NOTE PURCHASE AGREEMENT

Exhibit 4.1

NOTE PURCHASE AGREEMENT

dated as of December 29, 2006

by and between

BERLINER COMMUNICATIONS, INC.

and

THOSE INVESTORS SET FORTH IN SCHEDULE A

SENIOR SUBORDINATED SECURED CONVERTIBLE NOTES

AND

COMMON STOCK PURCHASE WARRANTS

BERLINER COMMUNICATIONS, INC.

NOTE PURCHASE AGREEMENT

SENIOR SUBORDINATED SECURED CONVERTIBLE NOTES

and

COMMON STOCK PURCHASE WARRANTS

TABLE OF CONTENTS

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ANNEXES

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NOTE PURCHASE AGREEMENT

           THIS NOTE PURCHASE AGREEMENT, dated as of December 29, 2006 (this "Agreement"), by and between BERLINER COMMUNICATIONS, INC. , a Delaware corporation (the "Company"), with headquarters located at 20 Bushes Lane, Elmwood Park, New Jersey, 07407, and THOSE INVESTORS SET FORTH IN SCHEDULE A (each a "Buyer" and together the "Buyers").

W I T N E S S E T H :

           WHEREAS , each Buyer wishes to purchase from the Company and the Company wishes to sell to each Buyer, upon the terms and subject to the conditions of this Agreement, a promissory note of the Company having the aggregate principal amount set forth on Schedule A of this Agreement opposite each Buyer’s name and in connection with which the Company shall issue to each Buyer warrants to purchase shares of Common Stock (such capitalized term and all other capitalized terms used in this Agreement having the meanings provided in Section 1);

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

           1. DEFINITIONS

          (a) As used in this Agreement, the terms "Agreement", "Buyer", "Buyers" and "Company" shall have the respective meanings assigned to such terms in the introductory paragraph of this Agreement.

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

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

          "Additional Financing" shall have the meaning ascribed thereto in Section 7(i) of this Agreement.

          "Advisory Fee" means $100,000 payable in cash and the Additional Warrant.

          "Additional Warrant" means the warrant in the form of Annex III hereto.

          "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with the subject Person.

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          "Blackout Period" means the period of up to 25 Trading Days (whether or not consecutive) during any period of 365 consecutive days after the date the Company notifies the Investors that they are required, pursuant to Section 8(c)(4), to suspend offers and sales of Registrable Securities as a result of an event or circumstance described in Section 8(b)(5), provided ; however , that the Blackout Period shall be extended to include any period beginning upon the Company’s receipt of notice from the SEC that any amendment to its Registration Statement is being reviewed and ending on the date that the SEC has cleared such amended Registration Statement for use by the Investors to conduct resales of the Registrable Securities if, during such period, the Company shall promptly respond to all SEC comments and inquiries. The Company shall be deemed to have promptly responded to all SEC comments and inquiries if they respond within the time period, if any, specified by the SEC in any correspondence addressed to the Company in such matters, without regard to any extension request by the Company with respect thereto.

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

          "Charter Amendment" shall have the meaning set forth in Section 4(d).

          "Claims" means any losses, claims, damages, liabilities or expenses, including, without limitation, reasonable fees and expenses of legal counsel (joint or several), incurred by a Person.

          "Closing Date" means 10:00 a.m., New York City time, on December 29, 2006 or such other mutually agreed to time.

          "Code" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder and published interpretations thereof.

          "Common Stock" means the Common Stock, par value $.00002 per share, of the Company.

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

          "Control" (including, with correlative meaning, the terms "Controlled by" and "under common Control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

          "Conversion Shares" means the shares of Common Stock issuable upon conversion of the Notes.

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

          "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder and published interpretations thereof.

          "Event of Default" shall have the meaning provided in the Notes.

          "Guaranty" means the Guaranty of BCI Communications, Inc. in the form attached hereto as Annex VI .

          "Indebtedness" shall have the meaning provided in the Notes.

