DAUGHERTY RESOURCES INC
EX-10.1 SECURITIES PURCHASE AGREEMENT 12/31/03
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>l04854aexv10w1.txt
<DESCRIPTION>EX-10.1 SECURITIES PURCHASE AGREEMENT 12/31/03
<TEXT>
<PAGE>



                                                                    EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT



         This Securities Purchase Agreement (this "AGREEMENT") is dated as of
December 31, 2003, among Daugherty Resources, Inc., a corporation organized
under the laws of British Columbia, Canada (the "COMPANY"), and the purchasers
identified on the signature pages hereto (each a "PURCHASER" and collectively
the "PURCHASERS"); and

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company in the aggregate, up to 1,400,000 shares of the
Company's Common Stock and certain Warrants, 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 agrees
as follows:


                                   DEFINITIONS

         DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

              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. With respect to a Purchaser, any investment
         fund or managed account that is managed on a discretionary basis by the
         same investment manager as such Purchaser will be deemed to be an
         Affiliate of such Purchaser.

                  "BUSINESS DAY" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday or a 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
         Common Stock and Warrants pursuant to Section 2.1(a).

                  "CLOSING DATE" means the date of the Closing.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the common stock of the Company, no par
         value per share, and any securities into which such common stock may
         hereafter be reclassified.

                  "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 exchangeable for, or otherwise entitles
         the holder thereof to receive, Common Stock.

                  "COMPANY COUNSEL" means Stahl & Zelmanovitz, counsel to the
         Company.

                  "DISCLOSURE SCHEDULES" means the Disclosure Schedules
         concurrently delivered herewith.
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                  "EFFECTIVE DATE" means the date that the Registration
         Statement is first declared effective by the Commission.


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

                  "FW" means Feldman Weinstein LLP with offices located at 420
         Lexington Avenue, New York, New York 10170-0002.

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

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

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

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

                  "PER SHARE PURCHASE PRICE" equals $4.50.

                  "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.

                  "REGISTRATION STATEMENT" means a registration statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale by the Purchasers of the Shares and the Warrant
         Shares.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
         Agreement, dated as of the date of this Agreement, among the Company
         and each Purchaser, in the form of EXHIBIT B hereto.

                  "RULE 144," means Rule 144 promulgated by the Commission
         pursuant to the Securities Act, as such Rules 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 Shares, the Warrants and the Warrant
         Shares.

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

                  "SHARES" means the shares of Common Stock issued or issuable
         to each Purchaser pursuant to this Agreement.

                  "SUBSCRIPTION AMOUNT" means, as to each Purchaser and the
         Closing, the amounts set forth below such Purchaser's signature block
         on the signature page hereto, in United States dollars and in
         immediately available funds.

                  "SUBSIDIARY" shall have the meaning ascribed to such term in
         Section 3.1(a).

                  "TRADING DAY" means (i) a day on which the Common Stock is
         traded on a Trading Market, or (ii) if the Common Stock is not listed
         on a Trading Market, a day on which the Common Stock is traded on the
         over-the-counter market, as reported by the OTC Bulletin Board, or
         (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a
         day on which the Common Stock is quoted in the over-the-counter market
         as reported by the National Quotation Bureau Incorporated (or any
         similar organization or agency succeeding its functions of reporting
         prices); provided, that in the event that the Common Stock is not
         listed or quoted as set forth in (i), (ii) and (iii) hereof, then
         Trading Day shall mean a Business Day.

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

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

                  "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the Trading Market on which the Common Stock is then listed or
         quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
         from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
         Common Stock is not then listed or quoted on the Trading Market and if
         prices for the Common Stock are then quoted on the OTC Bulletin Board,
         the volume weighted average price of the Common Stock for such date (or
         the nearest preceding date) on the OTC Bulletin Board; (c) if the
         Common Stock is not then listed or quoted on the OTC Bulletin Board and
         if prices for the Common Stock are then reported in the "Pink Sheets"
         published by the National Quotation Bureau Incorporated (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 the Common Stock Purchase Warrants, in the
         form of EXHIBIT C, issuable to the Purchasers at the Closing, with a
         term of exercise of 3 years beginning immediately upon issuance and an
         exercise price equal to $5.65, subject to adjustment therein.

