-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U6xv8CQDzGZW5hlQOWGY8+A2QzWsDwhdbPYRybjNCBtlHTogJo5+E374yKvylk6Y U2+zLIULx6u1GNPxUtzUVQ== 0000921895-07-002166.txt : 20070919 0000921895-07-002166.hdr.sgml : 20070919 20070919171233 ACCESSION NUMBER: 0000921895-07-002166 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20070919 DATE AS OF CHANGE: 20070919 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HARTVILLE GROUP INC CENTRAL INDEX KEY: 0001126960 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 943860099 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-79289 FILM NUMBER: 071125251 BUSINESS ADDRESS: STREET 1: 3840 GREENTREE AVENUE SW CITY: CANTON STATE: OH ZIP: 44706 BUSINESS PHONE: 330 484-8166 MAIL ADDRESS: STREET 1: 3840 GREENTREE AVENUE SW CITY: CANTON STATE: OH ZIP: 44706 FORMER COMPANY: FORMER CONFORMED NAME: HARTVILLE GROUP INC DATE OF NAME CHANGE: 20021002 FORMER COMPANY: FORMER CONFORMED NAME: VENTURELIST COM INC DATE OF NAME CHANGE: 20001024 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ISLANDIA LP CENTRAL INDEX KEY: 0001312264 IRS NUMBER: 222982865 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: JOHN LANG INC STREET 2: 485 MADISON AVENUE 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-584-2100 MAIL ADDRESS: STREET 1: JOHN LANG INC STREET 2: 485 MADISON AVENUE 23RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 sc13da506717003_09172007.htm sec document 

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                 --------------

                                  SCHEDULE 13D
                                 (RULE 13d-101)

             INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
            TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
                                  RULE 13d-2(a)

                              (Amendment No. 5)(1)

                              Hartville Group, Inc.
                              ---------------------
                                (Name of Issuer)

                          Common Stock, $.001 Par Value
                          -----------------------------
                         (Title of Class of Securities)

                                    417287109
                                    ---------
                                 (CUSIP Number)

                                Richard O. Berner
                               c/o John Lang, Inc.
                               485 Madison Avenue
                                   23rd Floor
                            New York, New York 10022
                                 (212) 584-2100
                                 --------------
                  (Name, Address and Telephone Number of Person
                Authorized to Receive Notices and Communications)

                               September 17, 2007
                               ------------------
             (Date of Event Which Requires Filing of This Statement)

      If the filing person has  previously  filed a statement on Schedule 13G to
report the  acquisition  that is the subject of this Schedule 13D, and is filing
this  schedule  because  of Rule  13d-1(e),  13d-1(f)  or  13d-1(g),  check  the
following box / /.

      NOTE.  Schedules filed in paper format shall include a signed original and
five copies of the schedule,  including  all exhibits.  SEE Rule 13d-7 for other
parties to whom copies are to be sent.

                         (Continued on following pages)

                              (Page 1 of 11 Pages)


- ----------------
(1)   The  remainder  of this cover  page  shall be filled  out for a  reporting
person's  initial  filing on this  form with  respect  to the  subject  class of
securities,  and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.

      The information  required on the remainder of this cover page shall not be
deemed to be "filed"  for the purpose of Section 18 of the  Securities  Exchange
Act of 1934 or otherwise  subject to the  liabilities of that section of the Act
but  shall be  subject  to all other  provisions  of the Act  (however,  SEE the
NOTES).



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 2 of 11 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                    ISLANDIA, L.P.
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    WC
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    DELAWARE
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  120,584,195
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   - 0 -
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              120,584,195
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              - 0 -
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    120,584,195
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    75.6%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    PN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 3 of 11 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                    JOHN LANG, INC.
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    NEW YORK
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  120,584,195
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   - 0 -
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              120,584,195
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              - 0 -
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    120,584,195
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    75.6%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    CO
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 4 of 11 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                    RICHARD BERNER
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    U.S.A.
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  120,584,195
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   - 0 -
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              120,584,195
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              - 0 -
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    120,584,195
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    75.6%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    IN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 5 of 11 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                    EDGAR BERNER
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    U.S.A.
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  120,584,195
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   - 0 -
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              120,584,195
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              - 0 -
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    120,584,195
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    75.6%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    IN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 6 of 11 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                    THOMAS BERNER
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    U.S.A.
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  120,584,195
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   - 0 -
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              120,584,195
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              - 0 -
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    120,584,195
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    75.6%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    IN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 7 of 11 Pages
- ----------------------                                    ----------------------


            The following  constitutes  Amendment No. 5 ("Amendment No. 5") to
the Schedule  13D  initially  filed by Islandia,  L.P.  This  Amendment  No. 5
amends the Schedule 13D as specifically set forth.

            Item 3 is hereby amended and restated to read as follows:

Item 3.     SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

            The aggregate  purchase price of the Company's  securities  owned by
Islandia is $8,956,894.31. Such securities were acquired with partnership funds.

            Item 4 is hereby amended to add the following:

Item 4.     PURPOSE OF TRANSACTION.

            Pursuant to a Securities Purchase  Agreement,  dated as of September
17, 2007 (the "September 2007 Purchase Agreement"),  Islandia purchased from the
Company,  for  $1,000,000,   an  original  issue  discount  secured  convertible
debenture due September 17, 2010 in the principal amount of  $1,265,822.75  (the
"September 2007 Debenture") and a warrant to purchase 8,438,818 shares of Common
Stock  (the  "September   2007  Warrant").   The  September  2007  Debenture  is
convertible  into Common Stock at a  conversion  price equal to $0.15 per share.
The September  2007 Warrant has an exercise price of $0.15 per share and expires
on  September  17,  2011.  The Company is  obligated  to register for resale the
shares of Common Stock underlying the September 2007 Debenture and the September
2007  Warrant  pursuant to the terms of a  registration  rights  agreement  (the
"September  2007  Registration  Rights  Agreement").  Each of the September 2007
Purchase  Agreement,  September  2007  Debenture,  September  2007  Warrant  and
September 2007  Registration  Rights Agreement is filed as an exhibit hereto and
incorporated herein by reference.

            Item 5(a) is hereby amended and restated to read as follows:

Item 5.     INTEREST IN SECURITIES OF THE ISSUER.

            (a) The  aggregate  percentage  of shares of Common  Stock  reported
owned by each Reporting  Person is based upon  159,419,517  shares  outstanding,
which is the 56,266,189 shares  outstanding as of August 3, 2007, as reported in
the  Issuer's  Quarterly  Report on Form 10-QSB  filed with the  Securities  and
Exchange  Commission on August 14, 2007, plus an aggregate of 103,153,328 shares
of Common Stock  issuable  upon the  conversion or exercise of the 2004 Warrant,
2005 Warrant,  2006 Warrant, 2006 Debenture,  2007 Warrant, 2007 Debenture,  May
2007 Warrant,  May 2007  Debenture,  September  2007 Warrant and September  2007
Debenture.

            As of  the  close  of  business  on  September  18,  2007,  Islandia
beneficially  owned  120,584,195  shares  of  Common  Stock  (consisting  of (i)
17,430,867  shares of Common Stock (including  14,656,563 shares of Common Stock
issued  upon  conversion  of the 2004  Debenture  and 2005  Debenture)  owned by
Islandia,  (ii) 888,284 shares of Common Stock issuable upon the exercise of the
2004 Warrant, (iii) 999,222 shares of Common Stock issuable upon exercise of the
2005 Warrant, (iv) 25,316,456 shares of Common Stock issuable upon conversion of
the 2006 Debenture, (v) 25,316,456 shares of Common Stock issuable upon exercise



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 8 of 11 Pages
- ----------------------                                    ----------------------


of the 2006  Warrant,  (vi)  8,438,818  shares of  Common  Stock  issuable  upon
conversion  of the 2007  Debenture,  (vii)  8,438,818  shares  of  Common  Stock
issuable upon exercise of the 2007 Warrant,  (viii)  8,438,819  shares of Common
Stock issuable upon conversion of the May 2007 Debenture,  (ix) 8,438,819 shares
of Common Stock  issuable upon  exercise of the May 2007 Warrant,  (x) 8,438,818
shares of Common Stock issuable upon  conversion of the September 2007 Debenture
and (xi)  8,438,818  shares  of  Common  Stock  issuable  upon  exercise  of the
September 2007 Warrant),  constituting  approximately  75.6% of the Common Stock
outstanding.  As the  general  partner of  Islandia,  John Lang may be deemed to
beneficially  own the  120,584,195  shares of Common  Stock  owned by  Islandia,
constituting  approximately  75.6%  of  the  Common  Stock  outstanding.  As the
President of John Lang,  Richard  Berner may be deemed to  beneficially  own the
120,584,195 shares of Common Stock owned by Islandia, constituting approximately
75.6% of the Common Stock outstanding. As a Vice President of John Lang, each of
Edgar Berner and Thomas Berner may be deemed to beneficially own the 120,584,195
shares of Common Stock owned by Islandia,  constituting  approximately  75.6% of
the Common Stock outstanding.  Each of John Lang,  Richard Berner,  Edgar Berner
and Thomas Berner disclaims  beneficial  ownership of the shares of Common Stock
owned by Islandia, except to the extent of their pecuniary interest therein.

            Item 7 is hereby amended to include the following exhibits:

Item 7.     MATERIAL TO BE FILED AS EXHIBITS.

            24. September 2007 Securities Purchase Agreement.

            25. September 2007 Debenture.

            26. September 2007 Warrant.

            27. September 2007 Registration Rights Agreement.



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 9 of 11 Pages
- ----------------------                                    ----------------------


                                   SIGNATURES

            After  reasonable  inquiry  and to the  best  of his  knowledge  and
belief, each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.


Dated: September 19, 2007           ISLANDIA, L.P.

                                    By: John Lang, Inc.
                                        General Partner

                                    By: /s/ Edgar Berner
                                        ----------------------------------------
                                        Edgar Berner, Vice President


                                    JOHN LANG, INC.

                                    By: /s/ Edgar Berner
                                        ----------------------------------------
                                        Edgar Berner, Vice President

                                    By: /s/ Edgar Berner
                                        ----------------------------------------
                                        EDGAR BERNER
                                        as Attorney in Fact for Richard Berner,
                                        Individually


                                    /s/ Edgar Berner
                                    --------------------------------------------
                                    EDGAR BERNER


                                    By: /s/ Edgar Berner
                                        ----------------------------------------
                                        EDGAR BERNER
                                        as Attorney in Fact for Thomas Berner,
                                        Individually



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 10 of 11 Pages
- ----------------------                                    ----------------------


                                  EXHIBIT INDEX

      Exhibit                                                      Page
      -------                                                      ----

1.    Joint Filing Agreement by and among Islandia,                (1)
      L.P., John Lang, Inc., Richard O. Berner, Edgar R.
      Berner and Thomas Berner, dated August 10, 2006.

2.    2004 Securities Purchase Agreement.                          (1)

3.    2004 Debenture.                                              (1)

4.    2004 Warrant.                                                (1)

5.    2004 Registration Rights Agreement.                          (1)

6.    Amendment Agreement.                                         (1)

7.    2005 Debenture.                                              (1)

8.    2005 Warrant.                                                (1)

9.    2006 Securities Purchase Agreement.                          (1)

10.   2006 Debenture.                                              (1)

11.   2006 Warrant.                                                (1)

12.   2006 Registration Rights Agreement.                          (1)

13.   Conversion Agreement.                                        (1)

14.   2007 Securities Purchase Agreement.                          (1)

15.   2007 Debenture.                                              (1)

16.   2007 Warrant.                                                (1)

17.   2007 Registration Rights Agreement.                          (1)

18.   Powers of Attorney.                                          (1)

19.   Palisades Purchase Agreement.                                (1)

20.   May 2007 Securities Purchase Agreement.                      (1)

21.   May 2007 Debenture.                                          (1)



- ----------------------                                    ----------------------
CUSIP No. 417287109                   13D                    Page 11 of 11 Pages
- ----------------------                                    ----------------------


22.   May 2007 Warrant.                                            (1)

23.   May 2007 Registration Rights Agreement.                      (1)

24.   September 2007 Securities Purchase Agreement.                (2)

25.   September 2007 Debenture.                                    (3)

26.   September 2007 Warrant.                                      (4)

27.   September 2007 Registration Rights Agreement.                (5)

(1)   Previously filed.

(2)   Filed herewith as Exhibit 99.24 to this Amendment No. 5.

(3)   Filed herewith as Exhibit 99.25 to this Amendment No. 5.

(4)   Filed herewith as Exhibit 99.26 to this Amendment No. 5.

(5)   Filed herewith as Exhibit 99.27 to this Amendment No. 5.
EX-99.24 2 ex9924to13da506717003_091707.htm sec document 

                                                                   Exhibit 99.24


                          SECURITIES PURCHASE AGREEMENT

      This  Securities  Purchase  Agreement  (this  "AGREEMENT")  is dated as of
September 17, 2007,  among  Hartville  Group,  Inc., a Nevada  corporation  (the
"COMPANY"),  and each purchaser  identified on the signature pages hereto (each,
including  its  successors  and assigns,  a  "PURCHASER"  and  collectively  the
"PURCHASERS").

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

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

                                   ARTICLE I.
                                   DEFINITIONS

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

            "ACTION"  shall have the  meaning  ascribed  to such term in Section
      3.1(j).

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

            "AUTHORIZED  SHARE APPROVAL" means (i) the vote by the  shareholders
      of the  company to approve  an  amendment  to the  Company's  articles  or
      certificate  of  incorporation  that  increases  the number of  authorized
      shares  of Common  Stock and  authorizes  the  board of  directors  of the
      Company to effect such increase (the  "AMENDMENT")  and (ii) the filing by
      the Company of the  Amendment  with the Secretary of State of the State of
      Nevada and the  acceptance  of the  Amendment by the Secretary of State of
      the State of Nevada.

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




            "CLOSING"  means  the  closing  of  the  purchase  and  sale  of the
      Securities pursuant to Section 2.1.

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

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON  STOCK"  means the common  stock of the  Company,  par value
      $0.001  per  share,  and any other  class of  securities  into  which such
      securities may hereafter be reclassified or changed into.

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

            "COMPANY COUNSEL" means Baker & Hostetler, LLP.

            "CONVERSION  PRICE" shall have the meaning  ascribed to such term in
      the Debentures.

            "DEBENTURES"  means, the Original Issue Discount Secured Convertible
      Debentures due,  subject to the terms therein,  3 years from their date of
      issuance,  issued by the Company to the Purchasers hereunder,  in the form
      of EXHIBIT A hereto.

            "DISCLOSURE  SCHEDULES" shall have the meaning ascribed to such term
      in Section 3.1.

            "EFFECTIVE  DATE"  means  the  date  that the  initial  Registration
      Statement  filed  by  the  Company  pursuant  to the  Registration  Rights
      Agreement is first declared effective by the Commission.

            "EVALUATION  DATE" shall have the  meaning  ascribed to such term in
      Section 3.1(r).

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

            "EXEMPT  ISSUANCE"  means the issuance of (a) shares of Common Stock
      or  options  to  vendors  of goods  and  services  to the  Company,  or to
      employees,  officers or  directors of the Company  pursuant to a plan,  in
      each case duly authorized by a majority of the non-employee members of the


                                       2


      Board of  Directors  of the  Company  or a  majority  of the  members of a
      committee of  non-employee  directors  established  for such purpose,  (b)
      securities  upon  the  exercise  or  exchange  of  or  conversion  of  any
      Securities  issued  hereunder  and/or  other  securities   exercisable  or
      exchangeable  for or  convertible  into shares of Common  Stock issued and
      outstanding on the date of this  Agreement,  provided that such securities
      have not been  amended  since the date of this  Agreement  to increase the
      number  of such  securities  or to  decrease  the  exercise,  exchange  or
      conversion  price  of any  such  securities,  and  (c)  securities  issued
      pursuant to acquisitions or strategic  transactions approved by a majority
      of the disinterested  directors,  provided any such issuance shall only be
      to a Person  which is,  itself or through its  subsidiaries,  an operating
      company in a business  synergistic with the business of the Company and in
      which the Company  receives  benefits in  addition  to the  investment  of
      funds, but shall not include a transaction in which the Company is issuing
      securities  primarily  for the purpose of raising  capital or to an entity
      whose primary business is investing in securities.

