Exhibit 10.1

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of June 22, 2009, by
and among Commonwealth Biotechnologies, Inc., a Virginia corporation (the
“Company”), and the subscribers identified on the signature page hereto (each a
“Subscriber” and collectively “Subscribers”).

WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “1933 Act”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscribers, as
provided herein, and the Subscribers, in the aggregate, shall subscribe to Three
Hundred and Sixty-Nine Thousand Nine Hundred Fifty Dollars ($369,950) (the
“Purchase Price”) of promissory notes of the Company (“Note” or “Notes”), a form
of which is annexed hereto as Exhibit A, convertible into shares of the
Company’s common stock, no par value (the “Common Stock”) at a per share
conversion price set forth in the Note (“Conversion Price”). The Notes and the
shares of Common Stock issuable upon conversion of the Notes (the “Shares”) are
collectively referred to herein as the “Securities”; and

WHEREAS, the aggregate proceeds of the sale of the Notes contemplated hereby
shall be held in escrow pursuant to the terms of a Funds Escrow Agreement to be
executed by the parties substantially in the form attached hereto as Exhibit B
(the “Escrow Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby agree as
follows:

1. Conditions to Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto for the purchase price set forth
on the signature page hereto. The Purchase Price will be paid by the surrender
of certain outstanding promissory notes of the Company and deemed payment of
interest in connection with such surrendered promissory notes held by the
Subscribers as more fully described on the signature page hereto.

2. Closing Date. The consummation of the transactions contemplated herein shall
take place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, as soon as practicable following the
satisfaction or waiver of all conditions to closing set forth in this Agreement
(the “Closing Date”).

3. Subscriber’s Representations and Warranties. Such Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:

(a) Organization and Standing of the Subscribers. If the Subscriber is an
entity, such Subscriber is a corporation, partnership or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has the requisite
corporate power to own its assets and to carry on its business.

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(b) Authorization and Power. Each Subscriber has the requisite power and
authority to enter into and perform this Agreement and to purchase the Notes
being sold to it hereunder. The execution, delivery and performance of this
Agreement by such Subscriber and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Subscriber or its Board of Directors, stockholders, partners, members, as the
case may be, is required. This Agreement has been duly authorized, executed and
delivered by such Subscriber and constitutes, or shall constitute when executed
and delivered, a valid and binding obligation of the Subscriber enforceable
against the Subscriber in accordance with the term hereof.

(c) No Conflicts. The execution, delivery and performance of this Agreement and
the consummation by such Subscriber of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of such
Subscriber’s charter documents or bylaws or other organizational documents or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument or obligation to which such Subscriber is a party or by
which its properties or assets are bound, or result in a violation of any law,
rule, or regulation, or any order, judgment or decree of any court or
governmental agency applicable to such Subscriber or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on such Subscriber). Such Subscriber
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or to
purchase the Notes in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, such Subscriber is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein.

(d) Information on Company. Subscriber has been furnished with or has had access
at the IDEA Website of the Commission to the Company’s Form 10-K filed on
March 31, 2009 for the fiscal year ended December 31, 2008, and the financial
statements included therein for the year ended December 31, 2008, together with
all subsequent filings made with the Commission available at the IDEA website
until five days before the Closing Date (hereinafter referred to collectively as
the “Reports”). In addition, Subscriber may have received in writing from the
Company such other information concerning its operations, financial condition
and other matters as Subscriber has requested in writing, identified thereon as
OTHER WRITTEN INFORMATION (such other information is collectively, the “Other
Written Information”), and considered all factors Subscriber deems material in
deciding on the advisability of investing in the Securities.

(e) Information on Subscriber. The Subscriber is, and will be at the time of the
conversion of the Notes, an “accredited investor”, as such term is defined in
Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is accurate.

 

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(f) Purchase of Notes. On the Closing Date, the Subscriber will purchase the
Notes as principal for its own account for investment only and not with a view
toward, or for resale in connection with, the public sale or any distribution
thereof, but Subscriber does not agree to hold the Notes for any minimum amount
of time.

(g) Compliance with Securities Act. The Subscriber understands and agrees that
the Securities have not been registered under the 1933 Act or any applicable
state securities laws, by reason of their issuance in a transaction that does
not require registration under the 1933 Act (based in part on the accuracy of
the representations and warranties of Subscriber contained herein), and that
such Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration. Notwithstanding anything to the contrary
contained in this Agreement, such Subscriber may transfer (without restriction
and without the need for an opinion of counsel) the Securities to its Affiliates
(as defined below) provided that each such Affiliate is an “accredited investor”
under Regulation D and such Affiliate agrees to be bound by the terms and
conditions of this Agreement. For the purposes of this Agreement, an “Affiliate”
of any person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person or entity. Affiliate when employed in connection with the Company
includes each Subsidiary [as defined in Section 4(a)] of the Company. For
purposes of this definition, “control” means the power to direct the management
and policies of such person or firm, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.

(h) Shares Legend. The Shares shall bear the following or similar legend:

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”

(i) Note Legend. The Note shall bear the following legend:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES UNDERLYING THESE SECURITIES HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE

 

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SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

(j) Communication of Offer. The offer to sell the Securities was directly
communicated to the Subscriber by the Company. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.

(k) Authority; Enforceability. This Agreement and other agreements delivered
together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by such Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity; and Subscriber has full corporate power and
authority necessary to enter into this Agreement and such other agreements and
to perform its obligations hereunder and under all other agreements entered into
by the Subscriber relating hereto.

(l) No Governmental Review. Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

(m) Correctness of Representations. Such Subscriber represents that the
foregoing representations and warranties are true and correct as of the date
hereof and, unless such Subscriber otherwise notifies the Company prior to the
Closing Date shall be true and correct as of the Closing Date.

(n) Survival. The foregoing representations and warranties shall survive the
Closing Date.

4. Company Representations and Warranties. The Company represents and warrants
to and agrees with each Subscriber that except as set forth in the Reports or
the Other Written Information and as otherwise qualified in the Transaction
Documents:

(a) Due Incorporation. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business is disclosed in the Reports. The Company is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect. For purpose of
this Agreement, a “Material

 

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Adverse Effect” shall mean a material adverse effect on the financial condition,
results of operations, properties or business of the Company taken individually,
or in the aggregate, as a whole. For purposes of this Agreement, “Subsidiary”
means, with respect to any entity at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association,
joint venture or other business entity) of which more than 30% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association, joint
venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule 4(a) hereto.