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


                                PURCHASE AND SALE

         2.1 CLOSING. At the Closing, the Purchasers shall purchase, severally
and not jointly, and the Company shall issue and sell, in the aggregate, up to
1,100,000 shares of Common Stock, together with the Warrants. Each Purchaser
shall purchase from the Company, and the Company shall issue and sell to each
Purchaser, (a) a number of Shares equal to such Purchaser's Subscription Amount
divided by the Per Share Purchase Price and (b) the Warrants as determined
pursuant to Section 2.2(a). Upon satisfaction of the conditions set forth in
Section 2.2, the Closing shall occur at the offices of FW, or such other
location as the parties shall mutually agree.

         2.2 CLOSING CONDITIONS.

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

                           (i)   this Agreement duly executed by the Company;

                           (ii)  a copy of the irrevocable instructions to the
                  Company's transfer agent instructing the transfer agent to
                  deliver, on an expedited basis, a certificate evidencing a
                  number of Shares equal to such Purchaser's Subscription Amount
                  divided by the Per Share Purchase Price, registered in the
                  name of such Purchaser;

                           (iii) a legal opinion of Company Counsel, in the form
                  of EXHIBIT A hereto, addressed to the Purchasers;

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

                           (v)   a copy of an executed Warrant, registered in
                  the name of such Purchaser, pursuant to which such Purchaser
                  shall have the right to acquire up to the number of shares of
                  Common Stock equal to 30% of the Shares to be issued to such
                  Purchaser at the Closing.

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

                           (i) this Agreement duly executed by such;

                           (ii) such Purchaser's Subscription Amount as to such
                  Closing by wire transfer to the account of the Company; and

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

                  (c) All representations and warranties of the other party
         contained herein shall remain true and correct as of the Closing Date.

                  (d) As of the Closing Date, there shall have been no Material
         Adverse Effect with respect to the Company since the date hereof.

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


                         REPRESENTATIONS AND WARRANTIES

         3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the Disclosure Schedules or the SEC Reports,
the Company hereby makes the following representations and warranties as of the
date hereof and as of the Closing Date to each Purchaser:

                  (a) SUBSIDIARIES. The Company has no direct or indirect
         subsidiaries. The Company owns, directly or indirectly, all of the
         capital stock of each Subsidiary free and clear of any lien, charge,
         security interest, encumbrance, right of first refusal or other
         restriction (collectively, "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.
         If the Company has no subsidiaries, then references in the Transaction
         Documents to the Subsidiaries will be disregarded.

                  (b) $ ORGANIZATION AND QUALIFICATION. Each of the Company and
         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 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, would 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 or financial condition of the Company and the Subsidiaries,
         taken as a whole, or (iii) adversely impair 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").

                  (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

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         otherwise to carry out its obligations thereunder. The execution and
         delivery of each of the Transaction Documents by the Company and the
         consummation by it of the transactions contemplated thereby have been
         duly authorized by all necessary action on the part of the Company and
         no further action is required by the Company in connection therewith.
         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, will constitute the valid and binding obligation of the
         Company enforceable against the Company in accordance with its terms
         except (i) as limited by applicable bankruptcy, insolvency,
         reorganization, moratorium and other laws of general application
         affecting enforcement of creditors' rights generally and (ii) as
         limited by laws relating to the availability of specific performance,
         injunctive relief or other equitable remedies.

                  (d) NO CONFLICTS. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the transactions contemplated 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, 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) 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, provincial 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 would 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, provincial, 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 (a)
         the filing with the Commission of the Registration Statement, the
         application(s) to each Trading Market for the listing of the Shares and
         Warrant Shares for trading thereon in the time and manner required
         thereby, and applicable Blue Sky filings or (b) such as have already
         been obtained or such exemptive filings as are required to be made
         under applicable securities laws.

