PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (the “Agreement”) is entered into and effective as of
November 9, 2007 (“Effective Date”), by and among Neah Power Systems, Inc., a
Nevada corporation (the “Company”), and EPD Investment Co., LLC, a California
limited liability company (the “Purchaser”).

RECITALS

A. the Company and the Purchaser are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
for offers and sales to accredited investors afforded by Rule 506 under
Regulation D (“Regulation D”) as promulgated by the SEC under the Securities
Act, and Section 4(2) of the Securities Act;

B. The Purchaser wishes to purchase a 10% Secured Convertible Promissory Note of
the Company (the “Note”), subject to and upon the terms and conditions of this
Agreement and acceptance of this Agreement by the Company, on the terms and
conditions referred to herein; and

C. The Company’s obligations to repay the Note will be secured by the assets of
the Company and the Pledged Shares.

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

1. AGREEMENT TO PURCHASE; PURCHASE PRICE.

a. Purchase.

(i) Subject to the terms and conditions of this Agreement and the other
Transaction Agreements, the Purchaser hereby agrees to purchase the Note for the
sum of $500,000.00 (the “Purchase Amount”).

(ii) The Note will be secured by a pledge of the Pledged Shares under the terms
of the Pledge Agreement. The Note will be further secured by all the assets of
the Company under the terms of the Security Agreement.

(iii) In consideration for the Purchaser agreeing to purchase the Note, the
Company agrees to issue to the Purchaser a 5-year Warrant to purchase up to
500,000 shares of Common Stock at $0.29 per share.
 
 
 

--------------------------------------------------------------------------------

 

(iv) In further consideration for the Purchaser agreeing to purchase the Note,
the Company agrees to issue and deliver to the Purchaser the following number of
duly authorized, fully paid, non-assessable, registered and free-trading shares
of Common Stock of the Company (collectively, the “Equity Shares”): (A) $250,000
worth of Common Stock (“Initial Equity Shares”), valued at the lower of (x)
$0.20 per share, and (y) the VWAP for the 20 consecutive Trading Days
immediately prior to the date on which the Registration Statement becomes
effective; (B) in the event that the Registration Statement is not declared
effective or the Note is not paid in full on or before the 45th day after the
Effective Date, an additional $250,000 worth of stock at the same valuation (the
“Additional Equity Shares”); (C) in the event that the Note is not paid in full
on or before the 90th day after the Closing Date, and each 90-day anniversary
thereafter, an additional $100,000 worth of stock valued at the lower of (x)
$0.20 per share, and (y) the VWAP for the 20 consecutive Trading Days
immediately prior to such 90-day anniversary (each, “Extension Equity Shares”).

(v) Stock certificates for the Equity Shares, free and clear of any restrictive
legend, will be delivered to Purchaser no later than the Trading Day after each
of the following: (A) for the Initial Equity Shares, the Registration Date; (B)
for the Additional Equity Shares, if due, the later of (x) the 45th Day after
the Effective Date and (y) the Registration Date; and (C) for each of the
Extension Equity Shares, if due, the later of (x) 90-day anniversary after they
become due, and (y) the Registration Date. 

(vi) The purchase of the Note and the issuance of the Warrant and the Equity
Shares to the Purchaser and the other transactions contemplated hereby are
sometimes referred to herein and in the other Transaction Agreements as the
purchase and sale of the Securities (as defined below), and are referred to
collectively as the “Transactions”.

b. Certain Definitions. As used herein, each of the following terms has the
meaning set forth below, unless the context otherwise requires:

“Affiliate” means, with respect to a specific Person referred to in the relevant
provision, another Person who or which controls or is controlled by or is under
common control with such specified Person. 

“Certificate” means the original ink-signed Note duly executed by the Company.

“Closing Date” means November 13, 2007, the date of the closing of the
Transactions, as provided herein.

“Common Stock” means the common stock, $0.01 par value, of the Company, and any
other class of securities into which such securities may hereafter be
reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
 
 
2

--------------------------------------------------------------------------------

 
 
“Company Control Person” means each director, executive officer, promoter, and
such other Persons as may be deemed in control of the Company pursuant to Rule
405 under the Securities Act or Section 20 of the Exchange Act (as defined
below).

“Disclosure Annex” means the Disclosure Annex to this Agreement; provided,
however, that the Disclosure Annex shall be arranged in sections corresponding
to the identified Sections of this Agreement, but the disclosure in any such
section of the Disclosure Annex shall qualify other provisions in this Agreement
to the extent that it would be readily apparent to an informed reader from a
reading of such section of the Disclosure Annex that it is also relevant to
other provisions of this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
 
“Holder” means the Person holding the relevant Securities at the relevant time.

“Last Audited Date” means December 31, 2006.

“Purchaser Control Person” means each director, executive officer, promoter, and
such other Persons as may be deemed in control of the Purchaser pursuant to Rule
405 under the Securities Act or Section 20 of the Exchange Act.

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

“Material Adverse Effect” means an event or combination of events, which
individually or in the aggregate, would reasonably be expected to (w) adversely
affect the legality, validity or enforceability of the Securities or any of the
Transaction Agreements, (x) have or result in a material adverse effect on the
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and its subsidiaries, taken as a whole, (y) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
of the Transaction Agreements or the transactions contemplated thereby, or (z)
materially and adversely affect the value of the rights granted to the Purchaser
in the Transaction Agreements.

“Person” means any living person or any entity, such as, but not necessarily
limited to, a corporation, partnership or trust.

“Pledge Agreement” means the Stock Pledge Agreement between the Company and the
Purchaser.

“Pledged Shares” means shares of Common Stock pledged by the Company pursuant to
the Pledge Agreement, in the initial amount of 12,500,000 shares.
 
“Principal Trading Market” means the Over the Counter Bulletin Board or such
other market on which the Common Stock is principally traded at the relevant
time, but shall not include the “pink sheets.”
 
 
3

--------------------------------------------------------------------------------

 
 
“Registrable Securities” means all of the following: (i) the Warrant Shares,
(ii) the Equity Shares, and (iii) any shares of the Company’s common stock that
are issued to the Purchaser in connection with any other agreements between the
parties hereto, except to the extent such shares can then be sold by the Holder
without volume or other restrictions or limits.

“Registration Date” means the date on which the Registration Statement first
becomes effective.