          "Indemnified Party" means the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who Controls the Company, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any Person who Controls such stockholder or underwriter.

          "Indemnified Person" means the Buyers and each other Investor who beneficially owns or holds Registrable Securities and each other Investor who sells such Registrable Securities in the manner permitted under this Agreement, the directors, if any, of such Investor, the officers or persons performing similar functions, if any, of the Buyers and any such Investor, each Person, if any, who Controls a Buyer or any such Investor, any underwriter (as defined in the 1933 Act) acting on behalf of an Investor who participates in the offering of Registrable Securities of such Investor in accordance with the plan of distribution contained in the Prospectus, the directors, if any, of such underwriter and the officers, if any, of such underwriter, and each Person, if any, who Controls any such underwriter.

          "Inspector" means any attorney, accountant or other agent retained by an Investor for the purposes provided in Section 8(b)(9).

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

          "Investor" and "Investors" means the Buyer or Buyers, as the case may be, and any transferee or assignee who agrees to become bound by the provisions of Sections 5(a), 5(b), 8, 9, and 10 of this Agreement.

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          "Knowledge" Where any representation or warranty contained in this Agreement is expressly qualified by reference to the knowledge of the Person, such reference shall be deemed to mean the actual knowledge or information of any Person as to the matters that are the subject of such representations and warranties, or such knowledge which any of them would have obtained after reasonable inquiry into the matter concerned. It is agreed between the parties that "reasonableness" (as used in the foregoing sentence) shall require that one or more of the Persons with the responsibility to make an inquiry hereunder discuss the matter at issue with a manager-level employee who has primary responsibility for such matter.

          "Margin Stock" shall have the meaning provided in Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221).

          "Market Price" shall have the meaning to be provided or provided in the Note.

          "Nasdaq" means the Nasdaq Global Market, Global Select Market or the Nasdaq Capital Market.

          "NASD" means the National Association of Securities Dealers, Inc.

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

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

          "Notes" means the Senior Subordinated Secured Convertible Notes of the Company issued to the Buyers in the form attached as Annex I .

          "Person" means any natural person, corporation, partnership, limited liability company, trust, incorporated organization, unincorporated association or similar entity or any government, governmental agency or political subdivision.

          "Prospectus" means the prospectus forming part of the Registration Statement at the time the Registration Statement is declared effective and any amendment or supplement thereto (including any information or documents incorporated therein by reference).

          "Purchase Price" means the purchase price for the Notes set forth on Schedule A of this Agreement.

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

          "Record" means all pertinent financial and other records, pertinent corporate documents and properties of the Company subject to inspection for the purposes provided in Section 8(b)(9).

          "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and

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pursuant to Rule 415, and the declaration or ordering of effectiveness of such Registration Statement by the SEC.

          "Registrable Securities" means (1) the Shares, (2) if the Common Stock is changed, converted or exchanged by the Company or its successor, as the case may be, into any other stock or other securities on or after the date hereof, such other stock or other securities which are issued or issuable in respect of or in lieu of the Shares and (3) if any other securities are issued to holders of the Common Stock (or such other shares or other securities into which or for which the Common Stock is so changed, converted or exchanged as described in the immediately preceding clause (2)) upon any reclassification, share combination, share subdivision, share dividend, merger, consolidation or similar transaction or event, such other securities which are issued or issuable in respect of or in lieu of the Common Stock.

          "Registration Default Period" means the period during which any Registration Event occurs and is continuing.