                  (f) ISSUANCE OF THE SECURITIES. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         Transaction Documents, will be duly and validly issued, fully paid and
         nonassessable, free and clear of all Liens. The Company has reserved
         from its duly authorized capital stock the maximum number of shares of
         Common Stock issuable pursuant to this Agreement and the Warrants.

                  (g) CAPITALIZATION. The capitalization of the Company is as
         described in the Company's most recent periodic report filed with the
         Commission. The Company has not issued any capital stock since such
         filing other than pursuant to the exercise of employee stock options
         under the Company's stock option plans, the issuance of shares of
         Common Stock to employees pursuant to the Company's employee stock
         purchase plan and pursuant to the conversion or exercise of outstanding
         Common Stock Equivalents. No Person has any right of first refusal,
         preemptive right, right of participation, or any similar right to
         participate in the transactions contemplated by the Transaction
         Documents. Except as a result of the purchase and sale of the
         Securities, there are no outstanding options, warrants, script rights
         to subscribe to, calls or commitments of any character whatsoever
         relating to, or securities, rights or obligations convertible into or
         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
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issue and sale of the Securities will not obligate the
         Company to issue shares of Common Stock or other securities to any
         Person (other than the Purchasers) and will not result in a right of
         any holder of Company securities to adjust the exercise, conversion,
         exchange or reset price under such securities.

                                       5

<PAGE>
                  (h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years preceding the date hereof (or such shorter period as the
         Company was required by law to file such material) (the foregoing
         materials, including the exhibits thereto, being collectively referred
         to herein as the "SEC REPORTS" and, together with the Disclosure
         Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely
         basis or has received a valid extension of such time of filing and has
         filed any such SEC Reports prior to the expiration of any such
         extension. As of their respective dates, the SEC Reports complied in
         all material respects with the requirements of the Securities Act and
         the Exchange Act and the rules and regulations of the Commission
         promulgated thereunder, and none of the SEC Reports, when filed,
         contained any untrue statement of a material fact or omitted to state a
         material fact required to be stated therein or necessary in order to
         make the statements therein, in 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
         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
         disclosed in the SEC Reports, (i) there has been no event, occurrence
         or development that has had or that could reasonably be expected to
         result in a Material Adverse Effect, (ii) the Company has not incurred
         any liabilities (contingent or otherwise) other than (A) trade payables
         and accrued expenses incurred in the ordinary course of business
         consistent with past practice and (B) liabilities not required to be
         reflected in the Company's financial statements pursuant to GAAP or
         required to be disclosed in filings made with the Commission, and (iii)
         the Company has not altered its method of accounting, (iv) the Company
         has not declared or made any dividend or distribution of cash or other
         property to its stockholders or purchased, redeemed or made any
         agreements to purchase or redeem any shares of its capital stock and
         (v) the Company has not issued any equity securities to any officer,
         director or Affiliate, except pursuant to existing Company stock option
         plans. The Company does not have pending before the Commission any
         request for confidential treatment of information.

                  (j) LITIGATION. Except as disclosed in the SEC Reports, there
         is no action, suit, inquiry, notice of violation, proceeding or
         investigation pending or, to the knowledge of the Company, threatened
         against or affecting the Company, any Subsidiary or any of their
         respective properties before or by any court, arbitrator, governmental
         or administrative agency or regulatory authority (federal, state,
         county, local or foreign) (collectively, an "ACTION") which (i)
         adversely affects or challenges the legality, validity or
         enforceability of any of the Transaction Documents or the Securities or
         (ii) could, if there were an unfavorable decision, have or reasonably
         be expected to result in a Material Adverse Effect. Neither the Company
         nor any Subsidiary, nor any director or officer thereof, is or has been
         the subject of any Action involving a claim of violation of or
         liability under federal, provincial 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.