“Registration Rights Provisions” means the registration rights contemplated by
the terms of this Agreement, if any, including, but not necessarily limited to,
Section 4(g) hereof, and of the other Transaction Agreements.

“Registration Statement” means an effective registration statement covering the
Registrable Securities.

“SEC” means the United States Securities and Exchange Commission.

“Securities” means the Note, the Warrant, the shares underlying the Warrant, and
any shares of common stock of the Company that may be issued to the Purchaser in
connection with any other agreements between the parties.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
 
“Shares” means the shares of Common Stock representing any or all of the Warrant
Shares, the Equity Shares, and, where relevant, the Pledged Shares.

“Short Sales” means “short sales” as defined in Rule 3b-3 of the Exchange Act
and Rule 200 promulgated under Regulation SHO under the Exchange Act.

“State of Incorporation” means Nevada.

“Subsidiary” means any subsidiary of the Company as set forth on the Disclosure
Annex.
 
“Trading Day” means any day during which the Principal Trading Market shall be
open for business.

“Transaction Fees” means legal and due diligence fees incurred by the Purchaser.

“Transfer Agent” means, at any time, the transfer agent for the Company’s Common
Stock.

“Transaction Agreements” means this Purchase Agreement, the Note, the Security
Agreement, the Pledge Agreement, the Warrant, the Registration Rights Agreement
by and between the parties of even date herewith, and includes all ancillary
documents referred to in those agreements.
 
 
4

--------------------------------------------------------------------------------

 

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the primary Trading Market on which
the Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using
the VAP function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the “Pink
Sheets” published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Holders holding a
majority of the principal amount of Notes then outstanding.

“Warrant Shares” means shares of Common Stock underlying the Warrant.

c. Form of Payment; Delivery of Certificates. 

(i) The Purchaser shall pay the Purchase Amount by delivering immediately
available good funds in United States Dollars to the Company on the Closing
Date.

(ii) On or before the Closing Date, the Company shall deliver the Certificate
and the Warrant, duly executed on behalf of the Company, to the Purchaser.

(iii) On or before the Closing Date, the Company shall deliver original stock
certificates representing the Pledged Shares, including the Equity Shares, to
the Escrow Agent; or irrevocable instructions to the Transfer Agent to issue and
deliver such shares.

(iv) By signing this Agreement, each of the Purchaser and the Company agrees to
all of the terms and conditions of the Transaction Documents, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
 
 
5

--------------------------------------------------------------------------------

 

d. Method of Payment. Payment of the Purchase Amount shall be made by wire
transfer of immediately available funds to:

Pay to:   Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
 
Routing No.:  121140399

For Credit of:  Neah Power Systems, Inc. 
22122 20th Ave SE, Suite 161
Bothell WA 98021

Account No.:  3300156900

2. PURCHASER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.

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

a. Without limiting Purchaser's right to sell the Securities pursuant to an
effective registration statement or otherwise in compliance with the Securities
Act, the Purchaser is purchasing the Securities for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.

b. The Purchaser is (i) an “accredited investor” as that term is defined in Rule
501 of the General Rules and Regulations under the Securities Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its Affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and to evaluate the merits and risks of an investment in the
Securities, and (iv) able to afford the entire loss of its investment in the
Securities.

c. All subsequent offers and sales of the Securities by the Purchaser shall be
made pursuant to registration of the relevant Securities under the Securities
Act or pursuant to an exemption from registration.

d. The Purchaser understands that the Securities are being offered and sold to
it in reliance on specific exemptions from the registration requirements of the
Securities Act and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Securities.
 
 
6

--------------------------------------------------------------------------------

 

e. The Purchaser and its advisors, if any, have been furnished with or have been
given access to all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Purchaser, including those set forth on in any
annex attached hereto. The Purchaser and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management and
have received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Purchaser has also had the
opportunity to obtain and to review all the Company's filings with the SEC
(collectively, the “Company's SEC Documents”).

f. The Purchaser understands that its investment in the Securities involves a
high degree of risk.

g. The Purchaser hereby represents that, in connection with its purchase of the
Securities, it has not relied on any statement or representation by the Company
or any of its officers, directors and employees or any of their respective
attorneys or agents, except as specifically set forth herein.

h. The Purchaser understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.

i. This Agreement and the other Transaction Agreements to which the Purchaser is
a party, and the transactions contemplated thereby, have been duly and validly
authorized, executed and delivered on behalf of the Purchaser and are valid and
binding agreements of the Purchaser enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.

j. Since the earlier to occur of (1) the time that Purchaser was first contacted
by the Company or any other Person regarding an investment in the Company and
(2) the 10th Trading Day prior to the date of this Agreement, neither the
Purchaser nor any Affiliate of Purchaser which (x) had confidential knowledge of
the transactions contemplated hereby, (y) has or shares discretion relating to
Purchaser’s investments or trading or information concerning Purchaser’s
investments in respect of the Shares, or (z) is subject to Purchaser’s review or
approval concerning Affiliate’s investments or trading (collectively, “Trading
Affiliates”) has directly or indirectly, nor has any Person acting on behalf of
or pursuant to any understanding with Purchaser, or to Purchaser’s knowledge
Trading Affiliate, effected or agreed to effect any Short Sales involving the
Company’s securities (each, a “Prohibited Transaction”) or any other
transactions in the securities of the Company. Purchaser shall not, and shall
use reasonable best efforts to cause its Trading Affiliates not to, engage,
directly or indirectly, in a Prohibited Transaction during the period from the
date hereof until the earlier of (A) the Effectiveness Date, or (B) January 1,
2008. Purchaser agrees that it will not use any of the Shares acquired pursuant
to this Agreement to cover any short position in the Common Stock if doing so
would be in violation of applicable securities laws. Purchaser acknowledges that
it is aware that the SEC has published its position that covering a short
position established prior to effectiveness of a resale registration statement
with shares included in such registration statement would be a violation of
Section 5 of the Securities Act.
 