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

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

            "INTELLECTUAL  PROPERTY  RIGHTS" shall have the meaning  ascribed to
      such term in Section 3.1(o).

            "LEGEND  REMOVAL DATE" shall have the meaning  ascribed to such term
      in Section 4.1(c).

            "LIENS" means a lien, charge, security interest,  encumbrance, right
      of first refusal, preemptive right or other restriction.

            "MATERIAL  ADVERSE  EFFECT" shall have the meaning  assigned to such
      term in Section 3.1(b).

            "MATERIAL  PERMITS" shall have the meaning  ascribed to such term in
      Section 3.1(m).

            "MAXIMUM  RATE"  shall  have the  meaning  ascribed  to such term in
      Section 5.17.

            "PARTICIPATION MAXIMUM" shall have the meaning ascribed to such term
      in Section 4.13.

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

            "PRE-NOTICE" shall have the meaning ascribed to such term in Section
      4.13.


                                       3


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

            "PURCHASER  PARTY"  shall have the meaning  ascribed to such term in
      Section 4.11.

            "REGISTRATION   RIGHTS  AGREEMENT"  means  the  Registration  Rights
      Agreement, dated the date hereof, among the Company and the Purchasers, in
      the form of EXHIBIT B attached hereto.

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

            "REQUIRED APPROVALS" shall have the meaning ascribed to such term in
      Section 3.1(e).

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

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

            "SEC  REPORTS"  shall  have the  meaning  ascribed  to such  term in
      Section 3.1(h).

            "SECURITIES" means the Debentures,  the Warrants, the Warrant Shares
      and the Underlying Shares.

            "SECURITIES  ACT" means the Securities Act of 1933, as amended,  and
      the rules and regulations promulgated hereunder.

            "SECURITY  AGREEMENT" means the Security  Agreement,  dated July 31,
      2006, among the Company, the Subsidiaries and the Purchasers.

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

             "SUBSCRIPTION  AMOUNT" means, as to each  Purchaser,  the aggregate
      amount to be paid for  Debentures  and  Warrants  purchased  hereunder  as
      specified  below  such  Purchaser's  name  on the  signature  page of this


                                       4


      Agreement and next to the heading "Subscription  Amount", in United States
      Dollars  and in  immediately  available  funds,  which shall be 79% of the
      Principal Amount of the Debentures.

            "SUBSEQUENT  FINANCING" shall have the meaning ascribed to such term
      in Section 4.13.

            "SUBSEQUENT  FINANCING  NOTICE"  shall have the meaning  ascribed to
      such term in Section 4.13.

            "SUBSIDIARY"  means any  subsidiary  of the  Company as set forth on
      SCHEDULE 3.1(A).

            "TRADING  DAY" means a day on which the Common  Stock is traded on a
      Trading Market.

            "TRADING  MARKET" means the following  markets or exchanges on which
      the Common  Stock is listed or quoted for trading on the date in question:
      the Nasdaq Capital Market, the American Stock Exchange, the New York Stock
      Exchange,  the Nasdaq  National  Market or the Over the  Counter  Bulletin
      Board (OTCBB).

            "TRANSACTION  DOCUMENTS" means this Agreement,  the Debentures,  the
      Warrants,  the  Registration  Rights  Agreement and any other documents or
      agreements  executed  in  connection  with the  transactions  contemplated
      hereunder.

            "UNDERLYING  SHARES"  means the  shares of Common  Stock  issued and
      issuable upon conversion or redemption of the Debentures and upon exercise
      of the Warrants.

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

            "WARRANTS" means collectively the Common Stock purchase warrants, in
      the form of  EXHIBIT C  delivered  to the  Purchasers  at the  Closing  in
      accordance with Section 2.2(a) hereof, which Warrants shall be exercisable
      immediately and have a term of exercise equal to 4 years.


                                       5


            "WARRANT  SHARES"  means the shares of Common  Stock  issuable  upon
      exercise of the Warrants.

                                   ARTICLE II.
                                PURCHASE AND SALE

      2.1   CLOSING.  On the Closing  Date,  upon the terms and  subject  to the
conditions  set forth herein,  substantially  concurrent  with the execution and
delivery of this  Agreement by the parties  hereto,  the Company agrees to sell,
and each  Purchaser  agrees to  purchase  in the  aggregate,  severally  and not
jointly,  up  to  $2,531,645.50  principal  amount  of  the  Debentures  (up  to
$2,000,000 Subscription Amount). Each Purchaser shall deliver to the Company via
wire transfer or a certified  check  immediately  available funds equal to their
Subscription  Amount  and the  Company  shall  deliver to each  Purchaser  their
respective  Debenture and Warrants as determined  pursuant to Section 2.2(a) and
the  other  items  set  forth in  Section  2.2  issuable  at the  Closing.  Upon
satisfaction  of the  conditions  set forth in Sections 2.2 and 2.3, the Closing
shall  occur at the offices of FW, or such other  location as the parties  shall
mutually agree.

      2.2   DELIVERIES.

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

                  (i) this Agreement duly executed by the Company;

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

                  (iii) a Debenture with a principal  amount equal to 126.58% of
            such Purchaser's Subscription Amount, registered in the name of such
            Purchaser;

                  (iv) a Warrant  registered  in the name of such  Purchaser  to
            purchase  up to a number of shares of Common  Stock equal to 100% of
            the principal  amount of such Purchaser's  Debenture  divided by the
            initial  Conversion  Price,  with an exercise  price equal to $0.15,
            subject to adjustment therein;

                  (v) the Security Documents; and

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

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

                  (i) this Agreement duly executed by such Purchaser;

                  (ii) such Purchaser's  Subscription Amount by wire transfer to
            the account as specified in writing by the Company; and


                                       6


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

      2.3   CLOSING CONDITIONS.

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

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

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

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

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

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

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

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

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

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


                                       7


                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

      3.1   REPRESENTATIONS  AND WARRANTIES OF THE COMPANY.  Except as set forth
under the  corresponding  section of the disclosure  schedules  delivered to the
Purchasers  concurrently herewith (the "DISCLOSURE  SCHEDULES") which Disclosure
Schedules  shall be deemed a part  hereof and to qualify any  representation  or
warranty  otherwise  made herein to the extent of such  disclosure,  the Company
hereby  makes  the  representations  and  warranties  set  forth  below  to each
Purchaser.

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

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

            (c)  AUTHORIZATION;  ENFORCEMENT.  The  Company  has  the  requisite
      corporate  power  and  authority  to  enter  into  and to  consummate  the
      transactions  contemplated  by  each  of  the  Transaction  Documents  and
      otherwise  to carry out its  obligations  hereunder  and  thereunder.  The
      execution and delivery of each of the Transaction Documents by the Company


                                       8


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

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

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


                                       9


            (f) ISSUANCE OF THE  SECURITIES.  The Securities are duly authorized
      and,  when  issued  and  paid  for  in  accordance   with  the  applicable
      Transaction  Documents,  will be duly and validly  issued,  fully paid and
      nonassessable,  free and clear of all Liens  imposed by the Company  other
      than restrictions on transfer  provided for in the Transaction  Documents.
      The  Underlying  Shares,  when issued in accordance  with the terms of the
      Transaction   Documents,   will  be   validly   issued,   fully  paid  and
      nonassessable,  free and clear of all Liens  imposed  by the  Company.  As
      agreed with each  Purchaser,  the Company has not  reserved  from its duly
      authorized  capital  stock any shares of Common  Stock for issuance of the
      Underlying  Shares,  but will so  reserve a number of shares  equal to the
      Required  Minimum at such time as the Company  receives  Authorized  Share
      Approval.

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

            (h) SEC  REPORTS;  FINANCIAL  STATEMENTS.  The Company has filed all
      reports,  schedules,  forms, statements and other documents required to be
      filed by it under  the  Securities  Act and the  Exchange  Act,  including
      pursuant to Section 13(a) or 15(d)  thereof,  for the two years  preceding
      the date hereof (or such shorter period as the Company was required by law


                                       10


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

            (i) MATERIAL CHANGES. Since the date of the latest audited financial
      statements  included  within  the  SEC  Reports,  except  as  specifically
      disclosed  in a  subsequent  SEC  Report,  (i)  there  has been no  event,
      occurrence  or  development  that  has had or  that  could  reasonably  be
      expected to result in a Material Adverse Effect,  (ii) the Company has not
      incurred any  liabilities  (contingent or otherwise)  other than (A) trade
      payables and accrued expenses  incurred in the ordinary course of business
      consistent  with past  practice  and (B)  liabilities  not  required to be
      reflected  in the  Company's  financial  statements  pursuant  to  GAAP or
      disclosed in filings made with the  Commission,  (iii) the Company has not
      altered its method of  accounting,  (iv) the  Company has not  declared or
      made  any  dividend  or  distribution  of cash or  other  property  to its
      stockholders or purchased,  redeemed or made any agreements to purchase or
      redeem any shares of its capital  stock and (v) the Company has not issued
      any equity  securities  to any  officer,  director  or  Affiliate,  except
      pursuant to existing Company stock option plans. The Company does not have
      pending before the Commission  any request for  confidential  treatment of
      information.  Except for the issuance of the  Securities  contemplated  by
      this Agreement or as set forth on SCHEDULE 3.1(I), no event,  liability or
      development  has  occurred  or exists  with  respect to the Company or its
      Subsidiaries  or their  respective  business,  properties,  operations  or
      financial condition, that would be required to be disclosed by the Company
      under applicable  securities laws at the time this  representation is made
      that has not been publicly disclosed at least one Trading Day prior to the
      date that this representation is made.

            (j)  LITIGATION.  There  is no  action,  suit,  inquiry,  notice  of
      violation, proceeding or investigation pending or, to the knowledge of the
      Company,  threatened  against or affecting the Company,  any Subsidiary or


                                       11


      any of their  respective  properties  before or by any court,  arbitrator,
      governmental or administrative  agency or regulatory  authority  (federal,
      state,  county,  local or foreign)  (collectively,  an "ACTION") which (i)
      adversely  affects or challenges the legality,  validity or enforceability
      of any of the  Transaction  Documents or the Securities or (ii) could,  if
      there were an  unfavorable  decision,  have or  reasonably  be expected to
      result  in  a  Material  Adverse  Effect.  Neither  the  Company  nor  any
      Subsidiary,  nor any  director  or  officer  thereof,  is or has  been the
      subject of any Action involving a claim of violation of or liability under
      federal or state  securities  laws or a claim of breach of fiduciary duty.
      There has not been,  and to the  knowledge  of the  Company,  there is not
      pending or contemplated, any investigation by the Commission involving the
      Company or any current or former  director or officer of the Company.  The
      Commission  has not issued any stop order or other  order  suspending  the
      effectiveness  of any  registration  statement filed by the Company or any
      Subsidiary under the Exchange Act or the Securities Act.

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

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


                                       12


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

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

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

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


                                       13


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

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

            (s) CERTAIN FEES. No brokerage or finder's fees or  commissions  are
      or will be payable  by the  Company to any  broker,  financial  advisor or
      consultant,  finder,  placement agent,  investment  banker,  bank or other
      Person with respect to the  transactions  contemplated  by the Transaction
      Documents.  The  Purchasers  shall have no obligation  with respect to any
      fees or with  respect to any claims made by or on behalf of other  Persons


                                       14


      for  fees  of a type  contemplated  in  this  Section  that  may be due in
      connection   with  the   transactions   contemplated  by  the  Transaction
      Documents.

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

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

            (v)  REGISTRATION  RIGHTS.  Except as set forth on SCHEDULE  3.1(v),
      other  than each of the  Purchasers,  no Person has any right to cause the
      Company  to  effect  the  registration  under  the  Securities  Act of any
      securities of the Company.

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

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

            (y)  DISCLOSURE.  Except  with  respect  to the  material  terms and
      conditions of the transactions  contemplated by the Transaction Documents,
      the Company  confirms  that neither it nor any other Person  acting on its
      behalf has provided any of the  Purchasers or their agents or counsel with
      any information that it believes constitutes or might constitute material,
      nonpublic  information.  The Company  understands  and  confirms  that the


                                       15


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

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

            (aa) SOLVENCY. Except as described in SCHEDULE 3.1(AA), based on the
      financial  condition  of the Company as of the Closing  Date after  giving
      effect to the receipt by the Company of the proceeds  from the sale of the
      Securities hereunder,  (i) the fair saleable value of the Company's assets
      exceeds  the amount  that will be  required to be paid on or in respect of
      the  Company's  existing  debts and  other  liabilities  (including  known
      contingent  liabilities) as they mature;  (ii) the Company's assets do not
      constitute  unreasonably  small  capital to carry on its  business  as now
      conducted  and as proposed to be  conducted  including  its capital  needs
      taking into account the particular  capital  requirements  of the business
      conducted by the Company,  and projected capital  requirements and capital
      availability  thereof;  and (iii) the  current  cash flow of the  Company,
      together with the proceeds the Company would receive, were it to liquidate
      all of its assets,  after taking into account all anticipated  uses of the
      cash,  would be  sufficient  to pay all  amounts  on or in  respect of its
      liabilities  when such amounts are  required to be paid.  The Company does
      not intend to incur  debts  beyond  its  ability to pay such debts as they
      mature  (taking  into account the timing and amounts of cash to be payable
      on or in respect of its debt).  The Company has no  knowledge of any facts
      or  circumstances  which  lead  it  to  believe  that  it  will  file  for
      reorganization or liquidation under the bankruptcy or reorganization  laws
      of any  jurisdiction  within  one year  from the  Closing  Date.  SCHEDULE
      3.1(AA)  sets forth as of the dates  thereof all  outstanding  secured and
      unsecured Indebtedness of the Company or any Subsidiary,  or for which the
      Company  or any  Subsidiary  has  commitments.  For the  purposes  of this
      Agreement,  "Indebtedness"  shall mean (a) any  liabilities  for  borrowed


                                       16


      money or amounts  owed in excess of  $50,000  (other  than trade  accounts
      payable incurred in the ordinary course of business),  (b) all guaranties,
      endorsements and other  contingent  obligations in respect of Indebtedness
      of  others,  whether  or not the same are or  should be  reflected  in the
      Company's  balance  sheet (or the notes  thereto),  except  guaranties  by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of any lease payments in excess of $50,000 due under leases required to be
      capitalized  in  accordance  with  GAAP.   Neither  the  Company  nor  any
      Subsidiary is in default with respect to any Indebtedness.

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

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

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

            (ee)  ACCOUNTANTS.  The  Company's  accountants  are  set  forth  on
      SCHEDULE  3.1(EE) of the  Disclosure  Schedule.  To the  knowledge  of the
      Company,  such  accountants,  who the Company  expects will express  their
      opinion with  respect to the  financial  statements  to be included in the
      Company's  Annual  Report on Form 10-KSB for the year ended  December  31,
      2006 are a registered  public  accounting firm as required by the Exchange
      Act.

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


                                       17


            (gg) NO  DISAGREEMENTS  WITH  ACCOUNTANTS AND LAWYERS.  There are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the Company to arise,  between the Company and the accountants and lawyers
      formerly or  presently  employed by the Company and the Company is current
      with respect to any fees owed to its accountants and lawyers.

