not  required to be
allocated to any specific  investment or  transaction,  you cannot  determine at
this time the value or  appropriateness  of our application of the net proceeds,
and you and other stockholders may not agree with our decisions. For example, we
may attempt to acquire other  businesses or assets using all or a portion of the
net proceeds of this Offering which  otherwise  could have been used for working
capital. There can be no assurance that we will be able to acquire any desirable
businesses or assets or that, if acquired,  that we will be able to successfully
develop or integrate such businesses or assets.

<PAGE>

                                    EXHIBIT D

                            NOTICE AND QUESTIONNAIRE

      The undersigned  beneficial  holder of Registrable  Securities of Franklin
Capital  Corporation  (the  "ISSUER")  understands  that the Issuer has filed or
intends  to file with the  Securities  and  Exchange  Commission  (the  "SEC") a
Registration  Statement  under  the  Securities  Act of 1933,  as  amended  (the
"SECURITIES ACT"), for the registration and resale of the Registrable Securities
in accordance with the terms of the Subscription Agreement, dated as of November
__,  2004  (the  "SUBSCRIPTION  AGREEMENT"),  by and among  the  Issuer  and the
purchasers of the Issuer's securities thereunder.  The Subscription Agreement is
available  from the Issuer  upon  request at the address  set forth  below.  All
capitalized  terms  used  but  not  otherwise  defined  herein  shall  have  the
respective meanings given to them in the Subscription Agreement.

      Each  beneficial  owner of  Registrable  Securities  that has agreed to be
bound by certain  provisions  of the  Subscription  Agreement is entitled to the
benefits of the Subscription  Agreement under such provisions.  In order to sell
or otherwise dispose of any Registrable  Securities pursuant to the Registration
Statement,  a  beneficial  owner of  Registrable  Securities  generally  will be
required  to be named as a selling  securityholder  in the  related  prospectus,
deliver a prospectus  to purchasers of  Registrable  Securities  and be bound by
those  provisions of the  Subscription  Agreement  applicable to such beneficial
owner  (including  certain  indemnification   provisions  as  described  below).
Beneficial owners that do not complete this Notice and Questionnaire and deliver
it to the Issuer as provided below will not be named as selling  securityholders
in the prospectus  and therefore  will not be permitted to sell any  Registrable
Securities pursuant to the Registration Statement.

      Certain  legal   consequences  may  arise  from  being  named  as  selling
securityholders  in the  Registration  Statement  and  the  related  prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel  regarding the consequences of being
named  or not  being  named  as a  selling  securityholder  in the  Registration
Statement and the related prospectus.

NOTICE

      The  undersigned   beneficial   owner  (the  "SELLING   STOCKHOLDER")   of
Registrable   Securities   hereby  requests  that  the  Issuer  include  in  the
Registration Statement the Registrable  Securities  beneficially owned by it and
listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the
Registration  Statement.  The undersigned  Selling  Stockholder,  by signing and
returning this Notice and  Questionnaire,  understands  that it will be bound by
the terms and conditions of this Notice and  Questionnaire  and the Subscription
Agreement.

<PAGE>

      The  undersigned   Selling   Stockholder  hereby  provides  the  following
information to the Issuer and  represents and warrants that such  information is
accurate and complete:

QUESTIONNAIRE

      1.    (a)   Full Legal Name of Selling Stockholder:

            (b)   Full legal name of  registered  holder (if not the same as (a)
                  above)  through  which  Registrable  Securities  listed in (3)
                  below are held:

            (c)   Full legal name of  broker-dealer or other third party through
                  which Registrable Securities listed in (3) below are held:

            (d)   Full legal name of DTC  participant  (if applicable and if not
                  the  same  as (b)  or (c)  above)  through  which  Registrable
                  Securities listed in (3) below are held:

      2.    Address for Notices to Selling Stockholder:

            Telephone:__________________________________________________________

            Fax:________________________________________________________________

            Contact Person:_____________________________________________________

      3.    Beneficial ownership of Registrable Securities:_____________________

            ____________________________________________________________________

            ____________________________________________________________________

            UNLESS  OTHERWISE  INDICATED IN THE SPACE PROVIDED BELOW, ALL SHARES
            OF COMMON STOCK LISTED IN RESPONSE TO ITEM (3) ABOVE,  INCLUDING ALL
            SHARES OF COMMON  STOCK  ISSUED OR  ISSUABLE  UPON  EXERCISE  OF THE
            WARRANTS  HELD BY THE SELLING  STOCKHOLDER,  WILL BE INCLUDED IN THE
            REGISTRATION  STATEMENT.  IF THE UNDERSIGNED  DOES NOT WISH ALL SUCH
            SHARES OF COMMON STOCK TO BE SO INCLUDED,  PLEASE INDICATE BELOW THE
            PRINCIPAL AMOUNT OR THE NUMBER OF SHARES TO BE INCLUDED:

