Document:

Unassociated Document

    EXHIBIT
      10.11

    

    INVESTMENT
      AGREEMENT

    

    No:
      JY-0610-0091

    

    Fuzhou
      City Jiangyin Industry District Management Committee

     

    Article
      I
      Generals

    

    Section
      1.01 Parties

    Party
      A:
      Fuzhou City Jiangyin Industry District Management Committee

    Party
      B:
      Fujiang Zhongde Technology Co., Ltd.

    

    According
      to “ Contract Decree of People’s Republic of China” and “ Land Laws of People’s
      Republic of China” and other laws and the programming of Fuzhou Jiangyin
      Industry District.

    

    Section
      1.02 Party B considers the industry district is suitable for the investing
      item
      through research, based on the Industry Favorable Policy and development trend.
      Party A would like to support this investment.

    

    Section
      1.03 Party B plan to set up a new plant of Biodiesel Production, total
      investment is $20,000,000 Dollar, and the annual revenue would achieve
      $71,250,000 dollar, and the tax income will achieve $3,750,000
      dollar.

     

    Article
      II Land Delivery and Custom Payment

    

    Section
      2.01 The No.G12 Land of Jiangyin Industry District is about 112,744
      sq.m.

    And
      according to the red-line and “National Land Use of People’s Republic of China”.
      Party B clarify the land status.

    

    Section
      2.02 It’s ensured to be Industry Use Land. The Term of Use is 50 years, since
      the date of issuing “Land Use Certificate”.

    

    Section
      2.03 Party A agree to deliver the land since Party B pay the first
      payment.

    Party
      A
      provide the land, Party B afford all the expense of building.

    

    Section
      2.04 The Facility is planned to be established in 13 months. The price of
      practically part is RMB 126,000 yuan per unit of area. And the total actual
      transfer amount is RMB 16,039,800 yuan. The price of public land is RMB 60,000
      yuan, the total public land transfer amount is RMB 2,509,200 yuan. The whole
      transfer amount is RMB 18,549,000 yuan. The exact payment is in term of actually
      acreage.

    

    Section
      2.05 Party B plan to complete the payment in 3 periods.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    First
      Period. Party B pay RMB 9,274,500 yuan (50% of the total expense) to Party
      A in
      first 10 days since the date of signing the agreement.

    Second
      Period. Party B pay RMB 556,470 yuan (30% of the total expense) to Party A
      in
      first 3 months since the date of signing the agreement.

    Third
      Period. Party B pay RMB 370,980 yuan (20% of the total expense) to Party A
      in
      first 6 months since the date of signing the agreement.

    

    Section
      2.06 Party A Provide the Programming Red-line Map to Party B in 15 days since
      the date of receiving the 1st
      payment.

    

    Section
      2.07 Party B Mark the land circumscription and not allowed to move it, Party
      B
      responsible for it and shall recite the situation if the circumscription is
      destroyed.

    

    Section
      2.08 Party B apply the Land Register and “Land Use Certificate” after pay whole
      transfer fare and 25% investing payment. Party A charge Party B’s affairs by
      volunteer. 

     

    Article
      III Construction and Production

    

    Section
      3.01 Party B set up the new buildings in term of programming of government.
      Party B authorized Environment Report and ensure the waste management achieve
      the Waste standard.

    

    Section
      3.02 Party B build the establishment in term of related regulations. Party
      B
      consent to lay the line and pipeline throughout the land for
      public.

    

    Section
      3.03 Party B start to construct in 1st
      month
      since the date of signing the agreement. And put into producing in 12
      months.

    

    Section
      3.04 Party B use the land in term of regulations. Party B compensate if Party
      B
      damage the environment.

    

    Section
      3.05 Government keep the right to re-adjust the City Programming. The primary
      building out of impact, but it need apply if Party B require any changes or
      reset .

    

    Section
      3.06 Party B provide Party A the construction Schedule in 10 days since the
      date
      of Party B get the “Construction Certificate”.

    

    Section
      3.07 Party B register new company in Jiangyin Industry District. Party B
      complete the procedure of issuing the “Fujian Zhongde Chemical Co., Ltd.”, the
      register capital is $15,000,000 dollar.

    

    Section
      3.08 Party B’s Business in term of related regulations.

    

    Section
      3.09 Party A charge Party B’s affairs by volunteer, Party B afford all the
      expense.

    

    Section
      3.10 Party B take all the industry district favorable policy.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Section
      3.11 The operation of Party B under the rules of Jiangyin Industry
      District.

     

    Article
      IV Transfer, Lease, Mortgage of Land Use

    

    Section
      4.01 Party B have the right to transfer, lease and mortgage the land after
      pay
      all the transfer fare. But Party A have the right the confirm when the
      1st
      transfer
      happen.

    

    Section
      4.02 Two parties of transferring and mortgage of Land Use shall sign the
      agreement. Both parties of the lease shall sign agreement if the lease term
      over
      6 months.

    

    Section
      4.03 All the attachment and buildings follow the transfer, lease and mortgage
      agreement.

    

    Section
      4.04 Both Parties of the transfer, lease and mortgage bring the agreement to
      register at local land management office.

     

    Article
      V
      Expiration

    

    Section
      5.01 Party A can not take back the land use right before the expiration. Party
      A
      compensates Party B in term of Special Occasion.

    

    Section
      5.02 Party B submits application to Party A one year before the expiration.
      Party B re-signs the agreement and pays the land use fare under Party A’s
      consent.

    

    Section
      5.03 In the Instance of Party B don’t submit the re-sign Application or Party A
      veto the application, Party A have the right to take back the land
      use.

    

    Section
      5.04 Party B keeps the normal function of building and other establishment
      if
      Party B does not apply the re-sign agreement. Party A has the right to ask
      Party
      B remove the building and establishment.

    

    Section
      5.05 In the instance of Party B do not get the approval of Re-sign application,
      Party A compensate Party B based on the remnant buildings and
      establishment.

     

    Article
      VI Force Majeure

    

    Section
      6.01 Any Party is irresponsible for the damage incurred by force majeure. Any
      party is responsible for delaying or incurring the damage.

    

    Section
      6.02 The Party come along with the force majeure inform other party in 18 hours
      by mail, express, fax or any other recite message. And report the delay or
      irresponsible reason to other party by recite report.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Article
      VII Breach of faith

     

    Section
      7.01 Party B keep the right to end the agreement if Party A can not provide
      the
      red-line map, and Party A have to compensate the interest of the paid transfer
      expense.

     

    Section
      7.02 Party B pay 2‰ of the expense which is not paid as late fee in the instance
      of delaying. Party A keep the right to end the contract, take back land and
      red-line map under the situation which the delay term over 1 month. Party A
      do
      not compensate the damage of Party B, and the subscription will be the breach
      fare.

    

    Section
      7.03 Party A pay 2‰ of the expense which is paid as compensation to Party B in
      the instance of delaying to provide the land. Party B keep the right to end
      the
      contract under the situation which the delay term over 1 month. Party A shall
      compensate double subscription and pay back other transfer fare.

    

    Section
      7.04 Party B ensure the construction schedule follow the terms in the
      contract.

    

    
      	 	
              1.

            	
              Party
                B compensate Party B in the instance of delaying the schedule.
                Compensation rate is 5% in the first 2 months, RMB20,000 yuan per
                unit of
                area over 2 months, RMB 30,000yuan per unit of area over 6 months.
                And
                deal with in term of related laws in the instance of delaying over
                1
                year.

            

    

    
      	 	
              2.

            	
              Party
                B could submit postpone application 15 days before, and the max delay
                term
                is 3 months. Party B is irresponsible with Party A’s approval, Party B
                afford the breach responsibility according to Section 7.04.1 after
                the
                postpone term expiration.

            

    

    
      	 	
              3.

            	
              Party
                A withdraw the land in the instance of Party B delay 2 years, all
                the paid
                fare is considered as compensation to Party A. Except the instance
                of
                force majeure and government
                behavior.

            

    

    
      	 	
              4.

            	
              Party
                A take the 3‰ of total transfer fare per day until Party B implementation
                the section 3.07.

            

    

    

    Section
      7.05 Party A shall be responsible for not provide the eligible land, and shall
      compensate Party B’s Loss.

    

    Section
      7.06 Party B shall be responsible for illegal operation, and this agreement
      shall end automatically. 

     

    Article
      VIII Governing Law

    

    Section
      8.01 This agreement shall be construed in accordance with and governed by Laws
      of People’s republic of China.

    

    Section
      8.02 All the dispute which not solved by both parties hereto shall be litigated
      to court.

     

    Article
      IX Miscellaneous

    

    Section
      9.01 This agreement shall be effective after both parties hereto
      subscription.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Section
      9.02 Party B’s responsibilities shall transfer to registered company herein
      Section 3.05. There are 6 copies, Party A hold 3 copies, Party B hold 2 copies,
      Fuqing National Land Bureau keep 1 copy.

    

    Section
      9.03 This agreement subscripted at Fuzhou Jiangyin Industry District in Dec.
      25th,
      2006.

    

    Section
      9.04 This agreement maybe amended as appendix by both parties
      herein.

    

    IN
      WITNESS WHEREOF, the parties undersigned have executed this Agreement as of
      the
      date first written above.

    

    Party
      A:
      Fuzhou City Jiangyin Industry District Management Committee (Seal)

    Legal
      Representaive: You Meixing (seal)    /s/ You
      Meixing

    

    Tel:
      0591-8596 6275    Fax: 0591- 8596
      1665    P.C.:350309

    Account
      Bank: Jiangyin office of Fuqing Branch of China Bank

    Account
      No.: 8115 0879 3508 0910 01

    Account
      Name: Fuzhou City Jiangyin Industry District Management Committee

    

    Party
      B:
      Fujian Zhongde Technology Co., Ltd. (seal)

    Legal
      Representative: Ou Taiming (signature)    /s/ Ou
      Taiming

    Tel:
      0591-    Fax: 0591-    P.C.:

    Account
      Bank:

    Account
      No.: 

    Account
      Name: 

    

    Date:
      Dec. 25th,
      2006SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of January 16, 2007 among CenterStaging Corp., a Delaware corporation
      (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

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

     

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

     

     

    ARTICLE
      I.  

    DEFINITIONS

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $.0001 per share, and any other
      class
      of securities into which such securities may hereafter be reclassified or
      changed into.

     

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

     

    “Company
      Counsel”
means
      Troy & Gould Professional Corporation, with offices located at 1801 Century
      Park East, Los Angeles, California 90067.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Debentures.

     

    “Debentures”
means,
      the 10% Convertible Debentures due, subject to the terms therein, December
      31,
      2008, issued by the Company to the Purchasers hereunder, in the form of
Exhibit
      A
      attached
      hereto.

     

    “Disclosure
      Schedules”
shall
      have the meaning ascribed to such term in Section 3.1.

     

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

     

    “Escrow
      Agent”
shall
      mean Signature Bank, a New York State chartered bank and having an office at
      261
      Madison Avenue, New York, New York 10016.

     

    “Escrow
      Agreement”
shall
      mean the escrow agreement entered into prior to the date hereof, by and among
      the Company, the, HPC and the Escrow Agent pursuant to which the Purchasers
      shall deposit Subscription Amounts with the Escrow Agent to be applied to the
      transactions contemplated hereunder.

     

    “Evaluation
      Date”
shall
      have the meaning ascribed to such term in Section 3.1(r). 

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Exempt
      Issuance”
means
      the issuance of (a) options to employees, officers or directors of the Company
      pursuant to any option plan duly adopted for such purpose by the Board of
      Directors of the Company provided that not more than 2,200,000 shares (subject
      to adjustment for forward and reverse stock splits, stock dividends,
      recapitalizations and the like that occur after the date hereof) underlying
      such
      options vest during any 12 month period commencing as of Closing Date and the
      issuance of Common Stock upon exercise of such options, (b) up to, in the
      aggregate during any 12 month period (commencing as of the Closing Date),
      1,000,000 shares of Common Stock (subject to adjustment for forward and reverse
      stock splits, stock dividends, recapitalizations and the like that occur after
      the date hereof), issued (i) in lieu of cash payment for goods or services,
      (ii)
      in consideration for the extension of the maturity or modification of any
      Indebtedness outstanding on the date hereof as set forth on Schedule
      3.1(aa)
      or (iii)
      upon the settlement of litigation or claims, (c) warrants or options to purchase
      up to, in the aggregate during any 12 month period (commencing as of the Closing
      Date), 2,000,000 shares of Common Stock (subject to adjustment for forward
      and
      reverse stock splits, stock dividends, recapitalizations and the like that
      occur
      after the date hereof) with an effective per share cash purchase price
      thereunder of not less than the greater than $1.10 or the VWAP on the date
      of
      issuance (subject to adjustment for forward and reverse stock splits, stock
      dividends, recapitalizations and the like that occur after the date hereof)
      issued, and the issuance of Common Stock upon exercise of such warrants or
      options, (i) in lieu of cash payment for goods or services, (ii) in
      consideration for the extension of the maturity or modification of any
      Indebtedness outstanding on the date hereof as set forth on Schedule
      3.1(aa)
      or (iii)
      upon the settlement of litigation or claims (for purposes of clarification
      any
      issuances under clause (b) or (c) herein shall not include a transaction in
      which the Company is in any manner raising capital or to an entity whose primary
      business is investing in securities and any subsequent adjustments or resets,
      other than as set forth above, to pricing shall not be deemed exempt and the
      exercise of any warrants or options covered by clause (c) shall not be applied
      against the exemption under clause (b)), (d) securities upon the exercise or
      exchange of or conversion of any Securities issued hereunder and/or other
      securities exercisable or exchangeable for or convertible into shares of Common
      Stock issued and outstanding on the date of this Agreement, provided that such
      securities have not been amended since the date of this Agreement to increase
      the number of such securities or to decrease the exercise, exchange or
      conversion price of such securities (other than up to an additional 300,000
      shares of Common Stock (subject to adjustment for forward and reverse stock
      splits, stock dividends, recapitalizations and the like that occur after the
      date hereof) issuable to Montage Partners III as a result of a repricing of
      its
      Common Stock Equivalent provided that the conversion price thereunder is not
      less than $1.00 (subject to adjustment for forward and reverse stock splits,
      stock dividends, recapitalizations and the like that occur after the date
      hereof)), (e) up to 3,600,000 shares of Common Stock issuable pursuant to
      written contractual arrangements existing on the date of this Agreement, with
      no
      registration rights, at an effective per share cash purchase price of not less
      than $1.50 (subject to adjustment for forward and reverse stock splits, stock
      dividends, recapitalizations and the like that occur after the date hereof
      and
      provided that any other subsequent adjustments or resets to the price shall
      not
      be exempt hereunder), provided such contractual arrangements have not been
      amended since the date of this Agreement to lower the purchase price of such
      Common Stock or increase the number of shares of Common Stock issuable
      thereunder and (f) securities issued pursuant to acquisitions or strategic
      transactions approved by a majority of the disinterested directors of the
      Company (i.e., directors that do not have an interest in the counter-party
      in
      any such acquisition or strategic transaction), provided that any such issuance
      shall only be to a Person which is, itself or through its subsidiaries, an
      operating company in a business synergistic with the business of the Company
      and
      in which the Company receives benefits in addition to the investment of funds,
      but shall not include a transaction in which the Company is issuing securities
      primarily for the purpose of raising capital or to an entity whose primary
      business is investing in securities.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “FWS”
means
      Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
      Suite 2620, New York, New York 10170-0002.

     

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

     

    “HPC”
means
      HPC Capital Management Corp., a Georgia corporation. 

     

    “Indebtedness”
shall
      have the meaning ascribed to such term in Section 3.1(aa).

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

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

     

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

     

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

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

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

     

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

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

     

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

     

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

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all Warrants and Debentures (including Underlying Shares issuable
      as
      payment of interest), ignoring any conversion or exercise limits set forth
      therein, and assuming that the Conversion Price is at all times on and after
      the
      date of determination 75% of the then Conversion Price on the Trading Day
      immediately prior to the date of determination.

     

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

     

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

     

    “Securities”
means
      the Debentures, the Warrants and the Underlying Shares.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated hereunder.

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but shall not be deemed to include the location and/or reservation of
      borrowable shares of Common Stock). 

     

    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Debentures and Warrants purchased hereunder as specified below such
      Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount”, in United States dollars and in immediately available
      funds.

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

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

     

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

     

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
      the Escrow Agreement, all schedules and exhibits hereto and thereto, and any
      other documents or agreements executed in connection with the transactions
      contemplated hereunder.

     

    “Transfer
      Agent”
means
      American Registrar & Transfer Co., with a mailing address of 342 East 900
      South, Salt Lake City, Utah 84111, and a facsimile number of (801) 363-9066,
      and
      any successor transfer agent of the Company.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Debentures, the Warrant Shares, and shares of Common Stock issued and
      issuable in lieu of the cash payment of interest on the Debentures in accordance
      with the terms of the Debentures.

     

    “Variable
      Rate Transaction”
      shall
      have the meaning ascribed to such term in Section 4.14(b).

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “Warrants”
means
      collectively the Common Stock purchase warrants delivered to the Purchasers
      at
      the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
      be
      exercisable immediately and have a term of exercise expiring December 31, 2009,
      in the form of Exhibit C
      attached
      hereto.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issued and issuable upon exercise of the
      Warrants.

     

    
      ARTICLE
        II.

      PURCHASE
        AND SALE

       

      2.1 Closing.
        On the
        Closing Date, upon the terms and subject to the conditions set forth herein,
        substantially concurrent with the execution and delivery of this Agreement
        by
        the parties hereto, the Company agrees to sell, and each Purchaser, severally
        and not jointly, agrees to purchase up to an aggregate of $3,000,000 in
        principal amount of the Debentures. Each Purchaser shall deliver to the Company,
        via wire transfer or a certified check, immediately available funds equal
        to its
        Subscription Amount and the Company shall deliver to each Purchaser its
        respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),
        and the Company and each Purchaser shall deliver the other items set forth
        in
        Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions
        set
        forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of
        FWS or
        such other location as the parties shall mutually agree.

       

      2.2  Deliveries

       

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

       

      
        (i)
this
          Agreement duly executed by the Company;

         

      

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

       

      (iii) a
        Debenture with a principal amount equal to such Purchaser’s Subscription Amount,
        registered in the name of such Purchaser;

       

      (iv) a
        Warrant
        registered in the name of such Purchaser to purchase up to a number of shares
        of
        Common Stock equal to 100% of such Purchaser’s Subscription Amount divided by
        $1.00, with an exercise price equal to $1.10,
        subject
        to adjustment therein; 

       

      (v) a
        warrant
        registered in the name of HPC Capital Management Corp., or its designees,
        to
        purchase up to a number of shares of Common Stock equal to 50,000 shares
        per $1
        million of Subscription Amounts from Purchasers hereunder, which warrant
        shall
        be in substantially in the form of the Warrants, except that such warrants
        shall
        expire on the last calendar day of the month that is the five year anniversary
        of the Closing Date, and such warrants shall have an exercise price equal
        to
        $1.00 subject to adjustment therein (such Warrants, the “Placement
        Agent Warrant(s)”);
        and

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (vi) the
        Registration Rights Agreement duly executed by the Company.

       

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

       

      
        (i)
this
          Agreement duly executed by such Purchaser;

         

      

      (ii) such
        Purchaser’s Subscription Amount by wire transfer to the Escrow Agent;
        and

       

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

       

      2.3 
Closing
        Conditions. 

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      (v) there
        shall be at least $3,000,000 of Subscription Amounts, in the aggregate;
        and

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

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

       

       

      ARTICLE
        III.

      REPRESENTATIONS
        AND WARRANTIES

       

      3.1 Representations
        and Warranties of the Company.
        Except
        as set forth under the corresponding section of the disclosure schedules
        delivered to the Purchasers concurrently herewith (the “Disclosure
        Schedules”),
        which
        Disclosure Schedules shall be deemed a part hereof and to qualify any
        representation or warranty otherwise made herein to the extent of such
        disclosure, the Company hereby makes the following representations and
        warranties to each Purchaser:

       

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

       

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

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

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

       

      (f) Issuance
        of the Securities.
        The
        Securities are duly authorized and, when issued and paid for in accordance
        with
        the applicable Transaction Documents, will be duly and validly issued, fully
        paid and nonassessable, free and clear of all Liens imposed by the Company
        other
        than restrictions on transfer provided for in the Transaction Documents.
        The
        Underlying Shares, when issued in accordance with the terms of the Transaction
        Documents, will be validly issued, fully paid and nonassessable, free and
        clear
        of all Liens imposed by the Company. The Company has reserved from its duly
        authorized capital stock a number of shares of Common Stock for issuance
        of the
        Underlying Shares at least equal to the Required Minimum on the date hereof.
        

       

      (g) Capitalization.
        The
        capitalization of the Company is as set forth on Section 3.1(g) of the
        Disclosure Schedule. The Company has not issued any capital stock since its
        most
        recently filed periodic report under the Exchange Act,
        other
        than pursuant to the exercise of employee stock options under the Company’s
        stock option plans, the issuance of shares of Common Stock to employees pursuant
        to the Company’s employee stock purchase plan and pursuant to the conversion or
        exercise of Common Stock Equivalents outstanding as of the date of the most
        recently filed periodic report under the Exchange Act. No Person has any
        right
        of first refusal, preemptive right, right of participation, or any similar
        right
        to participate in the transactions contemplated by the Transaction Documents.
        Except as a result of the purchase and sale of the Securities, there are
        no
        outstanding options, warrants, scrip rights to subscribe to, calls or
        commitments of any character whatsoever relating to, or securities, rights
        or
        obligations convertible into or exercisable or exchangeable for, or giving
        any
        Person any right to subscribe for or acquire, any shares of Common Stock,
        or
        contracts, commitments, understandings or arrangements by which the Company
        or
        any Subsidiary is or may become bound to issue additional shares of Common
        Stock
        or Common Stock Equivalents. The issuance and sale of the Securities will
        not
        obligate the Company to issue shares of Common Stock or other securities
        to any
        Person (other than the Purchasers) and will not result in a right of any
        holder
        of Company securities to adjust the exercise, conversion, exchange or reset
        price under any of such securities. All of the outstanding shares of capital
        stock of the Company are validly issued, fully paid and nonassessable, have
        been
        issued in compliance with all federal and state securities laws, and none
        of
        such outstanding shares was issued in violation of any preemptive rights
        or
        similar rights to subscribe for or purchase securities. No further approval
        or
        authorization of any stockholder, the Board of Directors of the Company or
        others is required for the issuance and sale of the Securities. There are
        no
        stockholders agreements, voting agreements or other similar agreements with
        respect to the Company’s capital stock to which the Company is a party or, to
        the knowledge of the Company, between or among any of the Company’s
        stockholders.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (h) SEC
        Reports; Financial Statements.
        The
        Company has filed all reports, schedules, forms, statements and other documents
        required to be filed by the Company under the Securities Act and the Exchange
        Act, including pursuant to Section 13(a) or 15(d) thereof, since August 17,
        2005
        (the foregoing materials, including the exhibits thereto and documents
        incorporated by reference therein, being collectively referred to herein
        as the
“SEC
        Reports”)
        on a
        timely basis or has received a valid extension of such time of filing and
        has
        filed any such SEC Reports prior to the expiration of any such extension.
        As of
        their respective dates, the SEC Reports complied in all material respects
        with
        the requirements of the Securities Act and the Exchange Act, as applicable,
        and
        none of the SEC Reports, when filed, contained any untrue statement of a
        material fact or omitted to state a material fact required to be stated therein
        or necessary in order to make the statements therein, in the light of the
        circumstances under which they were made, not misleading. The financial
        statements of the Company included in the SEC Reports comply in all material
        respects with applicable accounting requirements and the rules and regulations
        of the Commission with respect thereto as in effect at the time of filing.
        Such
        financial statements have been prepared in accordance with United States
        generally accepted accounting principles applied on a consistent basis during
        the periods involved (“GAAP”),
        except as may be otherwise specified in such financial statements or the
        notes
        thereto and except that unaudited financial statements may not contain all
        footnotes required by GAAP, and fairly present in all material respects the
        financial position of the Company and its consolidated Subsidiaries as of
        and
        for the dates thereof and the results of operations and cash flows for the
        periods then ended, subject, in the case of unaudited statements, to normal,
        immaterial, year-end audit adjustments.

       

      (i) Material
        Changes.
        Since
        the date of the latest audited financial statements included within the SEC
        Reports, except as specifically disclosed in a subsequent SEC Report filed
        prior
        to the date hereof, (i) there has been no event, occurrence or development
        that
        has had or that could reasonably be expected to result in a Material Adverse
        Effect, (ii) the Company has not incurred any liabilities (contingent or
        otherwise) other than (A) trade payables and accrued expenses incurred in
        the
        ordinary course of business consistent with past practice and (B) liabilities
        not required to be reflected in the Company’s financial statements pursuant to
        GAAP or disclosed in filings made with the Commission, (iii) the Company
        has not
        altered its method of accounting, (iv) the Company has not declared or made
        any
        dividend or distribution of cash or other property to its stockholders or
        purchased, redeemed or made any agreements to purchase or redeem any shares
        of
        its capital stock and (v) the Company has not issued any equity securities
        to
        any officer, director or Affiliate, except pursuant to existing Company stock
        option plans. The Company does not have pending before the Commission any
        request for confidential treatment of information. Except for the issuance
        of
        the Securities contemplated by this Agreement, no event, liability or
        development has occurred or exists with respect to the Company or its
        Subsidiaries or their respective business, properties, operations or financial
        condition, that would be required to be disclosed by the Company under
        applicable securities laws at the time this representation is made that has
        not
        been publicly disclosed at least one Trading Day prior to the date that this
        representation is made.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (j) Litigation.
        There
        is no action, suit, inquiry, notice of violation, proceeding or investigation
        pending or, to the knowledge of the Company, threatened against or affecting
        the
        Company, any Subsidiary or any of their respective properties before or by
        any
        court, arbitrator, governmental or administrative agency or regulatory authority
        (federal, state, county, local or foreign) (collectively, an “Action”)
        which
        (i) adversely affects or challenges the legality, validity or enforceability
        of
        any of the Transaction Documents or the Securities or (ii) could, if there
        were
        an unfavorable decision, have or reasonably be expected to result in a Material
        Adverse Effect. Neither the Company nor any Subsidiary, nor any director
        or
        executive officer thereof that has served as an executive officer or director
        of
        the Company at any time after September 15, 2005, is or has been the subject
        of
        any Action involving a claim of violation of or liability under federal or
        state
        securities laws or a claim of breach of fiduciary duty. There has not been,
        and
        to the knowledge of the Company, there is not pending or contemplated, any
        investigation by the Commission involving the Company or any current or former
        director or officer of the Company. The Commission has not issued any stop
        order
        or other order suspending the effectiveness of any registration statement
        filed
        by the Company or any Subsidiary under the Exchange Act or the Securities
        Act.

       

      (k) Labor
        Relations.
        No
        material labor dispute exists or, to the knowledge of the Company, is imminent
        with respect to any of the employees of the Company which could reasonably
        be
        expected to result in a Material Adverse Effect. None of the Company’s or its
        Subsidiaries’ employees is a member of a union that relates to such employee’s
        relationship with the Company, and neither the Company or any of its
        Subsidiaries is a party to a collective bargaining agreement, and the Company
        and its Subsidiaries believe that their relationships with their employees
        are
        good. No executive officer, to the knowledge of the Company, is, or is now
        expected to be, in violation of any material term of any employment contract,
        confidentiality, disclosure or proprietary information agreement or
        non-competition agreement, or any other contract or agreement or any restrictive
        covenant, and the continued employment of each such executive officer does
        not
        subject the Company or any of its Subsidiaries to any liability with respect
        to
        any of the foregoing matters. The Company and its Subsidiaries are in compliance
        with all U.S. federal, state, local and foreign laws and regulations relating
        to
        employment and employment practices, terms and conditions of employment and
        wages and hours, except where the failure to be in compliance could not,
        individually or in the aggregate, reasonably be expected to have a Material
        Adverse Effect.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      (o) Patents
        and Trademarks.
        The
        Company and the Subsidiaries have, or have rights to use, all patents, patent
        applications, trademarks, trademark applications, service marks, trade names,
        trade secrets, inventions, copyrights, licenses and other intellectual property
        rights and similar rights necessary or material for use in connection with
        their
        respective businesses as described in the SEC Reports and which the failure
        to
        so have could have a Material Adverse Effect (collectively, the “Intellectual
        Property Rights”).
        Neither the Company nor any Subsidiary has received a notice (written or
        otherwise) that the Intellectual Property Rights used by the Company or any
        Subsidiary violates or infringes upon the rights of any Person. To the knowledge
        of the Company, all such Intellectual Property Rights are enforceable and
        there
        is no existing infringement by another Person of any of the Intellectual
        Property Rights. The Company and its Subsidiaries have taken reasonable security
        measures to protect the secrecy, confidentiality and value of all of their
        intellectual properties, except where failure to do so could not, individually
        or in the aggregate, reasonably be expect to have a Material Adverse
        Effect.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (p) Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary in the businesses in which the Company and the Subsidiaries
        are
        engaged, including, but not limited to, directors and officers insurance
        coverage at least equal to the aggregate Subscription Amount. Neither the
        Company nor any Subsidiary has any reason to believe that it will not be
        able to
        renew its existing insurance coverage as and when such coverage expires or
        to
        obtain similar coverage from similar insurers as may be necessary to continue
        its business without a significant increase in cost.

       

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

       

      (r) Sarbanes-Oxley;
        Internal Accounting Controls.
        The
        Company is in material compliance with all provisions of the Sarbanes-Oxley
        Act
        of 2002 which are applicable to it as of the Closing Date. The
        Company and the Subsidiaries maintain a system of internal accounting controls
        sufficient to provide reasonable assurance that (i) transactions are executed
        in
        accordance with management’s general or specific authorizations, (ii)
        transactions are recorded as necessary to permit preparation of financial
        statements in conformity with GAAP and to maintain asset accountability,
        (iii)
        access to assets is permitted only in accordance with management’s general or
        specific authorization, and (iv) the recorded accountability for assets is
        compared with the existing assets at reasonable intervals and appropriate
        action
        is taken with respect to any differences. The Company has established disclosure
        controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
        15d-15(e)) for the Company and designed such disclosure controls and procedures
        to ensure that information required to be disclosed by the Company in the
        reports it files or submits under the Exchange Act is recorded, processed,
        summarized and reported, within the time periods specified in the Commission’s
        rules and forms. The Company’s certifying officers have evaluated the
        effectiveness of the Company’s disclosure controls and procedures as of the end
        of the period covered by the Company’s most recently filed periodic report under
        the Exchange Act (such date, the “Evaluation
        Date”).
        The
        Company presented in its most recently filed periodic report under the Exchange
        Act the conclusions of the certifying officers about the effectiveness of
        the
        disclosure controls and procedures based on their evaluations as of the
        Evaluation Date. Since the Evaluation Date, there have been no changes in
        the
        Company’s internal control over financial reporting (as such term is defined in
        the Exchange Act) that has materially affected, or is reasonably likely to
        materially affect, the Company’s internal control over financial
        reporting.

       

      
        
          
          

        

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

       

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

       

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

       

      (v) Registration
        Rights.
        Other
        than each of the Purchasers, no Person has any right to cause the Company
        to
        effect the registration under the Securities Act of any securities of the
        Company.

       

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

       

      
        
          
          

        

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

       

      (y) Disclosure.
        All
        disclosure furnished by or on behalf of the Company to the Purchasers regarding
        the Company, its business and the transactions contemplated hereby, including
        the Disclosure Schedules to this Agreement, is true and correct and does
        not
        contain any untrue statement of a material fact or omit to state any material
        fact necessary in order to make the statements made therein, in light of
        the
        circumstances under which they were made, not misleading. The press releases
        disseminated by the Company during the twelve months preceding the date of
        this
        Agreement taken as a whole do not contain any untrue statement of a material
        fact or omit to state a material fact required to be stated therein or necessary
        in order to make the statements, in light of the circumstances under which
        they
        were made and when made, not misleading. The Company acknowledges and agrees
        that no Purchaser makes or has made any representations or warranties with
        respect to the transactions contemplated hereby other than those specifically
        set forth in Section 3.2 hereof.

       

      (z) No
        Integrated Offering.
        Assuming
        the accuracy of the Purchasers’ representations and warranties set forth in
        Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
        acting on its or their behalf has, directly or indirectly, made any offers
        or
        sales of any security or solicited any offers to buy any security, under
        circumstances that would cause this offering of the Securities to be integrated
        with prior offerings by the Company in a manner that would require the
        registration under the Securities Act of the sale of the Securities to the
        Purchasers or that would be integrated with the offer or sale of the Securities
        for purposes of any applicable shareholder approval provision of any Trading
        Market on which any of the securities of the Company are listed or
        designated.

       

      (aa) Solvency.
        The
        Company does not intend to incur debts beyond its ability to pay such debts
        as
        they mature (taking into account the timing and amounts of cash to be payable
        on
        or in respect of its debt). The Company has no knowledge of any facts or
        circumstances which lead it to believe that it will file for reorganization
        or
        liquidation under the bankruptcy or reorganization laws of any jurisdiction
        within one year from the Closing Date. Schedule
        3.1(aa)
        sets
        forth as of the dates thereof all outstanding secured and unsecured Indebtedness
        of the Company or any Subsidiary, or for which the Company or any Subsidiary
        has
        commitments. For the purposes of this Agreement, “Indebtedness”
means
        (a) any liabilities for borrowed money or amounts owed in excess of $50,000
        (other than trade accounts payable incurred in the ordinary course of business),
        (b) all guaranties, endorsements and other contingent obligations in respect
        of
        Indebtedness of others, whether or not the same are or should be reflected
        in
        the Company’s balance sheet (or the notes thereto), except guaranties by
        endorsement of negotiable instruments for deposit or collection or similar
        transactions in the ordinary course of business; and (c) the present value
        of
        any lease payments
        in excess of $50,000 due under leases required to be capitalized in accordance
        with GAAP. Neither
        the Company nor any Subsidiary is in default with respect to any
        Indebtedness.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

      (ee) Accountants.
        The
        Company’s accounting firm is Stonefield Josephson, Inc. To the knowledge and
        belief of the Company, such accounting firm (i) is a registered public
        accounting firm as required by the Exchange Act and (ii) shall express its
        opinion with respect to the financial statements to be included in the Company’s
        Annual Report on Form 10-KSB for the year ending June 30, 2007.