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

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

            (jj)  REGULATION  M  COMPLIANCE.  The  Company  has not,  and to its
      knowledge  no one  acting  on its  behalf  has,  (i)  taken,  directly  or
      indirectly, any action designed to cause or to result in the stabilization
      or  manipulation of the price of any security of the Company to facilitate


                                       18


      the  sale  or  resale  of any of  the  Securities,  (ii)  sold,  bid  for,
      purchased,  or paid any compensation  for soliciting  purchases of, any of
      the securities of the Company or (iii) paid or agreed to pay to any person
      any compensation  for soliciting  another to purchase any other securities
      of the  Company,  other  than,  in the case of  clauses  (ii)  and  (iii),
      compensation paid to the Company's  placement agent in connection with the
      placement of the Securities.

      3.2  REPRESENTATIONS  AND  WARRANTIES OF THE  PURCHASERS.  Each  Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

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

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

            (c)  PURCHASER  STATUS.  At the time such  Purchaser was offered the
      Securities,  it was,  and at the date  hereof  it is,  and on each date on
      which it  exercises  any Warrants or converts  any  Debentures  it will be
      either: (i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2),


                                       19


      (a)(3),  (a)(7) or (a)(8)  under the  Securities  Act or (ii) a "qualified
      institutional  buyer" as defined in Rule 144A(a) under the Securities Act.
      Such Purchaser is not required to be registered as a  broker-dealer  under
      Section 15 of the Exchange Act.

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

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

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

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

      4.1   TRANSFER RESTRICTIONS.

            (a) The Securities may only be disposed of in compliance  with state
      and federal securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or Rule 144, to
      the Company or to an  Affiliate  of a Purchaser  or in  connection  with a
      pledge as  contemplated  in Section  4.1(b),  the  Company may require the
      transferor  thereof  to  provide  to the  Company  an  opinion  of counsel
      selected by the transferor and reasonably  acceptable to the Company,  the
      form and substance of which opinion  shall be reasonably  satisfactory  to


                                       20


      the  Company,   to  the  effect  that  such   transfer  does  not  require
      registration of such transferred Securities under the Securities Act. As a
      condition of transfer,  any such  transferee  shall agree in writing to be
      bound by the  terms of this  Agreement  and  shall  have the  rights  of a
      Purchaser under this Agreement and the Registration Rights Agreement.

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

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

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


                                       21


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

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

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


                                       22


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

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

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

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

      4.6   SECURITIES LAWS  DISCLOSURE;  PUBLICITY.  The Company shall, by 8:30
a.m.  Eastern time on the Trading Day  following  the date  hereof,  issue press
release  describing the material terms of the Transaction  Documents,  and shall
file a  Current  Report  on  Form  8-K  disclosing  the  material  terms  of the
transactions  contemplated  hereby,  and  attaching  the  Transaction  Documents
thereto, within the period required by Commission  regulations.  The Company and
each Purchaser shall


                                       23


consult with each other in issuing any other press  releases with respect to the
transactions  contemplated  hereby,  and neither  the Company nor any  Purchaser
shall issue any such press release or otherwise  make any such public  statement
without the prior  consent of the Company,  with respect to any press release of
any Purchaser,  or without the prior consent of each Purchaser,  with respect to
any press  release of the  Company,  which  consent  shall not  unreasonably  be
withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of
such public  statement or  communication.  Notwithstanding  the  foregoing,  the
Company shall not publicly  disclose the name of any  Purchaser,  or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market,  without the prior written consent of such Purchaser,  except
(i)  as  required  by  federal   securities  law  in  connection  with  (A)  any
registration statement contemplated by the Registration Rights Agreement and (B)
the filing of final Transaction  Documents  (including  signature pages thereto)
with the Commission and (ii) to the extent such disclosure is required by law or
Trading  Market  regulations,  in  which  case the  Company  shall  provide  the
Purchasers with prior notice of such  disclosure  permitted under this subclause
(ii).

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

      4.8   NON-PUBLIC  INFORMATION.  Except with respect to the material  terms
and conditions of the  transactions  contemplated by the Transaction  Documents,
the Company  covenants and agrees that neither it nor any other Person acting on
its  behalf  will  provide  any  Purchaser  or its  agents or  counsel  with any
information  that  the  Company   believes   constitutes   material   non-public
information,  unless prior thereto such Purchaser  shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands  and confirms that each Purchaser  shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

      4.9   USE OF  PROCEEDS.  Except  as set  forth on  SCHEDULE  4.9  attached
hereto,  the Company shall use the net proceeds from the sale of the  Securities
hereunder  for working  capital  purposes  and not for the  satisfaction  of any
portion of the  Company's  debt  (other  than  payment of trade  payables in the
ordinary course of the Company's  business and prior  practices),  to redeem any
Common  Stock  or  Common  Stock   Equivalents  or  to  settle  any  outstanding
litigation.

      4.10  REIMBURSEMENT.  If any Purchaser becomes involved in any capacity in
any  Proceeding  by or against  any Person who is a  stockholder  of the Company
(except as a result of sales, pledges,  margin sales and similar transactions by
such  Purchaser  to or with any other  stockholder),  solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses  (including
the cost of any  investigation  preparation and travel in connection  therewith)


                                       24


incurred  in  connection   therewith,   as  such  expenses  are  incurred.   The
reimbursement  obligations  of the  Company  under  this  paragraph  shall be in
addition to any  liability  which the Company may otherwise  have,  shall extend
upon the same terms and  conditions to any  Affiliates of the Purchasers who are
actually  named in such  action,  proceeding  or  investigation,  and  partners,
directors,  agents,  employees and controlling persons (if any), as the case may
be, of the  Purchasers  and any such  Affiliate,  and shall be binding  upon and
inure  to  the  benefit  of  any   successors,   assigns,   heirs  and  personal
representatives  of the Company,  the  Purchasers and any such Affiliate and any
such Person.  The Company also agrees that neither the  Purchasers  nor any such
Affiliates,  partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company  solely as a result of acquiring  the  Securities  under
this Agreement.

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


                                       25


withheld or delayed;  or (ii) to the extent, but only to the extent that a loss,
claim,  damage or liability is attributable  to any Purchaser  Party's breach of
any of the  representations,  warranties,  covenants or agreements  made by such
Purchaser  Party in this Agreement or in the other  Transaction  Documents.  The
Company shall not effect any settlement  affecting a Purchaser Party without the
Purchaser  Party's prior consent,  which shall not be  unreasonably  withheld or
delayed.

      4.12  RESERVATION AND LISTING OF SECURITIES.

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

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

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

            (d) The Company shall submit a proposal to its  shareholders  at the
      Company's next special or annual meeting of shareholders,  whichever comes
      first,  to  effect  the  Authorized   Share  Approval  which  will  permit
      conversion in full of all Debentures and the exercise of all Warrants. The
      Company's board of directors shall recommend that  shareholders vote "for"
      such proposal.

      4.13  PARTICIPATION IN FUTURE FINANCING.

            (a) From the date hereof  until the date that no  Debentures  remain
      outstanding,  upon any issuance by the Company or any of its  Subsidiaries
      of Common Stock or Common Stock  Equivalents (a  "SUBSEQUENT  FINANCING"),
      each  Purchaser  shall have the right to participate in up to an amount of
      the Subsequent  Financing  equal to 100% of the Subsequent  Financing (the
      "PARTICIPATION  MAXIMUM") on the same terms, conditions and price provided
      for in the Subsequent Financing.

            (b) At least 5 Trading  Days prior to the closing of the  Subsequent
      Financing, the Company shall deliver to each Purchaser a written notice of
      its  intention  to effect a  Subsequent  Financing  ("PRE-NOTICE"),  which


                                       26


      Pre-Notice  shall ask such  Purchaser if it wants to review the details of
      such financing (such additional notice, a "SUBSEQUENT  FINANCING NOTICE").
      Upon  the  request  of a  Purchaser,  and  only  upon a  request  by  such
      Purchaser,  for a Subsequent Financing Notice, the Company shall promptly,
      but no later than 1 Trading Day after such  request,  deliver a Subsequent
      Financing Notice to such Purchaser.  The Subsequent Financing Notice shall
      describe  in  reasonable  detail  the  proposed  terms of such  Subsequent
      Financing,  the amount of proceeds intended to be raised  thereunder,  the
      Person  or  Persons  through  or with whom such  Subsequent  Financing  is
      proposed to be  effected,  and  attached to which shall be a term sheet or
      similar document relating thereto.

            (c)  Any  Purchaser  desiring  to  participate  in  such  Subsequent
      Financing  must  provide  written  notice to the Company by not later than
      5:30 p.m.  (New York City  time) on the 5th  Trading  Day after all of the
      Purchasers  have received the Pre-Notice  that the Purchaser is willing to
      participate in the  Subsequent  Financing,  the amount of the  Purchaser's
      participation,  and that the Purchaser has such funds ready,  willing, and
      available  for  investment  on the  terms  set  forth  in  the  Subsequent
      Financing Notice. If the Company receives no notice from a Purchaser as of
      such 5th Trading Day, such Purchaser  shall be deemed to have notified the
      Company that it does not elect to participate.

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

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

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

            (g) Notwithstanding the foregoing, this Section 4.13 shall not apply
      in respect of an Exempt Issuance.


                                       27


      4.14  SUBSEQUENT EQUITY SALES.

            (a) From the date  hereof  until 90 days after the  Effective  Date,
      without the prior written  consent of the holders of majority in principal
      amount of the  Debentures,  neither the Company nor any  Subsidiary  shall
      issue  shares  of  Common  Stock or Common  Stock  Equivalents;  PROVIDED,
      HOWEVER,  the 90 day  period  set  forth  in this  Section  4.14  shall be
      extended  for the number of Trading  Days  during such period in which (i)
      trading in the Common Stock is suspended  by any Trading  Market,  or (ii)
      following the Effective Date, the Registration  Statement is not effective
      or the prospectus  included in the Registration  Statement may not be used
      by the Purchasers for the resale of the Underlying Shares.

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

            (c) Notwithstanding the foregoing, this Section 4.14 shall not apply
      in respect of an Exempt Issuance, except that no Variable Rate Transaction
      shall be an Exempt Issuance.

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

      4.16  SHORT  SALES  AND  CONFIDENTIALITY   AFTER  THE  DATE  HEREOF.  Each
Purchaser  severally and not jointly with the other  Purchasers  covenants  that
neither  it  nor  any  Affiliate  acting  on  its  behalf  or  pursuant  to  any
understanding  with it will execute any Short Sales during the period commencing
at the Discussion Time


                                       28


and ending at the time that the transactions  contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser,  severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions  contemplated  by this  Agreement  are  publicly  disclosed  by the
Company  as  described  in  Section  4.6,  such   Purchaser  will  maintain  the
confidentiality   of  all  disclosures  made  to  it  in  connection  with  this
transaction  (including  the  existence  and  terms of this  transaction).  Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser,  that the  Commission  currently  takes the position that coverage of
short  sales of  shares  of the  Common  Stock  "against  the box"  prior to the
Effective Date of the Registration  Statement with the Securities is a violation
of Section 5 of the  Securities  Act, as set forth in Item 65, Section A, of the
Manual  of  Publicly  Available  Telephone  Interpretations,  dated  July  1997,
compiled  by the  Office of Chief  Counsel,  Division  of  Corporation  Finance.
Notwithstanding the foregoing,  no Purchaser makes any representation,  warranty
or covenant  hereby that it will not engage in Short Sales in the  securities of
the Company after the time that the transactions  contemplated by this Agreement
are first publicly  announced as described in Section 4.6.  Notwithstanding  the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the  portfolio  managers have no direct  knowledge of the  investment
decisions  made  by the  portfolio  managers  managing  other  portions  of such
Purchaser's  assets,  the covenant set forth above shall only apply with respect
to the  portion  of  assets  managed  by the  portfolio  manager  that  made the
investment decision to purchase the Securities covered by this Agreement.

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

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

      4.19  CONSENT TO TRANSACTION DOCUMENTS.  The Purchaser acknowledge,  agree
and consent to the transactions contemplated under the Transaction Documents and
waive any breach or conflict with any prior  agreements  between the Company and
any of the Purchasers.

      4.20  AMENDMENT TO SECURITY AGREEMENT.  The parties hereby acknowledge and
agree that the  definition  of  "Obligations"  under the  Security  Agreement is
hereby  amended  and  restated  as  follows:  ""OBLIGATIONS"  MEANS  ALL  OF THE
LIABILITIES AND OBLIGATIONS (PRIMARY, SECONDARY, DIRECT, CONTINGENT, SOLE, JOINT
OR SEVERAL) DUE OR TO BECOME DUE, OR THAT ARE NOW OR MAY BE HEREAFTER CONTRACTED
OR  ACQUIRED,  OR OWING TO, OF ANY  DEBTOR TO THE  SECURED  PARTIES,  INCLUDING,
WITHOUT LIMITATION,  ALL OBLIGATIONS UNDER THIS AGREEMENT,  THE DEBENTURES,  THE
ORIGINAL ISSUE DISCOUNT  SECURED  CONVERTIBLE  DEBENTURES DUE FEBRUARY 14, 2010,
MAY 8, 2010 AND SEPTEMBER __, 2010, ANY EXISTING OR FUTURE CREDIT LINE OR OTHER


                                       29


LOAN  FACILITY,  THE GUARANTY  AND ANY OTHER  INSTRUMENTS,  AGREEMENTS  OR OTHER
DOCUMENTS EXECUTED AND/OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, IN EACH
CASE,  WHETHER NOW OR HEREAFTER  EXISTING,  VOLUNTARY OR INVOLUNTARY,  DIRECT OR
INDIRECT,  ABSOLUTE OR CONTINGENT,  LIQUIDATED OR  UNLIQUIDATED,  WHETHER OR NOT
JOINTLY  OWED WITH  OTHERS,  AND WHETHER OR NOT FROM TIME TO TIME  DECREASED  OR
EXTINGUISHED AND LATER INCREASED, CREATED OR INCURRED, AND ALL OR ANY PORTION OF
SUCH  OBLIGATIONS OR LIABILITIES THAT ARE PAID, TO THE EXTENT ALL OR ANY PART OF
SUCH  PAYMENT IS AVOIDED OR  RECOVERED  DIRECTLY OR  INDIRECTLY  FROM ANY OF THE
SECURED  PARTIES AS A  PREFERENCE,  FRAUDULENT  TRANSFER  OR  OTHERWISE  AS SUCH
OBLIGATIONS MAY BE AMENDED,  SUPPLEMENTED,  CONVERTED, EXTENDED OR MODIFIED FROM
TIME TO  TIME.  WITHOUT  LIMITING  THE  GENERALITY  OF THE  FOREGOING,  THE TERM
"OBLIGATIONS" SHALL INCLUDE, WITHOUT LIMITATION:  (I) PRINCIPAL OF, AND INTEREST
ON THE  DEBENTURES  AND THE LOANS EXTENDED  PURSUANT  THERETO;  (II) ANY AND ALL
OTHER FEES, INDEMNITIES,  COSTS, OBLIGATIONS AND LIABILITIES OF THE DEBTORS FROM
TIME TO TIME UNDER OR IN CONNECTION  WITH THIS AGREEMENT,  THE  DEBENTURES,  THE
GUARANTY  AND ANY OTHER  INSTRUMENTS,  AGREEMENTS  OR OTHER  DOCUMENTS  EXECUTED
AND/OR  DELIVERED IN  CONNECTION  HEREWITH OR  THEREWITH;  AND (III) ALL AMOUNTS
(INCLUDING  BUT  NOT  LIMITED  TO  POST-PETITION  INTEREST)  IN  RESPECT  OF THE
FOREGOING  THAT WOULD BE PAYABLE  BUT FOR THE FACT THAT THE  OBLIGATIONS  TO PAY
SUCH  AMOUNTS ARE  UNENFORCEABLE  OR NOT  ALLOWABLE  DUE TO THE  EXISTENCE  OF A
BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING INVOLVING ANY DEBTOR."

                                   ARTICLE V.
                                  MISCELLANEOUS

      5.1   TERMINATION.  This Agreement may be terminated by any Purchaser,  as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the  obligations  between the Company  and the other  Purchasers,  by written
notice to the other  parties,  if the  Closing  has not been  consummated  on or
before  September 21, 2007;  PROVIDED,  HOWEVER,  that no such  termination will
affect  the  right of any party to sue for any  breach  by the  other  party (or
parties).

