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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT

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SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of
November 14, 2006 by and between Regi U.S., Inc., an Oregon corporation (the
“Company”) and Dresden Investments Ltd. (the “Purchaser”). Capitalized terms
used in this Agreement and not otherwise defined shall have the meanings
ascribed to them in Article 1.

     WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall have the right to issue and sell
to Purchaser from time to time as provided herein, and Purchaser shall be
obligated to purchase from the Company up to $10,000,000 worth of shares of
Common Stock on a private placement basis pursuant to an exemption from
registration under Section 4(2) of the Security Act of 1933; and

     WHEREAS, the Purchaser shall be entitled to resell shares of Common Stock
acquired hereunder pursuant to a resale registration statement established by
the Company pursuant to the terms of the Registration Rights Agreement between
the Company and the Purchaser which shall be declared effective by the
Commission prior to the delivery of the first Draw Down Notice.

     NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:

ARTICLE I.
DEFINITIONS

     1.1       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:

     “Action” shall have the meaning ascribed to such term in Section 3.1(j) .

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

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

     “Closing Price” means on any particular date (a) the last reported closing
bid price per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:15 PM (New York time)), or (b) if there is no
such price on such date, then the closing bid price on the Trading Market on the
date nearest preceding such

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date (as reported by Bloomberg L.P. at 4:15 PM (New York time)), or (c) if the
Common Stock is not then listed or quoted on the Trading Market and if prices
for the Common Stock are then reported in the “pink sheets” published by Pink
Sheets LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) if the shares of Common Stock are not then publicly traded the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Purchaser of a majority in interest of the Shares
then outstanding.

     “Commission” means the Securities and Exchange Commission.

     “Commencement Date” shall mean the Trading Day immediately following the
date on which the applicable Draw Down Notice is delivered to the Purchaser.

     “Commitment Amount” shall have the meaning assigned to such term in Section
2.1 hereof.

     “Commitment Period” shall mean the period of 36 consecutive months
commencing immediately after the Effective Date but in no event later than the
four year anniversary of the date hereof.

     “Common Stock” means the common stock of the Company, no par value per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed into.

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

     “Company Counsel” means The Otto Law Group PLLC.

     “Consolidation Event” shall mean a sale of all or substantially all of the
Company’s assets or a merger pursuant to which the holders of the voting
securities of the Company prior to the merger do not own a majority of the
voting securities of the surviving entity.

     “Disclosure Schedules” means the Disclosure Schedules of the Company
delivered concurrently herewith.

     “Draw Down” shall have the meaning assigned to such term in Section 6.1(a)
hereof.

     “Draw Down Notice” shall have the meaning assigned to such term in Section
6.1(e) hereof.

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     “Draw Down Pricing Period” shall mean a period of up to 10 consecutive
Trading Days, beginning on the date specified in the Draw Down Notice; provided,
however, the Draw Down Pricing Period shall not begin before the day on which
receipt of such notice is delivered to Purchaser pursuant to Section 8.3 herein.

     “Draw Down Shares” shall mean the shares of Common Stock issuable pursuant
to a Draw Down.

      “DTC” shall have the meaning assigned to such term in Section 6.1(f) .

     “DWAC” shall have the meaning assigned to such term in Section 6.1(f) .

     “Effective Date” means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission.

     “Equity Conditions” shall mean, during the period in question, (i) all
liquidated damages and other amounts owing to the Purchaser pursuant to the
Transaction Documents have been paid, (ii) there is an effective Registration
Statement pursuant to which the Purchaser is permitted to utilize the prospectus
thereunder to resell all of the Draw Down Shares (issued and to be issued
pursuant to the applicable Draw Down), the Shares and the Warrant Shares (and
the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iii) the Common Stock is trading on
the Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted (if applicable) for trading on a Trading Market
(and the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future), (iv)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the Draw Down Shares (issued
and to be issued pursuant to the applicable Draw Down), the Shares and the
Warrant Shares, (v) the issuance of the Draw Down Shares subject to the
applicable Draw Down would not violate the limitations set forth in Section
4.12; (vi) the average daily trading volume for each Trading Day during such
period shall equal or exceed the lesser of (A) 75,000 shares of Common Stock,
subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement and (B) $75,000 of Common Stock (based on the
VWAP) and (vii) the Company, directly or indirectly, has not provided the
Purchaser with any material, non-public information that has not been made
publicly available in a widely disseminated release.