       

      (ff) Seniority.
        As of
        the Closing Date, no Indebtedness or other claim against the Company is senior
        to the Debentures in right of payment, whether with respect to interest or
        upon
        liquidation or dissolution, or otherwise, other than indebtedness secured
        by
        purchase money security interests (which is senior only as to underlying
        assets
        covered thereby) and capital lease obligations (which is senior only as to
        the
        property covered thereby).

       

      
        
          
          

        

        
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      (gg) 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 and, except as set forth on
        Schedule 3.1(gg), the Company is current with respect to any fees owed to
        its
        accountants and lawyers.

       

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

       

      (ii) Acknowledgment
        Regarding Purchasers’ Trading Activity.
        Anything in this Agreement or elsewhere herein to the contrary notwithstanding
        (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
        by the Company (i) that none of the Purchasers have been asked to agree,
        nor has
        any Purchaser agreed, to desist from purchasing or selling, long and/or short,
        securities of the Company, or “derivative” securities based on securities issued
        by the Company or to hold the Securities for any specified term; (ii) that
        past
        or future open market or other transactions by any Purchaser, including Short
        Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
        placement transactions, may negatively impact the market price of the Company’s
        publicly-traded securities; (iii) that any Purchaser, and counter-parties
        in
“derivative” transactions to which any such Purchaser is a party, directly or
        indirectly, presently may have a “short” position in the Common Stock, and (iv)
        that each Purchaser shall not be deemed to have any affiliation with or control
        over any arm’s length counter-party in any “derivative” transaction.
The
        Company further understands and acknowledges that (a) one or more Purchasers
        may
        engage in hedging activities at various times during the period that the
        Securities are outstanding, including, without limitation, during the periods
        that the value of the Underlying Shares deliverable with respect to Securities
        are being determined and (b) such hedging activities (if any) could reduce
        the
        value of the existing stockholders' equity interests in the Company at and
        after
        the time that the hedging activities are being conducted.  The Company
        acknowledges that such aforementioned hedging activities do not constitute
        a
        breach of any of the Transaction Documents.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      (jj) Regulation
        M Compliance. 
        The Company has not, and to its knowledge no one acting on its behalf has,
        (i)
        taken, directly or indirectly, any action designed to cause or to result
        in the
        stabilization or manipulation of the price of any security of the Company
        to
        facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
        purchased, or paid any compensation for soliciting purchases of, any of the
        securities of the Company or (iii) paid or agreed to pay to any Person any
        compensation for soliciting another to purchase any other securities of the
        Company, other than, in the case of clauses (ii) and (iii), compensation
        paid to
        the Company’s placement agent in connection with the placement of the
        Securities.

       

      

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

       

      (f) Short
        Sales and Confidentiality Prior To The Date Hereof.
        Other
        than the transaction contemplated hereunder, such Purchaser has not directly
        or
        indirectly, nor has any Person acting on behalf of or pursuant to any
        understanding with such Purchaser, executed any transaction, including Short
        Sales, in the securities of the Company during the period commencing
        from
        the time
        that such Purchaser first received a term sheet (written or oral) from the
        Company or any other Person setting forth the material terms of the transactions
        contemplated hereunder until the date hereof (“Discussion
        Time”).
        Notwithstanding
        the foregoing, in the case of a Purchaser that is a multi-managed investment
        vehicle whereby separate portfolio managers manage separate portions of such
        Purchaser's assets and the portfolio managers have no direct knowledge of
        the
        investment decisions made by the portfolio managers managing other portions
        of
        such Purchaser's assets, the representation set forth above shall only apply
        with respect to the portion of assets managed by the portfolio manager that
        made
        the investment decision to purchase the Securities covered by this Agreement.
        Other than to other Persons party to this Agreement, such Purchaser has
        maintained the confidentiality of all disclosures made to it in connection
        with
        this transaction (including the existence and terms of this
        transaction).

       

       

      ARTICLE
        IV.

      OTHER
        AGREEMENTS OF THE PARTIES

       

      4.1 Transfer
        Restrictions.

       

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

       

      
        
          
          

        

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

       

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

       

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

       

      
        
          
          

        

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

      

      (d) In
        addition to such Purchaser’s other available remedies, the Company shall pay to
        a Purchaser, in cash, as partial liquidated damages and not as a penalty,
        for
        each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
        the
        date such Securities are submitted to the Transfer Agent) delivered for removal
        of the restrictive legend and subject to Section 4.1(c), $10 per Trading
        Day
        (increasing to $20 per Trading Day 5 Trading Days after such damages have
        begun
        to accrue) for each Trading Day after the second Trading Day following the
        Legend Removal Date until such certificate is delivered without a legend.
        Nothing herein shall limit such Purchaser’s right to pursue actual damages for
        the Company’s failure to deliver certificates representing any Securities as
        required by the Transaction Documents, and such Purchaser shall have the
        right
        to pursue all remedies available to it at law or in equity including, without
        limitation, a decree of specific performance and/or injunctive
        relief.

       

      
        
          
          

        

        
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      (e) Each
        Purchaser, severally and not jointly with the other Purchasers, agrees that
        the
        removal of the restrictive legend from certificates representing Underlying
        Shares as set forth in this Section 4.1 is predicated upon the Company’s
        reliance that the Purchaser will sell any Underlying Shares pursuant to either
        the registration requirements of the Securities Act, including any applicable
        prospectus delivery requirements, or an exemption therefrom, and that if
        Securities are sold pursuant to a Registration Statement, they will be sold
        in
        compliance with the plan of distribution set forth therein.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
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      4.6 Securities
        Laws Disclosure; Publicity.
        The
        Company shall, by 8:30 a.m. New York City time on the 4th
        Trading
        Day following the date hereof, issue a Current Report on Form 8-K disclosing
        the
        material terms of the transactions contemplated hereby and attaching the
        Transaction Documents thereto. Except pursuant to Section 4.8, the Company
        and
        each Purchaser shall consult with each other in issuing any other press releases
        with respect to the transactions contemplated hereby, and neither the Company
        nor any Purchaser shall issue any such press release or otherwise make any
        such
        public statement without the prior consent of the Company, with respect to
        any
        press release of any Purchaser, or without the prior consent of each Purchaser,
        with respect to any press release of the Company, which consent shall not
        unreasonably be withheld or delayed, except if such disclosure is required
        by
        law, in which case the disclosing party shall promptly provide the other
        party
        with prior notice of such public statement or communication. Notwithstanding
        the
        foregoing, the Company shall not publicly disclose the name of any Purchaser,
        or
        include the name of any Purchaser in any filing with the Commission or any
        regulatory agency or Trading Market, without the prior written consent of
        such
        Purchaser, except (i) as required by federal securities law in connection
        with
        (A) any registration statement contemplated by the Registration Rights Agreement
        and (B) the filing of final Transaction Documents (including signature pages
        thereto) with the Commission and (ii) to the extent such disclosure is required
        by law or Trading Market regulations, in which case the Company shall provide
        the Purchasers with prior notice of such disclosure permitted under this
        subclause (ii).

       

      4.7 Shareholder
        Rights Plan.
        No
        claim will be made or enforced by the Company or, with the consent of the
        Company, any other Person, that any Purchaser is an “Acquiring Person” under any
        control share acquisition, business combination, poison pill (including any
        distribution under a rights agreement) or similar anti-takeover plan or
        arrangement in effect or hereafter adopted by the Company, or that any Purchaser
        could be deemed to trigger the provisions of any such plan or arrangement,
        by
        virtue of receiving Securities under the Transaction Documents or under any
        other agreement between the Company and the Purchasers.

       

      4.8 Non-Public
        Information.
        On or
        prior to the earlier of the Filing Date of the initial Registration Statement
        (as defined in the Registration Rights Agreement) and the date the initial
        Registration Statement is filed (the “Required
        Disclosure Date”),
        the
        Company shall publicly disclose (in a widely disseminated press release or
        SEC
        Filing) any information disclosed to a Purchaser prior to the Required
        Disclosure Date that the Company or any such Purchaser reasonably believes
        constitutes or might constitute material, nonpublic information as of such
        date.
        On the Required Disclosure Date, the Company shall provide each Purchaser
        written confirmation that it has complied with the foregoing covenant. Except
        with respect to the material terms and conditions of the transactions
        contemplated by the Transaction Documents, the Company covenants and agrees
        that
        neither it nor any other Person acting on its behalf will provide any Purchaser
        or its agents or counsel with any information that the Company believes
        constitutes material non-public information, unless prior thereto such Purchaser
        shall have executed a written agreement regarding the confidentiality and
        use of
        such information. In the event of a breach of this Section 4.8 by the Company,
        or any of its Subsidiaries, or any of its or their respective officers,
        directors, employees and agents, in addition to any other remedy provided
        herein
        or in the Transaction Documents, the Company shall make a public disclosure,
        in
        the form of a press release, public advertisement or otherwise, of such
        material, nonpublic information promptly following written notice of such
        breach
        from a Purchaser. The Company understands and confirms that each Purchaser
        shall
        be relying on the foregoing representations in effecting transactions in
        securities of the Company.

       

      
        
          
          

        

        
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      4.9 Use
        of
        Proceeds.
        Without
        the prior written consent of the holders of a majority in principal amount
        of
        the Debentures then outstanding, the Company shall use the net proceeds from
        the
        sale of the Securities hereunder for working capital purposes (which shall
        be
        deemed to include operating expenses) and shall not use such proceeds for
        the
        satisfaction of any portion of the Company’s debt (other than monthly debt
        service on loans or capital leases in the amounts set forth on Schedule
        4.9
        attached
        hereto and up to $1,200,000 to pay interest on, retire or reduce the principal
        amount of other loans, of which no more than $500,000 may be paid to Affiliates
        of the Company), or to redeem any Common Stock or Common Stock Equivalents
        or to
        settle any outstanding litigation.

       

      4.10 Reimbursement.
        If any
        Purchaser becomes involved in any capacity in any Proceeding by or against
        any
        Person who is a stockholder of the Company (except as a result of sales,
        pledges, margin sales and similar transactions by such Purchaser to or with
        any
        other stockholder), solely as a result of such Purchaser’s acquisition of the
        Securities under this Agreement, the Company will reimburse such Purchaser
        for
        its reasonable legal and other expenses (including the cost of any investigation
        preparation and travel in connection therewith) incurred in connection
        therewith, as such expenses are incurred. The reimbursement obligations of
        the
        Company under this paragraph shall be in addition to any liability which
        the
        Company may otherwise have, shall extend upon the same terms and conditions
        to
        any Affiliates of the Purchasers who are actually named in such action,
        proceeding or investigation, and partners, directors, agents, employees and
        controlling persons (if any), as the case may be, of the Purchasers and any
        such
        Affiliate, and shall be binding upon and inure to the benefit of any successors,
        assigns, heirs and personal representatives of the Company, the Purchasers
        and
        any such Affiliate and any such Person. The Company also agrees that neither
        the
        Purchasers nor any such Affiliates, partners, directors, agents, employees
        or
        controlling persons shall have any liability to the Company or any Person
        asserting claims on behalf of or in right of the Company solely as a result
        of
        acquiring the Securities under this Agreement.

       

      4.11 Indemnification
        of Purchasers.
        Subject
        to the provisions of this Section 4.11, the Company will indemnify and hold
        each
        Purchaser and its directors, officers, shareholders, members, partners,
        employees and agents (and any other Persons with a functionally equivalent
        role
        of a Person holding such titles notwithstanding a lack of such title or any
        other title), each Person who controls such Purchaser (within the meaning
        of
        Section 15 of the Securities Act and Section 20 of the Exchange Act), and
        the
        directors, officers, shareholders, agents, members, partners or employees
        (and
        any other Persons with a functionally equivalent role of a Person holding
        such
        titles notwithstanding a lack of such title or any other title) of such
        controlling person (each, a “Purchaser
        Party”)
        harmless from any and all losses, liabilities, obligations, claims,
        contingencies, damages, costs and expenses, including all judgments, amounts
        paid in settlements, court costs and reasonable attorneys’ fees and costs of
        investigation that any such Purchaser Party may suffer or incur as a result
        of
        or relating to (a) any breach of any of the representations, warranties,
        covenants or agreements made by the Company in this Agreement or in the other
        Transaction Documents or (b) any action instituted against a Purchaser, or
        any
        of them or their respective Affiliates, by any stockholder of the Company
        who is
        not an Affiliate of such Purchaser, with respect to any of the transactions
        contemplated by the Transaction Documents (unless such action is based upon
        a
        breach of such Purchaser’s representations, warranties or covenants under the
        Transaction Documents or any agreements or understandings such Purchaser
        may
        have with any such stockholder or any violations by the Purchaser of state
        or
        federal securities laws or any conduct by such Purchaser which constitutes
        fraud, gross negligence, willful misconduct or malfeasance). If any action
        shall
        be brought against any Purchaser Party in respect of which indemnity may
        be
        sought pursuant to this Agreement, such Purchaser Party shall promptly notify
        the Company in writing, and the Company shall have the right to assume the
        defense thereof with counsel of its own choosing reasonably acceptable to
        the
        Purchaser Party. Any Purchaser Party shall have the right to employ separate
        counsel in any such action and participate in the defense thereof, but the
        fees
        and expenses of such counsel shall be at the expense of such Purchaser Party
        except to the extent that (i) the employment thereof has been specifically
        authorized by the Company in writing, (ii) the Company has failed after a
        reasonable period of time to assume such defense and to employ counsel or
        (iii)
        in such action there is, in the reasonable opinion of such separate counsel,
        a
        material conflict on any material issue between the position of the Company
        and
        the position of such Purchaser Party, in which case the Company shall be
        responsible for the reasonable fees and expenses of no more than one such
        separate counsel. The Company will not be liable to any Purchaser Party under
        this Agreement (i) for any settlement by a Purchaser Party effected without
        the
        Company’s prior written consent, which shall not be unreasonably withheld or
        delayed; or (ii) to the extent, but only to the extent that a loss, claim,
        damage or liability is attributable to any Purchaser Party’s breach of any of
        the representations, warranties, covenants or agreements made by such Purchaser
        Party in this Agreement or in the other Transaction Documents.

       

      
        
          
          

        

        
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      4.12 Reservation
        and Listing of Securities.

       

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

       

      (b) If,
        on
        any date, the number of authorized but unissued (and otherwise unreserved)
        shares of Common Stock is less than the Required Minimum on such date, then
        the
        Board of Directors of the Company shall use commercially reasonable efforts
        to
        amend the Company’s certificate or articles of incorporation to increase the
        number of authorized but unissued shares of Common Stock to at least the
        Required Minimum at such time, as soon as possible and in any event not later
        than the 75th day after such date.

       

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

       

      
        
          
          

        

        
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      4.13 Participation
        in Future Financing.
        

       

      (a) From
        the
        date hereof until December 31, 2008, upon any issuance by the Company or
        any of
        its Subsidiaries of Common Stock or Common Stock Equivalents in a bona-fide
        financing transaction (a “Subsequent
        Financing”),
        each
        Purchaser shall have the right to participate in up to an amount of the
        Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
        Maximum”)
        on the
        same terms, conditions and price provided for in the Subsequent
        Financing.

       

      (b) At
        least
        10 calendar days prior to the closing of the Subsequent Financing, the Company
        shall deliver to each Purchaser a written notice of its intention to effect
        a
        Subsequent Financing (“Pre-Notice”),
        which
        Pre-Notice shall ask such Purchaser if it wants to review the details of
        such
        financing (such additional notice, a “Subsequent
        Financing Notice”).
        Upon
        the request of a Purchaser, and only upon a request by such Purchaser, for
        a
        Subsequent Financing Notice, the Company shall promptly, but no later than
        1
        Trading Day after such request, deliver a Subsequent Financing Notice to
        such
        Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
        the proposed terms of such Subsequent Financing, the amount of proceeds intended
        to be raised thereunder and the Person or Persons in a bona-fide financing
        transaction through or with whom such Subsequent Financing is proposed to
        be
        effected and shall include a term sheet or similar document relating thereto
        as
        an attachment.

       

      (c) Any
        Purchaser desiring to participate in such Subsequent Financing must provide
        written notice to the Company by not later than 5:30 p.m. (New York City
        time)
        on the 10th
        calendar
        day after all of the Purchasers have received the Pre-Notice that the Purchaser
        is willing to participate in the Subsequent Financing, the amount of the
        Purchaser’s participation, and that the Purchaser has such funds ready, willing,
        and available for investment on the terms set forth in the Subsequent Financing
        Notice (for clarity, if a Subsequent Financing involves the issuance of
        non-convertible debt and Common Stock (or Common Stock Equivalents), a Purchaser
        willing to participate in such Subsequent Financing must indicate its
        willingness to participate in both the debt portion and equity portion of
        such
        Subsequent Financing). If the Company receives no notice from a Purchaser
        as of
        such 10th
        calendar
        day, such Purchaser shall be deemed to have notified the Company that it
        does
        not elect to participate. 

       

      (d) If
        by
        5:30 p.m. (New York City time) on the 10th
        calendar
        day after all of the Purchasers have received the Pre-Notice, notifications
        by
        the Purchasers of their willingness to participate in the Subsequent Financing
        (or to cause their designees to participate) is, in the aggregate, less than
        the
        total amount of the Subsequent Financing, then the Company may effect the
        remaining portion of such Subsequent Financing on the terms and with the
        Persons
        set forth in the Subsequent Financing Notice. 

       

      
        
          
          

        

        
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      (e) If
        by
        5:30 p.m. (New York City time) on the 10th
        calendar
        day after all of the Purchasers have received the Pre-Notice, the Company
        receives responses to a Subsequent Financing Notice from Purchasers seeking
        to
        purchase more than the aggregate amount of the Participation Maximum, each
        such
        Purchaser shall have the right to purchase their Pro Rata Portion (as defined
        below) of the Participation Maximum. “Pro
        Rata Portion”
is
        the
        ratio of (x) the Subscription Amount of Securities purchased on the Closing
        Date
        by a Purchaser participating under this Section 4.13 and (y) the sum of the
        aggregate Subscription Amounts of Securities purchased on the Closing Date
        by
        all Purchasers participating under this Section 4.13.

       

      (f) The
        Company must provide the Purchasers with a second Subsequent Financing Notice,
        and the Purchasers will again have the right of participation set forth above
        in
        this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
        Financing Notice is not consummated for any reason on the terms set forth
        in
        such Subsequent Financing Notice within 60 Trading Days after the date of
        the
        initial Subsequent Financing Notice.

       

      (g) Notwithstanding
        the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt
        Issuance, (ii) an underwritten public offering of Common Stock, or (iii)
        the issuance of Common Stock upon exercise or conversion of Common Stock
        Equivalents issued in a Subsequent Financing in which the Purchasers had
        the right to participate under Section 4.13 provided that the term of such
        Common Stock Equivalents are not amended or modified subsequent to the
        Purchasers being given the opportunity to participate hereunder. For the
        purposes of avoidance of doubt: (i) Common Stock issued for cash or other
        consideration upon exercise or conversion of Common Stock Equivalents in
        a
        non-financing transaction (e.g
        for
        services) shall not be deemed to be issued for financing purposes; and (ii)
        Common Stock and Common Stock Equivalents issued to underwriters, brokers,
        finders and others in connection with a financing transaction for services,
        and
        Common Stock issued on exercise or conversion of such Common Stock
        Equivalents, shall not be deemed to be issued for financing or in a
        financing transaction.

       

      4.14 Subsequent
        Equity Sales.
        

       

      (a) From
        the
        date hereof until 90 days after the Effective Date, neither the Company nor
        any
        Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
        provided,
        however,
        the 90
        day period set forth in this Section 4.14 shall be extended for the number
        of
        Trading Days during such period in which (i) trading in the Common Stock
        is
        suspended by any Trading Market, or (ii) following the Effective Date, the
        Registration Statement is not effective or the prospectus included in the
        Registration Statement may not be used by the Purchasers for the resale of
        the
        Underlying Shares. 

       

      (b) From
        the
        date hereof until such time that the Debentures are no longer outstanding,
        the
        Company shall be prohibited from effecting or entering into an agreement
        to
        effect any Subsequent Financing involving a Variable Rate Transaction. The
        term
“Variable
        Rate Transaction”
means
        a
        transaction in which the Company issues or sells (i) any debt or equity
        securities that are convertible into, exchangeable or exercisable for, or
        include the right to receive additional shares of Common Stock either (A)
        at a
        conversion, exercise or exchange rate or other price that is based upon and/or
        varies with the trading prices of or quotations for the shares of Common
        Stock
        at any time after the initial issuance of such debt or equity securities,
        or (B)
        with a conversion, exercise or exchange price that is subject to being reset
        at
        some future date after the initial issuance of such debt or equity security
        or
        upon the occurrence of specified or contingent events directly or indirectly
        related to the business of the Company or the market for the Common Stock
        or
        (ii) enters into any agreement, including, but not limited to, an equity
        line of
        credit, whereby the Company may sell securities at a future determined price.
        

       

      
        
          
          

        

        
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      (c) Notwithstanding
        the foregoing, Section 4.14(a) shall not apply in respect of (i) issuances
        of
        shares of Common Stock or Common Stock Equivalents for cash consideration
        that
        occur during the following periods: (x) commencing on the date hereof and
        ending
        on the date that is the earlier of (A) the Filing Date (as defined in the
        Registration Rights Agreement) of the initial Registration Statement and
        (B) the
        date the Registration Statement is initially filed with the Commission and
        (y)
        commencing on the Effective Date and ending on the 90th
        calendar
        day after the Effective Date, so long as such issuances do not require the
        filing of a registration statement with the Commission with respect to such
        the
        Common Stock (or Common Stock underlying such Common Stock Equivalents) under
        the Securities Act prior to 90 days after the Effective Date and (ii) an
        Exempt
        Issuance, except that no Variable Rate Transaction shall be an Exempt
        Issuance. 

       

      4.15 Equal
        Treatment of Purchasers.
        No
        consideration shall be offered or paid to any Person to amend or consent
        to a
        waiver or modification of any provision of any of the Transaction Documents
        unless the same consideration is also offered to all of the parties to the
        Transaction Documents. Further, the Company shall not make any payment of
        principal or interest on the Debentures in amounts which are disproportionate
        to
        the respective principal amounts outstanding on the Debentures at any applicable
        time. For clarification purposes, this provision constitutes a separate right
        granted to each Purchaser by the Company and negotiated separately by each
        Purchaser, and is intended for the Company to treat the Purchasers as a class
        and shall not in any way be construed as the Purchasers acting in concert
        or as
        a group with respect to the purchase, disposition or voting of Securities
        or
        otherwise.

       

      4.16 Short
        Sales and Confidentiality After The Date Hereof.
        Each
        Purchaser severally and not jointly with the other Purchasers covenants that
        neither it nor any Affiliate acting on its behalf or pursuant to any
        understanding with it will execute any Short Sales during the period commencing
        at the Discussion Time and ending at the time that the transactions contemplated
        by this Agreement are first publicly announced as described in Section 4.6.
        Each
        Purchaser, severally and not jointly with the other Purchasers, covenants
        that
        until such time as the transactions contemplated by this Agreement are publicly
        disclosed by the Company as described in Section 4.6, such Purchaser will
        maintain the confidentiality of all disclosures made to it in connection
        with
        this transaction (including the existence and terms of this transaction).
        Each
        Purchaser understands and acknowledges, severally and not jointly with any
        other
        Purchaser, that the Commission currently takes the position that coverage
        of
        short sales of shares of the Common Stock “against the box” prior to the
        Effective Date of the Registration Statement with the Securities is a violation
        of Section 5 of the Securities Act, as set forth in Item 65, Section A, of
        the
        Manual of Publicly Available Telephone Interpretations, dated July 1997,
        compiled by the Office of Chief Counsel, Division of Corporation Finance.
        Notwithstanding the foregoing, no Purchaser makes any representation, warranty
        or covenant hereby that it will not engage in Short Sales in
        the
        securities of the Company after the time that the transactions contemplated
        by
        this Agreement are first publicly announced as described in Section 4.6.
        Notwithstanding the foregoing, in the case of a Purchaser that is a
        multi-managed investment vehicle whereby separate portfolio managers manage
        separate portions of such Purchaser's assets and the portfolio managers have
        no
        direct knowledge of the investment decisions made by the portfolio managers
        managing other portions of such Purchaser's assets, the covenant set forth
        above
        shall only apply with respect to the portion of assets managed by the portfolio
        manager that made the investment decision to purchase the Securities covered
        by
        this Agreement.

       

      
        
          
          

        

        
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      4.17 Form
        D; Blue Sky Filings.
        The
        Company agrees to timely file a Form D with respect to the Securities as
        required under Regulation D and to provide a copy thereof, promptly upon
        request
        of any Purchaser. The Company shall take such action as the Company shall
        reasonably determine is necessary in order to obtain an exemption for, or
        to
        qualify the Securities for, sale to the Purchasers at the Closing under
        applicable securities or “Blue Sky” laws of the states of the United States, and
        shall provide evidence of such actions promptly upon request of any
        Purchaser.

       

      4.18 Capital
        Changes.
        Until
        the one year anniversary of the Effective Date, the Company shall not undertake
        a reverse stock split or reclassification of the Common Stock without the
        prior
        written consent of the Purchasers holding a majority in principal amount
        outstanding of the Debentures.

       

      4.19 Use
        of
        Proceeds on Future Financings.
        From
        the date hereof until the Debentures are no longer outstanding, in the event
        that the Company raises capital through the issuance of debt or equity, the
        Company shall be prohibited from using in excess of 30% of the proceeds of
        any
        such issuances for the repayment of the then outstanding indebtedness to
        Johnny
        Caswell, Howard Livingston, Roger Paglia or Jan Parent (the “Principal
        Stockholders”)
        or the
        payment of salaries (other than salaries for the current pay period) or bonuses
        to the Principal Stockholders that have accrued and become payable prior
        to the
        date of such financing but that had not been paid.

       

       

      ARTICLE
        V.

      MISCELLANEOUS

       

      5.1 Termination. 
        This Agreement may be terminated by any Purchaser, as to such Purchaser’s
        obligations hereunder only and without any effect whatsoever on the obligations
        between the Company and the other Purchasers, by written notice to the other
        parties, if the Closing has not been consummated on or before January 19,
        2007;
provided,
        however,
        that
        such termination will not affect the right of any party to sue for any breach
        by
        the other party (or parties).

       

      
        
          
          

        

        
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      5.2 Fees
        and Expenses.
        At the
        Closing, the Company has agreed to reimburse HPC the non-accountable sum
        of
        $20,000, for its legal fees and expenses, $10,000 of which has been paid
        prior
        to the Closing. In addition, the Company has agreed to pay Crescent
        International Ltd. or its designees up to $10,000 for its due diligence fees
        and
        expenses and an origination fee equal to 1% of its Subscription Amount
        hereunder, such amounts to be paid out of the escrow account established
        pursuant to the Escrow Agreement. Except as expressly set forth in the
        Transaction Documents to the contrary, each party shall pay the fees and
        expenses of its advisers, counsel, accountants and other experts, if any,
        and
        all other expenses incurred by such party incident to the negotiation,
        preparation, execution, delivery and performance of this Agreement. The Company
        shall pay all transfer agent fees, stamp taxes and other taxes and duties
        levied
        in connection with the delivery of any Securities to the
        Purchasers.

       

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

       

      5.4 Notices.
        Any and
        all notices or other communications or deliveries required or permitted to
        be
        provided hereunder shall be in writing and shall be deemed given and effective
        on the earliest of (a) the date of transmission, if such notice or communication
        is delivered via facsimile at the facsimile number set forth on the signature
        pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
        Day,
        (b) the next Trading Day after the date of transmission, if such notice or
        communication is delivered via facsimile at the facsimile number set forth
        on
        the signature pages attached hereto on a day that is not a Trading Day or
        later
        than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
        Trading
        Day following the date of mailing, if sent by U.S. nationally recognized
        overnight courier service, or (d) upon actual receipt by the party to whom
        such
        notice is required to be given. The address for such notices and communications
        shall be as set forth on the signature pages attached hereto.

       

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

       

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

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

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

       

      5.8 No
        Third-Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        successors and permitted assigns and is not for the benefit of, nor may any
        provision hereof be enforced by, any other Person, except as otherwise set
        forth
        in Section 4.11.

       

      5.9 Governing
        Law; Arbitration.
        This
        Agreement shall be governed by and construed in accordance with the internal
        laws of the State of New York. Any controversy or claim arising out of or
        related to this Agreement or the breach thereof, shall be settled by binding
        arbitration in New York, New York in accordance with the Expedited Procedures
        (Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
        Association (“AAA”).
        A
        proceeding shall be commenced upon written demand by the Company or Purchaser
        to
        the other. The arbitrator(s) shall enter a judgment by default against any
        party, which fails or refuses to appear in any properly noticed arbitration
        proceeding. The proceeding shall be conducted by one (1) arbitrator, unless
        the
        amount alleged to be in dispute exceeds two hundred fifty thousand dollars
        ($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
        will be chosen by the parties from a list provided by the AAA, and if the
        parties are unable to agree within ten (10) days, the AAA shall select the
        arbitrator(s). The arbitrators must be experts in securities law and financial
        transactions. The arbitrators shall assess costs and expenses of the
        arbitration, including all attorneys’ and experts’ fees, as the arbitrators
        believe is appropriate in light of the merits of the parties’ respective
        positions in the issues in dispute. Each party submits irrevocably to the
        jurisdiction of any state court sitting in New York, New York or to the United
        States District Court sitting in New York, New York for purposes of enforcement
        of any discovery order, judgment or award in connection with such arbitration.
        The award of the arbitrator(s) shall be final and binding upon the parties
        and
        may be enforced in any court having jurisdiction. The arbitration shall be
        held
        in such place as set by the arbitrator(s) in accordance with Rule 55. With
        respect to any arbitration proceeding in accordance with this section, the
        prevailing party’s reasonable attorney’s fees and expenses shall be borne by the
        non-prevailing party.

       

      Although
        the parties, as expressed above, agree that all claims, including claims
        that
        are equitable in nature, for example specific performance, shall initially
        be
        prosecuted in the binding arbitration procedure outlined above, if the
        arbitration panel dismisses or otherwise fails to entertain any or all of
        the
        equitable claims asserted by reason of the fact that it lacks jurisdiction,
        power and/or authority to consider such claims and/or direct the remedy
        requested, then, in only that event, will the parties have the right to initiate
        litigation respecting such equitable claims or remedies. The forum for such
        equitable relief shall be in either a state or federal court sitting in New
        York, New York. Each party waives any right to a trial by jury, assuming
        such
        right exists in an equitable proceeding, and irrevocably submits to the
        jurisdiction of said New York court. New York law shall govern both the
        proceeding as well as the interpretation and construction of this Agreement
        and
        the transaction as a whole.

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      5.10 Survival.
        The
        representations and warranties shall survive the Closing and the delivery
        of the
        Securities for the applicable statue of limitations.

       

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

       

      5.12 Severability.
        If any
        term, provision, covenant or restriction of this Agreement is held by a court
        of
        competent jurisdiction to be invalid, illegal, void or unenforceable, the
        remainder of the terms, provisions, covenants and restrictions set forth
        herein
        shall remain in full force and effect and shall in no way be affected, impaired
        or invalidated, and the parties hereto shall use their commercially reasonable
        efforts to find and employ an alternative means to achieve the same or
        substantially the same result as that contemplated by such term, provision,
        covenant or restriction. It is hereby stipulated and declared to be the
        intention of the parties that they would have executed the remaining terms,
        provisions, covenants and restrictions without including any of such that
        may be
        hereafter declared invalid, illegal, void or unenforceable.

       

      5.13 Rescission
        and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) any of the other Transaction Documents, whenever any
        Purchaser exercises a right, election, demand or option under a Transaction
        Document and the Company does not timely perform its related obligations
        within
        the periods therein provided, then such Purchaser may rescind or withdraw,
        in
        its sole discretion from time to time upon written notice to the Company,
        any
        relevant notice, demand or election in whole or in part without prejudice
        to its
        future actions and rights; provided,
        however,
        in the
        case of a rescission of a conversion of a Debenture or exercise of a Warrant,
        the Purchaser shall be required to return any shares of Common Stock delivered
        in connection with any such rescinded conversion or exercise
        notice.

       

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

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

      5.19 Liquidated
        Damages.
        The
        Company’s obligations to pay any partial liquidated damages or other amounts
        owing under the Transaction Documents is a continuing obligation of the Company
        and shall not terminate until all unpaid partial liquidated damages and other
        amounts have been paid notwithstanding the fact that the instrument or security
        pursuant to which such partial liquidated damages or other amounts are due
        and
        payable shall have been canceled.

       

      5.20 Construction.
        The
        parties agree that each of them and/or their respective counsel has reviewed
        and
        had an opportunity to revise the Transaction Documents and, therefore, the
        normal rule of construction to the effect that any ambiguities are to be
        resolved against the drafting party shall not be employed in the interpretation
        of the Transaction Documents or any amendments hereto.

       

      (Signature
        Pages Follow)

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

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

       

      
        	
                CENTERSTAGING
                  CORP.

                 

                 

              	
                Address
                  for Notice:

              
	By: 	
                /s/
                  HOWARD
                  LIVINGSTON                                                  

                Name:
                  Howard Livingston

                Title:
                  Chief Financial Officer

                 

              	
                3407
                  Winona Avenue

                Burbank,
                  California 91504

              
	
                With
                  a copy to (which shall not constitute notice):

                Troy
                  & Gould, Professional Corporation

                1801
                  Century Park East, Suite 1600

                Los
                  Angeles, California 90067

                Attn.:
                  Alan B. Spatz

              	 

      

      

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGE FOR PURCHASER FOLLOWS]

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

      [PURCHASER
        SIGNATURE PAGES TO CNSC SECURITIES PURCHASE AGREEMENT]

      

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

       

      Name
        of
        Purchaser: Crescent
        International Ltd. 

       

      Signature
        of Authorized Signatory of Purchaser:
/s/
        Maxi Brezzi

       

      Name
        of
        Authorized Signatory: Maxi
        Brezzi

       

      Title
        of
        Authorized Signatory: Authorized
        Signatories

       

      Email
        Address of Purchaser: cantara@dimitrust.com

       

      Facsimile
        Number of Purchaser: +41
        22
        791 7171

       

      Address
        for Notice of Purchaser:  c/o
        Cantava (Switzerland) S. A.
        84
          Avenue Louis-Casai

        CH-1216
          Cointrin/Geneva, Switzerland

      

       

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

      

      

      Subscription
        Amount: $1,500,000

      

      Warrant
        Shares: 1,500,000

      
 

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]

       

      
         

        Name
          of
          Purchaser: Bridge
          Pointe Master Fund Ltd.