      5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to reimburse
FWS and Olshan  Grundman  Frome  Rosenzweig  & Wolosky LLP for their  respective
reasonable  legal  fees and  expenses.  Except  as  expressly  set  forth in the
Transaction  Documents  to the  contrary,  each  party  shall  pay the  fees and
expenses of its advisers,  counsel,  accountants and other experts,  if any, and
all  other  expenses  incurred  by  such  party  incident  to  the  negotiation,
preparation,  execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.

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

      5.4   NOTICES.  Any and all notices or other  communications or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if


                                       30


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

      5.5   AMENDMENTS;  WAIVERS.  No provision of this Agreement may be waived,
modified,  supplemented or amended except in a written instrument signed, in the
case  of an  amendment,  by  the  Company  and  two-thirds  in  interest  of the
Purchasers  (based on the  then-outstanding  principal amount of the Debentures)
or, in the case of a waiver,  by the party against whom  enforcement of any such
waived  provision  is  sought.  No waiver of any  default  with  respect  to any
provision,  condition or requirement  of this Agreement  shall be deemed to be a
continuing  waiver  in the  future or a waiver of any  subsequent  default  or a
waiver of any other provision,  condition or requirement  hereof,  nor shall any
delay or  omission of any party to exercise  any right  hereunder  in any manner
impair the exercise of any such right.

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

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

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

      5.9   GOVERNING LAW. All questions concerning the construction,  validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
New York,  without  regard to the  principles of conflicts of law thereof.  Each
party  agrees  that  all  legal  proceedings   concerning  the  interpretations,
enforcement and defense of the  transactions  contemplated by this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, shareholders,  employees or agents)
shall be commenced  exclusively  in the state and federal  courts sitting in the
City of New  York.  Each  party  hereby  irrevocably  submits  to the  exclusive
jurisdiction  of the state and federal  courts  sitting in the City of New York,
borough  of  Manhattan  for the  adjudication  of any  dispute  hereunder  or in
connection herewith or with any transaction contemplated hereby or discussed


                                       31


herein  (including  with respect to the  enforcement  of any of the  Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient  venue for such proceeding.  Each party hereby irrevocably
waives  personal  service of process and consents to process being served in any
such suit,  action or  proceeding  by mailing a copy thereof via  registered  or
certified  mail or overnight  delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this  Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner  permitted by law. The parties hereby waive
all  rights to a trial by jury.  If either  party  shall  commence  an action or
proceeding to enforce any  provisions  of the  Transaction  Documents,  then the
prevailing  party in such action or proceeding  shall be reimbursed by the other
party for its reasonable  attorneys' fees and other costs and expenses  incurred
with  the   investigation,   preparation  and  prosecution  of  such  action  or
proceeding.

      5.10  SURVIVAL.  The  representations,  warranties,  covenants  and  other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities,  as applicable for the applicable statue of
limitations.

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

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

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


                                       32


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

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

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

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


                                       33


allowed by law will be the Maximum Rate applicable to the Transaction  Documents
from the  effective  date  forward,  unless such  application  is  precluded  by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum  Rate  is  paid  by  the  Company  to  any  Purchaser  with  respect  to
indebtedness  evidenced  by the  Transaction  Documents,  such  excess  shall be
applied  by  such  Purchaser  to  the  unpaid  principal  balance  of  any  such
indebtedness  or be refunded to the Company,  the manner of handling such excess
to be at such Purchaser's election.

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

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

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

                            (SIGNATURE PAGES FOLLOW)


                                       34


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

HARTVILLE GROUP, INC.                             Address for Notice:
                                                  ------------------
                                                  3840 Greentree Avenue, SW
                                                  Canton, Ohio 44706
By:                                               Attn:
    -------------------------------------         Fax:
    Name:                                         e-mail:
    Title:

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



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                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]


                                       35


        [PURCHASER SIGNATURE PAGES TO HTVL SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: ___________ Islandia, L.P.___________________________________

SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ________________________________

Name of Authorized Signatory: ______ Edgar R. Berner____________________________

Title of Authorized Signatory: _Vice-President of John Lang, Inc., G.P._________

Email Address of Purchaser: ______ investor@johnlang.com________________________

Facsimile of Purchaser: ___(212) 584-2199_______________________________________

Address for Notice of Purchaser:  Islandia, L.P.
                                  C/o John Lang, Inc.
                                  485 Madison Avenue  23rd Floor
                                  New York, NY 10022

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



Subscription Amount:  1,000,000
Warrant Shares:       8,438,818



EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]


                                       36
EX-99.25 3 ex9925to13da506717003_091707.htm sec document 

                                                                   Exhibit 99.25


                                                                       EXHIBIT A


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

Original Issue Date: September __, 2007
Original Conversion Price (subject to adjustment herein): $0.15

                                                              $_________________


            ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURE
                             DUE SEPTEMBER __, 2010

        THIS DEBENTURE is one of a series of duly  authorized and validly issued
Original Issue Discount Secured Convertible Debentures of Hartville Group, Inc.,
a Nevada  corporation,  having its principal place of business at 3840 Greentree
Ave., SW, Canton,  Ohio 44706 (the "COMPANY"),  designated as its Original Issue
Discount Secured Convertible Debentures, due September __, 2010 (this debenture,
the "DEBENTURE" and collectively  with the other such series of debentures,  the
"DEBENTURES").

      FOR    VALUE    RECEIVED,    the    Company    promises    to    pay    to
________________________ or its registered assigns (the "HOLDER"), or shall have
paid pursuant to the terms hereunder,  the principal sum of  $_______________ on
September  __, 2010,  or such  earlier date as this  Debenture is required to be
repaid as provided hereunder (the "MATURITY Date"). This Debenture is subject to
the following additional provisions:

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

            "ALTERNATE  CONSIDERATION"  shall  have  the  meaning  set  forth in
      Section 5(e).


                                       1


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

            "BASE CONVERSION  PRICE" shall have the meaning set forth in Section
      5(b).

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

            "BUY-IN" shall have the meaning set forth in Section 4(d)(v).

            "CHANGE OF CONTROL  TRANSACTION" means the occurrence after the date
      hereof of any of (i) an acquisition after the date hereof by an individual
      or legal entity or "group" (as described in Rule  13d-5(b)(1)  promulgated
      under the Exchange  Act) of effective  control  (whether  through legal or
      beneficial  ownership  of capital  stock of the  Company,  by  contract or
      otherwise)  of in excess of 40% of the voting  securities  of the  Company
      (other than by means of conversion or exercise of the  Debentures  and the
      Securities  issued  together  with the  Debentures),  or (ii) the  Company
      merges into or  consolidates  with any other Person,  or any Person merges
      into or  consolidates  with the Company and,  after giving  effect to such
      transaction,  the  stockholders of the Company  immediately  prior to such
      transaction own less than 60% of the aggregate voting power of the Company
      or the successor entity of such transaction, or (iii) the Company sells or
      transfers all or substantially all of its assets to another Person and the
      stockholders of the Company immediately prior to such transaction own less
      than 60% of the aggregate voting power of the acquiring entity immediately
      after the transaction, or (iv) a replacement at one time or within a three
      year period of more than one-half of the members of the Company's board of
      directors which is not approved by a majority of those individuals who are


                                       2


      members  of the  board  of  directors  on the  date  hereof  (or by  those
      individuals  who are serving as members of the board of  directors  on any
      date whose nomination to the board of directors was approved by a majority
      of the  members  of the board of  directors  who are  members  on the date
      hereof),  or (v) the execution by the Company of an agreement to which the
      Company  is a party  or by  which it is  bound,  providing  for any of the
      events set forth in clauses (i) through (iv) above.

            "COMMON  STOCK" means the common stock,  par value $0.001 per share,
      of the Company and stock of any other class of securities  into which such
      securities may hereafter be reclassified or changed into.

            "CONVERSION DATE" shall have the meaning set forth in Section 4(a).

            "CONVERSION PRICE" shall have the meaning set forth in Section 4(b).

            "CONVERSION SHARES" means, collectively,  the shares of Common Stock
      issuable upon  conversion of this  Debenture in accordance  with the terms
      hereof.

            "DEBENTURE  REGISTER"  shall have the  meaning  set forth in Section
      2(c).

            "DILUTIVE  ISSUANCE"  shall  have the  meaning  set forth in Section
      5(b).

            "DILUTIVE  ISSUANCE  NOTICE"  shall  have the  meaning  set forth in
      Section 5(b).

            "EFFECTIVENESS  PERIOD"  shall  have the  meaning  set  forth in the
      Registration Rights Agreement.

            "EVENT OF DEFAULT" shall have the meaning set forth in Section 8.

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

            "FUNDAMENTAL  TRANSACTION"  shall  have  the  meaning  set  forth in
      Section 5(e).

            "LATE FEES" shall have the meaning set forth in Section 2(d).

            "MANDATORY  DEFAULT  AMOUNT" means the sum of (i) the greater of (A)
      110% of the outstanding  principal  amount of this  Debenture,  or (B) the
      outstanding  principal amount of this Debenture  divided by the Conversion
      Price on the date the Mandatory  Default Amount is either (a) demanded (if
      demand or notice is required  to create an Event of Default) or  otherwise
      due  or  (b)  paid  in  full,  whichever  has a  lower  Conversion  Price,
      multiplied by the VWAP on the date the Mandatory  Default Amount is either
      (x) demanded or otherwise due or (y) paid in full,  whichever has a higher
      VWAP, and (ii) all other amounts,  costs,  expenses and liquidated damages
      due in respect of this Debenture.

             "NEW YORK COURTS" shall have the meaning set forth in Section 9(d).


                                       3


            "NOTICE OF  CONVERSION"  shall have the meaning set forth in Section
      4(a).

            "ORIGINAL  ISSUE DATE"  means the date of the first  issuance of the
      Debentures, regardless of any transfers of any Debenture and regardless of
      the number of instruments which may be issued to evidence such Debentures.

            "PERMITTED  INDEBTEDNESS" means (a) the Indebtedness existing on the
      Original  Issue Date and set forth on  SCHEDULE  3.1(AA)  attached  to the
      Purchase   Agreement  and  (b)  lease   obligations   and  purchase  money
      indebtedness of up to $250,000,  in the aggregate,  incurred in connection
      with the acquisition of capital assets and lease  obligations with respect
      to newly acquired or leased assets.

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

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

            "PURCHASE  AGREEMENT" means the Securities  Purchase Agreement among
      the Company and the original  Holders,  dated as of September 17, 2007, as
      amended, modified or supplemented from time to time in accordance with its
      terms.

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

            "REGISTRATION   STATEMENT"  means  a  registration   statement  that
      registers the resale of all Conversion Shares of the Holder,  who shall be
      named as a "selling  stockholder"  therein,  and meets the requirements of
      the Registration Rights Agreement.


                                       4


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

            "SHARE  DELIVERY  DATE"  shall have the meaning set forth in Section
      4(d).

            "SUBSIDIARY"  shall  have the  meaning  set  forth  in the  Purchase
      Agreement.

            "TRADING DAY" means a day on which the principal  Trading  Market is
      open for business.

            "TRADING  MARKET" means the following  markets or exchanges on which
      the Common  Stock is listed or quoted for trading on the date in question:
      the  American  Stock  Exchange,  the  Nasdaq  Capital  Market,  the Nasdaq
      National Market, the New York Stock Exchange or the OTC Bulletin Board.

            "TRANSACTION  DOCUMENTS"  shall  have the  meaning  set forth in the
      Purchase Agreement.

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

      SECTION 2.  INTEREST AND PREPAYMENT.

            a)  INTEREST.  No interest  shall be payable on this  Debenture,  it
      being  understood  that such  Debenture has been  purchased at an original
      issue discount in lieu of interest.

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


                                       5


      SECTION 3.   REGISTRATION OF TRANSFERS AND EXCHANGES.

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

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

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

      SECTION 4.    CONVERSION.

            a) VOLUNTARY  CONVERSION.  At any time after the Original Issue Date
      until this Debenture is no longer  outstanding,  this  Debenture  shall be
      convertible,  in whole or in part,  into  shares  of  Common  Stock at the
      option of the  Holder,  at any time and from time to time  (subject to the
      conversion limitations set forth in Section 4(c) hereof). The Holder shall
      effect  conversions  by delivering to the Company a Notice of  Conversion,
      the  form  of  which  is  attached   hereto  as  ANNEX  A  (a  "NOTICE  OF
      CONVERSION"), specifying therein the principal amount of this Debenture to
      be converted  and the date on which such  conversion  shall be effected (a
      "CONVERSION  DATE").  If no  Conversion  Date is  specified in a Notice of
      Conversion,  the  Conversion  Date  shall be the date that such  Notice of
      Conversion is deemed delivered hereunder. To effect conversions hereunder,
      the Holder shall not be required to physically surrender this Debenture to
      the Company unless the entire  principal amount of this Debenture has been
      so converted.  Conversions hereunder shall have the effect of lowering the
      outstanding  principal  amount of this Debenture in an amount equal to the
      applicable  conversion.  The Holder and the Company shall maintain records
      showing  the   principal   amount(s)   converted  and  the  date  of  such
      conversion(s).  The  Company  may  deliver an  objection  to any Notice of
      Conversion   within  2  Business  Days  of  delivery  of  such  Notice  of
      Conversion. In the event of any dispute or discrepancy, the records of the
      Holder shall be controlling and  determinative  in the absence of manifest
      error.  THE HOLDER,  AND ANY  ASSIGNEE BY  ACCEPTANCE  OF THIS  DEBENTURE,
      ACKNOWLEDGE AND AGREE THAT, BY REASON OF THE PROVISIONS OF THIS PARAGRAPH,
      FOLLOWING  CONVERSION  OF A PORTION  OF THIS  DEBENTURE,  THE  UNPAID  AND
      UNCONVERTED PRINCIPAL AMOUNT OF THIS DEBENTURE MAY BE LESS THAN THE AMOUNT
      STATED ON THE FACE HEREOF.

            b)  CONVERSION   PRICE.  The  conversion  price  in  effect  on  any
      Conversion  Date shall be equal to $0.15  (subject to  adjustment  herein)
      (the "CONVERSION PRICE").


                                       6


            c) Intentionally Omitted.

            d) MECHANICS OF CONVERSION.

                  i.  CONVERSION  SHARES  ISSUABLE UPON  CONVERSION OF PRINCIPAL
            AMOUNT.  The  number  of  shares of  Common  Stock  issuable  upon a
            conversion hereunder shall be determined by the quotient obtained by
            dividing (x) the outstanding  principal  amount of this Debenture to
            be converted by (y) the Conversion Price.

                  ii. DELIVERY OF CERTIFICATE  UPON  CONVERSION.  Not later than
            three Trading Days after each  Conversion  Date (the "SHARE DELIVERY
            DATE"), the Company shall deliver, or cause to be delivered,  to the
            Holder a certificate  or  certificates  representing  the Conversion
            Shares  which,  on or after  the  Effective  Date,  shall be free of
            restrictive legends and trading restrictions (other than those which
            may then be required by the  Purchase  Agreement)  representing  the
            number of shares of Common Stock being  acquired upon the conversion
            of this Debenture. On or after the Effective Date, the Company shall
            use its best  efforts to deliver  any  certificate  or  certificates
            required  to be  delivered  by the  Company  under  this  Section  4
            electronically  through  the  Depository  Trust  Company  or another
            established clearing corporation performing similar functions.

