Document:

EXHIBIT 10.14

                 NETSOL TECHNOLOGIES, INC., A NEVADA CORPORATION
                          PROMISSORY NOTE (THE, "NOTE")

$250,000                                                            May 24, 2005

      FOR VALUE RECEIVED, the undersigned,  NETSOL TECHNOLOGIES,  INC., a Nevada
corporation (the "Company"), on the date of the issuance of the Note (the "Issue
Date")hereby  promises to pay to the order of Maxim Group LLC, or its  assignees
(the  "Holder"),  the  principal  sum  of Two  Hundred  Fifty  Thousand  Dollars
($250,000).  Payment of all cash  amounts due  hereunder  shall be made via wire
transfer in accordance  with the wire  instructions as provided by the Holder to
the Company. The $250,000 shall be payable under the following terms:

      1.    One Hundred  Thousand  Dollars  ($100,000) of the principal shall be
due to the Holder (i) in the name of Maxim Partners LLC, (ii) in lawful money of
the United States of America, (iii) in the lesser of 10 days from the closing of
the Initial Public Offering of the Company's Pakistani subsidiary,  (insert name
of  subsidiary) on the Karachi Stock Exchange or 60 days from the Issue Date. If
the $100,000 is not paid within 60 days of the Issue Date, interest shall accrue
beginning at 12% and  increasing by 1.5% for each month  thereafter to a maximum
of 18%. In lieu of the $100,000 cash payment, at any time, the Company may issue
the Holder, the value of $120,000 (plus the amount of interest accrued),  in the
form of  common  stock  of the  Company  at a price  of  $1.87  per  share  (the
"Replacement Shares").

      2.    One Hundred Fifty Thousand Dollars ($150,000) of the principal shall
be due to the Holder,  in the form of delivery  of Eighty  Thousand  Two Hundred
Fourteen  (80,214) shares of common stock of the Company (the "Shares"),  within
10 days from the Issue Date. In lieu of the Shares, at any time, the Company may
pay Maxim,  cash equal to either the greater of (i)  $150,000 or (ii) the market
value of the common stock of the Company and any  Additional  Shares (as defined
in 3(b)).  The market  value  shall be  defined  as the 10 day  volume  weighted
average price of the Company's common stock.

      In accepting the Shares as partial payment of the principal due hereunder,
Holder recognizes the following:

            (a)   That the purchase of the Shares involves a high degree of risk
      including,  but not limited to, the  following:  (i) an  investment in the
      Company is highly speculative,  and only investors who can afford the loss
      of their entire investment should consider investing in the Company;  (ii)
      the  Holder  may  not  be  able  to  liquidate   its   investment;   (iii)
      transferability of the Shares is extremely limited; (iv) in the event of a
      disposition of the Shares, the Holder could sustain the loss of its entire
      investment  and (v) the Company has not paid any  dividends  on its Shares
      since  inception and does not  anticipate  the payment of dividends in the
      foreseeable future.

<PAGE>

            (b)   Holder is an "accredited  investor" as such term is defined in
      Rule 501 of Regulation D promulgated  under the Securities Act of 1933, as
      amended (the "Act"),  and that Holder is able to bear the economic risk of
      an investment in the Company.

            (c)   Holder  hereby  acknowledges  and  represents  that (i) it has
      prior investment experience,  including investment in securities which are
      non-listed,  unregistered  and/or  not traded on the  Nasdaq  National  or
      SmallCap Market, a national stock exchange nor on the National Association
      of Securities  Dealers,  Inc. (the "NASD") automated  quotation system for
      actively  traded  stocks  ("Nasdaq");  (ii) Holder  recognizes  the highly
      speculative  nature of this  investment;  and (iii) Holder is able to bear
      the economic risk which the Subscriber hereby assumes.

            (d)   Holder  hereby  acknowledges  that the  Offering  has not been
      reviewed by the United  States  Securities  and Exchange  Commission  (the
      "SEC" or the "Commission") or any state securities regulatory authority or
      other  governmental  body or agency,  since the issuance is intended to be
      exempt from the registration  requirements of Section 5 of the Act. Holder
      shall not sell or otherwise  transfer the Shares  unless such  transfer is
      registered under the Act or unless an exemption from such  registration is
      available.  Holder understands that if required by the laws or regulations
      of any applicable jurisdictions,  the issuance contemplated hereby will be
      submitted to the appropriate authorities of such state(s) for registration
      or exemption therefrom.

            (e)   Holder  understands  that the Shares have not been  registered
      under the Act by reason of a claimed exemption under the provisions of the
      Act which depends,  in part, upon Holder's investment  intention.  In this
      connection,  Holder hereby represents that Holder is purchasing the Shares
      for Holder's own account for investment  purposes only and not with a view
      toward  the  resale  or  distribution  to  others  and  has  no  contract,
      undertaking, agreement or other arrangement, in existence or contemplated,
      to sell,  pledge,  assign or  otherwise  transfer  the Shares to any other
      person.  Holder also  represents that it was not formed for the purpose of
      purchasing the Shares.

            (f)   Holder  understands  that although there currently is a public
      market for the Company's Common Stock,  Rule 144 promulgated under the Act
      ("Rule 144") requires,  among other conditions,  a one-year holding period
      prior to the resale (in  limited  amounts)  of  securities  acquired  in a
      non-public   offering   without   having  to  satisfy   the   registration
      requirements under the Act.

            (g)   Holder   consents  to  the   placement  of  a  legend  on  the
      certificate  evidencing the Shares  substantially as set forth below, that
      such Shares have not been registered under the Act or any state securities
      or "blue sky" laws and setting forth or referring to the  restrictions  on
      transferability  and sale thereof  contained in this Agreement.  Holder is
      aware that the  Company  will make a notation in its  appropriate  records
      with respect to the restrictions on the transferability of the Shares.

