Document:

Exhibit 10.1

                               PURCHASE AGREEMENT

                  THIS  PURCHASE  AGREEMENT  dated as of December 22, 2003 (this
"Agreement"),   by  and  between   KNIGHTSBRIDGE  FINE  WINES,  INC.,  a  Nevada
corporation  (the  "Company"),  and GRYPHON MASTER FUND, L.P., a Bermuda limited
partnership (the "Purchaser").

                              W I T N E S S E T H:

                  WHEREAS,  the  Purchaser  wishes to purchase from the Company,
and the Company  wishes to sell and issue to the  Purchaser,  upon the terms and
subject to the conditions of this Agreement,  (i) a Note (such  capitalized term
and all other  capitalized  terms used  herein  having the  respective  meanings
provided herein) in principal amount of $2,000,000, and (ii) a Warrant initially
entitling  the holder to purchase an  aggregate  of  1,111,111  shares of Common
Stock for the Purchase Price; and

                  WHEREAS,  at or before the  Closing,  the  parties  hereto are
executing and delivering,  one to the other, the Registration  Rights Agreement,
pursuant to which, among other things, the Company will agree to provide certain
registration   rights  under  the  1933  Act,  and  the  rules  and  regulations
promulgated  thereunder,  and applicable state securities laws for the resale of
the shares of Common Stock  issuable  upon  conversion  of the Note and issuable
upon exercise of the Warrant.

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

1.       DEFINITIONS.

                  1.1  As  used  in  this  Agreement,   the  terms  "Agreement",
"Company" and "Purchaser"  shall have the respective  meanings  assigned to such
terms in the introductory paragraph of this Agreement.

                  1.2 All the  agreements or  instruments  herein  defined shall
mean  such  agreements  or  instruments  as the same  may  from  time to time be
supplemented  or amended or the terms  thereof  waived or modified to the extent
permitted by, and in accordance with, the terms thereof and of this Agreement.

                  1.3 The  following  terms  shall have the  following  meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

                  "Affiliate"  means,  with  respect  to any  Person,  any other

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Person  that  directly,  or  indirectly  through  one  or  more  intermediaries,
controls,  is controlled by or is under common control with the subject  Person.
For purposes of this definition, "control" (including, with correlative meaning,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession,  directly or indirectly,  of the power
to direct or cause the direction of the  management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.

                  "Aggregation  Parties"  shall  have the  meaning  provided  in
Section 6.3(b).

                  "AMEX" means the American Stock Exchange, Inc.

                  "Approved  Markets" shall have the meaning provided in Section
6.9.

                  "Board  of  Directors"  means the  Board of  Directors  of the
Company.

                  "Business Day" means any day other than a Saturday,  Sunday or
a day on which commercial banks in the City of Dallas are authorized or required
by law or executive order to remain closed.

                  "Change in Control  Transaction"  shall have the meaning to be
provided or provided in the Note.

                  "Closing"  means the closing of the  purchase  and sale of the
Note and Warrant on the Closing Date.

                  "Closing Date" means 10 a.m., Dallas,  Texas time, on December
22, 2003, or such other time or date as mutually agreed by the parties hereto.

                  "Closing  Location"  means  100  Crescent  Court,  Suite  590,
Dallas, Texas 75201.

                  "Common Stock" means the Common Stock, $.001 per share, of the
Company.

                  "Common   Stock   Equivalent"   means  any  warrant,   option,
subscription  or  purchase  right with  respect to shares of Common  Stock,  any
security  convertible into,  exchangeable for, or otherwise entitling the holder
thereof to acquire, shares of Common Stock or any warrant, option,  subscription
or purchase right with respect to any such  convertible,  exchangeable  or other
security.

                  "Encumbrances"  means all mortgages,  deeds of trust,  claims,
security  interests,  liens,  pledges,  leases,  subleases,   charges,  escrows,
options,  proxies,  rights of  occupancy,  rights of first  refusal,  preemptive
rights, covenants, conditional limitations,  hypothecations,  prior assignments,
easements,  title retention agreements,  indentures,  security agreements or any
other encumbrances of any kind.

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                  "Environmental Law" shall have the meaning provided in Section
3.17.

                  "Event of  Default"  shall have the  meaning to be provided or
provided in the Note.

                  "Excluded  Shares" shall have the meaning  provided in Section
6.3(b).

                  "Generally  Accepted  Accounting  Principles"  means,  for any
Person, the United States generally accepted accounting principles and practices
applied  by such  Person  from time to time in the  preparation  of its  audited
financial statements.

                  "Intellectual   Property"  means  all   franchises,   patents,
trademarks,  service marks,  tradenames  (whether  registered or  unregistered),
copyrights,  corporate names, licenses,  trade secrets,  proprietary software or
hardware, proprietary technology,  technical information,  discoveries,  designs
and other  proprietary  rights,  whether  or not  patentable,  and  confidential
information (including, without limitation,  know-how, processes and technology)
used in the  conduct of the  business of the  Company or any  Subsidiary,  or in
which the Company or any Subsidiary has an interest.

                  "Material  Adverse Effect" means a material  adverse effect on
the (i)  business,  properties,  operations,  condition  (financial  or  other),
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole; (ii) the validity or  enforceability  of, or the ability of the Company
to perform its obligations under, the Transaction Documents; or (iii) rights and
remedies of the Purchaser under the terms of the Transaction Documents.

                  "Nasdaq" means the Nasdaq National Market.

                  "Nasdaq Small Cap" means the Nasdaq Small Cap Market.

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

                  "1933 Act" means the Securities  Act of 1933, as amended,  and
the rules and regulations of the SEC promulgated thereunder.

                  "Note" means the Company's 7.5% Secured  Convertible  Note due
2006 in the principal  amount of  $2,000,000.00  in the form attached as EXHIBIT
10.2.

                  "NYSE" means the New York Stock Exchange, Inc.

                  "OTCBB" means the OTC Bulletin Board.

                  "Person"  means  an  individual,   corporation,   partnership,
limited  liability  company,  trust,  business trust,  association,  joint stock

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company,  joint venture,  pool, syndicate,  sole proprietorship,  unincorporated
organization,   governmental   authority   or  any  other  form  of  entity  not
specifically listed herein.

                  "Purchase Price" means the amount shown on the signature pages
to this Agreement as the Purchaser's Purchase Price.

                  "Purchaser  Share Notice"  shall have the meaning  provided in
Section 6.12.

                  "Registration  Rights Agreement" means the Registration Rights
Agreement by and between the Company and the  Purchaser in the form  attached as
EXHIBIT 10.4.

                  "Registration  Statement"  shall have the meaning  provided in
the Registration Rights Agreement.

                  "Regulation D" means Regulation D adopted by the SEC under the
1933 Act.

                  "Restricted  Ownership  Percentage"  shall  have  the  meaning
provided in Section 6.3(b).

                  "SEC" means the U.S. Securities and Exchange Commission.

                  "SEC Filings" means the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31,  2003,  and all other  reports  filed by the
Company pursuant to Section 13 or 15(d) of the 1934 Act since March 31, 2003.

                  "Securities"  means  the  Note, the  Underlying  Shares,   the
Warrant and the Warrant Shares.

                  "Subsidiary"  means any corporation or other entity of which a
majority of the  capital  stock or other  ownership  interests  having  ordinary
voting  power to elect a majority  of the board of  directors  or other  persons
performing similar functions are at the time directly or indirectly owned by the
Company.

                  "Transaction Documents" means this Agreement, the Registration
Rights Agreement, the Note and the Warrant.

                  "20% Cap" shall have the meaning provided in Section 6.1(a).

                  "2002 10-K" means the  Company's  Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2003, as filed as the SEC.

                  "Underlying Shares" means the shares of Common Stock issued or
issuable upon conversion of the Note.

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                  "Variable Rate  Transaction"  means a transaction in which the
Company issues or sells any Common Stock or Common Stock  Equivalent (a) that is
convertible  into,  exchangeable  or  exercisable  for, or includes the right to
receive  additional shares of Common Stock either (x) 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  Common  Stock at any time  after the
initial  issuance  of  such  debt  or  equity  securities,  or (y)  with a fixed
conversion,  exercise, exchange or purchase price that is subject to being reset
at some future date after the initial  issuance of Common  Stock or Common Stock
Equivalent 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  (but  excluding  standard  stock  split,  reverse  stock  split and stock
dividend  anti-dilution  provisions),  or  (b)  pursuant  to  an  "equity  line"
structure  which provides for the sale,  from time to time, of securities of the
Company which are registered for sale or resale pursuant to the 1933 Act.

                  "Warrant" means the Company's Common Stock Purchase Warrant in
the form attached hereto as EXHIBIT 10.3.

                  "Warrant  Shares"  means the shares of Common  Stock  issuable
upon exercise of or otherwise pursuant to the Warrant.

2.       PURCHASES AND SALES OF THE NOTE AND WARRANT.

                  2.1  Purchase  and Sale.  Upon the terms  and  subject  to the
conditions of this Agreement,  the Purchaser  hereby agrees to purchase from the
Company, and the Company hereby agrees to sell to the Purchaser,  on the Closing
Date, the Note and the Warrant for the Purchase Price.

                  2.2  Payment.  Payment by the Purchaser of the  Purchase Price
to the Company at the Closing on the Closing Date shall be made as follows:

                  (a) the  Purchaser  shall  pay to Warren W.  Garden,  P.C.  an
amount equal to $35,000 payable by the Company  pursuant to Section 9.5, by wire
transfer of immediately available funds to an account designated by such firm;

                  (b) the  Purchaser  shall pay to CK Cooper & Company an amount
equal to  $140,000  payable  by the  Company  to such firm as a finder,  by wire
transfer of immediately  available funds to an account  designated by such firm;
and

                  (c)  Purchaser  shall pay to the  Company  the  balance of the
Purchase Price, after determination and deduction therefrom of the amounts to be
paid  pursuant to  Sections  2.2(a) and (b),  by wire  transfer  of  immediately
available funds to an account designated by the Company.

                  (d) For all purposes, upon payment of the amounts provided for
in this  Section 2.2,  the  Purchaser  shall be deemed to have paid the Purchase

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Price in full to the Company and to have  disbursed on behalf of the Company the
amounts  provided in Sections  2.2(a) and (b). By agreeing to disburse  funds on
behalf of the  Company as provided  in this  Section  2.2, in no event shall the
Purchaser have any liability to any Person, including,  without limitation,  the
Persons identified in Sections 2.2(a) and (b), for payment or performance of any
obligation or liability of the Company to such Person.

                  2.3  CLOSING.  The sale and  purchase  of the Note and Warrant
shall occur on the Closing Date at the Closing  Location.  At the Closing on the
Closing Date, upon the terms and subject to the conditions of this Agreement,

                  (A) the Company shall issue and sell to the Purchaser the Note
and the Warrant upon payment by the  Purchaser to the Company of an amount equal
to the Purchase Price as provided in Section 2.2, and

                  (B) the Purchaser  shall pay to the Company an amount equal to
the Purchase Price, as provided in Section 2.2, against issuance and sale by the
Company to the Purchaser of the Note and Warrant.

3.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to, and covenants and agrees with, the Purchaser that:

                  3.1 Organization, Good Standing and Qualification. The Company
and each Subsidiary is a corporation  duly  incorporated,  validly  existing and
subsisting under the laws of the jurisdiction of its  incorporation  and has all
requisite  corporate  power  and  authority  to  carry  on its  business  as now
conducted  and to own its  properties.  The Company and each  Subsidiary is duly
qualified  to do business as a foreign  corporation  and is in good  standing in
each  jurisdiction  in which the  conduct of its  business or its  ownership  or
leasing of property makes such  qualification or licensing  necessary unless the
failure to so  qualify  would not be  reasonably  likely to result in a Material
Adverse  Effect.  The Company  has no  Subsidiaries  other than those  listed in
SCHEDULE 3.1 and has no investment  in any other Person except such  investments
as would be  classified  as current  assets on a balance  sheet of the  Company,
prepared in accordance with Generally Accepted Accounting Principles.

                  3.2  Authorization.  The Company has full corporate  power and
authority  and has taken all  requisite  action on the part of the Company,  its
officers,  directors  and  stockholders  necessary  for (i)  the  authorization,
execution and delivery of the Transaction  Documents,  (ii) the authorization of
the  performance  of  all  obligations  of the  Company  under  the  Transaction
Documents,  and (iii) the authorization,  issuance (or reservation for issuance)
and delivery of the Securities.  The Transaction Documents constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency,  reorganization,
moratorium and similar laws of general  applicability,  relating to or affecting
creditors' rights generally.

                  3.3  Capitalization.  Set forth on SCHEDULE  3.3 hereto is (a)

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the authorized  capital stock of the Company on the date hereof;  (b) the number
of shares of capital stock issued and  outstanding  on the date hereof;  (c) the
number of shares of capital  stock  issuable  pursuant  to the  Company's  stock
option,  stock  purchase,  stock award and similar plans;  and (d) the number of
shares of capital  stock  issuable and  reserved  for  issuance  pursuant to all
Common Stock  Equivalents  outstanding  or which the Company has agreed to issue
(other than the Note and the Warrant).  All of the issued and outstanding shares
of the Company's  capital stock have been duly authorized and validly issued and
are  fully  paid,  nonassessable  and free of  preemptive  rights.  No Person is
entitled to preemptive or similar  statutory or contractual  rights with respect
to any securities of the Company.  Except as set forth on SCHEDULE 3.3 or in the
SEC Filings,  there are no outstanding Common Stock Equivalents or other rights,
agreements or arrangements of any character under which the Company is or may be
obligated to issue any equity securities of any kind, and except as contemplated
by this Agreement, the Company is not currently in negotiations for the issuance
of any Common Stock Equivalents or capital stock of any kind. The Company has no
knowledge  of any voting  agreements,  buy-sell  agreements,  option or right of
first  purchase  agreements  or other  agreements  of any kind  among any of the
security  holders of the Company  relating to the securities of the Company held
by them.  Except  as set  forth on  SCHEDULE  3.3 and  except  for  registration
statements  currently on file,  the Company has not granted any Person the right
(which is now  outstanding  or effective) to require the Company to register any
securities  of the Company  under the 1933 Act,  whether on a demand basis or in
connection  with the  registration  of  securities  of the  Company  for its own
account or for the account of any other Person.

                  3.4 Valid  Issuance.  The Company does not have any obligation
to issue shares of Common Stock for which it has not reserved an adequate number
of shares of Common Stock.  The Note and Warrant are duly  authorized,  and such
Securities,  and the Underlying  Shares issuable upon conversion of the Note and
Warrant Shares issuable upon exercise of the Warrant,  have been duly authorized
and when issued in  accordance  herewith  and with the terms of the Note and the
Warrant,  will be validly issued, fully paid,  non-assessable and free and clear
of all  Encumbrances  and  restrictions,  except for  restrictions  on  transfer
imposed by applicable securities laws.

                  3.5 Consents.  The execution,  delivery and performance by the
Company of the  Transaction  Documents  and the offer,  issuance and sale of the
Securities  require no consent of,  action by or in respect of, or filing  with,
any Person,  governmental body, agency, or official other than filings that have
been or will be made  pursuant  to  applicable  state  securities  laws  and the
requirements  of the OTCBB and other than the filing of a Form D by the  Company
with the SEC, each of which the Company undertakes to file within the applicable
time periods.