(b) Outstanding Stock. All issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable.

(c) Authority; Enforceability. This Agreement, the Note, the Escrow Agreement,
and any other agreements delivered together with this Agreement or in connection
herewith (collectively “Transaction Documents”) have been duly authorized,
executed and delivered by the Company and are valid and binding agreements
enforceable against the Company in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights generally and to general principles of equity. ‘““The Company
has full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder.

(d) Additional Issuances. Except as described in the Reports, there are no
outstanding agreements or preemptive or similar rights affecting the Company’s
or any of its Subsidiaries’ Common Stock or other equity and no outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, or agreements or understandings with respect to the sale or
issuance of any Common Stock or equity of the Company except as described on
Schedule 4(d). The Common Stock and all other equity of the Company and its
Subsidiaries on a fully diluted basis outstanding as of the last trading day
preceding the Closing Date is set forth on Schedule 4(d).

(e) Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, any Principal Market (as defined in Section 9(b) of
this Agreement), nor the Company’s shareholders is required for the execution by
the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities. The Transaction Documents
and the Company’s performance of its obligations thereunder has been unanimously
approved by the Company’s Board of Directors. The Company will timely make all
filings required to be made with the Principal Market [as defined in
Section 9(b)].”“

(f) No Violation or Conflict. Assuming the representations and warranties of the
Subscribers in Section 3 are true and correct, neither the issuance and sale of
the Securities nor the performance of the Company’s obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will:

(i) violate, conflict with, result in a breach of, or constitute a default (or
an event which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default in any material respect) under (A) the
articles or

 

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certificate of incorporation, charter or bylaws of the Company, (B) to the
Company’s knowledge, any decree, judgment, order, law, treaty, rule, regulation
or determination applicable to the Company of any court, governmental agency or
body, or arbitrator having jurisdiction over the Company or over the properties
or assets of the Company or any of its Affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
“lock-up” or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or

(ii) result in the creation or imposition of any Lien (as defined in
Section 9(n)) upon the Securities or any of the assets of the Company or any of
its Affiliates except as described herein; or

(iii) except for any of the Securities held by the Subscribers, result in the
activation of any anti-dilution rights or a reset or repricing of any debt or
security instrument of any other creditor or equity holder of the Company, nor
result in the acceleration of the due date of any obligation of the Company; or

(iv) result in the activation of any piggy-back registration rights of any
person or entity holding securities or debt of the Company or having the right
to receive securities of the Company.

(g) The Securities. The Securities upon issuance:

(i) are, or will be, free and clear of any security interests, liens, claims or
other encumbrances, subject only to restrictions upon transfer under the 1933
Act and any applicable state securities laws;

(ii) have been, or will be, duly and validly authorized and on the dates of
issuance of the Shares upon conversion of the Note, such Shares will be duly and
validly issued, fully paid and non-assessable and if registered pursuant to the
1933 Act and resold pursuant to an effective registration statement or exempt
from registration will be free trading, unrestricted and unlegended;

(iii) will not have been issued or sold in violation of any preemptive or other
similar rights of the holders of any securities of the Company or rights to
acquire securities of the Company;

(iv) will not subject the holders thereof to personal liability by reason of
being such holders; and

(v) assuming the representations warranties of the Subscribers as set forth in
Section 4 hereof are true and correct, will not result in a violation of
Section 5 under the 1933 Act.

(h) Litigation. There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company of any
of the Transaction Documents or the performance by the Company of its
obligations under the Transaction Documents. There is no pending or, to the best
knowledge of the Company, basis for or

 

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threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates which litigation if adversely determined would have a
Material Adverse Effect.

(i) Reporting Company. The Company is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934 (the “1934 Act”) and has a class of common shares registered pursuant to
Section 12(g) of the 1934 Act. Pursuant to the provisions of the 1934 Act, the
Company has filed all reports and other materials required to be filed
thereunder with the Commission during the preceding thirty-six months.

(j) No Market Manipulation. The Company and its Affiliates have not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold.

(k) Information Concerning Company. The Reports contain all material information
relating to the Company and its operations and financial condition as of their
respective dates and all the information required to be disclosed therein. Since
the last day of the fiscal year of the most recent audited financial statements
included in the Reports (“Latest Financial Date”), and except as modified in the
Other Written Information or in the Schedules hereto, there has been no Material
Adverse Event relating to the Company’s business, financial condition or affairs
not disclosed in the Reports. The Reports including the financial statements
therein do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.

(l) Stop Transfer. The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities, except as
may be required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Subscriber.

(m) Defaults. The Company is not in violation of its certificate of
incorporation or bylaws. Except as disclosed on Schedule 4(m), the Company is
(i) not in default under or in violation of any other material agreement or
instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse
Effect, (ii) not in default with respect to any order of any court, arbitrator
or governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect.

(n) Not an Integrated Offering. Neither the Company, nor any of its Affiliates,
nor any person acting on its or their behalf, has directly or indirectly made
any offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offer of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the NCM which would
impair the exemptions relied upon in this Offering or the Company’s ability to
timely comply with its obligations hereunder. Nor will the Company or any of its
Affiliates take any action or steps that would cause the offer or issuance of
the Securities to be integrated with other offerings which would impair the
exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder. The Company will not conduct any offering
other

 

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than the transactions contemplated hereby that will be integrated with the offer
or issuance of the Securities, which would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder.

(o) No General Solicitation. Neither the Company, nor any of its Affiliates, nor
to its knowledge, any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.

(p) Listing. The Company’s common stock is quoted on the NCM under the symbol
CBTE. Except as described in the Reports, the Company has not received any oral
or written notice that its common stock is not eligible nor will become
ineligible for quotation on the NCM nor that its common stock does not meet all
requirements for the continuation of such quotation. Except as described in the
Reports, the Company satisfies all the requirements for the continued quotation
of its common stock on the NCM.

(q) No Undisclosed Liabilities. The Company has no liabilities or obligations
which are material, individually or in the aggregate, which are not disclosed in
the Reports and Other Written Information, other than those incurred in the
ordinary course of the Company’s businesses since the Latest Financial Date and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or on Schedule 4(q).

(r) No Undisclosed Events or Circumstances. Since the Latest Financial Date, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.