         

        Signature
          of Authorized Signatory of Purchaser:
/s/
          Eric S. Swartz 

         

        Name
          of
          Authorized Signatory: Eric
          S. Swartz

         

        Title
          of
          Authorized Signatory: Director

         

        Email
          Address of Purchaser: BradHathorne@RoswellCapitalPartners.com

         

        Facsimile
          Number of Purchaser: 770-77706844

         

        Address
          for Notice of Purchaser:  1125
          Sanctuary Parkway, Suite 275
          Alpharetta,
            GA 30004

        

         

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

        

        

        Subscription
          Amount: $1,500,000

        

        Warrant
          Shares: 1,500,000

        
 

        

        EIN
          Number: [PROVIDE
          THIS UNDER SEPARATE COVER]

      

      

       

      
        
          
          

        

        
          38

          
            

          

        

        
          
          

        

      

    

     

     

     

    
      
        	
                WARRANTS/
                  STOCK OPTION/DEBT CONVERSION SUMMARY AS OF
                  1-10-06

              
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
                WARRANTS

              	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
                HOLDER

              	 	
                DATE
                  

                WARRANT
                  

                ISSUED

              	 	
                DATE
                  

                WARRANT
                  

                EXPIRES

              	 	
                STRIKE
                  

                PRICE

              	 	
                #
                  OF 

                WARRANTS

              	 	
                REGISTRATION
                  RIGHTS

              
	 	 	 	 	 	 	 	 	 	 	 
	
                MICK
                  FLEETWOOD

              	 	
                10/27/2005

              	 	
                10/27/2007

              	 	
                $2.00
                  

              	 	
                40,000
                  

              	 	
                PIGGY
                  BACK

              
	 	 	 	 	 	 	 	 	 	 	 
	
                MLB
                  ADVANCED MEDIA, L.P

              	 	
                12/31/2005

              	 	
                12/31/2008

              	 	
                $2.50
                  

              	 	
                800,000
                  

              	 	
                NONE

              
	
                Please
                  note that provided the agreement between CenterStaging and BAM
                  shall not
                  have been terminated, warrants to purchase up to an additional
                  850,000
                  shares at an exercise price equal to the fifteen-day trailing average
                  market share price of the common stock as of the last day of the
                  month
                  during which CenterStaging’s annual gross revenues equal or exceed
                  $75,000,000 (the "Second Vesting Date"), and (c) provided the agreement
                  between CenterStaging and BAM shall not have been terminated, warrants
                  to
                  purchase up to an additional 850,000 shares at an exercise price
                  equal to
                  the fifteen-day trailing average market share price of the common
                  stock as
                  of the last day of the month during which CenterStaging's annual
                  gross
                  revenues equal or exceed $125,000,000 (the "Third Vesting
                  Date")

              	 	 	 	 	 	 	 	
                1,700,000
                  

              	 	
                NONE

              
	 	 	 	 	 	 	 	 	 	 	 
	
                TRILOGY
                  CAPITAL PARTNERS, INC.

              	 	
                4/1/2006

              	 	
                3/31/2009

              	 	
                $1.00
                  

              	 	
                800,000
                  

              	 	
                PIGGY
                  BACK

              
	 	 	 	 	 	 	 	 	 	 	 
	
                TRILOGY
                  CAPITAL PARTNERS, INC.

              	 	
                4/1/2006

              	 	
                3/31/2009

              	 	
                $1.60
                  

              	 	
                800,000
                  

              	 	
                PIGGY
                  BACK

              
	 	 	 	 	 	 	 	 	 	 	 
	
                TRILOGY
                  CAPITAL PARTNERS, INC.

              	 	
                4/1/2006

              	 	
                3/31/2009

              	 	
                $1.75
                  

              	 	
                400,000
                  

              	 	
                PIGGY
                  BACK

              
	 	 	 	 	 	 	 	 	 	 	NOTE:
                Trilogy Capital Partners resigned as a consultant for the Company
                in July
                2006 and the Company is in possession of the warrants for 2,000,000
                shares
                of Common Stock with registration rights. The warrants were originally
                issued in accordance with the consulting agreement with Trilogy Capital
                Partners.
	
                JOE
                  NICHOLAS

              	 	
                11/24/06

              	 	
                11/23/2009

              	 	
                $2.00
                  

              	 	
                400,000
                  

              	 	
                NONE

              
	 	 	 	 	 	 	 	 	 	 	 
	
                MONTAGE

              	 	
                12/12/2005

              	 	
                12/12/2009

              	 	
                $1.60
                  

              	 	
                380,000
                  

              	 	
                PIGGY
                  BACK

              
	 	 	 	 	 	 	 	 	 	 	 
	
                TOTAL
                  WARRANTS

              	 	 	 	 	 	 	 	
                5,320,000
                  

              	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
                OPTIONS

              	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
                OPTIONEE

              	 	
                DATE
                  

                OPTION

                 ISSUED

              	 	
                DATE
                  

                OPTION
                  

                EXPIRES

              	 	
                EXERCISE

                 PRICE

              	 	
                #
                  OF 

                OPTIONS

              	 	
                REGISTRATION
                  RIGHTS

              
	 	 	 	 	 	 	 	 	 	 	 
	
                EMPLOYEE
                  ISO PLAN

              	 	
                1/26/2006

              	 	
                1/25/2016

              	 	
                $1.80
                  

              	 	
                1,188,000
                  

              	 	
                NONE
                  (VESTING OVER THREE YEARS)

              
	 	 	 	 	 	 	 	 	 	 	 
	
                EMPLOYEE
                  ISO PLAN

              	 	
                1/26/2006

              	 	
                1/25/2016

              	 	
                $1.98
                  

              	 	
                480,000
                  

              	 	
                NONE
                  (VESTING OVER THREE YEARS)

              
	 	 	 	 	 	 	 	 	 	 	 
	
                EMPLOYEE
                  NON-QUAL PLAN

              	 	
                1/26/2006

              	 	
                1/25/2016

              	 	
                $1.80
                  

              	 	
                2,205,000
                  

              	 	
                NONE
                  (VESTING OVER THREE YEARS)

              
	 	 	 	 	 	 	 	 	 	 	 
	
                EMPLOYEE
                  ISO PLAN

              	 	
                6/11/2006

              	 	
                6/10/2016

              	 	
                $1.80
                  

              	 	
                25,000
                  

              	 	
                NONE
                  (VESTING OVER THREE YEARS)

              
	 	 	 	 	 	 	 	 	 	 	 
	
                EMPLOYEE
                  ISO PLAN

              	 	
                8/10/2006

              	 	
                8/9/2016

              	 	
                $1.80
                  

              	 	
                150,000
                  

              	 	
                NONE
                  (VESTING OVER THREE YEARS)

              
	 	 	 	 	 	 	 	 	 	 	 
	
                EMPLOYEE
                  NON-QUAL PLAN

              	 	
                8/10/2006

              	 	
                8/9/2016

              	 	
                $1.80
                  

              	 	
                225,000
                  

              	 	
                NONE
                  (VESTING OVER THREE YEARS)

              
	 	 	 	 	 	 	 	 	 	 	 
	
                ROSS
                  OPTIONS

              	 	
                9/28/2006

              	 	
                9/27/2016

              	 	
                $1.45
                  

              	 	
                400,000
                  

              	 	
                NONE-HOWEVER
                  CAN EXERCISE UNDER A NET "CASHLESS" FORMULA

              
	 	 	 	 	 	 	 	 	 	 	 
	
                TOTAL
                  OPTIONS

              	 	 	 	 	 	 	 	
                4,673,000
                  

              	 	 
	 	 	 	 	 	 	 	 	 	 	 

      

       

      
        
          
          

        

        
          39

          
            

          

        

        
          
          

        

      

       

    

     

    
      DISCLOSURE
        SCHEDULES

       

      These
        Disclosure Schedules (these “Schedules”) are furnished pursuant to the
        Securities Purchase Agreement dated as of January 11, 2007 (the “Purchase
        Agreement”), by and among CenterStaging Corp., a Delaware corporation (the
“Company”), and the Purchasers listed on the signature page of the Purchase
        Agreement. Capitalized terms used herein shall have the meanings set forth
        in
        the Purchase Agreement.

       

      These
        Schedules are part of the Purchase Agreement, and are subject to the terms
        and
        provisions thereof. These Schedules are for the information of the Purchasers,
        only for purposes relating to the Purchase Agreement. Nothing in the Schedules
        shall be construed as an admission of any liability or obligation of the
        Company
        to any third party, or an admission to any third party against the Company’s
        interests. Unless otherwise stated below, all statements made herein are
        made as
        of the date of execution of the Purchase Agreement.

       

      The
        representations and warranties made by the Company in the Purchase Agreement
        are
        qualified by, and subject to the exceptions noted in, the information set
        forth
        in these Schedules. The inclusion or disclosure of any item or information
        in
        the Schedules shall not be construed as an admission, or to imply, that such
        item or information is material to Seller or Purchaser, or to create measures
        of
        materiality for the purposes of the Purchase Agreement.

       

      The
        section headings in the Schedules are for convenience of reference
        only.

       

      
        
          
          

        

        
          40

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(a): Subsidiaries

       

      The
        Company owns 100% of CenterStaging Musical Productions, Inc., a California
        corporation.

       

      
        
          
          

        

        
          41

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(g): Capitalization

       

      As
        of
        January 10, 2007, the total number of shares of Common Stock issued and
        outstanding is 61,784,995. There are currently no shares of preferred stock
        outstanding. 

       

      As
        of
        January 10, 2007, the Company has issued 994,368 shares of Common Stock since
        the Company’s Form 10-QSB filed the Securities and Exchange Commission for the
        quarter ending September 30, 2006 (“Form 10-QSB”).

       

      As
        of
        January 10, 2007, the total number of shares of Common Stock subject to
        outstanding options, warrants and purchase rights are 10,346,333 per the
        attached Excel table.

       

      
        
          
          

        

        
          42

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(i): Material Changes

       

      (ii)
        Since the date of the latest audited financial statements for the year ended
        June 30, 2006, except as otherwise disclosed in the Form 10-QSB, the Company
        has
        incurred the following liabilities as of January 10, 2007:

       

      
        	1.  	
                Loans
                  from affiliates (i.e., related parties) under revolving lines of
                  credit at
                  the prime rate in the amount of $533,000 plus accrued
                  interest;

              

      

       

      
        	2.  	
                Loans
                  from non-affiliates (i.e., un-related parties) at 10% in the amount
                  of
                  $165,000; and

              

      

       

      
        	3.  	
                Capital
                  Leases in the amount of $79,000 plus accrued
                  interest.

              

      

       

      
        
          
          

        

        
          43

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(l): Compliance

       

      A
        note
        was issued pursuant to that certain Securities Purchase Agreement entered
        into
        by and between the Company and Montage Partners III, LLC, dated as of December
        12, 2005 (the “Montage Agreement”). The note was due on June 12, 2006, however
        the Company has not received notice of a claim that it has been in default
        under
        or that it is in violation of the Montage Agreement. 

       

      (Please
        reference Schedule 3.1(g).)

       

      
        
          
          

        

        
          44

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(n): Title to Assets

       

      As
        of
        January 10, 2007, the Company has Liens against:

       

      1) Capital
        leases;

       

      2) Furniture,
        fixtures and general equipment;

       

      3) Revenue
        producing broadcast equipment; and

       

      4) Revenue
        producing musical instruments.

       

      
        
          
          

        

        
          45

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(s): Certain Fees

       

      A
        finder’s fee is payable to HPC Capital Management Corp.

       

      
        
          
          

        

        
          46

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(v): Registration Rights

       

      Montage
        Partners III, LLC and Mick Fleetwood have the right to cause the Company
        to
        effect the registration of securities other than the Securities, in accordance
        with the Securities Act.

       

      Trilogy
        Capital Partners resigned as a consultant for the Company in July 2006 and
        the
        Company is in possession of the warrants for 2,000,000 shares of Common Stock
        with registration rights. The warrants were originally issued in accordance
        with
        the consulting agreement with Trilogy Capital Partners. 

       

      (Please
        reference Schedule 3.1(g) for: number of warrants, options or debt conversion;
        strike or exercise price.)

       

      
        
          
          

        

        
          47

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(aa): Solvency

       

      As
        of
        January 10, 2007, the Company had approximately $10.1 million of secured
        and
        unsecured Indebtedness per the table below.

       

      Secured
        Indebtedness

       

      
        	
                Party

              	
                Loan
                  Date

              	
                Matures

              	
                Rate

              	
                Amount

              
	 	 	 	 	 
	
                Community
                  Bank

              	
                Nov.
                  2004

              	
                Nov.
                  2009

              	
                P+2.75%

              	
                $192,000

              
	
                Grand
                  Pacific Mortgage 

              	
                Feb.
                  2005

              	
                Feb.
                  2030

              	
                P+1.75%
                  

              	
                $3,093,000

              
	
                Community
                  National Bank
                  

                (a/k/a
                  Pacific Western)

              	May
                2005	May
                2015	P+1%	
                $1,792,000

              
	
                Montage
                  Partners III, LLP

              	
                Dec.
                  2005

              	
                June
                  2006

              	
                6%
                  fixed

              	
                $500,000

              
	
                Helmsreich,
                  LLC

              	
                Sept.
                  2006

              	
                *

              	
                **

              	
                $660,000

              

      

       

      P
        = Prime
        rate.

       

      *
        On the
        first to occur of either 9/1/2007 or the date on which the Borrower, its
        parent,
        Subsidiaries or Affiliates have issued additional equity or debt securities
        (whether common stock, preferred stock, notes, debentures or hybrid securities)
        for net proceeds to the Borrower, its parent, Subsidiaries or Affiliates
        of not
        less than $5,000,000.

       

      **
        At the
        greater of 14% per annum or the national average prime rate plus
        5.75%. 

       

      Unsecured
        Indebtedness

       

      1. Loans
        from affiliates (i.e., related parties) at various rates ranging from 9%,
        to 10%
        fixed, to the prime rate in the amount of $1,439,000 maturing as
        follows:

       

      a. Upon
        demand = $1,263,000.

      b. May
        2007
        = $101,000

      c. July
        2010
        = $75,000

       

      2. Loans
        from non-affiliated (i.e., unrelated parties) at various rates ranging from
        6%
        fixed, to 10% fixed, to the prime rate, to the prime rate plus 4% in the
        amount
        of $725,000 maturing as follows:

       

      a. Upon
        demand = $100,000.

      b. Dec.
        2006
        = $375,000.

      c. Jan.
        31,
        2007 = $250,000.

       

      3. Capital
        Leases in the amount of $1,703,000.

       

      
        
          
          

        

        
          48

          
            

          

        

        
          
          

        

      

      
 

      Schedule
        3.1(ff): Seniority

       

      As
        of the
        Closing Date, the following Indebtedness against the Company are senior to
        the
        Debentures in right of payment, other than indebtedness secured by purchase
        money interests and capital lease obligations:

       

      
        	
                Party

              	
                Loan
                  Date

              	
                Amount
                  ($)

              
	 	 	 
	
                Community
                  Bank 1

              	
                Nov.
                  2004

              	
                192,000

              
	
                Grand
                  Pacific Mortgage 2

              	
                Feb.
                  2005

              	
                3,093,000

              
	
                Community
                  National Bank (a/k/a Pacific Western) 3

              	
                May
                  2005

              	
                1,792,000

              
	
                Montage
                  Partners III, LLC 4

              	
                Dec.
                  2005

              	
                500,000

              
	
                Helmsreich,
                  LLC 5

              	
                Sept.
                  2006

              	
                660,000

              

      

      

      The
        security interests for the parties is wet forth below:

       

      1
        UCC 1 on
        certain broadcast equipment.

       

      2
        First
        position on 2820 Hollywood way building.

       

      3
        First
        position on assets other than accounts receivable; second position on 2820
        Hollywood way bldg.(Jan & Johnny Inc.)

       

      4
        First
        position on accounts receivables.

       

      5
        Second
        position on assets other than accounts receivable.

       

      
        
          
          

        

        
          49

          
            

          

        

        
          
          

        

      

      Schedule
        3.1(gg): No Disagreements with Accountants and Lawyers

       

      
        	
                Approx.
                  Outstanding Accountants and Lawyers Fees

              	 	 	 
	
                As
                  of billings received before December 13, 2006

              	 	 	 
	 	 	 	 
	
                CENTERSTAGING
                  CORP.

              	 	 	 
	
                Accountants

              	 	
                $

              	
                41,000

              	 
	 	 	 	 	 
	
                Lawyers

              	 	
                $

              	
                165,000

              	 
	 	 	 	 	 
	 	 	 	 	 
	
                CENTERSTAGING
                  MUSICAL PRODUCTIONS, INC.

              	 	 	 	 
	
                Lawyers

              	 	
                $

              	
                150,000

              	 
	 	 	 	 	 
	
                TOTALS

              	 	 	 	 
	
                Accountants

              	 	
                $

              	
                41,000

              	 
	
                Lawyers

              	 	
                $

              	
                315,000

              	 
	 	 	 	 	 

      

       

      
        
          
          

        

        
          50

          
            

          

        

        
          
          

        

      

    

     

    
      SCHEDULE
        4.9

       

      USE
        OF PROCEEDS

       

      As
        of
        December 31, 2006, monthly debt service (including loans and capital leases)
        is
        approximately $130,000 per the table below.

       

      
        	
                MONTHLY
                  DEBT RECAP

              	 	 
	
                LENDER

              	
                PAYMENT
                  ($)

              	 
	 	 	 
	
                CIT
                  Technology (J&A,sch 2)

              	
                2,550.64
                  

              	 
	
                CIT
                  Technology (J&A,sch 4)

              	
                2,180.86
                  

              	 
	
                National
                  City Commercial Capital

              	
                4,060.10
                  

              	 
	
                Jules
                  & Assoc (sched 5)

              	
                947.90
                  

              	 
	
                CIT
                  Technolody (J&A,sch 6)

              	
                4,299.69
                  

              	 
	
                Apple
                  Finance

              	
                5,776.77
                  

              	 
	
                Pugent
                  Sound

              	
                1,162.40
                  

              	 
	
                Key
                  Equip Financing

              	
                2,272.78
                  

              	 
	
                Leaf
                  Funding

              	
                2,757.00
                  

              	 
	
                Apple
                  Finance

              	
                10,079.17
                  

              	 
	
                IBC
                  Leasing / Quail

              	
                1,730.90
                  

              	 
	
                Dumac

              	
                1,126.62
                  

              	 
	
                Banc
                  of America Leasing

              	
                5,762.00
                  

              	 
	
                Banc
                  of America Leasing #4535

              	
                816.74
                  

              	 
	
                Sterling
                  Bank

              	
                1,679.00
                  

              	 
	
                Netbank

              	
                1,283.00
                  

              	 
	
                Irwin
                  Business Financial

              	
                1,566.00
                  

              	 
	
                TCF
                  Equipment Finance

              	
                2,108.27
                  

              	 
	
                Banc
                  of America

              	
                1,347.26
                  

              	 
	
                Santa
                  Barbara Trust

              	
                1,627.00
                  

              	 
	
                Ford
                  Credit

              	
                694.96
                  

              	 
	
                First
                  Insurance Funding

              	
                10,441.98
                  

              	 
	
                First
                  Insurance Funding

              	
                1,269.82
                  

              	 
	
                First
                  Insurance Funding

              	
                2,258.43
                  

              	 
	
                Charlie
                  Lico

              	
                2,400.00
                  

              	 
	
                Ford
                  Credit

              	
                437.89
                  

              	 
	
                Ford
                  Credit

              	
                430.07
                  

              	 
	
                Ford
                  Credit

              	
                907.43
                  

              	 
	
                Community
                  Bank

              	
                5,462.03
                  

              	 
	
                Community
                  aka Pacific Western Bank

              	
                15,299.40
                  

              	 
	
                Amex
                  Business Finance

              	
                780.00
                  

              	
                 

              
	
                Bank
                  of America LOC

              	
                1,698.95
                  

              	 
	
                Citibank

              	
                438.65
                  

              	 
	
                Q1
                  Exchange

              	
                933.21
                  

              	 
	
                Q1
                  Exchange

              	
                1,257.22
                  

              	 
	
                Grand
                  Pacific

              	
                29,796.73
                  

              	 
	
                TOTAL

              	
                129,640.87
                  

              	 

      

       

      
        
          
          

        

        
          51

          
            

          

        

        
          
          

        

      

    

     

    

      EXHIBIT
        A

      

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

      

      Original
        Issue Date: January ___,
        2007

      Original
        Conversion Price (subject to adjustment herein): $1.00

      

      $_______________

      

      

      10%
        CONVERTIBLE DEBENTURE

      DUE
        [DECEMBER 31, 2008]

      

      THIS
        DEBENTURE is one of a series of duly authorized and validly issued 10%
        Convertible Debentures of CenterStaging Corp., a Delaware corporation, (the
        “Company”),
        having its principal place of business at 3407 Winona Avenue, Burbank,
        California 91504, designated as its 10% Convertible Debenture due [December
        31,
        2008] (this debenture, the “Debenture”
and,
        collectively with the other such series of debentures, the “Debentures”).

      

      FOR
        VALUE
        RECEIVED, the Company promises to pay to ________________________ or its
        registered assigns (the “Holder”),
        or
        shall have paid pursuant to the terms hereunder, the principal sum of
        $_______________ on [December 31, 2008] (the “Maturity
        Date”)
        or
        such earlier date as this Debenture is required or permitted to be repaid
        as
        provided hereunder, and to pay interest to the Holder on the aggregate
        unconverted and then outstanding principal amount of this Debenture in
        accordance with the provisions hereof. This Debenture is subject to the
        following additional provisions:

      

      Section
        1. Definitions.
        For the
        purposes hereof, in addition to the terms defined elsewhere in this Debenture,
        (a) capitalized terms not otherwise defined herein shall have the meanings
        set
        forth in the Purchase Agreement and (b) the following terms shall have the
        following meanings:

       

      
        
          
          

        

        
          52

          
            

          

        

        
          
          

        

      

       

      “Alternate
        Consideration”
shall
        have the meaning set forth in Section 5(e).

      

      “Bankruptcy
        Event”
means
        any of the following events: (a) the Company or any Significant Subsidiary
        (as
        such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences
        a case
        or other proceeding under any bankruptcy, reorganization, arrangement,
        adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
        or
        similar law of any jurisdiction relating to the Company or any Significant
        Subsidiary thereof; (b) there is commenced against the Company or any
        Significant Subsidiary thereof any such case or proceeding that is not dismissed
        within 60 days after commencement; (c) the Company or any Significant Subsidiary
        thereof is adjudicated insolvent or bankrupt or any order of relief or other
        order approving any such case or proceeding is entered; (d) the Company or
        any
        Significant Subsidiary thereof suffers any appointment of any custodian or
        the
        like for it or any substantial part of its property that is not discharged
        or
        stayed within 60 calendar days after such appointment; (e) the Company or
        any
        Significant Subsidiary thereof makes a general assignment for the benefit
        of
        creditors; (f) the Company or any Significant Subsidiary thereof calls a
        meeting
        of its creditors with a view to arranging a composition, adjustment or
        restructuring of its debts; or (g) the Company or any Significant Subsidiary
        thereof, by any act or failure to act, expressly indicates its consent to,
        approval of or acquiescence in any of the foregoing or takes any corporate
        or
        other action for the purpose of effecting any of the foregoing.

      

      “Base
        Conversion Price”
shall
        have the meaning set forth in Section 5(b).

      

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

      

      “Buy-In”
shall
        have the meaning set forth in Section 4(d)(v).

      

      “Change
        of Control Transaction”
means
        the occurrence after the date hereof of any of (i) an acquisition after the
        date
        hereof by an individual or legal entity or “group” (as described in Rule
        13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
        through legal or beneficial ownership of capital stock of the Company, by
        contract or otherwise) of in excess of 40% of the voting securities of the
        Company (other than by means of conversion or exercise of the Debentures
        and the
        Securities issued together with the Debentures), or (ii) the Company merges
        into
        or consolidates with any other Person, or any Person merges into or consolidates
        with the Company and, after giving effect to such transaction, the stockholders
        of the Company immediately prior to such transaction own less than 60% of
        the
        aggregate voting power of the Company or the successor entity of such
        transaction, or (iii) the Company sells or transfers all or substantially
        all of
        its assets to another Person and the stockholders of the Company immediately
        prior to such transaction own less than 60% of the aggregate voting power
        of the
        acquiring entity immediately after the transaction, or (iv) a replacement
        at one
        time or within a three year period of more than one-half of the members of
        the
        Company’s board of directors which is not approved by a majority of those
        individuals who are members of the board of directors on the date hereof (or by
        those individuals who are serving as members of the board of directors on
        any
        date whose nomination to the board of directors was approved by a majority
        of
        the members of the board of directors who are members on the date hereof),
        or
        (v) the execution by the Company of an agreement to which the Company is
        a party
        or by which it is bound, providing for any of the events set forth in clauses
        (i) through (iv) above.

       

      
        
          
          

        

        
          53

          
            

          

        

        
          
          

        

      

       

      “Common
        Stock”
means
        the common stock, par value $.0001 per share, of the Company and stock of
        any
        other class of securities into which such securities may hereafter be
        reclassified or changed into.

      

      “Conversion
        Date”
shall
        have the meaning set forth in Section 4(a).

      

      “Conversion
        Price”
shall
        have the meaning set forth in Section 4(b).

      

      “Conversion
        Shares”
means,
        collectively, the shares of Common Stock issuable upon conversion of this
        Debenture in accordance with the terms hereof.

      

      “Debenture
        Register”
shall
        have the meaning set forth in Section 2(c).

      

      “Dilutive
        Issuance”
shall
        have the meaning set forth in Section 5(b).

      

      “Dilutive
        Issuance Notice”
shall
        have the meaning set forth in Section 5(b).

      

      “Effectiveness
        Period”
shall
        have the meaning set forth in the Registration Rights Agreement. 

      

      “Equity
        Conditions”
means,
        during the period in question, (i)
        the
        Company shall have duly honored all conversions and redemptions scheduled
        to
        occur or occurring by virtue of one or more Notices of Conversion of the
        Holder,
        if any, (ii) the Company shall have paid all liquidated damages and other
        amounts owing to the Holder in respect of this Debenture, (iii)
        there is an effective Registration Statement pursuant to which the Holder
        is
        permitted to utilize the prospectus thereunder to resell all of the shares
        issuable pursuant to the Transaction Documents (and the Company believes,
        in
        good faith, that such effectiveness will continue uninterrupted for the
        foreseeable future), (iv) the Common Stock is trading on a Trading Market
        and
        all of the shares issuable pursuant to the Transaction Documents are listed
        or
        quoted for trading on such Trading Market (and the Company believes, in good
        faith, that trading of the Common Stock on a Trading Market will continue
        uninterrupted for the foreseeable future), (v) there is a sufficient number
        of
        authorized but unissued and otherwise unreserved shares of Common Stock for
        the
        issuance of all of the shares issuable pursuant to the Transaction Documents,
        (vi) there is no existing Event of Default or no existing event which, with
        the
        passage of time or the giving of notice, would constitute an Event of Default,
        (vii) the issuance of the shares in question to the Holder would not violate
        the
        limitations set forth in Section 4(c) herein, (viii)
        there has been no public announcement of a pending or proposed Fundamental
        Transaction or Change of Control Transaction that has not been consummated,
        (ix)
        the Holder is not in possession of any information provided by the Company
        that
        constitutes, or may constitute, material non-public information and (x) for
        a
        period of 20 consecutive Trading Days prior to the applicable date in question,
        the daily trading volume for the Common Stock on the principal Trading Market
        exceeds $50,000 per Trading Day.

       

      
        
          
          

        

        
          54

          
            

          

        

        
          
          

        

      

       

      “Event
        of Default”
shall
        have the meaning set forth in Section 8.

      

      “Exchange
        Act”
means
        the Securities Exchange Act of 1934, as amended, and the rules and regulations
        promulgated thereunder.

      

        “Forced
        Conversion”
shall
        have the meaning set forth in Section 6(a).

      

      “Forced
        Conversion Date”
shall
        have the meaning set forth in Section 6(a).

      

      “Forced
        Conversion Notice”
shall
        have the meaning set forth in Section 6(a).

      

      “Forced
        Conversion Notice Date”
shall
        have the meaning set forth in Section 6(a).

      

      “Fundamental
        Transaction”
shall
        have the meaning set forth in Section 5(e).

       

      “Interest
        Conversion Rate”
means
        the
        90%
        of the lesser of (a) the average
        of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day
        that
        is immediately prior to the applicable Interest Payment Date or (ii) the
        average
        of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day
        that
        is immediately prior to the date the applicable Interest Conversion Shares
        are
        issued and delivered if after the Interest Payment Date.

      

      “Interest
        Conversion Shares”
shall
        have the meaning set forth in Section 2(a).

      

      “Interest
        Notice Period”
shall
        have the meaning set forth in Section 2(a).

       

      “Interest
        Payment Date”
shall
        have the meaning set forth in Section 2(a).

      

      “Interest
        Share Amount”
shall
        have the meaning set forth in Section 2(a).

      

      “Late
        Fees”
shall
        have the meaning set forth in Section 2(d).

      

      “Mandatory
        Default Amount”
means
        the sum of (i) the greater of (A) 120% of the outstanding principal amount
        of
        this Debenture, plus all accrued and unpaid interest hereon, or (B) the
        outstanding principal amount of this Debenture, plus all accrued and unpaid
        interest hereon, divided by the Conversion Price on the date the Mandatory
        Default Amount is either (a) demanded (if demand or notice is required to
        create
        an Event of Default) or otherwise due or (b) paid in full, whichever has
        a lower
        Conversion Price, multiplied by the average of the VWAPs for the five Trading
        Days immediately prior to the date the Mandatory Default Amount is either
        (x)
        demanded or otherwise due or (y) paid in full, whichever has a higher average
        VWAP, and (ii) all other amounts, costs, expenses and liquidated damages
        due in
        respect of this Debenture.

      

      
        
          
          

        

        
          55

          
            

          

        

        
          
          

        

      

       

      “New
        York Courts”
shall
        have the meaning set forth in Section 9(d).

      

      “Notice
        of Conversion”
shall
        have the meaning set forth in Section 4(a).

      

      “Original
        Issue Date”
means
        the date of the first issuance of the Debentures, regardless of any transfers
        of
        any Debenture and regardless of the number of instruments which may be issued
        to
        evidence such Debentures.

      

      “Permitted
        Indebtedness”
        means (a) the
        Indebtedness existing on the Original Issue Date and set forth on Schedule
        3.1(aa)
        attached
        to the Purchase Agreement (including any extensions of the maturity dates
        of any
        such Indebtedness listed on Schedule 3.1(aa) attached to the Purchase
        Agreement); (b) lease obligations and purchase money indebtedness incurred
        in
        connection with the acquisition of capital assets and lease obligations with
        respect to newly acquired or leased assets, (c) up to $5,500,000, in the
        aggregate, of additional non-equity linked Indebtedness incurred by the Company
        (up to $7,500,000 in the event the proceeds of such additional Indebtedness
        are
        used to replace the Company’s existing SBA loan through Community National
        Bank), it being understood, that in the case of this clause (c), such
        transactions shall not have any equity components of any nature and (d) in
        addition to amounts described in clause (c) above, up to $10,000,000, in
        the
        aggregate, of additional Indebtedness incurred by the Company, which
        Indebtedness may be equity linked, provided, however, in the case of this
        clause
        (d), such Indebtedness (w) shall be on terms and conditions no less favorable
        to
        the Company than the terms and conditions of the Transaction Documents, (x)
        may
        have no more than 100% “warrant coverage” (i.e. warrants issued in connection
        with such Indebtedness cannot exceed one warrant for every share of Common
        Stock
        underlying such Indebtedness), (y) the strike price of such warrants cannot
        be
        less than $1.00 per share (subject to adjustment for forward and reverse
        stock
        splits, stock dividends, recapitalizations and the like that occur after
        the
        date hereof) and (z) (A) no more than $3,000,000, in the aggregate, of such
        additional Indebtedness, shall rank on par with the Debentures and (B)
        $7,000,000, in the aggregate, of such additional Indebtedness shall be expressly
        subordinate to the Debentures, pursuant to a written subordination agreement
        satisfactory to the Holder. For clarity, pursuant to Section 4.14(b) of the
        Purchase Agreement, the Company is prohibited from effecting a Variable Rate
        Transaction while the Debentures are outstanding, and the provisions of this
        definition of “Permitted Indebtedness” do not permit the Company to incur
        indebtedness in a Variable Rate Transaction.

      

      
        
          
          

        

        
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      “Permitted
        Lien”
means
        the individual and collective reference to the following: (a) Liens for taxes,
        assessments and other governmental charges or levies not yet due or Liens
        for
        taxes, assessments and other governmental charges or levies being contested
        in
        good faith and by appropriate proceedings for which adequate reserves (in
        the
        good faith judgment of the management of the Company) have been established
        in
        accordance with GAAP; (b) Liens imposed by law which were incurred in the
        ordinary course of the Company’s business, such as carriers’, warehousemen’s and
        mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
        the ordinary course of the Company’s business, and which (x) do not individually
        or in the aggregate materially detract from the value of such property or
        assets
        or materially impair the use thereof in the operation of the business of
        the
        Company and its consolidated Subsidiaries or (y) are being contested in good
        faith by appropriate proceedings, which proceedings have the effect of
        preventing for the foreseeable future the forfeiture or sale of the property
        or
        asset subject to such Lien; and (c) Liens incurred in connection with Permitted
        Indebtedness under clause (b) thereunder, provided that such Liens are not
        secured by assets of the Company or its Subsidiaries other than the assets
        so
        acquired or leased.

       

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

      

      “Purchase
        Agreement”
means
        the Securities Purchase Agreement, dated as of January __, 2007 among the
        Company and the original Holders, as amended, modified or supplemented from
        time
        to time in accordance with its terms.

      

      “Registration
        Rights Agreement”
means
        the Registration Rights Agreement, dated as of the date of the Purchase
        Agreement, among the Company and the original Holders, as amended, modified
        or
        supplemented from time to time in accordance with its terms.

      

      “Registration
        Statement”
means
        a
        registration statement that registers the resale of all Conversion Shares
        and
        Interest Conversion Shares of the Holder, names such Holder as a “selling
        stockholder” therein, and meets the requirements of the Registration Rights
        Agreement.

      

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

      

      “Share
        Delivery Date”
shall
        have the meaning set forth in Section 4(d).