                  3.6 Delivery of SEC Filings; Business; Non-Public Information.
The Company has timely filed all material  reports and other documents  required
to be filed with the SEC pursuant to the 1934 Act since  December  31, 1999.  At
their  respective  times of filing with the SEC, the SEC Filings complied in all
material  respects with the requirements of the 1934 Act and did not contain any

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untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein,  in the light of the circumstances
under which they were made, not misleading. The Company and the Subsidiaries are
engaged only in the business  described in the SEC Filings,  and the SEC Filings
contain a complete and accurate  description  of the business of the Company and
the  Subsidiaries.  The  Company  has  not  provided  to the  Purchaser  (i) any
information  required  to be filed under the 1934 Act that has not been so filed
or (ii) any  material  non-public  information  concerning  the  Company and the
Subsidiaries.

                  3.7 Use of Proceeds.  The proceeds of the sale of the Note and
the  Warrant  hereunder  shall be used by the  Company to acquire a  controlling
interest in a number of wine  producing  and  distribution  businesses  in Spain
owned by Senor  Manuel  Fernandez-Aviles  Zamorano  of  Madrid,  Spain,  and for
general working capital purposes.

                  3.8 No Material  Adverse Change.  Since the filing of the 2002
10-K or as otherwise  identified  and described in the SEC Filings  subsequently
filed by the Company with the SEC pursuant to the 1934 Act there has not been:

                           any  material  change  in  the  consolidated  assets,
         liabilities,  financial  condition or operating  results of the Company
         and the  Subsidiaries  from that reflected in the financial  statements
         included in the 2002 10-K,  except  changes in the  ordinary  course of
         business  which have not had,  in the  aggregate,  a  Material  Adverse
         Effect;

                           any  declaration  or payment of any dividend,  or any
         authorization  or payment of any  distribution,  on any of the  capital
         stock of the Company, or any redemption or repurchase of any securities
         of the Company or any Subsidiary;

                           any material damage,  destruction or loss, whether or
         not covered by insurance, to any assets or properties of the Company or
         any Subsidiary;

                           any waiver by the  Company  or  any  Subsidiary  of a
         material right or of a material debt owed to it which waiver is adverse
         to the Company or any Subsidiary;

                           any  satisfaction  or discharge of any Encumbrance or
         payment of any obligation by the Company or any  Subsidiary,  except in
         the  ordinary  course  of  business  and which is not  material  to the
         assets, properties,  prospects,  financial condition, operating results
         or business of the  Company and the  Subsidiaries  taken as a whole (as
         such  business is  presently  conducted  and the  Company has  publicly
         disclosed it is proposed to be conducted);

                           any  material  change  or  amendment  to  a  material
         contract or  arrangement  by which the Company or any Subsidiary or any
         of their respective assets or properties is bound or subject;

                           any  material  labor   difficulties  or  labor  union
         organizing  activities  with respect to employees of or  contractors to
         the Company or any Subsidiary;

<PAGE>

                           any transaction entered  into by the  Company  or any
         Subsidiary other than in the ordinary course of business; or

                           any other event or condition  of any  character  that
may have a Material Adverse Effect.

                  3.9  Registration  Statements.  During the  preceding  two (2)
years,  each  registration  statement  and any  amendment  thereto  filed by the
Company pursuant to the 1933 Act, as of the date such registration  statement or
amendment became  effective,  complied as to form in all material  respects with
the 1933 Act,  and did not contain any untrue  statement  of a material  fact or
omit to state any material  fact  required to be stated  therein or necessary in
order to make the statements made therein,  in light of the circumstances  under
which they were made, not misleading;  and each  prospectus or supplement  filed
pursuant  to Rule 424  under the 1933  Act,  as of its issue  date and as of the
closing of any sale of  securities  pursuant  thereto did not contain any untrue
statement of a material  fact or omit to state any material  fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.

                  3.10  Form  S-3  Eligibility.  The  Company  is not  currently
eligible to register the resale of its Common Stock in a secondary offering on a
registration  statement  on Form S-3  under the 1933  Act,  but shall  hereafter
endeavor in good faith to use its commercially  reasonable  efforts to become so
eligible.

                  3.11  No  Conflict,  Breach,  Violation  or  Default.  (a) The
execution,  delivery and performance of the Transaction Documents by the Company
and the issuance and sale of the Securities  will not conflict with or result in
a breach or violation  of any of the terms and  provisions  of, or  constitute a
default  under  (i) the  Company's  Articles  of  Incorporation  (including  any
articles of amendment or articles designating series of shares) or the Company's
Bylaws,  both  currently  in effect  (copies of which have been  provided to the
Purchaser  before the date  hereof)  and as in effect on the date of issuance of
the Securities,  (ii) any statute, rule, regulation or order of any governmental
agency or body or any court,  domestic or foreign,  having jurisdiction over the
Company or any Subsidiary or any of their  respective  assets or properties,  or
(iii) any agreement or  instrument  to which the Company or any  Subsidiary is a
party or by which the Company or any  Subsidiary is bound or to which any of the
properties of the Company or any Subsidiary is subject.

                  (b) Except where it would not have a Material  Adverse Effect,
the Company and each Subsidiary (i) is not in violation of any statute,  rule or
regulation  applicable to the Company or any  Subsidiary or its assets,  (ii) is
not in violation of any judgment,  order or decree  applicable to the Company or
any Subsidiary or any of their respective  assets, and (iii) is not in breach or
violation of any  agreement,  note or instrument to which it or its assets are a
party or are bound or subject. To the best of the Company's  knowledge,  neither
the Company nor any Subsidiary has received  notice from any Person of any claim
or  investigation  that,  if adversely  determined,  would render the  preceding
sentence untrue or incomplete.

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                  3.12 Tax Matters. The Company and the Subsidiaries have timely
prepared  and filed all tax  returns  required to have been filed by the Company
with all  appropriate  governmental  agencies  and timely paid all taxes owed by
them,  except  where  failure  to make such  payment  would not have a  Material
Adverse Effect.  The charges,  accruals and reserves on the books of the Company
and the  Subsidiaries in respect of taxes for all fiscal periods are adequate in
all material respects,  and there are no material unpaid assessments against the
Company or any  Subsidiary  nor, to the knowledge of the Company,  any basis for
the  assessment of any  additional  taxes,  penalties or interest for any fiscal
period  or  audits by any  foreign,  U.S.  federal,  state,  representations  or
warranties in or local taxing  authority,  except such as are not material.  All
material  taxes  and  other  assessments  and  levies  that the  Company  or any
Subsidiary  is required  to  withhold  or to collect for payment  have been duly
withheld and collected and paid to the proper governmental entity or third party
when due.  There are no tax liens or claims  pending or  threatened  against the
Company or any Subsidiary or any of their respective assets or property which if
adversely  decided,   would  have  a  Material  Adverse  Effect.  There  are  no
outstanding  tax  sharing  agreements  or other such  arrangements  between  the
Company or any Subsidiary and any other Person.

                  3.13  Title to  Properties.  Except  as  disclosed  in the SEC
Filings or as set forth on SCHEDULE  3.13,  the Company and each  Subsidiary has
good and marketable  title to all real  properties and all other  properties and
assets owned by it, in each case free from  Encumbrances  and defects that would
materially affect the value thereof or materially interfere with the use made or
currently  planned to be made  thereof by the  Company or such  Subsidiary;  and
except as disclosed in the SEC Filings,  the Company and each  Subsidiary  holds
any leased real or personal property under valid and enforceable  leases with no
exceptions  that  would  materially  interfere  with the use  made or  currently
planned to be made thereof by the Company or such Subsidiary.

                  3.14 Certificates,  Licenses,  Authorizations and Permits. The
Company  and  each  Subsidiary   possesses  adequate   certificates,   licenses,
authorizations or permits issued by appropriate  governmental agencies or bodies
necessary  to conduct the  business  now operated by it and has not received any
notice of  proceedings  relating to the revocation or  modification  of any such
certificate,  license,  authorization or permit that, if determined adversely to
the Company or any  Subsidiary,  would  individually  or in the aggregate have a
Material Adverse Effect.

                  3.15 No Labor  Disputes.  No material  labor  dispute with the
employees of or contractors  to the Company or any Subsidiary  exists or, to the
knowledge of the Company, is imminent.

                  3.16   Intellectual   Property.   (1)  The  Company  and  each
Subsidiary holds all Intellectual  Property,  free and clear of all Encumbrances
and restrictions on use or transfer, whether or not recorded, and has sole title
to and  ownership  of or has the full,  exclusive  (subject to the rights of its
licensees or licensors)  right to use in its field of business,  for the life of
the proprietary right all Intellectual Property; (2) the use of the Intellectual

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Property by the Company or any  Subsidiary  does not,  to the  knowledge  of the
Company  after due  inquiry,  violate  or  infringe  on the  rights of any other
Person;  (3) neither the Company nor any  Subsidiary  has received any notice of
any  conflict  between  the  asserted  rights of others  and the  Company or any
Subsidiary with respect to any Intellectual  Property;  (4) the Company and each
Subsidiary  has  used its best  efforts  to  perfect  its  rights  in and to all
Intellectual Property used by it in its business or in which it has an interest;
(5) the Company and each  Subsidiary  are in compliance  with all material terms
and  conditions of its agreements  relating to the  Intellectual  Property;  (6)
neither the Company nor any Subsidiary is or has been a defendant in any action,
suit,  investigation or proceeding  relating to infringement or misappropriation
by the Company or any Subsidiary of any Intellectual  Property;  (7) neither the
Company  nor  any   Subsidiary  has  been  notified  of  any  alleged  claim  of
infringement  or  misappropriation  by  the  Company  or any  Subsidiary  of any
Intellectual  Property;  (8)  the  Company  has no  knowledge  of any  claim  of
infringement  or  misappropriation  by  the  Company  or any  Subsidiary  of any
Intellectual  Property; (9) to the knowledge (after due inquiry) of the Company,
none  of  the  products  the  Company  and  the  Subsidiaries  are  researching,
developing,  propose to research and  develop,  make,  have made,  use, or sell,
infringes or misappropriates any Intellectual Property right of any third party;
(10)  none of the  trademarks  and  service  marks  used by the  Company  or any
Subsidiary,  to the  knowledge of the Company  after due inquiry,  infringes the
trademark  or service  mark  rights of any third  party;  (11) to the  Company's
knowledge none of the material processes and formulae,  research and development
results  and other  know-how  relating  to the  Company's  or the  Subsidiaries'
respective  businesses,  the value of which to the Company or any  Subsidiary is
contingent upon maintenance of the confidentiality  thereof,  has been disclosed
to any Person other than Persons  bound by written  confidentiality  agreements;
and (12) the Company owns  directly,  or possesses  adequate  rights to use, all
Intellectual Property used in or relating to the development,  manufacture, use,
distribution  or  marketing  of  the  Company's  products,   and  none  of  such
Intellectual  Property  is  owned,  claimed  or  used  by,  or  subject  to  any
Encumbrance of or by, any Subsidiary.

                  3.17  Environmental  Matters.  Neither  the  Company  nor  any
Subsidiary is in violation of any statute, rule,  regulation,  decision or order
of any governmental agency or body or any court,  domestic or foreign,  relating
to the use,  disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the  environment or human exposure to hazardous
or  toxic  substances  (collectively,  "Environmental  Laws"),  does  not own or
operate any real property contaminated with any substance that is subject to any
Environmental  Laws,  is not liable for any off-site  disposal or  contamination
pursuant to any Environmental  Laws, and is not subject to any claim relating to
any Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and neither the
Company nor any Subsidiary is aware of any pending investigation that might lead
to such a claim.

                  3.18 Litigation. Except as set forth in the SEC Filings, there
are no pending actions, suits or proceedings against or affecting the Company or
any  Subsidiary  or any of  their  respective  properties  that,  if  determined

<PAGE>

adversely  to the  Company  or such  Subsidiary,  would  individually  or in the
aggregate have a Material Adverse Effect, or which are otherwise material in the
context of the sale of the Securities;  and to the Company's knowledge,  no such
actions, suits or proceedings are threatened or contemplated.

                  3.19  Financial   Statements.   The   consolidated   financial
statements  included in each SEC Filing  present  fairly and  accurately  in all
material  respects the  consolidated  financial  position of the Company and the
Subsidiaries  as  of  the  dates  reported  and  the  consolidated   results  of
operations,  changes in  stockholders'  equity  and cash  flows for the  periods
reported,  all in  conformity  with  Generally  Accepted  Accounting  Principles
applied on a consistent  basis and in conformity  with the rules and regulations
of the SEC under the 1934 Act applicable to the Company.  Except as set forth in
the consolidated financial statements of the Company included in the SEC Filings
filed prior to the date hereof,  neither the Company nor any  Subsidiary has any
liabilities,  contingent or otherwise, except those which individually or in the
aggregate  are not material to the financial  condition or operating  results of
the Company and the Subsidiaries, taken as a whole.

                  3.20  Insurance  Coverage.  The  Company  and each  Subsidiary
maintains in full force and effect  insurance  coverage  that is  customary  for
comparably  situated  companies for the business being  conducted and properties
owned or  leased by it,  and the  Company  reasonably  believes  such  insurance
coverage to be adequate against all liabilities,  claims and risks against which
it is customary for comparably situated companies to insure.

                  3.21 SARBANES-OXLEY. The Company is in compliance with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the  date  hereof,  and any  and  all  applicable  rules  and  regulations
promulgated  by the SEC  thereunder  that are  effective  as of the date hereof,
except  where  such  noncompliance  would  not  have,  individually  or  in  the
aggregate, a Material Adverse Effect.

                  3.22  Acknowledgement  of  Potential  Dilution.   The  Company
understands  that the number of shares of Common Stock issuable  pursuant to the
Note and  exercise  of the  Warrant  may  increase  substantially  and that such
increase may have a dilutive effect on the Company's equity capitalization.

                  3.23  Brokers  and  Finders.  Except as set forth on  Schedule
3.23, the Purchaser shall have no liability or responsibility for the payment of
any  commission  or  finder's  fee to any  third  party  in  connection  with or
resulting from this Agreement or the transactions contemplated by this Agreement
by reason of any agreement of or action taken by the Company.

                  3.24 No  Directed  Selling  Efforts or  General  Solicitation.
Notwithstanding  anything contained on any schedule hereto,  neither the Company
nor any Person acting on its behalf has conducted  any general  solicitation  or
general advertising (as those terms are used in Regulation D) in connection with

<PAGE>

the offer or sale of any of the Securities.

                  3.25 No  Integrated  Offering.  Neither the Company nor any of
its  Affiliates,  nor any Person acting on its or their behalf has,  directly or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any security,  under  circumstances that would (1) adversely affect reliance
by the  Company  on  Section  4(2)  of the  1933  Act  for  the  exemption  from
registration  for  the  transactions   contemplated   hereby  or  would  require
registration  of the offer  and sale of the Note and  Warrant  to the  Purchaser
under the 1933 Act;  or (2)  require  the  integration  of the  offering  of the
Securities with any other offering of securities for purposes of determining the
need to obtain  stockholder  approval of the  transactions  contemplated  hereby
under the rules of the OTCBB.