<PAGE>

            THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES  ACT OF 1933,  AS  AMENDED  (THE  "ACT"),  OR  UNDER  THE
            SECURITIES  LAWS OF ANY  STATE.  THESE  SECURITIES  ARE  SUBJECT  TO
            RESTRICTIONS   ON   TRANSFERABILITY   AND  RESALE  AND  MAY  NOT  BE
            TRANSFERRED  OR  RESOLD  EXCEPT AS  PERMITTED  UNDER THE ACT AND THE
            APPLICABLE  STATE  SECURITIES  LAWS,  PURSUANT  TO  REGISTRATION  OR
            EXEMPTION  THEREFROM.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
            OPINION OF COUNSEL IN FORM AND SUBSTANCE  SATISFACTORY TO THE ISSUER
            TO THE EFFECT THAT ANY PROPOSED  TRANSFER OR RESALE IS IN COMPLIANCE
            WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

      3.    The Company agrees to the grant of registration  rights to Holder as
follows:

            (a)   Subject to the terms herein, the Company will grant the Holder
unlimited  piggy-back  registration rights for the Shares for a period extending
from the Issue Date until the one year anniversary of the Note.

            (b)   The Company  shall use its best efforts to register the Shares
and,  if  issued,  the  Replacement  Shares  (collectively,   the  "Registerable
Shares"),  with the SEC within 120 days of the Issue Date.  If the  Registerable
Shares are not  registered  within 120 days of the Issue Date, the Company shall
deliver to the Holder $3,000 worth of  additional  shares of common stock of the
Company  with a per  share  price of the  lesser  of  $1.87 or the 5 day  volume
weighted  average price of the Company's  common stock. For each month following
the 120  days  after  the  Issue  Date  that  the  Registerable  Shares  are not
registered  with the SEC, the Company shall  increase the shares of common stock
per month by an additional $3,000 worth of shares for each month thereafter,  to
a maximum of 14,436 shares per month  (collectively,  the "Additional  Shares").
All Additional Shares shall be added to the registration statement and also have
unlimited  piggy-back  registration  rights.  The  Company  shall:  (i)  file  a
registration statement on the appropriate form (the "Registration Statement") to
allow the resale of the  Registerable  Shares with the SEC; and, (ii) cause such
Registration  Statement to remain  effective (the  "Registration  Period") until
such date as the  holders  of the  Registrable  Securities  have  completed  the
distribution described in the Registration Statement. To the extent permissible,
such Registration  Statement also shall cover, to the extent allowable under the
Act and the rules  promulgated  thereunder  (including  Rule 416 under the Act),
such  indeterminate  number of additional  shares of Common Stock resulting from
stock  splits,  stock  dividends  or similar  transactions  with  respect to the
Registrable Securities.

            (c)   All  registration  expenses  incurred in  connection  with any
registration,  qualification,  exemption  or  compliance  shall  be borne by the
Company.  All selling expenses relating to the sale of securities  registered by
or on behalf of Holders shall be borne by such Holders.

<PAGE>

            (d)   In the case of the registration,  qualification,  exemption or
compliance  effected by the Company  pursuant to this note,  the Company  shall,
upon  reasonable  request,   inform  each  Holder  as  to  the  status  of  such
registration,  qualification,  exemption  and  compliance.  At its  expense  the
Company shall:

                  (i)   use its best efforts to keep such registration,  and any
qualification,  exemption or compliance  under state or federal  securities laws
which  the  Company  determines  to  obtain,  continuously  effective  until the
termination of the Registration Period; and

                  (ii)  advise the Holders as soon as practicable:

                        (1)   when the  Registration  Statement or any amendment
thereto has been filed with the Commission and when the  Registration  Statement
or any post-effective amendment thereto has become effective;

                        (2)   of any request by the Commission for amendments or
supplements to the Registration  Statement or the prospectus included therein or
for additional information;

                        (3)   of the  issuance  by the  Commission  of any  stop
order  suspending  the  effectiveness  of  the  Registration  Statement  or  the
initiation of any proceedings for such purpose;

                        (4)   of the receipt by the Company of any  notification
with  respect  to  the  suspension  of  the  qualification  of  the  Registrable
Securities  included  therein for sale in any  jurisdiction or the initiation or
threatening of any proceeding for such purpose; and

                        (5)   of the  happening  of any event that  requires the
making of any changes in the  Registration  Statement or the prospectus so that,
as of such date,  the  statements  therein are not misleading and do not omit to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein  (in  the  case  of  the  prospectus,  in the  light  of the
circumstances under which they were made) not misleading;

                  (iii) make every reasonable effort to obtain the withdrawal of
any order  suspending the  effectiveness  of any  Registration  Statement at the
earliest possible time;

                  (iv)  furnish to Holder,  without charge, at least one copy of
such Registration Statement and any post-effective amendment thereto,  including
financial  statements and schedules,  and, if the Holder so requests in writing,
all exhibits  (including those incorporated by reference) in the form filed with
the Commission;

<PAGE>

                  (v)   during  the  Registration  Period,  deliver  to  Holder,
without charge,  as many copies of the prospectus  included in such Registration
Statement  and any  amendment  or  supplement  thereto as Holder may  reasonably
request;  and the Company  consents to the use,  consistent  with the provisions
hereof, of the prospectus or any amendment or supplement  thereto by the selling
Holder of Registrable Securities in connection with the offering and sale of the
Registrable  Securities covered by the prospectus or any amendment or supplement
thereto.  In addition,  upon the reasonable request of the Holder and subject in
all cases to confidentiality  protections  reasonably acceptable to the Company,
the Company will meet with a Holder or a representative thereof at the Company's
headquarters  to  discuss  all  information   relevant  for  disclosure  in  the
Registration Statement covering the Registrable  Securities,  and will otherwise
cooperate  with any  Holder  conducting  an  investigation  for the  purpose  of
reducing or  eliminating  such  Holder's  exposure to  liability  under the Act,
including   the   reasonable   production  of   information   at  the  Company's
headquarters;