(s) Capitalization. The authorized and outstanding capital stock of the Company
as of the date of this Agreement and the Closing Date (not including the
Securities) are set forth on Schedule 4(d). Except as set forth on Schedule 4(d)
or described in the Reports, there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company or any of its Subsidiaries. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.

(t) Dilution. The Company’s executive officers and directors understand the
nature of the Securities being sold hereby and recognize that the issuance of
the Securities will have a potential dilutive effect on the equity holdings of
other holders of the Company’s equity or rights to receive equity of the
Company. The board of directors of the Company has concluded, in its good faith
business judgment that the issuance of the Securities is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Notes is binding upon the Company and
enforceable against the Company regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.

(u) No Disagreements with Accountants and Lawyers. There are no disagreements of
any kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing Date.

 

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(v) DTC Status. The Company’s transfer agent is a participant in, and the Common
Stock is eligible for transfer pursuant to, the Depository Trust Company
Automated Securities Transfer Program. The name, address, telephone number, fax
number, contact person and email address of the Company transfer agent is set
forth on Schedule 4(v) hereto.

(w) Investment Company. Neither the Company nor any Affiliate is an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

(x) Subsidiary Representations. The Company makes each of the representations
contained in Sections 4(a), (b), (c), (d), (e), (f), (h), (k), (m), (q), (r),
(u) and (w) of this Agreement, as same relate to each Subsidiary of the Company.

(y) Company Predecessor. All representations made by or relating to the Company
of a historical or prospective nature and all undertakings described in Sections
9(g) through 9(l) shall relate, apply and refer to the Company and its
predecessors, if any.

(z) 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 and subject to the Company’s working capital
deficiency and its being in default on certain notes which give rise to its
ability to continue as a going concern, (i) the Company’s fair saleable value of
its assets exceeds the amount that will be required to be paid on or in respect
of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).

(AA) Preservation of Corporate Existence. With the exception of Exelgen Limited,
the Company’s wholly-owned subsidiary that is in the process of administration,
the Company shall preserve and maintain its corporate existence, rights,
privileges and franchises in the jurisdiction of its incorporation, and qualify
and remain qualified, as a foreign corporation in each jurisdiction in which
such qualification is necessary in view of its business or operations and where
the failure to qualify or remain qualified might reasonably have a Material
Adverse Effect upon the financial condition, business or operations of the
Company and its Subsidiaries taken as a whole.

(BB) Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date.

(CC) Survival. The foregoing representations and warranties shall survive the
Closing Date.

 

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5. Regulation D Offering. The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company’s legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as Exhibit C. At the Company’s option, the
Company will provide, at the Company’s expense or reimburse Subscribers, such
other legal opinions in the future as are reasonably necessary for the issuance
and resale of the Common Stock issuable upon conversion of the Notes pursuant to
an effective registration statement, Rule 144 under the 1933 Act or an exemption
from registration.

6.1. Conversion of Note.

(a) Upon the conversion of a Note or part thereof, the Company shall, at its own
cost and expense, take all necessary action, including obtaining and delivering,
an opinion of counsel to assure that the Company’s transfer agent shall issue
stock certificates in the name of Subscriber (or its permitted nominee) or such
other persons as designated by Subscriber and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company’s Common Stock and that the certificates representing such shares shall
contain no legend other than the usual 1933 Act restriction from transfer
legend. If and when the Subscriber sells the Shares, assuming (i) the
Registration Statement (as defined below) is effective and the prospectus, as
supplemented or amended, contained therein is current and (ii) the Subscriber
confirms in writing to the transfer agent that the Subscriber has complied with
the prospectus delivery requirements, the restrictive legend can be removed and
the Shares will be free trading, and freely transferable. In the event that the
Shares are sold in a manner that complies with an exemption from registration,
the Company will promptly instruct its counsel to issue to the transfer agent an
opinion permitting removal of the legend (indefinitely, if pursuant to Rule 144
of the 1933 Act).

(b) Subscriber will give notice of its decision to exercise its right to convert
the Note, interest, any sum due to the Subscriber under the Transaction
Documents or part thereof by telecopying an executed and completed Notice of
Conversion (a form of which is annexed as Exhibit A to the Note) to the Company
via confirmed telecopier transmission or otherwise pursuant to Section 13(a) of
this Agreement. The Subscriber will not be required to surrender the Note until
the Note has been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company will itself or cause the
Company’s transfer agent to transmit the Company’s Common Stock certificates
representing the Shares issuable upon conversion of the Note to the Subscriber
via express courier for receipt by such Subscriber within three (3) business
days after receipt by the Company of the Notice of Conversion (such third day
being the “Delivery Date”). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic transfer
provided request for such electronic transfer has been made by the Subscriber
and the Subscriber has complied with all applicable securities laws in
connection with the sale of the Common Stock, including, without limitation, the
prospectus delivery requirements. A Note representing the balance of the Note
not so converted will be provided by the Company to the Subscriber if requested
by Subscriber, provided the Subscriber delivers the original Note to the
Company. In the event that a Subscriber elects not to surrender a Note for
reissuance upon partial payment or conversion, the Subscriber hereby indemnifies
the Company against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount then due under the Note.
“Business day” and “trading day” as employed in the Transaction Documents is a
day that the New York Stock Exchange is open for trading for three or more
hours.

 

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(c) The Company understands that a delay in the delivery of the Shares in the
form required pursuant to Section 6.1 hereof, or the Mandatory Redemption Amount
described in Section 6.2 hereof, respectively after the Delivery Date or the
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay (as liquidated damages and not as a penalty) to
the Subscriber for late issuance of Shares in the form required pursuant to
Section 6.1 hereof upon Conversion of the Note in the amount of $100 per
business day after the Delivery Date for each $10,000 of Note principal amount
being converted of the corresponding Shares which are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares by the Delivery Date or make
payment by the Mandatory Redemption Payment Date, the Subscriber may revoke all
or part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to the
Company whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that the liquidated damages described above shall be payable through the date
notice of revocation or rescission is given to the Company.

(d) Nothing contained herein or in any document referred to herein or delivered
in connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Company to the Subscriber and thus refunded to the Company.