     “Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r) .

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

     “Exempt Issuance” means the issuance of (a) shares of Common Stock or
options to employees, officers or directors of the Company pursuant to any stock
or option plan

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

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

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

     “Initial Closing” shall have the meaning assigned to such term in Section
2.2 hereof.

     “Initial Closing Date” shall have the meaning assigned to such term in
Section 2.2 hereof.

      “Intellectual Property Rights” shall have the meaning ascribed to such
term in Section 3.1(o) .

     “Investment Amount” shall have the meaning assigned to such term in Section
6.1(e) hereof.

     “Legend Removal Date” shall have the meaning ascribed to such term in
Section 4.1(c) .

     “Liens” means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.

     “Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b) .

     “Material Permits” shall have the meaning ascribed to such term in Section
3.1(m) .

     “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.

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

     “Purchaser Party” shall have the meaning ascribed to such term in Section
4.7.

     “Registration Rights Agreement” means the Registration Rights Agreement,
dated the date hereof, between the Company and the Purchaser, in the form of
Exhibit A attached hereto.

     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Purchaser of the Shares and the Warrant Shares.

     “Required Approvals” shall have the meaning ascribed to such term in
Section 3.1(e) .

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

     “Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same 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, and the
rules and regulations promulgated thereunder.

     “Settlement” shall mean the delivery of the Draw Down Shares into the
Purchaser’s DTC account via DTC’s DWAC system and the Purchaser’s delivery of
payment therefor.

     “Settlement Date” shall have the meaning assigned to such term in Section
6.1(b) .

      “Shares” shall mean the Draw Down Shares.

      “Subsidiary” shall have the meaning ascribed to such term in Section
3.1(a) .

     “Threshold Price” shall mean the price per Share designated by the Company
as the lowest VWAP during any Draw Down Pricing Period at which the Company
shall sell its Common Stock in accordance with this Agreement, which shall be in
no event less than $0.50.

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     “Trading Cushion” shall mean the mandatory 5 Trading Days between Draw Down
Pricing Periods. “Short Sales” shall include all “short sales” as defined in
Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common Stock).

      “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a).

     “Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

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

     “Transaction Documents” means this Agreement, the Warrants and the
Registration Rights Agreement 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 for trading as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:02 p.m. (New York City time); (b) if the Common Stock is not then quoted for
trading on a Trading Market and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder and reasonably acceptable to the
Company.

     “Warrants” means collectively the Common Stock purchase warrants, in the
form of Exhibit C delivered to the Purchaser at the Initial Closing in
accordance with Section 2.2 hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to 5 years.

     “Warrant Shares” means the shares of Common Stock issuable upon exercise of
the Warrants.

ARTICLE II.
PURCHASE AND SALE

     2.1 Purchase and Sale of Draw Down Shares. Upon the terms and subject to
the conditions of this Agreement, the Company may sell and issue to the
Purchaser and the Purchaser shall be obligated to purchase from the Company, up
to an aggregate of $10,000,000 worth of shares of Common Stock (the “Commitment
Amount”).

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     2.2 Initial Closing. The execution and delivery of this Agreement and the
other agreements referred to herein (the “Initial Closing”) shall take place at
the offices of FWS, 420 Lexington Avenue, Suite 2620, New York, New York 10170
(i) at 10:00 a.m. local time within 5 Trading Days of the date hereof, or (ii)
at such other time and place or on such date as the Purchaser and the Company
may agree upon (the “Initial Closing Date”). Each party shall deliver the
following documents, instruments and writings at or prior to the Initial
Closing:

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

     (i) this Agreement duly executed by the Company;

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

     (iii) a certificate evidencing Warrants registered in the name of the
Purchaser to purchase up to 1,000,000 shares of Common Stock with an exercise
price equal to $1.30, subject to adjustment therein; and

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

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

     (i) this Agreement duly executed by the Purchaser; and

    (ii) the Registration Rights Agreement duly executed by the Purchaser.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to the
Purchaser:

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

     (b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as

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

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

     (d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares and
the consummation by the Company of the other transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of
the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which

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the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.

     (e) Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Securities for trading thereon
in the time and manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”).