      4.    Beneficial Ownership of the Issuer's securities owned by the Selling
            Stockholder:________________________________________________________

                  EXCEPT AS SET FORTH BELOW IN THIS ITEM (4), THE UNDERSIGNED IS
                  NOT THE  BENEFICIAL OR REGISTERED  OWNER OF ANY  SECURITIES OF
                  THE ISSUER OTHER THAN THE REGISTRABLE  SECURITIES LISTED ABOVE
                  IN ITEM (3).

            (a)   Type and amount of other securities  beneficially owned by the
                  Selling Stockholder:__________________________________________

            (b)   CUSIP No(s). of such other securities beneficially owned:_____

      5.    Relationship with the Issuer:_______________________________________

<PAGE>

            EXCEPT AS SET FORTH BELOW,  NEITHER THE  UNDERSIGNED  NOR ANY OF ITS
            AFFILIATES,  DIRECTORS OR PRINCIPAL  EQUITY HOLDERS (5% OR MORE) HAS
            HELD  ANY  POSITION  OR  OFFICE  OR  HAS  HAD  ANY  OTHER   MATERIAL
            RELATIONSHIP  WITH THE ISSUER (OR ITS  PREDECESSORS  OR  AFFILIATES)
            DURING THE PAST THREE YEARS.

   State any exceptions to the foregoing here:

      The undersigned Selling  Stockholder  acknowledges that it understands its
obligation  to comply with the  provisions  of the  Exchange  Act, and the rules
thereunder relating to stock manipulation,  particularly Regulation M thereunder
(or any successor rules or regulations) and the provisions of the Securities Act
relating to prospectus delivery,  in connection with any offering of Registrable
Securities  pursuant to the  Registration  Statement.  The  undersigned  Selling
Stockholder  agrees  that  neither it nor any person  acting on its behalf  will
engage in any transaction in violation of such provisions.

      The Selling  Stockholder  hereby  acknowledges  its obligations  under the
Subscription  Agreement to indemnify and hold harmless certain persons set forth
therein.  Pursuant to the  Subscription  Agreement,  the Issuer has agreed under
certain  circumstances  to indemnify the Selling  Stockholders  against  certain
liabilities.

      In accordance with the undersigned Selling Stockholder's  obligation under
the Subscription  Agreement to provide such information as maybe required by law
for inclusion in the Registration Statement, the undersigned Selling Stockholder
agrees to  promptly  notify  the  Issuer of any  inaccuracies  or changes in the
information  provided herein that may occur subsequent to the date hereof at any
time while the Registration  Statement remains effective.  All notices hereunder
and  pursuant  to the  Subscription  Agreement  shall be made in  writing at the
address set forth below.

      In the event any Selling  Stockholder  transfers all or any portion of the
Registrable  Securities  listed in Item (3) above  after the date on which  such
information is provided to the Issuer,  the Selling  Stockholder will notify the
transferees  at the time of  transfer of its rights and  obligations  under this
Notice and Questionnaire and the Subscription Agreement.

      By signing below,  the  undersigned  Selling  Stockholder  consents to the
disclosure  of the  information  contained  herein in its  answers  to items (1)
through (5) above and the  inclusion  of such  information  in the  Registration
Statement  and any  related  prospectus.  The  undersigned  Selling  Stockholder
understands  that such  information  will be relied  upon by the Issuer  without
independent  investigation  or inquiry in  connection  with the  preparation  or
amendment of the Registration Statement and any related prospectus.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

      IN WITNESS WHEREOF, the undersigned Selling Stockholder, by authority duly
given,  has caused this Notice and  Questionnaire  to be executed and  delivered
either in person or by its authorized agent.

                                              Selling Stockholder:

                                              By:_______________________________
                                                 Name:
                                                 Title:

Dated:___________________

PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO:

                      FRANKLIN CAPITAL CORPORATION
                      C/O MILTON "TODD" AULT III
                      100 WILSHIRE BLVD.
                      15TH FLOOR
                      SANTA MONICA, CA 90401

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