                  3.26  Disclosures.  For  purposes  of this  Agreement  and the
transactions contemplated hereby, none of the representations or warranties made
by the Company under any of the Transaction Documents and no written information
furnished by the Company pursuant hereto, or in any other document,  certificate
or written statement furnished by the Company to the Purchaser or any authorized
representative  of the Purchaser,  pursuant to the  Transaction  Documents or in
connection therewith,  contains any untrue statement of a material fact or omits
to state a material  fact  necessary in order to make the  statements  contained
herein and therein,  in light of the  circumstances  under which they were made,
not misleading.

                  3.27 Absence of Rights Agreement.  The Company has not adopted
a shareholder  rights plan or similar  arrangement  relating to accumulations of
beneficial ownership of Common Stock or a change of control in the Company.

4.  REPRESENTATIONS  AND  WARRANTIES  OF THE  PURCHASER.  The  Purchaser  hereby
represents and warrants to the Company that:

                  4.1  Organization  and  Existence.  The Purchaser is a validly
existing  partnership and has all requisite  partnership  power and authority to
invest in the Securities pursuant to this Agreement.

                  4.2 Purchase  Entirely for Own Account.  The  Securities to be
acquired by the Purchaser  pursuant to this  Agreement  will be acquired for the
Purchaser's  own  account,  not as nominee or agent,  and not with a view to the
resale or distribution of any part thereof in violation of applicable securities
laws,  and the  Purchaser  has no present  intention  of selling,  granting  any
participation in, or otherwise  distributing the same in violation of applicable
securities laws.

                  4.3 Investment Experience.  The Purchaser acknowledges that it
can bear the economic risk and complete loss of its investment in the Securities
and has such  knowledge  of and  experience  with  securities  and  financial or
business  matters that it is capable of  evaluating  the merits and risks of the
purchase of the Note and Warrant.

<PAGE>

                  4.4  Disclosure  of  Information.  The  Purchaser  has  had an
opportunity to review  documents  related to the Company and to ask questions of
and receive  answers from the Company  regarding the terms and conditions of the
offering of the Securities;  provided  however,  that neither such inquiries nor
any other investigation conducted by the Purchaser shall modify, amend, limit or
otherwise affect the Purchaser's right to rely on the Company's  representations
and warranties  contained in the  Transaction  Documents or made pursuant to the
Transaction Documents.

                  4.5 Restricted Securities.  The Purchaser understands that the
Note and Warrant are  characterized  as "restricted  securities"  under the U.S.
federal  securities laws inasmuch as they are being acquired from the Company in
a  transaction  not  involving  a public  offering  and that under such laws and
applicable  regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.

                  4.6  Accredited Investor.  The  Purchaser  is  an  "accredited
investor" as defined in Rule 501(a) of Regulation D.

                  4.7  No General  Solicitation.  The Purchaser did not learn of
the offering of the Note and Warrant  through any public  advertising or general
solicitation (as these terms are used in Regulation D).

                  4.8  Residency of  Purchaser.  The  Purchaser is a resident of
the  state  or other  jurisdiction  indicated  in the  first  paragraph  of this
Agreement.

                  4.9 Brokers and Finders.  The Company  shall have no liability
or responsibility for the payment of any commission or finder's fee to any third
party in connection  with or resulting from this  Agreement or the  transactions
contemplated by this Agreement by reason of any agreement of the Purchaser.

                  4.10  Authorization.  The Purchaser has full partnership power
and authority  and has taken all  requisite  action on the part of the Purchaser
and its partners necessary for (i) the authorization,  execution and delivery of
the Transaction  Documents and (ii) the  authorization of the performance of all
obligations of the Purchaser  under the Transaction  Documents.  The Transaction
Documents  constitute the legal, valid and binding obligations of the Purchaser,
enforceable  against the  Purchaser in accordance  with their terms,  subject to
bankruptcy, insolvency,  reorganization,  moratorium and similar laws of general
applicability, relating to or affecting creditors' rights generally.

<PAGE>

                  4.11 Risk  Factors.  Without  limiting any of the  Purchaser's
other representations and warranties hereunder,  the Purchaser acknowledges that
the Purchaser has reviewed and is aware of the risk factors described in the SEC
Filings.

                  4.12 Reliance.  The Purchaser has consulted its own financial,
legal and tax advisors with respect to the economic,  legal and tax consequences
of an  investment  in the Note and Warrant and has not relied on the SEC Filings
or the Company,  its  officers,  directors or  professional  advisors as to such
consequences.

                  4.13 No  Representations.  No oral  representations  have been
made  by the  Company  to the  Purchaser  in  connection  with  the  Transaction
Documents;  and no written  representations have been made by the Company to the
Purchaser other than as stated in the Transaction Documents and the SEC Filings.

                  4.14   Survival.   The   Purchaser   acknowledges   that   the
representations,  warranties and agreements  made by the Purchaser  herein shall
survive the  execution  and delivery of this  Agreement  and the purchase of the
Note and Warrant.

5.       REGISTRATION RIGHTS AGREEMENT.

                  5.1 Registration  Rights Agreement.  The Company  acknowledges
and agrees that the Company's execution and delivery of, and full performance of
its  obligations  under,  the  Registration   Rights  Agreement  is  a  material
inducement to the  Purchaser to execute and deliver this  Agreement and purchase
and pay for the Note and Warrant.  The Company  agrees to execute and deliver to
the Purchaser the Registration Rights Agreement at or before the Closing.

6.       CERTAIN COVENANTS OF THE COMPANY AND THE PURCHASER.

                  6.1      19.99% Cap; Rule 144.

                  (A) 19.99% CAP.  Notwithstanding  anything contained herein or
in the other  Transaction  Documents,  if Rule  4350(i)(1)(D)  of the  Nasdaq is
applicable  the Company  shall not be entitled to issue upon  conversion  of the
Note and exercise of the Warrant an  aggregate  number of shares of Common Stock
in excess of 19.99% of the  Common  Stock  issued  and  outstanding  on the date
hereof,  subject to  appropriate  and equitable  adjustment for any stock split,
stock  dividend  or  reclassification  of the  Common  Stock  or  similar  event
occurring  after the date hereof (the "20%  Cap"),  unless the Company  receives
stockholder  approval for such issuance.  If Rule 4350(i)(1)(D) of the Nasdaq is
applicable to the shares of Common Stock  issuable  upon  conversion of the Note
and  exercise of the Warrant and the  limitations  thereof  restrict the Company
from issuing  additional  shares of Common Stock upon  conversion of the Note or
exercise of the Warrant, then the Company shall use its commercially  reasonable
best efforts to obtain,  as promptly as practicable,  but in no event later than
45 days thereafter,  the stockholder  approval that is necessary under the rules
of the Nasdaq so that the 20% Cap would no longer be  applicable  to issuance of

<PAGE>

shares of Common Stock upon conversion of the Note and exercise of the Warrant.

                  (B) RULE 144. The Company  acknowledges  that, for purposes of
determining the holding period under Rule 144 for Underlying  Shares issued upon
conversion  of, or in lieu of cash  payment of  principal of or interest on, the
Note,  the  holding  period  of such  Underlying  Shares  shall be tacked to the
holding  period of the Note and for purposes of  determining  the holding period
under Rule 144 for Warrant  Shares issued in a "net" or  "cashless"  exercise of
the  Warrant,  the holding  period of such  Warrant  Shares may be tacked to the
holding  period  of the  Warrant.  The  Company  agrees  not to take a  position
contrary thereto unless the SEC or its staff by rule or  interpretation  changes
its rules and interpretations thereof in effect on the date of this Agreement or
such  rules or  interpretations  are held  invalid  or  incorrect  by a court of
competent jurisdiction.

                  6.2      Limitation on Certain Transactions.

                  (a)  Beginning as of the date of this  Agreement and until the
effective date of the Registration Statement as contemplated by the Registration
Rights  Agreement,  without the prior written  consent of the  Purchaser  (which
consent shall not be unreasonably withheld), the Company shall not issue or sell
or agree to issue or sell any securities in a capital raising  transaction prior
to such date,  unless such securities  will not be, and are not,  registered for
sale or resale  under the 1933 Act until on or after the  effective  date of the
Registration  Statement,  provided that the  limitation  of this Section  6.2(a)
shall not apply to  securities  issued  pursuant to the  Company's  duly adopted
employee or director bona fide share and option plans.

                  (b) So long as the Note remains outstanding, without the prior
written consent of the registered holder of the Note (which consent shall not be
unreasonably  withheld),  the Company shall not issue or sell, or agree to issue
or sell, any securities in a Variable Rate Transaction.

                  6.3      Right of the Purchaser to Participate in Future
Transactions.

                  (A)  RIGHT  TO  PARTICIPATE.  So  long  as  the  Note  remains
outstanding,  the Purchaser will have a right to participate in any sales of any
of the Company's  securities in a capital  raising  transaction on the terms and
conditions set forth in this Section 6.3. During such period,  the Company shall
give ten (10) Business Days advance written notice to the Purchaser prior to any
non-public  offer or sale of any of the  Company's  capital  stock or any Common
Stock Equivalents in a capital raising transaction by providing to the Purchaser
a comprehensive  term sheet containing all significant  business terms of such a
proposed transaction.  The Purchaser shall have the right to participate in such
proposed transaction and to purchase 25 percent of such securities which are the
subject of such proposed  transaction for the same consideration and on the same
terms and conditions as contemplated  for such  third-party sale (or such lesser
portion  thereof as  specified by the  Purchaser).  If the  Purchaser  elects to
exercise  its rights  hereunder it must  deliver  written  notice to the Company
within five (5) Business Days following  receipt of the notice and comprehensive
term sheet from the Company, which notice from the Purchaser shall be contingent
upon receipt of satisfactory  definitive documents for such transaction from the
Company.  If, subsequent to the Company giving notice to the Purchaser hereunder
but  prior  to the  Purchaser  exercising  its  right  to  participate  (or  the
expiration  of the five-day  period  without  response from the Purchaser or the
rejection  of such offer for such  financing  by the  Purchaser),  the terms and
conditions of the proposed  third-party  sale are changed from that disclosed in
the  comprehensive  term sheet provided to the  Purchaser,  the Company shall be
required to provide a new notice and  comprehensive  term sheet  reflecting such
revised terms to the Purchaser hereunder and the Purchaser shall have the right,
which must be  exercised  within five (5)  Business  Days of such new notice and

<PAGE>

such revised  comprehensive  term sheet,  to exercise its rights to purchase the
securities on such changed terms and  conditions as provided  hereunder.  In the
event the  Purchaser  does not exercise its rights  hereunder  with respect to a
proposed  transaction  within the period or periods  provided,  or affirmatively
declines  to engage in such  proposed  transaction  with the  Company,  then the
Company  may  proceed  with  such  proposed  transaction  on the same  terms and
conditions as noticed to the Purchaser  (assuming the Purchaser has consented to
the  transaction,  if required,  pursuant to Section 6.2 of this Agreement) with
the Purchaser if it has elected to  participate  in such  proposed  transaction,
provided that if such proposed  transaction  is not  consummated  within 60 days
following  the  Company's  notice  hereunder,  then the  right of first  refusal
hereunder shall again apply to the Purchaser for such proposed transaction.  The
rights and obligations under this Section 6.3 shall in no way diminish the other
rights of the Purchaser pursuant to this Section 6.

                  (B)  LIMITATION  ON RIGHT OF  FIRST  REFUSAL.  Notwithstanding
anything to the contrary  contained herein, the number of shares of Common Stock
that may be acquired directly or through acquisition of Common Stock Equivalents
by the Purchaser  pursuant to any capital  raising  transaction  as described in
subsection  (a) above  shall not exceed a number  that,  when added to the total
number of shares of Common  Stock  deemed  beneficially  owned by the  Purchaser
(other  than by virtue  of the  ownership  of  securities  or rights to  acquire
securities  (including  the Note  and  Warrant)  that  have  limitations  on the
Purchaser's right to convert, exercise or purchase similar to the limitation set
forth herein (the "Excluded Shares")),  together with all shares of Common Stock
deemed beneficially owned (not counting such affiliate's Excluded Shares) by the
Purchaser (as defined in Rule 144 of the 1933 Act) (the  "Aggregation  Parties")
that would be aggregated for purposes of determining whether such securities are
beneficially  owned by the  Purchaser or for purposes of  determining  whether a
group  exists,  in each such case for purposes of Section  13(d) of the 1934 Act
and Regulation  13D-G  thereunder,  would result in beneficial  ownership by the
Purchaser or such group of more than 9.99% of the shares of the Company's Common
Stock (the  "Restricted  Ownership  Percentage"),  computed in  accordance  with
Regulation  13D-G.  The Purchaser shall have the right at any time and from time
to time to reduce its Restricted Ownership Percentage immediately upon notice to
the Company in the event and only to the extent that  Section 16 of the 1934 Act
or the rules  promulgated  thereunder  (or any  successor  statute  or rules) is
changed to reduce the beneficial  ownership percentage threshold thereunder from
10%. If the Purchaser is unable by reason of the Restricted Ownership Percentage

<PAGE>

to acquire the full amount of securities  which the Purchaser would otherwise be
entitled to acquire  pursuant to this  Section 6.3 and  thereafter,  at any time
prior to the repayment or  conversion  in full of the Note the  Purchaser  could
acquire such securities without exceeding its Restricted  Ownership  Percentage,
then the Purchaser shall be entitled to acquire such securities at such time.

                  6.4  Reports  and  Information.  For so long as the  Purchaser
beneficially  owns  any of the  Securities,  the  Company  will  furnish  to the
Purchaser the following reports and information, each of which shall be provided
to the  Purchaser  by e-mail  (at such  address as  specified  in writing by the
Purchaser for such purpose) or reputable overnight courier:

                  (a)  Quarterly  Financial  Information.  In the  absence  of a
Quarterly Report on Form 10-Q timely filed with the SEC for any of the Company's
first three fiscal quarters in any fiscal year,  within 45 days after the end of
any such fiscal quarter consolidated balance sheets of the Company as at the end
of  each  of  the  Company's   first  three  fiscal  quarters  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
such period and for the portion of the  Company's  fiscal year ended on the last
day of such  quarter,  all in  reasonable  detail and certified by the principal
financial  officer  of the  Company to have been  prepared  in  accordance  with
Generally  Accepted  Accounting  Principles,   subject  to  year-end  and  audit
adjustments.

                  (b) Annual  Financial  Information.  In the  absence of a Form
10-K timely filed with the SEC within 105 days after the end of any fiscal year,
then within such period consolidated balance sheets of the Company as at the end
of each  fiscal  year  and the  related  consolidated  statements  of  earnings,
stockholders'  equity and cash flows for such year, all in reasonable detail and
accompanied  by the  report  on such  consolidated  financial  statements  of an
independent  certified public accountant  selected by the Company and reasonably
satisfactory to the Purchaser.