     (f) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Warrant Shares, when
issued in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company. 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 set forth on
Schedule 3.1(g). The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of employee stock options under the Company’s stock option plans,
the issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plan and pursuant to the conversion or exercise of
Common Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities and except as set
forth on Schedule 3.1(g), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the
Company to

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issue shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.

     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

     (i) Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in a subsequent SEC Report, (i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings

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made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no event,
liability or development has occurred or exists with respect to the Company or
its Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least 1 Trading Day prior to the date that this
representation is made.

     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

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

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where the failure to be in compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

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

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

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

     (o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Neither the Company
nor any Subsidiary has received a notice (written or otherwise) that the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company and its

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Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

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

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

     (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which
are applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange

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Act (such date, the “Evaluation Date”). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

     (s) Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents. The Purchaser 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 the Transaction Documents.

     (t) Private Placement. Assuming the accuracy of the Purchaser
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 Purchaser as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

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

     (v) Registration Rights. Other than each of the Purchaser, no Person has
any right to cause the Company to effect the registration under the Securities
Act of any securities of the Company.

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

     (x) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any

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control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to
the Purchaser as a result of the Purchaser and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Purchaser’s ownership of the Securities.

     (y) Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms
that, neither it nor any other Person acting on its behalf has provided any of
the Purchaser or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Purchaser will rely on the foregoing
representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Purchaser regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, with respect to the representations
and warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements, in
light of the circumstances under which they were made and when made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.

     (z) No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provisions of any Trading Market 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 after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the fair saleable value of the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the

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current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The SEC Reports set forth as of the dates
thereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $50,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

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

     (cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchaser and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

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

     (ee) Accountants. The Company’s accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such
accountants, who the Company expects will express their opinion with respect to
the

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financial statements to be included in the Company’s Annual Report on Form
10-KSB for the year ending April 30, 2006, are a registered public accounting
firm as required by the Exchange Act.

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

     (gg) Acknowledgement Regarding Purchaser’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the
Company (i) that none of the Purchaser have been asked to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by any Purchaser, including Short
Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities; and (iii) that the Purchaser shall not be deemed to
have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that
(a) the Purchaser may engage in hedging activities at various times during the
period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Shares deliverable with respect to
Securities are being determined and (b) such hedging activities (if any) could
reduce the value of the existing stockholders’ equity interests in the Company
at and after the time that the hedging activities are being conducted. The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.

     (hh) Regulation M Compliance. The Company has not, and will not during the
term of this Agreement, and to its knowledge no one acting on its behalf has, or
will during the term of this Agreement, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of any
of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and

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(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

     3.2 Representations and Warranties of the Purchaser. Purchaser hereby
represents and warrants as of the date hereof and as of each Closing Date to the
Company as follows:

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

     (b) Own Account. 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 at the Initial
Closing as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of such Securities (this representation and warranty not
limiting the Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. Purchaser is acquiring the Securities hereunder in the
ordinary course of its business.

     (c) Purchaser Status. At the time the Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any
Warrants, it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Purchaser is not required to be registered as a broker-dealer under Section
15 of the Exchange Act.

     (d) Experience of Purchaser. 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.

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

     (f) Short Sales and Confidentiality Prior To The Date Hereof. Other than
the transaction contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any transaction, including Short
Sales, in the securities of the Company during the period commencing from the
time that the Purchaser first received a term sheet (written or oral) from the
Company or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”). Other than to
other Persons party to this Agreement, the Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions.

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

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

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

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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 OR OTHER LOAN SECURED BY SUCH SECURITIES.

     The Company acknowledges and agrees that the Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the terms
of such arrangement, the 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 Purchaser’s expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

     (c) 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 the 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 (such third Trading Day, the “Legend
Removal Date”), deliver or cause

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to be delivered to the Purchaser a certificate representing such shares that is
free from all restrictive and other legends. All Draw Down Shares shall be
delivered without any restrictive legends. The Company may not make any notation
on its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section. Certificates for
Securities subject to legend removal hereunder shall be transmitted by the
transfer agent of the Company to the Purchaser by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System.

     (d) In addition to the Purchaser’s other available remedies, the Company
shall pay to the Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Shares or Warrant Shares (based on the Closing Price
of the Common Stock on the date such Securities are submitted to the Company’s
transfer agent) delivered for removal of the restrictive legend and subject to
Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5)
Trading Days after such damages have begun to accrue) for each Trading Day after
the 2nd Trading Day following the Legend Removal Date until such certificate is
delivered without a legend. Nothing herein shall limit the 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 the
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.