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

                  iv.  OBLIGATION  ABSOLUTE;  PARTIAL  LIQUIDATED  DAMAGES.  The
            Company's  obligations  to issue and deliver the  Conversion  Shares
            upon  conversion  of this  Debenture  in  accordance  with the terms
            hereof are absolute and unconditional, irrespective of any action or
            inaction  by the Holder to enforce  the same,  any waiver or consent
            with respect to any provision  hereof,  the recovery of any judgment
            against any Person or any action to enforce the same, or any setoff,
            counterclaim,  recoupment,  limitation or termination, or any breach
            or  alleged  breach  by  the  Holder  or  any  other  Person  of any
            obligation to the Company or any  violation or alleged  violation of
            law by the Holder or any other Person, and irrespective of any other
            circumstance  which might  otherwise  limit such  obligation  of the
            Company  to the  Holder  in  connection  with the  issuance  of such
            Conversion Shares;  PROVIDED,  HOWEVER, that such delivery shall not
            operate as a waiver by the  Company of any such  action the  Company
            may have  against  the  Holder.  In the  event  the  Holder  of this


                                       7


            Debenture  shall  elect  to  convert  any or all of the  outstanding
            principal amount hereof, the Company may not refuse conversion based
            on any claim that the Holder or anyone associated or affiliated with
            the Holder has been engaged in any  violation  of law,  agreement or
            for any other reason,  unless an injunction  from a court, on notice
            to Holder, restraining and or enjoining conversion of all or part of
            this Debenture shall have been sought and obtained,  and the Company
            posts a surety  bond for the  benefit of the Holder in the amount of
            150% of the outstanding principal amount of this Debenture, which is
            subject to the  injunction,  which bond shall remain in effect until
            the completion of  arbitration/litigation  of the underlying dispute
            and the  proceeds  of which  shall be payable to such  Holder to the
            extent it obtains judgment.  In the absence of such injunction,  the
            Company shall issue Conversion Shares or, if applicable,  cash, upon
            a properly noticed  conversion.  If the Company fails for any reason
            to deliver to the Holder such  certificate or certificates  pursuant
            to Section  4(d)(ii) by the third  Trading Day after the  Conversion
            Date  (other  than as to any  disputed  amounts in  accordance  with
            Section  4(a),  the Company  shall pay to such Holder,  in cash,  as
            liquidated damages and not as a penalty, for each $1000 of principal
            amount being  converted,  $10 per Trading Day (increasing to $20 per
            Trading Day on the fifth Trading Day after such  liquidated  damages
            begin to accrue) for each  Trading Day after such third  Trading Day
            until such certificates are delivered.  Nothing herein shall limit a
            Holder's  right to pursue  actual  damages  or  declare  an Event of
            Default  pursuant to Section 8 hereof for the  Company's  failure to
            deliver  Conversion  Shares within the period  specified  herein and
            such Holder shall have the right to pursue all remedies available to
            it hereunder, at law or in equity including,  without limitation,  a
            decree  of  specific   performance  and/or  injunctive  relief.  The
            exercise  of any such  rights  shall not  prohibit  the Holder  from
            seeking to enforce  damages  pursuant to any other Section hereof or
            under applicable law.

                  v.  COMPENSATION  FOR  BUY-IN ON  FAILURE  TO  TIMELY  DELIVER
            CERTIFICATES  UPON  CONVERSION.  In  addition  to any  other  rights
            available  to the  Holder,  if the  Company  fails for any reason to
            deliver to the Holder such  certificate or certificates by the Share
            Delivery Date pursuant to Section 4(d)(ii),  and if after such Share
            Delivery  Date the  Holder  is  required  by its  brokerage  firm to
            purchase  (in an open market  transaction  or  otherwise)  shares of
            Common Stock to deliver in  satisfaction of a sale by such Holder of
            the Conversion  Shares which the Holder was entitled to receive upon
            the  conversion  relating to such Share  Delivery Date (a "BUY-IN"),
            then the Company shall (A) pay in cash to the Holder (in addition to
            any other remedies available to or elected by the Holder) the amount
            by which  (x) the  Holder's  total  purchase  price  (including  any
            brokerage commissions) for the Common Stock so purchased exceeds (y)
            the product of (1) the  aggregate  number of shares of Common  Stock
            that such Holder was  entitled  to receive  from the  conversion  at
            issue  multiplied  by (2) the  actual  sale  price at which the sell
            order  giving  rise  to  such  purchase   obligation   was  executed
            (including any brokerage  commissions)  and (B) at the option of the
            Holder,   either  reissue  (if  surrendered)  this  Debenture  in  a


                                       8


            principal  amount  equal to the  principal  amount of the  attempted
            conversion  or  deliver to the Holder the number of shares of Common
            Stock that would have been issued if the Company had timely complied
            with its delivery requirements under Section 4(d)(ii).  For example,
            if the Holder  purchases  Common Stock having a total purchase price
            of $11,000 to cover a Buy-In with respect to an attempted conversion
            of this Debenture with respect to which the actual sale price of the
            Conversion Shares (including any brokerage  commissions) giving rise
            to such purchase  obligation was a total of $10,000 under clause (A)
            of the immediately preceding sentence, the Company shall be required
            to pay the Holder  $1,000.  The Holder  shall  provide  the  Company
            written  notice  indicating  the  amounts  payable  to the Holder in
            respect of the Buy-In and, upon request of the Company,  evidence of
            the amount of such loss. Nothing herein shall limit a Holder's right
            to pursue any other remedies available to it hereunder, at law or in
            equity  including,   without   limitation,   a  decree  of  specific
            performance  and/or  injunctive relief with respect to the Company's
            failure to timely deliver certificates representing shares of Common
            Stock upon conversion of this Debenture as required  pursuant to the
            terms hereof.

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

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

                  viii.  TRANSFER TAXES. The issuance of certificates for shares
            of the Common Stock on  conversion of this  Debenture  shall be made
            without  charge to the Holder  hereof for any  documentary  stamp or
            similar  taxes  that  may be  payable  in  respect  of the  issue or
            delivery of such  certificates,  provided that the Company shall not


                                       9


            be  required  to pay any tax that may be  payable  in respect of any
            transfer   involved  in  the  issuance  and  delivery  of  any  such
            certificate  upon conversion in a name other than that of the Holder
            of this Debenture so converted and the Company shall not be required
            to issue or deliver such certificates  unless or until the person or
            persons  requesting  the  issuance  thereof  shall  have paid to the
            Company  the  amount of such tax or shall  have  established  to the
            satisfaction of the Company that such tax has been paid.

      SECTION 5.  CERTAIN ADJUSTMENTS.

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

            b)  SUBSEQUENT  EQUITY  SALES.  If the  Company  or  any  Subsidiary
      thereof,  as applicable,  at any time while this Debenture is outstanding,
      sells or grants  any  option to  purchase  or sells or grants any right to
      reprice its securities,  or otherwise  disposes of or issues (or announces
      any sale, grant or any option to purchase or other disposition) any Common
      Stock or Common Stock  Equivalents  entitling any Person to acquire shares
      of Common  Stock at an  effective  price per share  that is lower than the
      then Conversion Price (such lower price,  the "BASE CONVERSION  PRICE" and
      such issuances collectively,  a "DILUTIVE ISSUANCE") (if the holder of the
      Common  Stock or Common  Stock  Equivalents  so issued  shall at any time,
      whether by  operation of purchase  price  adjustments,  reset  provisions,
      floating conversion,  exercise or exchange prices or otherwise,  or due to
      warrants,  options or rights per share which are issued in connection with
      such  issuance,  be  entitled  to  receive  shares of  Common  Stock at an
      effective  price per share that is lower than the Conversion  Price,  such
      issuance  shall be deemed to have  occurred  for less than the  Conversion
      Price on such date of the Dilutive  Issuance),  then the Conversion  Price
      shall be reduced to equal the Base Conversion Price. Such adjustment shall
      be made whenever such Common Stock or Common Stock Equivalents are issued.
      Notwithstanding  the  foregoing,  no  adjustment  will be made  under this
      Section 5(b) in respect of an Exempt  Issuance.  The Company  shall notify


                                       10


      the  Holder in  writing,  no later than the  Business  Day  following  the
      issuance of any Common Stock or Common Stock  Equivalents  subject to this
      Section  5(b),  indicating  therein  the  applicable  issuance  price,  or
      applicable reset price, exchange price, conversion price and other pricing
      terms (such  notice,  the  "DILUTIVE  ISSUANCE  NOTICE").  For purposes of
      clarification,  whether or not the  Company  provides a Dilutive  Issuance
      Notice  pursuant to this Section 5(b), upon the occurrence of any Dilutive
      Issuance,  the Holder is entitled to receive a number of Conversion Shares
      based upon the Base Conversion Price on or after the date of such Dilutive
      Issuance,  regardless of whether the Holder  accurately refers to the Base
      Conversion Price in the Notice of Conversion.

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

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


                                       11


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

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

            g) NOTICE TO THE HOLDER.

                  i.  ADJUSTMENT TO CONVERSION  PRICE.  Whenever the  Conversion
            Price is adjusted  pursuant to any  provision of this Section 5, the
            Company shall  promptly  mail to each Holder a notice  setting forth
            the Conversion Price after such adjustment and setting forth a brief


                                       12


            statement of the facts  requiring  such  adjustment.  If the Company
            issues a variable rate security,  despite the prohibition thereon in
            the Purchase  Agreement,  the Company shall be deemed to have issued
            Common  Stock or Common  Stock  Equivalents  at the lowest  possible
            conversion  or  exercise  price  at  which  such  securities  may be
            converted or exercised  in the case of a Variable  Rate  Transaction
            (as defined in the Purchase Agreement).

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

            a) SECTION 6. Intentionally Omitted.

      SECTION 7.  NEGATIVE   COVENANTS.   As  long  as  any  portion  of  this
Debenture  remains  outstanding,  the Company  shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly:


                                       13


            a) other than Permitted Indebtedness,  except with the prior written
      consent of the Agent (as defined in the Security  Agreement),  enter into,
      create,  incur, assume,  guarantee or suffer to exist any indebtedness for
      borrowed money of any kind, including but not limited to, a guarantee,  on
      or with  respect to any of its  property or assets now owned or  hereafter
      acquired or any interest therein or any income or profits therefrom;

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

            c) amend its charter documents,  including without  limitation,  the
      certificate of incorporation and bylaws, in any manner that materially and
      adversely affects any rights of the Holder;

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

            e) enter into any agreement with respect to any of the foregoing; or

            f) pay cash dividends or distributions  on any equity  securities of
      the Company.

      SECTION 8.  EVENTS OF DEFAULT.

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

                  i. any default in the payment of (A) the  principal  amount of
            any Debenture or (B) liquidated damages and other amounts owing to a
            Holder on any  Debenture,  as and when the same shall become due and
            payable  (whether on a Conversion  Date or the  Maturity  Date or by
            acceleration  or otherwise)  which default,  solely in the case of a
            default under clause (B) above, is not cured within 3 Trading Days;

                  ii. the  Company  shall  fail to observe or perform  any other
            covenant or  agreement  contained  in the  Debentures  (other than a
            breach by the Company of its obligations to deliver shares of Common
            Stock to the Holder upon  conversion,  which  breach is addressed in


                                       14


            clause (xi) below) which failure is not cured,  if possible to cure,
            within the  earlier to occur of (A) 5 Trading  Days after  notice of
            such  failure  sent by the Holder or by any other  Holder and (B) 10
            Trading  Days after the  Company  has become or should  have  become
            aware of such failure;

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

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

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

                  vi. the Company or any Subsidiary  shall default on any of its
            obligations under any mortgage,  credit agreement or other facility,
            indenture  agreement,  factoring agreement or other instrument under
            which  there may be  issued,  or by which  there may be  secured  or
            evidenced,  any  indebtedness  for borrowed money or money due under
            any long term leasing or factoring  arrangement that (a) involves an
            obligation  greater than  $150,000,  whether such  indebtedness  now
            exists  or shall  hereafter  be  created,  and (b)  results  in such
            indebtedness becoming or being declared due and payable prior to the
            date on which it would otherwise become due and payable;

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

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

                  ix. Intentionally Omitted;

                  x. if,  during the  Effectiveness  Period  (as  defined in the
            Registration Rights Agreement),  either (a) the effectiveness of the
            Registration Statement lapses for any reason or (b) the Holder shall
            not be permitted to resell Registrable Securities (as defined in the
            Registration Rights Agreement) under the Registration  Statement for


                                       15


            a  period  of  more  than  30   consecutive   Trading   Days  or  60
            non-consecutive  Trading Days during any 12 month period;  PROVIDED,
            HOWEVER, that if the Company is negotiating a merger, consolidation,
            acquisition or sale of all or  substantially  all of its assets or a
            similar  transaction  and, in the written  opinion of counsel to the
            Company, the Registration  Statement would be required to be amended
            to include information concerning such pending transaction(s) or the
            parties  thereto  which  information  is not available or may not be
            publicly  disclosed at the time,  the Company  shall be permitted an
            additional  10  consecutive  Trading Days during any 12 month period
            pursuant to this Section 8(a)(x);

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

                  xii.  any monetary  judgment,  writ or similar  final  process
            shall be entered or filed against the Company, any Subsidiary or any
            of their respective property or other assets for more than $100,000,
            and such  judgment,  writ or  similar  final  process  shall  remain
            unvacated, unbonded or unstayed for a period of 45 calendar days.

            b) REMEDIES UPON EVENT OF DEFAULT.  If any Event of Default  occurs,
      the outstanding principal amount of this Debenture, liquidated damages and
      other amounts owing in respect thereof  through the date of  acceleration,
      shall become,  at the Holder's  election,  immediately  due and payable in
      cash at the  Mandatory  Default  Amount.  Upon the  payment in full of the
      Mandatory  Default  Amount,  the  Holder  shall  promptly  surrender  this
      Debenture  to or as  directed  by the  Company.  In  connection  with such
      acceleration  described  herein,  the  Holder  need not  provide,  and the
      Company hereby waives, any presentment, demand, protest or other notice of
      any kind,  and the Holder may  immediately  and without  expiration of any
      grace period enforce any and all of its rights and remedies  hereunder and
      all other remedies available to it under applicable law. Such acceleration
      may be  rescinded  and  annulled  by Holder at any time  prior to  payment
      hereunder  and the  Holder  shall  have  all  rights  as a  holder  of the
      Debenture  until such time,  if any, as the Holder  receives  full payment
      pursuant to this Section  8(b).  No such  rescission  or  annulment  shall
      affect any  subsequent  Event of  Default  or impair any right  consequent
      thereon.

      SECTION 9.  MISCELLANEOUS.

            a)  NOTICES.   Any  and  all  notices  or  other  communications  or
      deliveries  to be provided  by the Holder  hereunder,  including,  without
      limitation,  any Notice of  Conversion,  shall be in writing and delivered
      personally,  by facsimile,  or sent by a nationally  recognized  overnight
      courier service, addressed to the Company, at the address set forth above,


                                       16


      facsimile number (330) 484-8081,  ATTN:  CHRISTOPHER R. SACHS, CFO or such
      other  facsimile  number or address as the  Company  may  specify for such
      purpose by notice to the Holder  delivered in accordance with this Section
      9.  Any and all  notices  or  other  communications  or  deliveries  to be
      provided  by the  Company  hereunder  shall be in  writing  and  delivered
      personally,  by facsimile,  or sent by a nationally  recognized  overnight
      courier  service  addressed  to each  Holder  at the  facsimile  number or
      address of such Holder  appearing  on the books of the  Company,  or if no
      such  facsimile  number or  address  appears,  at the  principal  place of
      business of the Holder.  Any notice or other  communication  or deliveries
      hereunder  shall be deemed given and  effective on the earliest of (i) the
      date of  transmission,  if such notice or  communication  is delivered via
      facsimile  at the  facsimile  number  specified in this Section 9 prior to
      5:30 p.m. (New York City time),  (ii) the date  immediately  following the
      date of  transmission,  if such notice or  communication  is delivered via
      facsimile at the facsimile number specified in this Section 9 between 5:30
      p.m. (New York City time) and 11:59 p.m. (New York City time) on any date,
      (iii) the second  Business Day following  the date of mailing,  if sent by
      nationally  recognized  overnight  courier  service,  or (iv) upon  actual
      receipt by the party to whom such notice is required to be given.