      

      “Subsidiary”
shall
        have the meaning set forth in the Purchase Agreement.

      

      “Threshold
        Period”
shall
        have the meaning set forth in Section 6(a). 

      

      “Trading
        Day”
means
        a
        day on which the principal Trading Market is open for business.

       

      
        
          
          

        

        
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      “Trading
        Market”
means
        the following markets or exchanges on which the Common Stock is listed or
        quoted
        for trading on the date in question: the American Stock Exchange, the Nasdaq
        Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
        the
        New York Stock Exchange or the OTC Bulletin Board.

      

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

      

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

      

      Section
        2. Interest.

       

      a)  Payment
        of Interest in Cash or Kind.
        The
        Company shall pay interest to the Holder on the aggregate unconverted and
        then
        outstanding principal amount of this Debenture at the rate of 10% per annum,
        payable quarterly on each January 1, April 1, July 1 and October 1, beginning
        on
        July 1, 2007, on each Conversion Date (as to that principal amount then being
        converted), and on the Maturity Date (each such date, an “Interest
        Payment Date”)
        (if
        any Interest Payment Date is not a Business Day, then the applicable payment
        shall be due on the next succeeding Business Day), in cash or duly authorized,
        validly issued, fully paid and non-assessable shares of Common Stock at the
        Interest Conversion Rate (the dollar amount to be paid in shares, the
“Interest
        Share Amount”)
        or a
        combination thereof; provided,
        however,
        that
        payment in shares of Common Stock may only occur if (i) all of the Equity
        Conditions have been met (unless waived by the Holder in writing) during
        the 10
        Trading Days immediately prior to the applicable Interest Payment Date (the
        “Interest
        Notice Period”)
        and
        through and including the date such shares of Common Stock are issued to
        the
        Holder, (ii) the Company shall have given the Holder notice in accordance
        with
        the notice requirements set forth below and (iii) as to such Interest Payment
        Date, prior to such Interest Notice Period (but not more than 5 Trading Days
        prior to the commencement of such Interest Notice Period), the Company shall
        have delivered to the Holder’s account with The Depository Trust Company a
        number of shares of Common Stock to be applied against such Interest Share
        Amount equal to the quotient of (x) the applicable Interest Share Amount
        divided
        by (y) the then Conversion Price (the “Interest
        Conversion Shares”).
        

       

      
        
          
          

        

        
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      b)  Company’s
        Election to Pay Interest in Kind.
        Subject
        to the terms and conditions herein, the decision whether to pay interest
        hereunder in cash, shares of Common Stock or a combination thereof shall
        be at
        the discretion of the Company. Prior to the commencement of any Interest
        Notice
        Period, the Company shall deliver to the Holder a written notice of its election
        to pay interest hereunder on the applicable Interest Payment Date either
        in
        cash, shares of Common Stock or a combination thereof and the Interest Share
        Amount as to the applicable Interest Payment Date, provided that the Company
        may
        indicate in such notice that the election contained in such notice shall
        apply
        to future Interest Payment Dates until revised by a subsequent notice. During
        any Interest Notice Period, the Company’s election (whether specific to an
        Interest Payment Date or continuous) shall be irrevocable as to such Interest
        Payment Date. Subject to the aforementioned conditions, failure to timely
        deliver such written notice to the Holder shall be deemed an election by
        the
        Company to pay the interest on such Interest Payment Date in cash. At any
        time
        the Company delivers a notice to the Holder of its election to pay the interest
        in shares of Common Stock, the Company shall timely file a prospectus supplement
        pursuant to Rule 424 disclosing such election. The aggregate number of shares
        of
        Common Stock otherwise issuable to the Holder on an Interest Payment Date
        shall
        be reduced by the number of Interest Conversion Shares previously issued
        to the
        Holder in connection with such Interest Payment Date.

      

      c)  Interest
        Calculations.
        Interest shall be calculated on the basis of a 360-day year, consisting of
        twelve 30 calendar day periods, and shall accrue daily commencing on the
        Original Issue Date until payment in full of the principal sum, together
        with
        all accrued and unpaid interest, liquidated damages and other amounts which
        may
        become due hereunder, has been made. Payment of interest in shares of Common
        Stock (other than the Interest Conversion Shares issued prior to an Interest
        Notice Period) shall otherwise occur pursuant to Section 4(d)(ii) herein
        and,
        solely for purposes of the payment of interest in shares, the Interest Payment
        Date shall be deemed the Conversion Date. Interest shall cease to accrue
        with
        respect to any principal amount converted, provided that the Company actually
        delivers the Conversion Shares within the time period required by Section
        4(d)(ii) herein. Interest hereunder will be paid to the Person in whose name
        this Debenture is registered on the records of the Company regarding
        registration and transfers of this Debenture (the “Debenture
        Register”).
        Except as otherwise provided herein, if at any time the Company pays interest
        partially in cash and partially in shares of Common Stock to the holders
        of the
        Debentures, then such payment of cash shall be distributed ratably among
        the
        holders of the then-outstanding Debentures based on their (or their
        predecessor’s) initial purchases of Debentures pursuant to the Purchase
        Agreement.

      

      d)  Late
        Fee.
        All
        overdue accrued and unpaid interest to be paid hereunder shall entail a late
        fee
        at an interest rate equal to the lesser of 18% per annum or the maximum rate
        permitted by applicable law (“Late
        Fees”)
        which
        shall accrue daily from the date such interest is due hereunder through and
        including the date of payment in full. Notwithstanding anything to the contrary
        contained herein, if on any Interest Payment Date the Company has elected
        to pay
        accrued interest in the form of Common Stock but the Company is not permitted
        to
        pay accrued interest in Common Stock because it fails to satisfy the conditions
        for payment in Common Stock set forth in Section 2(a) herein, then, at
        the
        option of the Holder, the
        Company, in lieu of delivering either
        shares
        of
        Common Stock pursuant to this Section 2 or
        paying
        the regularly scheduled interest payment in cash, shall deliver, within three
        Trading Days of each applicable Interest Payment Date, an amount in cash
        equal
        to the product of (x) the number of shares of Common Stock otherwise deliverable
        to the Holder in connection with the payment of interest due on such Interest
        Payment Date multiplied by (y) the highest VWAP during the period commencing
        on
        the Interest Payment Date and ending on the Trading Day prior to the date
        such
        payment is made. If any Interest Conversion Shares are issued to the Holder
        in
        connection with an Interest Payment Date and are not applied against an Interest
        Share Amount, then the Holder shall promptly return such excess shares to
        the
        Company.

       

      
        
          
          

        

        
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      e)  Prepayment.
        Except
        as otherwise set forth in this Debenture, the Company may not prepay any
        portion
        of the principal amount of this Debenture without the prior written consent
        of
        the Holder. 

      

      Section
        3.  Registration
        of Transfers and Exchanges.
        

       

      a)  Different
        Denominations.
        This
        Debenture is exchangeable for an equal aggregate principal amount of Debentures
        of different authorized denominations, as requested by the Holder surrendering
        the same. No service charge will be payable for such registration of transfer
        or
        exchange.

       

      b)  Investment
        Representations.
        This
        Debenture has been issued subject to certain investment representations of
        the
        original Holder set forth in the Purchase Agreement and may be transferred
        or
        exchanged only in compliance with the Purchase Agreement and applicable federal
        and state securities laws and regulations. 

      

      c)  Reliance
        on Debenture Register.
        Prior
        to due presentment for transfer to the Company of this Debenture, the Company
        and any agent of the Company may treat the Person in whose name this Debenture
        is duly registered on the Debenture Register as the owner hereof for the
        purpose
        of receiving payment as herein provided and for all other purposes, whether
        or
        not this Debenture is overdue, and neither the Company nor any such agent
        shall
        be affected by notice to the contrary.

      

      Section
        4.  Conversion.

       

      a)  Voluntary
        Conversion.
        At any
        time after the Original Issue Date until this Debenture is no longer
        outstanding, this Debenture shall be convertible, in whole or in part, into
        shares of Common Stock at the option of the Holder, at any time and from
        time to
        time (subject to the conversion limitations set forth in Section 4(c)
        hereof). The Holder shall effect conversions by delivering to the Company
        a
        Notice of Conversion, the form of which is attached hereto as Annex
        A
        (a
“Notice
        of Conversion”),
        specifying therein the principal amount of this Debenture to be converted
        and
        the date on which such conversion shall be effected (such date, the
“Conversion
        Date”),
        provided that such date is on or after the date of delivery of the Notice
        of
        Conversion. If no Conversion Date is specified in a Notice of Conversion,
        or the
        stated conversion date is prior to date of delivery of the Notice of Conversion,
        the Conversion Date shall be the date that such Notice of Conversion is deemed
        delivered hereunder. To effect conversions hereunder, the Holder shall not
        be
        required to physically surrender this Debenture to the Company unless the
        entire
        principal amount of this Debenture, plus all accrued and unpaid interest
        thereon, has been so converted. Conversions hereunder shall have the effect
        of
        lowering the outstanding principal amount of this Debenture in an amount
        equal
        to the applicable conversion. The Holder and the Company shall maintain records
        showing the principal amount(s) converted and the date of such conversion(s).
        The Company may deliver an objection to any Notice of Conversion within 1
        Business Day of delivery of such Notice of Conversion. The
        Holder, and any assignee by acceptance of this Debenture, acknowledge and
        agree
        that, by reason of the provisions of this paragraph, following conversion
        of a
        portion of this Debenture, the unpaid and unconverted principal amount of
        this
        Debenture may be less than the amount stated on the face
        hereof.

       

      
        
          
          

        

        
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      b)  Conversion
        Price.
        The
        conversion price in effect on any Conversion Date shall be equal to $1.00,
        subject
        to adjustment herein (the “Conversion
        Price”).

      

      c)  Conversion
        Limitations.
        The
        Company shall not effect any conversion of this Debenture, and a Holder shall
        not have the right to convert any portion of this Debenture, to the extent
        that
        after giving effect to the conversion set forth on the applicable Notice
        of
        Conversion, such Holder (together with such Holder’s Affiliates, and any other
        person or entity acting as a group together with such Holder or any of such
        Holder’s Affiliates) would beneficially own in excess of the Beneficial
        Ownership Limitation (as defined below).  For purposes of the foregoing
        sentence, the number of shares of Common Stock beneficially owned by such
        Holder
        and its Affiliates shall include the number of shares of Common Stock issuable
        upon conversion of this Debenture with respect to which such determination
        is
        being made, but shall exclude the number of shares of Common Stock which
        are
        issuable upon (A) conversion of the remaining, unconverted principal amount
        of
        this Debenture beneficially owned by such Holder or any of its Affiliates
        and
        (B) exercise or conversion of the unexercised or unconverted portion of any
        other securities of the Company subject to a limitation on conversion or
        exercise analogous to the limitation contained herein (including, without
        limitation, any other Debentures or the Warrants) beneficially owned by such
        Holder or any of its Affiliates.  Except as set forth in the preceding
        sentence, for purposes of this Section 4(c), beneficial ownership shall be
        calculated in accordance with Section 13(d) of the Exchange Act and the rules
        and regulations promulgated thereunder. To the extent that the limitation
        contained in this Section 4(c) applies, the determination of whether this
        Debenture is convertible (in relation to other securities owned by such Holder
        together with any Affiliates) and of which principal amount of this Debenture
        is
        convertible shall be in the sole discretion of such Holder, and the submission
        of a Notice of Conversion shall be deemed to be such Holder’s determination of
        whether this Debenture may be converted (in relation to other securities
        owned
        by such Holder together with any Affiliates) and which principal amount of
        this
        Debenture is convertible, in each case subject to such aggregate percentage
        limitations. To ensure compliance with this restriction, each Holder will
        be
        deemed to represent to the Company each time it delivers a Notice of Conversion
        that such Notice of Conversion has not violated the restrictions set forth
        in
        this paragraph and the Company shall have no obligation to verify or confirm
        the
        accuracy of such determination. In
        addition, a determination as to any group status as contemplated above shall
        be
        determined in accordance with Section 13(d) of the Exchange Act and
        the
        rules and regulations promulgated thereunder. For
        purposes of this Section 4(c), in determining the number of outstanding shares
        of Common Stock, a Holder may rely on the number of outstanding shares of
        Common
        Stock as stated in the most recent of the following: (A) the Company’s most
        recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent
        public
        announcement by the Company; or (C) a more recent notice by the Company or
        the
        Company’s transfer agent setting forth the number of shares of Common Stock
        outstanding.  Upon the written or oral request of a Holder, the Company
        shall within two Trading Days confirm orally and in writing to such Holder
        the
        number of shares of Common Stock then outstanding.  In any case, the number
        of outstanding shares of Common Stock shall be determined after giving effect
        to
        the conversion or exercise of securities of the Company, including this
        Debenture, by such Holder or its Affiliates since the date as of which such
        number of outstanding shares of Common Stock was reported. The “Beneficial
        Ownership Limitation”
shall
        be 4.99% of the number of shares of the Common Stock outstanding immediately
        after giving effect to the issuance of shares of Common Stock issuable upon
        conversion of this Debenture held by the Holder. The Beneficial Ownership
        Limitation provisions of this Section 4(c) may be waived by such Holder,
        at the
        election of such Holder, upon not less than 61 days’ prior notice to the
        Company, to change the Beneficial Ownership Limitation to 9.99% of the number
        of
        shares of the Common Stock outstanding immediately after giving effect to
        the
        issuance of shares of Common Stock upon conversion of this Debenture held
        by the
        Holder and the provisions of this Section 4(c) shall continue to apply. Upon
        such a change by a Holder of the Beneficial Ownership Limitation from such
        4.99%
        limitation to such 9.99% limitation, the Beneficial Ownership Limitation
        may not
        be further waived by such Holder. The provisions of this paragraph shall
        be
        construed and implemented in a manner otherwise than in strict conformity
        with
        the terms of this Section 4(c) to correct this paragraph (or any portion
        hereof)
        which may be defective or inconsistent with the intended Beneficial Ownership
        Limitation herein contained or to make changes or supplements necessary or
        desirable to properly give effect to such limitation.
        The
        limitations contained in this paragraph shall apply to a successor holder
        of
this
        Debenture.

       

      
        
          
          

        

        
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        	d)  	
                Mechanics
                  of Conversion.

              

      

       

      i.  Conversion
        Shares Issuable Upon Conversion of Principal Amount.
        The
        number of shares of Common Stock issuable upon a conversion hereunder shall
        be
        determined by the quotient obtained by dividing (x) the outstanding principal
        amount of this Debenture to be converted by (y) the Conversion
        Price.  

       

      ii.  Delivery
        of Certificate Upon Conversion.
        Not
        later than three Trading Days after each Conversion Date (the “Share
        Delivery Date”),
        the
        Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
        or certificates representing the Conversion Shares which, on or after the
        Effective Date, shall be free of restrictive legends and trading restrictions
        (other than those which may then be required by the Purchase Agreement)
        representing the number of shares of Common Stock being acquired upon the
        conversion of this Debenture (including, if the Company has given continuous
        notice pursuant to Section 2(b) for payment of interest in shares of Common
        Stock at least 20 Trading Days prior to the date on which the Conversion
        Notice
        is delivered to the Company, shares of Common Stock representing the payment
        of
        accrued interest otherwise determined pursuant to Section 2(a) but assuming
        that
        the Interest Payment Period is the 20 Trading Days period immediately prior
        to
        the date on which the Conversion Notice is delivered to the Company and
        excluding for such issuance the condition that the Company deliver Interest
        Conversion Shares as to such interest payment) and (B) a bank check in the
        amount of accrued and unpaid interest (if the Company has elected or is required
        to pay accrued interest in cash). On or after the Effective Date, the Company
        shall use its best efforts to deliver any certificate or certificates required
        to be delivered by the Company under this Section 4 electronically through
        the
        Depository Trust Company or another established clearing corporation performing
        similar functions. 

       

      iii.  Failure
        to Deliver Certificates.
        If in
        the case of any Notice of Conversion such certificate or certificates are
        not
        delivered to or as directed by the applicable Holder by the third Trading
        Day
        after the Conversion Date, the Holder shall be entitled to elect by written
        notice to the Company at any time on or before its receipt of such certificate
        or certificates, to rescind such Conversion, in which event the Company shall
        promptly return to the Holder any original Debenture delivered to the Company
        and the Holder shall promptly return the Common Stock certificates representing
        the principal amount of this Debenture tendered for conversion to the Company.
        

       

      
        
          
          

        

        
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      iv.  Obligation
        Absolute; Partial Liquidated Damages.
        The
        Company’s obligations to issue and deliver the Conversion Shares upon conversion
        of this Debenture in accordance with the terms hereof are absolute and
        unconditional, irrespective of any action or inaction by the Holder to enforce
        the same, any waiver or consent with respect to any provision hereof, the
        recovery of any judgment against any Person or any action to enforce the
        same,
        or any setoff, counterclaim, recoupment, limitation or termination, or any
        breach or alleged breach by the Holder or any other Person of any obligation
        to
        the Company or any violation or alleged violation of law by the Holder or
        any
        other Person, and irrespective of any other circumstance which might otherwise
        limit such obligation of the Company to the Holder in connection with the
        issuance of such Conversion Shares; provided,
        however,
        that
        such delivery shall not operate as a waiver by the Company of any such action
        the Company may have against the Holder. In the event the Holder of this
        Debenture shall elect to convert any or all of the outstanding principal
        amount
        hereof, the Company may not refuse conversion based on any claim that the
        Holder
        or anyone associated or affiliated with the Holder has been engaged in any
        violation of law, agreement or for any other reason, unless an injunction
        from a
        court, on notice to Holder, restraining and or enjoining conversion of all
        or
        part of this Debenture shall have been sought and obtained, and the Company
        posts a surety bond for the benefit of the Holder in the amount of 150% of
        the
        outstanding principal amount of this Debenture, which is subject to the
        injunction, which bond shall remain in effect until the completion of
        arbitration/litigation of the underlying dispute and the proceeds of which
        shall
        be payable to such Holder to the extent it obtains judgment. In the absence
        of
        such injunction, the Company shall issue Conversion Shares or, if applicable,
        cash, upon a properly noticed conversion. If the Company fails for any reason
        to
        deliver to the Holder such certificate or certificates pursuant to Section
        4(d)(ii) by the fifth Trading Day after the Conversion Date, the Company
        shall
        pay to such Holder, in cash, as liquidated damages and not as a penalty,
        for
        each $1000 of principal amount being converted, $10 per Trading Day (increasing
        to $20 per Trading Day on the fifth Trading Day after such liquidated damages
        begin to accrue) for each Trading Day after such fifth Trading Day until
        such
        certificates are delivered. Nothing herein shall limit a Holder’s right to
        pursue actual damages or declare an Event of Default pursuant to Section
        8
        hereof for the Company’s failure to deliver Conversion Shares within the period
        specified herein and such Holder shall have the right to pursue all remedies
        available to it hereunder, at law or in equity including, without limitation,
        a
        decree of specific performance and/or injunctive relief. The exercise of
        any
        such rights shall not prohibit the Holder from seeking to enforce damages
        pursuant to any other Section hereof or under applicable law.

       

      
        
          
          

        

        
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      v.  Compensation
        for Buy-In on Failure to Timely Deliver Certificates Upon
        Conversion.
        In
        addition to any other rights available to the Holder, if the Company fails
        for
        any reason to deliver to the Holder such certificate or certificates by the
        Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
        Delivery Date the Holder is required by its brokerage firm to purchase (in
        an
        open market transaction or otherwise), or the Holder’s brokerage firm otherwise
        purchases, shares of Common Stock to deliver in satisfaction of a sale by
        such
        Holder of the Conversion Shares which the Holder was entitled to receive
        upon
        the conversion relating to such Share Delivery Date (a “Buy-In”),
        then
        the Company shall (A) pay in cash to the Holder (in addition to any other
        remedies available to or elected by the Holder) the amount by which (x) the
        Holder’s total purchase price (including any brokerage commissions) for the
        Common Stock so purchased exceeds (y) the product of (1) the aggregate number
        of
        shares of Common Stock that such Holder was entitled to receive from the
        conversion at issue multiplied by (2) the actual sale price at which the
        sell
        order giving rise to such purchase obligation was executed (including any
        brokerage commissions) and (B) at the option of the Holder, either reissue
        (if
        surrendered) this Debenture in a principal amount equal to the principal
        amount
        of the attempted conversion or deliver to the Holder the number of shares
        of
        Common Stock that would have been issued if the Company had timely complied
        with
        its delivery requirements under Section 4(d)(ii). For example, if the Holder
        purchases Common Stock having a total purchase price of $11,000 to cover
        a
        Buy-In with respect to an attempted conversion of this Debenture with respect
        to
        which the actual sale price of the Conversion Shares (including any brokerage
        commissions) giving rise to such purchase obligation was a total of $10,000
        under clause (A) of the immediately preceding sentence, the Company shall
        be
        required to pay the Holder $1,000. The Holder shall provide the Company written
        notice indicating the amounts payable to the Holder in respect of the Buy-In
        and, upon request of the Company, evidence of the amount of such loss. Nothing
        herein shall limit a Holder’s right to pursue any other remedies available to it
        hereunder, at law or in equity including, without limitation, a decree of
        specific performance and/or injunctive relief with respect to the Company’s
        failure to timely deliver certificates representing shares of Common Stock
        upon
        conversion of this Debenture as required pursuant to the terms
        hereof.

       

      vi.  Reservation
        of Shares Issuable Upon Conversion.
        The
        Company covenants that it will at all times reserve and keep available out
        of
        its authorized and unissued shares of Common Stock for the sole purpose of
        issuance upon conversion of this Debenture and payment of interest on this
        Debenture, each as herein provided, free from preemptive rights or any other
        actual contingent purchase rights of Persons other than the Holder (and the
        other holders of the Debentures), not less than such aggregate number of
        shares
        of the Common Stock as shall (subject to the terms and conditions set forth
        in
        the Purchase Agreement) be issuable (taking into account the adjustments
        and
        restrictions of Section 5) upon the conversion of the outstanding principal
        amount of this Debenture and payment of interest hereunder. The Company
        covenants that all shares of Common Stock that shall be so issuable shall,
        upon
        issue, be duly authorized, validly issued, fully paid and nonassessable and,
        if
        the Registration Statement is then effective under the Securities Act, shall
        be
        registered for public sale in accordance with such Registration
        Statement.

       

      
        
          
          

        

        
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      vii.  Fractional
        Shares.
        Upon a
        conversion hereunder the Company shall not be required to issue stock
        certificates representing fractions of shares of Common Stock, but may if
        otherwise permitted, make a cash payment in respect of any final fraction
        of a
        share based on the VWAP at such time. If the Company elects not, or is unable,
        to make such a cash payment, the Holder shall be entitled to receive, in
        lieu of
        the final fraction of a share, 1 whole share of Common Stock.

      

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

      

      Section
        5. Certain
        Adjustments.

       

      a)  Stock
        Dividends and Stock Splits.
        If the
        Company, at any time while this Debenture is outstanding: (A) pays a stock
        dividend or otherwise makes a distribution or distributions payable in shares
        of
        Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
        for avoidance of doubt, shall not include any shares of Common Stock issued
        by
        the Company upon conversion of, or payment of interest on, the Debentures);
        (B)
        subdivides outstanding shares of Common Stock into a larger number of shares;
        (C) combines (including by way of a reverse stock split) outstanding shares
        of
        Common Stock into a smaller number of shares; or (D) issues, in the event
        of a
        reclassification of shares of the Common Stock, any shares of capital stock
        of
        the Company, then the Conversion Price shall be multiplied by a fraction
        of
        which the numerator shall be the number of shares of Common Stock (excluding
        any
        treasury shares of the Company) outstanding immediately before such event
        and of
        which the denominator shall be the number of shares of Common Stock outstanding
        immediately after such event. Any adjustment made pursuant to this Section
        shall
        become effective immediately after the record date for the determination
        of
        stockholders entitled to receive such dividend or distribution and shall
        become
        effective immediately after the effective date in the case of a subdivision,
        combination or re-classification.

       

      b)  Subsequent
        Equity Sales.
        If, at
        any time while this Debenture is outstanding, the Company or any Subsidiary,
        as
        applicable, sells or grants any option to purchase or sells or grants any
        right
        to reprice, or otherwise disposes of or issues any Common Stock or Common
        Stock
        Equivalents entitling any Person to acquire shares of Common Stock at an
        effective price per share that is lower than the then Conversion Price (such
        lower price, the “Base
        Conversion Price”
and
        such issuances, collectively, a “Dilutive
        Issuance”)
        (if
        the holder of the Common Stock or Common Stock Equivalents so issued shall
        at
        any time, whether by operation of purchase price adjustments, reset provisions,
        floating conversion, exercise or exchange prices or otherwise, or due to
        warrants, options or rights per share which are issued in connection with
        such
        issuance, be entitled to receive shares of Common Stock at an effective price
        per share that is lower than the Conversion Price, such issuance shall be
        deemed
        to have occurred for less than the Conversion Price on such date of the Dilutive
        Issuance), then the Conversion Price shall be reduced to equal the Base
        Conversion Price. Such adjustment shall be made whenever such Common Stock
        or
        Common Stock Equivalents are issued. Notwithstanding
        the foregoing, no adjustment will be made under this Section 5(b) in respect
        of
        an Exempt Issuance.
        The
        Company shall notify the Holder in writing, no later than 1 Business Day
        following the issuance of any Common Stock or Common Stock Equivalents subject
        to this Section 5(b), indicating therein the applicable issuance price, or
        applicable reset price, exchange price, conversion price and other pricing
        terms
        (such notice, the “Dilutive
        Issuance Notice”).
        For
        purposes of clarification, whether or not the Company provides a Dilutive
        Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
        Dilutive Issuance, the Holder is entitled to receive a number of Conversion
        Shares based upon the Base Conversion Price on or after the date of such
        Dilutive Issuance, regardless of whether the Holder accurately refers to
        the
        Base Conversion Price in the Notice of Conversion.

       

      
        
          
          

        

        
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      c)  Subsequent
        Rights Offerings.
        If the
        Company, at any time while the Debenture is outstanding, shall issue rights,
        options or warrants to all holders of Common Stock (and not to Holders)
        entitling them to subscribe for or purchase shares of Common Stock at a price
        per share that is lower than the VWAP on the record date referenced below,
        then
        the Conversion Price shall be multiplied by a fraction of which the denominator
        shall be the number of shares of the Common Stock outstanding on the date
        of
        issuance of such rights or warrants plus the number of additional shares
        of
        Common Stock offered for subscription or purchase, and of which the numerator
        shall be the number of shares of the Common Stock outstanding on the date
        of
        issuance of such rights or warrants plus the number of shares which the
        aggregate offering price of the total number of shares so offered (assuming
        delivery to the Company in full of all consideration payable upon exercise
        of
        such rights, options or warrants) would purchase at such VWAP. Such adjustment
        shall be made whenever such rights or warrants are issued, and shall become
        effective immediately after the record date for the determination of
        stockholders entitled to receive such rights, options or warrants. 

       

      d)  Pro
        Rata Distributions.
        If the
        Company, at any time while this Debenture is outstanding, distributes to
        all
        holders of Common Stock (and not to the Holders) evidences of its indebtedness
        or assets (including cash and cash dividends, but not including stock dividends
        payable in Common Stock, which shall be subject to Section 5(a)) or rights
        or
        warrants to subscribe for or purchase any security (other than the Common
        Stock,
        which shall be subject to Section 5(b)), then in each such case the Conversion
        Price shall be adjusted by multiplying such Conversion Price in effect
        immediately prior to the record date fixed for determination of stockholders
        entitled to receive such distribution by a fraction of which the denominator
        shall be the VWAP determined as of the record date mentioned above, and of
        which
        the numerator shall be such VWAP on such record date less the then fair market
        value at such record date of the portion of such assets or evidence of
        indebtedness so distributed applicable to 1 outstanding share of the Common
        Stock as determined by the Board of Directors of the Company in good faith.
        In
        either case the adjustments shall be described in a statement delivered to
        the
        Holder describing the portion of assets or evidences of indebtedness so
        distributed or such subscription rights applicable to 1 share of Common Stock.
        Such adjustment shall be made whenever any such distribution is made and
        shall
        become effective immediately after the record date mentioned above.

       

      
        
          
          

        

        
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      e)  Fundamental
        Transaction.
        If, at
        any time while this Debenture is outstanding, (A) the Company effects any
        merger
        or consolidation of the Company with or into another Person, (B) the Company
        effects any sale of all or substantially all of its assets in one transaction
        or
        a series of related transactions, (C) any tender offer or exchange offer
        (whether by the Company or another Person, provided, however, in the case
        of any
        third party tender offer or exchange offer, such transaction is a Change
        of
        Control Transaction) is completed pursuant to which holders of Common Stock
        are
        permitted to tender or exchange their shares for other securities, cash or
        property, or (D) the Company effects any reclassification of the Common Stock
        or
        any compulsory share exchange pursuant to which the Common Stock is effectively
        converted into or exchanged for other securities, cash or property (in any
        such
        case, a “Fundamental
        Transaction”),
        then,
        upon any subsequent conversion of this Debenture, the Holder shall have the
        right to receive, for each Conversion Share that would have been issuable
        upon
        such conversion immediately prior to the occurrence of such Fundamental
        Transaction, the same kind and amount of securities, cash or property as
        it
        would have been entitled to receive upon the occurrence of such Fundamental
        Transaction if it had been, immediately prior to such Fundamental Transaction,
        the holder of 1 share of Common Stock (the “Alternate
        Consideration”).
        For
        purposes of any such conversion, the determination of the Conversion Price
        shall
        be appropriately adjusted to apply to such Alternate Consideration based
        on the
        amount of Alternate Consideration issuable in respect of 1 share of Common
        Stock
        in such Fundamental Transaction, and the Company shall apportion the Conversion
        Price among the Alternate Consideration in a reasonable manner reflecting
        the
        relative value of any different components of the Alternate Consideration.
        If
        holders of Common Stock are given any choice as to the securities, cash or
        property to be received in a Fundamental Transaction, then the Holder shall
        be
        given the same choice as to the Alternate Consideration it receives upon
        any
        conversion of this Debenture following such Fundamental Transaction. To the
        extent necessary to effectuate the foregoing provisions, any successor to
        the
        Company or surviving entity in such Fundamental Transaction shall issue to
        the
        Holder a new debenture consistent with the foregoing provisions and evidencing
        the Holder’s right to convert such debenture into Alternate Consideration. The
        terms of any agreement pursuant to which a Fundamental Transaction is effected
        shall include terms requiring any such successor or surviving entity to comply
        with the provisions of this Section 5(e) and insuring that this Debenture
        (or
        any such replacement security) will be similarly adjusted upon any subsequent
        transaction analogous to a Fundamental Transaction.

       

      
        
          
          

        

        
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      f)  Calculations.
        All
        calculations under this Section 5 shall be made to the nearest cent or the
        nearest 1/100th of a share, as the case may be. For purposes of this Section
        5,
        the number of shares of Common Stock deemed to be issued and outstanding
        as of a
        given date shall be the sum of the number of shares of Common Stock (excluding
        any treasury shares of the Company) issued and outstanding.

      

      g)  Notice
        to the Holder.

      

      i.  Adjustment
        to Conversion Price.
        Whenever the Conversion Price is adjusted pursuant to any provision of this
        Section 5, the Company shall promptly mail to each Holder a notice setting
        forth
        the Conversion Price after such adjustment and setting forth a brief statement
        of the facts requiring such adjustment. If the Company enters into a Variable
        Rate Transaction, despite the prohibition thereon in the Purchase Agreement,
        the
        Company shall be deemed to have issued Common Stock or Common Stock Equivalents
        at the lowest possible conversion price at which such securities may be
        converted or exercised.

       

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

       

      
        
          
          

        

        
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      Section
        6. Forced
        Conversion.

      

      a)  Forced
        Conversion.
        Notwithstanding anything herein to the contrary, if after the Effective Date,
        the VWAP for each of any 20 consecutive Trading Days, which period shall
        have
        commenced only after the Effective Date (such period the “Threshold
        Period”),
        exceeds $2.00 (subject to adjustment for reverse and forward stock splits,
        stock
        dividends, stock combinations and other similar transactions of the Common
        Stock
        that occur after the Original Issue Date), the Company may, within 2 Trading
        Days after the end of any such Threshold Period, deliver a written notice
        to the
        Holder (a “Forced
        Conversion Notice”
and
        the
        date such notice is delivered to the Holder, the “Forced
        Conversion Notice Date”)
        to
        cause the Holder to convert all or part of the then outstanding principal
        amount
        of this Debenture plus, if so specified in the Forced Conversion Notice,
        accrued
        but unpaid interest, liquidated damages and other amounts owing to the Holder
        under this Debenture, it being agreed that the “Conversion Date” for purposes of
        Section 4 shall be deemed to occur on the twentieth Trading Day following
        the
        Forced Conversion Notice Date (such twentieth Trading Day, the “Forced
        Conversion Date”).
        The
        Company may not deliver a Forced Conversion Notice, and any Forced Conversion
        Notice delivered by the Company shall not be effective, unless all of the
        Equity
        Conditions are met on each Trading Day occurring during the applicable Threshold
        Period through and including the later of the Forced Conversion Date and
        the
        Trading Day after the date such Conversion Shares pursuant to such conversion
        are delivered to the Holder. Any Forced Conversion shall be applied ratably
        to
        all Holders based on their initial purchases of Debentures pursuant to the
        Purchase Agreement, provided that any voluntary conversions by a Holder during
        the period commencing on the Forced Conversion Notice Date through the date
        the
        Conversion Shares subject to such Forced Conversion are delivered to such
        Holder
        shall be applied against such Holder’s pro-rata allocation, thereby decreasing
        the aggregate amount forcibly converted hereunder if only a portion of this
        Debenture is forcibly converted. For purposes of clarification, a Forced
        Conversion shall be subject to all of the provisions of Section 4, including,
        without limitation, the provision requiring payment of liquidated damages
        and
        limitations on conversions.