     (e) Purchaser agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a Registration Statement,
they will be sold in compliance with the plan of distribution set forth therein.

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

     4.3 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 Purchaser or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such

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other transaction unless shareholder approval is obtained before the closing of
such subsequent transaction.

     4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day immediately following the date hereof, issue a
Current Report on Form 8-K, disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company and the Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor the 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 the Purchaser, or without the prior consent of
the Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.

     4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that the
Purchaser is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that the 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
Purchaser.

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

     4.7 Indemnification of Purchaser. Subject to the provisions of this Section
4.7, the Company will indemnify and hold the Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (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 the Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the
Purchaser, or any of its Affiliates, by any stockholder of the Company who is
not an Affiliate of the Purchaser, with

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respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings the Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by the Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, the
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of the Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by the Purchaser Party
effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by the Purchaser Party in this Agreement or in the other Transaction Documents.

     4.8 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.

     4.9 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing of the Common Stock on a Trading Market, and as soon as
reasonably practicable following the Initial Closing (but not later than the
Effective Date) to list all of the Shares and Warrant Shares on such 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
all of the Shares and Warrant Shares, and will take such other action as is
necessary to cause all of 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.

     4.10 Short Sales and Confidentiality After The Date Hereof. Purchaser
covenants that neither it nor any Affiliate acting on its behalf or pursuant to
any understanding with it will execute any Short Sales during the period
commencing at the Discussion Time and ending at the time that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4.4. Purchaser covenants that until such time as the transactions

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contemplated by this Agreement are publicly disclosed by the Company as
described in Section 4.4, the Purchaser will maintain the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Purchaser understands and acknowledges
that the Commission currently takes the position that coverage of short sales of
shares of the Common Stock “against the box” prior to the Effective Date of the
Registration Statement with the Securities is a violation of Section 5 of the
Securities Act, as set forth in Item 65, Section A, of the Manual of Publicly
Available Telephone Interpretations, dated July 1997, compiled by the Office of
Chief Counsel, Division of Corporation Finance. Notwithstanding the foregoing,
the Purchaser makes no representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4.

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

     4.12 The Shares. Anything in this Agreement to the contrary
notwithstanding, the Company may not make a Draw Down to the extent that such
Draw Down exceeds 4.999% of the then issued and outstanding shares of Common
Stock as reported in the Company’s most recent periodic report filed with the
Commission.

     4.13 Accuracy of Registration Statement. On each Settlement Date, the
Registration Statement and the prospectus therein (including any prospectus
supplement) shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading in light of the circumstances under
which they were made; and on such Settlement Date the Registration Statement and
the prospectus therein will not include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, the Company makes no representations or
warranties as to the information contained in or omitted from the Registration
Statement and the prospectus therein in reliance upon and in conformity with the
information furnished in writing to the Company by the Purchaser specifically
for inclusion in the Registration Statement and the prospectus therein.

     4.14 Notice of Certain Events Affecting Registration; Suspension of Right
to Request a Draw Down. The Company will promptly notify the Purchaser in
writing upon the occurrence of any of the events set forth in Section 3(d) of
the Registration Rights Agreement. The Company shall not deliver to the
Purchaser any Draw Down Notice during the continuation of any of the foregoing
events. The Company shall promptly make available to the Purchaser any such
supplements or amendments to the related prospectus, at which time, provided
that the registration statement and any supplements and amendments thereto are
then effective, the Company may recommence the delivery of Draw Down Notices.

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4.15 Participation in Future Financing.

     (a) During the Commitment Period, upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration of less than $5 million (a “Subsequent Financing”), each Purchaser
shall have the right to participate in up to an amount of the Subsequent
Financing equal to 100% of the Subsequent Financing (the “Participation
Maximum”) on the same terms, conditions and price provided for in the Subsequent
Financing.

     (b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such financing
(such additional notice, a “Subsequent Financing Notice”). Upon the request of a
Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing
Notice, the Company shall promptly, but no later than 1 Trading Day after such
request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.

