Document:

EXHIBIT 10.35

                             SUBSCRIPTION AGREEMENT

         THIS SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of August 19,
2005, by and among Universal Communication Systems, Inc., a Nevada corporation
(the "COMPANY"), and the subscriber identified on the signature pages hereto
(each a "SUBSCRIBER" and collectively "SUBSCRIBERS" if more than one).

         WHEREAS, the Company and the Subscriber are executing and delivering
this Agreement in reliance upon an exemption from securities registration
afforded by the provisions of Section 4(2), Section 4(6) and/or Regulation D
("REGULATION D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
ACT").

         WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Subscriber,
as provided herein, and the Subscriber, in the aggregate, shall purchase
$750,000 (the "PURCHASE PRICE") of principal amount of 6% promissory notes of
the Company ("NOTE" or "NOTES") convertible into shares of the Company's common
stock, $.001 par value (the "COMMON STOCK") at a per share conversion price
equal to $0.02 ("CONVERSION PRICE"); and share purchase warrants (the
"WARRANTS") in the form attached hereto as EXHIBIT A, to purchase shares of
Common Stock (the "WARRANT SHARES"). The Conversion Price is subject to
adjustment as described in the Note and this Agreement. The Notes, shares of
Common Stock issuable upon conversion of the Notes (the "SHARES"), the Warrants
and the Warrant Shares are collectively referred to herein as the "SECURITIES".

         NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscriber hereby
agree as follows:

                  1. Purchase Price. Commencing on July 16, 2005 and thereafter
on the same date of each subsequent month or the next business day if the 16th
falls on a weekend or holiday, the Purchase Price shall be transmitted by
Subscriber directly to the Company pursuant to the wire instructions provided
below in an amount equal to $100,000 for each of the first three monthly
payments and thereafter in amounts equal to $50,000 for each of the subsequent
nine monthly payments (each a "MONTHLY PAYMENT"). THE COMPANY ACKNOWLEDGES THE
RECEIPT OF THE JULY, 2005 MONTHLY PAYMENT IN THE AMOUNT OF $100,000.

                                 Citibank, N.A.
                               1790 Biscayne Blvd.
                               Miami, Florida, USA
                             ABA Number: 266 086 554
                                Swift: CITI US33
                           Manager Name: Jerry Cambell
              For Credit to: Universal Communication Systems, Inc.
                           Account Number: 32000 42256

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                  2. Conditions to Closing. Subject to the satisfaction or
waiver of the terms and conditions of this Agreement, on the "CLOSING DATE" (as
defined in Section 2 below), Subscriber shall purchase and the Company shall
sell to Subscriber a Note in the principal amount designated on the signature
page hereto and the amount of Warrants determined pursuant to Section 3 below.
The aggregate principal amount of the Notes to be purchased by the Subscriber on
the Closing Date shall, in the aggregate, be equal to the Purchase Price. The
consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New
York 10176, upon the satisfaction of all conditions to Closing set forth in this
Agreement ("CLOSING DATE"). In the event the Subscriber does not timely tender a
Monthly Payment after five days written notice from the Company, the Company's
sole remedy shall be to terminate Subscriber's right to make such Monthly
Payment.

                  3. Warrants. On the Closing Date, the Company will issue
Warrants to the Subscriber. One Hundred (100) Warrants will be issued for each
one hundred (100) Shares of Common Stock which would be issuable upon conversion
of the entire Purchase Price on the Closing Date as if such Closing Date were
the Conversion Date. The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a Warrant shall be equal to $0.02. The Warrants will be
exercisable for five (5) years after the Closing Date.

                  4. Subscriber's Representations and Warranties. Subscriber
hereby represents and warrants to and agrees with the Company as to such
Subscriber that:

                           (a) Information on Company. The Subscriber has been
furnished with or has obtained from the EDGAR website of the Securities and
Exchange Commission (the "COMMISSION") the Company's Form 10-KSB for the year
ended September 30, 2004 as filed with the Commission, together with all
subsequently filed Forms 10-QSB, 8-K, and filings made with the Commission
available at the EDGAR website (hereinafter referred to collectively as the
"REPORTS"). In addition, the Subscriber has received in writing from the Company
such other information concerning its operations, financial condition and other
matters as the Subscriber has requested in writing (such other information is
collectively, the "OTHER WRITTEN INFORMATION"), and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities.

                           (b) Information on Subscriber. The Subscriber is, and
will be at the time of the conversion of the Notes and exercise of any of the
Warrants, an "accredited investor", as such term is defined in Regulation D
promulgated by the Commission under the Securities Act of 1933, as amended (the
"1933 ACT"), is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.

                           (c) Purchase of Notes and Warrants. On Closing Date,
the Subscriber will purchase the Notes and Warrants as principal for its own
account and not with a view to any distribution thereof.

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                           (d) Compliance with Securities Act. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act or any applicable state securities laws, by reason of their issuance in
a transaction that does not require registration under the 1933 Act (based in
part on the accuracy of the representations and warranties of Subscriber
contained herein), and that such Securities must be held indefinitely unless a
subsequent disposition is registered under the 1933 Act or any applicable state
securities laws or is exempt from such registration. In any event, and subject
to compliance with applicable securities laws, the Subscriber may enter into
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.

                           (e) Shares Legend. The Shares and the Warrant Shares
shall bear the following or similar legend:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
                  SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
                  HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
                  SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
                  SATISFACTORY TO UNIVERSAL COMMUNICATION SYSTEMS, INC. THAT
                  SUCH REGISTRATION IS NOT REQUIRED."

                           (f) Warrants Legend. The Warrants shall bear the
following or similar legend:

                  "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
                  THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
                  ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
                  OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
                  EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
                  ACT OR ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
                  COUNSEL REASONABLY SATISFACTORY TO UNIVERSAL COMMUNICATION
                  SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

                           (g) Note Legend. The Note shall bear the following
legend:

                  "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
                  THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
                  UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED

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                  FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
                  EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
                  ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
                  UNIVERSAL COMMUNICATION SYSTEMS, INC. THAT SUCH REGISTRATION
                  IS NOT REQUIRED."

                           (h) Communication of Offer. The offer to sell the
Securities was directly communicated to the Subscriber by the Company. At no
time was the Subscriber presented with or solicited by any leaflet, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.

                           (i) Authority; Enforceability. This Agreement and
other agreements delivered together with this Agreement or in connection
herewith have been duly authorized, executed and delivered by the Subscriber and
are valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and Subscriber
has full corporate power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder and under all
other agreements entered into by the Subscriber relating hereto.

                           (j) No Market Manipulation. The Subscriber 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 of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued or resold.

                           (k) Correctness of Representations. Subscriber
represents as to such Subscriber that the foregoing representations and
warranties are true and correct as of the date hereof and will be true and
correct as of each closing date and unless a Subscriber otherwise notifies the
Company prior to any closing date, shall be true and correct as of such closing
dates. The foregoing representations and warranties shall survive the Closing
Date for a period of three years.