          "Registration Event" means the occurrence of any of the following events:

     (i) the Company fails to file with the SEC the Registration Statement on or before the date by which the Company is required to file the Registration Statement pursuant to Section 8(a)(1),

     (ii) the Registration Statement covering Registrable Securities is not declared effective by the SEC on or before the Required Effective Date,

     (iii) after the SEC Effective Date, sales cannot be made pursuant to the Registration Statement (including without limitation by reason of a stop order of any untrue statement of a material fact or omission of a material fact in the Registration Statement, or the Company’s failure to update the Registration Statement) but except as excused pursuant to Section 8(b)(5), other than closure of the trading markets for the Common Stock,

     (iv) after the date on which securities of the Company are listed or included for quotation on a Trading Market, the Common Stock generally or the Registrable Securities specifically are not listed or included for quotation on a Trading Market, or trading of the Common Stock is suspended or halted for a period exceeding 5 days on the Trading Market which at the time constitutes the principal market for the Common Stock, or

     (v) the Company fails, refuses or is otherwise unable timely to issue Conversion Shares upon conversion of the Notes in accordance with the terms of the Notes or Warrant Shares upon exercise of the Warrants in accordance with the terms of the Warrants, or certificates therefor as required under the Transaction Documents or the Company fails, refuses or is otherwise unable timely to transfer any Shares as and when required by the Transaction Documents.

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          "Registration Period" means the period from the SEC Effective Date to the earlier of (A) the date that is three (3) years after the Closing Date, (B) such date after which each Investor may sell all of its Registrable Securities without registration under the 1933 Act pursuant to Rule 144 (k), or (D) the date on which the Investors beneficially own, in the aggregate, less than ten percent (10%) of the Registrable Securities.

          "Registration Statement" means a registration statement on Form S-1, Form SB-2, Form S-3 or such other form as may be available to the Company to be filed with the SEC under the 1933 Act relating to the Registrable Securities and which names the Investors as selling stockholders.

          "Regulation D" means Regulation D under the 1933 Act.

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

          "Required Effective Date" means June 15, 2007.

          "Required Information" means, with respect to each Investor, all information regarding such Investor, the Registrable Securities held by such Investor or which such Investor has the right to acquire and the intended method of disposition of the Registrable Securities held by such Investor or which such Investor has the right to acquire as shall be required by the 1933 Act to effect the registration of the resale by such Investor of such Registrable Securities.

          "Rule 144" means Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time provide a "safe harbor" exemption from registration under the 1933 Act so as to permit a holder to sell securities of the Company to the public without being deemed an "underwriter" for purposes of the 1933 Act.

          "Rule 144A" means Rule 144A under the 1933 Act or any successor rule thereto.

          "SEC" means the Securities and Exchange Commission.

          "SEC Effective Date" means the date the Registration Statement is declared effective by the SEC.

          "SEC Filing Date" has the meaning set forth in Section 8(a).

          "SEC Reports" means the Company’s (1) Annual Report on Form 10-K for the year ended June 30, 2006, (2) Schedule 14A filed with the SEC on October 25, 2006, (3) Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, (4) Current Reports on Form 8-K filed with the SEC on October 16, 2006, September 22, 2006, September 13, 2006, August 4, 2006 and July 26, 2006, and (5) all other periodic and other reports filed by the Company with the SEC pursuant to the 1934 Act subsequent to September 30, 2006, and prior to the date hereof, in each case as filed with the SEC and including the information and documents (other than exhibits) incorporated therein by reference.

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          "Securities" means, collectively, the Notes, the Shares and the Warrants.

          "Security Agreement" means the Security Agreement attached hereto as Annex III.

          "Senior Lender" shall mean Presidential Financial Corporation of Delaware Valley.

          "Shares" means the Conversion Shares and the Warrant Shares.

          "Sigma" means Sigma Opportunity Fund, LLC.

          "Sigma Advisors" means Sigma Capital Advisors, LLC, the managing member of Sigma.

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

          "Trading Day" means at any time a day on which any of a national securities exchange, Nasdaq, or such other securities market as at such time constitutes the principal securities market for the Common Stock is open for general trading of securities.

          "Trading Market" means the Over-The-Counter Bulletin Board, the American Stock Exchange, Inc., the Nasdaq, or the New York Stock Exchange, Inc.

          "Transaction Documents" means, collectively, this Agreement, the Securities, the Security Agreement, the Guaranty and the other agreements, instruments and documents contemplated hereby and thereby.