 
7

--------------------------------------------------------------------------------

 

3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to the
Purchaser as of the date hereof and as of the Closing Date that, except as
otherwise provided in the Disclosure Annex or in the SEC Documents:

a. Rights of Others Affecting the Transactions. There are no preemptive rights
of any shareholder of the Company, as such, to acquire the Note, or any shares
of the Company’s common stock that may be issued in connection with this
Agreement or any other agreement entered into by the parties hereto, in the
event such shares are issued. No party other than a Purchaser has a currently
exercisable right of first refusal which would be applicable to any or all of
the transactions contemplated by the Transaction Agreements.

b. Status. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Incorporation and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. 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 or result
in a Material Adverse Effect. The Company has registered its stock and is
obligated to file reports pursuant to Section 12 or Section 15(d) of the
Exchange Act. The Common Stock is, or immediately following the Closing Date
will be, quoted on the Principal Trading Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such quotation on the Principal Trading Market, and the Company
has maintained all requirements on its part for the continuation of such
quotation.

c. Authorized Shares. 
 
(i) The authorized capital stock of the Company consists of 500,000,000 shares
of Common Stock, $0.001 par value, 116,151,700 of which are outstanding as of
July 31, 2007 and 25,000,000 shares of Preferred Stock, $0.001 par value, none
of which are outstanding as of the date hereof.

(ii) All issued and outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid and non-assessable. The Company has
sufficient authorized and unissued shares of Common Stock as may be necessary to
affect the issuance of all Equity Shares and Warrant Shares to be issued to
Purchaser.
 
(iii) As of the Closing Date, the Shares shall have been duly authorized by all
necessary corporate action on the part of the Company, and, when issued on the
Closing Date or pursuant to other relevant provisions of the Transaction
Agreements, in each case in accordance with their respective terms, will be duly
and validly issued, fully paid and non-assessable and will not subject the
Holder thereof to personal liability by reason of being such Holder.

 
8

--------------------------------------------------------------------------------

 
d. Transaction Agreements and Stock. This Agreement and each of the other
Transaction Agreements, and the transactions contemplated thereby, have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Note and
each of the other Transaction Agreements, when executed and delivered by the
Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium, and other
similar laws affecting the enforcement of creditors' rights generally.

e. Non-contravention. The execution and delivery of this Agreement and each of
the other Transaction Agreements by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, each of the Notes and the other Transaction Agreements do not
and will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default under (i) the certificate of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, or (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, except such conflict, breach or default which would not have or
result in a Material Adverse Effect.

f. Approvals. No authorization, approval or consent of any court, governmental
body, regulatory agency, self-regulatory organization, or stock exchange or
market or the shareholders of the Company is required to be obtained by the
Company for the issuance and sale of the Securities to the Purchaser as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.

g. Filings. None of the Company’s SEC Documents contained, at the time they were
filed, any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements made
therein in light of the circumstances under which they were made, not
misleading. Since December 31, 2006, the Company has timely filed all requisite
forms, reports and exhibits thereto, if any, required to be filed by the Company
with the SEC.

h. Absence of Certain Changes. Since the Last Audited Date, there has been no
material adverse change and no Material Adverse Effect, except as disclosed in
the Company’s SEC Documents. Since the Last Audited Date, except as provided in
the Company’s SEC Documents, the Company has not (i) incurred or become subject
to any material liabilities (absolute or contingent) except liabilities incurred
in the ordinary course of business consistent with past practices; (ii)
discharged or satisfied any material lien or encumbrance or paid any material
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business consistent with past practices; (iii)
declared or made any payment or distribution of cash or other property to
shareholders with respect to its capital stock, or purchased or redeemed, or
made any agreements to purchase or redeem, any shares of its capital stock; (iv)
sold, assigned or transferred any other tangible assets, or canceled any debts
owed to the Company by any third party or claims of the Company against any
third party, except in the ordinary course of business consistent with past
practices; (v) waived any rights of material value, whether or not in the
ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any increases in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.

 
9

--------------------------------------------------------------------------------

 
 
i. Full Disclosure. To the best of the Company’s knowledge, there is no fact
known to the Company (other than general economic conditions known to the public
generally or as disclosed in the Company’s SEC Documents) that has not been
disclosed in writing to the Purchaser that would reasonably be expected to have
or result in a Material Adverse Effect.

j. Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company before or
by any governmental authority or nongovernmental department, commission, board,
bureau, agency or instrumentality or any other person, wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements. The Company is not aware of any valid basis for any such claim that
(either individually or in the aggregate with all other such events and
circumstances) could reasonably be expected to have a Material Adverse Effect.
There are no outstanding or unsatisfied judgments, orders, decrees, writs,
injunctions or stipulations to which the Company is a party or by which it or
any of its properties is bound, that involve the transaction contemplated herein
or that, alone or in the aggregate, could reasonably be expect to have a
Material Adverse Effect.

k. Absence of Events of Default. Except as set forth in Section 3(e) and 3(g)
hereof, (i) neither the Company nor any of its subsidiaries is in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
material agreement to which it is a party or by which its property is bound, and
(ii) no Event of Default (or its equivalent term), as defined in the respective
agreement to which the Company or its subsidiary is a party, and no event which,
with the giving of notice or the passage of time or both, would become an Event
of Default (or its equivalent term) (as so defined in such agreement), has
occurred and is continuing, which would have a Material Adverse Effect.

l. Absence of Certain Company Control Person Actions or Events. To the Company’s
knowledge, none of the following has occurred during the past five (5) years
with respect to a Company Control Person:

(1) A petition under the federal bankruptcy laws or any state insolvency law was
filed by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such Company Control
Person, or any partnership in which he was a general partner at or within two
years before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the time of
such filing;
 
 
10

--------------------------------------------------------------------------------

 

(2) Such Company Control Person was convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding (excluding traffic violations and
other minor offenses);

(3) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:

(i) acting, as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance company, as a futures
commission merchant, introducing broker, commodity trading advisor, commodity
pool operator, floor broker, any other Person regulated by the Commodity Futures
Trading Commission ("CFTC") or engaging in or continuing any conduct or practice
in connection with such activity;

(ii) engaging in any type of business practice; or

(iii) engaging in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of federal or state
securities laws or federal commodities laws;

(4) Such Company Control Person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days the
right of such Company Control Person to engage in any activity described in
paragraph (3) of this item, or to be associated with Persons engaged in any such
activity; or

(5) Such Company Control Person was found by a court of competent jurisdiction
in a civil action or by the CFTC or SEC to have violated any federal or state
securities law, and the judgment in such civil action or finding by the CFTC or
SEC has not been subsequently reversed, suspended, or vacated.

m. No Undisclosed Liabilities or Events. To the best of the Company’s knowledge,
the Company has no liabilities or obligations other than those disclosed in the
Transaction Agreements or the Company's SEC Documents or those incurred in the
ordinary course of the Company's business since the Last Audited Date, or which
individually or in the aggregate, do not or would not have a Material Adverse
Effect. No event or circumstances has occurred or exists with respect to the
Company or its properties, business, operations, condition (financial or
otherwise), or results of operations, which, 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. There
are no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (x) change the articles or certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without shareholder approval, which change would
reduce or otherwise adversely affect the rights and powers of the shareholders
of the Common Stock or (y) materially or substantially change the business,
assets or capital of the Company, including its interests in subsidiaries.
 