                  5. Company Representations and Warranties. The Company
represents and warrants to and agrees with each Subscriber that:

                           (a) Due Incorporation. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power to own
its properties and to carry on its business is disclosed in the Reports. The
Company is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a "MATERIAL

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ADVERSE EFFECT" shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Company taken as a whole.
For purposes of this Agreement, "Subsidiary" means, with respect to any entity
at any date, any corporation, limited or general partnership, limited liability
company, trust, estate, association, joint venture or other business entity) of
which more than 50% of (i) the outstanding capital stock having (in the absence
of contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company's Subsidiaries as of the
Closing Date are set forth on SCHEDULE 5(A) hereto.

                           (b) Outstanding Stock. All issued and outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable.

                           (c) Authority; Enforceability. This Agreement, the
Note, the Warrants, and Security Agreement, and any other agreements delivered
together with this Agreement or in connection herewith (collectively
"TRANSACTION DOCUMENTS") have been duly authorized, executed and delivered by
the Company and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into and
deliver the Transaction Documents and to perform its obligations thereunder.

                           (d) Additional Issuances. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on SCHEDULE 5(D).

                           (e) Consents. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its Affiliates, the OTC Bulletin Board
("BULLETIN BOARD"), any Principal Market (as defined in Section 9(b) of this
Agreement), nor the Company's shareholders is required for the execution by the
Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities.

                           (f) No Violation or Conflict. Assuming the
representations and warranties of the Subscribers in Section 3 are true and
correct, neither the issuance and sale of the Securities nor the performance of
the Company's obligations under this Agreement and all other agreements entered
into by the Company relating thereto by the Company will:

                                    (i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default
in any material respect) of a material nature under (A) the articles or
certificate of incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination

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applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or

                                    (ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company or any of its Affiliates; or

                                    (iii) except as described on SCHEDULE 5(D),
result in the activation of any anti-dilution rights or a reset or repricing of
any debt or security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any obligation of the
Company; or

                                    (iv) result in the activation of any
piggy-back registration rights of any person or entity holding securities or
debt of the Company or having the right to receive securities of the Company.

                           (g) The Securities. The Securities upon issuance:

                                    (i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and any applicable state securities laws;

                                    (ii) have been, or will be, duly and validly
authorized and on the date of issuance of the Shares and upon exercise of the
Warrants, the Shares and Warrant Shares will be duly and validly issued, fully
paid and nonassessable or if registered pursuant to the 1933 Act, and resold
pursuant to an effective registration statement will be free trading and
unrestricted);

                                    (iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company;

                                    (iv) will not subject the holders thereof to
personal liability by reason of being such holders provided Subscriber's
representations herein are true and accurate and Subscribers take no actions or
fail to take any actions required for their purchase of the Securities to be in
compliance with all applicable laws and regulations; and

                                    (v)     will not result in a violation of
Section 5 under the 1933 Act.

                           (h) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its Affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under the
Transaction

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Documents. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect.

                           (i) Reporting Company. The Company is a publicly-held
company subject to reporting obligations pursuant to Section 13 of the 1934 Act
and has a class of common shares registered pursuant to Section 12(g) of the
1934 Act. Pursuant to the provisions of the 1934 Act, the Company has filed all
reports and other materials required to be filed thereunder with the Commission
during the preceding twelve months.

                           (j) No Market Manipulation. The Company and its
Affiliates have 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, provided, however, that this provision shall not prevent
the Company from engaging in normal investor relations/public relations
activities.

                           (k) Information Concerning Company. The Reports
contain all material information relating to the Company and its operations and
financial condition as of their respective dates and all the information
required to be disclosed therein. Since the date of the most recent audited
financial statements included in the Reports ("LATEST FINANCIAL DATE"), and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made.

                           (l) Stop Transfer. The Company will not issue any
stop transfer order or other order impeding the sale, resale or delivery of any
of the Securities, except as may be required by any applicable federal or state
securities laws and unless contemporaneous notice of such instruction is given
to the Subscriber.

                           (m) Defaults. The Company is not in violation of its
articles of incorporation or bylaws. The Company is (i) not in default under or
in violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected, which
default or violation would have a Material Adverse Effect, (ii) not in default
with respect to any order of any court, arbitrator or governmental body or
subject to or party to any order of any court or governmental authority arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters,
or (iii) to the Company's knowledge not in violation of any statute, rule or
regulation of any governmental authority which violation would have a Material
Adverse Effect.

                           (n) Not an Integrated Offering. Neither the Company,
nor any of its Affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Pink Sheets or any Principal Market which would impair the exemptions relied
upon in this Offering [as defined in Section 9.1(b)] or the Company's ability to
timely comply with its obligations hereunder. Nor will the Company or any of its
Affiliates take any action or

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steps that would cause the offer or issuance of the Securities to be integrated
with other offerings which would impair the exemptions relied upon in this
Offering or the Company's ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering or
the Company's ability to timely comply with its obligations hereunder.

                           (o) No General Solicitation. Neither the Company, nor
any of its Affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in connection with the
offer or sale of the Securities.

                           (p) Listing. The Company's common stock is quoted on
the Bulletin Board. The Company has not received any oral or written notice that
its common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies all the requirements
for the continued quotation of its common stock on the Bulletin Board.

                           (q) No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information, other than
those incurred in the ordinary course of the Company's businesses since Latest
Financial Date and which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect, except as disclosed on SCHEDULE
5(Q).

                           (r) No Undisclosed Events or Circumstances. Since the
Latest Financial Date, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the Reports.

                           (s) Capitalization. The authorized and outstanding
capital stock of the Company as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth on SCHEDULE 5(D). Except as
set forth on SCHEDULE 5(D), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company or any of its Subsidiaries. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.

                           (t) Dilution. The Company's executive officers and
directors understand the nature of the Securities being sold hereby and
recognize that the issuance of the Securities will have a potential dilutive
effect on the equity holdings of other holders of the Company's equity or rights
to receive equity of the Company. The board of directors of the Company has
concluded, in its good faith business judgment that the issuance of the
Securities is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Notes, and the Warrant Shares upon exercise of the Warrants is binding upon the
Company and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company or parties entitled to
receive equity of the Company.

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                           (u) No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company, including but not limited
to disputes or conflicts over payment owed to such accountants and lawyers.

                           (v) DTC Status. The Company's transfer agent is a
participant in and the Common Stock is not eligible for transfer pursuant to the
Depository Trust Company Automated Securities Transfer Program.

                           (w) Investment Company. Neither the Company nor any
Affiliate is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.

                           (x) Subsidiary Representations. The Company makes
each of the representations contained in Sections 4(a), (b), (d), (e), (f), (h),
(k), (m), (q), (r), (s), (u) and (w) of this Agreement, as same relate to each
Subsidiary of the Company.

                           (y) Company Predecessor. All representations made by
or relating to the Company of a historical or prospective nature and all
undertaking described in Sections 8(g) through 8(l) shall relate and refer to
the Company, its predecessors, and the Subsidiaries.

                           (z) Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, and, unless the Company
otherwise notifies the Subscribers prior to each Closing Date, shall be true and
correct in all material respects as of each Closing Date.