          "Violation" means:

          (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading,

          (ii) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading,

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          (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation under the 1933 Act, the 1934 Act or any state securities law, or

          (iv) any breach or alleged breach by any Person other than the Buyers of any representation, warranty, covenant, agreement or other term of any of the Transaction Documents.

          "Warrants" means the Common Stock Purchase Warrants in the form attached hereto as Annex II .

          "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants and the Additional Warrants.

           2. PURCHASE AND SALE; PURCHASE PRICE.

           (a) Purchase. Upon the terms and subject to the conditions of this Agreement, each Buyer hereby agrees to purchase from the Company, and the Company hereby agrees to sell to each Buyer, on the Closing Date, a Note in the principal amount set forth on Schedule A of this Agreement opposite each Buyer’s name and having the terms and conditions as set forth in the form of the Note attached hereto as Annex I for the Purchase Price. In connection with the purchase of the Notes by the Buyers, the Company shall issue to each Buyer at the closing on the Closing Date Warrants initially entitling the holder to purchase one-half of a share of Common Stock for each $1.00 principal amount of the Note purchased by Buyer.

           (b) Form of Payment. Payment by the Buyers of the Purchase Price to the Company on the Closing Date shall be made by wire transfer of immediately available funds to:

Interchange Bank
444 Boulevard
Elmwood Park, NJ 07407
ABA No.: 021205871

For Credit to:
Berliner Communications, Inc.
20 Bushes Lane
Elmwood Park, New Jersey 07407
Account number:                     

           (c) Closing. The issuance and sale of the Notes and the issuance of the Warrants and the Additional Warrants shall occur on the Closing Date at Moomjian, Waite, Wactlar & Coleman, LLP, 100 Jericho Quadrangle, Jericho, New York 11753. At the closing, upon the terms and subject to the conditions of this Agreement, (1) the Company shall issue and deliver to the Buyers the Notes and the Warrants and to Sigma Advisors the Additional Warrants against payment by the Buyers to the Company of an amount equal to the Purchase Price and (2)

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the Buyers shall pay to the Company an amount equal to the Purchase Price against delivery by the Company to the Buyers of the Notes and the Warrants and to Sigma Advisors of the Additional Warrants.

           3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYERS.

          Each Buyer, severally and not jointly, represents and warrants as to itself to, and covenants and agrees with, the Company as follows:

           (a) Purchase for Investment. The Buyer is purchasing the Note and acquiring the Warrants for its own account for investment and not with a view towards the public sale or distribution thereof within the meaning of the 1933 Act; and in the event that the Buyer shall acquire any Shares prior to the SEC Effective Date of a Registration Statement covering the resale of such Shares, such acquisition by the Buyer shall be for its own account for investment and not with a view towards the public sale or distribution thereof within the meaning of the 1933 Act prior to the SEC Effective Date; and the Buyer has no intention of making any distribution, within the meaning of the 1933 Act, of the Shares except in compliance with the registration requirements of the 1933 Act or pursuant to an exemption therefrom;

           (b) Accredited Investor. The Buyer is an "accredited investor" as that term is defined in Rule 501 of Regulation D under the 1933 Act;

           (c) Reoffers and Resales. The Buyer will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities unless registered under the 1933 Act, pursuant to an exemption from registration under the 1933 Act or in a transaction not requiring registration under the 1933 Act;

           (d) Company Reliance. The Buyer understands that (1) the Note is being offered and sold and the Warrants are being issued to the Buyer, (2) upon conversion of the Notes, the Conversion Shares will be issued to the Buyer and (3) upon exercise of the Warrants, the Warrant Shares will be sold to the Buyer, in each such case in reliance on one or more exemptions from the registration requirements of the 1933 Act, including, without limitation, Regulation D, and exemptions from state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein, in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire or receive an offer to acquire the Securities;