                  (vi)  prior to any public  offering of Registrable  Securities
pursuant  to any  registration  statement,  register  or  qualify  or  obtain an
exemption  for offer  and sale  under  the  securities  or blue sky laws of such
jurisdictions as any such Holders reasonably  request in writing,  provided that
the Company  shall not for any such purpose be required to qualify  generally to
transact business as a foreign  corporation in any jurisdiction  where it is not
so  qualified  or  to  consent  to  general  service  of  process  in  any  such
jurisdiction,  and do any and all other acts or things  reasonably  necessary or
advisable to enable the offer and sale in such  jurisdictions of the Registrable
Securities covered by such Registration Statement;

                  (vii) cooperate  with the  Holder  to  facilitate  the  timely
preparation and delivery of certificates  representing Registrable Securities to
be sold pursuant to any Registration  Statement free of any restrictive  legends
to the extent not required at such time and in such denominations and registered
in such names as Holders  may request at least five (5)  business  days prior to
sales of Registrable Securities pursuant to such Registration Statement;

                  (viii) upon the  occurrence of any event  contemplated  above,
the  Company  shall  promptly   prepare  a   post-effective   amendment  to  the
Registration  Statement or a supplement to the related  prospectus,  or file any
other required document so that, as thereafter  promptly delivered to purchasers
of the Registrable  Securities included therein, the prospectus will not include
any untrue  statement  of a  material  fact or omit to state any  material  fact
necessary  to make the  statements  therein,  in the light of the  circumstances
under which they were made, not misleading; and

<PAGE>

                  (ix)  use its best efforts to comply with all applicable rules
and  regulations of the  Commission,  and use its best efforts to make generally
available  to the  Holders  not  later  than 45 days  (or 90 days if the  fiscal
quarter is the fourth  fiscal  quarter)  after the end of its fiscal  quarter in
which the  first  anniversary  date of the  effective  date of the  Registration
Statement  occurs,  an earnings  statement  satisfying the provisions of Section
11(a) of the Act.

            (e)   Holder  shall  have no right to take any  action to  restrain,
enjoin or otherwise delay any  registration as a result of any controversy  that
may arise with respect to the interpretation or implementation of this note.

            (f)   (i)  To  the  extent  permitted  by  law,  the  Company  shall
indemnify the Holder,  with respect to which any registration,  qualification or
compliance  has been effected  pursuant to this  Agreement,  against all claims,
losses, damages and liabilities (or action in respect thereof), including any of
the foregoing incurred in settlement of any litigation,  commenced or threatened
, arising out of or based on any untrue statement (or alleged untrue  statement)
of a material fact contained in the Registration  Statement, or any amendment or
supplement  thereof,  incident  to  any  such  registration,   qualification  or
compliance,  or based on any omission (or alleged  omission) to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  in light of the  circumstances in which they were made,
and will  reimburse  Holder for reasonable  legal and other expenses  reasonably
incurred in connection  with  investigating  or defending any such claim,  loss,
damage,  liability or action as incurred;  provided that the Company will not be
liable in any such case to the extent that any untrue  statement  or omission or
allegation  thereof is made in  reliance  upon and in  conformity  with  written
information  furnished  to the Company by or on behalf of such Holder and stated
to be  specifically  for  use in  preparation  of such  registration  statement,
prospectus or offering circular; provided, further, that the Company will not be
liable in any such case where the claim, loss, damage or liability arises out of
or is related to the  failure of the  Holder to comply  with the  covenants  and
agreements   contained  in  this  Agreement   respecting  sales  of  Registrable
Securities.

                  (ii)  Maxim,  who is  entitled  to such  indemnification  (the
"Indemnified Party") shall give notice to the Company (the "Indemnifying Party")
promptly  after the  Indemnified  Party has actual  knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation  resulting  therefrom,  provided
that counsel for the  Indemnifying  Party, who shall conduct the defense of such
claim or litigation,  shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld),  and the Indemnified  Party may participate
in such defense at the Indemnifying  Party's expense,  and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying  Party of its obligations under this Agreement,  unless
such failure is materially  prejudicial to the  Indemnifying  Party in defending
such claim or  litigation.  An  Indemnifying  Party  shall not be liable for any
settlement of an action or claim  affected  without its written  consent  (which
consent will not be unreasonably withheld).

<PAGE>

                  (iv)  If the  indemnification  provided for is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with respect
to any loss,  liability,  claim, damage or expense referred to therein, then the
Indemnifying  Party, in lieu of indemnifying  such Indemnified Party thereunder,
shall  contribute to the amount paid or payable by such  Indemnified  Party as a
result of such loss,  liability,  claim, damage or expense in such proportion as
is appropriate to reflect the relative  fault of the  Indemnifying  Party on the
one  hand and of the  Indemnified  Party on the  other  in  connection  with the
statements or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other  relevant  equitable  considerations.  The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by  reference  to,  among other  things,  whether  the untrue or alleged  untrue
statement of a material fact or the omission to state a material fact relates to
information  supplied by the Indemnifying  Party or by the Indemnified Party and
the parties' relative intent,  knowledge,  access to information and opportunity
to correct or prevent such statement or omission. Notwithstanding the foregoing,
in no event  shall a Holder be liable for any such  claims,  losses,  damages or
liabilities pursuant to this paragraph in excess of the net proceeds received by
such Holder in the Offering, except in the event of fraud by such Holder.

            (g)   (i) Each Holder  agrees that,  upon receipt of any notice from
the  Company  of the  happening  of any event  requiring  the  preparation  of a
supplement or amendment to a prospectus  relating to  Registrable  Securities so
that, as thereafter  delivered to the Holder,  such prospectus shall not contain
an  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 not
misleading,   Holder  will  forthwith  discontinue  disposition  of  Registrable
Securities pursuant to the registration statement contemplated until its receipt
of copies of the  supplemented  or amended  prospectus  from the  Company,  such
prospectus to be forwarded promptly to the Subscriber by the Company, and, if so
directed by the Company,  Holder shall deliver to the Company all copies,  other
than  permanent  file  copies  then in Holder's  possession,  of the  prospectus
covering  such  Registrable  Securities  current  at the time of receipt of such
notice.