                  (AA) Survival. The foregoing representations and warranties
shall survive until three years after the Closing Date.

                  6. Regulation D Offering. The offer and issuance of the
Securities to the Subscriber is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by Subscriber.
A form of the legal opinion is annexed hereto as EXHIBIT B. The Company will
provide, at the Company's expense, such other legal opinions in the future as
are reasonably necessary for the issuance and resale of the Common Stock
issuable upon conversion of the Notes and exercise of the Warrants pursuant to
an effective registration statement.

                  7.1. Conversion of Note.

                           (a) Upon the conversion of a Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to assure that the
Company's transfer agent shall issue stock certificates in the name of
Subscriber (or its nominee) or such other persons as designated by Subscriber
and in such denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion. The Company warrants
that no instructions other than these instructions have been or will be given to
the transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will

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be free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Shares provided the Shares are
being sold pursuant to an effective registration statement covering the Shares
or are otherwise exempt from registration.

                           (b) Subscriber will give notice of its decision to
exercise its right to convert the Note, interest, any sum due to the Subscriber
under the Transaction Documents including Liquidated Damages, or part thereof by
telecopying an executed and completed Notice of Conversion (a form of which is
annexed as EXHIBIT A to the Note) to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 13(a) of this Agreement. The
Subscriber will not be required to surrender the Note until the Note has been
fully converted or satisfied. Each date on which a Notice of Conversion is
telecopied to the Company in accordance with the provisions hereof shall be
deemed a CONVERSION DATE. The Company will itself or cause the Company's
transfer agent to transmit the Company's Common Stock certificates representing
the Shares issuable upon conversion of the Note to the Subscriber via express
courier for receipt by such Subscriber within three (3) business days after
receipt by the Company of the Notice of Conversion (such third day being the
"DELIVERY Date"). In the event the Shares are electronically transferable, then
delivery of the Shares must be made by electronic transfer provided request for
such electronic transfer has been made by the Subscriber and the Subscriber has
complied with all applicable securities laws in connection with the sale of the
Common Stock, including, without limitation, the prospectus delivery
requirements. A Note representing the balance of the Note not so converted will
be provided by the Company to the Subscriber if requested by Subscriber,
provided the Subscriber delivers the original Note to the Company. In the event
that a Subscriber elects not to surrender a Note for reissuance upon partial
payment or conversion, the Subscriber hereby indemnifies the Company against any
and all loss or damage attributable to a third-party claim in an amount in
excess of the actual amount then due under the Note. The Company will obtain
from the Company's transfer agent a signed letter in the form annexed hereto as
EXHIBIT C, and deliver such letter to the Subscribers on the Closing Date.
"BUSINESS DAY" and "TRADING DAY" as employed in the Transaction Documents is a
day that the New York Stock Exchange is open for trading for three or more
hours.

                           (c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 7.1 hereof, or
the Mandatory Redemption Amount described in Section 7.2 hereof, respectively
after the Delivery Date or the Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to the Subscriber for late issuance of Shares in the form
required pursuant to Section 7.1 hereof upon Conversion of the Note in the
amount of $100 per business day after the Delivery Date for each $10,000 of Note
principal amount being converted of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
may revoke all or part of the relevant Notice of Conversion or rescind all or
part of the notice of Mandatory Redemption by delivery of a notice to such
effect to the Company whereupon the Company and the Subscriber shall each be
restored to their respective positions immediately prior to the delivery of such
notice, except that the liquidated damages described above shall be payable
through the date notice of revocation or rescission is given to the Company.

                                       10
<PAGE>

                           (d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.

                  7.2. Mandatory Redemption at Subscriber's Election. In the
event (i) the Company is prohibited from issuing Shares, (ii) the Company fails
to timely deliver Shares on a Delivery Date, (iii) upon the occurrence of any
other Event of Default (as defined in the Note or in this Agreement), (iv) of
the liquidation, dissolution or winding up of the Company, or (v) a Change of
Control (as defined below) that continues for more than ten days, then at the
Subscriber's election, the Company must pay to the Subscriber ten (10) business
days after request by the Subscriber, at the Subscriber's election, a sum of
money determined by (y) multiplying up to the outstanding principal amount of
the Note designated by the Subscriber by 130%, or (z) multiplying the number of
Shares otherwise deliverable upon conversion of an amount of Note principal
and/or interest designated by the Subscriber (with the date of giving of such
designation being a "DEEMED CONVERSION Date") at the Conversion Price that would
be in effect on the Deemed Conversion Date by the highest closing price of the
Common Stock on the Principal Market for the period commencing on the Deemed
Conversion Date until the day prior to the receipt by the Subscriber of the
Mandatory Redemption Payment, whichever is greater, together with accrued but
unpaid interest thereon ("MANDATORY REDEMPTION PAYMENT"). The Mandatory
Redemption Payment must be received by the Subscriber on the same date as the
Company Shares otherwise deliverable or within ten (10) business days after
request, whichever is sooner ("MANDATORY REDEMPTION PAYMENT DATE"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Note principal and
interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued for
the twenty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment. For purposes of this Section 7.2, "CHANGE IN CONTROL" shall mean (i)
the Company no longer having a class of shares publicly traded or listed on a
Principal Market, (ii) the Company becoming a Subsidiary of another entity,
(iii) a majority of the board of directors of the Company as of the Closing Date
no longer serving as directors of the Company except due to natural causes, (iv)
if the holders of the Company's Common Stock as of the Closing Date beneficially
own at any time after the Closing Date less than forty percent of the Common
stock owned by them on the Closing Date, and (v) the sale, lease or transfer of
substantially all the assets of the Company or Subsidiaries.

                  7.3. Maximum Conversion. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more than 4.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 4.99% and aggregate conversions by the Subscriber may exceed
4.99%. The Subscriber may waive the conversion limitation described in this
Section 7.3, in whole or in part, upon and effective after 61 days prior written
notice to the Company. The Subscriber may allocate which of the equity of the
Company deemed beneficially owned by the Subscriber shall be included in the
4.99% amount described above and which shall be allocated to the excess above
4.99%.

                                       11
<PAGE>

                  7.4. Injunction Posting of Bond. In the event a Subscriber
shall elect to convert a Note or part thereof or exercise the Warrant in whole
or in part, the Company may not refuse conversion or exercise based on any claim
that such Subscriber or any one associated or affiliated with such Subscriber
has been engaged in any violation of law, or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of such Note or exercise of all or part of such Warrant shall have
been sought and obtained by the Company and the Company has posted a surety bond
for the benefit of such Subscriber in the amount of 130% of the outstanding
principal and interest of the Note, or aggregate purchase price of the Warrant
Shares which are sought to be subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment. Notwithstanding the foregoing, if the Company receives an
order restraining it from converting from a court or administration agency of
competent jurisdiction, it shall comply without a bond requirement.

                  7.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "BUY-IN"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.

                  7.6 Adjustments. The Conversion Price, Warrant exercise price
and amount of Shares issuable upon conversion of the Notes and exercise of the
Warrants shall be adjusted as described in this Agreement, the Notes and
Warrants.
                  7.7. Redemption. The Note and Warrants shall not be redeemable
or callable except as described in the Note and Warrants.