                  (l) COMPLIANCE. Except as disclosed in the SEC Reports,
         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,

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         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, provincial, state
         and local laws applicable to its business, except in the case of
         clauses (i), (ii) and (iii) as would not have or reasonably be expected
         to result in a Material Adverse Effect.

                  (m) REGULATORY PERMITS. The Company and the Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, provincial, 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 would 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, provincial, state or other taxes, the payment of which is
         neither delinquent nor subject to penalties. Any real property and
         facilities held under lease by the Company and the Subsidiaries are
         held by them under valid, subsisting and enforceable leases of which
         the Company and the Subsidiaries are in compliance.

                  (o) PATENTS AND TRADEMARKS. To the knowledge of the Company
         and each Subsidiary, the Company and the Subsidiaries have, or have
         rights to use, all patents, patent applications, trademarks, trademark
         applications, service marks, trade names, copyrights, licenses and
         other similar rights that are 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 or reasonably be
         expected to result in a Material Adverse Effect (collectively, the
         "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary
         has received a written notice that the Intellectual Property Rights
         used by the Company or any Subsidiary violates or infringes upon the
         rights of any Person. To the knowledge of the Company, all such
         Intellectual Property Rights are enforceable.

                  (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.
         Neither the Company nor any Subsidiary has any reason to believe that
         it will not be able to renew its existing insurance coverage as and
         when such coverage expires or to obtain similar coverage from similar
         insurers as may be necessary to continue its business without a
         significant increase in cost.

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

                  (r) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
         subsidiaries maintains 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

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         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-14 and 15d-14) for the
         Company and designed such disclosures controls and procedures to ensure
         that material information relating to the Company, including its
         subsidiaries, is made known to the certifying officers by others within
         those entities, particularly during the period in which the Company's
         Form 10-K or 10-Q, as the case may be, is being prepared. The Company's
         certifying officers have evaluated the effectiveness of the Company's
         controls and procedures as of a date within 90 days prior to the filing
         date of the Form 10-K for the fiscal year ended December 31, 2002 (such
         date, the "EVALUATION DATE"). The Company presented in its most
         recently filed Form 10-K or Form 10-Q the conclusions of the certifying
         officers about the effectiveness of the disclosure controls and
         procedures based on their evaluations as of the Evaluation Date. Since
         the Evaluation Date, there have been no significant changes in the
         Company's internal controls (as such term is defined in Item 307(b) of
         Regulation S-K under the Exchange Act) or, to the Company's knowledge,
         in other factors that could significantly affect the Company's internal
         controls.

                  (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 this
         Agreement. The Purchasers shall have no obligation with respect to any
         fees or with respect to any claims made by or on behalf of other
         Persons for fees of a type contemplated in this Section that may be due
         in connection with the transactions contemplated by this Agreement.

                  (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, an "investment company" within the meaning of the
         Investment Company Act of 1940, as amended.

                  (v) REGISTRATION RIGHTS. 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 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 province 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 the Company's issuance of the
         Securities and the Purchasers' ownership of the Securities.

                  (y) DISCLOSURE. The Company confirms that, neither the Company
         nor any other Person acting on its behalf has provided any of the
         Purchasers or their agents or counsel with any information that
         constitutes or might constitute material, non-public information. The
         Company understands and confirms that the Purchasers will rely on the
         foregoing representations and covenants in effecting transactions in
         securities of the Company. All disclosure provided to the Purchasers
         regarding the Company, its business and the transactions contemplated
         hereby, including the Disclosure Schedules to this Agreement, furnished
         by or on behalf of the Company are true and correct and do not contain
         any untrue statement of a material fact or

                                       8
<PAGE>

         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.

                  (z) NO INTEGRATED OFFERING. Neither the Company, nor any of
         its affiliates, nor any Person acting on its or their behalf has,
         directly or indirectly, made any offers or sales of any security or
         solicited any offers to buy any security, under circumstances that
         would cause this offering of the Securities to be integrated with prior
         offerings by the Company for purposes of the Securities Act or any
         applicable shareholder approval provisions, including, without
         limitation, under the rules and regulations of any exchange or
         automated quotation system on which any of the securities of the
         Company are listed or designated.