                  (ii)  Holder shall suspend,  upon request of the Company,  any
disposition of the Shares, Replacement Shares, and Additional Shares, during (i)
any period not to exceed two 30-day periods  within any one 12-month  period the
Company  requires in connection with a primary  underwritten  offering of equity
securities.

                  (iii) As a  condition  to the  inclusion  of  its  Registrable
Securities,  each Holder shall furnish to the Company such information regarding
such  Holder and the  distribution  proposed  by such  Holder as the Company may
reasonably  request in writing or as shall be  required in  connection  with any
registration, qualification or compliance.

                  (iv)  Holder hereby covenants with the Company not to make any
sale of the Registrable  Securities without  effectively  causing the prospectus
delivery requirements under the Act to be satisfied.

<PAGE>

                  (v)   Holder  acknowledges  and  agrees  that the  Registrable
Securities sold pursuant to the Registration Statement described in this Section
are not  transferable  on the books of the Company unless the stock  certificate
submitted  to the transfer  agent  evidencing  such  Registrable  Securities  is
accompanied  by a  certificate  reasonably  satisfactory  to the  Company to the
effect that (i) the  Registrable  Securities  have been sold in accordance  with
such  Registration  Statement and (ii) the  requirement  of delivering a current
prospectus has been satisfied.

                  (vi)  Holder agrees not to take any action with respect to any
distribution  deemed to be made pursuant to such  Registration  Statement  which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.

            (h)   With a view to making  available to the Holder the benefits of
certain rules and  regulations  of the  Commission  which at any time permit the
sale of the  Registrable  Securities  to the public  without  registration,  the
Company shall use its reasonable best efforts to:

                  (i)   make and keep  public  information  available,  as those
terms are understood and defined in Rule 144 under the Act, at all times;

                  (ii)  file with the  Commission in a timely manner all reports
and other documents required of the Company under the Exchange Act; and

                  (iii) so long as a Holder  owns any  unregistered  Registrable
Securities,  furnish to such  Holder,  upon any  reasonable  request,  a written
statement by the Company as to its  compliance  with Rule 144 under the Act, and
of the Exchange Act, a copy of the most recent annual or quarterly report of the
Company,  and such other reports and documents of the Company as such Holder may
reasonably  request  in  availing  itself  of  any  rule  or  regulation  of the
Commission allowing a Holder to sell any such securities without registration.

            (i)   The  rights  to cause  the  Company  to  register  Registrable
Securities granted to the Holders by the Company under this Note may be assigned
in full by a  Holder  in  connection  with a  transfer  by  such  Holder  of its
Registrable Securities,  provided, however, that (i) such transfer may otherwise
be effected in accordance  with  applicable  securities  laws;  (ii) such Holder
gives prior written notice to the Company;  and (iii) such transferee  agrees to
comply with the terms and  provisions  of this  Agreement,  and such transfer is
otherwise in compliance with this Agreement. Except as specifically permitted by
this Note, the rights of a Holder with respect to Registrable  Securities as set
out herein shall not be  transferable  to any other  Person,  and any  attempted
transfer shall cause all rights of such Holder therein to be forfeited.

<PAGE>

            (j)   The Company  shall use best  efforts to cause all  Registrable
Securities  covered by a Registration  Statement to be listed on each securities
exchange,  interdealer  quotation  system  or  other  market  on  which  similar
securities issued by the Company are then listed.

Notices to be given  hereunder  shall be in writing  and shall be deemed to have
been sufficiently given if delivered  personally or sent by overnight courier or
messenger or sent by registered or certified mail (air mail if overseas), return
receipt  requested,  or by telex,  facsimile  transmission,  telegram or similar
means of communication. Notice shall be deemed to have been received on the date
of personal delivery,  telex, facsimile transmission,  telegram or similar means
of communication,  or if sent by overnight courier or messenger, shall be deemed
to have been received on the next delivery day after deposit with the courier or
messenger, or if sent by certified or registered mail, return receipt requested,
shall be deemed to have been  received on the third  business day after the date
of  mailing.  The  address of the  Company is 23901  Calabasas  Road Suite 2072,
Calabasas, California 91302, United States of America and the Company shall give
written  notice of any  change of address  to the  Holder.  Notice to the Holder
should be provided as follows:

Frank Argenziano                   James E. Siegel, Asst. General Counsel
Maxim Group LLC                    Maxim Group LLC
405 Lexington Avenue               405 Lexington Avenue
New York, NY  10174                New York, NY 10174

      4.    In the event that it shall become necessary for the Holder to employ
counsel to enforce the terms of the Note,  the Company  agrees to pay the Holder
reasonable  attorney's  fees for the  services of such  counsel,  whether or not
legal  proceedings  are  institutional,  and  all  disbursements  reasonably  in
connection therewith.

<PAGE>

      5.    This Note shall be construed in accordance  with and governed by the
laws of New York.  Furthermore,  in the event that a proceeding  is initiated to
enforce the terms of the Note, both parties agree that the appropriate  venue is
New York, New York. No party shall make an objection based upon lack of personal
jurisdiction or the convenience of the forum.

      6.    This Note may not be changed or terminated orally.

IN WITNESS WHEREOF, the Company has signed and sealed this Note and delivered it
in the State of California as of March 24, 2005.

                                            COMPANY:

                                            NETSOL TECHNOLOGIES, INC.
                                            a Nevada corporation

                                            /s/ Najeeb Ghauri
                                            ------------------------------------
                                            By: Najeeb Ghauri, Chairman

ACKNOWLEDGED AND AGREED:

MAXIM GROUP LLC

By: /s/ Anthony J Sarkis
  ------------------------------
  Anthony J Sarkis
  Director of Investment BankingUnassociated Document

    
      EXHIBIT
        4.1

       

      SECURITIES
        PURCHASE AGREEMENT

       

      This
        Securities Purchase Agreement (this “Agreement”)
        is
        dated as of September 30, 2005 among Small World Kids, Inc., a Nevada
        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 indicated 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.

       

      “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 $.001 per share, and any other
        class
        of securities into which such securities may hereafter have been 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, PC.

       

      “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, 3 years
        from
        their date of issuance, issued by the Company to the Purchasers hereunder,
        in
        the form of Exhibit
        A.