6.2. Mandatory Redemption at Subscriber’s Election. In the event (i) the Company
is prohibited from issuing Conversion Shares, (ii) upon the occurrence of any
other Event of Default (as defined in the Note or in this Agreement), that
continues for more than twenty (20) business days, (iii) a Change in Control (as
defined below), or (iv) of the liquidation, dissolution or winding up of the
Company, then at the Subscriber’s election, the Company must pay to each
Subscriber ten (10) business days after request by each Subscriber (“Calculation
Period”), a sum of money determined by multiplying up to the outstanding
principal amount of the Note designated by each such Subscriber by 120%, plus
accrued but unpaid interest (“Mandatory Redemption Payment”). The Mandatory
Redemption Payment must be received by each Subscriber on the same date as the
Conversion Shares otherwise deliverable or within ten (10) business days after
request, whichever is sooner (“Mandatory Redemption Payment Date”). Upon receipt
of the Mandatory Redemption Payment, the corresponding Note principal and
interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 6.1(c) hereof, that have been paid or accrued for
the ten day period prior to the actual receipt of the Mandatory Redemption
Payment by a Subscriber shall be credited against the Mandatory Redemption
Payment. For purposes of this Section 6.2, “Change in Control” shall mean
(i) the Company no longer having a class of shares publicly traded or listed on
a Principal Market (as defined in Section 9(b)), (ii) the Company becoming a
Subsidiary of another entity (other than a corporation formed by the Company for
purposes of reincorporation in another U.S. jurisdiction), (iii) a majority of
the board of directors of the Company as of the Closing Date no longer serving
as directors of the Company except due to natural causes (which shall include,
termination of such directors by the holders of more than 50% of the Common
Stock outstanding as of such termination date), and (iv) the sale, lease or
transfer of substantially all the assets of the Company or its Subsidiaries (it
being understood that the issuance of capital stock by the Company shall not, in
and of itself, be deemed to be the sale or transfer of an asset of the Company).

 

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6.3. Maximum Conversion/Maximum Issuance. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more than 4.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
Beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
exercises which would result in the issuance of more than 4.99%. The restriction
described in this paragraph may be waived, in whole or in part, upon sixty-one
(61) days prior notice from the Subscriber to the Company to increase such
percentage to up to 9.99%, but not in excess of 9.99%. The Subscriber may decide
whether to convert a Convertible Note to achieve an actual 4.99% or up to 9.99%
ownership position as described above, but not in excess of 9.99%. The maximum
amount of Shares issuable upon conversion of the Notes shall not exceed, in the
aggregate, 9.99% of the amount of Common Stock outstanding immediately preceding
the Closing. The Company acknowledges that, as of the date of Closing, it has
issued and outstanding 7,416,896 shares of Common Stock, 9.99% of which would be
not less than 740,947 shares of Common Stock. Both parties acknowledge that, in
no case shall the Company be required to take actions that would require it to
file with the NASDAQ Stock Market a Listing of Additional Shares under NASDAQ
Rule 5250(e)(2).

6.4. Injunction Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof, the Company may not refuse conversion based on
any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of such Note shall have been sought and obtained by
the Company or at the Company’s request or with the Company’s assistance, and
the Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the outstanding principal and interest of the Note, or
aggregate purchase price of the Shares which are sought to be subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.

6.5. Buy-In. In addition to any other rights available to the Subscriber, if the
Company fails to deliver to the Subscriber such shares issuable upon conversion
of a Note by the Delivery Date and if after seven (7) business days after the
Delivery Date the Subscriber or a broker on the Subscriber’s behalf, purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a “Buy-In”), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.

 

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6.6. Adjustments. The Conversion Price and amount of Shares issuable upon
conversion of the Notes shall be adjusted as described in this Agreement and the
Notes.

7. Redemption. The Note shall not be redeemable or callable except as described
in the Note.

8. Legal Fees. The Subscribers shall pay to Grushko & Mittman, P.C., legal fees
(“Legal Fees”) as reimbursement for services rendered to the Subscribers in
connection with this Agreement and the purchase and sale of the Notes (the
“Offering”). The Legal Fees and reimbursement for estimated UCC searches, if any
(less any amounts paid prior to a Closing Date), and estimated printing and
shipping costs for the closing statements to be delivered to Subscribers, will
be payable on the Closing Date.

9. Covenants of the Company. The Company covenants and agrees with the
Subscribers as follows:

(a) Stop Orders. The Company will advise the Subscribers, within two hours after
the Company receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.

(b) Listing. The Company shall promptly secure the listing or the inclusion for
quotation of the shares of Common Stock upon each national securities exchange,
or electronic or automated quotation system upon which they are or become
eligible for listing or quotation and shall maintain such listing or quotation
so long as any Notes are outstanding. The Company will maintain the listing or
quotation of its Common Stock on the NCM, American Stock Exchange, Nasdaq
National Market System, OTC Bulletin Board, Pink Sheets or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the “Principal Market”)), and will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting or exclusion from
quotation of the Common Stock from any Principal Market. As of the date of this
Agreement, the NCM is the Principal Market.

(c) Market Regulations. The Company shall notify the Commission, the Principal
Market and applicable state authorities, in accordance with their requirements,
of the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Subscribers and promptly provide copies thereof to Subscriber.

(d) Filing Requirements. From the date of this Agreement and until the sooner of
(i) two (2) years after the Closing Date, or (ii) until all the Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, the
Company will (A) cause its Common Stock to continue to be registered under
Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its
reporting and filing obligations under the 1934 Act, (C) voluntarily comply with
all reporting requirements that are applicable to an issuer with a class of
shares registered

 

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pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Closing Date. Until
the earlier of the resale of the Shares by each Subscriber or two (2) years
after the Closing Date, the Company will use its best efforts to continue the
listing or quotation of the Common Stock on a Principal Market and will comply
in all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Principal Market. The Company agrees to timely file a
Form D with respect to the Securities if required under Regulation D and to
provide a copy thereof to each Subscriber promptly after such filing.

(e) Reservation. Prior to the Closing Date, the Company undertakes to reserve,
pro rata, on behalf of the Subscribers from its authorized but unissued common
stock, a number of common shares equal to 150 % of the amount of Common Stock
necessary to allow each Subscriber to be able to convert all Notes issuable
pursuant to this Agreement and interest thereon. Failure to have sufficient
shares reserved pursuant to this Section 9(e) shall be a material default of the
Company’s obligations under this Agreement and an Event of Default under the
Note.