 
11

--------------------------------------------------------------------------------

 

n. No Integrated Offering. Neither the Company nor any of its Affiliates nor any
Person acting on its or their behalf has, directly or indirectly, at any time
since November 1, 2006, made any offer or sales of any security or solicited any
offers to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Regulation D in connection
with the offer and sale of the Securities as contemplated hereby.

o. Dilution. Any shares of the Company’s stock that may be issued in connection
with this Agreement or any other agreement entered into by the parties hereto,
in the event such shares are issued, may have a dilutive effect on the ownership
interests of the other shareholders (and Persons having the right to become
shareholders) of the Company. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have such a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company.

p. Recognition of Pledge Agreements and Pledged Shares. The Company acknowledges
that the execution and delivery of the Pledge Agreement, and the fulfillment o f
the terms thereof, is a condition to the closing of the Transactions. The
Company will recognize the terms of the Pledge Agreement and, as provided
therein, the transfer of the Pledged Shares to the Purchaser and will take no
position or give the Transfer Agent any instructions which would be inconsistent
with the rights of the Purchaser to have the Pledged Shares transferred to the
Purchaser in accordance with the terms of the Pledge Agreement.

q. Fees to Brokers, Finders and Others. The Company has taken no action which
would give rise to any claim by any Person for brokerage commission, finder's
fees or similar payments by Purchaser relating to this Agreement or the
transactions contemplated hereby. Purchaser shall have no obligation with
respect to such fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this paragraph that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless each of Purchaser, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.

r. Confirmation. The Company confirms that all statements of the Company
contained herein shall survive acceptance of this Agreement by the Purchaser.
The Company agrees that, if any events occur or circumstances exist prior to the
Closing Date or the release of the Purchase Amount to the Company which would
make any of the Company’s representations, warranties, agreements or other
information set forth herein materially untrue or materially inaccurate as of
such date, the Company shall immediately notify the Purchaser (directly or
through its counsel, if any) in writing prior to such date of such fact,
specifying which representation, warranty or covenant is affected and the
reasons therefor.
 
 
12

--------------------------------------------------------------------------------

 

s. Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Agreements and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Agreements by
the Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith other than
in connection with the Required Approvals. Each Transaction Agreement has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
 
t.  SEC Reports; Financial Statements. Other than as previously disclosed to the
Purchaser, the Company has filed all reports required to be filed by it under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the year preceding the date hereof (or such shorter period as
the Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”), except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

u.   Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect.
 
v.  Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a Material
Adverse Effect.
 
 
13

--------------------------------------------------------------------------------

 
 
w.  Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits could
not have or reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any
Material Permit.
 
x.  Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries and good and marketable title in
all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the Company and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
of which the Company and the Subsidiaries are in compliance.
 
y. Patents and Trademarks. The Company and the Subsidiaries have, or have rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights
necessary or material for use in connection with their respective businesses and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights of others.
 
z. Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, at least equal to the Purchase Amount. To the best
of Company’s knowledge, such insurance contracts and policies are accurate and
complete. Neither the Company nor any Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
 
aa.  Transactions with Affiliates and Employees. Except as disclosed in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $50,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
 
 
14

--------------------------------------------------------------------------------

 
 
bb. Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge,
in other factors that could significantly affect the Company's internal
controls.
 
cc. Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.
 
dd.  No Disagreements with Accountants and Lawyers. Except as otherwise
disclosed in the Company’s SEC Documents, there are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise, between
the accountants and lawyers formerly or presently employed by the Company and
the Company is current with respect to any fees owed to its accountants and
lawyers. By making this representation the Company does not, in any manner,
waive the attorney/client privilege or the confidentiality of the communications
between the Company and its lawyers.
 
 
15

--------------------------------------------------------------------------------

 
 
ee.  Accountants. The Company’s accountants are Peterson & Sullivan, PLLC. To
the Company’s knowledge, such accountants, who the Company expects will express
their opinion with respect to the financial statements for the year ended
December 31, 2006, are a registered public accounting firm as required by the
Securities Act.
 
ff.  Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, which Company will
publicly disclose within 4 Trading Days of the Effective Date, the Company
confirms that neither it nor any other Person acting on its behalf has provided
the Purchaser or its agents or representatives with any information that it
believes constitutes or might constitute material, non-public information which
is not otherwise disclosed in the SEC Reports. The Company understands and
confirms that the Purchaser will rely on the foregoing representation in
effecting transactions in securities of the Company. All disclosure furnished by
or on behalf of the Company to the Purchaser regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure Schedules to
this Agreement, is true and correct and does not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading. The Company acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 2 hereof.
 
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a. Transfer Restrictions. The Purchaser acknowledges that (1) the Securities
have not been and except as provided in the Registration Rights Provisions or
otherwise included in an effective registration statement, the Shares have not
been registered under the Securities Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Purchaser shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the Securities Act (“Rule 144") may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities under circumstances in which the seller, or the Person
through whom the sale is made, may be deemed to be an underwriter, as that term
is used in the Securities Act, may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC thereunder; and
(3) neither the Company nor any other Person is under any obligation to register
the Securities (other than pursuant to the Registration Rights Provisions) under
the Securities Act or to comply with the terms and conditions of any exemption
thereunder.
 