       

      “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.

       

      “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.

      

      “Exempt
        Issuance”
        means
        the issuance of (a) shares of Common Stock or options to employees, officers
        or
        directors of the Company pursuant to any stock or option plan duly adopted
        by a
        majority of the non-employee members of the Board of Directors of the Company
        or
        a majority of the members of a committee of non-employee directors established
        for such purpose, (b) securities upon the exercise or exchange of or conversion
        of any Securities issued hereunder and/or 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 any such securities,
        (c)
        securities issued pursuant to acquisitions or strategic transactions, provided
        any such issuance shall only be to a Person (or, in the case of an acquisition,
        to such Person’s shareholders) 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 and (d) for purposes of Section 4.14
        only,
        the issuance of at least $15,000,000 of Common Stock and Common Stock
        Equivalents, to be placed to “accredited investors”, which investors shall
        execute definitive agreements for the purchase of such securities on or before
        November 30, 2005 (a “Subsequent Placement”).

      

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “FW”
        means
        Feldman Weinstein 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).

       

      “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.

       

      “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.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      “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, the Warrant Shares and the Underlying
        Shares.

       

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

       

      “Short
        Sales”
        shall
        include all “short sales” as defined in Rule 200 of Regulation SHO under the
        Exchange Act. 

       

      “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.

       

      “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.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      “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 Nasdaq SmallCap Market, the American
        Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
        the
        OTC Bulletin Board.

       

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

       

      “Underlying
        Shares”
        means
        the shares of Common Stock issued and issuable upon conversion of the Debentures
        and upon exercise of the Warrants and 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 Financial L.P. (based on a
        Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) 
        if
        the Common Stock is not then listed or quoted on a Trading Market and if
        prices
        for the Common Stock are then quoted on the OTC Bulletin Board, 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 the 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
        (c) 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 Purchasers
        and reasonably acceptable to the Company.

       

      “Warrants”
        means
        collectively the Common Stock purchase warrants, in the form of Exhibit C,
        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 equal to 5 years.

       

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

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      ARTICLE
        II.

      PURCHASE
        AND SALE

       

      2.1  Closing.
        On the
        Closing Date, upon the terms and subject to the conditions set forth herein,
        concurrent with the execution and delivery of this Agreement by the parties
        hereto, the Company agrees to sell, and each Purchaser agrees to purchase
        in the
        aggregate, severally and not jointly, up to $3,000,000 principal amount of
        the
        Debentures, but not less than $1,500,000 principal amount of Debentures.
        Each
        Purchaser shall deliver to the Company via wire transfer or a certified check
        immediately available funds equal to their Subscription Amount and the Company
        shall deliver to each Purchaser their respective Debenture and Warrants as
        determined pursuant to Section 2.2(a) and the other items set forth in Section
        2.2 issuable 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 FW, 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 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 50% of such Purchaser’s Subscription Amount divided by
        $.40, with an exercise price equal to $.60,
        subject
        to adjustment therein,;

       

      (v)  a
        Warrant
        registered in the name of such Purchaser to purchase up to a number of shares
        of
        Common Stock equal to 25% of such Purchaser’s Subscription Amount divided by
        $.40, with an exercise price equal to $.75,
        subject
        to adjustment therein;

       

      (vi)  the
        Registration Rights Agreement duly executed by the Company; and

       

      (vi) a
        Lock-Up
        Agreement, duly executed by each of the Fine Family Trust, SWT, LLC, Phoenix
        Capital Opportunity Fund LP, David Marshall, Inc., Ficksman Family Trust
        and the
        Company, in form, substance and scope satisfactory to each
        Purchaser.

      

      (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 account as specified in
        writing by the Company; and

       

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

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      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 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; and

       

      (v)  from
        the
        date hereof to the Closing Date, trading in the Common Stock shall not have
        been
        suspended by the Commission (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 Financial Markets 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.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      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, the Company hereby makes
        the
        representations and warranties set forth below 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 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,
        then
        references in the Transaction Documents to the Subsidiaries will 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 power and authority to own and use its properties and assets and
        to
        carry on its business as currently conducted. Neither the Company nor any
        Subsidiary is in violation 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.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      (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 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
        applicable bankruptcy, insolvency, reorganization, moratorium and other laws
        of
        general application affecting enforcement of creditors’ rights generally and
        (ii) as limited by laws relating to the availability of specific performance,
        injunctive relief or other equitable remedies.

       

      (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.

       

      (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 Debentures and Warrants 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”).

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (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 Schedule
        3.1(g).
        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 outstanding Common Stock Equivalents. 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, script 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 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.

       

      (h)  SEC
        Reports; Financial Statements.
        The
        Company has filed all reports, schedules, forms, statements and other documents
        required to be filed by it under the Securities Act and the Exchange Act,
        including pursuant to Section 13(a) or 15(d) thereof, for the two years
        preceding the date hereof (or such shorter period as the Company was required
        by
        law to file such material) (the foregoing materials, 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 and the rules
        and
        regulations of the Commission promulgated thereunder, and none of the SEC
        Reports, when filed, contained any untrue statement of a material fact or
        omitted to state a material fact required to be stated therein or necessary
        in
        order to make the statements therein, in 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.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      (i)  Material
        Changes.
        Since
        the date of the latest audited financial statements included within the SEC
        Reports, except as specifically disclosed in the SEC Reports, (i) there has
        been
        no event, occurrence or development that has had or that could reasonably
        be
        expected to result in a Material Adverse Effect, (ii) the Company has not
        incurred any liabilities (contingent or otherwise) other than (A) trade payables
        and accrued expenses incurred in the ordinary course of business consistent
        with
        past practice and (B) liabilities not required to be reflected in the Company’s
        financial statements pursuant to GAAP or required to be disclosed in filings
        made with the Commission, (iii) the Company has not altered its method of
        accounting, (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.