           (e) Information Provided. The Buyer and its advisors, if any, have requested, received and considered all information relating to the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and information relating to the offer and sale of the Note and the Warrants and the offer of the Conversion Shares and the Warrant Shares deemed relevant by them ( assuming the accuracy and completeness of the SEC Reports and the Company’s responses to the Buyer’s requests); the

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Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company concerning the terms of the offering of the Securities and the business, properties, operations, condition (financial or other), results of operations and prospects of the Company and its Subsidiaries and have received satisfactory answers to any such inquiries; without limiting the generality of the foregoing, the Buyer has had the opportunity to obtain and to review the SEC Reports; in connection with its decision to purchase the Note and to acquire the Warrants, the Buyer has relied exclusively upon (i) the SEC Reports, (ii) the representations, warranties, covenants and agreements of the Company set forth in this Agreement and to be contained in the other Transaction Documents, as well as any (iii) investigation of the Company completed by the Buyer or its advisors; the Buyer understands that its investment in the Securities involves a high degree of risk; and the Buyer understands that the offering of the Note, the Warrants and the Additional Warrants is being made to the Buyer as part of an offering without any minimum or maximum amount of the offering (subject, however, to the right of the Company at any time prior to execution and delivery of this Agreement by the Company, in its sole discretion, to accept or reject an offer by the Buyer to purchase the Note and to acquire the Warrants or the Additional Warrants);

           (f) Absence of Approvals. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities;

           (g) Note Purchase Agreement. The Buyer has all requisite power and authority, corporate or otherwise, to execute, deliver and perform its obligations under this Agreement and the other agreements executed by the Buyer in connection herewith and to consummate the transactions contemplated hereby and thereby; and this Agreement has been duly and validly authorized, duly executed and delivered by the Buyer and, assuming due execution and delivery by the Company, is a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally and general principles of equity, regardless of whether enforcement is considered in a proceeding in equity or at law; and

           (h) Buyer Status. The Buyer is not a "broker" or "dealer" as those terms are defined in the 1934 Act nor is it required to be registered with the SEC pursuant to Section 15 of the 1934 Act.

           4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY.

          The Company represents and warrants to, and covenants and agrees with, the Buyers as follows:

           (a) Organization and Authority. The Company and each of the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and (i) each of the Company and the Subsidiaries has all

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requisite corporate power and authority to own, lease and operate its properties and to carry on its business as described in the SEC Reports and as currently conducted, and (ii) the Company has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to be executed and delivered by the Company in connection herewith, and to consummate the transactions contemplated hereby and thereby. The Company does not have any equity investment in any other Person other than the Subsidiaries listed in Schedule 4(a) hereto.

           (b) Qualifications. The Company and each of the Subsidiaries are duly qualified to do business as foreign corporations and are in good standing in all jurisdictions where failure so to qualify could have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole.

           (c) Capitalization. As of the date hereof, (1) The authorized capital stock of the Company consists of (A) 20,000,000 shares of Common Stock, of which 17,035,357 shares are issued and outstanding, and (B) 2,000,000 shares of Preferred Stock, $.00002 par value, none of which are issued and outstanding. Schedule 4(c) hereto discloses all outstanding options or warrants for the purchase of, or rights to purchase or subscribe for, or securities convertible into, exchangeable for, or otherwise entitling the holder to acquire, Common Stock or other capital stock of the Company, or any contracts or commitments to issue or sell Common Stock or other capital stock of the Company or any such options, warrants, rights or other securities.