      

      Section
        7. Negative
        Covenants.
        As long
        as any portion of this Debenture remains outstanding, without the prior written
        consent of the holders of a majority in principal amount of the Debentures
        then
        outstanding, the Company shall not, and shall not permit any of its Subsidiaries
        to, directly or indirectly:

       

      
        
          
          

        

        
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      a)  other
        than Permitted Indebtedness, enter into, create, incur, assume, guarantee
        or
        suffer to exist any indebtedness for borrowed money of any kind, including
        but
        not limited to, a guarantee, on or with respect to any of its property or
        assets
        now owned or hereafter acquired or any interest therein or any income or
        profits
        therefrom;

       

      b)  other
        than Permitted Liens, enter into, create, incur, assume or suffer to exist
        any
        Liens of any kind, on or with respect to any of its property or assets now
        owned
        or hereafter acquired or any interest therein or any income or profits
        therefrom;

      

      c)  amend
        its
        charter documents, including, without limitation, the certificate of
        incorporation and bylaws, in any manner that directly, materially and adversely
        affects any rights of the Holder under the Debentures and/or the Warrants
        (for
        clarity, an amendment to the Company’s certificate of incorporation to authorize
        the issuance of preferred stock shall not be prohibited pursuant to this
        Section
        7(c));

      

      d)  repay,
        repurchase or offer to repay, repurchase or otherwise acquire more than a
        de minimis
        number
        of shares of its Common Stock or Common Stock Equivalents other than as to
        (a)
        the Conversion Shares or Warrant Shares as permitted or required under the
        Transaction Documents and (b) repurchases of Common Stock or Common Stock
        Equivalents of departing officers and directors of the Company, provided
        that
        such repurchases shall not exceed an aggregate of $100,000 for all officers
        and
        directors during the term of this Debenture; 

      

      e)  pay
        cash
        dividends or distributions on any equity securities of the Company;
        or

      

      f)  enter
        into any agreement with respect to any of the foregoing.

       

      Section
        8. Events
        of Default.
        

      

      a)  “Event
        of Default”
means,
        wherever used herein, any of the following events (whatever the reason for
        such
        event and whether such event shall be voluntary or involuntary or effected
        by
        operation of law or pursuant to any judgment, decree or order of any court,
        or
        any order, rule or regulation of any administrative or governmental
        body):

      

      i.  any
        default in the payment of (A) the principal amount of any Debenture or (B)
        interest, liquidated damages and other amounts owing to a Holder on any
        Debenture, as and when the same shall become due and payable (whether on
        a
        Conversion Date or the Maturity Date or by acceleration or otherwise) which
        default, solely in the case of an interest payment or other default under
        clause
        (B) above, is not cured within five Trading Days;

       

      
        
          
          

        

        
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      ii.  the
        Company shall fail to observe or perform any other covenant or agreement
        contained in the Debentures (other than a breach by the Company of its
        obligations to deliver shares of Common Stock to the Holder upon conversion,
        which breach is addressed in clause (xi) below) which failure is not cured,
        if
        possible to cure, within the earlier to occur
        of
(A)
        seven
Trading
        Days after notice of such failure sent by the Holder or by any other
        Holder
        and (B)
        twelve Trading Days after the Company has become or should have become aware
        of
        such failure;

      

      iii.  a
        default
        or event of default (subject to any grace or cure period provided in the
        applicable agreement, document or instrument) shall occur under (A) any of
        the
        Transaction Documents or (B) any other material agreement, lease, document
        or
        instrument to which the Company or any Subsidiary is obligated (and not covered
        by clause (vi) below);

      

      iv.  any
        representation
        or warranty made in this Debenture, any other Transaction Documents, any
        written
        statement pursuant hereto or thereto or any other report, financial statement
        or
        certificate made or delivered to the Holder or any other Holder shall
        be
        untrue or incorrect in any material respect as of the date when made or deemed
        made;

      

      v.  the
        Company or any Significant Subsidiary shall be subject to a Bankruptcy
        Event;

       

      vi.  the
        Company or any Subsidiary shall default on any of its obligations under any
        mortgage, credit agreement or other facility, indenture agreement, factoring
        agreement or other instrument under which there may be issued, or by which
        there
        may be secured or evidenced, any indebtedness for borrowed money or money
        due
        under any long term leasing or factoring arrangement that (a) involves an
        obligation greater than $450,000, whether such indebtedness now exists or
        shall
        hereafter be created, and (b) results in such indebtedness becoming or being
        declared due and payable prior to the date on which it would otherwise become
        due and payable; 

      

      vii.  the
        Common Stock shall not be eligible for listing or quotation for trading on
        a
        Trading Market and shall not be eligible to resume listing or quotation for
        trading thereon within five Trading Days;

      

      viii.  the
        Company shall be a party to any Change of Control Transaction or Fundamental
        Transaction or shall agree to sell or dispose of all or in excess of 33%
        of its
        assets in one transaction or a series of related transactions (whether or
        not
        such sale would constitute a Change of Control Transaction);

       

      
        
          
          

        

        
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      ix.  a
        Registration Statement shall not have been declared effective by the Commission
        on or prior to the 210th calendar
        day after the Closing Date; 

      

      x.  if,
        during the Effectiveness Period (as defined in the Registration Rights
        Agreement), either (A) the effectiveness of the Registration Statement lapses
        for any reason or (B) the Holder shall not be permitted to resell Registrable
        Securities (as defined in the Registration Rights Agreement) under the
        Registration Statement for a period of more than 20 consecutive Trading Days
        or
        30 non-consecutive Trading Days during any 12 month period; provided,
        however,
        that if
        the Company
        is negotiating a merger, consolidation, acquisition or sale of all or
        substantially all of its assets or a similar transaction and, in the written
        opinion of counsel to the Company, the Registration Statement would be required
        to be amended to include information concerning such pending transaction(s)
        or
        the parties thereto which information is not available or may not be publicly
        disclosed at the time, the Company shall be permitted an additional 20
        consecutive Trading Days during any 12 month period pursuant to this Section
        8(a)(x);

      

      xi.  the
        Company shall fail for any reason to deliver certificates to a Holder prior
        to
        the fifth Trading Day after a Conversion Date or any Forced Conversion Date
        pursuant to Section 4(d) or the Company shall provide at any time notice
        to the
        Holder, including by way of public announcement, of the Company’s intention to
        not honor requests for conversions of any Debentures in accordance with the
        terms hereof; or

      

      xii.  any
        monetary judgment, writ or similar final process shall be entered or filed
        against the Company, any Subsidiary or any of their respective property or
        other
        assets for more than $250,000, and such judgment, writ or similar final process
        shall remain unvacated, unbonded or unstayed for a period of 45 calendar
        days.

       

      b)  Remedies
        Upon Event of Default.
        If any
        Event of Default occurs, the outstanding principal amount of this Debenture,
        plus accrued but unpaid interest, liquidated damages and other amounts owing
        in
        respect thereof through the date of acceleration, shall become, at the Holder’s
        election, immediately due and payable in cash at the Mandatory Default Amount.
        Commencing 5 days after the occurrence of any Event of Default that results
        in
        the eventual acceleration of this Debenture, the interest rate on this Debenture
        shall accrue at an interest rate equal to the lesser of 18% per annum or
        the
        maximum rate permitted under applicable law. Upon the payment in full of
        the
        Mandatory Default Amount, the Holder shall promptly surrender this Debenture
        to
        or as directed by the Company. In connection with such acceleration described
        herein, the Holder need not provide, and the Company hereby waives, any
        presentment, demand, protest or other notice of any kind, and the Holder
        may
        immediately and without expiration of any grace period enforce any and all
        of
        its rights and remedies hereunder and all other remedies available to it
        under
        applicable law. Such acceleration may be rescinded and annulled by Holder
        at any
        time prior to payment hereunder and the Holder shall have all rights as a
        holder
        of the Debenture until such time, if any, as the Holder receives full payment
        pursuant to this Section 8(b). No such rescission or annulment shall affect
        any
        subsequent Event of Default or impair any right consequent thereon.

       

      
        
          
          

        

        
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      Section
        9. Miscellaneous.
        

       

      a)  Notices.
        Any and
        all notices or other communications or deliveries to be provided by the Holder
        hereunder, including, without limitation, any Notice of Conversion, shall
        be in
        writing and delivered personally, by facsimile, or sent by a nationally
        recognized overnight courier service, addressed to the Company, at the address
        set forth above, facsimile number (818)
        450-2679, Attn: Howard Livingston or
        such
        other facsimile number or address as the Company may specify for such purpose
        by
        notice to the Holder delivered in accordance with this Section 9. Any and
        all
        notices or other communications or deliveries to be provided by the Company
        hereunder shall be in writing and delivered personally, by facsimile, or
        sent by
        a nationally recognized overnight courier service addressed to each Holder
        at
        the facsimile number or address of such Holder appearing on the books of
        the
        Company, or if no such facsimile number or address appears, at the principal
        place of business of the Holder. Any notice or other communication or deliveries
        hereunder shall be deemed given and effective on the earliest of (i) the
        date of
        transmission, if such notice or communication is delivered via facsimile
        at the
        facsimile number specified in this Section 9 prior to 5:30 p.m. (New York
        City
        time), (ii) the date immediately following the date of transmission, if such
        notice or communication is delivered via facsimile at the facsimile number
        specified in this Section 9 between 5:30 p.m. (New York City time) and 11:59
        p.m. (New York City time) on any date, (iii) the second Business Day following
        the date of mailing, if sent by nationally recognized overnight courier service,
        or (iv) upon actual receipt by the party to whom such notice is required
        to be
        given.

       

      b)  Absolute
        Obligation.
        Except
        as expressly provided herein, no provision of this Debenture shall alter
        or
        impair the obligation of the Company, which is absolute and unconditional,
        to
        pay the principal of, liquidated damages and accrued interest, as applicable,
        on
        this Debenture at the time, place, and rate, and in the coin or currency,
        herein
        prescribed. This Debenture is a direct debt obligation of the Company. This
        Debenture ranks pari passu
        with all
        other Debentures now or hereafter issued under the terms set forth
        herein. 

       

      c)  Lost
        or Mutilated Debenture.
        If this
        Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
        execute and deliver, in exchange and substitution for and upon cancellation
        of a
        mutilated Debenture, or in lieu of or in substitution for a lost, stolen
        or
        destroyed Debenture, a new Debenture for the principal amount of this Debenture
        so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
        of
        such loss, theft or destruction of such Debenture, and of the ownership hereof
        (including reasonable indemnity), reasonably satisfactory to the
        Company.

       

      
        
          
          

        

        
          73

          
            

          

        

        
          
          

        

      

       

      d)  Governing
        Law; Arbitration.
        This
        Debenture shall be governed by and construed in accordance with the internal
        laws of the State of New York. Any controversy or claim arising out of or
        related to this Debenture or the breach thereof, shall be settled by binding
        arbitration in New York, New York in accordance with the Expedited Procedures
        (Rules 53-57) of the Commercial Arbitration Rules of the American Arbitration
        Association (“AAA”).
        A
        proceeding shall be commenced upon written demand by the Company or Holder
        to
        the other. The arbitrator(s) shall enter a judgment by default against any
        party, which fails or refuses to appear in any properly noticed arbitration
        proceeding. The proceeding shall be conducted by one (1) arbitrator, unless
        the
        amount alleged to be in dispute exceeds two hundred fifty thousand dollars
        ($250,000), in which case three (3) arbitrators shall preside. The arbitrator(s)
        will be chosen by the parties from a list provided by the AAA, and if the
        parties are unable to agree within ten (10) days, the AAA shall select the
        arbitrator(s). The arbitrators must be experts in securities law and financial
        transactions. The arbitrators shall assess costs and expenses of the
        arbitration, including all attorneys’ and experts’ fees, as the arbitrators
        believe is appropriate in light of the merits of the parties’ respective
        positions in the issues in dispute. Each party submits irrevocably to the
        jurisdiction of any state court sitting in New York, New York or to the United
        States District Court sitting in New York, New York for purposes of enforcement
        of any discovery order, judgment or award in connection with such arbitration.
        The award of the arbitrator(s) shall be final and binding upon the parties
        and
        may be enforced in any court having jurisdiction. The arbitration shall be
        held
        in such place as set by the arbitrator(s) in accordance with Rule 55. With
        respect to any arbitration proceeding in accordance with this section, the
        prevailing party’s reasonable attorney’s fees and expenses shall be borne by the
        non-prevailing party.

      

      Although
        the parties, as expressed above, agree that all claims, including claims
        that
        are equitable in nature, for example specific performance, shall initially
        be
        prosecuted in the binding arbitration procedure outlined above, if the
        arbitration panel dismisses or otherwise fails to entertain any or all of
        the
        equitable claims asserted by reason of the fact that it lacks jurisdiction,
        power and/or authority to consider such claims and/or direct the remedy
        requested, then, in only that event, will the parties have the right to initiate
        litigation respecting such equitable claims or remedies. The forum for such
        equitable relief shall be in either a state or federal court sitting in New
        York, New York. Each party waives any right to a trial by jury, assuming
        such
        right exists in an equitable proceeding, and irrevocably submits to the
        jurisdiction of said New York court. New York law shall govern both the
        proceeding as well as the interpretation and construction of this Debenture
        and
        the transaction as a whole.

      

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

       

      
        
          
          

        

        
          74

          
            

          

        

        
          
          

        

      

       

      f)  Severability.
        If any
        provision of this Debenture is invalid, illegal or unenforceable, the balance
        of
        this Debenture shall remain in effect, and if any provision is inapplicable
        to
        any Person or circumstance, it shall nevertheless remain applicable to all
        other
        Persons and circumstances. If it shall be found that any interest or other
        amount deemed interest due hereunder violates the applicable law governing
        usury, the applicable rate of interest due hereunder shall automatically
        be
        lowered to equal the maximum rate of interest permitted under applicable
        law.
        The Company covenants (to the extent that it may lawfully do so) that it
        shall
        not at any time insist upon, plead, or in any manner whatsoever claim or
        take
        the benefit or advantage of, any stay, extension or usury law or other law
        which
        would prohibit or forgive the Company from paying all or any portion of the
        principal of or interest on this Debenture as contemplated herein, wherever
        enacted, now or at any time hereafter in force, or which may affect the
        covenants or the performance of this indenture, and the Company (to the extent
        it may lawfully do so) hereby expressly waives all benefits or advantage
        of any
        such law, and covenants that it will not, by resort to any such law, hinder,
        delay or impeded the execution of any power herein granted to the Holder,
        but
        will suffer and permit the execution of every such as though no such law
        has
        been enacted.

       

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

      

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

      

      i)  Assumption. 
        Any successor to the Company or any surviving entity in a Fundamental
        Transaction shall (i) assume, prior to such Fundamental Transaction, all
        of the
        obligations of the Company under this Debenture and the other Transaction
        Documents pursuant to written agreements in form and substance satisfactory
        to
        the Holder (such approval not to be unreasonably withheld or delayed) and
        (ii)
        issue to the Holder a new debenture of such successor entity evidenced by
        a
        written instrument substantially similar in form and substance to this
        Debenture, including, without limitation, having a principal amount and interest
        rate equal to the principal amount and the interest rate of this Debenture
        and
        having similar ranking to this Debenture, which shall be satisfactory to
        the
        Holder (any such approval not to be unreasonably withheld or delayed).  The
        provisions of this Section 9(i) shall apply similarly and equally to successive
        Fundamental Transactions and shall be applied without regard to any limitations
        of this Debenture.

      

      

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

       

      
        
          
          

        

        
          75

          
            

          

        

        
          
          

        

         

      

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

      

      

      
        	 	
                CENTERSTAGING
                  CORP.

                 

                 

              
	 	By:	
                __________________________________________

                Name:

                Title:

              

      

       

      
        
          
          

        

        
          76

          
            

          

        

        
          
          

        

      

       

      ANNEX
        A

      

      NOTICE
        OF CONVERSION

       

      

      The
        undersigned hereby elects to convert principal under the 10% Convertible
        Debenture due December 31, 2008 of CenterStaging Corp., a Delaware corporation
        (the “Company”),
        into
        shares of common stock, par value $.0001 per share (the “Common
        Stock”),
        of
        the Company according to the conditions hereof, as of the date written below.
        If
        shares of Common Stock are to be issued in the name of a person other than
        the
        undersigned, the undersigned will pay all transfer taxes payable with respect
        thereto and is delivering herewith such certificates and opinions as reasonably
        requested by the Company in accordance therewith. No fee will be charged
        to the
        holder for any conversion, except for such transfer taxes, if any.

      

      By
        the
        delivery of this Notice of Conversion the undersigned represents and warrants
        to
        the Company that its ownership of the Common Stock does not exceed the amounts
        specified under Section 4 of this Debenture, as determined in accordance
        with
        Section 13(d) of the Exchange Act.

      

      The
        undersigned agrees to comply with the prospectus delivery requirements under
        the
        applicable securities laws in connection with any transfer of the aforesaid
        shares of Common Stock. 

      

      Conversion
        calculations:   

      Date
        to
        Effect Conversion:

      

      Principal
        Amount of Debenture to be Converted:

      

      Payment
        of Interest in Common Stock __ yes __ no

      If
        yes,
        $_____ of Interest Accrued on Account of Conversion at Issue.

      Number
        of
        shares of Common Stock to be issued:

       

      Signature:

      Name: 

      Address:

       

      
        
          
          

        

        
          77

          
            

          

        

        
          
          

        

      

       

      Schedule
        1

      

      CONVERSION
        SCHEDULE

      

      The
        10%
        Convertible Debentures due on December 31, 2008 in the aggregate principal
        amount of $____________ are issued by CenterStaging Corp. This Conversion
        Schedule reflects conversions made under Section 4 of the above referenced
        Debenture.

      

      Dated:
        

       

      
        	
                 

                Date
                  of Conversion

                (or
                  for first entry, 

                Original
                  Issue Date)

              	
                 

                Amount
                  of 

                Conversion

              	
                 

                Aggregate
                  

                Principal
                  

                Amount
                  

                Remaining
                  

                Subsequent
                  to 

                Conversion

                (or
                  original 

                Principal
                  Amount)

              	
                 

                Company
                  Attest

              
	 	 	 	 
	 	 	 	 
	
                 

              	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

      

       

      
        
          
          

        

        
          78

          
            

          

        

        
          
          

        

      

       

      

        EXHIBIT
          C

         

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

        

        COMMON
          STOCK PURCHASE WARRANT

        

        CENTERSTAGING
          CORP.

         

        
          	
                  Warrant
                    Shares: _______

                	
                  Initial
                    Exercise Date: January 16, 2007

                

        

         

        THIS
          COMMON STOCK PURCHASE WARRANT (the “Warrant”)
          certifies that, for value received, _____________ (the “Holder”),
          is
          entitled, upon the terms and subject to the limitations on exercise and
          the
          conditions hereinafter set forth, at any time on or after the date hereof
          (the
“Initial
          Exercise Date”)
          and on
          or prior to the close of business on December 31, 2009 (the “Termination
          Date”)
          but
          not thereafter, to subscribe for and purchase from CenterStaging Corp.,
          a
          Delaware corporation (the “Company”),
          up to
          ______ shares (the “Warrant
          Shares”)
          of
          common stock, par value $0.0001 per share, of the Company (the “Common
          Stock”).
          The
          purchase price of one share of Common Stock under this Warrant shall be
          equal to
          the Exercise Price, as defined in Section 2(b). 

         

        This
          Warrant is detachable from any other securities issued pursuant to the
          Purchase
          Agreement and shall not be deemed cancelled, redeemed or otherwise if such
          other
          securities are converted, redeemed or otherwise.

         

        Section
          1. Definitions.
          Capitalized terms used and not otherwise defined herein shall have the
          meanings
          set forth in that certain Securities Purchase Agreement (the “Purchase
          Agreement”),
          dated
          January 16, 2007, among the Company and the purchasers signatory
          thereto.

         

        Section
          2. Exercise.

         

        
          
            
            

          

          
            79

            
              

            

          

          
            
            

          

        

         

        a)  Exercise
          of Warrant.
          Exercise of the purchase rights represented by this Warrant may be made,
          in
          whole or in part, at any time or times on or after the Initial Exercise
          Date and
          on or before the Termination Date by delivery to the Company of a duly
          executed
          facsimile copy of the Notice of Exercise Form annexed hereto (or such other
          office or agency of the Company as it may designate by notice in writing
          to the
          registered Holder at the address of such Holder appearing on the books
          of the
          Company); and, within 3 Trading Days of the date said Notice of Exercise
          is
          delivered to the Company, the Company shall have received payment of the
          aggregate Exercise Price of the shares thereby purchased by wire transfer
          or
          cashier’s check drawn on a United States bank. Notwithstanding anything herein
          to the contrary, the Holder shall not be required to physically surrender
          this
          Warrant to the Company until the Holder has purchased all of the Warrant
          Shares
          available hereunder and the Warrant has been exercised in full, in which
          case,
          the Holder shall surrender this Warrant to the Company for cancellation
          within 3
          Trading Days of the date the final Notice of Exercise is delivered to the
          Company. Partial exercises of this Warrant resulting in purchases of a
          portion
          of the total number of Warrant Shares available hereunder shall have the
          effect
          of lowering the outstanding number of Warrant Shares purchasable hereunder
          in an
          amount equal to the applicable number of Warrant Shares purchased. The
          Holder
          and the Company shall maintain records showing the number of Warrant Shares
          purchased and the date of such purchases. The Company shall deliver any
          objection to any Notice of Exercise Form within 1 Business Day of receipt
          of
          such notice. The Holder and any assignee, by acceptance of this Warrant,
          acknowledge and agree that, by reason of the provisions of this paragraph,
          following the purchase of a portion of the Warrant Shares hereunder, the
          number
          of Warrant Shares available for purchase hereunder at any given time may
          be less
          than the amount stated on the face hereof.

         

        b)  Exercise
          Price.
          The
          exercise price per share of the Common Stock under this Warrant shall be
          $1.10,
          subject
          to adjustment hereunder (the “Exercise
          Price”).

         

        c)  Cashless
          Exercise.
          If at
          any time after one year from the date of issuance of this Warrant there
          is no
          effective Registration Statement registering, or no current prospectus
          available
          for, the resale of the Warrant Shares by the Holder, then this Warrant
          may also
          be exercised at such time by means of a “cashless exercise” in which the Holder
          shall be entitled to receive a certificate for the number of Warrant Shares
          equal to the quotient obtained by dividing [(A-B) (X)] by (A),
          where:

         

        
          	
                  (A)

                	
                  =

                	
                  the
                    VWAP on the Trading Day immediately preceding the date of such
                    election;

                
	 	 	 
	
                  (B)

                	
                  =
                    

                	
                  the
                    Exercise Price of this Warrant, as adjusted; and 

                
	 	 	 
	
                  (X)

                	
                  =

                	
                  the
                    number of Warrant Shares issuable upon exercise of this Warrant
                    in
                    accordance with the terms of this Warrant by means of a cash
                    exercise
                    rather than a cashless exercise.

                

        

         

        
          
            
            

          

          
            80

            
              

            

          

          
            
            

          

        

         

        Notwithstanding
          anything herein to the contrary, on the Termination Date, this Warrant
          shall be
          automatically exercised via cashless exercise pursuant to this Section
          2(c).

        

        d)  Holder’s
          Restrictions.
          The
          Company shall not effect any exercise of this Warrant, and a Holder shall
          not
          have the right to exercise any portion of this Warrant, pursuant to Section
          2(c)
          or otherwise, to the extent that after giving effect to such issuance after
          exercise as set forth on the applicable Notice of Exercise, such Holder
          (together with such Holder’s Affiliates, and any other person or entity acting
          as a group together with such Holder or any of such Holder’s Affiliates), as set
          forth on the applicable Notice of Exercise, would beneficially own in excess
          of
          the Beneficial Ownership Limitation (as defined below).  For purposes of
          the foregoing sentence, the number of shares of Common Stock beneficially
          owned
          by such Holder and its Affiliates shall include the number of shares of
          Common
          Stock issuable upon exercise of this Warrant with respect to which such
          determination is being made, but shall exclude the number of shares of
          Common
          Stock which would be issuable upon (A) exercise of the remaining, nonexercised
          portion of this Warrant beneficially owned by such Holder or any of its
          Affiliates and (B) exercise or conversion of the unexercised or nonconverted
          portion of any other securities of the Company (including, without limitation,
          any other Debentures or Warrants) subject to a limitation on conversion
          or
          exercise analogous to the limitation contained herein beneficially owned
          by such
          Holder or any of its affiliates.  Except as set forth in the preceding
          sentence, for purposes of this Section 2(d), beneficial ownership shall
          be
          calculated in accordance with Section 13(d) of the Exchange Act and the
          rules
          and regulations promulgated thereunder, it being acknowledged by a Holder
          that
          the Company is not representing to such Holder that such calculation is
          in
          compliance with Section 13(d) of the Exchange Act and such Holder is solely
          responsible for any schedules required to be filed in accordance therewith.
          To
          the extent that the limitation contained in this Section 2(d) applies,
          the
          determination of whether this Warrant is exercisable (in relation to other
          securities owned by such Holder together with any Affiliates) and of which
          a
          portion of this Warrant is exercisable shall be in the sole discretion
          of a
          Holder, and the submission of a Notice of Exercise shall be deemed to be
          each
          Holder’s determination of whether this Warrant is exercisable (in relation to
          other securities owned by such Holder together with any Affiliates) and
          of which
          portion of this Warrant is exercisable, in each case subject to such aggregate
          percentage limitation, and the Company shall have no obligation to verify
          or
          confirm the accuracy of such determination. In addition, a determination
          as to
          any group status as contemplated above shall be determined in accordance
          with
          Section 13(d) of the Exchange Act and the rules and regulations promulgated
          thereunder. For purposes of this Section 2(d), in determining the number
          of
          outstanding shares of Common Stock, a Holder may rely on the number of
          outstanding shares of Common Stock as reflected in (x) the Company’s most recent
          Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public
          announcement by the Company or (z) any other notice by the Company or the
          Company’s Transfer Agent setting forth the number of shares of Common Stock
          outstanding.  Upon the written or oral request of a Holder, the Company
          shall within two Trading Days confirm orally and in writing to such Holder
          the
          number of shares of Common Stock then outstanding.  In any case, the number
          of outstanding shares of Common Stock shall be determined after giving
          effect to
          the conversion or exercise of securities of the Company, including this
          Warrant,
          by such Holder or its Affiliates since the date as of which such number
          of
          outstanding shares of Common Stock was reported. The “Beneficial
          Ownership Limitation”
shall
          be 4.99% of the number of shares of the Common Stock outstanding immediately
          after giving effect to the issuance of shares of Common Stock issuable
          upon
          exercise of this Warrant. The Beneficial Ownership Limitation provisions
          of this
          Section 2(d) may be waived by such Holder, at the election of such Holder,
          upon
          not less than 61 days’ prior notice to the Company to change the Beneficial
          Ownership Limitation to 9.99% of the number of shares of the Common Stock
          outstanding immediately after giving effect to the issuance of shares of
          Common
          Stock upon exercise of this Warrant, and the provisions of this Section
          2(d)
          shall continue to apply. Upon such a change by a Holder of the Beneficial
          Ownership Limitation from such 4.99% limitation to such 9.99% limitation,
          the
          Beneficial Ownership Limitation may not be further waived by such Holder.
          The
          provisions of this paragraph shall be construed and implemented in a manner
          otherwise than in strict conformity with the terms of this Section 2(d)
          to
          correct this paragraph (or any portion hereof) which may be defective or
          inconsistent with the intended Beneficial Ownership Limitation herein contained
          or to make changes or supplements necessary or desirable to properly give
          effect
          to such limitation. The limitations contained in this Section 3(d) shall
          apply
          to a successor holder of this Warrant.

         

        
          
            
            

          

          
            81

            
              

            

          

          
            
            

          

        

         

        e)  Mechanics
          of Exercise.
          

         

        i.  Authorization
          of Warrant Shares.
          The
          Company covenants that all Warrant Shares which may be issued upon the
          exercise
          of the purchase rights represented by this Warrant will, upon exercise
          of the
          purchase rights represented by this Warrant, be duly authorized, validly
          issued,
          fully paid and nonassessable and free from all taxes, liens and charges
          created
          by the Company in respect of the issue thereof (other than taxes in respect
          of
          any transfer occurring contemporaneously with such issue). 

         

        ii.  Delivery
          of Certificates Upon Exercise.
          Certificates for shares purchased hereunder shall be transmitted by the
          transfer
          agent of the Company to the Holder by crediting the account of the Holder’s
          prime broker with the Depository Trust Company through its Deposit Withdrawal
          Agent Commission (“DWAC”)
          system
          if the Company is a participant in such system, and otherwise by physical
          delivery to the address specified by the Holder in the Notice of Exercise
          within
          3 Trading Days from the delivery to the Company of the Notice of Exercise
          Form,
          surrender of this Warrant (if required) and payment of the aggregate Exercise
          Price as set forth above (“Warrant
          Share Delivery Date”).
          This
          Warrant shall be deemed to have been exercised on the later to occur of
          the date
          the Notice of Exercise or the date the Exercise Price is received by the
          Company. The Warrant Shares shall be deemed to have been issued, and Holder
          or
          any other person so designated to be named therein shall be deemed to have
          become a holder of record of such shares for all purposes, as of the date
          the
          Warrant has been exercised by payment to the Company of the Exercise Price
          (or
          by cashless exercise, if permitted) and all taxes required to be paid by
          the
          Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of
          such
          shares, have been paid. If the Company fails for any reason to deliver
          to the
          Holder certificates evidencing the Warrant Shares subject to a Notice of
          Exercise by the second Trading Day following the Warrant Share Delivery
          Date,
          the Company shall pay to such Holder, in cash, as liquidated damages and
          not as
          a penalty, for each $1,000 of Warrant Shares subject to such exercise (based
          on
          the VWAP of the Common Stock on the date of the applicable Notice of Exercise),
          $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading
          Day
          after such liquidated damages begin to accrue) for each Trading Day after
          such
          second Trading Day following the Warrant Share Delivery Date until such
          certificates are delivered.

         

        
          
            
            

          

          
            82

            
              

            

          

          
            
            

          

        

         

        iii.  Delivery
          of New Warrants Upon Exercise.
          If this
          Warrant shall have been exercised in part, the Company shall, at the request
          of
          a Holder and upon surrender of this Warrant certificate, at the time of
          delivery
          of the certificate or certificates representing Warrant Shares, deliver
          to
          Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased
          Warrant Shares called for by this Warrant, which new Warrant shall in all
          other
          respects be identical with this Warrant.

         

        iv.  Rescission
          Rights.
          If the
          Company fails to cause its transfer agent to transmit to the Holder a
          certificate or certificates representing the Warrant Shares pursuant to
          this
          Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will
          have
          the right to rescind such exercise.

         

        v.  Compensation
          for Buy-In on Failure to Timely Deliver Certificates Upon
          Exercise.
          In
          addition to any other rights available to the Holder, if the Company fails
          to
          cause its transfer agent to transmit to the Holder a certificate or certificates
          representing the Warrant Shares pursuant to an exercise on or before the
          Warrant
          Share Delivery Date, and if after such date the Holder is required by its
          broker
          to purchase (in an open market transaction or otherwise) or the Holder’s
          brokerage firm otherwise purchases, shares of Common Stock to deliver in
          satisfaction of a sale by the Holder of the Warrant Shares which the Holder
          anticipated receiving upon such exercise (a “Buy-In”),
          then
          the Company shall (1) pay in cash to the Holder the amount by which (x)
          the
          Holder’s total purchase price (including brokerage commissions, if any) for the
          shares of Common Stock so purchased exceeds (y) the amount obtained by
          multiplying (A) the number of Warrant Shares that the Company was required
          to
          deliver to the Holder in connection with the exercise at issue times (B)
          the
          price at which the sell order giving rise to such purchase obligation was
          executed, and (2) at the option of the Holder, either reinstate the portion
          of
          the Warrant and equivalent number of Warrant Shares for which such exercise
          was
          not honored or deliver to the Holder the number of shares of Common Stock
          that
          would have been issued had the Company timely complied with its exercise
          and
          delivery obligations hereunder. For example, if the Holder purchases Common
          Stock having a total purchase price of $11,000 to cover a Buy-In with respect
          to
          an attempted exercise of shares of Common Stock with an aggregate sale
          price
          giving rise to such purchase obligation of $10,000, under clause (1) of
          the
          immediately preceding sentence the Company shall be required to pay the
          Holder
          $1,000. The Holder shall provide the Company written notice indicating
          the
          amounts payable to the Holder in respect of the Buy-In and, upon request
          of the
          Company, evidence of the amount of such loss. Nothing herein shall limit
          a
          Holder’s right to pursue any other remedies available to it hereunder, at law
          or
          in equity including, without limitation, a decree of specific performance
          and/or
          injunctive relief with respect to the Company’s failure to timely deliver
          certificates representing shares of Common Stock upon exercise of the Warrant
          as
          required pursuant to the terms hereof.

         

        
          
            
            

          

          
            83

            
              

            

          

          
            
            

          

        

         

        vi.  No
          Fractional Shares or Scrip.
          No
          fractional shares or scrip representing fractional shares shall be issued
          upon
          the exercise of this Warrant. As to any fraction of a share which Holder
          would
          otherwise be entitled to purchase upon such exercise, the Company shall
          at its
          election, either pay a cash adjustment in respect of such final fraction
          in an
          amount equal to such fraction multiplied by the Exercise Price or round
          up to
          the next whole share.

         

        vii.  Charges,
          Taxes and Expenses.
          Issuance of certificates for Warrant Shares shall be made without charge
          to the
          Holder for any issue or transfer tax or other incidental expense in respect
          of
          the issuance of such certificate, all of which taxes and expenses shall
          be paid
          by the Company, and such certificates shall be issued in the name of the
          Holder
          or in such name or names as may be directed by the Holder; provided,
          however,
          that in
          the event certificates for Warrant Shares are to be issued in a name other
          than
          the name of the Holder, this Warrant when surrendered for exercise shall
          be
          accompanied by the Assignment Form attached hereto duly executed by the
          Holder;
          and the Company may require, as a condition thereto, the payment of a sum
          sufficient to reimburse it for any transfer tax incidental thereto.

         

        viii.  Closing
          of Books.
          The
          Company will not close its stockholder books or records in any manner which
          prevents the timely exercise of this Warrant, pursuant to the terms
          hereof.