                  (c) Stockholder and Analyst Reports and Information. Copies of
all notices,  financial  statements,  reports and documents as the Company shall
send or make available  generally to its stockholders or to financial  analysts,
promptly after providing same to the stockholders or financial analysts.

                  (d) Other Information.  Such other information relating to the
Company and the Subsidiaries as from time to time may reasonably be requested by
the  Purchaser,  provided  the Company or its  Subsidiary  has such  information
available to it in the ordinary  course of its  business,  and further  provided
that the Company, solely in its own discretion, determines that such information
is not  confidential  in nature and  disclosure  to the  Purchaser  would not be
harmful to the Company or its Subsidiary.

Notwithstanding  anything to the  contrary  contained  in this  Section 6.4, the
Company shall not disclose material nonpublic  information to the Purchaser,  or
to advisors to or representatives  of the Purchaser,  unless prior to disclosure
of such  information the Company  identifies such  information as being material

<PAGE>

nonpublic   information   and  provides  the   Purchaser,   such   advisors  and
representatives with the opportunity to accept or refuse to accept such material
nonpublic  information for review. The Company may, as a condition to disclosing
any material nonpublic information  hereunder,  require the Purchaser's advisors
and  representatives  to enter into a  confidentiality  agreement  (including an
agreement with such advisors and  representatives  prohibiting them from trading
in Common Stock during such period of time as they are in possession of material
nonpublic  information) in form  reasonably  satisfactory to the Company and the
Purchaser.

                  (e) Rule 144. The Company agrees to make publicly available on
a timely basis the information required by Rule 144(c) under the 1933 Act.

                  6.5 Press  Releases.  Any  press  release  or other  publicity
concerning  this Agreement or the  transactions  contemplated  by this Agreement
shall be submitted to the  Purchaser  for comment at least two (2) Business Days
prior to issuance,  unless the release is required to be issued within a shorter
period  of time by law or  pursuant  to the  rules of any  Approved  Market  (if
applicable).  The Company  shall,  on the Closing  Date,  issue a press  release
concerning  the  transactions  contemplated  hereby.  The Company's  other press
releases and other public information,  to the extent concerning the Transaction
Documents,  shall  contain  such  information  as  reasonably  requested  by the
Purchaser  and be  reasonably  approved  by the  Purchaser  in writing  prior to
issuance.

                  6.6 No Conflicting  Agreements.  The Company will not take any
action,  enter into any agreement or make any commitment  that would conflict or
interfere in any material  respect with the  obligations to the Purchaser  under
the Transaction Documents.

                  6.7 Insurance.  For so long as the Purchaser beneficially owns
any of the  Securities,  the Company shall,  and shall cause each Subsidiary to,
have in full force and effect (a) insurance  reasonably  believed to be adequate
on all assets and activities of a type customarily  insured,  covering  property
damage  and  loss of  income  by  fire  or  other  casualty,  and (b)  insurance
reasonably  believed to be adequate  protection against all liabilities,  claims
and risks against which it is customary for companies  similarly situated as the
Company and the Subsidiaries to insure.

                  6.8   Compliance   with  Laws.   So  long  as  the   Purchaser
beneficially  owns any  Securities,  the Company will use reasonable  efforts to
comply with all applicable laws, rules,  regulations,  orders and decrees of all
governmental  authorities,  except to the extent non-compliance (in one instance
or in the aggregate) would not have a Material Adverse Effect.

                  6.9  Listing  of  Underlying  Shares  and  Warrant  Shares and
Related  Matters.  The Company  agrees  that if the Company  applies to have its
Common Stock or other securities traded on any other principal stock exchange or
market,  it will include in such  application the Underlying  Shares and Warrant
Shares  and will take such other  action as is  necessary  to cause such  Common

<PAGE>

Stock  to be so  listed.  For  so  long  as the  Note  or  the  Warrant  remains
outstanding,  the Company will take all action necessary to continue the listing
and trading of its Common  Stock on at least one of the OTCBB,  the Nasdaq Small
Cap, the Nasdaq, the NYSE or the AMEX (collectively,  "Approved  Markets"),  and
will  comply in all  respects  with the  Company's  reporting,  filing and other
obligations under the bylaws or rules of such exchange or market, as applicable,
to ensure the  continued  eligibility  for trading of the Common Stock  thereon.
Neither the Company nor any of its  Affiliates,  nor any Person acting on its or
their  behalf,  shall  directly  or  indirectly  make any offers or sales of any
security  or  solicit  any  offers  to buy any  security  which  may  cause  the
integration of the offering  hereunder with any other offering of securities for
purposes  of  determining  the  need  to  obtain  stockholder  approval  of  the
transactions  contemplated  hereby  under any  applicable  rules of any Approved
Market.  Unless  in its  reasonable  judgment  such  would  constitute  material
non-public information,  the Company shall notify the Purchaser in advance if it
intends to make any private  placement of securities within the six-month period
after the Closing Date,  and unless the Company shall have received  stockholder
approval of the transactions contemplated hereby under the rules of any Approved
Market (if applicable), at the Purchaser's reasonable request, the Company shall
request  a ruling  from  such  Approved  Market in  advance  that  such  private
placement will not be integrated with the  transactions  contemplated  hereunder
pursuant to the rules of such Approved Market.

                  6.10 Corporate  Existence.  So long as the Note or the Warrant
remains outstanding,  the Company shall maintain its corporate existence, except
in  the  event  of a  merger,  consolidation,  amalgamation  or  sale  of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such  transaction (a) assumes  (jointly and severally with the Company
if the Company continues to exist) the Company's obligations hereunder and under
the agreements and instruments entered into in connection  herewith,  regardless
of whether or not the Company  would have had a  sufficient  number of shares of
Common  Stock  authorized  and  available  for  issuance in order to fulfill its
obligations hereunder and effect the conversion in full of the Note and exercise
in full of all Warrants outstanding as of the date of such transaction;  (b) has
no legal,  contractual  or other  restrictions  on its  ability to  perform  the
obligations of the Company  hereunder and under the  agreements and  instruments
entered into in connection herewith; and (c)(i) is a publicly traded corporation
whose common stock and the shares of capital stock  issuable upon  conversion of
the Note and  exercise of the Warrant  are (or would be upon  issuance  thereof)
listed for trading on an Approved  Market or (ii) if not such a publicly  traded
corporation,  then the Person who will be the  successor or surviving  entity in
such  transaction,  at the time it shall enter into a  definitive  agreement  to
complete such transaction,  shall have agreed in writing with the Purchaser that
it will, at the election of the Purchaser,  purchase the Purchaser's  Securities
at a price  equal  to the  greater  of (a)  120% of the  Purchase  Price of such
Securities or (b) the fair market value of such  Securities  on an  as-converted
and  as-exercised  basis based on the closing price  immediately  preceding such
transaction or the redemption date, whichever is greater.

                  6.11 Form 8-K. On or before 8:30 a.m.,  New York City time, on
the  Business  Day  immediately  following  the Closing  Date,  the Company will
publicly  report the issue and sale of the Note and  Warrant by filing  with the

<PAGE>

SEC a Current  Report on Form 8-K under the 1934 Act which report shall describe
the material terms and include copies of the  Transaction  Documents as exhibits
to such report.

                  6.12 Legends.  Until  registration  for resale pursuant to the
Registration  Rights  Agreement or until sales under Rule 144 under the 1933 Act
are permitted,  certificates  evidencing  the Underlying  Shares and the Warrant
Shares may bear one or both of the  following  legends or legends  substantially
similar thereto:

"The shares  represented by this certificate may not be transferred  without (i)
the opinion of counsel  reasonably  satisfactory  to the  corporation  that such
transfer may lawfully be made without  registration  under the Securities Act of
1933 or  qualification  under  applicable  state  securities  laws; or (ii) such
registration or qualification."

If required by the  authorities of any state in connection  with the issuance of
sale of the Securities, the legend required by such state.

Upon  registration for resale pursuant to the  Registration  Rights Agreement or
upon Rule  144(k)  under the 1933 Act  becoming  available,  the  Company  shall
promptly (but in no event later than five (5) Business  Days after  surrender of
the legended  certificates  to the Company)  cause  certificates  evidencing the
Underlying  Shares and Warrant  Shares  previously  issued to be  replaced  with
certificates  which  do not  bear  the  restrictive  legends  set  forth  in the
preceding  clause (a) of this  Section,  and all  Underlying  Shares and Warrant
Shares  subsequently  issued shall not bear the restrictive  legend set forth in
the preceding clause (a) of this Section.  If the Purchaser notifies the Company
that the Purchaser has not received such  certificates  without the  restrictive
legend set forth in the  preceding  clause (a) of this Section  within three (3)
Business Days after surrender of such legended  certificates (each, a "Purchaser
Share Notice"), and the Purchaser does not receive such certificates without the
restrictive  legend set forth in the preceding clause (a) of this Section within
two (2) Business Days after giving a particular Purchaser Share Notice, then the
Company shall pay cash liquidated damages to the Purchaser at the rate of 2% per
month of the original Purchase Price of the Note and Warrant in respect of which
such  Underlying  Shares and Warrant Shares are issuable or issued and for which
the  certificates  have not been provided in compliance  with the above,  for so
long as the Company fails to provide such certificates. A Purchaser Share Notice
may be given by telephone or e-mail to the Company's Chief Financial  Officer or
General  Counsel.  The  Purchaser  agrees  that  any  sale by the  Purchaser  of
Underlying  Shares and Warrant  Shares  pursuant to the  Registration  Statement
shall  be made by the  Purchaser  in  compliance  with the  prospectus  delivery
requirements of the 1933 Act and in accordance with the plan of distribution set
forth in the  Registration  Statement  and  related  prospectus,  as amended and
supplemented from time to time.

<PAGE>

7.      CONDITIONS TO THE COMPANY'S OBLIGATIONS TO ISSUE AND SELL. The Company's
obligation to issue and sell the Note and the Warrant to the Purchaser  pursuant
to this Agreement is conditioned upon  satisfaction of the following  conditions
precedent  on or before the  Closing  Date (any or all of which may be waived by
the Company in its sole discretion):

                  (a) On the Closing Date,  no legal action,  suit or proceeding
shall  be  pending  or  threatened  which  seeks to  restrain  or  prohibit  the
transactions contemplated by this Agreement; and

                  (b)  The  representations  and  warranties  of  the  Purchaser
contained in this Agreement shall have been true and correct on the date of this
Agreement and the  representations  and warranties of the Purchaser contained in
the  Transaction  Documents  shall be true and correct on the Closing Date as if
given on and as of the Closing  Date (except for  representations  given as of a
specific date, which representations shall be true and correct as of such date),
and on or before  the  Closing  Date the  Purchaser  shall  have  performed  all
covenants  and  agreements of the  Purchaser  contained  herein or in any of the
other  Transaction  Documents  required to be performed  by the  Purchaser on or
before the Closing Date.

8.       CONDITIONS TO THE PURCHASER'S OBLIGATIONS TO PURCHASE. The  Purchaser's
obligations to purchase the Note and Warrant are conditioned  upon  satisfaction
of the following  conditions precedent on or before the Closing Date (any or all
of which may be waived by the Purchaser in its sole discretion):

                  (a) On the Closing Date,  no legal action,  suit or proceeding
shall  be  pending  or  threatened  which  seeks to  restrain  or  prohibit  the
transactions contemplated by this Agreement;

                  (b)  The   representations   and  warranties  of  the  Company
contained in this Agreement shall have been true and correct on the date of this
Agreement and the representations and warranties of the Company contained in the
Transaction  Documents shall be true and correct on the Closing Date as if given
on and as of the Closing Date (except for representations given as of a specific
date, which  representations  shall be true and correct as of such date), and on
or before the Closing Date the Company  shall have  performed  all covenants and
agreements of the Company  contained  herein or in any of the other  Transaction
Documents required to be performed by the Company on or before the Closing Date;

                  (c) No  event  which,  if the  Note  were  outstanding,  would
constitute  an Event of  Default  or  which,  with the  giving  of notice or the
passage  of time,  or both,  would  constitute  an Event of  Default  shall have
occurred and be continuing;

                  (d) No Change in Control Transaction shall have occurred;

                  (e) The  Company  shall  have  delivered  to the  Purchaser  a

<PAGE>

certificate,  dated the  Closing  Date,  duly  executed  by its Chief  Executive
Officer or Chief Financial  Officer,  to the effects set forth in  subparagraphs
(a), (b) and (c) of this Section 8;

                  (f) The  Company  shall  have  delivered  to the  Purchaser  a
certificate,  dated the Closing Date, of the Secretary of the Company certifying
(A) the Certificate of Incorporation  and By-Laws of the Company as in effect on
the Closing Date, (B) all  resolutions of the Board of Directors (and committees
thereof) of the Company  relating to this  Agreement  and the other  Transaction
Documents and the  transactions  contemplated  hereby and thereby,  and (C) such
other matters as reasonably requested by the Purchaser;

                  (g) The  Company  shall have  delivered  to the  Purchaser  an
executed Security Agreement in the form attached as EXHIBIT 10.5; and

                  (h) On the  Closing  Date,  (i) trading in  securities  on the
OTCBB shall not have been  suspended  or  materially  limited and (ii) a general
moratorium on commercial banking activities in the State of Texas shall not have
been  declared  by either  federal or state  authorities,  nor shall  there have
occurred any material outbreak or escalation of hostilities or other national or
international  calamity  or crisis of such  magnitude  in its  effect on, or any
material adverse change in any financial market which, in each case, in the good
faith  judgment of the  Purchaser,  makes it  impracticable  or  inadvisable  to
purchase the Note and Warrant.

9.       MISCELLANEOUS.

                  9.1 Successors and Assigns. This Agreement may not be assigned
by the Company. This Agreement may not be assigned by the Purchaser prior to the
Closing without the prior written consent of the Company,  which consent may not
be unreasonably withheld, conditioned or delayed, except that after the Closing,
without the prior written consent of the Company,  but after notice given to the
Company,  the Purchaser may assign its rights and delegate its duties  hereunder
in whole or in part to an Affiliate or to any transferee of Securities  from the
Purchaser. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective  successors  and permitted  assigns of the
parties.  Nothing in this Agreement,  express or implied,  is intended to confer
upon any party other than the parties hereto or their respective  successors and
permitted assigns any rights, remedies,  obligations, or liabilities under or by
reason of this Agreement, except as expressly provided in this Agreement.

                  9.2  Counterparts.  This  Agreement  may be executed in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same instrument.

<PAGE>

                  9.3 Titles and  Subtitles.  The titles and  subtitles  used in
this  Agreement  are used for  convenience  only and are not to be considered in
construing or interpreting this Agreement.

                  9.4 Notices. Unless otherwise provided, any notice required or
permitted  under this  Agreement  shall be given in writing  and shall be deemed
effectively  given  only  upon  delivery  to each  party to be  notified  by (i)
personal delivery, (ii) telephone line facsimile  transmission,  upon receipt of
confirmation  of  complete  transmittal,  or (iii) a  recognized  overnight  air
courier,  addressed to the party to be notified at the address as follows, or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party:

                           If to the Company:

                           Knightsbridge Fine Wines, Inc.
                           65 Shrewsbury Road
                           Livingston, New Jersey  07039
                           Attention:  Chief Executive Officer
                           Telephone:  (973) 597-1971
                           Fax:        (973) 597-1972

                           with copies to:

                           Law Offices of Louis E. Taubman, P.C.
                           225 Broadway, Suite 1200
                           New York, New York  10007
                           Attention:  Louis E. Taubman, Esq.
                           Telephone:  (212) 732-7184
                           Fax:        (212) 202-6380

                           If to the Purchaser,  to the address set forth on the
                           signature pages hereto.