          (2) The Company has duly reserved from its authorized and unissued shares of Common Stock the full number of shares required for (A) all options, warrants, convertible securities, exchangeable securities, and other rights to acquire shares of Common Stock which are outstanding and (B) all shares of Common Stock and options and other rights to acquire shares of Common Stock which may be issued or granted under the stock option and similar plans which have been adopted by the Company or any Subsidiary; and, immediately following the Closing Date, after giving effect to any antidilution or similar adjustment arising by reason of issuance of the Notes, the Warrants and the Additional Warrants, the total number of shares of Common Stock reserved and required to be reserved from the authorized and unissued shares of Common Stock for purposes of all such options, warrants, convertible securities, other rights, and stock option and similar plans (excluding the Notes, the Warrants and the Additional Warrants) will be 2,872,956. Each outstanding class or series of securities of the Company for which any such antidilution adjustment will occur is identified on Schedule 4(c) attached hereto, together with the amount of such antidilution adjustment for each such class or series. The outstanding shares of Common Stock of the Company and outstanding options, warrants, rights, and other securities entitling the holders to purchase or otherwise acquire Common Stock have been duly and validly authorized and issued. None of the outstanding shares of Common Stock or options, warrants, rights, or other such securities has been issued in violation of the preemptive rights of any securityholder of the Company. The offers and sales of the outstanding shares of Common Stock of the Company and options, warrants, rights, and other securities were at all relevant times either registered under the 1933 Act and applicable state securities laws or exempt from such requirements. Except for as set forth on Schedule 4(c) attached hereto, no holder of any of the Company’s securities has any rights, "demand," "piggy-back" or otherwise,

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to have such securities registered by reason of the intention to file, filing or effectiveness of the Registration Statement.

           (d) Concerning the Shares and the Common Stock. Upon the approval of the Company’s stockholders of an amendment to the Company’s certificate of incorporation to increase the number of shares of authorized common stock from twenty million (20,000,000) shares to 100,000,000 shares (the "Charter Amendment"), the Shares will be duly authorized and the Conversion Shares, when issued upon conversion of the Notes, and the Warrant Shares, when issued upon exercise of the Warrants and the Additional Warrants, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability solely by reason of being such holder. There are no preemptive or similar rights of any stockholder of the Company or any other Person to acquire any of the Shares or the Warrants. Upon approval of the Charter Amendment, the Company will duly reserve 4,377,273 shares of Common Stock (subject to antidilution adjustment and adjustment for stock splits, combinations, and the like) for issuance upon conversion of the Notes and exercise of the Warrants, and such shares shall remain so reserved, and the Company shall from time to time reserve such additional shares of Common Stock as shall be required to be reserved pursuant to the Notes and Warrants and the Additional Warrants, so long as the Notes and Warrants and the Additional Warrants are outstanding. The Company will effect the Charter Amendment on or before the SEC Filing Date. The Common Stock is currently traded on the National Association of Securities Dealers Over-The-Counter Bulletin Board, and the Company knows of no reason that the Shares would be ineligible for continued quotation on such Trading Market in the reasonably foreseeable future.

           (e) Corporate Authorization. This Agreement and the other Transaction Documents to which the Company is or will be a party have been duly and validly authorized by the Company; this Agreement has been duly executed and delivered by the Company and, assuming due execution and delivery by each Buyer, this Agreement is, and the Notes, the Warrants and the Additional Warrants, and the other Transaction Documents, will be when executed and delivered by the Company, valid and binding obligations of the Company enforceable in accordance with their respective terms, except as the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally and general principles of equity, regardless of whether enforcement is considered in a proceeding in equity or at law.

           (f) Non-contravention. The execution and delivery of the Transaction Documents by the Company and any Subsidiary and the consummation by the Company of the issuance of the Securities as contemplated by this Agreement and consummation by the Company any Subsidiary of the other transactions contemplated by the Transaction Documents do not and will not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of any term or provision of the certificate of incorporation (including all certificates of designation) or bylaws of the Company or any Subsidiary, (ii) conflict with or result in a breach by the Company or any Subsidiary of any of the terms or provisions of, or constitute a default under, or result in the modification of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to, or affect the validity or enforceability of or the ability of the

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Company or any Subsidiary to perform its obligations under the Transaction Documents pursuant to, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties or assets are bound or affected, (iii) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court, United States federal or state regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any Subsidiary or any of their respective properties or assets, in any such case which would be reasonably likely to have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole, or the validity or enforceability of, or the ability of the Company to perform its obligations under, the Transaction Documents, or (iv) have any material adverse effect on any permit, certification, registration, approval, consent, license or franchise necessary for the Company or any Subsidiary to own or lease and operate any of its properties and to conduct any of its business or the ability of the Company or any Subsidiary to make use thereof.