(f) Taxes. From the date of this Agreement and until the conversion or
satisfaction of the Note, in its entirety, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefore.

(g) Insurance. From the date of this Agreement and until the conversion or
satisfaction of the Note, in its entirety, the Company will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company’s line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured less reasonable deductible amounts; and the Company will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated and to
the extent available on commercially reasonable terms.

(h) Books and Records. From the date of this Agreement and until the conversion
or satisfaction of the Note, in its entirety, the Company will keep true records
and books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.

(i) Governmental Authorities. From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, the Company shall duly
observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.

 

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(j) Intellectual Property. From the date of this Agreement and until the
conversion or satisfaction of the Note, in its entirety, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business, unless it is sold for value.

(k) Properties. From the date of this Agreement and until the conversion or
satisfaction of the Note, in its entirety, the Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.

(l) Confidentiality/Public Announcement. From the date of this Agreement and
until the End Date, the Company agrees that except in connection with a Form 8-K
and the registration statement or statements regarding the Subscriber’s
Securities or in correspondence with the SEC regarding same, it will not
disclose publicly or privately the identity of the Subscriber unless expressly
agreed to in writing by a Subscriber or only to the extent required by law and
then only upon not less than three days prior notice to Subscriber. In any event
and subject to the foregoing, the Company undertakes to file a Form 8-K
describing the Offering not later than the next business day after the Closing
Date. Prior to the filing date of such Form 8-K, a draft in the final form will
be provided to Subscriber for Subscriber’s review and approval. In the Form 8-K,
the Company will specifically disclose the amount of Common Stock outstanding
immediately after the Closing. Upon delivery by the Company to the Subscriber
after the Closing Date of any notice or information, in writing, electronically
or otherwise, and while a Note is held by Subscriber, unless the Company has in
good faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or
Subsidiaries, the Company shall within one business day after any such delivery
publicly disclose such material, nonpublic information on a Report on
Form 8-K. In the event that the Company believes that a notice or communication
to Subscriber contains material, nonpublic information relating to the Company
or Subsidiaries, the Company shall so indicate to Subscriber prior to delivery
of such notice or information. Subscriber will be granted sufficient time to
notify the Company that Subscriber elects not to receive such information. In
such case, the Company will not deliver such information to Subscriber. In the
absence of any such indication, Subscriber shall be allowed to presume that all
matters relating to such notice and information do not constitute material,
nonpublic information relating to the Company or Subsidiaries.

(m) Negative Covenants. So long as the Note is outstanding, without the consent
of the Subscriber, the Company will not and will not permit any of its
Subsidiaries to directly or indirectly:

(i) create, incur, assume or suffer to exist any pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
security title, mortgage, security deed or deed of trust, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Uniform Commercial
Code or comparable law of any jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired except for: (A) the Excepted
Issuances (as defined in Section 12 hereof), and (B) (a) Liens imposed by law
for taxes that are not yet due or are being contested in good faith and for
which adequate reserves have been established in accordance with generally
accepted accounting principles; (b)

 

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carriers’, warehousemen’s, mechanics’, material men’s, repairmen’s and other
like Liens imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than 30 days or that are being
contested in good faith and by appropriate proceedings; (c) pledges and deposits
made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of new
property in the ordinary course of the Company’s business up to the amount of
the purchase price of such property; and (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property (each of (a) through (f), a “Permitted Lien”).

(ii) amend its certificate of incorporation, bylaws or its charter documents so
as to materially and adversely affect any rights of the Subscriber (an increase
in the amount of authorized shares and an increase in the number of directors
will not be deemed adverse to the rights of the Subscriber);

(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire or
make any dividend or distribution in respect of any of its Common Stock,
preferred stock, or other equity securities other than to the extent permitted
or required under the Transaction Documents.

(iv) engage in any transactions with any officer, director, employee or any
Affiliate of the Company, 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 $100,000 other than (i) for payment of salary, or 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; or

(v) prepay or redeem any financing related debt or past due obligations or
securities outstanding as of the Closing Date.

The Company agrees to provide Subscribers not less than ten (10) days notice
prior to becoming obligated to or effectuating a Permitted Lien or Excepted
Issuance.

(n) Non-Public Information. The Company covenants and agrees that except for the
Reports, Other Written Information and schedules and exhibits to this Agreement
and the Transaction Documents, which information the Company undertakes to
publicly disclose on the Form 8-K described in Section 9(l) above, neither it
nor any other person acting on its behalf will at any time provide Subscriber or
its agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto Subscriber shall have
agreed in writing to accept such information. The Company understands and
confirms that Subscriber shall be relying on the foregoing representations in
effecting transactions in securities of the Company.

(o) Offering Restrictions. Except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of corporation or
other entity provided

 

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such issuances are not for the purpose of raising capital which holders of such
securities or debt are not at any time granted registration rights, (ii) the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital and which holders of such securities or debt are not
at any time granted registration rights, (iii) the Company’s issuance of Common
Stock or the issuances or grants of options to purchase Common Stock pursuant to
stock option plans and employee stock purchase plans described on Schedule 4(d)
hereto at prices equal to or higher than the closing price of the Common Stock
on the issue date of any of the foregoing, (iv) as a result of the conversion of
Notes which are granted or issued pursuant to this Agreement or that have been
issued prior to the Closing Date, the issuance of which has been disclosed in a
Report filed not less than five (5) days prior to the Closing Date, and (v) the
payment of any interest on the Notes and Liquidated Damages pursuant to the
Transaction Documents (collectively the foregoing are “Excepted Issuances”), the
Company will not enter into an agreement to issue nor issue any equity,
convertible debt or other securities convertible into Common Stock or equity of
the Company nor modify any of the foregoing which may be outstanding at anytime,
without the prior written consent of the Subscribers, which consent may be
withheld for any reason. For so long as the Notes are outstanding, the Company
will not (i) directly or indirectly issue any Common stock or instruments
convertible, exercisable or exchangeable for Common Stock at a per share of
Common Stock equivalent price of less than $0.71, nor (ii) enter into any Equity
Line of Credit or similar agreement, nor issue nor agree to issue any floating
or Variable Priced Equity Linked Instruments nor any of the foregoing or equity
with price reset rights (collectively, the “Variable Rate Restrictions”). For
purposes hereof, “Equity Line of Credit” shall include any transaction involving
a written agreement between the Company and an investor or underwriter whereby
the Company has the right to “put” its securities to the investor or underwriter
over an agreed period of time and at an agreed price or price formula, and
“Variable Priced Equity Linked Instruments” shall include: (A) any debt or
equity securities which are convertible into, exercisable or exchangeable for,
or carry the right to receive additional shares of Common Stock either (1) at
any conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for Common Stock at any
time after the initial issuance of such debt or equity security, or (2) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions).