       

      (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
        officer thereof, is or has been the subject of any Action involving a claim
        of
        violation of or liability under federal or state securities laws or a claim
        of
        breach of fiduciary duty. There has not been, and to the knowledge of the
        Company, there is not pending or contemplated, any investigation by the
        Commission involving the Company or any current or former director or officer
        of
        the Company. The Commission has not issued any stop order or other order
        suspending the effectiveness of any registration statement filed by the Company
        or any Subsidiary under the Exchange Act or the Securities Act.

       

      (k)  Labor
        Relations.
        No
        material labor dispute exists or, to the knowledge of the Company, is imminent
        with respect to any of the employees of the Company which could reasonably
        be
        expected to result in a Material Adverse Effect.

       

      
        
          
          

        

        
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      (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
        except in each case as could not have 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 of which the
        Company
        and the Subsidiaries are in compliance.

       

      (o)  Patents
        and Trademarks.
        The
        Company and the Subsidiaries have, or have rights to use, all patents, patent
        applications, trademarks, trademark applications, service marks, trade names,
        copyrights, licenses and other similar rights necessary or material for use
        in
        connection with their respective businesses as described in the SEC Reports
        and
        which the failure to so have could have a Material Adverse Effect (collectively,
        the “Intellectual
        Property Rights”).
        Neither the Company nor any Subsidiary has received a written notice that
        the
        Intellectual Property Rights used by the Company or any Subsidiary violates
        or
        infringes upon the rights of any Person. To the knowledge of the Company,
        all
        such Intellectual Property Rights are enforceable and there is no existing
        infringement by another Person of any of the Intellectual Property Rights
        of
        others.

       

      
        
          
          

        

        
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      (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. To the best
        knowledge of the Company, such insurance contracts and policies are accurate
        and
        complete. 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. Except as set forth on Schedule
        3.1(q),
        there
        have been no purchases or sales of the Common Stock or Common Stock Equivalents
        of the Company by any director, officer or 10% shareholder of the Company
        within
        90 days prior to Closing.

       

      (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 material information relating to the Company, including its
        Subsidiaries, is made known to the certifying officers by others within those
        entities, particularly during the period in which the Company’s most recently
        filed periodic report under the Exchange Act, as the case may be, is being
        prepared. The Company’s certifying officers have evaluated the effectiveness of
        the Company’s controls and procedures as of the date prior to the filing date of
        the 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 significant
        changes in the Company’s internal controls (as such term is defined in Item
        307(b) of Regulation S-K under the Exchange Act) or, to the knowledge of
        the
        Company, in other factors that could significantly affect the Company’s internal
        controls.

       

      
        
          
          

        

        
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      (s)  Certain
        Fees.
        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.

       

      (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(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.
        The
        Company confirms that neither it nor any other Person acting on its behalf
        has
        provided any of the Purchasers or their agents or counsel with any information
        that constitutes or might constitute material, nonpublic information. The
        Company understands and confirms that the Purchasers will rely on the foregoing
        representations and covenants in effecting transactions in securities of
        the
        Company. All disclosure provided to the Purchasers regarding the Company,
        its
        business and the transactions contemplated hereby, including the Disclosure
        Schedules to this Agreement, furnished by or on behalf of the Company with
        respect to the representations and warranties made herein are true and correct
        with respect to such representations and warranties and do not contain any
        untrue statement of a material fact or omit to state any material fact necessary
        in order to make the statements made therein, in light of the circumstances
        under which they were 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 for purposes of the Securities Act or
        any
        applicable shareholder approval provisions, including, without limitation,
        under
        the rules and regulations of any Trading Market on which any of the securities
        of the Company are listed or designated.

       

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

       

      
        
          
          

        

        
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      (bb)  Form
        S-3 Eligibility.The
        Company is eligible to register the resale of the Underlying Shares for resale
        by the Purchaser on Form S-3 promulgated under the Securities Act.

       

      (cc)  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.

       

      (dd)  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.

       

      (ee)  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.

       

      
        
          
          

        

        
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      (ff)  Accountants.
        The
        Company’s accountants are set forth on Schedule
        3.1(ff)
        of the
        Disclosure Schedule. To the knowledge of the Company, such accountants, who
        the
        Company expects will express their opinion with respect to the financial
        statements to be included in the Company’s Annual Report on Form 10-KSB for the
        year ended December 31, 2004, are a registered public accounting firm as
        required by the Securities Act.

       

      (gg)  Seniority.
        As of
        the Closing Date, no indebtedness or other equity of 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).

       

      (hh)  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 accountants and lawyers formerly or
        presently employed by the Company and the Company is current with respect
        to any
        fees owed to its accountants and lawyers.

       

      (ii)  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 hereby. 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 this Agreement and
        the
        transactions contemplated hereby and any advice given by any Purchaser or
        any of
        their respective representatives or agents in connection with this Agreement
        and
        the transactions contemplated hereby is merely incidental to the Purchasers’
        purchase of the Securities. The Company further represents to each Purchaser
        that the Company’s decision to enter into this Agreement has been based solely
        on the independent evaluation of the transactions contemplated hereby by
        the
        Company and its representatives.

       

      (jj)  Acknowledgement
        Regarding Purchasers’ Trading Activity.
        Anything in this Agreement or elsewhere herein to the contrary notwithstanding
        (except for Section 4.16 hereof), it is understood and agreed 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.

       

      
        
          
          

        

        
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      (kk)  Manipulation
        of Price. 
        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 (other than for the placement agent’s placement of the Securities),
        or (iii) paid or agreed to pay to any person any compensation for soliciting
        another to purchase any other securities of the Company.

       

      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.

       

      
        
          
          

        

        
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      (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 arrangement or understanding with any other persons 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. Such Purchaser does not have any agreement
        or
        understanding, directly or indirectly, with any Person to distribute any
        of the
        Securities.

       

      (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 disposition, including Short
        Sales (but not including the location and/or reservation of borrowable shares
        of
        Common Stock), in the securities of the Company during the period
        commencing from
        the time
        that such Purchaser first received a term sheet 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).

       

      
        
          
          

        

        
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      The
        Company acknowledges and agrees that each Purchaser does not make or has
        not
        made any representations or warranties with respect to the transactions
        contemplated hereby other than those specifically set forth in this Section
        3.2.