           (g) Approvals, Filings, Etc. No authorization, approval or consent of, or filing with, any United States or foreign court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market, or the stockholders of the Company, or any other Person, is required to be obtained or made by the Company or any Subsidiary for (x) the execution, delivery and performance by the Company of the Transaction Documents, (y) the issuance and sale of the Securities as contemplated by this Agreement and the terms of the Notes, the Warrants and the Additional Warrants and (z) the performance by the Company of its obligations under the Transaction Documents, other than (1) registration of the resale of the Shares under the 1933 Act as contemplated by Section 8, (2) as may be required under applicable state securities or "blue sky" laws, (3) filing of one or more Forms D with respect to the Securities as required under Regulation D, (4) as may be required in connection with the Charter Amendment, and (5) the approval of the Senior Lender (which has been received prior to Closing).

           (h) Information Provided. The SEC Reports, the Transaction Documents and the instruments delivered by the Company to the Buyers in connection with the closing on the Closing Date do not and will not on the date of execution and delivery of this Agreement nor on the Closing Date contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, it being understood that for purposes of this Section 4(h), any statement contained in such information shall be deemed to be modified or superseded for purposes of this Section 4(h) to the extent that a statement in any document included in such information which was prepared and furnished to the Buyers on a later date or filed with the SEC on a later date modifies or replaces such statement, whether or not such later prepared or filed statement so states.

           (i) Conduct of Business. Except as set forth on Schedule 4(i) , since June 30, 2006, neither the Company nor any Subsidiary has (i) incurred any material obligation or liability (absolute or contingent) other than in the ordinary course of business; (ii) canceled, without payment in full, any material notes, loans or other obligations receivable or other debts

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or claims held by it other than in the ordinary course of business; (iii) sold, assigned, transferred, abandoned, mortgaged, pledged or subjected to lien any of its material properties, tangible or intangible, or rights under any material contract, permit, license, franchise or other agreement; (iv) conducted its business in a manner materially different from its business as conducted on such date; (v) declared, made or paid or set aside for payment any cash or non-cash distribution on any shares of its capital stock; or (vi) consummated, or entered into any agreement with respect to, any transaction or event which would constitute a Repurchase Event. The Company and each Subsidiary owns, possesses or has obtained all governmental, administrative and third party licenses, permits, certificates, registrations, approvals, consents and other authorizations necessary to own or lease (as the case may be) and operate its properties, whether tangible or intangible, and to conduct its business or operations as currently conducted, except such licenses, permits, certificates, registrations, approvals, consents and authorizations the failure of which to obtain would not have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole.

           (j) SEC Filings. For the preceding twelve months, the Company has timely filed all reports required to be filed under the 1934 Act and any other material reports or documents required to be filed with the SEC.

           (k) Absence of Certain Proceedings. Other than as set forth in Schedule 4(k), t here is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body or governmental agency pending or, to the knowledge of the Company or any Subsidiary, threatened against or affecting the Company or any Subsidiary, in any such case wherein an unfavorable decision, ruling or finding would have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole, or the transactions contemplated by the Transaction Documents or which could adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, the Transaction Documents; the Company does not have pending before the SEC any request for confidential treatment of information and, to the best of the Company’s knowledge, no such request will be made by the Company prior to the SEC Effective Date; and to the best of the Company’s knowledge there is not pending or contemplated any, and there has been no, investigation by the SEC involving the Company or any current or former director or officer of the Company.