 
16

--------------------------------------------------------------------------------

 

b. Restrictive Legend. The Purchaser acknowledges and agrees that, until such
time as the Shares sold in accordance with an effective Registration Statement
or otherwise in accordance with another effective registration statement, the
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.

c. Filings. The Company undertakes and agrees to make all necessary filings in
connection with the sale of the Securities to the Purchaser under any United
States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Purchaser promptly after such filing.

d. Reporting Status. So long as the Purchaser beneficially owns any of the
Shares or has a security interest in the Pledged Shares, the Company shall file
all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act, shall take all reasonable action under its control to ensure
that adequate current public information with respect to the Company, as
required in accordance with Rule 144(c)(2) of the Securities Act, is publicly
available, and shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. The Company will take all
reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock (including, without limitation, all
Registrable Securities) on the Principal Trading Market or a listing on the
NASDAQ/Small Cap or National Markets and, to the extent applicable to it, will
comply in all material respects with the Company’s reporting, filing and other
obligations under the by-laws or rules of the Principal Trading Market and/or
the National Association of Securities Dealers, Inc., as the case may be,
applicable to it for so long as the Purchaser beneficially owns any of the
Shares or has a security interest in the Pledged Shares.

e. Use of Proceeds. The Company will use the proceeds received hereunder for
working capital and general corporate purposes.

f. Warrant. The Company agrees to issue a warrant (the “Warrant”) to the
Purchaser on the Closing Date. The terms relating to the Warrant are provided in
Annex VII annexed hereto, the terms of which are incorporated herein by
reference. All of the Warrant Shares shall have Registration Rights Provisions.

g. Registration Rights; Rule 144.

(i) The Purchaser shall have registration rights with respect to the Registrable
Securities subject to the conditions set forth below. The Company will prepare
and file with the SEC as soon as practicable, and use reasonable best efforts to
cause to become effective, a Registration Statement on Form SB-2 (unless Company
is at any time eligible to use Form 3, then on Form 3) for all Registrable
Securities at no cost or expense to the Holder (other than any commissions, if
any, relating to the sale of Holder’s shares), and to keep it current and
effective until such time as Holder can sell all of the remaining Registrable
Securities under Rule 144(k) without volume or other restrictions or limit.
Anything to the contrary notwithstanding, a registration statement covering the
Registrable Securities shall be filed no later than December 31, 2007.
 
 
17

--------------------------------------------------------------------------------

 

(ii) The parties acknowledge that the damages which may be incurred by the
Holder if the Company does not fulfill its obligations under subparagraph (i)
above, which will affect the Holder’s ability to sell the Shares, may be
difficult to ascertain. If the Company fails to file a Registration Statement
covering the Registrable Securities on or before December 31, 2007, then the
Company will make payment to the Purchaser, for each Computation Period (as
defined below) an amount equal to 2% of the aggregate principal amount of the
Note then outstanding (the “Periodic Amount”) provided however, that no event
shall the aggregate liquidated damages exceed 18% of the principal amount. The
term “Computation Period” means each thirty (30) day period commencing on the
effective date of the Subsequent Registration Statement and ending on the date
on which there are one or more effective registration statements covering the
Purchaser’s sale of all of the Holder’s shares. The Periodic Amount shall be due
without further demand or notice from the Purchaser. The parties agree that the
amounts payable pursuant to the foregoing provisions of this Section 4(g)
represent a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of such damages.

(iii) With a view to making available to the Holder the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit Holder to sell securities of the Company to
the public without registration (collectively, “Rule 144”), the Company agrees
to:

(a) make and keep public information available, as those terms are understood
and defined in Rule 144;

(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and

(c) furnish to the Holder so long as such party owns Registrable Securities,
promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (ii) if not available on the SEC’s EDGAR system, a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as may be
reasonably requested to permit the Holder to sell such securities pursuant to
Rule 144 without registration; and

(d) at the request of any Holder then holding Registrable Securities, give the
Transfer Agent instructions (supported by an opinion of Company counsel, if
required or requested by the Transfer Agent) to the effect that, upon the
Transfer Agent’s receipt from such Holder of
 
 
18

--------------------------------------------------------------------------------

 

(i) a certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s
holding period (as determined in accordance with the provisions of Rule 144) for
the Shares which the Holder proposes to sell (the “Securities Being Sold”) is
not less than (1) year and (B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and

(ii) an opinion of counsel acceptable to the Company that, based on the Rule 144
Certificate, Securities Being Sold may be sold pursuant to the provisions of
Rule 144, even in the absence of an effective registration statement,

the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the Purchaser(s) or transferee(s) thereof one or more stock
certificates representing the transferred Securities Being Sold without any
restrictive legend and without recording any restrictions on the transferability
of such shares on the Transfer Agent’s books and records (except to the extent
any such legend or restriction results from facts other than the identity of the
relevant Holder, as the seller or transferor thereof, or the status, including
any relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Purchaser). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may be
necessary to effectuate the issuance of an unlegended certificate.

(iv) Notwithstanding the foregoing, if at any time or from time to time after
the date of effectiveness of the registration statement, the Company notifies
the Holder in writing of the existence of a Potential Material Event (as defined
below), the Holder shall not offer or sell any Registrable Securities, or engage
in any other transaction involving or relating to the Registrable Securities,
from the time of the giving of notice with respect to a Potential Material Event
until the Holder receives written notice from the Company that such Potential
Material Event either has been disclosed to the public or no longer constitutes
a Potential Material Event; provided, however, that the Company may not so
suspend such right other than during a Permitted Suspension Period. The term
“Potential Material Event” means any of the following: (i) the possession by the
Company of material information not ripe for disclosure in a registration
statement, which shall be evidenced by determinations in good faith by the Board
of Directors of the Company that disclosure of such information in the
registration statement would be detrimental to the business and affairs of the
Company; or (ii) any material engagement or activity by the Company which would,
in the good faith determination of the Board of Directors of the Company, be
adversely affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the registration statement would be materially
misleading absent the inclusion of such information.
 