         

        f)  Call
          Provision.
          Subject
          to the provisions of Section 2(d) and this Section 2(f), if, after the
          Effective
          Date (i) the VWAP for each of 20 consecutive Trading Days (the “Measurement
          Period,”
which
          20 consecutive Trading Day period shall not have commenced until after
          the
          Effective Date) exceeds $2.50 (subject to adjustment for forward and reverse
          stock splits, recapitalizations, stock dividends and the like after the
          Initial
          Exercise Date), (ii) the
          daily
          trading volume for the Common Stock on the principal Trading Market for
          each
          Trading Day during such Measurement Period exceeds $50,000 per Trading
          Day,
and
          (iii)
          the Holder is not in possession of any information that constitutes, or
          might
          constitute, material non-public information, then the Company may, within
          two
          Trading Days of the end of such Measurement Period, call for cancellation
          of all
          or any portion of this Warrant for which a Notice of Exercise has not yet
          been
          delivered (such right, a “Call”)
          for
          consideration equal to $0.001 per Share. To exercise this right, the Company
          must deliver to the Holder an irrevocable written notice (a “Call
          Notice”),
          indicating therein the portion of unexercised portion of this Warrant to
          which
          such notice applies. If the conditions set forth below for such Call are
          satisfied from the period from the date of the Call Notice through and
          including
          the Call Date (as defined below), then any portion of this Warrant subject
          to
          such Call Notice for which a Notice of Exercise shall not have been received
          by
          the Call Date will be cancelled at 6:30 p.m. (New York City time) on the
          twentieth Trading Day after the date the Call Notice is received by the
          Holder
          (such date and time, the “Call
          Date”).
          Any
          unexercised portion of this Warrant to which the Call Notice does not pertain
          will be unaffected by such Call Notice. In furtherance thereof, the Company
          covenants and agrees that it will honor all Notices of Exercise with respect
          to
          Warrant Shares subject to a Call Notice that are tendered through 6:30
          p.m. (New
          York City time) on the Call Date. The parties agree that any Notice of
          Exercise
          delivered following a Call Notice which calls less than all the Warrants
          shall
          first reduce to zero the number of Warrant Shares subject to such Call
          Notice
          prior to reducing the remaining Warrant Shares available for purchase under
          this
          Warrant. For example, if (x) this Warrant then permits the Holder to acquire
          100
          Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares, and (z)
          after
          the Call Notice and prior to 6:30 p.m. (New York City time) on the Call
          Date the
          Holder tenders a Notice of Exercise in respect of 50 Warrant Shares, then
          (1) on
          the Call Date the right under this Warrant to acquire 25 Warrant Shares
          will be
          automatically cancelled, (2) the Company, in the time and manner required
          under
          this Warrant, will have issued and delivered to the Holder 50 Warrant Shares
          in
          respect of the exercises following receipt of the Call Notice, and (3)
          the
          Holder may, until the Termination Date, exercise this Warrant for 25 Warrant
          Shares (subject to adjustment as herein provided and subject to subsequent
          Call
          Notices). Subject again to the provisions of this Section 2(f), the Company
          may
          deliver subsequent Call Notices for any portion of this Warrant for which
          the
          Holder shall not have delivered a Notice of Exercise. Notwithstanding anything
          to the contrary set forth in this Warrant, the Company may not deliver
          a Call
          Notice or require the cancellation of this Warrant (and any such Call Notice
          shall be void), unless, from the beginning of the Measurement Period through
          the
          Call Date, (i) the Company shall have honored in accordance with the terms
          of
          this Warrant all Notices of Exercise delivered by 6:30 p.m. (New York City
          time)
          on the Call Date, and (ii) the Registration Statement shall be effective
          as to
          all Warrant Shares and the prospectus thereunder available for use by the
          Holder
          for the resale of all such Warrant Shares, and (iii) the Common Stock shall
          be
          listed or quoted for trading on the Trading Market, and (iv) there is a
          sufficient number of authorized shares of Common Stock for issuance of
          all
          Securities under the Transaction Documents, and (v) the issuance of the
          shares
          shall not cause a breach of any provision of 2(d) herein. The Company’s right to
          call the Warrants under this Section 2(f) shall be exercised ratably among
          the
          Holders based on each Holder’s initial purchase of Warrants, provided,
          however,
          that
          any Notices of Exercises by a Holder during the period commencing on the
          date of
          the Call Notice through 6:30 p.m. (New York City time) on the Call Date
          shall be
          applied against such Holder’s pro-rata allocation, thereby decreasing the
          aggregate amount subject to a Call Notice if only a portion of this Warrant
          is
          subject to such Call Notice.

         

        
          
            
            

          

          
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        Section
          3. Certain Adjustments.

         

        a)  Stock
          Dividends and Splits.
          If the
          Company, at any time while this Warrant is outstanding: (A) pays a stock
          dividend or otherwise make a distribution or distributions on shares of
          its
          Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
          shall not include any shares of Common Stock issued by the Company upon
          exercise
          of this Warrant), (B) subdivides outstanding shares of Common Stock into
          a
          larger number of shares, (C) combines (including by way of reverse stock
          split)
          outstanding shares of Common Stock into a smaller number of shares, or
          (D)
          issues by reclassification of shares of the Common Stock any shares of
          capital
          stock of the Company, then in each case the Exercise Price shall be multiplied
          by a fraction of which the numerator shall be the number of shares of Common
          Stock (excluding treasury shares, if any) outstanding immediately before
          such
          event and of which the denominator shall be the number of shares of Common
          Stock
          outstanding immediately after such event and the number of shares issuable
          upon
          exercise of this Warrant shall be proportionately adjusted. Any adjustment
          made
          pursuant to this Section 3(a) shall become effective immediately after
          the
          record date for the determination of stockholders entitled to receive such
          dividend or distribution and shall become effective immediately after the
          effective date in the case of a subdivision, combination or
          re-classification.

         

        b)  Subsequent
          Equity Sales.
          If the
          Company or any Subsidiary thereof, as applicable, at any time while this
          Warrant
          is outstanding, shall sell or grant any option to purchase, or sell or
          grant any
          right to reprice, or otherwise dispose of or issue any Common Stock or
          Common
          Stock Equivalents entitling any Person to acquire shares of Common Stock,
          at an
          effective price per share less than the then Exercise Price (such lower
          price,
          the “Base
          Share Price”
and
          such issuances collectively, a “Dilutive
          Issuance”)
          (if
          the holder of the Common Stock or Common Stock Equivalents so issued shall
          at
          any time, whether by operation of purchase price adjustments, reset provisions,
          floating conversion, exercise or exchange prices or otherwise, or due to
          warrants, options or rights per share which are issued in connection with
          such
          issuance, be entitled to receive shares of Common Stock at an effective
          price
          per share which is less than the Exercise Price, such issuance shall be
          deemed
          to have occurred for less than the Exercise Price on such date of the Dilutive
          Issuance), then the Exercise Price shall be reduced and only reduced to
          equal
          the Base Share Price and the number of Warrant Shares issuable hereunder
          shall
          be increased such that the aggregate Exercise Price payable hereunder,
          after
          taking into account the decrease in the Exercise Price, shall be equal
          to the
          aggregate Exercise Price prior to such adjustment. Such adjustment shall
          be made
          whenever such Common Stock or Common Stock Equivalents are issued.
          Notwithstanding the foregoing, no adjustments shall be made, paid or issued
          under this Section 3(b) in respect of an Exempt Issuance. The Company shall
          notify the Holder in writing, no later than the Trading Day following the
          issuance of any Common Stock or Common Stock Equivalents subject to this
          Section
          3(b), indicating therein the applicable issuance price, or applicable reset
          price, exchange price, conversion price and other pricing terms (such notice
          the
“Dilutive
          Issuance Notice”).
          For
          purposes of clarification, whether or not the Company provides a Dilutive
          Issuance Notice pursuant to this Section 3(b), upon the occurrence of any
          Dilutive Issuance, after the date of such Dilutive Issuance the Holder
          is
          entitled to receive a number of Warrant Shares based upon the Base Share
          Price
          regardless of whether the Holder accurately refers to the Base Share Price
          in
          the Notice of Exercise.

         

        
          
            
            

          

          
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        c)  Subsequent
          Rights Offerings.
          If the
          Company, at any time while the Warrant is outstanding, shall issue rights,
          options or warrants to all holders of Common Stock (and not to Holders)
          entitling them to subscribe for or purchase shares of Common Stock at a
          price
          per share less than the VWAP at the record date mentioned below, then the
          Exercise Price shall be multiplied by a fraction, of which the denominator
          shall
          be the number of shares of the Common Stock outstanding on the date of
          issuance
          of such rights or warrants plus the number of additional shares of Common
          Stock
          offered for subscription or purchase, and of which the numerator shall
          be the
          number of shares of the Common Stock outstanding on the date of issuance
          of such
          rights or warrants plus the number of shares which the aggregate offering
          price
          of the total number of shares so offered (assuming receipt by the Company
          in
          full of all consideration payable upon exercise of such rights, options
          or
          warrants) would purchase at such VWAP. Such adjustment shall be made whenever
          such rights or warrants are issued, and shall become effective immediately
          after
          the record date for the determination of stockholders entitled to receive
          such
          rights, options or warrants. 

         

        d)  Pro
          Rata Distributions.
          If the
          Company, at any time prior to the Termination Date, shall distribute to
          all
          holders of Common Stock (and not to Holders of the Warrants) evidences
          of its
          indebtedness or assets (including cash and cash dividends, but not including
          stock dividends payable in Common Stock, which shall be subject to Section
          3(a))
          or rights or warrants to subscribe for or purchase any security other than
          the
          Common Stock (which shall be subject to Section 3(b)), then in each such
          case
          the Exercise Price shall be adjusted by multiplying the Exercise Price
          in effect
          immediately prior to the record date fixed for determination of stockholders
          entitled to receive such distribution by a fraction of which the denominator
          shall be the VWAP determined as of the record date mentioned above, and
          of which
          the numerator shall be such VWAP on such record date less the then per
          share
          fair market value at such record date of the portion of such assets or
          evidence
          of indebtedness so distributed applicable to one outstanding share of the
          Common
          Stock as determined by the Board of Directors in good faith. In either
          case the
          adjustments shall be described in a statement provided to the Holder of
          the
          portion of assets or evidences of indebtedness so distributed or such
          subscription rights applicable to one share of Common Stock. Such adjustment
          shall be made whenever any such distribution is made and shall become effective
          immediately after the record date mentioned above.

         

        e)  Fundamental
          Transaction.
          If, at
          any time while this Warrant is outstanding, (A) the Company effects any
          merger
          or consolidation of the Company with or into another Person, (B) the Company
          effects any sale of all or substantially all of its assets in one or a
          series of
          related transactions, (C) any tender offer or exchange offer (whether by
          the
          Company or another Person, provided, however, in the case of any third
          party
          tender offer or exchange offer, such transaction results in a Change of
          Control
          Transaction (as defined in the Debentures)) is completed pursuant to which
          holders of Common Stock are permitted to tender or exchange their shares
          for
          other securities, cash or property, or (D) the Company effects any
          reclassification of the Common Stock or any compulsory share exchange pursuant
          to which the Common Stock is effectively converted into or exchanged for
          other
          securities, cash or property (each “Fundamental
          Transaction”),
          then,
          upon any subsequent exercise of this Warrant, the Holder shall have the
          right to
          receive, for each Warrant Share that would have been issuable upon such
          exercise
          immediately prior to the occurrence of such Fundamental Transaction, the
          number
          of shares of Common Stock of the successor or acquiring corporation or
          of the
          Company, if it is the surviving corporation, and any additional consideration
          (the “Alternate
          Consideration”)
          receivable as a result of such merger, consolidation or disposition of
          assets by
          a Holder of the number of shares of Common Stock for which this Warrant
          is
          exercisable immediately prior to such event. For purposes of any such exercise,
          the determination of the Exercise Price shall be appropriately adjusted
          to apply
          to such Alternate Consideration based on the amount of Alternate Consideration
          issuable in respect of one share of Common Stock in such Fundamental
          Transaction, and the Company shall apportion the Exercise Price among the
          Alternate Consideration in a reasonable manner reflecting the relative
          value of
          any different components of the Alternate Consideration. If holders of
          Common
          Stock are given any choice as to the securities, cash or property to be
          received
          in a Fundamental Transaction, then the Holder shall be given the same choice
          as
          to the Alternate Consideration it receives upon any exercise of this Warrant
          following such Fundamental Transaction. To the extent necessary to effectuate
          the foregoing provisions, any successor to the Company or surviving entity
          in
          such Fundamental Transaction shall issue to the Holder a new warrant consistent
          with the foregoing provisions and evidencing the Holder’s right to exercise such
          warrant into Alternate Consideration. The terms of any agreement pursuant
          to
          which a Fundamental Transaction is effected shall include terms requiring
          any
          such successor or surviving entity to comply with the provisions of this
          Section
          3(e) and insuring that this Warrant (or any such replacement security)
          will be
          similarly adjusted upon any subsequent transaction analogous to a Fundamental
          Transaction. Notwithstanding anything to the contrary, in the event of
          a
          Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
          transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
          as amended, or (3) a Fundamental Transaction involving a person or entity
          not
          traded on a national securities exchange, the Nasdaq Global Select Market,
          the
          Nasdaq Global Market, the Nasdaq Capital Market, the Company or any successor
          entity shall pay at the Holder’s option, exercisable at any time concurrently
          with or within 30 days after the consummation of the Fundamental Transaction,
          an
          amount of cash equal to the value of this Warrant as determined in accordance
          with the Black-Scholes option pricing formula using an expected volatility
          equal
          to the 100 day historical price volatility obtained from the HVT function
          on
          Bloomberg L.P. as of the trading day immediately prior to the public
          announcement of the Fundamental Transaction. 

         

        
          
            
            

          

          
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        f)  Calculations.
          All
          calculations under this Section 3 shall be made to the nearest cent or
          the
          nearest 1/100th of a share, as the case may be. For purposes of this Section
          3,
          the number of shares of Common Stock deemed to be issued and outstanding
          as of a
          given date shall be the sum of the number of shares of Common Stock (excluding
          treasury shares, if any) issued and outstanding.

         

        g)  Voluntary
          Adjustment By Company.
          The
          Company may at any time during the term of this Warrant reduce the then
          current
          Exercise Price to any amount and for any period of time deemed appropriate
          by
          the Board of Directors of the Company.

         

        h)  Notice
          to Holder.
          

         

        i.  Adjustment
          to Exercise Price.
          Whenever the Exercise Price is adjusted pursuant to any provision of this
          Section 3, the Company shall promptly mail to the Holder a notice setting
          forth
          the Exercise Price after such adjustment and setting forth a brief statement
          of
          the facts requiring such adjustment. If the Company enters into a Variable
          Rate
          Transaction (as defined in the Purchase Agreement) despite the prohibition
          thereon in the Purchase Agreement, the Company shall be deemed to have
          issued
          Common Stock or Common Stock Equivalents at the lowest possible conversion
          or
          exercise price at which such securities may be converted or
          exercised.

         

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

         

        
          
            
            

          

          
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        Section
          4. Transfer
          of Warrant.

         

        a)  Transferability.
          Subject
          to compliance with any applicable securities laws and the conditions set
          forth
          in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
          Agreement, this Warrant and all rights hereunder (including, without limitation,
          any registration rights) are transferable, in whole or in part, upon surrender
          of this Warrant at the principal office of the Company or its designated
          agent,
          together with a written assignment of this Warrant substantially in the
          form
          attached hereto duly executed by the Holder or its agent or attorney and
          funds
          sufficient to pay any transfer taxes payable upon the making of such transfer.
          Upon such surrender and, if required, such payment, the Company shall execute
          and deliver a new Warrant or Warrants in the name of the assignee or assignees
          and in the denomination or denominations specified in such instrument of
          assignment, and shall issue to the assignor a new Warrant evidencing the
          portion
          of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
          Such new Warrant shall reflect any prior partial exercises of the Warrant.
          A
          Warrant, if properly assigned, may be exercised by a new holder for the
          purchase
          of Warrant Shares without having a new Warrant issued. 

         

        b)  New
          Warrants.
          This
          Warrant may be divided or combined with other Warrants upon presentation
          hereof
          at the aforesaid office of the Company, together with a written notice
          specifying the names and denominations in which new Warrants are to be
          issued,
          signed by the Holder or its agent or attorney. Subject to compliance with
          Section 4(a), as to any transfer which may be involved in such division
          or
          combination, the Company shall execute and deliver a new Warrant or Warrants
          in
          exchange for the Warrant or Warrants to be divided or combined in accordance
          with such notice.

         

        c)  Warrant
          Register.
          The
          Company shall register this Warrant, upon records to be maintained by the
          Company for that purpose (the “Warrant
          Register”),
          in
          the name of the record Holder hereof from time to time. The Company may
          deem and
          treat the registered Holder of this Warrant as the absolute owner hereof
          for the
          purpose of any exercise hereof or any distribution to the Holder, and for
          all
          other purposes, absent actual notice to the contrary.

         

        d)  Transfer
          Restrictions.
          If,
          at the
time
          of
          the surrender of this Warrant in connection with any transfer of this Warrant,
          the transfer of this Warrant shall not be registered pursuant to an effective
          registration
          statement under the Securities Act
          and
under
          applicable state securities or blue sky laws, the Company may require,
          as a
          condition of allowing such transfer, that (i) the Holder or transferee
          of this
          Warrant, as the case may be, furnish to the Company a written opinion of
          counsel
          (which opinion shall be in form, substance and scope customary for opinions
          of
          counsel in comparable transactions) to the effect that such transfer may
          be made
          without
          registration under
          the
          Securities Act and under applicable state securities or blue sky laws,
          and (ii)
          the Holder or transferee execute and deliver to the Company an investment
          letter
          in form and substance acceptable to the Company, and (iii) the transferee
          be an
“accredited
          investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
          promulgated under the Securities Act or a “qualified institutional buyer” as
          defined in Rule 144A(a) promulgated under the Securities Act.

         

        
          
            
            

          

          
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        Section
          5. Miscellaneous.

         

        a)  No
          Rights as Shareholder Until Exercise.
          This
          Warrant does not entitle the Holder to any voting rights or other rights
          as a
          shareholder of the Company prior to the exercise hereof as set forth in
          Section
          2(e)(ii). 

         

        b)  Loss,
          Theft, Destruction or Mutilation of Warrant.
          The
          Company covenants that upon receipt by the Company of evidence reasonably
          satisfactory to it of the loss, theft, destruction or mutilation of this
          Warrant
          or any stock certificate relating to the Warrant Shares, and in case of
          loss,
          theft or destruction, of indemnity or security reasonably satisfactory
          to it
          (which, in the case of the Warrant, shall not include the posting of any
          bond),
          and upon surrender and cancellation of such Warrant or stock certificate,
          if
          mutilated, the Company will make and deliver a new Warrant or stock certificate
          of like tenor and dated as of such cancellation, in lieu of such Warrant
          or
          stock certificate.

         

        c)  Saturdays,
          Sundays, Holidays, etc.
          If the
          last or appointed day for the taking of any action or the expiration of
          any
          right required or granted herein shall not be a Business Day, then such
          action
          may be taken or such right may be exercised on the next succeeding Business
          Day.

         

        d)  Authorized
          Shares.
          

         

        The
          Company covenants that during the period the Warrant is outstanding, it
          will
          reserve from its authorized and unissued Common Stock a sufficient number
          of
          shares to provide for the issuance of the Warrant Shares upon the exercise
          of
          any purchase rights under this Warrant. The Company further covenants that
          its
          issuance of this Warrant shall constitute full authority to its officers
          who are
          charged with the duty of executing stock certificates to execute and issue
          the
          necessary certificates for the Warrant Shares upon the exercise of the
          purchase
          rights under this Warrant. The Company will take all such reasonable action
          as
          may be necessary to assure that such Warrant Shares may be issued as provided
          herein without violation of any applicable law or regulation, or of any
          requirements of the Trading Market upon which the Common Stock may be listed.
          

         

        
          
            
            

          

          
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        Except
          and to the extent as waived or consented to by the Holder, the Company
          shall not
          by any action, including, without limitation, amending its certificate
          of
          incorporation or through any reorganization, transfer of assets, consolidation,
          merger, dissolution, issue or sale of securities or any other voluntary
          action,
          avoid or seek to avoid the observance or performance of any of the terms
          of this
          Warrant, but will at all times in good faith assist in the carrying out
          of all
          such terms and in the taking of all such actions as may be necessary or
          appropriate to protect the rights of Holder as set forth in this Warrant
          against
          impairment. Without limiting the generality of the foregoing, the Company
          will
          (a) not increase the par value of any Warrant Shares above the amount payable
          therefor upon such exercise immediately prior to such increase in par value,
          (b)
          take all such action as may be necessary or appropriate in order that the
          Company may validly and legally issue fully paid and nonassessable Warrant
          Shares upon the exercise of this Warrant, and (c) use commercially reasonable
          efforts to obtain all such authorizations, exemptions or consents from
          any
          public regulatory body having jurisdiction thereof as may be necessary
          to enable
          the Company to perform its obligations under this Warrant.

         

        Before
          taking any action which would result in an adjustment in the number of
          Warrant
          Shares for which this Warrant is exercisable or in the Exercise Price,
          the
          Company shall obtain all such authorizations or exemptions thereof, or
          consents
          thereto, as may be necessary from any public regulatory body or bodies
          having
          jurisdiction thereof.

         

        e)  Jurisdiction.
          All
          questions concerning the construction, validity, enforcement and interpretation
          of this Warrant shall be determined in accordance with the provisions of
          the
          Purchase Agreement.

         

        f)  Restrictions.
          The
          Holder acknowledges that the Warrant Shares acquired upon the exercise
          of this
          Warrant, if not registered, will have restrictions upon resale imposed
          by state
          and federal securities laws.

         

        g)  Nonwaiver
          and Expenses.
          No
          course of dealing or any delay or failure to exercise any right hereunder
          on the
          part of Holder shall operate as a waiver of such right or otherwise prejudice
          Holder’s rights, powers or remedies, notwithstanding the fact that all rights
          hereunder terminate on the Termination Date. If the Company willfully and
          knowingly fails to comply with any provision of this Warrant, which results
          in
          any material damages to the Holder, the Company shall pay to Holder such
          amounts
          as shall be sufficient to cover any costs and expenses including, but not
          limited to, reasonable attorneys’ fees, including those of appellate
          proceedings, incurred by Holder in collecting any amounts due pursuant
          hereto or
          in otherwise enforcing any of its rights, powers or remedies
          hereunder.

         

        h)  Notices.
          Any
          notice, request or other document required or permitted to be given or
          delivered
          to the Holder by the Company shall be delivered in accordance with the
          notice
          provisions of the Purchase Agreement.

         

        
          
            
            

          

          
            90

            
              

            

          

          
            
            

          

        

         

        i)  Limitation
          of Liability.
          No
          provision hereof, in the absence of any affirmative action by Holder to
          exercise
          this Warrant to purchase Warrant Shares, and no enumeration herein of the
          rights
          or privileges of Holder, shall give rise to any liability of Holder for
          the
          purchase price of any Common Stock or as a stockholder of the Company,
          whether
          such liability is asserted by the Company or by creditors of the
          Company.

         

        j)  Remedies.
          Holder,
          in addition to being entitled to exercise all rights granted by law, including
          recovery of damages, will be entitled to specific performance of its rights
          under this Warrant. The Company agrees that monetary damages would not
          be
          adequate compensation for any loss incurred by reason of a breach by it
          of the
          provisions of this Warrant and hereby agrees to waive and not to assert
          the
          defense in any action for specific performance that a remedy at law would
          be
          adequate.

         

        k)  Successors
          and Assigns.
          Subject
          to applicable securities laws, this Warrant and the rights and obligations
          evidenced hereby shall inure to the benefit of and be binding upon the
          successors of the Company and the successors and permitted assigns of Holder.
          The provisions of this Warrant are intended to be for the benefit of all
          Holders
          from time to time of this Warrant and shall be enforceable by any such
          Holder or
          holder of Warrant Shares.

         

        l)  Amendment.
          This
          Warrant may be modified or amended or the provisions hereof waived with
          the
          written consent of the Company and the Holder.

         

        m)  Severability.
          Wherever possible, each provision of this Warrant shall be interpreted
          in such
          manner as to be effective and valid under applicable law, but if any provision
          of this Warrant shall be prohibited by or invalid under applicable law,
          such
          provision shall be ineffective to the extent of such prohibition or invalidity,
          without invalidating the remainder of such provisions or the remaining
          provisions of this Warrant.

         

        n)  Headings.
          The
          headings used in this Warrant are for the convenience of reference only
          and
          shall not, for any purpose, be deemed a part of this Warrant.

         

        

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

        
          
            
            

          

          
            91

            
              

            

          

          
            
            

          

        

         

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

         

         

        
          	 	
                  CENTERSTAGING
                    CORP.

                   

                
	 	By:	
                  __________________________________________

                  Name:

                  Title:

                

        

         

        
          
            
            

          

          
            92

            
              

            

          

          
            
            

          

        

         

        NOTICE
          OF EXERCISE

        

        TO: CENTERSTAGING
          CORP.

        

        (1)  The
          undersigned hereby elects to purchase ________ Warrant Shares of the Company
          pursuant to the terms of the attached Warrant (only if exercised in full),
          and
          tenders herewith payment of the exercise price in full, together with all
          applicable transfer taxes, if any.

         

        (2)  Payment
          shall take the form of (check applicable box):

         

        [
          ] in
          lawful money of the United States; or

         

        [
          ] [if
          permitted] the cancellation of such number of Warrant Shares as is necessary,
          in
          accordance with the formula set forth in subsection 2(c), to exercise this
          Warrant with respect to the maximum number of Warrant Shares purchasable
          pursuant to the cashless exercise procedure set forth in subsection
          2(c).

         

        (3)  Please
          issue a certificate or certificates representing said Warrant Shares in
          the name
          of the undersigned or in such other name as is specified below:

         

        _______________________________

         

        The
          Warrant Shares shall be delivered to the following DWAC Account Number
          or by
          physical delivery of a certificate to:

        _______________________________

         

        _______________________________

         

        _______________________________

        

        (4)
          Accredited
          Investor.
          The
          undersigned is an “accredited investor” as defined in Regulation D promulgated
          under the Securities Act of 1933, as amended. The undersigned is acquiring
          the
          Warrant Shares as principal for its own account and not with a view to
          or for
          distributing or reselling such Warrant Shares or any part thereof in violation
          of the Securities Act or any applicable state securities law, has no present
          intention of distributing any of such Warrant Shares in violation of the
          Securities Act or any applicable state securities law and has no direct
          or
          indirect arrangement or understandings with any other persons to distribute
          or
          regarding the distribution of such Warrant Shares (this representation
          and
          warranty not limiting such Purchaser’s right to sell the Warrant Shares pursuant
          to the Registration Statement or otherwise in compliance with applicable
          federal
          and state securities laws) in violation of the Securities Act or any applicable
          state securities law. The undersigned, either alone or together with its
          representatives, has such knowledge, sophistication and experience in business
          and financial matters so as to be capable of evaluating the merits and
          risks of
          the prospective investment in the Warrant Shares, and has so evaluated
          the
          merits and risks of such investment. The undersigned is able to bear the
          economic risk of an investment in the Warrant Shares and, at the present
          time,
          is able to afford a complete loss of such investment.

        

        [SIGNATURE
          OF HOLDER]

         

        Name
          of
          Investing Entity:
          ________________________________________________________________________

        Signature
          of Authorized Signatory of Investing Entity:
          _________________________________________________

        Name
          of
          Authorized Signatory:
          ___________________________________________________________________

        Title
          of
          Authorized Signatory:
          ____________________________________________________________________

        Date:
          ________________________________________________________________________________________

         

        
          
            
            

          

          
            93

            
              

            

          

          
            
            

          

        

         

        ASSIGNMENT
          FORM

        

        (To
          assign the foregoing warrant, execute

        this
          form
          and supply required information. 

        Do
          not
          use this form to exercise the warrant.)

        

        

        

        FOR
          VALUE
          RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and
          all
          rights evidenced thereby are hereby assigned to

         

        

        _______________________________________________
          whose address is

        

        _______________________________________________________________.

        

        

        

        _______________________________________________________________

        

        Dated:
          ______________, _______

        

        

        Holder’s
          Signature:_____________________________

        

        Holder’s
          Address: _____________________________

         

                                       _____________________________

        

        

        

        Signature
          Guaranteed: ___________________________________________

        

        

        NOTE:
          The
          signature to this Assignment Form must correspond with the name as it appears
          on
          the face of the Warrant, without alteration or enlargement or any change
          whatsoever, and must be guaranteed by a bank or trust company. Officers
          of
          corporations and those acting in a fiduciary or other representative capacity
          should file proper evidence of authority to assign the foregoing
          Warrant.

         

        
          
            
            

          

          
            94

            
              

            

          

          
            
            

          

        

         

        
          ESCROW
            DEPOSIT AGREEMENT

           

          This
            ESCROW
            DEPOSIT AGREEMENT
            (this
“Agreement”) dated as of this _____ day of December 2006, by and among
CenterStaging
            Corp., a
            Delaware corporation (the “Company”),
            having an address at 3404 Winona Avenue, Burbank, California 91504, HPC
            Capital Management Corp.,
            a
            Georgia corporation, having an address at 230 Park Avenue, 10th
            Floor,
            New York, NY 10169 (“Placement
            Agent”),
            and
Signature
            Bank
            (the
“Escrow
            Agent”),
            a New
            York State chartered bank, having an office at 261 Madison Avenue, New
            York, NY
            10016. All
            capitalized terms not herein defined shall have the meaning ascribed
            to them in
            that certain Securities Purchase Agreement, to be entered into on or
            about
            January 10, 2007, as amended or supplemented from time to time, including
            all
            attachments, schedules and exhibits thereto (the “Purchase
            Agreement”).

           

          WITNESSETH:

           

          WHEREAS,
            pursuant to the terms of the Purchase Agreement, the Company desires
            to sell
            (the “Offering”)
            a
            maximum of, in the aggregate, $3,000,000 of securities of the Company;
            and

           

          WHEREAS,
            unless
            the Company consummates the Offering by January 12, 2007 (the “Termination
            Date”),
            the
            Offering shall terminate and all funds shall be returned to the purchasers
            in
            the Offering; and

           

          WHEREAS,
            the
            Company and Placement Agent desire to establish an escrow account with
            the
            Escrow Agent into which the Placement Agent shall instruct purchasers
            introduced
            to the Company by Placement Agent (the “Purchasers”)
            to
            deposit checks and other instruments for the payment of money made payable
            to
            the order of “Signature Bank as Escrow Agent for CenterStaging Corp.” and Escrow
            Agent is willing to accept said checks and other instruments for the
            payment of
            money in accordance with the terms hereinafter set forth; and

           

          WHEREAS,
            each of
            the Company and Placement Agent, severally and not jointly, represents
            and
            warrants to the Escrow Agent that it has not stated to any individual
            or entity
            that the Escrow Agent’s duties will include anything other than those duties
            stated in this Agreement; and

           

          WHEREAS,
            Placement Agent warrants to the Escrow Agent that a copy of each document
            that
            has been delivered to Purchasers and third parties that include Escrow
            Agent’s
            name and duties, has been attached hereto as Schedule
            I.

           

          NOW,
            THEREFORE, IT IS AGREED
            as
            follows:

           

          1. Delivery
            of Escrow Funds.

           

          (a)
             Placement
            Agent shall instruct Purchasers to deliver to Escrow Agent checks made
            payable
            to the order of “Signature Bank, as Escrow Agent for CenterStaging Corp.” or
wire
            transfer to Signature Bank, 261 Madison Avenue, New York, NY 10016, ABA
            No.
026013576
            for credit to Signature Bank, as Escrow Agent for CenterStaging Corp.,
            Account
            No. 1500839070,
            in each
            case, with the name, address and social security number or taxpayer
            identification number of the individual or entity making payment. In
            the event
            any Purchaser’s address and/or social security number or taxpayer identification
            number are not provided to Escrow Agent by the Purchaser, then Placement
            Agent
            agrees to promptly provide Escrow Agent with such information in writing.
            The
            checks or wire transfers shall be deposited into a non interest-bearing
            account
            at Signature Bank entitled “Signature Bank, as Escrow Agent for CenterStaging
            Corp.” (the “Escrow
            Account”).
            

           

          
            
              
              

            

            
              95

              
                

              

            

            
              
              

            

          

           

          (b) The
            collected funds deposited into the Escrow Account are referred to as
            the
“Escrow
            Funds.”

           

          (c) The
            Escrow Agent shall have no duty or responsibility to enforce the collection
            or
            demand payment of any funds deposited into the Escrow Account. If, for
            any
            reason, any check deposited into the Escrow Account shall be returned
            unpaid to
            the Escrow Agent, the sole duty of the Escrow Agent shall be to return
            the check
            to the Purchaser and advise the Company and Placement Agent promptly
            thereof.

           

          2. Release
            of Escrow Funds.
            The
            Escrow Funds shall be paid by the Escrow Agent in accordance with the
            following:

           

          (a) In
            the
            event that both the Company and Placement Agent advise the Escrow Agent
            in
            writing that the Offering has been terminated (the “Termination
            Notice”),
            the
            Escrow Agent shall promptly return the funds paid by each Purchaser to
            said
            Purchaser without interest or offset.

           

          (b)
             [RESERVED].

           

          (c) Provided
            that the Escrow Agent does not receive the Termination Notice in accordance
            with
            paragraph 2(a), the Escrow Agent shall, upon receipt of written instructions,
            in
            the form of Exhibit
            B
            attached
            hereto or in form and substance satisfactory to the Escrow Agent, received
            from
            the Company and Placement Agent, pay the Escrow Funds in accordance with
            such
            written instructions, such payment or payments to be made by wire transfer
            within one (1) business day of receipt of such written instructions.
            

           

          (d) If
            by
            3:00 p.m. New York City time on the Termination Date, the Escrow Agent
            has not
            received written instructions from the Company and Placement Agent regarding
            the
            disbursement of the Escrow Funds, then the Escrow Agent shall promptly
            return
            the Escrow Funds to the Purchasers without interest or offset. The Escrow
            Funds
            returned to each Purchaser shall be free and clear of any and all claims
            of the
            Escrow Agent.

           

          
            
              
              

            

            
              96

              
                

              

            

            
              
              

            

          

           

          (e) Following
            the distribution of the Escrow Funds by the Escrow Agent in accordance
            with (c)
            of this Section 2 through the Termination Date, the Escrow Agent shall
            from time
            to time distribute any additional Escrow Funds, by wire transfer or bank
            check,
            in accordance with written instructions received from the Placement Agent
            and
            the Company in the form of Exhibit
            B
            or in
            form and substance satisfactory to the Escrow Agent, such payment or
            payments to
            be made by wire transfer within one (1) business day of receipt of such
            written
            instructions..

           

          (f) The
            Escrow Agent shall not be required to pay any uncollected funds or any
            funds
            that are not available for withdrawal.

           

          (g) If
            the
            Termination Date or any date that is a deadline under this Agreement
            for giving
            the Escrow Agent notice or instructions or for the Escrow Agent to take
            action
            is not a Banking Day, then such date shall be the Banking Day that immediately
            preceding that date. A Banking Day is any day other than a Saturday,
            Sunday or a
            day that a New York State chartered bank is not legally obligated to
            be opened.