10. Covenants of the Company and Subscriber Regarding Indemnification.

(a) The Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers’ officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation by
Company or material breach of any warranty by Company in this Agreement or in
any Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any material
breach or default in performance by the Company of any covenant or undertaking
to be performed by the Company hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto.

 

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(b) Each Subscriber agrees to indemnify, hold harmless, reimburse and defend the
Company and each of the Company’s officers, directors, agents, Affiliates,
control persons against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company or any such person which results, arises out of or is based
upon (i) any material misrepresentation by such Subscriber in this Agreement or
in any Exhibits or Schedules attached hereto, or other agreement delivered
pursuant hereto; or (ii) after any applicable notice and/or cure periods, any
material breach or default in performance by such Subscriber of any covenant or
undertaking to be performed by such Subscriber hereunder, or any other agreement
entered into by the Company and Subscribers, relating hereto.

(c) In no event shall the liability of any Subscriber or permitted successor
hereunder or under any Transaction Document or other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).

(d) The procedures set forth in Section 11.6 shall apply to the indemnification
set forth in Sections 10(a) and 10(b) above.

11.1. Registration Rights. The Company hereby grants the following registration
rights to holders of the Securities.

(i) On one occasion, commencing on the Closing Date, but not later than two
years after the Closing Date, upon a written request therefor from any record
holder or holders of more than 50% of the Conversion Shares issued and issuable
upon conversion of the outstanding, the Company shall prepare and file with the
Commission a registration statement under the 1933 Act registering the
Registrable Securities, as set forth on Schedule 11.1 hereof, which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include Securities which are (A) registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act or (D) which
may be resold under Rule 144 without volume limitations. Upon the receipt of
such request, the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within ten days after the Company
gives such written notice. Such other requesting record holders shall be deemed
to have exercised their demand registration right under this Section 11.1(i).

(ii) If the Company at any time proposes to register any of its securities under
the 1933 Act for sale to the public, whether for its own account or for the
account of other security holders or both, except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Registrable Securities for sale to the public, provided the Registrable
Securities are not otherwise registered for resale by the Subscribers or Holder
pursuant to an effective registration statement, each such time it will give at
least ten (10) days’ prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within ten (10) days after the giving of any
such notice by the Company, to register any of the Registrable Securities not
previously registered, the Company will cause such Registrable Securities as to
which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent required to permit the sale or other disposition
of the Registrable Securities so registered by the holder of such Registrable
Securities (the “Seller” or “Sellers”). In the event that any registration
pursuant to this Section 11.1(ii) shall be, in whole or in part, an underwritten
public offering of common stock of the Company, the number of shares

 

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of Registrable Securities to be included in such an underwriting may be reduced
by the managing underwriter if and to the extent that the Company and the
underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.

(iii) If, at the time any written request for registration is received by the
Company pursuant to Section 11.1(i), the Company has determined to proceed with
the actual preparation and filing of a registration statement under the 1933 Act
in connection with the proposed offer and sale for cash of any of its securities
for the Company’s own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).

11.2. Registration Procedures. If and whenever the Company is required by the
provisions of Section 11.1 to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:

(a) subject to the timelines provided in this Agreement, prepare and file with
the Commission a registration statement required by Section 11, with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of the
Registrable Securities copies of all filings and Commission letters of comment
and notify Subscribers (by telecopier and by e-mail addresses provided by
Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com) on or before the first business day thereafter that the
Company receives notice that (i) the Commission has no comments or no further
comments on the Registration Statement, and (ii) the registration statement has
been declared effective (failure to timely provide notice as required by this
Section 11.2(a) shall be a material breach of the Company’s obligation and an
Event of Default as defined in the Notes and a Non-Registration Event as defined
in Section 11.4 of this Agreement);

(b) prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;

(c) furnish to the Sellers, at the Company’s expense, such number of copies of
the registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;

(d) use its commercially reasonable best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or “blue sky” laws of New York and such jurisdictions as the Sellers
shall request in writing, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

 

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(e) if applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;

(f) notify the Subscribers within two hours of the Company’s becoming aware that
a prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Registrable
Securities;

(g) provided same would not be in violation of the provision of Regulation FD
under the 1934 Act, make available for inspection by the Sellers, and any
attorney, accountant or other agent retained by the Seller or underwriter, all
publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company’s
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement; and

(h) provide to the Sellers copies of the Registration Statement and amendments
thereto five business days prior to the filing thereof with the Commission.

11.3. Provision of Documents. In connection with each registration described in
this Section 11, each Seller will furnish to the Company in writing such
information and representation letters with respect to itself and the proposed
distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

11.4. Non-Registration Events. The Company and the Subscribers agree that the
Sellers will suffer damages if the Company does not comply with its obligations
set forth in Section 11.1.

11.5. Expenses. All expenses incurred by the Company in complying with
Section 11, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or “blue sky”
laws, fees of the National Association of Securities Dealers, Inc. and FINRA,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fee of one counsel for all Sellers are called “Registration Expenses.” All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called “Selling Expenses.” The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.

11.6. Indemnification and Contribution.

(a) In the event of a registration of any Registrable Securities under the 1933
Act pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the

 

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Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
were registered under the 1933 Act pursuant to Section 11, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances when made,
and will subject to the provisions of Section 11.6(c) reimburse the Seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to the Seller to the extent that any such
damages arise out of or are based upon an untrue statement or omission made in
any preliminary prospectus if (i) the Seller failed to send or deliver a copy of
the final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.

(b) In the event of a registration of any of the Registrable Securities under
the 1933 Act pursuant to Section 11, each Seller severally but not jointly will,
to the extent permitted by law, indemnify and hold harmless the Company, and
each person, if any, who controls the Company within the meaning of the 1933
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the 1933
Act pursuant to Section 11, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Registrable Securities covered by such
registration statement.

(c) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such

 

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indemnified party under this Section 11.6(c), except and only if and to the
extent the indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 11.6(c) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified parties, as a group,
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.