                  8. Finder's Fee/Legal Fee.

                           (a) Finder's Fee. The Company on the one hand, and
Subscriber (for himself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees other than Libra Finance, S.A.
("FINDER") on account of services purported to have been rendered on behalf of
the indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party's actions. Anything to the
contrary in this Agreement notwithstanding, Subscriber is providing
indemnification only for such Subscriber's own actions and not for any action of
any other Subscriber. Subscriber's liability hereunder is several and not joint.
The Company agrees that it will pay the Finder a fee equal to 10% of the
Purchase Price ("FINDER'S Fees"). The Finder's Fee will be payable in the form
of a Note ("FINDER'S NOTE"). The Finder's Note will have the same terms and
rights as the Note issued herein. The Company represents that there are no other
parties entitled to receive fees, commissions, or similar payments in connection
with the Offering except the Finder.

                                       12
<PAGE>

                           (b) Legal Fee. The Company shall pay to Grushko &
Mittman, P.C., a fee of $7,500, plus a reimbursement for any UCC search and
filing fees not in excess of $500 ("LEGAL FEES") as reimbursement for services
rendered in connection with this Agreement and the purchase and sale of the
Notes and the Warrants (the "OFFERING").

                  9.1  Covenants of the Company.  The Company covenants and
agrees with the Subscriber as follows:

                           (a) Stop Orders. The Company will advise the
Subscriber, promptly after it receives notice of issuance by the Commission, any
state securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

                           (b) Listing. The Company shall promptly secure the
listing of the shares of Common Stock and the Warrant Shares upon each national
securities exchange, or automated quotation system upon which they are or become
eligible for listing (subject to official notice of issuance) and shall maintain
such listing so long as any Warrants are outstanding. The Company will maintain
the listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "PRINCIPAL MARKET")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscriber copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.

                           (c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscriber and promptly provide copies thereof
to Subscriber.

                           (d) Reporting Requirements. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
the Subscriber pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (v) cause its Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (x)
comply in all respects with its reporting and filing obligations under the 1934
Act, (y) comply with all reporting requirements that are applicable to an issuer
with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not

                                       13
<PAGE>

to take any action or file any document (whether or not permitted by the 1933
Act or the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said acts until two (2) years after the Closing Date. Until the earlier of
the resale of the Common Stock and the Warrant Shares by Subscriber or at least
two (2) years after the Warrants have been exercised, the Company will use its
best efforts to continue the listing or quotation of the Common Stock on the
Principal Market or other market with the reasonable consent of Subscriber
holding a majority of the Shares and Warrant Shares, and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to Subscriber promptly after such filing.

                           (e) Use of Proceeds. The proceeds of the Offering
will be employed by the Company for the purposes set forth on SCHEDULE 9.1(E)
hereto. A deviation of more than 10% of any single stated use of proceeds or a
deviation in the aggregate of more than 25% will be an Event of Default under
the Note. Except as set forth on SCHEDULE 9.1(E), the Purchase Price may not and
will not be used for accrued and unpaid officer and director salaries, payment
of financing related debt, redemption of outstanding notes or equity instruments
of the Company nor non-trade obligations outstanding on a Closing Date.

                           (f) Reservation. Prior to the Closing Date, the
Company undertakes to reserve, pro rata, on behalf of each holder of a Note or
Warrant, from its authorized but unissued common stock, a number of common
shares equal to 150% of the amount of Common Stock necessary to allow each
holder of a Note to be able to convert all such outstanding Notes and interest
and reserve the amount of Warrant Shares issuable upon exercise of the Warrants.
Failure to have sufficient shares reserved pursuant to this Section 9.1(f) for
three (3) consecutive business days or ten (10) days in the aggregate shall be a
material default of the Company's obligations under this Agreement.

                           (g) Taxes. From the date of this Agreement and until
the sooner of (i) three (3) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by the Subscriber
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.

                                       14
<PAGE>

                           (h) Insurance. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscriber pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep its assets which are
of an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in the Company's line of business, in amounts sufficient to
prevent the Company from becoming a co-insurer and not in any event less than
one hundred percent (100%) of the insurable value of the property insured; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated and to the extent available on commercially reasonable terms.

                           (i) Books and Records. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscriber pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company will keep true records
and books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.

                           (j) Governmental Authorities. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscriber pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.

                           (k) Intellectual Property. From the date of this
Agreement and until the sooner of (i) three (3) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscriber pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company shall maintain in full
force and effect its corporate existence, rights and franchises and all licenses
and other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.

                           (l) Properties. From the date of this Agreement and
until the sooner of (i) three (3) years after the Closing Date, or (ii) until
all the Shares and Warrant Shares have been resold or transferred by all the
Subscriber pursuant to the Registration Statement (as defined in Section
11.1(iv) hereof) or pursuant to Rule 144, without regard to volume limitations,
the Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and

                                       15
<PAGE>

proper repairs, renewals, replacements, additions and improvements thereto; and
the Company will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could reasonably be expected to have a Material Adverse Effect.

                           (m) Confidentiality/Public Announcement. From the
date of this Agreement and until the sooner of (i) three (3) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscriber pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company agrees
that except in connection with a Form 8-K or the Registration Statement, it will
not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by a Subscriber or only to the extent required by
law and then only upon five days prior notice to Subscriber. In any event and
subject to the foregoing, the Company undertakes to file a Form 8-K or make a
public announcement describing the Offering not later than the first business
day after the Closing Date. In the Form 8-K or public announcement, the Company
will specifically disclose the amount of common stock outstanding immediately
after the Closing. A form of the proposed Form 8-K or public announcement to be
employed in connection with the Offering is annexed hereto as EXHIBIT D.

                           (n) Non-Public Information. The Company covenants and
agrees that neither it nor any other Person acting on its behalf will provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

                           (o) Investment. Until all the Notes have been fully
satisfied, the Company agrees that it will not directly or indirectly sell or
spin-off, nor encumber, hypothecate or suffer a lien to be placed on any equity
of any subsidiary of the Company or assets of any subsidiary of the Company
without the consent of Subscriber holding not less that sixty-five (65%) of
outstanding Note principal.

                  9.2. Covenants of the Subsidiaries. The Company makes the same
covenants contained in Section 9.1(g) through 9.1(l) on behalf of each of its
Subsidiaries as if such covenants were made by the Subsidiaries.

                  10. Covenants of the Company and Subscriber Regarding
Indemnification.

                           (a) The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscriber, the Subscriber' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or breach of any warranty by Company in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be

                                       16
<PAGE>

performed by the Company hereunder, or any other agreement entered into by the
Company and Subscriber relating hereto.

                           (b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, and control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
such Subscriber in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
such Subscriber of any covenant or undertaking to be performed by such
Subscriber hereunder, or any other agreement entered into by the Company and
Subscriber relating hereto.

                           (c) In no event shall the liability of any Subscriber
or permitted successor hereunder or under any Transaction Document or other
agreement delivered in connection herewith be greater in amount than the dollar
amount of the net proceeds received by such Subscriber upon the sale of
Registrable Securities (as defined herein).