                  9.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith,  except that the Company shall pay or reimburse
the Purchaser,  at or before the Closing,  the flat sum of $35,000 for its legal
and  due  diligence  expenses  incurred  in  connection  with  the  transactions
contemplated by this  Agreement.  The Company shall pay all fees and expenses of
any placement  agents in connection with the  transactions  contemplated by this
Agreement pursuant to a separate agreement between such parties.

                  9.6 Amendments and Waivers.  Any term of this Agreement may be
amended and the  observance of any term of this  Agreement may be waived (either
generally   or  in  a   particular   instance   and  either   retroactively   or
prospectively),  only with the written consent of the Company and the Purchaser;
provided, however, that any such amendment or waiver effected in accordance with
this  paragraph  shall be binding upon each holder of any  Securities  purchased

<PAGE>

under this  Agreement at the time  outstanding,  each future  holder of all such
securities, and the Company.

                  9.7 Severability.  If one or more provisions of this Agreement
are held to be  unenforceable  under  applicable  law, such  provision  shall be
excluded  from  this  Agreement  and the  balance  of this  Agreement  shall  be
interpreted  as if such  provision  were so excluded and shall be enforceable in
accordance with its terms.

                  9.8 Entire Agreement.  This Agreement,  including the Exhibits
and  Schedules  hereto,  the other  Transaction  Documents  and other  documents
contemplated  hereby and thereby  constitute  the entire  agreement  between the
parties  hereto  with  respect to the  subject  matter  hereof and  thereof  and
supersede  all prior  agreements  and  understandings,  both  oral and  written,
between the parties with respect to the subject matter hereof and thereof.

                  9.9 Survival. All representations,  warranties,  covenants and
agreements  contained in this Agreement  shall be deemed to be  representations,
warranties,  covenants and agreements as of the date hereof, except as expressly
provided to be made or deemed made as of another date. The  representations  and
warranties  shall survive the execution and delivery of, and the Closing  under,
this Agreement.

                  9.10 Further Assurances. The parties shall execute and deliver
all such further  instruments  and  documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby and
to evidence the fulfillment of the agreements herein contained.

                  9.11  Applicable Law. This Agreement shall be governed by, and
construed in accordance  with, the laws of the State of Nevada without regard to
principles of conflicts of laws.

                  9.12     Remedies.

                  (a) The Purchaser shall be entitled to specific performance of
the Company's obligations under the Transaction Documents.

                  (b) The Company on the one hand and the Purchaser on the other
shall indemnify the other and hold it harmless from any loss,  cost,  expense or
fees  (including  reasonable  attorneys'  fees and expenses)  arising out of any
breach of any of its representations, warranties, covenants or agreements in any
of the Transaction Documents,  or arising out of the enforcement of this Section
9.12.

                  9.13  Jurisdiction.  The parties hereby agree that all actions
or proceedings  arising  directly or indirectly  from or in connection with this
Agreement  shall be litigated  only in the United States  District Court for the
Northern District of Texas located in Dallas County,  Dallas, Texas. The parties
consent  and submit to the  jurisdiction  and venue of the  foregoing  court and

<PAGE>

consent that any process or notice of motion or other  application to said court
or a judge  thereof  may be served  inside or outside  the State of Texas or the
Northern  District of Texas (but with respect to any party hereto,  such consent
shall not be deemed a general consent to jurisdiction  and service for any third
parties) by registered  mail,  return receipt  requested,  directed to the party
being  served at its address  provided in or  pursuant  to this  Agreement  (and
service so made shall be deemed  complete three (3) days after the same has been
posted as  aforesaid)  or by personal  service or in such other manner as may be
permissible  under the rules of said court.  The Company hereby waives any right
to a jury trial in connection with any litigation pursuant to this Agreement.

                            [SIGNATURE PAGES FOLLOW]

<PAGE>

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

                                              THE COMPANY:

                                              KNIGHTSBRIDGE FINE WINES, INC.

                                              By: /s/ Joel Shapiro
                                                  ---------------------------
                                                   Name:   Joel Shapiro
                                                   Title:  President & CEO

<PAGE>

                                      THE PURCHASER:

                                      GRYPHON MASTER FUND, L.P.

                                      By: Gryphon Partners, L.P.,
                                                 its General Partner

                                      By: Gryphon Management Partners, L.P.,
                                                 its General Partner

                                      By: Gryphon Advisors, LLC,
                                                 its General Partner

                                      By: /s/ Warren W. Garden
                                          -----------------------
                                              Warren W. Garden, Authorized Agent

Purchase Price:                            $2,000,000
Number of Warrant Shares:                  1,111,111
Initial Conversion Price of Note:          $1.80
Initial Exercise Price of Warrant:         $0.70

                                           Address for Notices:

                                           Gryphon Master Fund, L.P.
                                           500 Crescent Court, Suite 270
                                           Dallas, Texas  75201
                                           Attn:  Ryan R. Wolters
                                           Telephone:  (214) 871-6783
                                           Fax:  (214) 871-6909
                                           E-mail:  wolly@gryphonlp.com

                                           with copies to:

                                           Warren W. Garden, P.C.
                                           100 Crescent Court
                                           Suite 590
                                           Dallas, Texas  75201
                                           Attn:  Warren W. Garden, Esq.
                                           Telephone:  (214) 871-6710
                                           Fax:  (214) 871-6711

<PAGE>

                                  Schedule 3.1

                  Subsidiaries of Knightsbridge Fine Wine, Inc

1.  KFWBA Acquisition Corp. ("KFWBA"), a Nevada Corporation
2.  Torriques S.L., a Spanish Holding Company

<PAGE>

                                  Schedule 3.13

                               Title to Properties

         The Company and each  subsidiary  (listed in Schedule 3.1) has good and
marketable  title to all real  properties  and all other  properties  and assets
owned by it,  in each  case  free  from  Encumbrances  and  defects  that  would
materially affect the value thereof or materially interfere with the use made or
currently  planned to be made  thereof by the  Company or such  Subsidiary;  and
except as disclosed in the SEC Filings,  the Company and each  Subsidiary  holds
any leased real or personal property under valid and enforceable  leases with no
exceptions  that  would  materially  interfere  with the use  made or  currently
planned to be made thereof by the Company or such Subsidiary.

<PAGE>

                                  Schedule 3.23

The Company shall pay a finder's fee to TriPoint Capital  Advisors,  LLC by wire
transfer of immediately available funds to an account designated by such firm.

<PAGE>

                                  Schedule 3.3

                Capitalization of Knightsbridge Fine Wines, Inc.

A. Authorized Capital Stock of Company:  100,000,000 Common shares, par value
$0.001
B. Number of Shares issued and Outstanding: 31,568,250
C. Number of Shares issued pursuant to Stock Option plan: none
D. Number of Warrants: 1,051,667
E. Individuals with Registration Rights, set forth in following table:

         Gryphon Master Fund, LP   1,458,334
         500 Crescent Court
         Suite 270
         Dallas, Texas 75201
         James McCubbin              300,000
         38 Maybaugh Lane
         Annapolis, MD 21403

         Michael McIntyre             60,000
         1496 Bramwell Rd
         West Vancouver, BC
         Canada. V7S 2N9

         Richard Baright (5)          50,000
         50 Hudson Bluff
         Tivoli, NY 12583

         Robert Massucci, Sr.(6)      50,000
         1881 Hood Lane
         Maple Glenn, PA 19002

         Jack Masre (7) 30,000
         1931 east 87th street,
         Brooklyn NY 11223

         Robert Ryan (8)             100,000
         108 Cathcart Rd, Gwynedd
         Valley, PA 19437

         Robert Massucci, Jr. (9)     25,000
         1881 Hood Lane
         Maple Glenn, PA 19002

         Michael Garncik (10)        250,000
         1590 Stockdale Road
         Meadowbrook, PA
         19046

<PAGE>

         Vincent Russo (11)           50,000
         413 Riverview Circle,
         New Hope, PA 18938

         Frank Gasztonyi (12)        200,000
         2355 Miramar Ave, Long
         Beach, CA 90815

         Victor Sedaka (13)           30,000
         3359 Bedford Avenue
         Brooklyn, NY 11210

         CK Cooper and Company        25,000
         (14)
         18300 Von Karman Avenue,
         Suite 440
         Irvine, CA  92612Exhibit 10.2

NEITHER  THIS  SECURITY NOR THE  ISSUANCE TO THE HOLDER OF THE  SECURITIES  INTO
WHICH THIS SECURITY IS CONVERTIBLE  HAS BEEN  REGISTERED WITH THE SECURITIES AND
EXCHANGE  COMMISSION 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.

THIS NOTE DOES NOT  REQUIRE  PHYSICAL  SURRENDER  OF THIS NOTE IN THE EVENT OF A
PARTIAL  REDEMPTION,  REPAYMENT  OR  CONVERSION.  AS  A  RESULT,  FOLLOWING  ANY
REDEMPTION, REPAYMENT OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING
PRINCIPAL AMOUNT  REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT
SET FORTH BELOW.

                     7.5% SECURED CONVERTIBLE NOTE DUE 2006

                                       OF

                         KNIGHTSBRIDGE FINE WINES, INC.

NOTE NO.:  G-2                            ORIGINAL PRINCIPAL AMOUNT:  $2,000,000
ISSUANCE DATE:  DECEMBER 22, 2003                                  DALLAS, TEXAS

                  FOR VALUE  RECEIVED,  the Company hereby promises to pay to or
upon the order of  GRYPHON  MASTER  FUND,  L.P.  or its  registered  assigns  or
successors-in-interest  (the "Holder") the principal sum of Two Million  Dollars
($2,000,000.00),  together with all accrued but unpaid interest thereon, if any,
on the third  anniversary  of the Issuance  Date,  to the extent such  principal
amount  and  interest  have not been  repaid  or  converted  into  shares of the
Company's Common Stock, $.001 par value (the "Common Stock"), in accordance with
the terms hereof.  Interest on the unpaid principal  balance hereof shall accrue
at the rate of 7.5% per annum from the date of  original  issuance  hereof  (the
"Issuance  Date") until the same  becomes due and payable on the Final  Maturity
Date,  or such earlier date upon  acceleration  or by  conversion,  repayment or
redemption  in  accordance  with the terms  hereof.  Interest on this Note shall
accrue daily  commencing on the Issuance Date,  shall be compounded  monthly and
shall be computed on the basis of a 360-day year,  30-day months and actual days
elapsed   and  shall  be  payable   in   accordance   with   Section  2  hereof.

<PAGE>

Notwithstanding  anything contained herein, this Note shall bear interest on the
outstanding  Principal  Amount  from and after the  occurrence  and  during  the
continuance  of an Event of Default,  at the rate (the "Default  Rate") equal to
the lower of eighteen  percent (18%) per annum or the highest rate  permitted by
applicable law. Unless otherwise agreed or required by applicable law,  payments
will be applied first to any unpaid  collection  costs,  then to unpaid interest
and fees and any remaining amount to unpaid principal.

                  All  payments of  principal of and interest on this Note shall
be made in lawful  money of the United  States of America  by wire  transfer  of
immediately  available funds to such account as the Holder may from time to time
designate by written notice in accordance with the provisions of this Note. This
Note may not be  prepaid  in whole or in part  except as  specifically  provided
herein. Whenever any amount expressed to be due by the terms of this Note is due
on any day  which is not a  Business  Day (as  defined  below),  the same  shall
instead  be due on the next  succeeding  day  which is a  Business  Day and such
extension  shall be taken into  account in  determining  the amount of  interest
accrued on this Note.

                  This Note is  secured  by a  security  interest  in all of the
assets and  properties  of the Company  pursuant to a Security  Agreement  dated
December 22, 2003, by and between the Company and the Holder.

                  The following terms and conditions shall apply to this Note:

                  1. DEFINITIONS.

                  (a)  Capitalized  terms used herein and not otherwise  defined
herein shall have the meanings set forth in the Purchase Agreement.

                  (b) For  purposes  hereof the  following  terms shall have the
meanings ascribed to them below:

                  "Aggregation  Parties"  shall  have the  meaning  provided  in
Section 4(i).

                  "Bankruptcy  Event" means any of the following events: (a) the
Company or any material  subsidiary  commences a case or other  proceeding under
any  bankruptcy,  reorganization,  arrangement,  adjustment  of debt,  relief of
debtors,   dissolution,   insolvency  or  liquidation  or  similar  law  of  any
jurisdiction  relating to the Company or any material  subsidiary  thereof;  (b)
there is commenced against the Company or any material  subsidiary any such case
or proceeding that is not dismissed within 60 days after  commencement;  (c) the
Company or any material subsidiary thereof is adjudicated  insolvent or bankrupt
or any order of relief or other order  approving  any such case or proceeding is
entered;  (d) the Company or any material  subsidiary suffers any appointment of
any  trustee,  custodian  or the  like  for it or any  substantial  part  of its
property that is not discharged or stayed within 60 days; (e) the Company or any
material subsidiary makes a general assignment for the benefit of creditors; (f)
the Company or any material subsidiary fails to pay, states that it is unable to

<PAGE>

pay, or is unable to pay, its debts (excluding those reasonably disputed in good
faith by the Company in the case of failure to pay and for which it has reserves
on its books and  financial  statements)  generally  as they become due; (g) the
Company or any material  subsidiary calls a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its debts; or (h) the
Company or any  material  subsidiary,  by any act or  failure to act,  expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any  corporate  or other  action for the purpose of  effecting  any of the
foregoing.

                  "Call  Amount"  means  for  any  exercise  of the  Call  Right
pursuant to Section 3, the sum of (1) the product of (x) the principal amount of
this Note to be prepaid by reason of such  exercise  of the Call Right times (y)
the  applicable  Call  Percentage  plus (2) accrued  and unpaid  interest on the
principal  amount of this Note to be prepaid by reason of such  exercise  of the
Call Right to the applicable Call Date.

                  "Call Date" shall have the meaning provided in Section 3(b).

                  "Call Notice" shall have the meaning provided in Section 3(b).

                  "Call Percentage" means 125%.

                  "Call Right" shall have the meaning provided in Section 3(a).

                  "Cash" or "cash"  means at any time such coin or  currency  of
the  United  States of  America  as shall at such time be legal  tender  for the
payment of public and private debts.