 
19

--------------------------------------------------------------------------------

 

h. Publicity, Filings, Releases, Etc. Each of the parties agrees that it will
not disseminate any information relating to the Transaction Agreements or the
transactions contemplated thereby, including issuing any press releases, holding
any press conferences or other forums, or filing any reports (collectively,
“Publicity”), without giving the other party reasonable advance notice and an
opportunity to comment on the contents thereof. Neither party will include in
any such Publicity any statement or statements or other material to which the
other party reasonably objects, unless in the reasonable opinion of counsel to
the party proposing such statement, such statement is legally required to be
included. In furtherance of the foregoing, the Company will provide to the
Purchaser drafts of the applicable text of the first filing of a Current Report
on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K intended to be
made with the SEC which refers to the Transaction Agreements or the transactions
contemplated thereby as soon as practicable (but at least two (2) Trading Days
before such filing will be made) will not include in such filing any statement
or statements or other material to which the other party reasonably objects,
unless in the reasonable opinion of counsel to the party proposing such
statement, such statement is legally required to be included. Notwithstanding
the foregoing, each of the parties hereby consents to the inclusion of the text
of the Transaction Agreements in filings made with the SEC as well as any
descriptive text accompanying or part of such filing which is accurate and
reasonably determined by the Company’s counsel to be legally required.
Notwithstanding, but subject to, the foregoing provisions of this Section 4(i),
the Company will, after the Closing Date, promptly file a Current Report on Form
8-K or, if appropriate, a quarterly or annual report on the appropriate form,
referring to the transactions contemplated by the Transaction Agreements.

5. TRANSFER AGENT INSTRUCTIONS.

a. The Company warrants that, with respect to the Securities, other than the
stop transfer instructions to give effect to Section 4(a) hereof, it will give
its transfer agent no instructions inconsistent with instructions to issue
Common Stock to the Holder as contemplated in the Transaction Agreements. Except
as so provided, the Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement and
the other Transaction Agreements. Nothing in this Section shall affect in any
way the Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Purchaser provides the
Company with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Purchaser of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
Securities Act, the Company shall (except as provided in clause (2) of Section
4(a) of this Agreement) permit the transfer or reissue of the Shares represented
by one or more certificates for Common Stock without legend (or where
applicable, by electronic registration) in such name and in such denominations
as specified by the Purchaser.

b. The Company will authorize the Transfer Agent to give information relating to
the Company directly to the Holder or the Holder’s representatives upon the
request of the Holder or any such representative, to the extent such information
relates to (i) the status of shares of Common Stock issued or claimed to be
issued to the Holder in connection with a Notice of Exercise or transfer of
Pledged Shares to the Holder, or (ii) the aggregate number of outstanding shares
of Common Stock of all shareholders (as a group, and not individually) as of a
current or other specified date. At the request of the Holder, the Company will
provide the Holder with a copy of the authorization so given to the Transfer
Agent.
 
 
20

--------------------------------------------------------------------------------

 

6. CLOSING DATE.

a.  The Closing Date shall occur on the date which is the first Trading Day
after each of the conditions contemplated by Sections 7 and 8 hereof shall have
either been satisfied or been waived by the party in whose favor such conditions
run.

b. The closing of the Transactions shall occur on the Closing Date at the
offices of the Purchaser and shall take place no later than 1:00 p.m., Pacific
time, on November 13, 2007, or such other time as is mutually agreed upon by the
Company and the Purchaser.

7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

The Purchaser understands that the Company's obligation to sell the Note, or any
shares being issued in connection with this Agreement or any other agreement
entered into by the parties hereto, in the event such shares are issued to the
Purchaser pursuant to this Agreement on the Closing Date is conditioned upon:

a. The execution and delivery of this Agreement by the Purchaser;

b. Delivery by the Purchaser to the Company of good funds as payment in full of
an amount equal to the Purchase Amount in accordance with this Agreement;

c. The accuracy on such Closing Date of the representations and warranties of
the Purchaser contained in this Agreement, each as if made on such date, and the
performance by the Purchaser on or before such date of all covenants and
agreements of the Purchaser required to be performed on or before such date; and

d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.

8. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.

The Company understands that the Purchaser's obligation to purchase the Note and
the Issued Shares on the Closing Date is conditioned upon:

a. The execution and delivery of this Agreement and the other Transaction
Agreements by the Company;

b. Delivery by the Company to the Purchaser of the Certificate in accordance
with this Agreement or any other agreements between the parties;

c. The execution and delivery of the Pledge Agreement by the Pledgor;

d. The execution and delivery of the Warrant;
 
 
21

--------------------------------------------------------------------------------

 
 
e. The reimbursement of the Transaction Fees.

f. Delivery by the Company up-to-date audited financials.

g. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;

h. The Company’s financial statements and public filings must be up-to-date.

i. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and

j. From and after the date hereof to and including the Closing Date, each of the
following conditions will remain in effect: (i) the trading of the Common Stock
shall not have been suspended by the SEC or on the Principal Trading Market;
(ii) trading in securities generally on the Principal Trading Market shall not
have been suspended or limited; (iii) no minimum prices shall been established
for securities traded on the Principal Trading Market; and (iv) there shall not
have been any material adverse change in any financial market.

9. INDEMNIFICATION AND REIMBURSEMENT.

a.  (i) The Company agrees to indemnify and hold harmless the Purchaser and its
officers, directors, employees, and agents, and each Purchaser Control Person
from and against any losses, claims, damages, liabilities or expenses incurred
(collectively, “Damages”), joint or several, and any action in respect thereof
to which the Purchaser, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Purchaser Control Person
becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from Purchaser's failure to perform any covenant or agreement contained in this
Agreement or the Purchaser's or its officer’s, director’s, employee’s, agent’s
or Purchaser Control Person’s gross negligence, recklessness or bad faith in
performing its obligations under this Agreement.
 
 
22

--------------------------------------------------------------------------------

 
 
(ii) The Company hereby agrees that, if the Purchaser, other than by reason of
its gross negligence, illegal or willful misconduct (in each case, as determined
by a non-appealable judgment to such effect), (x) becomes involved in any
capacity in any action, proceeding or investigation brought by any shareholder
of the Company, in connection with or as a result of the consummation of the
transactions contemplated by this Agreement or the other Transaction Agreements,
or if the Purchaser is impleaded in any such action, proceeding or investigation
by any Person, or (y) becomes involved in any capacity in any action, proceeding
or investigation brought by the SEC, any self-regulatory organization or other
body having jurisdiction, against or involving the Company or in connection with
or as a result of the consummation of the transactions contemplated by this
Agreement or the other Transaction Agreements, or (z) is impleaded in any such
action, proceeding or investigation by any Person, then in any such case, the
Company shall indemnify, defend and hold harmless the Purchaser from and against
and in respect of all losses, claims, liabilities, damages or expenses resulting
from, imposed upon or incurred by the Purchaser, directly or indirectly, and
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
as such expenses are incurred. The indemnification and reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
Purchaser Control Persons (if any), as the case may be, of the Purchaser and any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchaser, any such Affiliate and any such Person. The Company also agrees that
neither the Purchaser nor any such Affiliate, partner, director, agent, employee
or Purchaser Control Person shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of the consummation of this Agreement or the other
Transaction Agreements, except as may be expressly and specifically provided in
or contemplated by this Agreement.
 