                           (d) The procedures set forth in Section 11.6 shall
apply to the indemnifications set forth in Sections 10(a) and 10(b) above.

                  11.1. Registration Rights. The Company hereby grants the
following registration rights to holders of the Securities.

                           (i) On one occasion, for a period commencing one
hundred and twenty-one (121) days after the Closing Date, but not later than two
(2) years after the Closing Date ("REQUEST DATE"), upon a written request
therefor from any record holder or holders of more than 50% of the Shares issued
and issuable upon conversion of the Notes and Warrant Shares actually issued
upon exercise of the Warrants, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the Shares,
and Warrant Shares issuable upon exercise of the Warrants (collectively
"REGISTRABLE SECURITIES") which are the subject of such request for unrestricted
public resale by the holder thereof. For purposes of Section 11.1(i),
Registrable Securities shall not include (A) Securities which are registered for
resale in an effective registration statement, or (B) which have been issued
without further transfer restrictions after a sale or transfer pursuant to Rule
144 under the 1933 Act. Upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within ten (10) days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 11.1(i).

                           (ii) If the Company at any time proposes to register
any of its securities under the 1933 Act for sale to the public, whether for its
own account or for the account of other security

                                       17
<PAGE>

holders or both, except with respect to registration statements on Forms S-4,
S-8 or another form not available for registering the Registrable Securities for
sale to the public, provided the Registrable Securities are not otherwise
registered for resale by the Subscriber or Holder pursuant to an effective
registration statement, each such time it will give at least fifteen (15) days'
prior written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within ten (10) days after the giving of any such notice by the Company,
to register any of the Registrable Securities not previously registered, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "SELLER" or
"SELLERS"). In the event that any registration pursuant to this Section 11.1(ii)
shall be, in whole or in part, an underwritten public offering of common stock
of the Company, the number of shares of Registrable Securities to be included in
such an underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall reasonably be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the Company shall notify
the Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.

                           (iii) If, at the time any written request for
registration is received by the Company pursuant to Section 11.1(i), the Company
has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account and the
Company actually does file such other registration statement, such written
request shall be deemed to have been given pursuant to Section 11.1(ii) rather
than Section 11.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 11.1(ii).

                           (iv) The Company shall file with the Commission not
later than forty-five (45) days after the Closing Date (the "FILING DATE"), and
cause to be declared effective within one hundred and twenty (120) days after
the Closing Date (the "EFFECTIVE DATE") a Form SB-2 registration statement
("REGISTRATION STATEMENT") (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act. The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to 200%
of the Shares issuable upon conversion of the Notes and all of the Warrant
Shares issuable pursuant to this Agreement upon exercise of the Warrants. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of Subscriber and Warrant holder, pro rata, and not issued, employed or
reserved for anyone other than each such Subscriber and Warrant holder. The
Registration Statement will immediately be amended or additional registration
statements will

                                       18
<PAGE>

be immediately filed by the Company as necessary to register additional shares
of Common Stock to allow the public resale of all Common Stock included in and
issuable by virtue of the Registrable Securities. Without the written consent of
the Subscriber, no securities of the Company other than the Registrable
Securities will be included in the Registration Statement except as disclosed on
SCHEDULE 11.1. It shall be deemed a Non-Registration Event if at any time after
the date the Registration Statement is declared effective by the Commission
("ACTUAL EFFECTIVE DATE") the Company has registered for unrestricted resale on
behalf of the Subscriber fewer than 150% of the amount of Common Shares issuable
upon full conversion of all sums due under the Notes and 100% of the Warrant
Shares issuable upon exercise of the Warrants.

                  11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any shares of Registrable Securities under the 1933 Act, the
Company will, as expeditiously as possible:

                           (a) subject to the timelines provided in this
Agreement, prepare and file with the Commission a registration statement
required by Section 11, with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment including a notification by confirmed
telecopier and overnight express delivery of the declaration of effectiveness of
any Registration Statement within twenty-four (24) hours of such effectiveness;

                           (b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective for a
period of two (2) years, and comply with the provisions of the 1933 Act with
respect to the disposition of all of the Registrable Securities covered by such
registration statement in accordance with the Seller's intended method of
disposition set forth in such registration statement for such period;

                           (c) furnish to the Seller, at the Company's expense,
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their other disposition of the
securities covered by such registration statement;

                           (d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller may reasonably
designate, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;

                                       19
<PAGE>

                           (e) if applicable, list the Registrable Securities
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;

                           (f) notify the Subscriber within two hours of the
Company's becoming aware that a prospectus relating thereto is required to be
delivered under the 1933 Act, of the happening of any event of which the Company
has knowledge as a result of which the prospectus contained in such registration
statement, as then in effect, includes 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 not misleading in light of the circumstances then
existing or which becomes subject to a Commission, state or other governmental
order suspending the effectiveness of the registration statement covering any of
the Shares; and

                           (g) provided same would not be in violation of the
provision of Regulation FD under the 1934 Act, make available for inspection by
the Seller, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.

                  11.3. Provision of Documents. In connection with each
registration described in this Section 11, the Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.

                  11.4. Non-Registration Events. The Company and the Subscriber
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) the Registration Statement is not declared effective on or
before the Effective Date, (C) the Registration Statement is not declared
effective within three (3) business days after receipt by the Company or its
attorneys of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written request, or
is not declared effective within 120 days after such written request, or (E) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv) is
filed and declared effective but shall thereafter cease to be effective (without
being succeeded within fifteen (15) business days by an effective replacement or
amended registration statement) for a period of time which shall exceed 30 days
in the aggregate per year (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) or more than 20
consecutive days (each such event referred to in clauses A through E of this
Section 11.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to two percent (2%) for each thirty (30) days or part
thereof, thereafter of the Purchase Price of the Notes remaining unconverted and
purchase

                                       20
<PAGE>

price of Shares issued upon conversion of the Notes owned of record by such
holder which are subject to such Non-Registration Event. The Company must pay
the Liquidated Damages in cash or an amount equal to two hundred percent of such
cash Liquidated Damages if paid in additional shares of registered unlegended
free-trading Common Stock. Such Common Stock shall be valued at a per share
value equal to the Conversion Price then in effect and in the same manner as the
Note. The Liquidated Damages must be paid within ten (10) days after the end of
each thirty (30) day period or shorter part thereof for which Liquidated Damages
are payable. In the event a Registration Statement is filed by the Filing Date
but is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. All oral or
written and accounting comments received from the Commission relating to the
Registration Statement must be responded to within ten (10) business days.
Failure to timely respond is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate set forth above. Notwithstanding the foregoing, the
Company shall not be liable to the Subscriber under this Section 11.4 for any
events or delays occurring as a consequence of the acts or omissions of the
Subscriber contrary to the obligations undertaken by Subscriber in this
Agreement. Liquidated Damages will not accrue or be payable pursuant to this
Section 11.4 nor will a Non-Registration Event be deemed to have occurred for
times during which Registrable Securities are transferable by the holder of
Registrable Securities pursuant to Rule 144(k) under the 1933 Act.