                  "Change in Control Transaction" will be deemed to exist if (i)
there  occurs  any  consolidation,   merger,   amalgamation  or  other  business
combination of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving  corporation),  or any other
corporate  reorganization  or transaction or series of related  transactions  in
which in any of such events the  persons who are holders of the voting  stock of
the  Company  immediately  prior to such  event  cease to own 50% or more of the
voting  stock,  or  corresponding  voting  equity  interests,  of the  surviving
corporation  or other entity  immediately  after such event  (including  without
limitation any "going private" transaction under Rule 13e-3 promulgated pursuant
to the Exchange Act or tender offer by the Company under Rule 13e-4  promulgated
pursuant to the Exchange  Act for 20% or more of the  Company's  Common  Stock),
(ii) any person (as defined in Section 13(d) of the Exchange Act), together with
its  affiliates  and associates (as such terms are defined in Rule 405 under the
Securities  Act),  beneficially  owns  or is  deemed  to  beneficially  own  (as
described  in Rule 13d-3 under the  Exchange  Act  without  regard to the 60-day
exercise  period)  in  excess  of 50%  of  the  voting  power  of the  Company's
outstanding  securities,  (iii) there is a replacement  of more than one-half of
the members of the Company's  Board of Directors  which is not approved by those
individuals  who are members of the  Company's  Board of  Directors  on the date
thereof or (iv) in one or a series of related  transactions,  there is a sale or
transfer of all or substantially all of the assets of the Company, determined on

<PAGE>

a consolidated basis.

                  "Conversion  Date" shall have the meaning  provided in Section
4(b).

                  "Conversion Delay Payments" shall have the meaning provided in
Section 4(b)(ii).

                  "Conversion Notice" shall have the meaning provided in Section
4(a).

                  "Conversion  Price"  means  $1.80,  subject  to  anti-dilution
adjustment as set forth herein.

                  "Conversion  Ratio" means,  at any time, a fraction,  of which
the numerator is the entire  outstanding  Principal Amount of this Note (or such
portion  thereof  that is being  redeemed  or  repurchased),  and of  which  the
denominator is the then applicable Conversion Price.

                  "DTC" shall have the meaning provided in Section 4(b)(ii).

                  "Effective  Date"  means  the  date on  which  a  Registration
Statement  covering all the Underlying Shares and other  Registrable  Securities
(as defined in the Registration  Rights Agreement) is declared  effective by the
SEC.

                  "Effective Registration" means (i) the Company has complied in
all material respects with its obligations  under all the Transaction  Documents
where the failure to comply by the Company would have a material  adverse effect
on the ability of the Holder to publicly  resell the  Underlying  Shares and the
Warrant  Shares and no Event of Default shall have  occurred and be  continuing;
(ii) the resale of all  Registrable  Securities (as defined in the  Registration
Rights  Agreement)  is  covered  by  an  effective   Registration  Statement  in
accordance  with  the  terms  of the  Registration  Rights  Agreement  and  such
Registration  Statement  is not subject to any  suspension  or stop order and is
expected to remain  effective and available for use by the selling  stockholders
named therein or in any related  prospectus  supplement  for at least 20 Trading
Days thereafter; (iii) the resale of such Registrable Securities may be effected
pursuant  to a current  and  deliverable  prospectus  that is not subject to any
blackout or similar circumstance;  (iv) such Registrable  Securities are listed,
or approved  for listing  prior to issuance,  on an Approved  Market and are not
subject  to any  trading  suspension  (nor  shall  trading  generally  have been
suspended on such  exchanges or  markets),  and the Company  shall not have been
notified of any pending or  threatened  proceeding  or other action to delist or
suspend the Common  Stock on the  Approved  Market on which the Common  Stock is
then traded or listed;  (v) the requisite number of shares of Common Stock shall
have been duly authorized and shall be available for issuance as required by the
terms of the  Transaction  Documents;  (vi) the Holder is not  identified  as an
underwriter in the Registration Statement;  and (vii) the Company is not subject
to any Bankruptcy Event.

                  "Event of Default" shall have the meaning  provided in Section
5(a).

<PAGE>

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

                  "Final Maturity Date" means December 22, 2006.

                  "Holder  Share  Notice"  shall have the  meaning  provided  in
Section 4(b)(ii).

                  "Newly  Issued  Shares"  shall have the  meaning  provided  in
Section 4(c)(iii).

                  "Principal  Amount"  means  at any  time  the  sum of (i)  the
outstanding  principal  amount of this Note at such time,  (ii) all  accrued but
unpaid interest  hereunder to such time, and (iii) any default payments owing at
such time to the Holder under the Transaction Documents but not theretofore paid
or added to the Principal Amount.

                  "Principal  Market" means the OTC Bulletin Board or such other
U.S. market or exchange which is the principal  market on which the Common Stock
is then listed for trading.

                  "Purchase Agreement" means the Purchase Agreement, dated as of
December 22, 2003, by and between the Company and Gryphon  Master Fund,  L.P., a
Bermuda limited partnership, pursuant to which this Note was originally issued.

                  "Quarterly  Interest  Payment  Date"  means  each  October  1,
January 1, April 1 and July 1, commencing  April 1, 2004, and the Final Maturity
Date.

                  "QIB" means a qualified institutional buyer as defined in Rule
144A.

                  "Post-Notice  Period"  shall  have  the  meaning  provided  in
Section 3(b).

                  "Restricted  Ownership  Percentage"  shall  have  the  meaning
provided in Section 4(i).

                  "Rule  144A" means Rule 144A as  promulgated  by the SEC under
the Securities Act or any successor thereto.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Trading  Day"  means a day on which the  Principal  Market is
open for the general trading of securities.

                  "Underlying Shares" means the shares of Common Stock issued or
issuable  upon  conversion  of,  in lieu of cash  payment  of  principal  of, or
interest on, as repayment of  principal  under,  or otherwise  pursuant to, this
Note in accordance with the terms hereof and the Purchase Agreement.

<PAGE>

SECTION 2.        PAYMENTS OF PRINCIPAL AND INTEREST.

                  (A) INTEREST.  The Company shall pay interest accruing on this
Note  (from the date  hereof) on all  principal  outstanding,  quarterly  on the
Quarterly Interest Payment Dates, commencing on April 1, 2004, in cash.

                  (B) PRINCIPAL.  The entire Principal Amount of this Note, plus
any and all default  payments  owing  under the  Transaction  Documents  but not
previously  paid,  shall become due and payable on the Final  Maturity Date. Any
principal  of this Note that is prepaid by the Company  pursuant to Section 3 or
converted  by the  Holder  pursuant  to Section 4 shall be applied to reduce the
principal payable under this Section 2(b).

SECTION 3.        PREPAYMENT AT THE COMPANY'S OPTION.

The Company shall have the right, subject to the conditions set forth below (the
"Call Right"),  to prepay all or any portion (in increments of $100,000) of this
Note, in cash, at the applicable Call Amount.

The Call Right may be  exercised by the Company by  delivering  to the Holder an
irrevocable,  written notice (the "Call Notice"), which notice shall specify the
date for the  Company's  prepayment of this Note (as the same may be extended as
herein provided, the "Call Date"), which date shall be not less than 30 nor more
than 40 days after the date the Call  Notice is  delivered  to the  Holder  (the
"Post-Notice Period").

Notwithstanding the foregoing,  the Company may not give a Call Notice or effect
a prepayment  pursuant to Section 3(a) above unless,  at all times from the date
that is 20 Trading Days prior to the date the Company  gives such Call Notice to
and including the applicable Call Date:

                           (i)  there  is  Effective   Registration  and  it  is
         expected  that  Effective  Registration  will  continue for at least 20
         Trading Days after the Call Date; and

                           (ii)  conversion by the Holder  pursuant to Section 4
         of the  portions  of this Note that is being  called  contemporaneously
         therewith would not cause the Holder's  beneficial  ownership of shares
         of Common Stock to exceed the limits set forth in Section 4(i)(A).

If such conversion  would cause the Holder to exceed such  beneficial  ownership
limitation,  the prepayment of that portion of this Note the conversion of which
would  cause  such  beneficial  ownership  limitation  to be  exceeded  shall be
deferred  until the date that is 20 Trading  Days after the date the  conversion
thereof  would not exceed  such  limitations,  and this Note shall  continue  to
accrue  interest on the amount  being called until the same is paid or converted
pursuant to Section 4.
                  (D) If the  Company  gives a Call  Notice,  the  Holder  shall

<PAGE>

continue to have the right to convert the portion of this Note to which the Call
Notice  relates  pursuant to Section 4 until the  prepayment  of such portion of
this Note  pursuant to this  Section 3. A  prepayment  pursuant to this  Section
shall occur on the  applicable  Call Date.  If the Company fails to pay the Call
Amount in full on the applicable Call Date in immediately  available  funds, (i)
the  Company  shall  lose its right to  prepay  this Note by reason of such Call
Notice or thereafter in accordance  with this Section 3, and (ii) in addition to
any other  rights or  remedies it may have,  the Holder  shall have the right to
require the Company to repurchase  this Note (or any portion  hereof as selected
by the Holder) at a price equal to the sum of 125% of the Principal Amount, plus
accrued interest thereon to the date of such repurchase.

                  (E) Except as specifically  provided herein, this Note may not
be prepaid,  redeemed or  repurchased  at the option of the Company prior to the
Final Maturity Date.

SECTION 4.        CONVERSION.

                  (a)  Conversion  Right.  Upon the  terms  and  subject  to the
conditions  hereof,  the Holder shall have the right, at the Holder's option, to
convert  the  outstanding  Principal  Amount and  accrued  and  unpaid  interest
thereon, in whole at any time or in part from time to time, by delivering to the
Company a duly executed  notice of  conversion  in the form  attached  hereto as
Exhibit A (the "Conversion Notice"),  which may be transmitted by telephone line
facsimile  transmission.  Notwithstanding  anything to the contrary herein, this
Note and the  outstanding  Principal  Amount  hereunder shall not be convertible
into Common Stock at any time to the extent,  and only to the extent,  that such
conversion  at such time would  result in the Holder  exceeding  the  limitation
contained in, or otherwise violating the provisions of, Section 4(i)(A) below.
                  (b)      Common Stock Issuance Upon Conversion.
                              (I) CONVERSION PROCEDURES.  Upon any conversion of
          this Note pursuant to Section 4(a) above,  the  outstanding  Principal
          Amount being converted and accrued and unpaid interest  thereon to the
          applicable  Conversion  Date shall be  converted  into such  number of
          fully paid, validly issued and non-assessable  shares of Common Stock,
          free of any  liens,  claims  and  encumbrances,  as is  determined  by
          dividing the outstanding  Principal Amount being converted and accrued
          and unpaid interest  thereon to the applicable  Conversion Date by the
          then applicable  Conversion  Price. The date of any Conversion  Notice
          hereunder shall be referred to herein as the  "Conversion  Date". If a
          conversion  under this Note cannot be effected in full for any reason,
          or if the  Holder  is  converting  less  than  all of the  outstanding
          Principal  Amount  hereunder  pursuant  to a  Conversion  Notice,  the
          Company  shall,  upon request of the Holder,  promptly  deliver to the
          Holder (but no later than five  Trading  Days after the  surrender  of
          this Note to the  Company) a new Note having a Principal  Amount equal
          to the  amount of such  outstanding  Principal  Amount as has not been
          converted.  The Holder shall not be required  physically  to surrender
          this  Note  to  the  Company  upon  any  conversion  unless  the  full
          outstanding  Principal  Amount  of this  Note is  being  converted  or
          repaid.  The Holder and the Company shall maintain records showing the

<PAGE>

          outstanding  Principal Amount so converted and repaid and the dates of
          such  conversions  or  repayments  or  shall  use such  other  method,
          reasonably  satisfactory  to the Holder and the Company,  so as not to
          require  physical  surrender of this Note upon each such conversion or
          repayment. The Holder agrees that, if the outstanding Principal Amount
          of this Note is less than the  Principal  Amount stated on the face of
          this Note, the Holder will not  voluntarily  transfer this Note at any
          time when no Event of Default has occurred and is  continuing  without
          first  surrendering  this Note to the  Company for  issuance,  without
          charge to the Holder,  of a replacement  instrument  that reflects the
          outstanding  Principal  Amount of this Note.  The Company will deliver
          such  replacement  instrument  to the Holder as promptly as practical,
          but in no event later than three Trading Days,  after surrender by the
          Holder.

                              (II) STOCK  CERTIFICATES OR DWAC. The Company will
          deliver to the Holder  not later  than five (5)  Trading  Days after a
          particular Conversion Date, a certificate or certificates, which shall
          be free of restrictive legends and trading restrictions (except to the
          extent  permitted under Section 6.12 of the Purchase  Agreement),  for
          the number of shares of Common Stock issuable upon such  conversion of
          this Note. In lieu of delivering physical  certificates for the shares
          of Common Stock  issuable upon any  conversion of this Note,  provided
          the Company's  transfer agent is participating in the Depository Trust
          Company ("DTC") Fast Automated  Securities  Transfer ("FAST") program,
          upon  request  of the  Holder,  the  Company  shall  use  commercially
          reasonable  efforts  to cause its  transfer  agent  electronically  to
          transmit such shares  issuable  upon  conversion to the Holder (or its
          designee),   by  crediting  the  account  of  the  Holder's  (or  such
          designee's)  broker  with DTC through  its  Deposit  Withdrawal  Agent
          Commission  system  (provided that the same time periods herein as for
          stock  certificates  shall  apply).  If in the case of any  conversion
          hereunder,  such  shares are not  delivered  to or as  directed by the
          Holder by the third Trading Day after the applicable  Conversion Date,
          the Holder  shall be entitled by written  notice to the Company at any
          time  on or  before  its  receipt  of such  shares,  to  rescind  such
          conversion,  in which event the Company shall immediately  return this
          Note to the  Holder if the Holder has  tendered  it to the  Company in
          connection  with such  conversion.  If the Holder notifies the Company
          that the Holder has not received such shares (free of any restrictions
          on  transfer or legends  except as  permitted  by Section  6.12 of the
          Purchase  Agreement)  within  three  Trading  Days after a  particular
          Conversion  Date (each,  a "Holder Share  Notice") and the Holder does
          not  receive  such  shares  (free of any  restrictions  on transfer or
          legends except as permitted by Section 6.12 of the Purchase Agreement)
          within two Trading Days after giving such Holder Share  Notice,  then,
          in addition to any other  liability the Company may have,  the Company
          shall pay to the Holder,  in cash, an amount,  computed at the rate of
          2% of the outstanding  Principal Amount per month, for the period such
          failure   continues  (the  "Conversion   Delay   Payments"),   without
          duplication of any amount payable to the Holder pursuant to clause (F)
          of Section  2(c)(i) of the  Registration  Rights  Agreement.  A Holder
          Share  Notice  may be given by  telephone  or e-mail to the  Company's
          Chief Financial Officer or General Counsel.  The Company's  obligation
          to issue and deliver  such shares of Common Stock upon  conversion  of

<PAGE>

          this Note shall be absolute  and  unconditional,  irrespective  of the
          absence of any action by the Holder to enforce the same, of any waiver
          or consent with respect to any provision  hereof,  the recovery of any
          judgment  against  any Person or any action to enforce  the same,  any
          failure or delay in the  enforcement  of any other  obligation  of the
          Company  to the  Holder,  or  any  setoff,  counterclaim,  recoupment,
          limitation  or  termination,  or any breach or  alleged  breach by the
          Holder or any other  Person of any  obligation  to the  Company or any
          violation  or  alleged  violation  of law by the  Holder  or any other
          Person,  and  irrespective  of  any  other  circumstance  which  might
          otherwise  limit  such  obligation  of the  Company  to the  Holder in
          connection  with such  exercise.