b. All claims for indemnification by any Indemnified Party (as defined below)
under this Section shall be asserted and resolved as follows:

(i)  In the event any claim or demand in respect of which any Person claiming
indemnification under any provision of this Section (an “Indemnified Party”)
might seek indemnity under paragraph (a) of this Section is asserted against or
sought to be collected from such Indemnified Party by a Person other than a
party hereto or an Affiliate thereof (a “Third Party Claim”), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of this Section against any Person (the
“Indemnifying Party”), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a “Claim Notice”) with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the “Dispute Period”) whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.

(x) If the Indemnifying Party notifies the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this paragraph (b) of this Section,
then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to paragraph (a) of this Section). The Indemnifying Party shall
have full control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior to the
Indemnifying Party's delivery of the notice referred to in the first sentence of
this subparagraph (x), file any motion, answer or other pleadings or take any
other action that the Indemnified Party reasonably believes to be necessary or
appropriate protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this subparagraph (x), and except as provided in the preceding
sentence, the Indemnified Party shall bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing, the Indemnified
Party may take over the control of the defense or settlement of a Third Party
Claim at any time if it irrevocably waives its right to indemnity under
paragraph (a) of this Section with respect to such Third Party Claim.
 
 
23

--------------------------------------------------------------------------------

 

(y) If the Indemnifying Party fails to notify the Indemnified Party within the
Dispute Period that the Indemnifying Party desires to defend the Third Party
Claim pursuant to paragraph (b) of this Section, or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this subparagraph (y), if the Indemnifying Party has notified the Indemnified
Party within the Dispute Period that the Indemnifying Party disputes its
liability or the amount of its liability hereunder to the Indemnified Party with
respect to such Third Party Claim and if such dispute is resolved in favor of
the Indemnifying Party in the manner provided in subparagraph(z) below, the
Indemnifying Party will not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this subparagraph (y) or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party pursuant
to this subparagraph (y), and the Indemnifying Party shall bear its own costs
and expenses with respect to such participation.
 
 
24

--------------------------------------------------------------------------------

 

(z) If the Indemnifying Party notifies the Indemnified Party that it does not
dispute its liability or the amount of its liability to the Indemnified Party
with respect to the Third Party Claim under paragraph (a) of this Section or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the amount of Damages
specified in the Claim Notice shall be conclusively deemed a liability of the
Indemnifying Party under paragraph (a) of this Section and the Indemnifying
Party shall pay the amount of such Damages to the Indemnified Party on demand.
If the Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.

(ii) In the event any Indemnified Party should have a claim under paragraph (a)
of this Section against the Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver a written notification of a
claim for indemnity under paragraph (a) of this Section specifying the nature of
and basis for such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such claim (an
"Indemnity Notice") with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity Notice or fails to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under paragraph (a) of
this Section and the Indemnifying Party shall pay the amount of such Damages to
the Indemnified Party on demand. If the Indemnifying Party has timely disputed
its liability or the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute; provided, however, that it the dispute
is not resolved within thirty (30) days after the Claim Notice, the Indemnifying
Party shall be entitled to institute such legal action as it deems appropriate.

 
25

--------------------------------------------------------------------------------

 
c. The indemnity agreements contained herein shall be in addition to (i) any
cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to.

10. ARBITRATION. Any dispute, controversy or claim arising out of or relating to
the Transaction or any of the Transaction Documents will be resolved by final
and binding expedited arbitration before a retired judge at JAMS. The prevailing
party will be awarded arbitration, expert and attorney fees, costs and expenses.
The Company and the Purchaser hereby waive a trial by jury in any action,
proceeding or counterclaim brought by either of the Parties hereto against the
other in respect of any matter arising out or in connection with the Transaction
Agreements.

11. GOVERNING LAW: MISCELLANEOUS.

a. (i) This Agreement shall be governed solely by and interpreted in accordance
with the laws of the State of Nevada, for contracts to be wholly performed in
Nevada and without giving effect to the principles thereof regarding the
conflict of laws. To the extent determined by the court, the Company shall
reimburse the Purchaser for any reasonable legal fees and disbursements incurred
by the Purchaser in enforcement of or protection of any of its rights under any
of the Transaction Agreements.

(ii) The Company and the Purchaser acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Agreements were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and the other Transaction
Agreements and to enforce specifically the terms and provisions hereof and
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.

b. Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof.

c. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.

d. All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require.

e. A facsimile transmission of this signed Agreement shall be legal and binding
on all parties hereto.

 
26

--------------------------------------------------------------------------------

 
f. This Agreement may be signed in one or more counterparts, each of which shall
be deemed an original.

g. The headings of this Agreement are for convenience of reference and shall not
form part of, or affect the interpretation of, this Agreement.

h. If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

i. This Agreement may be amended only by an instrument in writing signed by the
party to be charged with enforcement thereof.

j. This Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.

12. Agent
 
(a) Authorization of Action. Each Purchaser hereby appoints and authorizes EPD
Investment Co., LLC (the “Agent”) to be its agent in its name and on its behalf
and to exercise such rights or powers granted to the Agent or the Purchaser (i)
under the Transaction Documents to the extent specifically provided therein and
on the terms thereof, together with such rights, powers and discretions as are
reasonably incidental thereto. As to any matters not expressly provided for by
the Transaction Documents, the Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Purchasers, and any action so taken or not so taken
by the Agent shall be binding upon all Purchasers; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
liability in such capacity, which could result in the Agent incurring any costs
and expenses or which is contrary to this Agreement or applicable law.
 