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

                  (bb) FORM S-3 ELIGIBILITY. The Company is eligible to register
         the resale of its Common Stock by the Purchasers under Form S-3
         promulgated under the Securities Act.

         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 thereunder. The execution, delivery and
         performance by such Purchaser of the transactions contemplated by this
         Agreement has been duly authorized by all necessary corporate action on
         the part of such Purchaser. Each Transaction Document to which it is
         party has been duly executed by such Purchaser, and when delivered by
         such Purchaser in accordance with 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) INVESTMENT INTENT. 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 for
         investment purposes only and not with a view to or for distributing or
         reselling such Securities or any part thereof, has no present intention
         of distributing any of such Securities and has no arrangement or
         understanding with any other persons regarding the distribution of such
         Securities (this representation and warranty not limiting such
         Purchaser's right to sell the Securities pursuant to the Registration
         Statement or otherwise in compliance with applicable federal and state
         securities laws). Such Purchaser is acquiring the Securities hereunder
         in the ordinary course of its business. Such Purchaser does not have
         any agreement or understanding, directly or indirectly, with any Person
         to distribute any of the Securities.

                  (c) PURCHASER STATUS. At the time such Purchaser was offered
         the Securities, it was, and at the date hereof it is an "accredited
         investor" as defined in Rule 501(a) under the Securities Act. Such
         Purchaser is not required to be registered as a broker-dealer under
         Section 15 of the Exchange Act.

                                       9


<PAGE>

                  (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) OPEN SHORT POSITION. As of the Closing Date, each
         Purchaser, for itself and its affiliates and any transferee prior to
         the Effective Date, represents and warrants that it holds no open short
         positions in the Company's Common Stock.

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

                         OTHER AGREEMENTS OF THE PARTIES

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

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

                  THESE SECURITIES HAVE NOT 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 MAY BE
                  PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
                  REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
                  INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
                  RULE 501(a) UNDER THE SECURITIES ACT.

                  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, 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

                                       10
<PAGE>

         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 the preparation and filing of any
         required prospectus supplement under Rule 424(b)(3) of the Securities
         Act or other applicable provision of the Securities Act to
         appropriately amend the list of Selling Stockholders thereunder.

                  (b) Certificates evidencing the Shares and Warrant Shares
         shall not contain any legend (including the legend set forth in Section
         4.1(b)), (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 Shares or Warrant
         Shares pursuant to Rule 144, or (iii) if such Shares or Warrant 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 Warrant is
         exercised at a time when there is an effective registration statement
         to cover the resale of the Warrant Shares, such Warrant 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 Shares or Warrant Shares,
         as the case may be, issued with a restrictive legend, deliver or cause
         to be delivered to such Purchaser a certificate representing such
         Securities 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.

                  (c) 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 Shares or Warrant
         Shares (based on the VWAP of the Common Stock on the date such
         Securities are submitted to the Company's transfer agent) subject to
         Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day
         five (5) Trading Days after such damages have begun to accrue) for each
         Trading Day after such third Trading Day (or third Trading Day, as
         applicable) until such certificate is delivered. 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.

         4.2 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. Upon the request of any such holder of Securities, the Company
shall deliver to such holder a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
any Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

         4.3 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.

         4.4 [INTENTIONALLY OMITTED]

         4.5 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, within 1
Trading Day of the Closing Date, issue a press release or file a Current Report
on Form 8-K, in each case reasonably acceptable to each Purchaser disclosing the
transactions contemplated hereby and make such other filings and notices in the
manner and time

                                       11

<PAGE>

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

         4.6 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.

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

         4.8 USE OF PROCEEDS. 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 Company equity or equity-equivalent securities or to settle any
outstanding litigation.