                              (III) LIABILITY FOR LATE  DELIVERY; FORCE MAJEURE.
          If in any case the Company  shall fail to issue and deliver the shares
          of Common  Stock to the Holder  pursuant  to this Note on the due date
          therefor,  in addition to any other  liabilities  the Company may have
          hereunder  and  under  applicable  law (A) the  Company  shall  pay or
          reimburse  the  Holder  on  demand  for  all  out-of-pocket  expenses,
          including,  without limitation,  reasonable fees and expenses of legal
          counsel,  incurred by the Holder as a result of such failure,  so long
          as the Holder  shall have given the Company a Holder Share Notice with
          respect  to such  shares of Common  Stock,  (B) if as a result of such
          failure the Holder shall suffer any direct damages or liabilities from
          such failure (including,  without limitation,  margin interest and the
          cost of  purchasing  securities to cover a sale (whether by the Holder
          or the  Holder's  securities  broker) or borrowing of shares of Common
          Stock by the Holder for  purposes  of settling  any trade  involving a
          sale of shares of Common  Stock made by the  Holder  during the period
          beginning  on the  Issuance  Date and  ending on the date the  Company
          delivers or causes to be delivered to the Holder such shares of Common
          Stock),  then the  Company  shall upon demand of the Holder pay to the
          Holder an amount equal to the actual, direct out-of-pocket damages and
          liabilities  suffered by the Holder by reason thereof which the Holder
          documents to the reasonable  satisfaction  of the Company,  so long as
          the Holder  shall have given the  Company a Holder  Share  Notice with
          respect  to such  shares of Common  Stock,  and (C) the  Holder may by
          written notice (which may be given by mail, courier,  personal service
          or telephone line  facsimile  transmission)  or oral notice  (promptly
          confirmed  in  writing),  given at any time prior to  delivery  to the
          Holder of the shares of Common Stock  issuable in connection  with any
          exercise  of the  Holder's  rights by reason of which such  shares are
          deliverable,  rescind such exercise in whole or in part, in which case
          the Holder  shall  thereafter  be entitled to exercise its rights with
          respect to that  portion of this Note as to which such  exercise is so
          rescinded  and to exercise its other rights and remedies  with respect
          to such  failure by the Company.  Notwithstanding  the  foregoing  and
          Section  4(b)(ii),  (x) the Company  shall not be liable to the Holder
          under clauses (A) and (B) of the immediately preceding sentence or (y)
          for Conversion  Delay  Payments,  in either such case of the preceding
          clause (x) or (y) to the extent the  failure of the Company to deliver
          or to cause to be delivered  such shares of Common Stock  results from
          fire,  flood,  storm,  earthquake,  shipwreck,  strike,  war,  acts of
          terrorism,  crash involving  facilities of a common  carrier,  acts of
          God, or any similar event outside the control of the Company (it being

<PAGE>

          understood that the action or failure to act of the Company's Transfer
          Agent shall not be deemed an event  outside the control of the Company
          except to the extent resulting from fire,  flood,  storm,  earthquake,
          shipwreck,  strike, war, acts of terrorism, crash involving facilities
          of a common  carrier,  acts of God, or any similar  event  outside the
          control  of such  Transfer  Agent or the  bankruptcy,  liquidation  or
          reorganization of such Transfer Agent under any bankruptcy, insolvency
          or other similar law).  The Holder shall notify the Company in writing
          (or by  telephone  conversation,  confirmed in writing) as promptly as
          practicable  following  the third  Trading  Day after the due date for
          delivery to it of shares of Common Stock under this Note if the Holder
          becomes  aware that such shares of Common  Stock so issuable  have not
          been  received  as  provided  herein,  but any failure so to give such
          notice  shall  not  affect  the  Holder's  rights  under  this Note or
          otherwise.  If  pursuant  to this  Section  4(b)(iii)  the  Company is
          relieved of its obligation to make Conversion Delay Payments, then the
          Principal  Amount of this Note for which a Conversion  Notice has been
          given and for which the  Company  has not  issued the shares of Common
          Stock within the period provided in Section 4(b)(ii) shall continue to
          bear  interest at the  applicable  rate provided in this Note from the
          applicable  Conversion  Date to the date the  Company  so issues  such
          shares of Common Stock.

<PAGE>

                  (c)      Conversion Price Adjustments.
                              (I)  STOCK DIVIDENDS, SPLITS AND COMBINATIONS. If
          the Company or any of its subsidiaries, at any time while this Note is
          outstanding,  shall  (A)  pay a stock  dividend  or  otherwise  make a
          distribution  or  distributions  on any equity  securities  (including
          Common Stock  Equivalents)  in shares of Common  Stock,  (B) subdivide
          outstanding  Common  Stock  into a larger  number  of  shares,  or (C)
          combine outstanding Common Stock into a smaller number of shares, then
          the Conversion Price shall be multiplied by a fraction,  the numerator
          of which  shall be the  number of shares of Common  Stock  outstanding
          before such event and the  denominator of which shall be the number of
          shares of Common Stock  outstanding  after such event.  Any adjustment
          made  pursuant  to  this  Section   4(c)(i)  shall  become   effective
          immediately   after  the  record   date  for  the   determination   of
          stockholders  entitled to receive such  dividend or  distribution  and
          shall become  effective  immediately  after the effective  date in the
          case of a subdivision or combination.

                              (II) DISTRIBUTIONS. Neither the Company nor any of
          its  subsidiaries,  at  any  time  this  Note  is  outstanding,  shall
          distribute  to all or  substantially  all holders of Common  Stock (a)
          evidences of its  indebtedness or (b) assets or (c) cash or (d) rights
          (other  than  rights  issued  pursuant  to a  shareholder  rights plan
          adopted for the benefit of  stockholders  generally,  the rights under
          which are  attached to shares of Common  Stock  until a trigger  event
          such as a tender offer, change of control, accumulation of a specified
          percentage  of the  outstanding  shares  of  Common  Stock or  similar
          events) or (e) warrants to  subscribe  for or purchase any security of
          the Company or any of its subsidiaries (excluding those referred to in
          Section 4(c)(i) above) without  obtaining the prior written consent of
          the Holder.

                           (III)    ADJUSTMENT FOR CERTAIN ISSUANCES.

                  (A) If, at any time (or from time to time)  during  the period
         beginning on the Issuance Date and ending on the second  anniversary of
         the Issuance  Date, the Company issues shares of Common Stock or Common
         Stock Equivalents (collectively,  the "Newly Issued Shares") at a price
         per share at which the Company  sells such shares of Common  Stock,  or
         the  price  per  share  at  which  the  holders  of such  Common  Stock
         Equivalents  are  entitled  to  acquire  shares  of Common  Stock  upon
         conversion or exercise thereof, which is less than the Conversion Price
         in effect at the time of such  issuance,  then  following such issuance
         the  Conversion  Price  shall be  reduced  to the price per share  that
         equals the price per share (or  weighted  average  price per share,  if
         such  shares  are  issued,  or such  Common  Stock  Equivalents  may be
         converted or  exercised,  at different  prices) at which such shares of
         Common Stock are issued or at which such Common Stock  Equivalents  may
         be converted or exercised.  The  provisions  of this Section  4(c)(iii)
         shall be applicable to successive  issuances of Common Stock and Common
         Stock Equivalents.

                  (B) Notwithstanding the foregoing, no adjustment shall be made

<PAGE>

 under Section 4(c)(iii)(A) by reason of:

                           (1) the  issuance  by the Company of shares of Common
         Stock pro rata to all  holders of the  Common  Stock so long as (i) any
         adjustment  required  by Section  4(c)(i) is made and (ii) the  Company
         shall have given  notice  thereof  to the  Holder  pursuant  to Section
         4(c)(vii);

                           (2) the  issuance by the Company of this Note and the
         Warrant  pursuant  to the  Purchase  Agreement  or the  issuance by the
         Company  of shares  of Common  Stock  upon  conversion  of this Note in
         accordance with its terms or upon exercise of the Warrant in accordance
         with its terms; or

                           (3) the  issuance by the  Company of Common  Stock or
         options  to  purchase   Common  Stock  to   employees,   directors  and
         consultants  (or the exercise of such options by  employees,  directors
         and consultants) under the Company's  non-qualified and incentive stock
         option plans  existing as of the date  hereof,  as amended from time to
         time hereafter or any other stock compensation plan duly adopted by the
         Board of Directors.

For the purposes of the  adjustments in this Section  4(c)(iii),  in the case of
the issuance of any Common Stock  Equivalents,  the maximum  number of shares of
Common Stock issuable upon exercise, exchange or conversion of such Common Stock
Equivalents  shall  be  deemed  to be  outstanding,  provided  that  no  further
adjustment shall be made upon the actual issuance of Common Stock upon exercise,
exchange or conversion of such Common Stock Equivalents.
                  (IV)  ROUNDING OF  ADJUSTMENTS.  All  calculations  under this
Section 4 or Section 2 shall be made to the nearest cent or the nearest  1/100th
of a share, as the case may be.
                  (V) NOTICE OF  ADJUSTMENTS.  Whenever the Conversion  Price is
adjusted  pursuant to Section  4(c)(i),  (ii) or (iii) above,  the Company shall
promptly deliver to the Holder a notice setting forth the Conversion Price after
such  adjustment and setting forth a brief statement of the facts requiring such
adjustment, provided that any failure to so provide such notice shall not affect
the automatic adjustment hereunder.
                  (VI) CHANGE IN CONTROL TRANSACTIONS.  In case of any Change in
Control Transaction,  the Holder shall have the right thereafter, at its option,
(A) to convert this Note, in whole or in part, at the then applicable Conversion
Price  into the  shares of stock  and other  securities,  cash  and/or  property
receivable  upon or deemed to be held by holders of Common Stock  following such
Change in Control Transaction,  and the Holder shall be entitled upon such event
to receive  such  amount of  securities,  cash or  property as the shares of the
Common  Stock of the  Company  into which  this Note  could have been  converted
immediately prior to such Change in Control Transaction would have been entitled
if such conversion were permitted  (determined without regard to any limitations
contained  in  Section  4(i)  hereof  or  equivalent  provisions  in  the  other
Transaction Documents), subject to such further applicable adjustments set forth
in this Section 4, or (B) to require the Company or its successor to redeem this
Note,  in  whole  or in  part,  at a  redemption  price  equal  to  125%  of the

<PAGE>

outstanding Principal Amount being redeemed,  plus accrued interest thereon. The
terms of any such Change in Control  Transaction  shall include such terms so as
to continue to give to the Holder the right to receive the amount of securities,
cash and/or property upon any conversion or redemption  following such Change in
Control  Transaction  to which a holder of the number of shares of Common  Stock
deliverable  upon  conversion of this Note  immediately  prior to such Change in
Control  Transaction  would have been  entitled  to  receive  in such  Change in
Control  Transaction  and if such Holder had continued to hold such  securities,
cash  and/or  property  until the date of such  conversion  or  redemption,  and
interest  payable  hereunder after such Change in Control  Transaction  shall be
paid in cash or such new securities  and/or  property,  at the Holder's  option.
This  provision   shall   similarly   apply  to  successive   reclassifications,
consolidations, mergers, amalgamations, sales, transfers or share exchanges.
                  (VII) NOTICE OF CERTAIN EVENTS. If:
                           A.       the Company shall declare a dividend (or any
                                    other distribution) on its Common Stock; or

                           B.       the   Company   shall   declare   a  special
                                    nonrecurring  cash  dividend  on or a tender
                                    offer for,  offer to purchase or  redemption
                                    of its Common Stock; or

                           C.       the Company shall  authorize the granting to
                                    all  holders of the Common  Stock  rights or
                                    warrants to  subscribe  for or purchase  any
                                    shares of  capital  stock of any class or of
                                    any rights; or

                           D.       the  approval  of  any  stockholders  of the
                                    Company shall be required in connection with
                                    any  reclassification of the Common Stock of
                                    the Company, any consolidation, amalgamation
                                    or merger to which the  Company  is a party,
                                    any sale or transfer of all or substantially
                                    all of the  assets  of the  Company,  of any
                                    compulsory  share of  exchange  whereby  the
                                    Common   Stock  is   converted   into  other
                                    securities, cash or property; or

                           E.       the Company shall authorize the voluntary or
                                    involuntary   dissolution,   liquidation  or
                                    winding up of the affairs of the Company; or

                           F.       there  exists  an  agreement  to  which  the
                                    Company  is a party  or by which it is bound
                                    providing    for   a   Change   in   Control
                                    Transaction,   or  a   Change   in   Control
                                    Transaction has occurred;

<PAGE>

                                    then the Company  shall cause to be filed at
                                    each  office  or agency  maintained  for the
                                    purpose  of  conversion  of this  Note,  and
                                    shall  cause to be mailed  to the  Holder at
                                    its last address as it shall appear upon the
                                    books  of the  Company,  on or  prior to the
                                    date notice of such matter to the  Company's
                                    stockholders  generally  is given,  a notice
                                    stating (x) the date on which a record is to
                                    be taken for the  purpose of such  dividend,
                                    distribution,   tender   offer,   offer   to
                                    purchase, redemption, rights or warrants, or
                                    if a record is not to be taken,  the date as
                                    of which  the  holders  of  Common  Stock of
                                    record  to be  entitled  to  such  dividend,
                                    distributions,   tender   offer,   offer  to
                                    purchase, redemption, rights or warrants are
                                    to be  determined  or (y) the  date on which
                                    such    reclassification,     consolidation,
                                    amalgamation,  merger, sale, transfer, share
                                    exchange or Change in Control Transaction is
                                    expected to become  effective or close,  and
                                    the  date as of which  it is  expected  that
                                    holders of Common  Stock of record  shall be
                                    entitled to exchange  their shares of Common
                                    Stock for securities, cash or other property
                                    deliverable   upon  such   reclassification,
                                    consolidation,  amalgamation,  merger, sale,
                                    transfer,   share   exchange  or  Change  in
                                    Control Transaction.