           (l) Financial Statements; Liabilities. The financial statements included in the SEC Reports present fairly the financial position, results of operations and cash flows of the Company and the Subsidiaries, at the dates and for the periods covered thereby, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby, and include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company and the Subsidiaries at the dates and for the periods covered thereby. Except as and to the extent disclosed, reflected or reserved against in the financial statements of the Company and the notes thereto included in the SEC Reports, neither the Company nor any Subsidiary has any liability, debt or obligation, whether accrued, absolute, contingent or otherwise, and whether due or to become due which, individually or in the

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aggregate, are material to the Company and the Subsidiaries, taken as a whole. Since June 30, 2006, neither the Company nor any Subsidiary has incurred any liability, debt or obligation of any nature whatsoever which, individually or in the aggregate are material to the Company and the Subsidiaries, taken as a whole, other than those incurred in the ordinary course of their respective businesses. A detailed description and the amount of the Indebtedness of the Company and Subsidiaries that will be outstanding on the Closing Date appear on Schedule 4(l) attached hereto.

           (m) Material Losses. Since June 30, 2006, neither the Company nor any Subsidiary has sustained any loss or interference with its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which loss or interference could be material to the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole.

           (n) Absence of Certain Changes. Since June 30, 2006, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries, taken as a whole. The Company has not received any notice that any customer intends, and to its knowledge no customer intends, to cease doing business with the Company or decrease in any material respect the amount of business that it does with the Company. Since June 30, 2006, the Company has not (i) declared or paid any dividends, (ii) sold any assets outside of the ordinary course of business consistent with past practice, (iii) had capital expenditures outside of the ordinary course of business consistent with past practice, (iv) engaged in any transaction with any Affiliate in which the amount involved exceed $60,000 except as set forth in the SEC Reports or (v) engaged in any other transaction outside of the ordinary course of business consistent with past practice. Except as set forth in Schedule 4(n) , neither the Company nor any Subsidiary has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company is not as of the date hereof, and after giving effect to the Additional Financing and the transactions contemplated hereby to occur on the Closing Date, Insolvent (as defined below). For purposes of this Section 4(n), "Insolvent" means (i) the present fair saleable value of the Company’s assets as a going concern is less than the amount required to pay the Company’s total indebtedness, contingent or otherwise, (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

           (o) Intellectual Property. Except as set forth on Schedule 4(o ): (1) the Company holds all Intellectual Property, free and clear of all Encumbrances and restrictions on use or transfer, whether or not recorded, and has sole title to and ownership of or has the full, exclusive right to use, for the life of the proprietary right all Intellectual Property; (2) the use of the Intellectual Property by the Company or any Subsidiary does not, to the knowledge of the

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Company after due inquiry, violate or infringe on the rights of any other Person; (3) neither the Company nor any Subsidiary has received any notice of any conflict between the asserted rights of others and the Company or any Subsidiary with respect to any Intellectual Property; (4) the Company and the Subsidiaries are in compliance with all terms and conditions of their agreements relating to the Intellectual Property; (5) neither the Company nor any Subsidiary is or has been a defendant in any action, suit, investigation or proceeding relating to infringement or misappropriation by the Company or any Subsidiary of any Intellectual Property; (6) neither the Company nor any Subsidiary has been notified of any alleged claim of infringement or misappropriation by the Company or any Subsidiary of any Intellectual Property; (7) the Company has no knowledge of any claim of infringement or misappropriation by the Company or any Subsidiary of any Intellectual Property; (8) to the knowledge (after due inquiry) of the Company, none of the products the Company and the Subsidiaries are researching, developing, propose to research and develop, make, have made, use, or sell, infringes or misappropriates any Intellectual Property right of any third party; (9) none of the trademarks and service marks used by the Company or any Subsidiary, to the knowledge of the Company after due inquiry, infringes the trademark or service mark rights of any third party; (10) neither the Company nor any Subsidiary has entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property; (11) none of the research and development results and other know-how relating to the Company’s or the Subsidiaries’ respective businesses, the value of which to the Company or the Subsidiaries is contingent upon maintenance of the confidentiality thereof, has been disclosed to any Person other than Persons bound by written confidentiality agreements; and (12) the Company owns directly, or possesses adequate rights to use, all intellectual property used in or relating to the business of the Company as currently condu