                  11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and reasonable fee of one counsel for all Sellers are called
"REGISTRATION EXPENSES." All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any additional counsel to the Seller, are called "SELLING
EXPENSES." The Company will pay all Registration Expenses in connection with the
registration statement under Section 11. Selling Expenses in connection with
each registration statement under Section 11 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

                  11.6. Indemnification and Contribution.

                           (a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a

                                       21
<PAGE>

material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances when made, and will subject
to the provisions of Section 11.6(c) reimburse the Seller, each such underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable to the Seller to the extent that any such damages arise out of or
are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Seller failed to send or deliver a copy of the final
prospectus delivered by the Company to the Seller with or prior to the delivery
of written confirmation of the sale by the Seller to the person asserting the
claim from which such damages arise, (ii) the final prospectus would have
corrected such untrue statement or alleged untrue statement or such omission or
alleged omission, or (iii) to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such Seller, or any such controlling person in writing
specifically for use in such registration statement or prospectus.

                           (b) In the event of a registration of any of the
Registrable Securities under the 1933 Act pursuant to Section 11, each Seller
severally but not jointly will, to the extent permitted by law, indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the 1933 Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.

                                       22
<PAGE>

                           (c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 11.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 11.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake 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 so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 11.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded on the advice of counsel that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred. The indemnified party shall not settle any such
action without the consent of the indemnifying party, which consent will not be
unreasonably withheld.

                           (d) In order to provide for just and equitable
contribution in the event of joint liability under the 1933 Act in any case in
which either (i) a Seller, or any controlling person of a Seller, makes a claim
for indemnification pursuant to this Section 11.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 11.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of the Seller or controlling person of the Seller in circumstances for which
indemnification is not provided under this Section 11.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however,

                                       23
<PAGE>

that, in any such case, (y) the Seller will not be required to contribute any
amount in excess of the public offering price of all such securities offered by
it pursuant to such registration statement; and (z) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 10(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.

                  11.7. Delivery of Unlegended Shares.

                           (a) Within three (3) business days (such third (3rd)
business day being the "UNLEGENDED SHARES DELIVERY DATE") after the business day
on which the Company has received (i) a notice that Registrable Securities have
been sold either pursuant to the Registration Statement or Rule 144 under the
1933 Act, (ii) a representation that the prospectus delivery requirements, or
the requirements of Rule 144, as applicable and if required, have been
satisfied, and (iii) the original share certificates representing the shares of
Common Stock that have been sold, and (iv) in the case of sales under Rule 144,
customary representation letters of the Subscriber and/or Subscriber's broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver, to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4(e) above, issuable pursuant to any effective and current Registration
Statement described in Section 11 of this Agreement or pursuant to Rule 144
under the 1933 Act (the "UNLEGENDED SHARES"); and (z) cause the transmission of
the certificates representing the Unlegended Shares together with a legended
certificate representing the balance of the submitted Shares certificate, if
any, to the Subscriber at the address specified in the notice of sale, via
express courier, by electronic transfer or otherwise on or before the Unlegended
Shares Delivery Date. Transfer fees shall be the responsibility of the Seller.

                           (b) In lieu of delivering physical certificates
representing the Unlegended Shares, if the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of a Subscriber, so long as the certificates
therefor do not bear a legend and the Subscriber is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause its
transfer agent to electronically transmit the Unlegended Shares by crediting the
account of Subscriber's prime Broker with DTC through its Deposit Withdrawal
Agent Commission system. Such delivery must be made on or before the Unlegended
Shares Delivery Date.

                           (c) The Company understands that a delay in the
delivery of the Unlegended Shares pursuant to Section 11 hereof later than two
business days after the Unlegended Shares Delivery Date could result in economic
loss to a Subscriber. As compensation to a Subscriber for such loss, the Company
agrees to pay late payment fees (as liquidated damages and not as a penalty) to
the Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an

                                       24
<PAGE>

aggregate of thirty (30) days, then Subscriber or assignee holding Securities
subject to such default may, at its option, require the Company to redeem all or
any portion of the Shares and Warrant Shares subject to such default at a price
per share equal to 120% of the Purchase Price of such Common Stock and Warrant
Shares ("UNLEGENDED REDEMPTION AMOUNT"). The amount of the aforedescribed
liquidated damages that have accrued or paid for the twenty day period prior to
the receipt by the Subscriber of the Unlegended Redemption Amount shall be
credited against the Unlegended Redemption Amount. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.

                           (d) In addition to any other rights available to a
Subscriber, if the Company fails to deliver to a Subscriber Unlegended Shares as
required pursuant to this Agreement, within seven (7) business days after the
Unlegended Shares Delivery Date and the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the shares of Common Stock which the Subscriber was
entitled to receive from the Company (a "BUY-IN"), then the Company shall pay in
cash to the Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.

                           (e) In the event a Subscriber shall request delivery
of Unlegended Shares as described in Section 11.7(e) and the Company is required
to deliver such Unlegended Shares pursuant to Section 11.7(e), the Company may
not refuse to deliver Unlegended Shares based on any claim that such Subscriber
or any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 120% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.

                  12. (a) Favored Nations Provision. Other than in connection
with (i) full or partial consideration in connection with a strategic merger,
consolidation or purchase of substantially all of the securities or assets of a
corporation or other entity, and (ii) as has been described in the Reports or
Other Written Information filed with the Commission or delivered to the
Subscriber prior to the Closing Date (collectively the foregoing are "EXCEPTED
ISSUANCES"), if at any time Notes are outstanding the Company shall offer, issue
or agree to issue any common stock or securities convertible into or

                                       25
<PAGE>

exercisable for shares of common stock (or modify any of the foregoing which may
be outstanding) to any person or entity at a price per share or conversion or
exercise price per share which shall be less than the Conversion Price in
respect of the Shares, or if less than the Warrant exercise price in respect of
the Warrant Shares, without the consent of Subscriber holding Notes and/or
Shares, then the Company shall issue, for each such occasion, additional shares
of Common Stock to Subscriber so that the average per share purchase price of
the shares of Common Stock issued to the Subscriber (of only the Common Stock or
Warrant Shares still owned by the Subscriber) is equal to such other lower price
per share and the Conversion Price and Warrant Exercise Price shall
automatically be reduced to such other lower price per share. The average
Purchase Price of the Shares and average exercise price in relation to the
Warrant Shares shall be calculated separately for the Shares and Warrant Shares.
The foregoing calculation and issuance shall be made separately for Shares
received upon conversion and separately for Warrant Shares. The delivery to the
Subscriber of the additional shares of Common Stock shall be not later than the
closing date of the transaction giving rise to the requirement to issue
additional shares of Common Stock. The Subscriber is granted the registration
rights described in Section 11 hereof in relation to such additional shares of
Common Stock except that the Filing Date and Effective Date vis-a-vis such
additional common shares shall be, respectively, the sixtieth (60th) and one
hundred and twentieth (120th) date after the closing date giving rise to the
requirement to issue the additional shares of Common Stock. For purposes of the
issuance and adjustment described in this paragraph, the issuance of any
security of the Company carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in the issuance of the additional shares of Common Stock upon the
issuance of such convertible security, warrant, right or option and again at any
time upon any subsequent issuances of shares of Common Stock upon exercise of
such conversion or purchase rights if such issuance is at a price lower than the
Conversion Price in effect upon such issuance. The rights of the Subscriber set
forth in this Section 12 are in addition to any other rights the Subscriber has
pursuant to this Agreement, the Note, any Transaction Document, and any other
agreement referred to or entered into in connection herewith.