       

      ARTICLE
        IV.

      OTHER
        AGREEMENTS OF THE PARTIES

       

      4.1  Transfer
        Restrictions.

       

      (a)  The
        Securities may only be disposed of 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.

       

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

       

      [NEITHER]
        THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
        [EXERCISABLE] [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. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
        EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
        MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

       

      
        
          
          

        

        
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      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.

       

      (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 Company’s
        transfer agent promptly after the Effective Date if required by the Company’s
        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 thereof),
        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 Company’s
        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 any transfer
        agent
        of the Company that enlarge the restrictions on transfer set forth in this
        Section. Certificates for Securities subject to legend removal hereunder
        shall
        be transmitted by the transfer agent of the Company to the Purchasers by
        crediting the account of the Purchaser’s prime broker with the Depository Trust
        Company System.

      

      
        
          
          

        

        
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      (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 Company’s 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 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.

       

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

       

      (f)  Until
        the
        one year anniversary of the Effective Date, the Company shall not undertake
        a
        reverse or forward 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, provided, however, the foregoing consent
        shall not be required for a reverse stock split not to exceed a ratio of
        10 for
        1, which stock split shall be effective within 45 days following the date
        hereof.

       

      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, all to
        the
        extent required from time to time to enable such Person to sell such Securities
        without registration under the Securities Act within the limitation of the
        exemptions provided by Rule 144.

       

      
        
          
          

        

        
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      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.

       

      4.6  Securities
        Laws Disclosure; Publicity.
        The
        Company shall, by 8:30 a.m. Eastern time on the Trading Day following the
        date
        hereof, issue a Current Report on Form 8-K, reasonably acceptable to each
        Purchaser disclosing the material terms of the transactions contemplated
        hereby,
        and shall attach the Transaction Documents thereto. 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, 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 the
        registration statement contemplated by the Registration Rights Agreement
        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 subclause (i) or (ii).

       

      4.7  Shareholder
        Rights Plan.
        No
        claim will be made or enforced by the Company or, to the knowledge of the
        Company, any other Person that any Purchaser is an “Acquiring Person” under any
        shareholder rights plan or similar plan or arrangement in effect or hereafter
        adopted by the Company, or that any Purchaser could be deemed to trigger
        the
        provisions of any such plan or arrangement, by virtue of receiving Securities
        under the Transaction Documents or under any other agreement between the
        Company
        and the Purchasers. The Company shall conduct its business in a manner so
        that
        it will not become subject to the Investment Company Act.

       

      
        
          
          

        

        
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      4.8  Non-Public
        Information.
        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. The Company understands
        and
        confirms that each Purchaser shall be relying on the foregoing representations
        in effecting transactions in securities of the Company.

       

      4.9  Use
        of
        Proceeds.
        Except
        as set forth on Schedule
        4.9
        attached
        hereto, the Company shall use the net proceeds from the sale of the Securities
        hereunder for working capital purposes and not for the satisfaction of any
        portion of the Company’s debt (other than payment of trade payables in the
        ordinary course of the Company’s business and prior practices), 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
        current 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.

       

      
        
          
          

        

        
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      4.11  Indemnification
        of Purchasers.
        Subject
        to the provisions of this Section 4.11, the Company will indemnify and hold
        the
        Purchasers and their directors, officers, shareholders, members, partners,
        employees and agents (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. 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. 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 the Purchasers in this Agreement
        or
        in the other Transaction Documents.

       

      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
        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 the 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. 

       

      4.13  [RESERVED].

       

      4.14  Subsequent
        Equity Sales.
        

       

      
        
          
          

        

        
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      (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 as no Purchaser holds any of the Securities,
        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”
        shall
        mean 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.
        

       

      (c)  Notwithstanding
        the foregoing, this Section 4.14 shall not apply in respect of 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.

       

      
        
          
          

        

        
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      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 affiliates acting on its behalf or pursuant to any
        understanding with it will execute any Short Sales during the period after
        the
        Discussion Time and ending on the 150th
        calendar
        day following the date hereof. 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 5 under 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.

       

      4.17    
        Most
        Favored Nation Provision.
        If the
        Company effects a Subsequent Financing at any time while the Debentures remain
        outstanding, each Purchaser may elect, in its sole discretion, to exchange
        all
        or some of the Debentures then held by such Purchaser for any securities
        issued
        in a Subsequent Financing based on the effective price at which such securities
        were sold in such Subsequent Financing.

       

      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 October 7,
        2005;
provided,
        however,
        that no
        such termination will affect the right of any party to sue for any breach
        by the
        other party (or parties).

       

      5.2  Fees
        and Expenses.
        At the
        Closing, the Company has agreed to reimburse Bushido Capital Partners, Ltd.
        (“Bushido”) the non-accountable sum of $20,000, for its actual, reasonable,
        out-of-pocket legal fees and expenses, $10,000 which shall have been paid
        prior
        to the Closing. Accordingly, in lieu of the foregoing payments, the aggregate
        amount that Bushido is to pay for the Securities at the Closing shall be
        reduced
        by $10,000 in lieu thereof. The Company shall deliver, prior to the Closing,
        a
        completed and executed copy of the Closing Statement, attached hereto as
        Annex
        A.
        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.

       

      
        
          
          

        

        
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      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 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 waiver is sought. No waiver of any default with respect to any
        provision, condition or requirement of this Agreement shall be deemed to
        be a
        continuing waiver in the future or a waiver of any subsequent default or
        a
        waiver of any other provision, condition or requirement hereof, nor shall
        any
        delay or omission of either party to exercise any right hereunder in any
        manner
        impair the exercise of any such right.

       

      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. The language used in this Agreement will be deemed to be the language
        chosen by the parties to express their mutual intent, and no rules of strict
        construction will be applied against any party.

       

      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. 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 hereof 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.