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

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

     (e) If by 5:30 p.m. (New York City time) on the 5th Trading Day after all
of the Purchasers have received the Pre-Notice, the Company receives responses
to a Subsequent Financing Notice from Purchasers seeking to purchase more than
the aggregate amount of the Participation Maximum, each such Purchaser shall
have the right to purchase the greater of (a) their Pro Rata Portion (as defined
below) of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all other
Purchasers. “Pro Rata Portion” is the ratio of (x) the Subscription Amount of
Securities purchased on the Closing Date by a Purchaser participating under this
Section 4.15 and (y) the sum of the aggregate

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Subscription Amounts of Securities purchased on the Closing Date by all
Purchasers participating under this Section 4.15.

     (f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.15, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 Trading Days after
the date of the initial Subsequent Financing Notice.

     (g) Notwithstanding the foregoing, this Section 4.15 shall not apply in
respect of (i) an Exempt Issuance or (ii) an underwritten public offering of
Common Stock.

4.16 Subsequent Equity Sales.

     (a) From the date hereof until 3 months after the Effective Date and during
the 60 day period following any Draw Down Pricing Period, neither the Company
nor any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents; provided, however, the 3 month period set forth in this Section
4.16 shall be extended for the number of Trading Days during such period in
which (i) trading in the Common Stock is suspended by any Trading Market, or
(ii) following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Shares and Warrant Shares. Notwithstanding the
foregoing, this Section 4.16(a) shall not apply in respect of (i) an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance,
and (ii) a private placement of Common Stock or Common Stock Equivalents
provided that the Company does not grant registration rights in respect of such
securities to the holders thereof.

     (b) Until the earlier of (i) the expiration of the Commitment Period or
(ii) the sale of $5,000,000 of Securities to the Purchaser pursuant to this
Agreement, the Company shall be prohibited from effecting or entering into an
agreement to effect any Subsequent Financing involving a “Variable Rate
Transaction”. The term “Variable Rate Transaction” shall mean a transaction in
which the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.

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ARTICLE V.
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS

     5.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company in writing at
any time in its sole discretion.

     (a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Initial Closing and as
of each Settlement Date as though made at that time (except for representations
and warranties that speak as of a particular date, which shall be true and
correct in all material respects as of such dates).

     (b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Initial Closing and as of each
Settlement Date.

     (c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) No Proceedings or Litigation. No material Action shall have been
commenced against the Purchaser or the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary, seeking to
restrain, prevent or change the transactions contemplated by this Agreement, or
seeking damages in connection with such transactions.

     (e) Initial Closing Deliveries. The delivery by the Purchaser of the items
set forth in Section 2.2(b) of this Agreement.

     5.2 Conditions Precedent to the Obligation of the Purchaser to Close. The
obligation hereunder of the Purchaser to perform its obligations under this
Agreement and to purchase the Shares is subject to the satisfaction or waiver,
at or before the Initial Closing, of each of the conditions set forth below.
These conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser in writing at any time in its sole discretion.

     (a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Initial Closing as
though made at that time (except for representations and warranties that speak
as of a particular date, which shall be true and correct in all material
respects as of such date).

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     (b) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all material covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Initial Closing.

     (c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

     (d) No Proceedings or Litigation. No material Action shall have been
commenced, against the Purchaser or the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking to
restrain, prevent or change the transactions contemplated by this Agreement, or
seeking damages in connection with such transactions.

     (e) Initial Closing Deliveries. The delivery by the Company of the items
set forth in Section 2.2(a) of this Agreement.

     5.3 Conditions Precedent to the Obligation of the Purchaser to Accept a
Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to
accept a Draw Down request and to acquire and pay for the Shares is subject to
the satisfaction at or before each Settlement Date, of each of the conditions
set forth below.

     (a) Satisfaction of Conditions to Initial Closing. The Company shall have
satisfied at the Initial Closing, or the Purchaser shall have waived at the
Initial Closing, the conditions set forth in Section 5.2 hereof.

     (b) No Suspension. Trading in the Common Stock shall not have been
suspended by the SEC or the Trading Market (except for any suspension of trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the delivery of each Draw Down Notice), and, at any time
prior to such Draw Down Notice, trading in securities generally as reported on
the Trading Market shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported on the
Trading Market unless the general suspension or limitation shall have been
terminated prior to the delivery of such Draw Down Notice.

     (c) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to deliver to the
Purchaser such shares of stock and/or securities as the Purchaser is entitled to
receive pursuant to this Agreement.