(b) Indemnification. Purchaser hereby agrees to indemnify and hold harmless the
Agent from and against any and all liabilities, obligations, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent (in its capacity as agent for the Purchasers) in any way relating to or
arising out of the Transaction Documents or any action taken or admitted by the
Agent under or in respect of the Transaction Documents; provided that no
Purchaser shall be liable for any portion of such liabilities, obligations,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent’s gross negligence or willful misconduct. Without
limiting the generality of the foregoing, each Purchaser agrees to reimburse the
Agent promptly upon demand on a pro rata basis in accordance with the then
outstanding indebtedness, liabilities and obligations owing to such Purchaser by
the Company in respect of any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the preservation of any rights of the
Agent or the Purchasers under, the enforcement of, or legal advice in respect of
the rights or responsibilities under, the Transaction Documents, to the extent
that the Agent is not reimbursed for such expenses by the Company or its
Subsidiaries.
 
 
27

--------------------------------------------------------------------------------

 
(c) Successor Agent. The Agent may, as hereinafter provided, resign at any time
by giving not less than 30 days’ written notice thereof to the Purchasers and
the Company. Upon any such resignation, the Purchasers shall have the right to
appoint a successor Agent (the “Successor Agent”), which shall be a Purchaser
and which shall be acceptable to the Company, acting reasonably. Upon the
acceptance of any appointment as Agent hereunder by a Successor Agent, such
Successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall thereupon be discharged from its further duties and obligations as
Agent under the Transaction Documents. After any retiring Agent’s resignation
hereunder as Agent, the provisions of this Section 5.19 shall continue to inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under the Transaction Documents. Absent such a resignation by the Agent,
the Agent’s appointment shall continue until revoked in writing by Purchasers
holding 75% of the outstanding principal amount of the Notes, at which time such
Purchasers shall appoint a new Agent.
 
(d) Taking and Enforcement of Remedies.
 
(1) Each of the Purchasers hereby acknowledges that, to the extent permitted by
applicable law, the remedies provided under the Transaction Documents to the
Purchasers are for the benefit of the Purchasers collectively and acting
together and not severally and further acknowledges that its rights under the
Transaction Documents are to be exercised not severally, but collectively by the
Agent upon the decision of the Purchasers; accordingly, notwithstanding any of
the provisions contained in any of the Transaction Documents, each of the
Purchasers hereby covenants and agrees that it shall not be entitled to take any
action with respect to the Transaction Documents, including, without limitation,
any acceleration of the indebtedness, liabilities or obligations of the Company
or any of its Subsidiaries, but that any such action shall be taken only by the
Agent with the prior written agreement of the Purchasers, provided that,
notwithstanding the foregoing:
 
(2) in the absence of instructions from the Purchasers and where in the sole
opinion of the Agent the exigencies of the situation warrant such action, the
Agent may without notice to or consent of the Purchasers take such action on
behalf of the Purchasers as it deems appropriate or desirable in the interest of
the Purchasers; and
 
(3) the commencement of litigation before any court shall be made in the name of
each Purchaser individually unless the laws of the jurisdiction of such court
permit such litigation to be commenced in the name of the Agent on behalf of the
Purchasers (whether pursuant to a specific power of attorney in favor of the
Agent or otherwise) and the Agent agrees to commence such litigation in its
name; provided, however, that no litigation shall be commenced in the name of
any Purchaser without the prior written consent of such Purchaser;
 
(4) each of the Purchasers hereby further covenants and agrees that upon any
such written consent being given by the Purchasers, they shall co-operate fully
with the Agent to the extent requested by the Agent in the collective
realization, including, without limitation, the appointment of a receiver and
manager to act for their collective benefit; and each Purchaser covenants and
agrees to do all acts and things to make, execute and deliver all agreements and
other instruments, including, without limitation, any instruments necessary to
effect any registrations, so as to fully carry out the intent and purpose of
this Section 5.19; and each of the Purchasers hereby covenants and agrees that
it has not heretofore and shall not seek, take, accept or receive any security
for any of the obligations and liabilities of the Company under the Transaction
Documents or under any other document, instrument, writing or agreement
ancillary thereto other than such security as is provided hereunder and shall
not enter into any agreement with the Company or any of its Subsidiaries
relating in any manner whatsoever to the transactions contemplated hereunder,
unless all of the Purchasers shall at the same time obtain the benefit of any
such security or agreement, as the case may be.
 
 
28

--------------------------------------------------------------------------------

 
(5) Notwithstanding any other provision contained in the Transaction Documents,
no Purchaser shall be required to be joined as a party to any litigation
commenced against the Company or any of its Subsidiaries by the Agent under the
Transaction Documents (unless otherwise required by any court of competent
jurisdiction) if it elects not to be so joined in which event any such
litigation shall not include claims in respect of the rights of such Purchaser
against the Company or any of its Subsidiaries under the Transaction Documents
until such time as such Purchaser does elect to be so joined; provided that if
at the time of such subsequent election it is not possible or practicable for
such Purchaser to be so joined, then such Purchaser may commence proceedings in
its own name in respect of its rights against the Company or any of its
Subsidiaries.

13. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against written
receipt therefor or by confirmed facsimile transmission,

(b) the fifth Trading Day after deposit, postage prepaid, in the United States
Postal Service by registered or certified mail, or

(c) the third Trading Day after mailing by domestic or international express
courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days’ advance written notice similarly given to each of the other
parties hereto):

COMPANY:  Neah Power Systems, Inc.
22122 20th Avenue SE, Suite 161
Bothell, WA 98021
Attn:  
Tel: (425) 424-3324
Fax: (425) 483-8454

PURCHASER: EPD Investment Co., LLC
520 Broadway, Suite 660
Santa Monica, CA 90401
Attn:
Tel: (310) 451-7111
Fax: (310) 394-6404

 
29

--------------------------------------------------------------------------------

 
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company’s and the
Purchaser’s representations and warranties herein shall survive the execution
and delivery of this Agreement and the delivery of the Certificates and the
payment of the Purchase Amount, and shall inure to the benefit of the Purchaser
and the Company and their respective successors and assigns.

IN WITNESS WHEREOF, this Agreement has been duly executed by the Purchaser and
the Company as of the date set first above written.

NEAH POWER SYSTEMS, INC.

By: _________________________________
Name:
Title:

By: _________________________________
Name:
Title:

EPD INVESTMENT CO., LLC

By: _________________________________
Name:
Title:
 
 
 
30

--------------------------------------------------------------------------------