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

         4.10 INDEMNIFICATION OF PURCHASERS. The Company will indemnify and hold
the Purchasers and their directors, officers, shareholders, partners, employees
and agents (each, a "PURCHASER PARTY") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to: (a) any misrepresentation, breach
or inaccuracy, or any allegation by a third party that, if true, would
constitute a breach or inaccuracy, 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 cause of action, suit or claim brought or made
against such Purchaser Party and arising solely out of or solely resulting from
the execution, delivery, performance or enforcement of this Agreement or any of
the other Transaction Documents and without causation by any other activity,
obligation, condition or liability pertaining to such Purchaser. The Company
will reimburse such Purchaser for its reasonable legal and other expenses
(including the cost of any

                                       12

<PAGE>

investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred.

         4.11 RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

         4.12 LISTING OF COMMON STOCK. The Company hereby agrees to use its best
efforts to maintain the listing of the Common Stock on the Trading Market, and
as soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list the applicable Shares and Warrant Shares on the Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application the Shares and the
Warrant Shares, and will take such other action as is necessary or desirable in
the opinion of the Investors to cause the Shares and Warrant Shares to be listed
on such other Trading Market as promptly as possible. The Company will take all
action reasonably necessary to continue the listing and trading of its Common
Stock on a Trading Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the Trading
Market.

         4.13 SUBSEQUENT EQUITY SALES. From the date hereof until 60 days after
the Effective Date, neither the Company nor any Subsidiary shall issue
additional shares of Common Stock or Common Stock Equivalents. Notwithstanding
anything to the contrary herein, this Section 4.13 shall not apply to the
following (a) the granting of options to employees, officers and directors of
the Company pursuant to any stock option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, or (b) the exercise of any security issued by the Company in connection
with the offer and sale of this Company's securities pursuant to this Agreement,
or (c) the exercise of or conversion of any convertible securities, options or
warrants issued and outstanding on the date hereof, provided such securities
have not been amended since the date hereof, or (d) acquisitions or strategic
investments, the primary purpose of which is not to raise capital.

         4.14 DELIVER OF SECURITIES AFTER CLOSING. The Company shall use best
efforts to deliver, or cause to be delivered, the Shares and Warrant Shares to
each Purchaser within 3 Trading Days of the Closing Date.

         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. 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 to treat for the Company 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.


                                  MISCELLANEOUS

         5.1 FEES AND EXPENSES. Except as otherwise set forth in this Agreement,
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 stamp and other taxes and duties
levied in connection with the sale of the Securities.

         5.2 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.

         5.3 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

                                       13

<PAGE>

transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signatures pages attached hereto prior to 6:30
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 6:30 p.m. (New York City time) on
any Trading Day, (c) the 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.

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

         5.5 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

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

         5.7 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 4.10.

         5.8 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. If
either party shall commence an action or proceeding to enforce any provisions of
a Transaction Document, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its attorneys' fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

         5.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and exercise of the
Securities, as applicable.

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

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

         5.12 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations

                                       14


<PAGE>

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.

         5.13 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and such indemnity as
is required by the Company's transfer agent, if requested. The applicants for a
new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities.

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

         5.15 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, provincial, 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.

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

                            (Signature Page Follows)



                                       15

<PAGE>


         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.


DAUGHERTY RESOURCES, INC.                        ADDRESS FOR NOTICE:
                                                 ------------------
                                                 120 Prosperous Place, Suite 201
                                                 Lexington, Kentucky 40509
By: /s/ William S. Daugherty                     Attn: William Daugherty, Pres.
   --------------------------------------        Tel: (859) 263-3948
     William S. Daugherty,                       Fax: (859) 263-4228
     President and Chief Executive Officer










                                       16


<PAGE>


          [PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing entity: _________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________

Address for Notice of Investing Entity:




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





Subscription Amount:
Shares:
Warrant Shares:
EIN Number:  [you may provide this under separate cover]

                           [SIGNATURE PAGES CONTINUE]





                                       17

</TEXT>
</DOCUMENT>