                           (b) Option Plan Restrictions. The only officer,
director, employee and consultant stock option or stock incentive plan currently
in effect or contemplated by the Company has been submitted to the Subscriber.
No other plan will be adopted nor may any options or equity not included in such
plan be issued for so long as any sum is outstanding under the Note.

                           (c) Maximum Exercise of Rights. In the event the
exercise of the rights described in Section 12(a) would result in the issuance
of an amount of common stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
7.3 of this Agreement, then the issuance of such additional shares of common
stock of the Company to such Subscriber will be deferred in whole or in part
until such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 7.3 of this Agreement. The determination

                                       26
<PAGE>

of when such common stock may be issued shall be made by Subscriber as to only
such Subscriber.

                           (d) Paid In Kind. The Subscriber may demand that some
or all of the sums payable to the Subscriber pursuant to Sections 7.1(c), 7.2,
7.5, 11.4, 11.7(c), 11.7(d) and 11.7(e) that are not paid within ten business
days of the required payment date be paid in shares of Common Stock valued at
the Conversion Price in effect at the time Subscriber makes such demand or, at
the Subscriber's election, at such other valuation described in the Transaction
Documents. In addition to any other rights granted to the Subscriber herein, the
Subscriber is also granted the registration rights set forth in Section 11.1(ii)
hereof in relation to the aforedescribed shares of Common Stock.

                  13. Security Interest. The Subscriber has been granted a
security interest in all the assets of the Company pursuant to a UCC-1 Financing
Statement filed in the State of Nevada under file number 2005-014394-1 on May 9,
2005 as memorialized in a security and pledge agreement ("SECURITY AGREEMENT").
The Company will execute such other agreements, documents and financing
statements to be filed at the Company's expense with such jurisdictions, states
and counties reasonably designated by the Subscriber in order to amend the UCC-1
Financing Statement to include this Offering. The Company will also execute all
such documents reasonably necessary in the opinion of Subscriber to memorialize
and further protect the security interest described herein.

                  14.  Miscellaneous.

                           (a) Notices. All notices, demands, requests,
consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i) if to the
Company, to: Universal Communication Systems, Inc., 407 Lincoln Road, Suite 12F,
Miami Beach, FL 33139, Attn: Michael J. Zwebner, CEO, telecopier: (305)
672-1965, with a copy by telecopier only to: Torys LLP, 466 Lexington Avenue,
New York, NY 10017, Attn: Andrew J. Beck, Esq., telecopier: (212) 682-0200, and
(ii) if to the Subscriber, to: the one or more addresses and telecopier numbers
indicated on the signature pages hereto, with an additional copy by telecopier
only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New
York 10176, telecopier number: (212) 697-3575.

                           (b) Entire Agreement; Assignment. This Agreement and
other documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscriber have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
either party

                                       27
<PAGE>

shall be assigned by that party without prior notice to and the written consent
of the other party.

                           (c) Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

                           (d) Law Governing this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. THE PARTIES AND THE INDIVIDUALS
EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE TRIAL BY JURY. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.

                           (e) Specific Enforcement, Consent to Jurisdiction.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 14(d) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

                           (f) Independent Nature of Subscriber. The Company
acknowledges that the obligations of Subscriber under the Transaction Documents
are several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The Company
acknowledges that the decision of Subscriber to purchase Securities has been
made by such Subscriber

                                       28
<PAGE>

independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the SB-2 Registration Statement and (ii) review by,
and consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscriber as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscriber are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscriber with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscriber. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscriber are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.

                           (g) Equitable Adjustment. The Securities and the
purchase prices of Securities shall be equitably adjusted to offset the effect
of stock splits, stock dividends, and distributions of property or equity
interests of the Company to its shareholders.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       29
<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

         Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.

                                     UNIVERSAL COMMUNICATION SYSTEMS, INC.
                                     A Nevada Corporation

                                     By:_________________________________
                                             Name:
                                             Title:

                                     Dated: August _____, 2005

<TABLE>
<CAPTION>

-------------------------------------------------------------------- -------------------------- ----------------------------
SUBSCRIBER                                                           PURCHASE PRICE             WARRANTS ISSUABLE ON
                                                                                                CLOSING DATE
-------------------------------------------------------------------- -------------------------- ----------------------------
<S>                                                                  <C>                        <C>

                                                                     $750,000.00
</TABLE>

_________________________________________
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196

<PAGE>

                         LIST OF EXHIBITS AND SCHEDULES

         Exhibit A                  Form of Warrant

         Exhibit B                  Form of Legal Opinion

         Exhibit C                  Transfer Agent Instructions

         Exhibit D                  Form of Public Announcement or Form 8-K

         Schedule 5(a)              Subsidiaries

         Schedule 5(d)              Additional Issuances / Capitalization

         Schedule 5(q)              Undisclosed Liabilities

         Schedule 5(u)              Disagreements with Accountants and Lawyers

         Schedule 9.1(e)            Use of Proceeds

         Schedule 11.1              Other Securities to be RegisteredEXHIBIT 10.36

                  THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
         THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
         THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
         THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
         UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
         UNIVERSAL COMMUNICATION SYSTEMS, INC. THAT SUCH REGISTRATION IS NOT
         REQUIRED.

                            SECURED CONVERTIBLE NOTE

         FOR VALUE RECEIVED, UNIVERSAL COMMUNICATION SYSTEMS, INC., a Nevada
corporation (hereinafter called "Borrower"), hereby promises to pay to ALPHA
CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein,
Fax: 011-42-32323196 (the "Holder") or order, without demand, the sum of Seven
Hundred and Fifty Thousand Dollars ($750,000.00), or such lesser portion of the
Purchase Price as shall have been funded by the Holder pursuant to the terms of
the Subscription Agreement (as hereinafter defined), with simple interest
accruing on August 19, 2007 (the "Maturity Date"), if not paid sooner.

         This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:

                                    ARTICLE I

                               GENERAL PROVISIONS

         1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.

         1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Borrower may not pay
this Note, without the consent of the Holder, until one year after the later of
the date the Event of Default has been cured or one year after the Maturity
Date.

         1.3 Interest Rate. Simple interest payable on this Note shall accrue at
the annual rate of six percent (6%) and be payable upon each Conversion, and on
the Maturity Date, accelerated or otherwise, when the principal and remaining
accrued but unpaid interest shall be due and payable, or sooner as described
below. INTEREST SHALL ACCRUE ON EACH PORTION OF THE PURCHASE PRICE FROM THE DATE
THE FUNDS ARE TRANSMITTED FROM THE HOLDER DIRECTLY TO BORROWER.