     (d) Opinion of Counsel. The Purchaser shall have received a “bring-down”
letter from the Company’s counsel, confirming that there is no change from the
counsel’s previously delivered opinion, or else specifying with particularity
the reason for any change and an opinion as to the additional items specified in
Exhibit B hereto.

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     (e) Minimum Investment Amount. The Investment Amount for the applicable
Draw Down Notice, as permitted pursuant to Section 6.1(c), shall exceed
$150,000. For purposes of clarification, if the maximum Investment Amount as
determined pursuant to Section 6.1(c) is less than $150,000, then the Company
shall be precluded from exercising a Draw Down at such time.

     (f) Prior Issuances. During the 60 days immediately prior to the Draw Down
Pricing Period the Company shall have not issued shares of Common Stock or
Common Stock Equivalents other than pursuant to an Exempt Issuance.

     (g) Equity Conditions. During the Draw Down Pricing Period through the
Settlement Date, all of the Equity Conditions shall have been met.

ARTICLE VI.

DRAW DOWN TERMS

     6.1 Draw Down Terms. Subject to the satisfaction of the conditions set
forth in this Agreement, the parties agree as follows:

     (a) The Company may, in its sole discretion, issue and exercise draw downs
against the Commitment Amount (each a “Draw Down”) during the Commitment Period,
which Draw Downs the Purchaser shall be obligated to accept, subject to the
terms and conditions of this Agreement. Before the Company shall exercise a Draw
Down, the Company shall have caused a sufficient number of shares of Common
Stock to be registered to cover the Shares to be issued in connection with such
Draw Down, and, on or before the Trading Day that such request is made, the
Company shall have filed with the Commission a prospectus supplement pursuant to
Rule 424 under the Securities Act setting forth the terms of the Draw Down.

     (b) Only one Draw Down shall be allowed in each Draw Down Pricing Period
and the Company may not exercise a Draw Down until the applicable Trading
Cushion has elapsed since the end of the previous Draw Down Pricing Period. The
number of shares of Common Stock purchased by the Purchaser with respect to each
Draw Down shall be determined as set forth in Section 6.1(d) herein and settled
on the first Trading Day immediately after each Draw Down Pricing Period (each
such settlement date, a “Settlement Date”).

     (c) Subject to Section 4.12, the maximum Investment Amount as to each Draw
Down shall be equal to the lesser of (i) $750,000 or (ii) 200% of the product of
the (A) the average of the 20 VWAPs immediately prior to the date that the
applicable Draw Down Notice is delivered to the Purchaser and (B) the average
daily trading volume during such 20 Trading Days immediately prior to the date
that the applicable Draw Down Notice is delivered to the Purchaser.

     (d) Subject to the adjustment set forth below, the number of Shares to be
issued on each Settlement Date shall be the greater of (i) the Investment Amount
divided

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by 85% of the average of the 3 lowest Closing Prices during the applicable Draw
Down Pricing Period provided that if, on account of the adjustments set forth
below, the number of Trading Days in a Draw Down Pricing Period is less than 3,
85% of the average of the Trading Day(s) in such Draw Down Pricing Period; and
(ii) the number of shares equal to the sum of the quotients (for each Trading
Day within the Draw Down Pricing Period) of (x) 1/10th of the Investment Amount
and (y) 85% of the VWAP on each Trading Day within the Draw Down Pricing Period.
The number of Shares issuable as to any Draw Down Pricing Period shall be
adjusted as follows:

     (i) if the Closing Price on a given Trading Day during a Draw Down Pricing
Period is less than the Threshold Price, then that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
1/10th for each such Trading Day during the Draw Down Pricing Period and such
Trading Day(s) shall be withdrawn from the Draw Down Pricing Period calculations
set forth above;

     (ii) if during any Trading Day during the Draw Down Pricing Period trading
of the Common Stock on the Trading Market is suspended for more than 3 hours, in
the aggregate, or if any Trading Day during the Draw Down Pricing Period is
shortened because of a public holiday, then that portion of the Investment
Amount to be paid on the immediately pending Settlement Date shall be reduced by
an amount equal to 1/10th for each such Trading Day during the Draw Down Pricing
Period and such Trading Day(s) shall be withdrawn from the Draw Down Pricing
Period calculations set forth above; and

     (iii) if during any Trading Day during the Draw Down Pricing Period sales
of Draw Down Shares pursuant to the Registration Statement are suspended by the
Company for more than three (3) hours, in the aggregate, then that portion of
the Investment Amount to be paid on the immediately pending Settlement Date
shall be reduced by an amount equal to 1/10th for each such Trading Day during
the Draw Down Pricing Period and such Trading Day(s) shall be withdrawn from the
Draw Down Pricing Period calculations set forth above.