(d) In order to provide for just and equitable contribution in the event of
joint liability under the 1933 Act in any case in which either (i) a Seller, or
any controlling person of a Seller, makes a claim for indemnification pursuant
to this Section 11.6 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11.6 provides for indemnification in such case, or
(ii) contribution under the 1933 Act may be required on the part of the Seller
or controlling person of the Seller in circumstances for which indemnification
is not provided under this Section 11.6; then, and in each such case, the
Company and the Seller will contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.

11.7. Delivery of Unlegended Shares.

(a) Within three (3) business days (such third business day being the
“Unlegended Shares Delivery Date”) after the business day on which the Company
has received (i) a representation that the prospectus delivery requirements, or
the requirements of Rule 144, as applicable and if required, have been
satisfied, and (ii) the original share certificates representing the shares of
Common Stock that have been sold, and (iii) in the case of sales under Rule 144,
customary representation letters of the Subscriber and/or Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4 above, reissuable pursuant to any effective and current Registration
Statement described in Section 11 of this Agreement or pursuant to Rule 144
under the 1933 Act (the “Unlegended Shares”); and (z) cause the transmission of
the certificates representing

 

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the Unlegended Shares together with a legended certificate representing the
balance of the submitted Shares certificate, if any, to the Subscriber at the
address specified in the notice of sale, via express courier, by electronic
transfer or otherwise on or before the Unlegended Shares Delivery Date.

(b) In lieu of delivering physical certificates representing the Unlegended
Shares, if the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program, upon request of a
Subscriber, so long as the certificates therefor do not bear a legend and the
Subscriber is not obligated to return such certificate for the placement of a
legend thereon, the Company must cause its transfer agent to electronically
transmit the Unlegended Shares by crediting the account of Subscriber’s prime
Broker with DTC through its Deposit Withdrawal Agent Commission system. Such
delivery must be made on or before the Unlegended Shares Delivery Date.

(c) The Company understands that a delay in the delivery of the Unlegended
Shares pursuant to Section 11 hereof after the Unlegended Shares Delivery Date
could result in economic loss to Subscriber. As compensation to Subscriber for
such loss, the Company agrees to pay late payment fees (as liquidated damages
and not as a penalty) to the Subscriber for late delivery of Unlegended Shares
in the amount of $100 per business day after the Delivery Date for each $10,000
of Purchase Price of the Unlegended Shares subject to the delivery default. If
during any 360 day period, the Company fails to deliver Unlegended Shares as
required by this Section 11.7 for an aggregate of thirty (30) days, then each
Subscriber or assignee holding Securities subject to such default may, at its
option, require the Company to redeem all or any portion of the Shares subject
to such default at a price per share equal to 120% of the Purchase Price of such
Shares (“Unlegended Redemption Amount”).

(d) In addition to any other rights available to a Subscriber, if the Company
fails to deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a “Buy-In”), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber’s total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

(e) In the event a Subscriber shall request delivery of Unlegended Shares as
described in Section 11.7 and the Company is required to deliver such Unlegended
Shares pursuant to Section 11.7, the Company may not refuse to deliver
Unlegended Shares based on any claim that such Subscriber or any one associated
or affiliated with such Subscriber has been engaged in any violation of law, or
for any other reason, unless, an injunction or temporary restraining order from
a court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate purchase price of the Common Stock which are subject to the
injunction or temporary restraining

 

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order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.

11.8 In the event commencing one hundred and eighty-one (181) days after the
Closing Date and ending five years thereafter, the Subscriber is not permitted
to sell any of the Shares without any restrictive legend or if such sales are
permitted but subject to volume limitations or further restrictions on resale as
a result of the unavailability to Subscriber of Rule 144(b)(1) under the 1933
Act or any successor rule (a “144 Default”), for any reason except for
Subscriber’s status as an Affiliate or “control person” of the Company, then the
Company shall pay such Subscriber as liquidated damages (“Liquidated Damages”)
and not as a penalty an amount equal to two percent (2%) for the first day of
such occurrence and two percent (2%) for each thirty (30) days (or such lesser
pro-rata amount for any period less than thirty (30) days) thereafter of the
purchase price of the Shares owned by the Subscriber during the pendency of the
144 Default.

12. Miscellaneous.

(a) Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, or facsimile, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Commonwealth
Biotechnologies, Inc., 601 Biotech Drive, Richmond, VA 23235, Attn, Dr. ‘Richard
J. Freer, Ph.D., COO, telecopier: (804) 648-2641, with a copy by telecopier only
to: Kaufman and Canoles, P.C., Three James Center, 12th Floor, 1051 East Cary
Street, Richmond, VA 23219, Attn: Bradley A. Haneberg, Esq., telecopier:
(804) 771-5777, and (ii) if to the Subscriber, to: the one or more addresses and
telecopier numbers indicated on the signature pages hereto, with an additional
copy by telecopier only to: Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, telecopier: (212) 697-3575.

(b) Entire Agreement; Assignment. This Agreement and other documents delivered
in connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by both parties. Neither the Company nor the Subscribers have relied on
any representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of the Subscribers.

(c) Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.

 

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(d) Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflicts of laws principles that would result in the application of the
substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the civil or state courts of New York or in the federal
courts located in New York County. The parties and the individuals executing
this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney’s fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.

(e) Specific Enforcement, Consent to Jurisdiction. To the extent permitted by
law, the Company and Subscriber acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 12(d) hereof, each of the Company,
Subscriber and any signator hereto in his personal capacity hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

(f) Damages. In the event the Subscriber is entitled to receive any liquidated
damages pursuant to the Transactions, the Subscriber may elect to receive the
greater of actual damages or such liquidated damages.

(g) Independent Nature of Subscribers. The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the
(i) inclusion of a Subscriber in the Registration Statement and (ii) review by,
and consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the

 

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transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.

(h) Consent. As used in the Agreement, “consent of the Subscribers” or similar
language means the consent of holders of not less than 70% of the total of the
Shares issued and issuable upon conversion of outstanding Notes owned by
Subscribers on the date consent is requested. The Subscribers hereto do not
waive any rights they have or obligations owed to them by the Company except the
Subscribers consent to the fulfillment of all of the transactions described in
the Transaction Documents.