           

          3. Acceptance
            by Escrow Agent.
            The
            Escrow Agent hereby accepts and agrees to perform its obligations hereunder,
            provided that:

           

          (a) The
            Escrow Agent may act in reliance upon any signature believed by it to
            be
            genuine, and may assume that any person who has been designated by Placement
            Agent or the Company to give any written instructions, notice or receipt,
            or
            make any statements in connection with the provisions hereof has been
            duly
            authorized to do so. Escrow Agent shall have no duty to make inquiry
            as to the
            genuineness, accuracy or validity of any statements or instructions or
            any
            signatures on statements or instructions. The names and true signatures
            of each
            individual authorized to act singly on behalf of the Company and Placement
            Agent
            are stated in Schedule
            II,
            which
            is attached hereto and made a part hereof. The Company and Placement
            Agent may
            each remove or add one or more of its authorized signers stated on Schedule
            II
            by notifying the Escrow Agent of such change in accordance with this
            Agreement,
            which notice shall include the true signature for any new authorized
            signatories.

           

          (b) The
            Escrow Agent may act relative hereto in reliance upon advice of counsel
            in
            reference to any matter connected herewith. The Escrow Agent shall not
            be liable
            for any mistake of fact or error of judgment or law, or for any acts
            or
            omissions of any kind, unless caused by its willful misconduct or gross
            negligence.

           

          (c) Placement
            Agent and the Company agree to indemnify and hold the Escrow Agent harmless
            from
            and against any and all claims, losses, costs, liabilities, damages,
            suits,
            demands, judgments or expenses (including but not limited to reasonable
            attorney’s fees) claimed against or incurred by Escrow Agent arising out of or
            related, directly or indirectly, to this Escrow Agreement unless caused
            by the
            Escrow Agent’s gross negligence or willful misconduct.

           

          
            
              
              

            

            
              97

              
                

              

            

            
              
              

            

          

           

          (d) In
            the
            event that the Escrow Agent shall be uncertain as to its duties or rights
            hereunder, the Escrow Agent shall be entitled to (i) refrain from taking
            any
            action other than to keep safely the Escrow Funds until it shall be directed
            otherwise by a court of competent jurisdiction, or (ii) deliver the Escrow
            Funds
            to a court of competent jurisdiction.

           

          (e) The
            Escrow Agent shall have no duty, responsibility or obligation to interpret
            or
            enforce the terms of any agreement other than Escrow Agent’s obligations
            hereunder, and the Escrow Agent shall not be required to make a request
            that any
            monies be delivered to the Escrow Account, it being agreed that the sole
            duties
            and responsibilities of the Escrow Agent shall be to the extent not prohibited
            by applicable law (i) to accept checks or other instruments for the payment
            of
            money and wire transfers delivered to the Escrow Agent for the Escrow
            Account
            and deposit said checks and wire transfers into the non-interest bearing
            Escrow
            Account, and (ii) to disburse or refrain from disbursing the Escrow Funds
            as
            stated above, provided that the checks received by the Escrow Agent have
            been
            collected and are available for withdrawal.

           

          4. Resignation
            and Termination of the Escrow Agent.
            The
            Escrow Agent may resign at any time by giving 30 days’ prior written notice of
            such resignation to Placement Agent and the Company. Upon providing such
            notice,
            the Escrow Agent shall have no further obligation hereunder except to
            hold as
            depositary the Escrow Funds that it receives until the end of such 30-day
            period. In such event, the Escrow Agent shall not take any action, other
            than
            receiving and depositing Purchasers checks and wire transfers in accordance
            with
            this Agreement, until the Company has designated a banking corporation,
            trust
            company, attorney or other person as successor. Upon receipt of such
            written
            designation signed by Placement Agent and the Company, the Escrow Agent
            shall
            promptly deliver the Escrow Funds to such successor and shall thereafter
            have no
            further obligations hereunder. If such instructions are not received
            within 30
            days following the effective date of such resignation, then the Escrow
            Agent may
            deposit the Escrow Funds held by it pursuant to this Agreement with a
            clerk of a
            court of competent jurisdiction pending the appointment of a successor.
            In
            either case provided for in this paragraph, the Escrow Agent shall be
            relieved
            of all further obligations and released from all liability thereafter
            arising
            with respect to the Escrow Funds.

           

          5. Termination.
            The
            Company and Placement Agent may terminate the appointment of the Escrow
            Agent
            hereunder upon written notice specifying the date upon which such termination
            shall take effect, which date shall be at least 30 days from the date
            of such
            notice. In the event of such termination, the Company and Placement Agent
            shall,
            within 30 days of such notice, appoint a successor escrow agent and the
            Escrow
            Agent shall, upon receipt of written instructions signed by the Company
            and
            Placement Agent, turn over to such successor escrow agent all of the
            Escrow
            Funds; provided,
            however,
            that if
            the Company and Placement Agent fail to appoint a successor escrow agent
            within
            such 30-day period, such termination notice shall be null and void and
            the
            Escrow Agent shall continue to be bound by all of the provisions hereof.
            Upon
            receipt of the Escrow Funds, the successor escrow agent shall become
            the escrow
            agent hereunder and shall be bound by all of the provisions hereof and
            Signature
            Bank shall be relieved of all further obligations and released from all
            liability thereafter arising with respect to the Escrow Funds and under
            this
            Agreement.

           

          
            
              
              

            

            
              98

              
                

              

            

            
              
              

            

          

           

          6. Investment.
            All
            funds received by the Escrow Agent shall be invested only in non-interest
            bearing bank accounts at Signature Bank.

           

          7. Compensation.
            Escrow
            Agent shall be entitled, for the duties to be performed by it hereunder,
            to a
            fee of $2,500, which fee shall be paid by the Company upon the signing
            of this
            Agreement. In addition, the
            Company
            shall be
            obligated to reimburse Escrow Agent for all fees, costs and expenses
            incurred or
            that become due in connection with this Agreement or the Escrow Account,
            including reasonable attorney’s fees. Neither the modification, cancellation,
            termination or rescission of this Agreement nor the resignation or termination
            of the Escrow Agent shall affect the right of Escrow Agent to retain
            the amount
            of any fee which has been paid, or to be reimbursed or paid any amount
            which has
            been incurred or becomes due, prior to the effective date of any such
            modification, cancellation, termination, resignation or rescission. To
            the
            extent the Escrow Agent has incurred any such expenses, or any such fee
            becomes
            due, prior to any closing, the Escrow Agent shall advise the Company
            and the
Company
            shall
            pay such amounts prior to or at any such closing.

           

          8. Notices.
            All
            notices, requests, demands and other communications required or permitted
            to be
            given hereunder shall be in writing and shall be deemed to have been
            duly given
            when received (or, in the case of prepaid registered or certified mail,
            return
            receipt requested, when delivery is refused if such is the case) if sent
            by
            hand-delivery, by facsimile (followed by first-class mail), by nationally
            recognized overnight courier service or by prepaid registered or certified
            mail,
            return receipt requested, to the addresses set forth below:

           

          

           

          If
            to
            Placement Agent:

           

          HPC
            Capital Management Corp.

          230
            Park
            Avenue, 10th
            Floor

          New
            York,
            NY 10169

          Attention:
            David Batista

          Fax:
            (212) 380-1921

          

          
            
              
              

            

            
              99

              
                

              

            

            
              
              

            

          

          

          If
            to the
            Company:

           

          CenterStaging
            Corp.

          3407
            Winona Avenue

          Burbank,
            California 91504

          Attention:
            Howard Livingston

          Fax:
            (818) 848-4016

           

          If
            to
            Escrow Agent:

           

          Signature
            Bank

          261
            Madison Avenue

          New
            York,
            NY 10016

          Attention:
            Cliff
            Broder, Group Director and Senior Vice President

          Fax:
            (646) 822-1359

           

          9. General.

           

          (a) This
            Agreement shall be governed by and construed and enforced in accordance
            with the
            laws of the State of New York applicable to agreements made and to be
            entirely
            performed within such State, without regard to choice of law
            principles.

           

          (b) This
            Agreement sets forth the entire agreement and understanding of the parties
            with
            respect to the matters contained herein and supersedes all prior agreements,
            arrangements and understandings relating thereto.

           

          (c) All
            of
            the terms and conditions of this Agreement shall be binding upon, and
            inure to
            the benefit of and be enforceable by, the parties hereto, as well as
            their
            respective successors and assigns.

           

          (d) This
            Agreement may be amended, modified, superseded or canceled, and any of
            the terms
            or conditions hereof may be waived, only by a written instrument executed
            by
            each party hereto or, in the case of a waiver, by the party waiving compliance.
            The failure of any party at any time or times to require performance
            of any
            provision hereof shall in no manner affect its right at a later time
            to enforce
            the same. No waiver of any party of any condition, or of the breach of
            any term
            contained in this Agreement, whether by conduct or otherwise, in any
            one or more
            instances shall be deemed to be or construed as a further or continuing
            waiver
            of any such condition or breach or a waiver of any other condition or
            of the
            breach of any other term of this Agreement. No party may assign any rights,
            duties or obligations hereunder unless all other parties have given their
            prior
            written consent.

           

          (e) If
            any
            provision included in this Agreement proves to be invalid or unenforceable,
            it
            shall not affect the validity of the remaining provisions.

           

          
            
              
              

            

            
              100

              
                

              

            

            
              
              

            

          

           

          (f) This
            Agreement and any modification or amendment of this Agreement may be
            executed in
            several counterparts or by separate instruments and all of such counterparts
            and
            instruments shall constitute one agreement, binding on all of the parties
            hereto.

           

          10. Form
            of Signature.
            The
            parties hereto agree to accept a facsimile transmission copy of their
            respective
            actual signatures as evidence of their actual signatures to this Agreement
            and
            any modification or amendment of this Agreement; provided,
            however,
            that
            each party who produces a facsimile signature agrees, by the express
            terms
            hereof, to place, promptly after transmission of his or her signature
            by fax, a
            true and correct original copy of his or her signature in overnight mail
            to the
            address of the other party.

          

 

          
            
              
              

            

            
              101

              
                

              

            

            
              
              

            

          

           

          IN
            WITNESS WHEREOF,
            the
            parties have duly executed this Agreement as of the date first set forth
            above.

           

          
            	
                    CENTERSTAGING
                      CORP.

                  	
                    HPC
                      CAPITAL MANAGEMENT CORP.

                  
	 	 	 	 
	
                    By:
                      

                  	
                    ______________________________

                  	
                    By:
                      

                  	
                    _______________________

                  
	 	
                    Name:
                      

                  	 	Name: 
	 	Title:	 	Title: 

          

            

          

           

          SIGNATURE
            BANK

           

          
            	
                    By:
                      

                  	
                    _____________________________

                  
	 	
                    Name:

                  
	 	
                    Title:

                  
	 	 
	
                    By:
                      

                  	
                    _____________________________

                  
	 	
                    Name:

                  
	 	
                    Title:

                  

          

           

          
            
              
              

            

            
              102

              
                

              

            

            
              
              

            

          

          Schedule
            I

          

           

          OFFERING
            DOCUMENTS

           

          Securities
            Purchase Agreement, dated on or about January __, 2007, among CenterStaging
            Corp. and each purchaser identified on the signature pages thereto, and
            all
            exhibits and schedules thereto.

          

 

          
            
              
              

            

            
              103

              
                

              

            

            
              
              

            

          

           

          Schedule
            II

           

          The
            Escrow Agent is authorized to accept instructions signed or believed
            by the
            Escrow Agent to be signed by any one of the following on behalf of the
            Company
            and Placement Agent.

           

          CENTERSTAGING
            CORP.

           

          
            	
                    Name

                  	
                    True
                      Signature

                  
	
                    _________________

                  	
                    _________________

                  

          

          

           

          HPC
            CAPITAL MANAGEMENT CORP.

           

          
            	
                    Name

                  	
                    True
                      Signature

                  
	
                    _________________

                  	
                    _________________

                  
	
                    _________________

                  	
                    _________________

                  

          

           

          
            
              
              

            

            
              104

              
                

              

            

            
              
              

            

          

           

          Extension
            Notice

          

          

          December
            __, 2007

          

          

          Signature
            Bank

          261
            Madison Avenue

          New
            York,
            NY 10016

          Attention:
            Cliff
            Broder, Group Director & Senior Vice President

          

          Dear
            Mr.
            Broder:

          

          In
            accordance with the terms of Section 2(b) of the Escrow Deposit Agreement
            dated
            December ____, 2006 by and among CenterStaging Corp. (the "Company"),
            Signature
            Bank (the "Escrow Agent") and HPC Capital Management Corp., ("Placement
            Agent"),
            the Company and Placement Agent hereby notify the Escrow Agent that the
            Termination Date has been extended to ________ ,
            2006,
            which date is on or before December [_____, 2006. If the above date
            is
            not a Banking Day, then such date shall be the Banking Day that immediately
            preceding that date. A Banking Day is any day other than a Saturday,
            Sunday or a
            day that a New York State chartered bank is not legally obligated to
            be
            opened.

          

          Very
            truly yours,

          

          CenterStaging
            Corp.

          By:_____________

          Name:
            

          Title:
            

          

          HPC
            Capital Management Corp.

          By:_____________

          Name:
            

          Title:
            

           

          
            
              
              

            

            
              105

              
                

              

            

            
              
              

            

          

          Exhibit
            B

          

          FORM
            OF ESCROW RELEASE NOTICE

          

          Date:
            ______ __, 2006

          

          Signature
            Bank

          261
            Madison Avenue

          New
            York,
            NY 10016

          Attention:
            Cliff Broder, Group Director & Senior Vice President

          

          Dear
            Mr.
            Broder:

          

          In
            accordance with the terms of paragraph 2(b) of an Escrow Deposit Agreement
            dated
            as of December _____, 2006 (the "Escrow Agreement"), by and between
            CenterStaging Corp. (the "Company"), Signature Bank (the "Escrow Agent")
            and HPC
            Capital Management Corp., ("Placement Agent"), the Company and Placement
            Agent
            hereby notify the Escrow Agent that the closing will be held on _______
            __, 2006
            for gross proceeds of $__________.

           

          

          PLEASE
            DISTRIBUTE FUNDS BY WIRE TRANSFER AS FOLLOWS (wire instructions
            attached):

           

          

          CenterStaging
            Corp.:  $_____________
            

          

          HPC
            Capital Management Corp.:  $______________
             

          

          Feldman
            Weinstein & Smith LLP:  $______________
            

          

          Signature
            Bank:    $______________

          

          Very
            truly yours,

          

          CenterStaging
            Corp.

          By:_____________

          Name:
            

          Title:
            

          

          HPC
            Capital Management Corp.

          By:_____________

          Name:
            

          Title:

           

          
            
              
              

            

            
              106

              
                

              

            

            
              
              

            

          

        

         

        REGISTRATION
          RIGHTS AGREEMENT

        

        This
          Registration Rights Agreement (this “Agreement”)
          is
          made and entered into as of January 16, 2007, among CenterStaging Corp.,
          a
          Delaware corporation (the “Company”)
          and
          the several purchasers signatory hereto (each such purchaser, a “Purchaser”
and,
          collectively, the “Purchasers”).

        

        This
          Agreement is made pursuant to the Securities Purchase Agreement, dated
          as of the
          date hereof, between the Company and each Purchaser (the “Purchase
          Agreement”).

        

        The
          Company and each Purchaser hereby agrees as follows:

        

        1.
           Definitions

         

        Capitalized
          terms used and not otherwise defined herein that are defined in the Purchase
          Agreement shall have the meanings given such terms in the Purchase
          Agreement.
          As used
          in this Agreement, the following terms shall have the following
          meanings:

        

        “Advice”
shall
          have the meaning set forth in Section 6(d).

        

        “Effectiveness
          Date”
means,
          with respect to the initial Registration Statement required to be filed
          hereunder, the 90th
          calendar
          day following the date hereof (or the 150th
          calendar
          day following the date hereof in the event of a “full review” of the initial
          Registration Statement by the Commission) and, with respect to any additional
          Registration Statements which may be required pursuant to Section 3(c),
          the
          90th
          calendar
          day following the date on which the Company first knows, or reasonably
          should
          have known, that such additional Registration Statement is required hereunder;
          provided,
          however,
          that in
          the event the Company is notified by the Commission that one of the above
          Registration Statements will not be reviewed or is no longer subject to
          further
          review and comments, the Effectiveness Date as to such Registration Statement
          shall be the fifth Trading Day following the date on which the Company
          is so
          notified if such date precedes the dates required above.

        

        “Effectiveness
          Period”
shall
          have the meaning set forth in Section 2(a).

        

        “Event”
shall
          have the meaning set forth in Section 2(b).

        

        “Event
          Date”
shall
          have the meaning set forth in Section 2(b).

        

        “Filing
          Date”
means,
          with respect to the initial Registration Statement required hereunder,
          the
          65th
          calendar
          day following the date hereof and, with respect to any additional Registration
          Statements which may be required pursuant to Section 3(c), the 30th
          calendar
          day following the date on which the Company first knows, or reasonably
          should
          have known, that such additional Registration Statement is required
          hereunder.

         

        
          
            
            

          

          
            107

            
              

            

          

          
            
            

          

        

        
 

        “Holder”
or
          “Holders”
means
          the holder or holders, as the case may be, from time to time of Registrable
          Securities.

        

        “Indemnified
          Party”
shall
          have the meaning set forth in Section 5(c).

        

        “Indemnifying
          Party”
shall
          have the meaning set forth in Section 5(c).

        

        “Losses”
shall
          have the meaning set forth in Section 5(a).

        

        “Plan
          of Distribution”
shall
          have the meaning set forth in Section 2(a). 

        

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

        

        “Registrable
          Securities”
means
          (i) all of the shares of Common Stock issuable upon conversion in full
          of the
          Debentures, (ii) all shares of Common Stock issuable as interest or principal
          on
          the Debentures assuming all permissible interest and principal payments
          are made
          in shares of Common Stock and the Debentures are held until maturity, (iii)
          all
          Warrant Shares, (iv) any additional shares of Common Stock issuable in
          connection with any anti-dilution provisions in the Debentures or the Warrants
          (in each case, without giving effect to any limitations on conversion set
          forth
          in the Debenture or limitations on exercise set forth in the Warrant),
          (v)
          shares of Common Stock underlying the Placement Agent Warrants and (vi)
          any
          securities issued or issuable upon any stock split, dividend or other
          distribution, recapitalization or similar event with respect to the foregoing.
          

        

        “Registration
          Statement”
means
          the registration statements required to be filed hereunder and any additional
          registration statements contemplated by Section 3(c), including (in each
          case)
          the Prospectus, amendments and supplements to such registration statement
          or
          Prospectus, including pre- and post-effective amendments, all exhibits
          thereto,
          and all material incorporated by reference or deemed to be incorporated
          by
          reference in such registration statement.

        

        “Rule
          415”
means
          Rule 415 promulgated by the Commission pursuant to the Securities Act,
          as such
          Rule may be amended from time to time, or any similar rule or regulation
          hereafter adopted by the Commission having substantially the same purpose
          and
          effect as such Rule.

        

        “Rule
          424”
means
          Rule 424 promulgated by the Commission pursuant to the Securities Act,
          as such
          Rule may be amended from time to time, or any similar rule or regulation
          hereafter adopted by the Commission having substantially the same purpose
          and
          effect as such Rule.

         

        
          
            
            

          

          
            108

            
              

            

          

          
            
            

          

        

        
 

        “Selling
          Shareholder Questionnaire”
shall
          have the meaning set forth in Section 3(a).

        

        2.
           Shelf
          Registration

        

        (a) On
          or
          prior to each Filing Date, the Company shall prepare and file with the
          Commission a “Shelf” Registration Statement covering the resale of 110% of the
          Registrable Securities on such Filing Date for an offering to be made on
          a
          continuous basis pursuant to Rule 415. The Registration Statement shall
          be on
          Form S-3 (except if the Company is not then eligible to register for resale
          the
          Registrable Securities on Form S-3, in which case such registration shall
          be on
          another appropriate form in accordance herewith) and shall contain (unless
          otherwise directed by at least an 85% majority in interest of the Holders)
          substantially the “Plan
          of Distribution”
          attached hereto as Annex
          A.
          Subject
          to the terms of this Agreement, the Company shall use its best efforts
          to cause
          a Registration Statement to be declared effective under the Securities
          Act as
          promptly as possible after the filing thereof, but in any event prior to
          the
          applicable Effectiveness Date, and shall use its best efforts to keep such
          Registration Statement continuously effective under the Securities Act
          until all
          Registrable Securities covered by such Registration Statement have been
          sold, or
          may be sold without volume restrictions pursuant to Rule 144(k), as determined
          by the counsel to the Company pursuant to a written opinion letter to such
          effect, addressed and acceptable to the Company’s transfer agent and the
          affected Holders (the “Effectiveness
          Period”).
          The
          Company shall telephonically request effectiveness of a Registration Statement
          as of 5:00 p.m. New York City time on a Trading Day. The Company shall
          immediately notify the Holders via facsimile of the effectiveness of a
          Registration Statement on the same Trading Day that the Company telephonically
          confirms effectiveness with the Commission, which shall be the date requested
          for effectiveness of a Registration Statement. The Company shall, by 9:30
          a.m.
          New York City time on the Trading Day after the Effective Date (as defined
          in
          the Purchase Agreement), file a final Prospectus with the Commission as
          required
          by Rule 424. Failure to so notify the Holder within 1 Trading Day of such
          notification of effectiveness or failure to file a final Prospectus as
          foresaid
          shall be deemed an Event under Section 2(b).

         

        
          
            
            

          

          
            109

            
              

            

          

          
            
            

          

        

         

        (b) If:
          (i) a
          Registration Statement is not filed on or prior to its Filing Date (if
          the
          Company files a Registration Statement without affording the Holders the
          opportunity to review and comment on the same as required by Section 3(a)
          herein, the Company shall be deemed to have not satisfied this clause (i)),
          or
          (ii) the Company fails to file with the Commission a request for acceleration
          in
          accordance with Rule 461 promulgated under the Securities Act, within five
          Trading Days of the date that the Company is notified (orally or in writing,
          whichever is earlier) by the Commission that a Registration Statement will
          not
          be “reviewed,” or not subject to further review, or (iii) prior to its
          Effectiveness Date, the Company fails to file a pre-effective amendment
          and
          otherwise respond in writing to comments made by the Commission in respect
          of
          such Registration Statement within 20 calendar days after the receipt of
          comments by or notice from the Commission that such amendment is required
          in
          order for a Registration Statement to be declared effective, or (iv) a
          Registration Statement filed or required to be filed hereunder is not declared
          effective by the Commission by its Effectiveness Date, or (v) after the
          Effectiveness Date, a Registration Statement ceases for any reason to remain
          continuously effective as to all Registrable Securities for which it is
          required
          to be effective, or the Holders are otherwise not permitted to utilize
          the
          Prospectus therein to resell such Registrable Securities, for more than
          10
          consecutive calendar days (provided, however, in the event that Company
          is negotiating a merger, consolidation, acquisition or sale of all or
          substantially all of its assets or a similar transaction and, in the written
          opinion of counsel to the Company, the Registration Statement would be
          required
          to be amended to include information concerning such pending transaction(s)
          or
          the parties thereto which information is not available or may not be publicly
          disclosed at the time, such 10 consecutive calendar day period shall be
          extended
          by an additional 80 calendar days for a total of 90 consecutive calendar
          days)
          or more than an aggregate of 15 calendar days during any 12-month period
          (which
          need not be consecutive calendar days) (provide, however, in the event
          that the
Company
          is negotiating a merger, consolidation, acquisition or sale of all or
          substantially all of its assets or a similar transaction and information
          regarding such pending transaction is not available or may not be publicly
          disclosed at the time, and in the written opinion of counsel to the Company,
          the
          Registration Statement would be required to be amended to include information
          concerning such pending transaction(s) or the parties thereto, such 15
          calendar
          day period during any 12-month period shall be extended by an additional
          75
          calendar days for an aggregate of 90 calendar days during any such 12-month
          period) (any such failure or breach being referred to as an “Event”,
          and
          for purposes of clause (i) or (iv) the date on which such Event occurs,
          or for
          purposes of clause (ii) the date on which such five Trading Day period
          is
          exceeded, or for purposes of clause (iii) the date which such 20 calendar
          day
          period is exceeded, or for purposes of clause (v) the date on which such
          10 or
          15 calendar day period, as applicable, is exceeded being referred to as
          “Event
          Date”),
          then,
          in addition to any other rights the Holders may have hereunder or under
          applicable law, on each such Event Date and on each monthly anniversary
          of each
          such Event Date (if the applicable Event shall not have been cured by such
          date)
          until the applicable Event is cured, the Company shall pay to each Holder
          an
          amount in cash, as partial liquidated damages and not as a penalty, equal
          to
          1.5% of the aggregate purchase price paid by such Holder pursuant to the
          Purchase Agreement for any Registrable Securities then held by such Holder
          (calculated as if all convertible securities had been fully converted).
          The
          parties agree that (1) the Company shall not be liable for liquidated damages
          under this Agreement with respect to any Warrants or Warrant Shares, (2)
          in no
          event shall the Company be liable for liquidated damages under this Agreement
          in
          excess of 1.5% of the aggregate Subscription Amount of the Holders in any
          30-day
          period and (3) the maximum aggregate liquidated damages payable to a Holder
          under this Agreement shall be 20% of the aggregate Subscription Amount
          paid by
          such Holder pursuant to the Purchase Agreement. If the Company fails to
          pay any
          partial liquidated damages pursuant to this Section in full within seven
          days
          after the date payable, the Company will pay interest thereon at a rate
          of 18%
          per annum (or such lesser maximum amount that is permitted to be paid by
          applicable law) to the Holder, accruing daily from the date such partial
          liquidated damages are due until such amounts, plus all such interest thereon,
          are paid in full. The partial liquidated damages pursuant to the terms
          hereof
          shall apply on a daily pro-rata basis for any portion of a month prior
          to the
          cure of an Event.

         

        
          
            
            

          

          
            110

            
              

            

          

          
            
            

          

        

        
 

        3.
           Registration
          Procedures.

        

        In
          connection with the Company’s registration obligations hereunder, the Company
          shall:

        

        (a) Not
          less
          than five Trading Days prior to the filing of each Registration Statement
          and
          not less than one Trading Day prior to the filing of any related Prospectus
          or
          any amendment or supplement thereto (including any document that would
          be
          incorporated or deemed to be incorporated therein by reference), the Company
          shall (i) furnish to each Holder copies of all such documents proposed
          to be
          filed, which documents (other than those incorporated or deemed to be
          incorporated by reference) will be subject to the review of such Holders
          and
          (ii) cause its officers and directors, counsel and independent certified
          public
          accountants to respond to such inquiries as shall be necessary, in the
          reasonable opinion of respective counsel to each Holder, to conduct a reasonable
          investigation within the meaning of the Securities Act. The Company shall
          not
          file a Registration Statement or any such Prospectus or any amendments
          or
          supplements thereto to which the Holders of a majority of the Registrable
          Securities shall reasonably object in good faith, provided that the Company
          is
          notified of such objection in writing no later than 5 Trading Days after
          the
          Holders have been so furnished copies of a Registration Statement or 1
          Trading
          Day after the Holders have been so furnished copies of any related Prospectus
          or
          amendments or supplements thereto. Each Holder agrees to furnish to the
          Company
          a completed questionnaire in the form attached to this Agreement as Annex
          B
          (a
“Selling
          Shareholder Questionnaire”)
          not
          less than two Trading Days prior to the Filing Date or by the end of the
          fourth
          Trading Day following the date on which such Holder receives draft materials
          in
          accordance with this Section. 

        

        (b) (i)
          Prepare and file with the Commission such amendments, including post-effective
          amendments, to a Registration Statement and the Prospectus used in connection
          therewith as may be necessary to keep a Registration Statement continuously
          effective as to the applicable Registrable Securities for the Effectiveness
          Period and prepare and file with the Commission such additional Registration
          Statements in order to register for resale under the Securities Act all
          of the
          Registrable Securities; (ii) cause the related Prospectus to be amended
          or
          supplemented by any required Prospectus supplement (subject to the terms
          of this
          Agreement), and, as so supplemented or amended, to be filed pursuant to
          Rule
          424; (iii) respond as promptly as reasonably possible to any comments received
          from the Commission with respect to a Registration Statement or any amendment
          thereto and provide as promptly as reasonably possible to the Holders true
          and
          complete copies of all correspondence from and to the Commission relating
          to a
          Registration Statement (provided that the Company may excise any information
          contained therein which would constitute material non-public information
          as to
          any Holder which has not executed a confidentiality agreement with the
          Company);
          and (iv) comply in all material respects with the provisions of the Securities
          Act and the Exchange Act with respect to the disposition of all Registrable
          Securities covered by a Registration Statement during the applicable period
          in
          accordance (subject to the terms of this Agreement) with the intended methods
          of
          disposition by the Holders thereof set forth in such Registration Statement
          as
          so amended or in such Prospectus as so supplemented.

         

        
          
            
            

          

          
            111

            
              

            

          

          
            
            

          

        

        
 

        (c) If
          during
          the Effectiveness Period, the number of Registrable Securities at any time
          exceeds 90% of the number of shares of Common Stock then registered in
          a
          Registration Statement, then the Company shall file as soon as reasonably
          practicable, but in any case prior to the applicable Filing Date, an additional
          Registration Statement covering the resale by the Holders of not less than
          110%
          of the number of such Registrable Securities. 

        

        (d) Notify
          the Holders of Registrable Securities to be sold (which notice shall, pursuant
          to clauses (iii) through (vi) hereof, be accompanied by an instruction
          to
          suspend the use of the Prospectus until the requisite changes have been
          made) as
          promptly as reasonably possible (and, in the case of (i)(A) below, not
          less than
          one Trading Day prior to such filing) and (if requested by any such Person)
          confirm such notice in writing no later than one Trading Day following
          the day
          (i)(A) when a Prospectus or any Prospectus supplement or post-effective
          amendment to a Registration Statement is proposed to be filed; (B) when
          the
          Commission notifies the Company whether there will be a “review” of such
          Registration Statement and whenever the Commission comments in writing
          on such
          Registration Statement; and (C) with respect to a Registration Statement
          or any
          post-effective amendment, when the same has become effective; (ii) of any
          request by the Commission or any other federal or state governmental authority
          for amendments or supplements to a Registration Statement or Prospectus
          or for
          additional information; (iii) of the issuance by the Commission or any
          other
          federal or state governmental authority of any stop order suspending the
          effectiveness of a Registration Statement covering any or all of the Registrable
          Securities or the initiation of any Proceedings for that purpose; (iv)
          of the
          receipt by the Company of any notification with respect to the suspension
          of the
          qualification or exemption from qualification of any of the Registrable
          Securities for sale in any jurisdiction, or the initiation or threatening
          of any
          Proceeding for such purpose; (v) of the occurrence of any event or passage
          of
          time that makes the financial statements included in a Registration Statement
          ineligible for inclusion therein or any statement made in a Registration
          Statement or Prospectus or any document incorporated or deemed to be
          incorporated therein by reference untrue in any material respect or that
          requires any revisions to a Registration Statement, Prospectus or other
          documents so that, in the case of a Registration Statement or the Prospectus,
          as
          the case may be, it will not contain any untrue statement of a material
          fact or
          omit to state any material fact required to be stated therein or necessary
          to
          make the statements therein, in light of the circumstances under which
          they were
          made, not misleading; and (vi) the occurrence or existence of any pending
          corporate development with respect to the Company that the Company believes
          may
          be material and that, in the determination of the Company, makes it not
          in the
          best interest of the Company to allow continued availability of a Registration
          Statement or Prospectus, provided that any and all of such information
          shall
          remain confidential to each Holder until such information otherwise becomes
          public, unless disclosure by a Holder is required by law; provided,
          further,
          that
          notwithstanding each Holder’s agreement to keep such information confidential,
          the Holders make no acknowledgement that any such information is material,
          non-public information.

         

        
          
            
            

          

          
            112

            
              

            

          

          
            
            

          

        

        
 

        (e) Use
          its
          best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
          of
          (i) any order suspending the effectiveness of a Registration Statement,
          or (ii)
          any suspension of the qualification (or exemption from qualification) of
          any of
          the Registrable Securities for sale in any jurisdiction, at the earliest
          practicable moment.

        

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

        

        (g) Subject
          to the terms of this Agreement, the Company hereby consents to the use
          of such
          Prospectus and each amendment or supplement thereto by each of the selling
          Holders in connection with the offering and sale of the Registrable Securities
          covered by such Prospectus and any amendment or supplement thereto, except
          after
          the giving of any notice pursuant to Section 3(d).

        

        (h) NASD
          Rule 2710 Filing; Broker Compensation.
          The
          Company shall effect a filing with respect to the public offering contemplated
          by the Registration Statement (an “Issuer
          Filing”)
          with
          the National Association of Securities Dealers, Inc. (“NASD”)
          Corporate Financing Department pursuant to NASD Rule 2710(b)(10)(A)(i)
          within
          one Trading Day of the date that the Registration Statement is first filed
          with
          the Commission and pay the filing fee required by such Issuer Filing. The
          Company shall use commercially reasonable efforts to pursue the Issuer
          Filing
          until the NASD issues a letter confirming that it does not object to the
          terms
          of the offering contemplated by the Registration Statement. A copy of the
          Issuer
          Filing and all related correspondence with respect thereto shall be provided
          to
          FWS.

        

        (i) Prior
          to
          any resale of Registrable Securities by a Holder, use its commercially
          reasonable efforts to register or qualify or cooperate with the selling
          Holders
          in connection with the registration or qualification (or exemption from
          the
          Registration or qualification) of such Registrable Securities for the resale
          by
          the Holder under the securities or Blue Sky laws of such jurisdictions
          within
          the United States as any Holder reasonably requests in writing, to keep
          each
          registration or qualification (or exemption therefrom) effective during
          the
          Effectiveness Period and to do any and all other acts or things reasonably
          necessary to enable the disposition in such jurisdictions of the Registrable
          Securities covered by each Registration Statement; provided, that the Company
          shall not be required to qualify generally to do business in any jurisdiction
          where it is not then so qualified, subject the Company to any material
          tax in
          any such jurisdiction where it is not then so subject or file a general
          consent
          to service of process in any such jurisdiction.