                                       1
<PAGE>

                                   ARTICLE II

                                CONVERSION RIGHTS

         The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.001 par value per share
("Common Stock") as set forth below.

         2.1. Conversion into the Borrower's Common Stock.

                  (a) The Holder shall have the right from and after the date of
the issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and accrued
interest, at the election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and nonassessable shares
of Common Stock as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
Upon delivery to the Borrower of a completed Notice of Conversion, a form of
which is annexed hereto, Borrower shall issue and deliver to the Holder within
three (3) business days from the Conversion Date (such third day being the
"Delivery Date") that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. At the election of the Holder,
the Borrower will deliver accrued but unpaid interest on the Note in the manner
provided in Section 1.3 through the Conversion Date directly to the Holder on or
before the Delivery Date (as defined in the Subscription Agreement). The number
of shares of Common Stock to be issued upon each conversion of this Note shall
be determined by dividing that portion of the principal of the Note and interest
to be converted, by the Conversion Price.

                  (b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be equal to $0.02.

                  (c) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as follows:

                           A. Merger, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.

                           B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes that may be issued
or outstanding, this Note, as to the unpaid principal portion thereof and
accrued interest thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.

                                       2
<PAGE>

                           C. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall be proportionately reduced
in case of subdivision of shares or stock dividend or proportionately increased
in the case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.

                           D. Share Issuance. So long as this Note is
outstanding, if the Borrower shall issue or agree to issue any shares of Common
Stock except for the Excepted Issuances (as defined in the Subscription
Agreement) for a consideration less than the Conversion Price in effect at the
time of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced to such other lower issue price. For purposes
of this adjustment, the issuance of any security carrying the right to convert
such security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable Conversion Price. The
reduction of the Conversion Price described in this paragraph is in addition to
other rights of the Holder described in this Note and the Subscription
Agreement.

                  (d) Whenever the Conversion Price is adjusted pursuant to
Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
statement of the facts requiring such adjustment.

                  (e) During the period the conversion right exists, Borrower
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock issuable upon the full
conversion of this Note. Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. Borrower agrees
that its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.

         2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.

         2.3 Maximum Conversion. The Holder shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower on such Conversion Date. For
the purposes of the provisions of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Holder shall not be limited to aggregate conversions of only
4.99% and aggregate conversion by the Holder may exceed 4.99%. The Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section 2.3 will

                                       3
<PAGE>

limit any conversion hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of the Notes are convertible shall be the responsibility and obligation
of the Holder. The Holder may waive the conversion limitation described in this
Section 2.3, in whole or in part, upon and effective after 61 days prior written
notice to the Borrower. The Holder may allocate which of the equity of the
Borrower deemed beneficially owned by the Holder shall be included in the 4.99%
amount described above and which shall be allocated to the excess above 4.99%.

                                   ARTICLE III

                                EVENT OF DEFAULT

         The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:

         3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal, interest or other sum due under this Note when due and
such failure continues for a period of ten (10) days after the due date. The ten
(10) day period described in this Section 3.1 is the same ten (10) day period
described in Section 1.1 hereof.

         3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the Holder.

                  3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.

         3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.

         3.5 Judgments. Any money judgment, writ or similar final process shall
be entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) days.

         3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
other law for the relief of debtors, or the issuance of any notice in relation
to such event shall be instituted by or against the Borrower and if instituted
against Borrower are not dismissed within 45 days of initiation.

         3.7 Delisting. Delisting of the Common Stock from the OTC Bulletin
Board ("Bulletin Board") or Principal Market; failure to comply with the
requirements for continued listing on the Bulletin Board for a period of five
consecutive trading days; or notification from the Bulletin Board or any
Principal Market that the Borrower is not in compliance with the conditions for
such continued listing on the Bulletin Board or other Principal Market.

                                       4
<PAGE>

         3.8 Non-Payment. A default by the Borrower under any one or more
obligations in an aggregate monetary amount in excess of $75,000 for more than
twenty days after the due date, unless the Borrower is contesting the validity
of such obligation in good faith.

         3.9 Stop Trade. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.

         3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.

         3.11 Non-Registration Event. The occurrence of a Non-Registration Event
as described in Section 11.4 of the Subscription Agreement.

         3.12 Reservation Default. Failure by the Borrower to have reserved for
issuance upon conversion of the Note the amount of Common Stock as set forth in
this Note and the Subscription Agreement.

         3.13 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement which is not cured after any required notice and/or
cure period.

                                   ARTICLE IV

                                SECURITY INTEREST

         4. Security Interest/Waiver of Automatic Stay. This Note is secured by
a security interest granted to the Holder pursuant to a Security Agreement, as
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Transaction Documents and any other agreement to which
the Borrower and Holder are parties (collectively, "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to
exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY
ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to
any motion for relief from stay that may be filed by the Holder in any
bankruptcy or insolvency proceeding initiated by or against the Borrower and,
further, agrees not to file any opposition to any motion for relief from stay
filed by the Holder. The Borrower represents, acknowledges and agrees that this
provision is a specific and material aspect of the Loan Documents, and that the
Holder would not agree to the terms of the Loan Documents if this waiver were
not a part of this Note. The Borrower further represents, acknowledges and
agrees that

                                       5
<PAGE>

this waiver is knowingly, intelligently and voluntarily made, that neither the
Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been represented
(or has had the opportunity to be represented) in the signing of this Note and
the Loan Documents and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has discussed this waiver with
counsel.

                                    ARTICLE V

                                  MISCELLANEOUS

         5.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

         5.2 Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: Universal Communication
Systems, Inc., 407 Lincoln Road, Suite 12F, Miami Beach, FL 33139, Attn: Michael
J. Zwebner, CEO, telecopier: (305) 672-1965, with a copy by telecopier only
to:Torys LLP, 466 Lexington Avenue, New York, NY 10017, Attn: Andrew J. Beck,
Esq., telecopier: (212) 682-0200, and (ii) if to the Holder, to the name,
address and telecopy number set forth on the front page of this Note, with a
copy by telecopier only to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, telecopier number: (212) 697-3575.

         5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.

         5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.

         5.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.

                                       7
<PAGE>

         5.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.

         5.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

         5.8 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have all the rights of a shareholder of the Borrower
with respect to the shares of Common Stock to be received by Holder after
delivery by the Holder of a Conversion Notice to the Borrower.

         IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by an authorized officer as of the ____ day of August, 2005.

                                  UNIVERSAL COMMUNICATION SYSTEMS, INC.

                                  By:________________________________
                                           Name:
                                           Title:

WITNESS:

______________________________________

                                       8
<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

         The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by UNIVERSAL COMMUNICATION
SYSTEMS, INC. on August ___, 2005 into Shares of Common Stock of UNIVERSAL
COMMUNICATION SYSTEMS, INC. (the "Borrower") according to the conditions set
forth in such Note, as of the date written below.

Date of Conversion:_____________________________________________________________

Conversion Price:_______________________________________________________________

Shares To Be Delivered:_________________________________________________________

Signature:______________________________________________________________________

Print Name:_____________________________________________________________________

Address:________________________________________________________________________

            ____________________________________________________________________

                                       9

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