<PAGE>

                  (d)  Reservation  and Issuance of Underlying  Securities.  The
Company  covenants  that it will at all times  reserve from its  authorized  and
unissued  Common Stock a sufficient  number of shares  solely for the purpose of
issuance  upon  conversion  in full of this  Note  and  exercise  in full of the
Warrant,  free from preemptive  rights or any other actual  contingent  purchase
rights of persons other than the Holder (subject to any additional  requirements
of the  Company  as to  reservation  of such  shares  set forth in the  Purchase
Agreement  and taking into  account the  adjustments  under this  Section 4, but
determined without regard to any ownership  limitations  contained in this Note,
the Warrant or the Purchase  Agreement).  The Company  represents,  warrants and
covenants that all shares of Common Stock that shall be so issuable shall,  upon
issue, be duly authorized, validly issued, fully paid, and nonassessable.
                  (e) No  Fractions.  Upon a  conversion  hereunder  the Company
shall not be required to issue stock  certificates  for a fraction of a share of
Common Stock, but may, if otherwise permitted, make a cash payment in respect of
any fraction of a share based on the closing price of a share of Common Stock at
such time. If the Company elects not, or is unable, to make such a cash payment,
the Holder shall be entitled to receive, in lieu of the fraction of a share, one
whole share of Common Stock.
                  (f) Charges, Taxes and Expenses.  Issuance of shares of Common
Stock  upon the  conversion  of this Note  shall be made  without  charge to the
Holder for any issue or transfer tax or other  incidental  expense in respect of
the  issuance of such shares,  all of which taxes and expenses  shall be paid by
the  Company,  and such  shares  shall be issued in the name of the Holder or in
such name or names as may be directed by the Holder; provided,  however, that in
the event  certificates  for  shares of Common  Stock are to be issued in a name
other than the name of the Holder, the applicable  Conversion Notice, when given
for such  conversion  shall be accompanied or followed by an assignment form for
the  applicable  portion  of this Note or such  shares,  as the case may be; and
provided further, that the Company shall not be required to pay any tax or taxes
which may be payable in respect of any such transfer.
                  (g) Cancellation. After the entire Principal Amount (including
accrued but unpaid interest and default  payments at any time owed on this Note)
has  been  paid in  full  or  converted  into  Common  Stock,  this  Note  shall
automatically  be deemed  canceled and the Holder shall promptly  surrender this
Note to the Company at the  Company's  principal  executive  offices;  provided,
however,  that the failure to surrender  this Note shall not delay or limit such
cancellation.
                  (h)  Notice   Procedures.   Any  and  all   notices  or  other
communications  or  deliveries  to be  provided  by the Holder  under this Note,
including,  without limitation,  any Conversion Notice,  shall be in writing and
delivered  personally,  by confirmed  facsimile,  or by a nationally  recognized
overnight  courier service to the Company at the facsimile  telephone  number or
address of the  principal  place of  business of the Company as set forth in, or
provided  pursuant  to, the  Purchase  Agreement.  Any and all  notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered  personally,  by facsimile,  or by a nationally recognized
overnight  courier  service  addressed to the Holder at the facsimile  telephone
number or address of the Holder appearing on the books of the Company,  or if no
such facsimile  telephone number or address  appears,  at the principal place of
business  of the  Holder.  Any  notice  or  other  communication  or  deliveries
hereunder shall be deemed delivered (i) upon receipt, when delivered personally,

<PAGE>

(ii) when sent by facsimile, upon receipt if received on a Business Day prior to
5:00 p.m. (Central Time), or on the first Business Day following such receipt if
received on a Business  Day after 5:00 p.m.  (Central  Time) or on a day that is
not a Business  Day or (iii) upon  receipt,  when  deposited  with a  nationally
recognized overnight courier service.
                  (i) 9.99% Limitations.
                           (A)   Notwithstanding   anything   to  the   contrary
         contained herein,  the number of shares of Common Stock that the Holder
         shall have the right to acquire upon  conversion of this Note shall not
         exceed a number  that,  when  added to the  total  number  of shares of
         Common Stock  deemed  beneficially  owned by the Holder  (other than by
         virtue of the ownership of  securities or rights to acquire  securities
         (including  this Note and the  Warrant)  that have  limitations  on the
         Holder's  right  to  convert,  exercise  or  purchase  similar  to  the
         limitation set forth herein),  together with all shares of Common Stock
         deemed  beneficially  owned at such time  (other  than by virtue of the
         ownership  of  securities  or rights to  acquire  securities  that have
         limitations  on the right to convert,  exercise or purchase  similar to
         the limitation set forth herein) by the Holder's  "affiliates"  at such
         time (as defined in Rule 144 of the Securities  Act) (the  "Aggregation
         Parties") that would be aggregated for purposes of determining  whether
         a group exists or for purposes of determining  the Holder's  beneficial
         ownership,  in either such case for  purposes  of Section  13(d) of the
         Exchange  Act  and  Regulation  13D-G   thereunder,   would  result  in
         beneficial  ownership by the Holder or such group of more than 9.99% of
         the  outstanding  shares of Common  Stock  (the  "Restricted  Ownership
         Percentage"). The Holder shall have the right at any time and from time
         to time to reduce its Restricted Ownership Percentage  immediately upon
         notice to the Company in the event and only to the extent that  Section
         16 of the  Exchange  Act or the rules  promulgated  thereunder  (or any
         successor  statute  or  rules) is  changed  to  reduce  the  beneficial
         ownership percentage limitation thereunder from 10%. If at any time the
         limits in this Section 4(i) make this Note inconvertible in whole or in
         part,  the  Company  shall not by reason  thereof  be  relieved  of its
         obligation  to issue shares of Common Stock at any time or from time to
         time  thereafter  as shares of Common Stock may be issued in compliance
         with such restrictions.
                           (B) For purposes of this Section 4(i), in determining
         the  number of  outstanding  shares of  Common  Stock at any time,  the
         Holder may rely on the number of outstanding  shares of Common Stock as
         reflected in (1) the Company's then most recent Form 10-Q, Form 10-K or
         other  public  filing  with the SEC,  as the case may be,  (2) a public
         announcement by the Company that is later than any such filing referred
         to in the preceding  clause (1), or (3) any other notice by the Company
         or its  transfer  agent  setting  forth the  number of shares of Common
         Stock outstanding.  Upon the written or oral request of the Holder, the
         Company shall within one Business Day confirm  orally and in writing to
         the Holder the number of shares of Common  Stock then  outstanding.  In
         any case,  the number of  outstanding  shares of Common  Stock shall be
         determined  after giving effect to the conversion or exercise of Common
         Stock Equivalents,  including this Note and the Warrant,  by the Holder
         or its Aggregation  Parties,  in each such case subsequent to, the date
         as of which  such  number of  outstanding  shares  of Common  Stock was

<PAGE>

         reported.

SECTION 5.        DEFAULTS AND REMEDIES.

                  (A) EVENTS OF DEFAULT. An "Event of Default" is: (i) a failure
to pay any Principal  Amount or accrued but unpaid interest thereon of this Note
on the date such payment is due (to the extent such principal  and/or amount has
not been converted into Common Stock in accordance with the terms hereof), which
failure continues for two Business Days after written notice of such non-payment
has been received by the Company from the Holder; (ii) a failure timely to issue
Underlying  Shares  upon and in  accordance  with terms  hereof,  which  failure
continues  for ten Business Days after the Company has received  written  notice
from the Holder  informing  the  Company  that it has failed to issue  shares or
deliver  stock  certificates  prior to the  fifth  Business  Day  following  the
applicable  Conversion  Date;  (iii) failure by the Company for twenty (20) days
after written  notice has been received by the Company from the Holder to comply
with any material provision (other than as provided in the immediately preceding
clauses  (i)  and  (ii))  of any of  this  Note,  the  Purchase  Agreement,  the
Registration Rights Agreement,  the Warrant or any other agreement or instrument
of  the  Company  or  between  the  Company  and  the  Holder  relating  thereto
(including, without limitation the failure to redeem this Note upon the Holder's
request following a Change in Control Transaction pursuant to Section 4(c)(vi));
(iv) a material  breach by the Company of its  representations  or warranties in
this Note, the Purchase  Agreement,  the  Registration  Rights  Agreement or the
Warrant;  (v) any default after any cure period under, or acceleration  prior to
maturity of, any note,  mortgage,  indenture or instrument under which there may
be issued or by which there may be secured or  evidenced  any  indebtedness  for
money borrowed by the Company for in excess of $1 million, or for money borrowed
the repayment of which is guaranteed by the Company for in excess of $1 million,
whether such indebtedness or guarantee now exists or shall be created hereafter;
(vi) if the Company is subject to any Bankruptcy Event; (vii) if (x) the Company
fails to obtain the stockholder  approval  contemplated by Section 6.1(a) of the
Purchase  Agreement as and when required thereby,  (y) under the rules of Nasdaq
the 20% Cap is applicable  to the  Company's  issuance of shares of Common Stock
upon  conversion  of and issuance of shares of Common Stock upon exercise of the
Warrant  without  such  stockholder  approval,  and (z) the Company is unable to
issue additional  shares of Common Stock upon conversion of this Note within the
20% Cap; or (viii) if the Registration  Statement required by Section 2(a)(i) of
the Registration  Rights  Agreement is not declared  effective by the SEC within
one  hundred  and  twenty  (120)  days   following  the  Closing  Date,  or  the
Registration  Statement required by Section 2(a)(ii) of the Registration  Rights
Agreement  is not  declared  effective  by the SEC within one hundred and twenty
(120) days following  demand of the Holder pursuant to the  Registration  Rights
Agreement.

                  (b) Remedies. If an Event of Default occurs and is continuing,
the Holder may  declare  all of the then  outstanding  Principal  Amount of this
Note,  and any  accrued  and  unpaid  interest  thereon,  to be due and  payable
immediately in cash, except that in the case of an Event of Default arising from
events described in clauses (v) and (vi) of Section 5(a), this Note shall become

<PAGE>

automatically  due and payable without further action or notice,  and the Holder
may exercise all other rights and remedies available at law or in equity. In the
event of such acceleration, the amount due and owing to the Holder shall be 125%
of the  outstanding  Principal  Amount of this Note (plus all accrued and unpaid
interest, if any). In any event the Company shall pay interest on such amount in
cash at the  Default  Rate to the Holder if such  amount is not paid  within one
Business  Day after such  acceleration.  The  remedies  under this Note shall be
cumulative.

SECTION 6.        CERTAIN COVENANTS; GENERAL.
                  (a) Rule 144A Information Requirement. Within the period prior
to the  expiration of the holding  period  applicable to sales hereof under Rule
144(k)  under the  Securities  Act (or any  successor  provision),  the  Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make  available to the Holder and
any prospective purchaser of this Note from the Holder, the information required
pursuant to Rule  144A(d)(4)  under the  Securities  Act upon the request of the
Holder  and it will  take  such  further  action as the  Holder  may  reasonably
request,  all to the extent  required  from time to time to enable the Holder to
sell  this Note  without  registration  under  the  Securities  Act  within  the
limitations of the exemption  provided by Rule 144A, as Rule 144A may be amended
from time to time.  Upon the request of the Holder,  the Company will deliver to
the  Holder  a  written  statement  as to  whether  it has  complied  with  such
requirements.
                  (b)  Payment  of  Expenses.  The  Company  agrees  to pay  all
reasonable charges and expenses,  including attorneys' fees and expenses,  which
may be incurred by the Holder in seeking to enforce this Note.
                  (c) Savings Clause. In case any provision of this Note is held
by a court of  competent  jurisdiction  to be  excessive  in scope or  otherwise
invalid or  unenforceable,  such provision shall be adjusted rather than voided,
if possible,  so that it is enforceable to the maximum extent possible,  and the
validity and enforceability of the remaining provisions of this Note will not in
any way be  affected  or  impaired  thereby.  In no event  shall  the  amount of
interest  paid  hereunder  exceed the  maximum  rate of  interest  on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected in
excess of the applicable  maximum rate, the excess collected shall be applied to
reduce the principal debt. If the interest actually collected hereunder is still
in excess of the applicable  maximum rate, the interest rate shall be reduced so
as not to exceed the maximum allowable under law.
                  (d)  Amendment.  Neither  this Note nor any term hereof may be
amended,  waived,  discharged or terminated  other than by a written  instrument
signed by the Company and Holder.
                  (e)  Assignment,  Etc. The Holder may assign or transfer  this
Note, subject to compliance with applicable securities laws, without the consent
of the Company, except that the Holder may not assign or transfer this Note to a
Person who is a business  competitor of the Company in any  significant  respect
without the Company's prior written  consent,  which the Company may withhold in
its sole discretion.  The Holder shall notify the Company of any such assignment
or transfer promptly. The Company may not assign its rights or obligations under
this Note.  This Note shall be binding upon the Company and its  successors  and
shall  inure to the  benefit  of the  Holder and its  successors  and  permitted
assigns.

<PAGE>

                  (f) No  Waiver.  No  failure  on the  part  of the  Holder  to
exercise,  and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  by the
Holder of any  right,  remedy or power  hereunder  preclude  any other or future
exercise of any other right,  remedy or power.  Each and every right,  remedy or
power hereby granted to the Holder or allowed it by law or other agreement shall
be cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
                  (g) Governing Law; Jurisdiction.
                              (I) GOVERNING LAW. THIS NOTE WILL BE GOVERNED BY
          AND  CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE  STATE OF  NEVADA
          WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS  THEREOF THAT WOULD
          OTHERWISE   REQUIRE   THE   APPLICATION   OF  THE  LAW  OF  ANY  OTHER
          JURISDICTION.

                              (II) JURISDICTION. The Company irrevocably submits
          to the exclusive  jurisdiction of the United States District Court for
          the Northern District of Texas located in Dallas County, Dallas, Texas
          (such  consent shall not be deemed a general  consent to  jurisdiction
          and service for any third party) over any suit,  action, or proceeding
          arising  out of or  relating  to this Note.  The  Company  irrevocably
          waives, to the fullest extent permitted by law, any objection which it
          may now or hereafter have to the laying of the venue of any such suit,
          action, or proceeding  brought in such a court and any claim that such
          suit, action, or proceeding has been brought in an inconvenient forum.
                           The Company  agrees that the service of process  upon
         it mailed by certified or registered mail (and service so made shall be
         deemed  complete  five  Business Days after the same has been posted as
         aforesaid)  by  personal  service  shall be  deemed  in  every  respect
         effective  service of process  upon it in any such suit or  proceeding.
         Nothing  herein shall  affect  Holder's  right to serve  process in any
         other  manner  permitted  by  law.  The  Company  agrees  that a  final
         non-appealable  judgment  in any  such  suit  or  proceeding  shall  be
         conclusive and may be enforced in other  jurisdictions  by suit on such
         judgment or in any other lawful manner.
                           (III)  NO  JURY  TRIAL.  The  Company  knowingly  and
         voluntarily  waives  any and all  rights it may have to a trial by jury
         with respect to any litigation  based on, or arising out of, under,  or
         in connection with, this Note.
                  (i) Replacement Notes. This Note may be exchanged by Holder at
any time and from time to time for a Note or Notes with different  denominations
representing  an equal aggregate  outstanding  Principal  Amount,  as reasonably
requested by Holder,  upon surrendering the same. No service charge will be made
for such registration or exchange. In the event that Holder notifies the Company
that this Note has been lost, stolen or destroyed,  a replacement Note identical
in all  respects  to the  original  Note  (except  for  registration  number and
Principal Amount,  if different than that shown on the original Note),  shall be
issued to the Holder, without requirement for any surety bond, provided that the
Holder executes and delivers to the Company an agreement reasonably satisfactory
to the  Company  to  indemnify  the  Company  from  any loss  incurred  by it in
connection with this Note.

[Signature Page Follows]

<PAGE>

                  IN WITNESS  WHEREOF,  the  Company  has caused  this Note to
be duly executed on the day and in the year first above written.

                                               KNIGHTSBRIDGE FINE WINES, INC.

                                               By: /s/ Joel Shapiro
                                                   --------------------------
                                               Name:   Joel Shapiro
                                               Title:  President & CEO

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