         

        
          
            
            

          

          
            113

            
              

            

          

          
            
            

          

        

        
 

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

        

        (k) Upon
          the
          occurrence of any event contemplated by this Section 3, as promptly as
          reasonably possible under the circumstances taking into account the Company’s
          good faith assessment of any adverse consequences to the Company and its
          stockholders of the premature disclosure of such event, prepare a supplement
          or
          amendment, including a post-effective amendment, to a Registration Statement
          or
          a supplement to the related Prospectus or any document incorporated or
          deemed to
          be incorporated therein by reference, and file any other required document
          so
          that, as thereafter delivered, neither a Registration Statement nor such
          Prospectus will contain an untrue statement of a material fact or omit
          to state
          a material fact required to be stated therein or necessary to make the
          statements therein, in light of the circumstances under which they were
          made,
          not misleading. If
          the
          Company notifies the Holders in accordance with clauses (iii) through (vi)
          of
          Section 3(d) above to suspend the use of any Prospectus until the requisite
          changes to such Prospectus have been made, then the Holders shall suspend
          use of
          such Prospectus. The Company will use its best efforts to ensure that the
          use of
          the Prospectus may be resumed as promptly as is practicable. The Company
          shall
          be entitled to exercise its right under this Section 3(k) to suspend the
          availability of a Registration Statement and Prospectus, subject to the
          payment
          of partial liquidated damages pursuant to Section 2(b), for a period not
          to
          exceed 120 calendar days (which need not be consecutive days) in any 12
          month
          period.

        

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

        

        (m) The
          Company may require each selling Holder to furnish to the Company a certified
          statement as to the number of shares of Common Stock beneficially owned
          by such
          Holder and, if required by the Commission, the natural persons thereof
          that have
          voting and dispositive control over the Shares. During any periods that
          the
          Company is unable to meet its obligations hereunder with respect to the
          registration of the Registrable Securities solely because any Holder fails
          to
          furnish such information within three Trading Days of the Company’s request, any
          liquidated damages that are accruing at such time as to such Holder only
          shall
          be tolled and any Event that may otherwise occur solely because of such
          delay
          shall be suspended as to such Holder only, until such information is delivered
          to the Company, and the Company shall be permitted to exclude such Holder
          from
          the Registration Statement, provided that as soon as such information and/or
          questionnaire is furnished, the Company shall use its best efforts to include
          such Holder on the Registration Statement after filing.

         

        
          
            
            

          

          
            114

            
              

            

          

          
            
            

          

        

        
 

        4.
           Registration
          Expenses.
          All
          fees and expenses incident to the performance of or compliance with this
          Agreement by the Company shall be borne by the Company whether or not any
          Registrable Securities are sold pursuant to a Registration Statement. The
          fees
          and expenses referred to in the foregoing sentence shall include, without
          limitation, (i) all registration and filing fees (including, without limitation,
          fees and expenses) (A) with respect to filings required to be made with
          any
          Trading Market on which the Common Stock is then listed for trading, (B)
          in
          compliance with applicable state securities or Blue Sky laws reasonably
          agreed
          to by the Company in writing (including, without limitation, fees and
          disbursements of counsel for the Company in connection with Blue Sky
          qualifications or exemptions of the Registrable Securities) and (C) if
          not
          previously paid by the Company in connection with an Issuer Filing, with
          respect
          to any filing that may be required to be made by any broker through which
          a
          Holder intends to make sales of Registrable Securities with NASD Regulation,
          Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving
          no more
          than a customary brokerage commission in connection with such sale, (ii)
          printing expenses (including, without limitation, expenses of printing
          certificates for Registrable Securities), (iii) messenger, telephone and
          delivery expenses, (iv) fees and disbursements of counsel for the Company,
          (v)
          Securities Act liability insurance, if the Company so desires such insurance,
          and (vi) fees and expenses of all other Persons retained by the Company
          in
          connection with the consummation of the transactions contemplated by this
          Agreement. In addition, the Company shall be responsible for all of its
          internal
          expenses incurred in connection with the consummation of the transactions
          contemplated by this Agreement (including, without limitation, all salaries
          and
          expenses of its officers and employees performing legal or accounting duties),
          the expense of any annual audit and the fees and expenses incurred in connection
          with the listing of the Registrable Securities on any securities exchange
          as
          required hereunder. In no event shall the Company be responsible for any
          broker
          or similar commissions of any Holder or, except to the extent provided
          for in
          the Transaction Documents, any legal fees or other costs of the
          Holders.

        

        5.
           Indemnification.

        

        (a) Indemnification
          by the Company.
          The
          Company shall, notwithstanding any termination of this Agreement, indemnify
          and
          hold harmless each Holder, the officers, directors, members, partners,
          agents,
          brokers (including brokers who offer and sell Registrable Securities as
          principal as a result of a pledge or any failure to perform under a margin
          call
          of Common Stock), investment advisors and employees (and any other Persons
          with
          a functionally equivalent role of a Person holding such titles, notwithstanding
          a lack of such title or any other title) of each of them, each Person who
          controls any such Holder (within the meaning of Section 15 of the Securities
          Act
          or Section 20 of the Exchange Act) and the officers, directors, members,
          shareholders, partners, agents and employees (and any other Persons with
          a
          functionally equivalent role of a Person holding such titles, notwithstanding
          a
          lack of such title or any other title) of each such controlling Person,
          to the
          fullest extent permitted by applicable law, from and against any and all
          losses,
          claims, damages, liabilities, costs (including, without limitation, reasonable
          attorneys’ fees) and expenses (collectively, “Losses”),
          as
          incurred, arising out of or relating to (1) any untrue or alleged untrue
          statement of a material fact contained in a Registration Statement, any
          Prospectus or any form of prospectus or in any amendment or supplement
          thereto
          or in any preliminary prospectus, or arising out of or relating to any
          omission
          or alleged omission of a material fact required to be stated therein or
          necessary to make the statements therein (in the case of any Prospectus
          or form
          of prospectus or supplement thereto, in light of the circumstances under
          which
          they were made) not misleading or (2) any violation or alleged violation
          by the
          Company of the Securities Act, the Exchange Act or any state securities
          law, or
          any rule or regulation thereunder, in connection with the performance of
          its
          obligations under this Agreement, except to the extent, but only to the
          extent,
          that (i) such untrue statements or omissions are based solely upon information
          regarding such Holder furnished in writing to the Company by such Holder
          expressly for use therein, or to the extent that such information relates
          to
          such Holder or such Holder’s proposed method of distribution of Registrable
          Securities and was reviewed and expressly approved in writing by such Holder
          expressly for use in a Registration Statement, such Prospectus or such
          form of
          Prospectus or in any amendment or supplement thereto (it being understood
          that
          the Holder has approved Annex A hereto for this purpose) or (ii) in the
          case of
          an occurrence of an event of the type specified in Section 3(d)(iii)-(vi),
          the
          use by such Holder of an outdated or defective Prospectus after the Company
          has
          notified such Holder in writing that the Prospectus is outdated or defective
          and
          prior to the receipt by such Holder of the Advice contemplated in Section
          6(d).
          The Company shall notify the Holders promptly of the institution, threat
          or
          assertion of any Proceeding arising from or in connection with the transactions
          contemplated by this Agreement of which the Company is aware.

         

        
          
            
            

          

          
            115

            
              

            

          

          
            
            

          

        

         

        (b) Indemnification
          by Holders.
          Each
          Holder shall, severally and not jointly, indemnify and hold harmless the
          Company, its directors, officers, agents and employees, each Person who
          controls
          the Company (within the meaning of Section 15 of the Securities Act and
          Section
          20 of the Exchange Act), and the directors, officers, agents or employees
          of
          such controlling Persons, to the fullest extent permitted by applicable
          law,
          from and against all Losses, as incurred, to the extent arising out of
          or based
          solely upon: (x) such Holder’s failure to comply with the prospectus delivery
          requirements of the Securities Act or (y) any untrue or alleged untrue
          statement
          of a material fact contained in any Registration Statement, any Prospectus,
          or
          any form of prospectus, or in any amendment or supplement thereto or in
          any
          preliminary prospectus, or arising out of or relating to any omission or
          alleged
          omission of a material fact required to be stated therein or necessary
          to make
          the statements therein not misleading (i) to the extent, but only to the
          extent,
          that such untrue statement or omission is contained in any information
          so
          furnished in writing by such Holder to the Company specifically for inclusion
          in
          such Registration Statement or such Prospectus or (ii) to the extent that
          such
          information relates to such Holder’s proposed method of distribution of
          Registrable Securities and was reviewed and expressly approved in writing
          by
          such Holder expressly for use in a Registration Statement (it being understood
          that the Holder has approved Annex A hereto for this purpose), such Prospectus
          or such form of Prospectus or in any amendment or supplement thereto or
          (ii) in
          the case of an occurrence of an event of the type specified in Section
          3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
          after the Company has notified such Holder in writing that the Prospectus
          is
          outdated or defective and prior to the receipt by such Holder of the Advice
          contemplated in Section 6(d). In no event shall the liability of any selling
          Holder hereunder be greater in amount than the dollar amount of the net
          proceeds
          received by such Holder upon the sale of the Registrable Securities giving
          rise
          to such indemnification obligation.

        

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

         

        
          
            
            

          

          
            116

            
              

            

          

          
            
            

          

        

        
 

        An
          Indemnified Party shall have the right to employ separate counsel in any
          such
          Proceeding and to participate in the defense thereof, but the fees and
          expenses
          of such counsel shall be at the expense of such Indemnified Party or Parties
          unless: (1) the Indemnifying Party has agreed in writing to pay such fees
          and
          expenses; (2) the Indemnifying Party shall have failed promptly to assume
          the
          defense of such Proceeding and to employ counsel reasonably satisfactory
          to such
          Indemnified Party in any such Proceeding; or (3) the named parties to any
          such
          Proceeding (including any impleaded parties) include both such Indemnified
          Party
          and the Indemnifying Party, and counsel to the Indemnified Party shall
          reasonably believe that a material conflict of interest is likely to exist
          if
          the same counsel were to represent such Indemnified Party and the Indemnifying
          Party (in which case, if such Indemnified Party notifies the Indemnifying
          Party
          in writing that it elects to employ separate counsel at the expense of
          the
          Indemnifying Party, the Indemnifying Party shall not have the right to
          assume
          the defense thereof and the reasonable fees and expenses of no more than
          one
          separate counsel shall be at the expense of the Indemnifying Party). The
          Indemnifying Party shall not be liable for any settlement of any such Proceeding
          effected without its written consent, which consent shall not be unreasonably
          withheld or delayed. No Indemnifying Party shall, without the prior written
          consent of the Indemnified Party, effect any settlement of any pending
          Proceeding in respect of which any Indemnified Party is a party, unless
          such
          settlement includes an unconditional release of such Indemnified Party
          from all
          liability on claims that are the subject matter of such Proceeding.

        

        Subject
          to the terms of this Agreement, all reasonable fees and expenses of the
          Indemnified Party (including reasonable fees and expenses to the extent
          incurred
          in connection with investigating or preparing to defend such Proceeding
          in a
          manner not inconsistent with this Section) shall be paid to the Indemnified
          Party, as incurred, within ten Trading Days of written notice thereof to
          the
          Indemnifying Party; provided, that the Indemnified Party shall promptly
          reimburse the Indemnifying Party for that portion of such fees and expenses
          applicable to such actions for which such Indemnified Party is judicially
          determined to be not entitled to indemnification hereunder.

        

        (d) Contribution.
          If the
          indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
          Party or insufficient to hold an Indemnified Party harmless for any Losses,
          then
          each Indemnifying Party shall contribute to the amount paid or payable
          by such
          Indemnified Party, in such proportion as is appropriate to reflect the
          relative
          fault of the Indemnifying Party and Indemnified Party in connection with
          the
          actions, statements or omissions that resulted in such Losses as well as
          any
          other relevant equitable considerations. The relative fault of such Indemnifying
          Party and Indemnified Party shall be determined by reference to, among
          other
          things, whether any action in question, including any untrue or alleged
          untrue
          statement of a material fact or omission or alleged omission of a material
          fact,
          has been taken or made by, or relates to information supplied by, such
          Indemnifying Party or Indemnified Party, and the parties’ relative intent,
          knowledge, access to information and opportunity to correct or prevent
          such
          action, statement or omission. The amount paid or payable by a party as
          a result
          of any Losses shall be deemed to include, subject to the limitations set
          forth
          in this Agreement, any reasonable attorneys’ or other fees or expenses incurred
          by such party in connection with any Proceeding to the extent such party
          would
          have been indemnified for such fees or expenses if the indemnification
          provided
          for in this Section was available to such party in accordance with its
          terms.

         

        
          
            
            

          

          
            117

            
              

            

          

          
            
            

          

        

        
 

        The
          parties hereto agree that it would not be just and equitable if contribution
          pursuant to this Section 5(d) were determined by pro rata allocation or
          by any
          other method of allocation that does not take into account the equitable
          considerations referred to in the immediately preceding paragraph.
          Notwithstanding the provisions of this Section 5(d), no Holder shall be
          required
          to contribute, in the aggregate, any amount in excess of the amount by
          which the
          net proceeds actually received by such Holder from the sale of the Registrable
          Securities subject to the Proceeding exceeds the amount of any damages
          that such
          Holder has otherwise been required to pay by reason of such untrue or alleged
          untrue statement or omission or alleged omission.

        

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

        

        6.
           Miscellaneous.

        

        (a) Remedies.
          In the
          event of a breach by the Company or by a Holder of any of their respective
          obligations under this Agreement, each Holder or the Company, as the case
          may
          be, in addition to being entitled to exercise all rights granted by law
          and
          under this Agreement, including recovery of damages, shall be entitled
          to
          specific performance of its rights under this Agreement. The Company and
          each
          Holder agree that monetary damages would not provide adequate compensation
          for
          any losses incurred by reason of a breach by it of any of the provisions
          of this
          Agreement and hereby further agrees that, in the event of any action for
          specific performance in respect of such breach, it shall not assert or
          shall
          waive the defense that a remedy at law would be adequate.

        

        (b) No
          Piggyback on Registrations.
          Except
          as set forth on Schedule
          6(b)
          attached
          hereto, neither the Company nor any of its security holders (other than
          the
          Holders in such capacity pursuant hereto) may include securities of the
          Company
          in the Registration Statements other than the Registrable Securities. The
          Company shall not file any other registration statements until the
          90th
          calendar
          day following the date all Registrable Securities are registered pursuant
          to a
          Registration Statement that is declared effective by the Commission, provided
          that this Section 6(b) shall not prohibit the Company from filing amendments
          to
          registration statements filed prior to the date of this Agreement, provided
          further that the Company shall be permitted to file a registration statement
          on
          Form S-8 provided that not more than 2,200,000 shares (subject to adjustment
          for
          forward and reverse stock splits, stock dividends, recapitalizations and
          the
          like that occur after the date hereof) underlying such options vest during
          any
          12 month period commencing as of Closing Date.

         

        
          
            
            

          

          
            118

            
              

            

          

          
            
            

          

        

        
 

        (c) Compliance.
          Each
          Holder covenants and agrees that it will comply with the prospectus delivery
          requirements of the Securities Act as applicable to it in connection with
          sales
          of Registrable Securities pursuant to a Registration Statement.

        

        (d) Discontinued
          Disposition.
          By its
          acquisition of Registrable Securities, each Holder agrees that, upon receipt
          of
          a notice from the Company of the occurrence of any event of the kind described
          in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue
          disposition of such Registrable Securities under a Registration Statement
          until
          it is advised in writing (the “Advice”)
          by the
          Company that the use of the applicable Prospectus (as it may have been

          supplemented or amended) may be resumed. The Company will use its best
          efforts
          to ensure that the use of the Prospectus may be resumed as promptly as
          it
          practicable. The Company agrees and acknowledges that any periods during
          which
          the Holder is required to discontinue the disposition of the Registrable
          Securities hereunder shall be subject to the provisions of Section
          2(b).

        

        (e) Piggy-Back
          Registrations.
          If at
          any time during the Effectiveness Period there is not an effective Registration
          Statement covering all of the Registrable Securities and the Company shall
          determine to prepare and file with the Commission a registration statement
          relating to an offering for its own account or the account of others under
          the
          Securities Act of any of its equity securities, other than on Form S-4
          or Form
          S-8 (each as promulgated under the Securities Act) or their then equivalents
          relating to equity securities to be issued solely in connection with any
          acquisition of any entity or business or equity securities issuable in
          connection with the stock option or other employee benefit plans, then
          the
          Company shall send to each Holder a written notice of such determination
          and, if
          within fifteen days after the date of such notice, any such Holder shall
          so
          request in writing, the Company shall include in such registration statement
          all
          or any part of such Registrable Securities such Holder requests to be
          registered; provided,
          however,
          that
          the Company shall not be required to register any Registrable Securities
          pursuant to this Section 6(e) that are eligible for resale pursuant to
          Rule
          144(k) promulgated under the Securities Act or that are the subject of
          a then
          effective Registration Statement.

        

        (f) Amendments
          and Waivers.
          The
          provisions of this Agreement, including the provisions of this sentence,
          may not
          be amended, modified or supplemented, and waivers or consents to departures
          from
          the provisions hereof may not be given, unless the same shall be in writing
          and
          signed by the Company and each Holder of the then outstanding Registrable
          Securities. Notwithstanding the foregoing, a waiver or consent to depart
          from
          the provisions hereof with respect to a matter that relates exclusively
          to the
          rights of Holders and that does not directly or indirectly affect the rights
          of
          other Holders may be given by Holders of all of the Registrable Securities
          to
          which such waiver or consent relates; provided,
          however,
          that
          the provisions of this sentence may not be amended, modified, or supplemented
          except in accordance with the provisions of the immediately preceding sentence.
          

         

        
          
            
            

          

          
            119

            
              

            

          

          
            
            

          

        

        
 

        (g) Notices.
          Any and
          all notices or other communications or deliveries required or permitted
          to be
          provided hereunder shall be delivered as set forth in the Purchase Agreement.
          

        

        (h) Successors
          and Assigns.
          This
          Agreement shall inure to the benefit of and be binding upon the successors
          and
          permitted assigns of each of the parties and shall inure to the benefit
          of each
          Holder. The Company may not assign (except by merger) its rights or obligations
          hereunder without the prior written consent of all of the Holders of the
          then-outstanding Registrable Securities. Each Holder may assign their respective
          rights hereunder in the manner and to the Persons as permitted under the
          Purchase Agreement.

        

        (i) No
          Inconsistent Agreements.
          Neither
          the Company nor any of its Subsidiaries has entered, as of the date hereof,
          nor
          shall the Company or any of its Subsidiaries, on or after the date of this
          Agreement, enter into any agreement with respect to its securities, that
          would
          have the effect of impairing the rights granted to the Holders in this
          Agreement
          or otherwise conflicts with the provisions hereof. Except as set forth
          on
Schedule
          6(b),
          neither
          the Company nor any of its subsidiaries has previously entered into any
          agreement granting any registration rights with respect to any of its securities
          to any Person that have not been satisfied in full.

        

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

        

        (k) Governing
          Law.
          All
          questions concerning the construction, validity, enforcement and interpretation
          of this Agreement shall be determined in accordance with the provisions
          of the
          Purchase Agreement.

        

        (l) Cumulative
          Remedies.
          The
          remedies provided herein are cumulative and not exclusive of any other
          remedies
          provided by law.

        

        (m) Severability.
          If any
          term, provision, covenant or restriction of this Agreement is held by a
          court of
          competent jurisdiction to be invalid, illegal, void or unenforceable, the
          remainder of the terms, provisions, covenants and restrictions set forth
          herein
          shall remain in full force and effect and shall in no way be affected,
          impaired
          or invalidated, and the parties hereto shall use their commercially reasonable
          efforts to find and employ an alternative means to achieve the same or
          substantially the same result as that contemplated by such term, provision,
          covenant or restriction. It is hereby stipulated and declared to be the
          intention of the parties that they would have executed the remaining terms,
          provisions, covenants and restrictions without including any of such that
          may be
          hereafter declared invalid, illegal, void or unenforceable.

         

        
          
            
            

          

          
            120

            
              

            

          

          
            
            

          

        

        
 

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

        

        (o) Independent
          Nature of Holders’ Obligations and Rights.
          The
          obligations of each Holder hereunder are several and not joint with the
          obligations of any other Holder hereunder, and no Holder shall be responsible
          in
          any way for the performance of the obligations of any other Holder hereunder.
          Nothing contained herein or in any other agreement or document delivered
          at any
          closing, and no action taken by any Holder pursuant hereto or thereto,
          shall be
          deemed to constitute the Holders as a partnership, an association, a joint
          venture or any other kind of entity, or create a presumption that the Holders
          are in any way acting in concert with respect to such obligations or the
          transactions contemplated by this Agreement. Each Holder shall be entitled
          to
          protect and enforce its rights, including without limitation the rights
          arising
          out of this Agreement, and it shall not be necessary for any other Holder
          to be
          joined as an additional party in any proceeding for such purpose.

        

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

        
          
            
            

          

          
            121

            
              

            

          

          
            
            

          

        

        

        IN
          WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
          as
          of the date first written above.

        

        
          	 	
                  CENTERSTAGING
                    CORP.

                   

                
	 	By:	
                   /s/
                    HOWARD
                    LIVINGSTON                          
                    

                  Name:
                    Howard Livingston

                  Title:
                    Chief Financial Officer

                

        

             

        

        [SIGNATURE
          PAGE OF HOLDERS FOLLOWS]

        

        
          
            
            

          

          
            122

            
              

            

          

          
            
            

          

        

        

        [SIGNATURE
          PAGE OF HOLDERS TO CNSC RRA]

         

        Name
          of
          Holder: Crescent
          International Ltd. 

        Signature
          of Authorized Signatory of Holder:
/s/
          Maxi Brezzi

        Name
          of
          Authorized Signatory: Maxi
          Brezzi

        Title
          of
          Authorized Signatory: Authorized
          Signatories

         

         

        
          Name
            of
            Holder: Bridge
            Pointe Master Fund Ltd.

          Signature
            of Authorized Signatory of Holder:
/s/
            Eric S. Swartz 

          Name
            of
            Authorized Signatory: Eric
            S. Swartz

          Title
            of
            Authorized Signatory: Director

        

        

        
          
            
            

          

          
            123

            
              

            

          

          
            
            

          

        

        

        Annex
          A

        

        Plan
          of Distribution

        

        Each
          Selling Stockholder (the “Selling
          Stockholders”)
          of the
          common stock and any of their pledgees, assignees and successors-in-interest
          may, from time to time, sell any or all of their shares of common stock
          on the
          OTC Bulletin Board or any other stock exchange, market or trading facility
          on
          which the shares are traded or in private transactions. These sales may
          be at
          fixed or negotiated prices. A Selling Stockholder may use any one or more
          of the
          following methods when selling shares:

         

        
          	
                  ·

                	
                  ordinary
                    brokerage transactions and transactions in which the broker-dealer
                    solicits purchasers;

                
	 	 
	
                  ·

                	
                  block
                    trades in which the broker-dealer will attempt to sell the shares
                    as agent
                    but may position and resell a portion of the block as principal
                    to
                    facilitate the transaction;

                
	 	 
	
                  ·

                	
                  purchases
                    by a broker-dealer as principal and resale by the broker-dealer
                    for its
                    account;

                
	 	 
	
                  ·

                	
                  an
                    exchange distribution in accordance with the rules of the applicable
                    exchange;

                
	 	 
	
                  ·

                	
                  privately
                    negotiated transactions;

                
	 	 
	
                  ·

                	
                  settlement
                    of short sales entered into after the effective date of the registration
                    statement of which this prospectus is a part; 

                
	 	 
	
                  ·

                	
                  broker-dealers
                    may agree with the Selling Stockholders to sell a specified number
                    of such
                    shares at a stipulated price per share;

                
	 	 
	
                  ·

                	
                  through
                    the writing or settlement of options or other hedging transactions,
                    whether through an options exchange or otherwise;

                
	 	 
	
                  ·

                	
                  a
                    combination of any such methods of sale; or

                
	 	 
	
                  ·

                	
                  any
                    other method permitted pursuant to applicable
                    law.

                

        

         

        The
          Selling Stockholders may also sell shares under Rule 144 under the Securities
          Act of 1933, as amended (the “Securities
          Act”),
          if
          available, rather than under this prospectus.

         

        Broker-dealers
          engaged by the Selling Stockholders may arrange for other brokers-dealers
          to
          participate in sales. Broker-dealers may receive commissions or discounts
          from
          the Selling Stockholders (or, if any broker-dealer acts as agent for the
          purchaser of shares, from the purchaser) in amounts to be negotiated, but,
          except as set forth in a supplement to this Prospectus, in the case of
          an agency
          transaction not in excess of a customary brokerage commission in compliance
          with
          NASDR Rule 2440; and in the case of a principal transaction a markup or
          markdown
          in compliance with NASDR IM-2440. 

         

        
          
            
            

          

          
            124

            
              

            

          

          
            
            

          

        

         

        In
          connection with the sale of the common stock or interests therein, the
          Selling
          Stockholders may enter into hedging transactions with broker-dealers or
          other
          financial institutions, which may in turn engage in short sales of the
          common
          stock in the course of hedging the positions they assume. The Selling
          Stockholders may also sell shares of the common stock short and deliver
          these
          securities to close out their short positions, or loan or pledge the common
          stock to broker-dealers that in turn may sell these securities. The Selling
          Stockholders may also enter into option or other transactions with
          broker-dealers or other financial institutions or the creation of one or
          more
          derivative securities which require the delivery to such broker-dealer
          or other
          financial institution of shares offered by this prospectus, which shares
          such
          broker-dealer or other financial institution may resell pursuant to this
          prospectus (as supplemented or amended to reflect such
          transaction).

         

        The
          Selling Stockholders and any broker-dealers or agents that are involved
          in
          selling the shares may be deemed to be “underwriters” within the meaning of the
          Securities Act in connection with such sales. In such event, any commissions
          received by such broker-dealers or agents and any profit on the resale
          of the
          shares purchased by them may be deemed to be underwriting commissions or
          discounts under the Securities Act. Each Selling Stockholder has informed
          the
          Company that it does not have any written or oral agreement or understanding,
          directly or indirectly, with any person to distribute the Common Stock.
          In no
          event shall any broker-dealer receive fees, commissions and markups which,
          in
          the aggregate, would exceed eight percent (8%).

         

        The
          Company is required to pay certain fees and expenses incurred by the Company
          incident to the registration of the shares. The Company has agreed to indemnify
          the Selling Stockholders against certain losses, claims, damages and
          liabilities, including liabilities under the Securities Act. 

         

        Because
          Selling Stockholders may be deemed to be “underwriters” within the meaning of
          the Securities Act, they will be subject to the prospectus delivery requirements
          of the Securities Act including Rule 172 thereunder. In addition, any securities
          covered by this prospectus which qualify for sale pursuant to Rule 144
          under the
          Securities Act may be sold under Rule 144 rather than under this prospectus.
          There is no underwriter or coordinating broker acting in connection with
          the
          proposed sale of the resale shares by the Selling Stockholders.

         

        We
          agreed
          to keep this prospectus effective until the earlier of (i) the date on
          which the
          shares may be resold by the Selling Stockholders without registration and
          without regard to any volume limitations by reason of Rule 144(k) under
          the
          Securities Act or any other rule of similar effect or (ii) all of the shares
          have been sold pursuant to this prospectus or Rule 144 under the Securities
          Act
          or any other rule of similar effect. The resale shares will be sold only
          through
          registered or licensed brokers or dealers if required under applicable
          state
          securities laws. In addition, in certain states, the resale shares may
          not be
          sold unless they have been registered or qualified for sale in the applicable
          state or an exemption from the registration or qualification requirement
          is
          available and is complied with.

         

        
          
            
            

          

          
            125

            
              

            

          

          
            
            

          

        

         

        Under
          applicable rules and regulations under the Exchange Act, any person engaged
          in
          the distribution of the resale shares may not simultaneously engage in
          market
          making activities with respect to the common stock for the applicable restricted
          period, as defined in Regulation M, prior to the commencement of the
          distribution. In addition, the Selling Stockholders will be subject to
          applicable provisions of the Exchange Act and the rules and regulations
          thereunder, including Regulation M, which may limit the timing of purchases
          and
          sales of shares of the common stock by the Selling Stockholders or any
          other
          person. We will make copies of this prospectus available to the Selling
          Stockholders and have informed them of the need to deliver a copy of this
          prospectus to each purchaser at or prior to the time of the sale (including
          by
          compliance with Rule 172 under the Securities Act).

         

        
          
            
            

          

          
            126

            
              

            

          

          
            
            

          

        

        

        Annex
          B

         

        CENTERSTAGING
          CORP.

         

        Selling
          Securityholder Notice and Questionnaire

         

        The
          undersigned beneficial owner of common stock (the “Registrable
          Securities”)
          of
          CenterStaging Corp., a Delaware corporation (the “Company”),
          understands that the Company has filed or intends to file with the Securities
          and Exchange Commission (the “Commission”)
          a
          registration statement (the “Registration
          Statement”)
          for
          the registration and resale under Rule 415 of the Securities Act of 1933,
          as
          amended (the “Securities
          Act”),
          of
          the Registrable Securities, in accordance with the terms of the Registration
          Rights Agreement (the “Registration
          Rights Agreement”)
          to
          which this document is annexed. A copy of the Registration Rights Agreement
          is
          available from the Company upon request at the address set forth below.
          All
          capitalized terms not otherwise defined herein shall have the meanings
          ascribed
          thereto in the Registration Rights Agreement.

         

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

         

        NOTICE

         

        The
          undersigned beneficial owner (the “Selling
          Securityholder”)
          of
          Registrable Securities hereby elects to include the Registrable Securities
          owned
          by it in the Registration Statement.

         

        
          
            
            

          

          
            127

            
              

            

          

          
            
            

          

        

        

        The
          undersigned hereby provides the following information to the Company and
          represents and warrants that such information is accurate:

         

        QUESTIONNAIRE

         

        1. Name.

         

        
          	 	
                  (a)

                	
                  Full
                    Legal Name of Selling Securityholder

                

          	 	 	 

          	 	 	 

        

         

        

        
          	 	
                  (b)

                	
                  Full
                    Legal Name of Registered Holder (if not the same as (a) above)
                    through
                    which Registrable Securities are held:

                

          	 	 	 

          	 	 	 

        

        
 

        
          	 	
                  (c)

                	
                  Full
                    Legal Name of Natural Control Person (which means a natural person
                    who
                    directly or indirectly alone or with others has power to vote
                    or dispose
                    of the securities covered by the
                    questionnaire):

                

          	 	 	 

          	 	 	 

        

         

         

        2.
          Address for Notices to Selling Securityholder:

         

        
          	 
	 
	 
	
                  Telephone:

                	 
	
                  Fax:

                	 
	
                  Contact
                    Person:

                	 

        

        

        3.
          Broker-Dealer Status:

         

        
          	 	
                  (a)

                	
                  Are
                    you a broker-dealer?

                

        

         

        Yes
o  
           No o

         

        
          	 	
                  (b)

                	
                  If
                    “yes” to Section 3(a), did you receive your Registrable Securities
                    as
                    compensation for investment banking services to the
                    Company.

                

        

         

        Yes
o
No o

         

        
          	 	
                  Note:

                	
                  If
                    no, the Commission’s staff has indicated that you should be identified as
                    an underwriter in the Registration
                    Statement.

                

        

         

        
          
            
            

          

          
            128

            
              

            

          

          
            
            

          

        

         

        
          	 	
                  (c)

                	
                  Are
                    you an affiliate of a
                    broker-dealer?

                

        

         

        Yes
o
No
o 

         

        
          	 	
                  (d)

                	
                  If
                    you are an affiliate of a broker-dealer, do you certify that
                    you bought
                    the Registrable Securities in the ordinary course of business,
                    and at the
                    time of the purchase of the Registrable Securities to be resold,
                    you had
                    no agreements or understandings, directly or indirectly, with
                    any person
                    to distribute the Registrable
                    Securities?

                

        

         

        Yes
o
No
o 

         

        
          	 	
                  Note:

                	
                  If
                    no, the Commission’s staff has indicated that you should be identified as
                    an underwriter in the Registration
                    Statement.

                

        

         

        4.
          Beneficial Ownership of Securities of the Company Owned by the Selling
          Securityholder.

         

        Except
          as set forth below in this Item 4, the undersigned is not the beneficial
          or
          registered owner of any securities of the Company other than the securities
          issuable pursuant to the Purchase Agreement.

         

        
          	 	
                  (a)

                	
                  Type
                    and Amount of other securities beneficially owned by the Selling
                    Securityholder:

                

          	 	 	 

          	 	 	 

          	 	 	 

        

        
 

        
          
            
            

          

          
            129

            
              

            

          

          
            
            

          

        

         

        5.
          Relationships with the Company:

         

        Except
          as set forth below, neither the undersigned nor any of its affiliates,
          officers,
          directors or principal equity holders (owners of 5% of more of the equity
          securities of the undersigned) has held any position or office or has had
          any
          other material relationship with the Company (or its predecessors or affiliates)
          during the past three years.

         

        State
          any
          exceptions here:

         

        
          	 
	 
	 

        

        

         

        The
          undersigned agrees to promptly notify the Company of any inaccuracies or
          changes
          in the information provided herein that may occur subsequent to the date
          hereof
          at any time while the Registration Statement remains effective.

         

        By
          signing below, the undersigned consents to the disclosure of the information
          contained herein in its answers to Items 1 through 5 and the inclusion
          of such
          information in the Registration Statement and the related prospectus
and
          any
          amendments or supplements thereto.
          The
          undersigned understands that such information will be relied upon by the
          Company
          in connection with the preparation or amendment of the Registration Statement
          and the related prospectus.

         

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

         

         

        
          	Dated:__________________________________
                  	Beneficial
                  Owner:_________________________ 
	 	 	 
	 	By:  	____________________________
	 	 	Name:
	 	 	Title: 

        

        
 

        PLEASE
          FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
          RETURN
          THE ORIGINAL BY OVERNIGHT MAIL, TO:

         

        
          
            
            

          

          
            130

            
              

            

          

          
            
            

          

        

      

      

        SCHEDULE
          6(b)

        

        PIGGYBACK
          ON REGISTRATIONS

        

        Mick
          Fleetwood has registration rights to 40,000 shares of Common Stock.

        

        Trilogy
          Capital Partners, Inc. has registration rights to the 2,000,000 shares
          of Common
          Stock. 

        

        Montage
          Partners III, LLC has registration rights to 1,033,333 shares of Common
          Stock.

        

        
          
            
            

          

          
            131

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