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

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

            d)  GOVERNING  LAW.  All  questions   concerning  the  construction,
      validity,  enforcement  and  interpretation  of this  Debenture  shall  be
      governed by and  construed  and enforced in  accordance  with the internal
      laws of the  State  of New  York,  without  regard  to the  principles  of
      conflict of laws  thereof.  Each party  agrees that all legal  proceedings
      concerning the interpretation, enforcement and defense of the transactions
      contemplated by any of the Transaction  Documents (whether brought against
      a  party  hereto  or  its  respective  Affiliates,   directors,  officers,
      shareholders,  employees  or agents)  shall be  commenced in the state and
      federal courts sitting in the City of New York,  Borough of Manhattan (the
      "NEW YORK COURTS").  Each party hereto hereby  irrevocably  submits to the
      exclusive  jurisdiction of the New York Courts for the adjudication of any
      dispute  hereunder  or in  connection  herewith  or with  any  transaction
      contemplated  hereby or discussed  herein  (including  with respect to the
      enforcement of any of the Transaction  Documents),  and hereby irrevocably


                                       17


      waives,  and agrees not to assert in any suit,  action or proceeding,  any
      claim that it is not personally  subject to the  jurisdiction  of such New
      York Courts,  or such New York Courts are improper or  inconvenient  venue
      for such proceeding. Each party hereby irrevocably waives personal service
      of process and consents to process  being served in any such suit,  action
      or proceeding by mailing a copy thereof via  registered or certified  mail
      or  overnight  delivery  (with  evidence of delivery) to such party at the
      address in effect for notices to it under this  Debenture  and agrees that
      such service shall  constitute good and sufficient  service of process and
      notice thereof.  Nothing  contained herein shall be deemed to limit in any
      way any right to serve process in any other manner permitted by applicable
      law. Each party hereto hereby  irrevocably  waives,  to the fullest extent
      permitted  by  applicable  law,  any and all right to trial by jury in any
      legal  proceeding  arising  out of or relating  to this  Debenture  or the
      transactions contemplated hereby. If either party shall commence an action
      or  proceeding  to enforce  any  provisions  of this  Debenture,  then the
      prevailing  party in such action or proceeding  shall be reimbursed by the
      other party for its attorneys  fees and other costs and expenses  incurred
      in the  investigation,  preparation  and  prosecution  of such  action  or
      proceeding.

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

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


                                       18


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

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

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

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


                                       19


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


                                     HARTVILLE GROUP, INC.

                                     By:
                                         ---------------------------------------
                                         Name:
                                         Title:


                                       20


                                     ANNEX A

                              NOTICE OF CONVERSION


      The  undersigned  hereby  elects to convert  principal  under the Original
Issue Discount Secured Convertible  Debenture of Hartville Group, Inc., a Nevada
corporation  (the  "COMPANY"),  due on September __, 2010, into shares of common
stock, par value $0.001 per share (the "COMMON STOCK"), of the Company according
to the  conditions  hereof,  as of the date written  below.  If shares are to be
issued in the name of a person other than the undersigned,  the undersigned will
pay all transfer taxes payable with respect  thereto and is delivering  herewith
such  certificates  and  opinions  as  reasonably  requested  by the  Company in
accordance  therewith.  No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.

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

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

Conversion calculations:
                              Date to Effect Conversion:

                              Principal Amount of Debenture to be Converted:


                              Number of shares of Common Stock to be issued:


                              Signature:

                              Name:

                              Address:


                                       21


                                   SCHEDULE 1

                               CONVERSION SCHEDULE

The Original Issue Discount Convertible  Debentures due on September __, 2010 in
the aggregate principal amount of $____________  issued by Hartville Group, Inc.
This Conversion Schedule reflects  conversions made under Section 4 of the above
referenced Debenture.

                                     Dated:


- -----------------------------------------------------------------------------

                                           Aggregate
                                           Principal
                                            Amount
 Date of Conversion       Amount of        Remaining
(or for first entry,      Conversion      Subsequent        Company Attest
Original Issue Date)                     to Conversion
                                          (or original
                                           Principal
                                            Amount)
- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------



- -----------------------------------------------------------------------------


                                       22
EX-99.26 4 ex9926to13da506717003_091707.htm sec document 

                                                                   Exhibit 99.26


                                                                       EXHIBIT C


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

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                              HARTVILLE GROUP, INC.

            THIS COMMON STOCK PURCHASE  WARRANT (the "WARRANT")  certifies that,
for value received,  _____________ (the "HOLDER"),  is entitled,  upon the terms
and subject to the  limitations on exercise and the conditions  hereinafter  set
forth, at any time on or after the date hereof (the "INITIAL EXERCISE DATE") and
on or prior to the close of  business  on the  fourth  year  anniversary  of the
Initial Exercise Date (the "TERMINATION DATE") but not thereafter,  to subscribe
for  and  purchase  from  Hartville  Group,  Inc.,  a  Nevada  corporation  (the
"COMPANY"),  up to ______  shares (the "WARRANT  Shares") of Common  Stock,  par
value $0.001 per share, of the Company (the "COMMON STOCK").  The purchase price
of one share of Common Stock under this  Warrant  shall be equal to the Exercise
Price, as defined in Section 2(b).

      SECTION 1.  DEFINITIONS.  Capitalized terms used and not otherwise defined
herein shall have the meanings  set forth in that  certain  Securities  Purchase
Agreement  (the  "PURCHASE  AGREEMENT"),  dated  September  17, 2007,  among the
Company and the purchasers signatory thereto.

      SECTION 2.  EXERCISE.

            a) EXERCISE OF WARRANT.  Exercise of the purchase rights represented
      by this Warrant may be made,  in whole or in part, at any time or times on
      or after the Initial  Exercise Date and on or before the Termination  Date
      by delivery to the Company of a duly executed facsimile copy of the Notice
      of Exercise  Form  annexed  hereto (or such other  office or agency of the
      Company as it may designate by notice in writing to the registered  Holder


                                       1


      at the address of such Holder appearing on the books of the Company); and,
      within 3 Trading  Days of the date said Notice of Exercise is delivered to
      the Company,  the Company  shall have  received  payment of the  aggregate
      Exercise  Price  of the  shares  thereby  purchased  by wire  transfer  or
      cashier's  check drawn on a United States bank.  Notwithstanding  anything
      herein to the  contrary,  the Holder  shall not be required to  physically
      surrender  this Warrant to the Company  until the Holder has purchased all
      of the  Warrant  Shares  available  hereunder  and the  Warrant  has  been
      exercised in full, in which case, the Holder shall  surrender this Warrant
      to the  Company  for  cancellation  within 3 Trading  Days of the date the
      final Notice of Exercise is delivered to the Company. Partial exercises of
      this  Warrant  resulting  in purchases of a portion of the total number of
      Warrant Shares  available  hereunder shall have the effect of lowering the
      outstanding  number of Warrant Shares  purchasable  hereunder in an amount
      equal to the applicable number of Warrant Shares purchased. The Holder and
      the Company shall  maintain  records  showing the number of Warrant Shares
      purchased  and the date of such  purchases.  The Company shall deliver any
      objection to any Notice of Exercise Form within 2 Business Days of receipt
      of such notice. In the event of any dispute or discrepancy, the records of
      the  Holder  shall be  controlling  and  determinative  in the  absence of
      manifest  error.  The  Holder  and any  assignee,  by  acceptance  of this
      Warrant,  acknowledge  and agree that, by reason of the provisions of this
      paragraph,  following  the  purchase  of a portion of the  Warrant  Shares
      hereunder,  the number of Warrant Shares available for purchase  hereunder
      at any given time may be less than the amount stated on the face hereof.

            b) EXERCISE PRICE.  The exercise price per share of the Common Stock
      under this Warrant shall be $0.15,  subject to adjustment  hereunder  (the
      "EXERCISE PRICE").

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

            (A) = the VWAP on the Trading Day immediately  preceding the date of
                  such election;

            (B) = the Exercise Price of this Warrant, as adjusted; and

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

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

            d) Intentionally Omitted.


                                       2


            e) MECHANICS OF EXERCISE.

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

                        ii. DELIVERY OF CERTIFICATES UPON EXERCISE. Certificates
                  for shares  purchased  hereunder  shall be  transmitted by the
                  transfer  agent of the Company to the Holder by crediting  the
                  account of the Holder's prime broker with the Depository Trust
                  Company  through  its  Deposit   Withdrawal  Agent  Commission
                  ("DWAC")  system  if the  Company  is a  participant  in  such
                  system,  and  otherwise  by  physical  delivery to the address
                  specified  by the  Holder in the Notice of  Exercise  within 3
                  Trading Days from the delivery to the Company of the Notice of
                  Exercise  Form,  surrender of this Warrant (if  required)  and
                  payment of the  aggregate  Exercise  Price as set forth  above
                  ("WARRANT SHARE DELIVERY DATE").  This Warrant shall be deemed
                  to have  been  exercised  on the  date the  Exercise  Price is
                  received by the Company. The Warrant Shares shall be deemed to
                  have been issued, and Holder or any other person so designated
                  to be named therein shall be deemed to have become a holder of
                  record of such  shares  for all  purposes,  as of the date the
                  Warrant  has been  exercised  by payment to the Company of the
                  Exercise Price (or by cashless exercise, if permitted) and all
                  taxes required to be paid by the Holder,  if any,  pursuant to
                  Section  2(e)(vii) prior to the issuance of such shares,  have
                  been paid.

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

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

                        v.  COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
                  CERTIFICATES  UPON  EXERCISE.  In addition to any other rights
                  available  to the Holder,  if the  Company  fails to cause its
                  transfer  agent to  transmit  to the Holder a  certificate  or


                                       3


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

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

                        vii.   CHARGES,   TAXES  AND   EXPENSES.   Issuance   of
                  certificates  for Warrant  Shares shall be made without charge
                  to  the  Holder  for  any  issue  or  transfer  tax  or  other
                  incidental   expense  in  respect  of  the  issuance  of  such
                  certificate,  all of which taxes and expenses shall be paid by
                  the Company, and such certificates shall be issued in the name
                  of the Holder or in such name or names as may be  directed  by
                  the Holder; PROVIDED,  HOWEVER, that in the event certificates
                  for  Warrant  Shares are to be issued in a name other than the


                                       4


                  name of the Holder, this Warrant when surrendered for exercise
                  shall be accompanied by the  Assignment  Form attached  hereto
                  duly executed by the Holder; and the Company may require, as a
                  condition  thereto,   the  payment  of  a  sum  sufficient  to
                  reimburse it for any transfer tax incidental thereto.

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

      SECTION 3.  CERTAIN ADJUSTMENTS.

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

            b)  SUBSEQUENT  EQUITY  SALES.  If the  Company  or  any  Subsidiary
      thereof,  as  applicable,  at any time while this Warrant is  outstanding,
      shall sell or grant any option to  purchase  or sell or grant any right to
      reprice its securities,  or otherwise dispose of or issue (or announce any
      offer,  sale,  grant or any option to purchase or other  disposition)  any
      Common Stock or Common Stock  Equivalents  entitling any Person to acquire
      shares of Common Stock, at an effective price per share less than the then
      Exercise  Price  (such  lower  price,  the  "BASE  SHARE  PRICE"  and such
      issuances  collectively,  a  "DILUTIVE  ISSUANCE")  (if the  holder of the
      Common  Stock or Common  Stock  Equivalents  so issued  shall at any time,
      whether by  operation of purchase  price  adjustments,  reset  provisions,
      floating conversion,  exercise or exchange prices or otherwise,  or due to
      warrants,  options or rights per share which are issued in connection with
      such  issuance,  be  entitled  to  receive  shares of  Common  Stock at an
      effective  price per share  which is less than the  Exercise  Price,  such
      issuance shall be deemed to have occurred for less than the Exercise Price
      on such date of the Dilutive  Issuance),  then the Exercise Price shall be
      reduced  and only  reduced to equal the Base Share Price and the number of
      Warrant  Shares  issuable  hereunder  shall  be  increased  such  that the
      aggregate Exercise Price payable hereunder,  after taking into account the


                                       5


      decrease in the Exercise Price,  shall be equal to the aggregate  Exercise
      Price prior to such  adjustment.  Such  adjustment  shall be made whenever
      such Common Stock or Common Stock Equivalents are issued.  Notwithstanding
      the  foregoing,  no adjustments  shall be made,  paid or issued under this
      Section 3(b) in respect of an Exempt  Issuance.  The Company  shall notify
      the  Holder in  writing,  no later  than the  Trading  Day  following  the
      issuance of any Common Stock or Common Stock  Equivalents  subject to this
      section,  indicating therein the applicable  issuance price, or applicable
      reset price,  exchange  price,  conversion  price and other  pricing terms
      (such   notice  the   "DILUTIVE   ISSUANCE   NOTICE").   For  purposes  of
      clarification,  whether or not the  Company  provides a Dilutive  Issuance
      Notice  pursuant to this Section 3(b), upon the occurrence of any Dilutive
      Issuance,  after the date of such Dilutive Issuance the Holder is entitled
      to receive a number of  Warrant  Shares  based  upon the Base Share  Price
      regardless of whether the Holder accurately refers to the Base Share Price
      in the Notice of Exercise.

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

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


                                       6


            e)  FUNDAMENTAL  TRANSACTION.  If, at any time while this Warrant is
      outstanding,  (A) the Company effects any merger or  consolidation  of the
      Company with or into another  Person,  (B) the Company effects any sale of
      all or  substantially  all of its  assets  in one or a series  of  related
      transactions,  (C) any tender  offer or  exchange  offer  (whether  by the
      Company  or another  Person) is  completed  pursuant  to which  holders of
      Common Stock are  permitted  to tender or exchange  their shares for other
      securities,   cash  or   property,   or  (D)  the   Company   effects  any
      reclassification  of the Common  Stock or any  compulsory  share  exchange
      pursuant  to which  the  Common  Stock is  effectively  converted  into or
      exchanged  for other  securities,  cash or property  (in any such case,  a
      "FUNDAMENTAL  TRANSACTION"),  then,  upon any subsequent  exercise of this
      Warrant,  the Holder  shall have the right to  receive,  for each  Warrant
      Share that would have been issuable upon such exercise  immediately  prior
      to the occurrence of such  Fundamental  Transaction,  at the option of the
      Holder, (a) upon exercise of this Warrant,  the number of shares of Common
      Stock of the successor or acquiring  corporation or of the Company,  if it
      is the  surviving  corporation,  and  any  additional  consideration  (the
      "ALTERNATE  CONSIDERATION")  receivable  upon  or  as  a  result  of  such
      reorganization,  reclassification, merger, consolidation or disposition of
      assets by a Holder of the number of shares of Common  Stock for which this
      Warrant  is  exercisable  immediately  prior  to such  event or (b) if the
      Company is acquired in an all cash transaction, cash equal to the value of
      this Warrant as  determined in accordance  with the  Black-Scholes  option
      pricing formula.  For purposes of any such exercise,  the determination of
      the  Exercise  Price  shall  be  appropriately  adjusted  to apply to such
      Alternate  Consideration  based on the amount of  Alternate  Consideration
      issuable  in  respect  of one  share of Common  Stock in such  Fundamental
      Transaction,  and the Company shall apportion the Exercise Price among the
      Alternate  Consideration  in a reasonable  manner  reflecting the relative
      value of any  different  components  of the  Alternate  Consideration.  If
      holders of Common Stock are given any choice as to the securities, cash or
      property  to be  received in a  Fundamental  Transaction,  then the Holder
      shall be given  the  same  choice  as to the  Alternate  Consideration  it
      receives  upon any exercise of this  Warrant  following  such  Fundamental
      Transaction.   To  the  extent   necessary  to  effectuate  the  foregoing
      provisions,  any  successor  to the  Company or  surviving  entity in such
      Fundamental Transaction shall issue to the Holder a new warrant consistent
      with  the  foregoing  provisions  and  evidencing  the  Holder's  right to
      exercise  such  warrant  into  Alternate  Consideration.  The terms of any
      agreement  pursuant to which a Fundamental  Transaction  is effected shall
      include terms  requiring any such successor or surviving  entity to comply
      with the  provisions  of this Section 3(e) and insuring  that this Warrant
      (or any such  replacement  security)  will be similarly  adjusted upon any
      subsequent transaction analogous to a Fundamental Transaction.