     (e) The Company must inform the Purchaser by delivering a draw down notice,
in the form of Exhibit D hereto (the “Draw Down Notice”), via facsimile
transmission in accordance with Section 8.3, as to the amount of the Draw Down
(the “Investment Amount”) the Company wishes to exercise. The Draw Down Notice
shall also inform the Purchaser of the first day of the Draw Down Pricing Period
(the “Commencement Date”); provided; however, if the Commencement Date is the
date on which the Draw Down Notice is delivered, the Draw Down Notice must
delivered to the Purchaser at least 1 hour before trading commences on such
Trading Day. At no time shall the Purchaser be required to purchase more than
the maximum Investment Amount for a given Draw Down Pricing Period.

     (f) On the Trading Day immediately following the last day of the Draw Down
Pricing Period, the Company shall deliver and the Purchaser shall acknowledge a
settlement statement (the “Settlement Statement”) setting forth the number of
Draw

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Down Shares issuable and the calculation thereof. Promptly upon execution of the
Settlement Statement (but in no event more than 1 Trading day after the
execution of such Settlement Statement), the Draw Down Shares purchased pursuant
to such Settlement Statement shall be:

     (i) delivered to the Depository Trust Company (“DTC”) account of the
Purchaser, or its designees, as designated by the Purchaser in the Settlement
Statement, via DTC’s Deposit Withdrawal Agent Commission system (“DWAC”). Upon
the Company electronically delivering such Draw Down Shares to the DTC account
of the Purchaser, or its designees, via DWAC by 1:00 p.m. ET, the Purchaser
shall, on the same day (or the next Business Day if such day is not a Business
Day) wire transfer immediately available funds to the Company’s bank account, as
designated by the Company in the Settlement Statement, for the amount of the
aggregate Investment Amount of such Draw Down Shares less an origination fee
equal to 1% of the aggregate Investment Amount of such Draw Down which shall be
retained by the Purchaser. Upon the Company electronically delivering the Draw
Down Shares to the Purchaser or its designee’s DTC account via DWAC after 1:00
p.m. ET, the Purchaser shall wire transfer next day available funds to the
Company’s designated account on such day; or

     (ii) With the prior consent of the Purchaser, delivered by the Company to
Purchaser (or its designee) to the address as designated in the Settlement
Statement, the unlegended physical certificate for the Shares which shall be so
delivered in lieu of the electronic delivery via DTC’s DWAC and in accordance
with the terms of this Agreement.

     (g) The Company understands that a delay in the delivery of the Shares to
the Purchaser beyond the Settlement Date could result in economic loss to the
Purchaser. In addition to the Purchaser’s other available remedies, the Company
shall pay to the Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Shares (based on the Closing Price of the Common
Stock on the applicable Settlement Date) required to be delivered on the
Settlement Date, $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
the 2nd Trading Day following the Settlement Date until such Shares are
delivered pursuant to this Article VI. Nothing herein shall limit the
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 the 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.

ARTICLE VII.

TERMINATION

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     7.1 Term. The term of this Agreement shall begin on the date hereof and
shall end 36 months from the Effective Date or as otherwise set forth in Section
7.2.

     7.2 Other Termination.

     (a) This Agreement shall terminate if (i) the Common Stock is de-listed
from the Trading Market unless such de-listing is in connection with a
subsequent listing on another Trading Market, (ii) the Company files for
protection from creditors under any applicable law, (iii) the Registration
Statement is not declared effective by the Commission on the 9-month anniversary
of the date hereof or (iv) at the sole option of the Company with notice to the
Purchaser, the Registration Statement is not declared effective by the
Commission on the 6 month anniversary of the date hereof.

     (b) The Company may terminate this Agreement upon 5 Trading Day’s notice if
the Purchaser shall fail to fund a properly noticed Draw Down within 5 Trading
Days of the end of the applicable Draw Down Pricing Period.