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

      5.9  Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of the Transaction Documents shall be governed by and construed and enforced
        in
        accordance with the internal laws of the State of New York, without regard
        to
        the principles of conflicts of law thereof. Each party agrees that all legal
        proceedings concerning the interpretations, enforcement and defense of the
        transactions contemplated by this Agreement and any other Transaction Documents
        (whether brought against a party hereto or its respective affiliates, directors,
        officers, shareholders, employees or agents) shall be commenced exclusively
        in
        the state and federal courts sitting in the City of New York. Each party
        hereby
        irrevocably submits to the exclusive jurisdiction of the state and federal
        courts sitting in the City of New York, borough of Manhattan for the
        adjudication of any dispute hereunder or in connection herewith or with any
        transaction contemplated hereby or discussed herein (including with respect
        to
        the enforcement of any of the Transaction Documents), and hereby irrevocably
        waives, and agrees not to assert in any suit, action or proceeding, any claim
        that it is not personally subject to the jurisdiction of any such court,
        that
        such suit, action or proceeding is improper or inconvenient venue for such
        proceeding. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof via registered or certified mail or overnight delivery
        (with evidence of delivery) to such party at the address in effect for notices
        to it under this Agreement and agrees that such service shall constitute
        good
        and sufficient service of process and notice thereof. Nothing contained herein
        shall be deemed to limit in any way any right to serve process in any manner
        permitted by law. The parties hereby waive all rights to a trial by jury.
        If
        either party shall commence an action or proceeding to enforce any provisions
        of
        the Transaction Documents, then the prevailing party in such action or
        proceeding shall be reimbursed by the other party for its attorneys’ fees and
        other costs and expenses incurred with the investigation, preparation and
        prosecution of such action or proceeding.

       

      5.10  Survival.
        The
        representations and warranties contained herein shall survive the Closing
        and
        the delivery, exercise and/or conversion of the Securities, as applicable
        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, 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 signature page were an original
        thereof.

       

      5.12  Severability.
        If any
        provision of this Agreement is held to be invalid or unenforceable in any
        respect, the validity and enforceability of the remaining terms and provisions
        of this Agreement shall not in any way be affected or impaired thereby and
        the
        parties will attempt to agree upon a valid and enforceable provision that
        is a
        reasonable substitute therefor, and upon so agreeing, shall incorporate such
        substitute provision in this Agreement.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      5.13  Rescission
        and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) the Transaction Documents, whenever any Purchaser
        exercises a right, election, demand or option under a Transaction Document
        and
        the Company does not timely perform its related obligations within the periods
        therein provided, then such Purchaser may rescind or withdraw, in its sole
        discretion from time to time upon written notice to the Company, any relevant
        notice, demand or election in whole or in part without prejudice to its future
        actions and rights; 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 subject
        to
        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, or in lieu of and substitution
        therefor, a new certificate or instrument, but only upon receipt of evidence
        reasonably satisfactory to the Company of such loss, theft or destruction
        and
        customary and reasonable indemnity, if requested. The applicants for a new
        certificate or instrument under such circumstances shall also pay any reasonable
        third-party costs associated with the issuance of such replacement
        Securities.

       

      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 described in the foregoing
        sentence and hereby agrees to waive in any action for specific performance
        of
        any such obligation the defense that a remedy at law would be adequate.

       

      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.

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

      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 of the obligations of any other
        Purchaser under any Transaction Document. Nothing contained herein or in
        any
        Transaction Document, and no action taken by any Purchaser pursuant thereto,
        shall be deemed to constitute the Purchasers as a partnership, an association,
        a
        joint venture or any other kind of entity, or create a presumption that the
        Purchasers are in any way acting in concert or as a group with respect to
        such
        obligations or the transactions contemplated by the Transaction 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 FW. FW does not represent
        all of
        the Purchasers but only Bushido. 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.

       

      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)

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

      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.

       

      
        	
                SMALL
                  WORLD KIDS, INC.

                 

              	
                Address
                  for Notice:

              
	
                By:__________________________________________

                Name:

                Title:

              	
                5711
                  Buckingham Parkway

                Culver
                  City, CA 90230

              
	
                 

                 

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

                 

                 

              	 

      

      

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      SIGNATURE
        PAGE FOR PURCHASER FOLLOWS]

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

      
        PURCHASER
          SIGNATURE PAGES TO SWKD 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: ________________________________________________________

      Signature
        of Authorized Signatory of Purchaser:
        __________________________________

      Name
        of
        Authorized Signatory:
        ____________________________________________________

      Title
        of
        Authorized Signatory:
        _____________________________________________________

      Email
        Address of
        Purchaser:________________________________________________

      

      Address
        for Notice of Purchaser:

      

       

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

      

       

      

      Subscription
        Amount:

      Warrant
        Shares:

      EIN
        Number: [PROVIDE
        THIS UNDER SEPARATE COVER]

      

      [SIGNATURE
        PAGES CONTINUE]

      

      

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

      Annex
        A 

      

      CLOSING
        STATEMENT

      

      Pursuant
        to the attached Securities Purchase Agreement, dated as of the date hereto,
        the
        purchasers shall purchase up to $3,000,000, but not less than $1,500,000,
        of
        Debentures and Warrants from Small World Kids, Inc. (the “Company”).
        All
        funds will be wired into a trust account maintained by ____________, counsel
        to
        the Company. All funds will be disbursed in accordance with this Closing
        Statement. 

      

      Disbursement
        Date: September
        ___, 2005

       

      
        
          

        

         

      

      
        	
                I.  
                  PURCHASE
                  PRICE

                 

              	 
	
                Gross
                  Proceeds to be Received in Trust

              	
                $

              
	 	 
	
                II. 
                  DISBURSEMENTS

              	 
	
                 

              	
                $

              
	
                 

              	
                $

              
	 	
                $

              
	 	
                $

              
	 	
                $

              
	 	 
	
                Total
                  Amount Disbursed:

              	
                $

              
	 	 
	 	 
	 	 
	
                WIRE
                  INSTRUCTIONS:

                 

              	 
	
                To:
                  _____________________________________

                 

                 

                 

              	 
	
                To:
                  _____________________________________

                 

                 

                 

              	 

      

       

      
        
          
          

        

        
          34

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