(i) Equal Treatment. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of the Transaction
Documents unless the same consideration is also offered and paid to all the
parties to the Transaction Documents.

(j) Maximum Payments. Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.

(k) Calendar Days. All references to “days” in the Transaction Documents shall
mean business days unless otherwise stated. The terms “business days” and
“trading days” shall mean days that the New York Stock Exchange is open for
trading for three or more hours. Time periods shall be determined as if the
relevant action, calculation or time period were occurring in New York City. Any
deadline that falls on a non-business day in any of the Transaction Documents
shall be automatically extended to the next business day and interest, if any,
shall be calculated and payable through such extended period.

(l) Captions: Certain Definitions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement. As used in this Agreement the term “person” shall
mean and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.

(m) Severability. In the event that any term or provision of this Agreement
shall be finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by an authority having jurisdiction and
venue, that determination shall not impair or otherwise affect the validity,
legality or enforceability: (i) by or before that authority of the remaining
terms and provisions of this Agreement, which shall be enforced as if the
unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.

 

26

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(n) Successor Laws. References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rule, regulations and forms. A successor
rule to 144(k) shall include any rule that would be available to a non-Affiliate
of the Company for the sale of Common Stock not subject to volume restrictions.

[THIS SPACE INTENTIONALLY LEFT BLANK]

 

27

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

COMMONWEALTH BIOTECHNOLOGIES, INC. a Virginia corporation By:  

/s/ Richard J. Freer, Ph.D.

Name:   Richard J. Freer, Ph.D. Title:   Chief Operating Officer   Dated: June
22, 2009

 

SUBSCRIBER

   PURCHASE PRICE *    NOTE PRINCIPAL

ALPHA CAPITAL ANSTALT

Pradafant 7

9490 Furstentums

Vaduz, Lichtenstein

Fax: 011-42-32323196

   $ 185,800.00    $ 189,802.00

 

/s/ Konrad Akermann

(Signature) By:   Konrad Akermann

 

* The Purchase Price will be paid by a deemed partial surrender and cancellation
of Notes issued by the Company to Alpha Capital Anstalt on December 31, 2007 and
additional amounts represents interest of $4,002.

 

28

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

COMMONWEALTH BIOTECHNOLOGIES, INC. a Virginia corporation By:  

/s/ Richard J. Freer, Ph.D.

Name:   Richard J. Freer, Ph.D. Title:   Chief Operating Officer   Dated: June
22, 2009

 

SUBSCRIBER

   PURCHASE PRICE *    NOTE PRINCIPAL

CHESTNUT RIDGE PARTNERS L.P.

10 Forest Avenue, Suite 220

Paramus, NJ 07652

Fax: (201) 843-1721

   $ 55,700.00    $ 56,900.00

 

/s/ Kenneth Holtz

(Signature) By:   Kenneth Holtz

 

* The Purchase Price will be paid by a deemed partial surrender and cancellation
of Notes issued by the Company to Chestnut Ridge Partners L.P. on December 31,
2007 and additional amounts represents interest of $1,200.

 

29

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

COMMONWEALTH BIOTECHNOLOGIES, INC. a Virginia corporation By:  

/s/ Richard J. Freer, Ph.D.

Name:   Richard J. Freer, Ph.D. Title:   Chief Operating Officer   Dated: June
22, 2009

 

SUBSCRIBER

   PURCHASE PRICE *    NOTE PRINCIPAL

CENTURION MICROCAP, LP

3014 Avenue L

Brooklyn, NY 11210

Fax: 718-338-1088

   $ 74,300.00    $ 75,900.00

 

/s/ Abraham Schwartz

(Signature) By:   Abraham Schwartz

 

* The Purchase Price will be paid by a deemed partial surrender and cancellation
of Notes issued by the Company to Centurion Microcap, LP on December 31, 2007
and additional amounts represents interest of $1,600.

 

30

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

COMMONWEALTH BIOTECHNOLOGIES, INC. a Virginia corporation By:  

/s/ Richard J. Freer, Ph.D.

Name:   Richard J. Freer, Ph.D. Title:   Chief Operating Officer   Dated: June
22, 2009

 

SUBSCRIBER

   PURCHASE PRICE *    NOTE PRINCIPAL

BRIO CAPITAL L.P.

401 E 34th Street, Suite South 33C

New York, NY 10016

Fax: 646-390-2158

   $ 32,500.00    $ 33,200.00

 

/s/ Shaye Hirsch

(Signature) By:   Shaye Hirsch

 

* The Purchase Price will be paid by a deemed partial surrender and cancellation
of Notes issued by the Company to Brio Capital L.P. on December 31, 2007 and
additional amounts represents interest of $700.

 

31

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (E)

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

COMMONWEALTH BIOTECHNOLOGIES, INC. a Virginia corporation By:  

/s/ Richard J. Freer, Ph.D.

Name:   Richard J. Freer, Ph.D. Title:   Chief Operating Officer   Dated: June
22, 2009

 

SUBSCRIBER

   PURCHASE PRICE *    NOTE PRINCIPAL

BRIO CAPITAL SELECT LLC

401 E 34th Street, Suite South 33C

New York, NY 10016

Fax: 646-390-2158

   $ 9,250.00    $ 9,449.00

 

/s/ Shaye Hirsch

(Signature) By:   Shaye Hirsch

 

* The Purchase Price will be paid by a deemed partial surrender and cancellation
of Notes issued by the Company to Brio Capital Select LLC on December 31, 2007
and additional amounts represents interest of $199.

 

32

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SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (F)

Please acknowledge your acceptance of the foregoing Subscription Agreement by
signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

 

COMMONWEALTH BIOTECHNOLOGIES, INC. a Virginia corporation By:  

/s/ Richard J. Freer, Ph.D.

Name:   Richard J. Freer, Ph.D. Title:   Chief Operating Officer   Dated: June
22, 2009

 

SUBSCRIBER

   PURCHASE PRICE *    NOTE PRINCIPAL

ASSAMEKA CAPITAL

30 Olympia Lane

Monsey, NY 10952

Fax: 432-577-5407

   $ 4,600.00    $ 4,699.00

 

/s/ Asher Brand

(Signature) By:   Asher Brand

 

* The Purchase Price will be paid by a deemed partial surrender and cancellation
of Notes issued by the Company to Assameka Capital on December 31, 2007 and
additional amounts represents interest of $99.

 

33