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


                                       7


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

            h) NOTICE TO HOLDERS.

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

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


                                       8


                  entitled to exercise  this  Warrant  during the 20-day  period
                  commencing on the date of such notice to the effective date of
                  the event triggering such notice.

      SECTION 4.  TRANSFER OF WARRANT.

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

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

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

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


                                       9


      SECTION 5.  MISCELLANEOUS.

            a) NO RIGHTS AS SHAREHOLDER  UNTIL  EXERCISE.  This Warrant does not
      entitle the Holder to any voting  rights or other rights as a  shareholder
      of the  Company  prior to the  exercise  hereof  as set  forth in  Section
      2(e)(ii).

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

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

            d) AUTHORIZED SHARES.

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

                  Except  and to the  extent as waived  or  consented  to by the
            Holder,  the  Company  shall not by any action,  including,  without
            limitation, amending its certificate of incorporation or through any
            reorganization,   transfer   of   assets,   consolidation,   merger,
            dissolution,  issue or sale of  securities  or any  other  voluntary
            action,  avoid or seek to avoid the observance or performance of any
            of the terms of this  Warrant,  but will at all times in good  faith
            assist in the  carrying  out of all such  terms and in the taking of
            all such actions as may be necessary or  appropriate  to protect the


                                       10


            rights of Holder as set forth in this  Warrant  against  impairment.
            Without  limiting the generality of the foregoing,  the Company will
            (a) not  increase  the par  value of any  Warrant  Shares  above the
            amount payable therefor upon such exercise immediately prior to such
            increase in par value,  (b) take all such action as may be necessary
            or  appropriate  in order that the  Company  may validly and legally
            issue fully paid and nonassessable  Warrant Shares upon the exercise
            of this  Warrant,  and (c) use  commercially  reasonable  efforts to
            obtain all such  authorizations,  exemptions  or  consents  from any
            public  regulatory  body  having  jurisdiction  thereof  as  may  be
            necessary  to enable the  Company to perform its  obligations  under
            this Warrant.

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

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

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

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

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

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


                                       11


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

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

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

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

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


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


                                       12


            IN  WITNESS  WHEREOF,  the  Company  has caused  this  Warrant to be
executed by its officer thereunto duly authorized.


Dated:  September __, 2007

                                    HARTVILLE GROUP, INC.

                                    By:
                                        ----------------------------------------
                                        Name:
                                        Title:


                                       13


                               NOTICE OF EXERCISE

TO:   HARTVILLE GROUP, INC.

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

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

                  [  ] in lawful money of the United States; or

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

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

                    -------------------------------------------

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

                    -------------------------------------------

                    -------------------------------------------

                    -------------------------------------------

            (4)  ACCREDITED  INVESTOR.   The  undersigned  is  an  "accredited
investor" as defined in Regulation D promulgated  under the  Securities Act of
1933, as amended.

[SIGNATURE OF HOLDER]
- ------
Name of Investing Entity:
                          ------------------------------------------------------
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY:
                                                       -------------------------
Name of Authorized Signatory:
                              --------------------------------------------------
Title of Authorized Signatory:
                               -------------------------------------------------
Date:
      --------------------------------------------------------------------------




                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)


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


                                                whose address is
- -----------------------------------------------
                                                                .
- ---------------------------------------------------------------



- ---------------------------------------------------------------

                                          Dated:


                  Holder's Signature:
                                      -------------------------

                  Holder's Address:
                                     --------------------------

                                     --------------------------


Signature Guaranteed:
                      -----------------------------------------

NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
EX-99.27 5 ex9927to13da506717003_091707.htm sec document 

                                                                   Exhibit 99.27


                                                                       EXHIBIT B


                          REGISTRATION RIGHTS AGREEMENT

      This Registration  Rights Agreement (this "AGREEMENT") is made and entered
into as of September 17, 2007, among Hartville Group, Inc., a Nevada corporation
(the  "COMPANY"),  and  the  several  purchasers  signatory  hereto  (each  such
purchaser is a "PURCHASER" and collectively, the "PURCHASERS").

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

      The Company and each Purchaser hereby agrees as follows:

      1.    DEFINITIONS

      CAPITALIZED  TERMS USED AND NOT OTHERWISE  DEFINED HEREIN THAT ARE DEFINED
IN THE  PURCHASE  AGREEMENT  SHALL  HAVE THE  MEANINGS  GIVEN  SUCH TERMS IN THE
PURCHASE  AGREEMENT.  As used in this Agreement,  the following terms shall have
the following meanings:

            "ADVICE" shall have the meaning set forth in Section 6(d).

            "EFFECTIVENESS DATE" means, with respect to the initial Registration
      Statement required to be filed hereunder,  the 90th calendar day following
      the Filing Date (the 120th  calendar day in the case of a "full review" by
      the Commission of the initial Registration Statement) and, with respect to
      any additional  Registration  Statements which may be required pursuant to
      Section  3(c),  the 90th  calendar  day  following  the date on which  the
      Company first knows, or reasonably should have known, that such additional
      Registration  Statement is required hereunder;  PROVIDED,  HOWEVER, in the
      event the  Company is  notified  by the  Commission  that one of the above
      Registration  Statements  will not be reviewed or is no longer  subject to
      further  review  and  comments,   the   Effectiveness   Date  as  to  such
      Registration  Statement  shall be the fifth Trading Day following the date
      on which  the  Company  is so  notified  if such date  precedes  the dates
      required above.

            "EFFECTIVENESS  PERIOD"  shall have the meaning set forth in Section
      2(a).

            "EVENT" shall have the meaning set forth in Section 2(b).

            "EVENT DATE" shall have the meaning set forth in Section 2(b).

            "FILING  DATE"  means,  with  respect  to the  initial  Registration
      Statement required  hereunder,  the later of (a) 45 days following written
      demand  from  Holders  holding  at  least  50%  of  the  then  outstanding
      Registrable  Securities and (b) 15 days following the date of the earliest
      periodic  filing of an SEC Report  following  written  demand from Holders
      holding at least 50% of the then outstanding  Registrable  Securities and,
      with  respect  to any  additional  Registration  Statements  which  may be


                                       1


      required  pursuant to Section  3(c),  the 45th day  following  the date on
      which the Company first knows,  or reasonably  should have known that such
      additional Registration Statement is required hereunder.

            "HOLDER" or "HOLDERS"  means the holder or holders,  as the case may
      be, from time to time of Registrable Securities.

            "INDEMNIFIED  PARTY"  shall  have the  meaning  set forth in Section
      5(c).

            "INDEMNIFYING  PARTY"  shall have the  meaning  set forth in Section
      5(c).

            "LOSSES" shall have the meaning set forth in Section 5(a).

            "PLAN OF  DISTRIBUTION"  shall have the meaning set forth in Section
      2(a).

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

            "REGISTRABLE SECURITIES" means (i) all of the shares of Common Stock
      issuable  upon  conversion  in full of the  Debentures,  (ii) all  Warrant
      Shares,  (iii) any  additional  shares  issuable  in  connection  with any
      anti-dilution  provisions in the Debentures or the Warrants (in each case,
      without  giving effect to any  limitations  on conversion set forth in the
      Debenture  or  limitations  on exercise set forth in the Warrant) and (iv)
      any securities issued or issuable upon any stock split,  dividend or other
      distribution,  recapitalization  or  similar  event  with  respect  to the
      foregoing. "Registrable Securities" shall not include any securities which
      are prohibited  from being  registered  for resale  pursuant to Commission
      Telephone  Interpretation H.76 or any subsequent policy pronouncement from
      the Commission.

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

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


                                       2


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

            "SELLING SHAREHOLDER QUESTIONNAIRE" shall have the meaning set forth
      in Section 3(a).

      2.    SHELF REGISTRATION

            (a) On or prior to each Filing Date,  the Company  shall prepare and
      file with the  Commission a "Shelf"  Registration  Statement  covering the
      resale of 100% of the  Registrable  Securities  on such Filing Date for an
      offering  to be made on a  continuous  basis  pursuant  to Rule  415.  The
      Registration  Statement  shall be on Form S-1 or SB-2  and  shall  contain
      (unless otherwise  directed by at least an 85% majority in interest of the
      Holders) substantially the "PLAN OF DISTRIBUTION" attached hereto as ANNEX
      A. Subject to the terms of this Agreement,  the Company shall use its best
      efforts to cause a Registration  Statement to be declared  effective under
      the Securities Act as promptly as possible after the filing  thereof,  but
      in any event prior to the applicable Effectiveness Date, and shall use its
      best efforts to keep such Registration  Statement  continuously  effective
      under the Securities Act until all Registrable  Securities covered by such
      Registration  Statement  have been  sold,  or may be sold  without  volume
      restrictions  pursuant to Rule 144(k), as determined by the counsel to the
      Company pursuant to a written opinion letter to such effect, addressed and
      acceptable to the Company's  transfer agent and the affected  Holders (the
      "EFFECTIVENESS   PERIOD").   The  Company  shall  telephonically   request
      effectiveness of a Registration  Statement as of 5:00 pm Eastern Time on a
      Trading  Day.  The  Company  shall  immediately  notify  the  Holders  via
      facsimile of the  effectiveness  of a  Registration  Statement on the same
      Trading Day that the Company  telephonically  confirms  effectiveness with
      the Commission,  which shall be the date requested for  effectiveness of a
      Registration Statement.  The Company shall, by 9:30 am Eastern Time on the
      Trading  Day  after  the  Effective  Date  (as  defined  in  the  Purchase
      Agreement),  file a final  Prospectus  with the  Commission as required by
      Rule 424.  Failure to so notify the  Holder  within 1 Trading  Day of such
      notification of  effectiveness  or failure to file a final Prospectus as a
      foresaid shall be deemed an Event under Section 2(b).

            (b) If: (i) a Registration Statement is not filed on or prior to its
      Filing  Date  (if the  Company  files  a  Registration  Statement  without
      affording the Holders the opportunity to review and comment on the same as
      required  by  Section  3(a),  the  Company  shall  not be  deemed  to have
      satisfied  this clause  (i)),  or (ii) the Company  fails to file with the
      Commission  a  request  for  acceleration  in  accordance  with  Rule  461
      promulgated under the Securities Act, within five Trading Days of the date
      that the Company is notified (orally or in writing,  whichever is earlier)
      by the Commission that a Registration Statement will not be "reviewed," or
      not subject to further review, or (iii) a Registration  Statement filed or


                                       3


      required to be filed hereunder is not declared effective by the Commission
      by its  Effectiveness  Date,  or (iv)  after  the  Effectiveness  Date,  a
      Registration  Statement  ceases  for any  reason  to  remain  continuously
      effective as to all Registrable  Securities for which it is required to be
      effective,  or the  Holders are  otherwise  not  permitted  to utilize the
      Prospectus therein to resell such Registrable  Securities for more than 15
      consecutive  calendar  days or more than an aggregate of 30 calendar  days
      during any 12-month  period (which need not be consecutive  calendar days)
      (any such  failure or breach  being  referred  to as an  "EVENT",  and for
      purposes  of clause (i) or (iii) the date on which such Event  occurs,  or
      for purposes of clause (ii) the date on which such five Trading Day period
      is  exceeded,  or for purposes of clause (iv) the date on which such 15 or
      30 calendar day period,  as  applicable,  is exceeded being referred to as
      "EVENT  DATE"),  then in addition to any other rights the Holders may have
      hereunder  or under  applicable  law,  on each such Event Date and on each
      monthly anniversary of each such Event Date (if the applicable Event shall
      not have been cured by such date) until the applicable Event is cured, the
      Company shall pay to each Holder an amount in cash, as partial  liquidated
      damages  and not as a  penalty,  equal to 1.5% of the  aggregate  purchase
      price paid by such  Holder  pursuant  to the  Purchase  Agreement  for any
      Registrable  Securities then held by such Holder,  subject to an aggregate
      maximum of 18%. Such  liquidated  damages shall not be payable for failure
      to obtain  effectiveness by the  Effectiveness  Date if, and only if, such
      failure  occurs  (A)  due  to  the  request  of the  Commission  that  the
      Registration  Statement contain a subsequent quarterly or annual financial
      statement  of the  Company  and  related  information,  or (B) despite the
      Company  responding to each comment letter issued by the Commission within
      20 Trading Days of receipt by the Company. If the Company fails to pay any
      partial  liquidated  damages pursuant to this Section in full within seven
      days after the date  payable,  the Company will pay interest  thereon at a
      rate of 18% per annum (or such lesser  maximum amount that is permitted to
      be paid by  applicable  law) to the Holder,  accruing  daily from the date
      such partial liquidated damages are due until such amounts,  plus all such
      interest  thereon,  are  paid in  full.  The  partial  liquidated  damages
      pursuant to the terms hereof shall apply on a daily pro-rata basis for any
      portion of a month prior to the cure of an Event.

      3.    REGISTRATION PROCEDURES.

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

            (a) Not less  than five  Trading  Days  prior to the  filing of each
      Registration  Statement  and not less  than one  Trading  Day prior to the
      filing of any related  Prospectus or any  amendment or supplement  thereto
      (including  any  document  that  would be  incorporated  or  deemed  to be
      incorporated therein by reference), the Company shall, (i) furnish to each
      Holder copies of all such documents  proposed to be filed, which documents
      (other than those  incorporated or deemed to be incorporated by reference)
      will be subject to the review of such Holders, and (ii) cause its officers
      and directors,  counsel and independent  certified  public  accountants to
      respond to such inquiries as shall be necessary, in the reasonable opinion
      of respective counsel to each Holder to conduct a reasonable investigation
      within the meaning of the  Securities  Act.  The Company  shall not file a


                                       4


      Registration  Statement  or  any  such  Prospectus  or any  amendments  or
      supplements  thereto to which the Holders of a majority of the Registrable
      Securities  shall  reasonably  object in good faith,  provided  that,  the
      Company is notified of such  objection  in writing no later than 5 Trading
      Days after the Holders  have been so  furnished  copies of a  Registration
      Statement or 1 Trading Day after the Holders have been so furnished copies
      of any related  Prospectus  or  amendments or  supplements  thereto.  Each
      Holder agrees to furnish to the Company a completed  Questionnaire  in the
      form  attached  to  this  Agreement  as  Annex B (a  "SELLING  SHAREHOLDER
      QUESTIONNAIRE") not less than two Trading Days prior to the Filing Date or
      by the end of the  fourth  Trading  Day  following  the date on which such
      Holder receives draft materials in accordance with this Section.

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

            (c) If during the  Effectiveness  Period,  the number of Registrable
      Securities  at any time  exceeds  100% of the  number  of shares of Common
      Stock then registered in a Registration Statement,  then the Company shall
      file  as soon as  reasonably  practicable  but in any  case  prior  to the
      applicable Filing Date, an additional  Registration Statement covering the
      resale  by the  Holders  of not  less  than  100%  of the  number  of such
      Registrable Securities.