     7.3 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 7.2 herein, written notice thereof shall forthwith be given
to the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Section 4.7 and Article 8
herein, which shall survive the termination of this Agreement. Nothing in this
Section 7.3 shall be deemed to release the Company or the Purchaser from any
liability for any breach under this Agreement, or to impair the rights of the
Company or the Purchaser to compel specific performance by the other party of
its obligations under this Agreement.

ARTICLE VIII.

MISCELLANEOUS

     8.1 Fees and Expenses. At the Closing, the Company has agreed to reimburse
the Purchaser the non-accountable sum of $15,000, for its legal fees and
expenses, $10,000 which has been paid prior to the Closing. The Company shall
deliver, prior to the Closing, a completed and executed copy of the Closing
Statement, attached hereto as Annex A. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchaser.

     8.2 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.

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

     8.4 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 the Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waived provision is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.

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

     8.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors. Neither party may assign
this Agreement or any rights or obligations hereunder (other than by merger).

     8.7 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 4.7.

     8.8 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. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an

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inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

     8.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Shares and Warrant Shares.

     8.10 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 or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

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

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

     8.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchaser 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

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breach of obligations contained in the Transaction Documents and hereby agrees
to waive and not to assert in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.

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

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

(Signature Pages Follow)

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      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.

REGI U.S., INC. Address for Notice:   1103-11871 Horseshoe Way   Richmond,
British Columbia   V7A 5H5, Canada By:
__________________________________________ Tel: (604) 278-5996        Name: Fax:
       Title: Attn:   E-Mail:

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]

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[PURCHASER SIGNATURE PAGES TO RGUS SECURITIES PURCHASE AGREEMENT]

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

Name of Purchaser: Dresden Investments Ltd.       Signature of Authorized
Signatory of Purchaser:       Name of Authorized Signatory:       Title of
Authorized Signatory:       Email Address of Purchaser:       Fax Number of
Purchaser:  

Address for Notice of Purchaser:

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

[SIGNATURE PAGES CONTINUE]

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SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(a)

Subsidiaries

 

None

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SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(g)

Capitalization

The total issued and outstanding shares of common stock of the Company as of
November 2, 2006, is 25,939,625.

As of November 2, 2006, the following share purchase warrants were outstanding:

               Number of Warrants              Exercise Price                
 Expiry Date 315,000 $0.80/$1.00 November 30, 2006/2007 405,000 $0.80/$1.00
April 26, 2007/2008

As of November 2, 2006, the following options were outstanding:

                 Number of Options              Exercise Price                
 Expiry Date 18,750 $0.20 November 29, 2006 570,000 $0.20 March 15, 2007 75,000
$0.20 May 10, 2007 150,000 $0.25 September 10, 2008 100,000 $0.35 December 2,
2008 13,500 $0.25 May 25, 2009 50,000 $0.35 September 30, 2009 62,500 $0.45 May
27, 2010 75,000 $2.20 April 21, 2011 25,000 $2.09 June 29, 2011 125,000 $1.37
November 1, 2011

Voting Trust Agreement dated August 31, 2006 whereby Access Information Services
Inc.,
Rainbow Network, JGR Petroleum, Inc., Information Highway.com, Inc. and IAS
Communication, Inc. assigned their voting rights in REGI US, Inc. to Rand Energy
Group Inc.

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SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(i)

Material Changes; Undisclosed Events, Liabilities or Developments

None

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SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(s)

Fees

For the Three Hundred Thousand Dollar ($300,000) loan financing, the Company is
obligated to pay JH Darbie and Co. a cash fee equal to eight percent (8%) of the
aggregate gross proceeds and warrants to purchase the number of shares of stock
equal to eight percent (8%) of the aggregate gross proceeds.

For the Equity Line of Credit, the Company is obligated to pay JH Darbie
warrants to purchase a number of shares of stock equal to eight percent (8%) of
the equity line of credit and a cash fee equal to five percent (5%) of each draw
down by the Company.

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SECURITY PURCHASE AGREEMENT

SCHEDULE 3.1(ee)

Accountants

For fiscal year 2006:

Smythe Ratcliffe LLP
355 Burrard Street
Vancouver, BC V6E 2G8
Canada

For fiscal year 2005 and prior:

Manning Elliot LLP
1050 West Pender Street
Vancouver, BC V6E 3S7
Canada

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