On December 17, 2007, the Company entered into a definitive agreement (the “Securities Purchase Agreement”) to sell $2,033,423 of its 8% Secured Convertible Debentures (the “Debentures”) to institutional and private investors (collectively, the “Investors” or “Holders”). The Debentures bear interest at the rate of 8% per annum and mature on December 17, 2009 (the “Maturity Date”). The Company shall pay interest to the holders of the Debentures quarterly on each of January 1, April 1, July 1, and October 1 of each year prior to the Maturity Date of the Debentures. The Debentures are also convertible into shares of the Company’s common stock at a conversion price of $0.064 per share, subject to adjustment in accordance with terms of the Debentures. Any voluntary conversion by the Investors of the Debentures is subject to a Beneficial Ownership Limitation (as defined in the Debentures). In addition, the Debentures are subject to a forced conversion (the “Forced Conversion”) in all or in part by the Company in the event that the daily volume weighted average stock price of the Company’s common stock for any twenty (20) consecutive trading days exceeds $0.256. The Debentures are secured by all of the assets of the Company pursuant to a Security Agreement. In connection with the Debentures, the Company issued warrants to certain investors that have substantially the same terms and conditions and give the respective Holders the right to purchase a total of 12,500,000 and 7,500,000 shares of the Company’s common stock, respectively, at an exercise price of $0.15 per share for a period of five (5) years. The Company also issued 664,063 shares, 1,614,062 shares and 1,614,063 shares of its Series B Convertible Preferred Stock, respectively, to William J. Loughman, its Chief Executive Officer, and Michael Criden and Glenn Singer, former directors of the Company, in consideration for the cancellation of debt owed by the Company to each of these individuals. In connection with the issuance of these shares of Convertible Preferred Stock, the Company also issued warrants to purchase 531,250; 1,291,250; and 1,291,250 shares of the Company's common stock, respectively, to each of Messrs. Loughman, Criden and Singer. These warrants have an exercise price of $0.15 per share and are exercisable for a period of five (5) years. The Company is obligated to file a registration statement with the Securities and Exchange Commission within 45 days of December 17, 2007, which registration statement will include the common stock underlying the Debentures. The registration statement must be declared effective within 120 days from December 17, 2007. The securities offered in the private placement have not been registered under the Securities Act of 1933, as amended and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company is obligated to register the resale of the shares of common stock issuable upon conversion of the Debentures and exercise of the Warrants. These securities were issued as restricted shares to an aggregate of 31 accredited investors in a private placement pursuant to an exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
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