            (d) Notify the Holders of  Registrable  Securities to be sold (which
      notice  shall,   pursuant  to  clauses  (iii)  through  (vi)  hereof,   be
      accompanied by an  instruction to suspend the use of the Prospectus  until
      the requisite  changes have been made) as promptly as reasonably  possible
      (and, in the case of (i)(A) below,  not less than one Trading Day prior to
      such filing) and (if requested by any such Person)  confirm such notice in
      writing no later than one  Trading  Day  following  the day (i)(A)  when a
      Prospectus or any Prospectus  supplement or post-effective  amendment to a
      Registration  Statement is proposed to be filed;  (B) when the  Commission


                                       5


      notifies the Company whether there will be a "review" of such Registration
      Statement  and  whenever  the  Commission  comments  in  writing  on  such
      Registration  Statement;  and (C) with respect to a Registration Statement
      or any post-effective  amendment, when the same has become effective; (ii)
      of  any  request  by  the   Commission  or  any  other  Federal  or  state
      governmental  authority for  amendments or  supplements  to a Registration
      Statement  or  Prospectus  or for  additional  information;  (iii)  of the
      issuance  by the  Commission  or any other  federal or state  governmental
      authority of any stop order suspending the effectiveness of a Registration
      Statement  covering  any  or  all of  the  Registrable  Securities  or the
      initiation of any Proceedings for that purpose; (iv) of the receipt by the
      Company  of  any  notification  with  respect  to  the  suspension  of the
      qualification  or exemption from  qualification  of any of the Registrable
      Securities for sale in any jurisdiction,  or the initiation or threatening
      of any Proceeding for such purpose;  (v) of the occurrence of any event or
      passage  of  time  that  makes  the  financial  statements  included  in a
      Registration  Statement  ineligible for inclusion therein or any statement
      made  in  a   Registration   Statement  or   Prospectus  or  any  document
      incorporated or deemed to be incorporated  therein by reference  untrue in
      any  material  respect or that  requires any  revisions to a  Registration
      Statement,  Prospectus  or  other  documents  so  that,  in the  case of a
      Registration Statement or the Prospectus,  as the case may be, it will not
      contain  any  untrue  statement  of a  material  fact or omit to state any
      material  fact  required  to be stated  therein or  necessary  to make the
      statements  therein,  in light of the circumstances  under which they were
      made, not misleading;  and (vi) the occurrence or existence of any pending
      corporate  development  with  respect  to the  Company  that  the  Company
      believes may be material and that,  in the  determination  of the Company,
      makes it not in the  best  interest  of the  Company  to  allow  continued
      availability of a Registration Statement or Prospectus;  provided that any
      and all of such information shall remain confidential to each Holder until
      such information  otherwise becomes public,  unless disclosure by a Holder
      is required  by law;  PROVIDED,  FURTHER,  notwithstanding  each  Holder's
      agreement  to keep such  information  confidential,  the  Holders  make no
      acknowledgement   that  any  such  information  is  material,   non-public
      information.

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

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

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


                                       6


            (h) If NASDR Rule 2710 requires any  broker-dealer  to make a filing
      prior to  executing  a sale by a  Holder,  the  Company  shall (i) make an
      Issuer Filing with the NASDR, Inc. Corporate Financing Department pursuant
      to proposed NASDR Rule 2710(b)(10)(A)(i), (ii) respond within five Trading
      Days to any comments  received from NASDR in connection  therewith,  (iii)
      and pay the filing fee required in connection therewith.

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

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

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


                                       7


      exercise its right under this Section 3(k) to suspend the  availability of
      a Registration Statement and Prospectus, subject to the payment of partial
      liquidated damages pursuant to Section 2(b), for a period not to exceed 60
      calendar days (which need not be consecutive days) in any 12 month period.

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

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

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


                                       8


      5.    INDEMNIFICATION

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

            (b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
      jointly, indemnify and hold harmless the Company, its directors, officers,
      agents and  employees,  each Person who controls  the Company  (within the
      meaning of Section 15 of the Securities Act and Section 20 of the Exchange
      Act), and the directors, officers, agents or employees of such controlling
      Persons,  to the fullest  extent  permitted by  applicable  law,  from and
      against all Losses,  as  incurred,  to the extent  arising out of or based
      solely  upon:  (x) such  Holder's  failure to comply  with the  prospectus
      delivery  requirements  of the Securities Act or (y) any untrue or alleged


                                       9


      untrue  statement  of  a  material  fact  contained  in  any  Registration
      Statement, any Prospectus,  or any form of prospectus, or in any amendment
      or supplement thereto or in any preliminary prospectus,  or arising out of
      or  relating  to any  omission  or alleged  omission  of a  material  fact
      required to be stated therein or necessary to make the statements  therein
      not misleading (i) to the extent, but only to the extent, that such untrue
      statement  or omission is  contained  in any  information  so furnished in
      writing by such Holder to the Company  specifically  for inclusion in such
      Registration  Statement or such Prospectus or (ii) to the extent that such
      information  relates to such Holder's  proposed  method of distribution of
      Registrable  Securities and was reviewed and expressly approved in writing
      by such Holder  expressly  for use in a  Registration  Statement (it being
      understood  that the Holder has approved Annex A hereto for this purpose),
      such  Prospectus  or  such  form  of  Prospectus  or in any  amendment  or
      supplement thereto or (ii) in the case of an occurrence of an event of the
      type  specified  in Section  3(d)(iii)-(vi),  the use by such Holder of an
      outdated or  defective  Prospectus  after the Company  has  notified  such
      Holder in writing that the  Prospectus  is outdated or defective and prior
      to the receipt by such Holder of the Advice  contemplated in Section 6(d).
      In no event shall the liability of any selling Holder hereunder be greater
      in amount  than the dollar  amount of the net  proceeds  received  by such
      Holder  upon the sale of the  Registrable  Securities  giving rise to such
      indemnification obligation.

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

            An Indemnified Party shall have the right to employ separate counsel
      in any such Proceeding and to participate in the defense thereof,  but the
      fees  and  expenses  of  such  counsel  shall  be at the  expense  of such
      Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
      in writing to pay such fees and expenses; (2) the Indemnifying Party shall
      have  failed  promptly  to assume the  defense of such  Proceeding  and to
      employ counsel  reasonably  satisfactory to such Indemnified  Party in any
      such  Proceeding;  or  (3)  the  named  parties  to  any  such  Proceeding
      (including any impleaded  parties) include both such Indemnified Party and
      the  Indemnifying  Party,  and  counsel  to the  Indemnified  Party  shall
      reasonably believe that a material conflict of interest is likely to exist
      if the same  counsel  were to  represent  such  Indemnified  Party and the
      Indemnifying  Party (in which case, if such Indemnified Party notifies the
      Indemnifying Party in writing that it elects to employ separate counsel at
      the expense of the Indemnifying  Party,  the Indemnifying  Party shall not
      have the right to assume the defense  thereof and the reasonable  fees and
      expenses of no more than one separate  counsel  shall be at the expense of


                                       10


      the Indemnifying  Party).  The Indemnifying  Party shall not be liable for
      any  settlement  of any  such  Proceeding  effected  without  its  written
      consent,  which consent shall not be unreasonably  withheld or delayed. No
      Indemnifying  Party  shall,  without  the  prior  written  consent  of the
      Indemnified  Party,  effect any  settlement  of any pending  Proceeding in
      respect of which any Indemnified Party is a party,  unless such settlement
      includes  an  unconditional  release  of such  Indemnified  Party from all
      liability on claims that are the subject matter of such Proceeding.

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

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

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


                                       11


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

      6.    MISCELLANEOUS

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

      (b) NO PIGGYBACK ON  REGISTRATIONS.  Except as set forth on SCHEDULE  6(B)
attached hereto, neither the Company nor any of its security holders (other than
the Holders in such  capacity  pursuant  hereto) may include  securities  of the
Company  in the  initial  Registration  Statement  other  than  the  Registrable
Securities.  The Company shall not file any other registration  statements until
the initial  Registration  Statement required hereunder is declared effective by
the  Commission,  provided that this Section 6(b) shall not prohibit the Company
from filing amendments to registration statements already filed.

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

      (d)  DISCONTINUED  DISPOSITION.  Each Holder agrees by its  acquisition of
Registrable  Securities  that,  upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(d)(iii) through (vi),
such  Holder  will  forthwith   discontinue   disposition  of  such  Registrable
Securities  under a Registration  Statement  until it is advised in writing (the
"ADVICE") by the Company that the use of the  applicable  Prospectus  (as it may
have been supplemented or amended) may be resumed. The Company will use its best
efforts to ensure that the use of the  Prospectus  may be resumed as promptly as
it  practicable.  The Company  agrees and  acknowledges  that any periods during
which the Holder is required to discontinue  the  disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section 2(b).

      (e)  PIGGY-BACK  REGISTRATIONS.  If at any time  during the  Effectiveness
Period  there is not an  effective  Registration  Statement  covering all of the
Registrable  Securities and the Company shall determine to prepare and file with
the  Commission  a  registration  statement  relating to an offering for its own
account or the account of others under the  Securities  Act of any of its equity
securities,  other than on Form S-4 or Form S-8 (each as  promulgated  under the
Securities Act) or their then  equivalents  relating to equity  securities to be
issued solely in connection  with any  acquisition  of any entity or business or
equity securities issuable in connection with the stock option or other employee


                                       12


benefit  plans,  then the Company shall send to each Holder a written  notice of
such  determination  and, if within  fifteen days after the date of such notice,
any such Holder shall so request in writing,  the Company  shall include in such
registration  statement  all or any  part of such  Registrable  Securities  such
Holder requests to be registered; PROVIDED, HOWEVER, that, the Company shall not
be required to register any Registrable Securities pursuant to this Section 6(e)
that are  eligible  for resale  pursuant  to Rule 144(k)  promulgated  under the
Securities  Act  or  that  are  the  subject  of a then  effective  Registration
Statement.

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

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

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

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

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


                                       13


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

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

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

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

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

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


                                       14


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

                                      HARTVILLE GROUP, INC.

                                      By:
                                          --------------------------------------
                                          Name:
                                          Title:



                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]


                                       15


                     [SIGNATURE PAGE OF HOLDERS TO HTVL RRA]

Name of Holder: ___Islandia, L.P._______________________

SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: __________________________

Name of Authorized Signatory: __Edgar R. Berner_______________________

Title of Authorized Signatory: Vice-President of John Lang, Inc., G.P._____________________


                             [SIGNATURE PAGES CONTINUE]


                                       16


                              PLAN OF DISTRIBUTION

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

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

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

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

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

         o  privately negotiated transactions;

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

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

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

         o  a combination of any such methods of sale; or

         o  any other method permitted pursuant to applicable law.

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

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


                                       17


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

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

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

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

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

      Under applicable rules and regulations  under the Exchange Act, any person
engaged in the distribution of the resale shares may not  simultaneously  engage
in market making  activities with respect to the common stock for the applicable
restricted  period, as defined in Regulation M, prior to the commencement of the


                                       18


distribution.   In  addition,  the  Selling  Stockholders  will  be  subject  to
applicable  provisions  of the  Exchange  Act  and  the  rules  and  regulations
thereunder,  including Regulation M, which may limit the timing of purchases and
sales of shares of the common  stock by the  Selling  Stockholders  or any other
person.  We  will  make  copies  of this  prospectus  available  to the  Selling
Stockholders  and  have  informed  them of the  need to  deliver  a copy of this
prospectus to each  purchaser at or prior to the time of the sale  (including by
compliance with Rule 172 under the Securities Act).


                                       19


                                                                         ANNEX B

                              HARTVILLE GROUP, INC.

                 SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE

      The undersigned  beneficial owner of common stock (the "COMMON STOCK"), of
Hartville Group, Inc., a Nevada  corporation (the "COMPANY"),  (the "REGISTRABLE
SECURITIES")  understands that the Company has filed or intends to file with the
Securities and Exchange  Commission (the "COMMISSION") a registration  statement
on Form S-1 or SB-2 (the  "REGISTRATION  STATEMENT")  for the  registration  and
resale under Rule 415 of the Securities Act of 1933, as amended (the "SECURITIES
ACT"),  of the  Registrable  Securities,  in  accordance  with the  terms of the
Registration Rights Agreement, dated as of September __, 2007 (the "REGISTRATION
RIGHTS  AGREEMENT"),  among the Company and the Purchasers named therein. A copy
of the Registration  Rights Agreement is available from the Company upon request
at the address set forth below.  All  capitalized  terms not  otherwise  defined
herein  shall have the  meanings  ascribed  thereto in the  Registration  Rights
Agreement.

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

                                     NOTICE

      The  undersigned  beneficial  owner  (the  "SELLING   SECURITYHOLDER")  of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise  specified under such Item 3)
in the Registration Statement.


                                       20


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

                                  QUESTIONNAIRE

1.    NAME.

      (a)   Full Legal Name of Selling Securityholder

                                Islandia, L.P.
            --------------------------------------------------------------------

      (b)   Full Legal Name of Registered  Holder (if not the same as (a) above)
            through  which  Registrable  Securities  Listed  in Item 3 below are
            held:

            --------------------------------------------------------------------

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

            Officers of John Lang,  Inc. - Richard O. Berner;  Edgar R. Berner;
            Thomas R. Berner
            --------------------------------------------------------------------

2.    ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:

Islandia, L.P
- --------------------------------------------------------------------------------
485 Madison Avenue  23rd Floor
- --------------------------------------------------------------------------------
New York, NY 10022
- --------------------------------------------------------------------------------
Telephone:   (212) 584-2100
- --------------------------------------------------------------------------------
Fax:   (212) 584-2199
- --------------------------------------------------------------------------------
Contact Person: Richard O. Berner/Linda Liguori
- --------------------------------------------------------------------------------

3.    BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:

      (a)   Type and Principal  Amount of  Registrable  Securities  beneficially
            owned (not including the  Registrable  Securities  that are issuable
            pursuant to the Purchase Agreement):

            -------------------------------------------------------------------

            -------------------------------------------------------------------

            -------------------------------------------------------------------


                                       21


4.    BROKER-DEALER STATUS:

      (a)   Are you a broker-dealer?

                              Yes / /      No /X/

      (b)   If  "yes"  to  Section  4(a),  did  you  receive  your   Registrable
            Securities as compensation  for investment  banking  services to the
            Company.

                              Yes / /      No / /

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

      (c)   Are you an affiliate of a broker-dealer?

                              Yes / /      No /X/

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

                                     Yes No

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

5.    BENEFICIAL  OWNERSHIP  OF OTHER  SECURITIES  OF THE  COMPANY  OWNED BY THE
      SELLING SECURITYHOLDER.

      EXCEPT  AS SET  FORTH  BELOW IN THIS  ITEM 5, THE  UNDERSIGNED  IS NOT THE
      BENEFICIAL OR REGISTERED OWNER OF ANY SECURITIES OF THE COMPANY OTHER THAN
      THE REGISTRABLE SECURITIES LISTED ABOVE IN ITEM 3.

      (a)   Type  and  Amount  of  Other  Securities  beneficially  owned by the
            Selling Securityholder:

            Common Stock - 17,430,867 Shares; Warrants issued 11/26/04
            888,284; Warrants issued 7/31/06 25,316,456; Warrants issued
            9/30/05 999,221.73;
            -------------------------------------------------------------------
            Warrants issued 2/14/07 8,438,819; Warrants issued 5/8/07
            8,438,819;
            -------------------------------------------------------------------
            Convertible Debenture due 07/09 $2,531,645.57 face; Convertible
            Debenture due 02/10 $1,265,822.75 face; Convertible Debenture due
            05/10 $1,265,822.75 face


                                       22


6.    RELATIONSHIPS WITH THE COMPANY:

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

      State any exceptions here:

      -------------------------------------------------------------------------

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

      By signing  below,  the  undersigned  consents  to the  disclosure  of the
information  contained  herein  in its  answers  to  Items 1  through  6 and the
inclusion of such  information  in the  Registration  Statement  and the related
prospectus  and  any  amendments  or  supplements   thereto.   The   undersigned
understands  that  such  information  will  be  relied  upon by the  Company  in
connection with the preparation or amendment of the  Registration  Statement and
the related prospectus.

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

Dated:                              Beneficial Owner: Islandia, L.P.
       -----------------------                                      ------------

                                    By:
                                       -----------------------------------------
                                       Name: Edgar R. Berner
                                       Title: Vice-President of John Lang, Inc., G.P.

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