Exhibit 10.1

This NOTE AND WARRANT PURCHASE AGREEMENT, dated as of June 15, 2007 (this
“Agreement”), is entered into by and between OPEN ENERGY CORP., a Nevada
corporation with headquarters located at 514 Via de la Valle, Suite 200, Solana
Beach, CA  92075 (the “Company”), and John Fife, an individual with an address
at 303 East Wacker Drive, Suite 311, Chicago, IL  60601 (the “Holder”).

W I T N E S S E T H:

WHEREAS, the Company and the Holder are executing and delivering this Agreement
in reliance upon the exemption from securities registration for offers and sales
to accredited investors afforded, inter alia, by Rule 506 under Regulation D
(“Regulation D”) as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”), and/or Section 4(2) of the 1933 Act;

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Holder, as provided
herein, and the Holder shall purchase (i) an Original Issue Discount Note Series
05-01 (the “Note”) of the Company, upon which the amount of Nine Hundred Fifty
Thousand and 00/100 Dollars ($950,000) shall be due and payable at its initial
maturity, or One Million and 00/100 Dollars ($1,000,000.00) shall be due and
payable if the term of the Note is extended in accordance with its terms or
earlier upon an event of default, in the form attached hereto as “Exhibit A”;

WHEREAS, the performance of the Note is secured by the pledge of certain shares
of the Common Stock, par value $0.001 (the “Common Stock”) of the Company
identified in a Stock Pledge Agreement (the “Stock Pledge Agreement”), which
Stock Pledge Agreement is in the form attached hereto as “Exhibit D”, and by the
delivery of two affidavits in confession of judgment (the “Affidavits in
Confession of Judgment”), which Affidavits in Confession of Judgment are in the
form attached hereto as “Exhibit B”;

WHEREAS, the performance of the Note is secured by a deficiency guaranty (the
“Deficiency Guaranty”) made by a stockholder of the Company who si an affiliate
thereof, which Deficiency Guaranty is in the form attached hereto as “Exhibit
B”;

WHEREAS, contemporaneously with and as part of the purchase by the Holder of the
Note, the Company also is delivering a warrant substantially in the form
attached hereto as “Exhibit E” (the “Warrants”) to acquire up to four million
shares of Common Stock (as exercised, the “Warrant Shares”), which purchase and
sale shall occur within five (5) business days following the date hereof (the
“Closing”), for a total purchase price of Seven Hundred Fifty Thousand and
00/100 ($750,000.00) (the “Purchase Price”);

WHEREAS, in the event of a default with respect to the Note, the Holder, at his
option, may enter the Affidavit in Confession of Judgment and may foreclose on
the Common Stock pledged as collateral pursuant to the Stock Pledge Agreement,
and in connection therewith may deliver to the transfer agent of the Company a
notification substantially in the form of the

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notification attached as an exhibit to the Form of Irrevocable Transfer Agent
Instructions with Legal Opinion Attached attached hereto as “Exhibit C”;

WHEREAS, in the event of a default, all unpaid amounts due under the Note are
convertible, at the election of the Holder, upon presentation of a Note
Conversion Letter (the “Note Conversion Letter”) in the form attached hereto as
“Exhibit F”, into a Convertible Debenture in the form attached hereto as
“Exhibit G”, which Convertible Debenture is convertible into shares of Common
Stock (“Conversion Shares”) at the option of the Holder, together with an
attached Warrant (the “Default Warrant”) exercisable for shares of Common Stock
(“Default Warrant Shares”), which Warrant is in the form attached hereto as
“Exhibit H”;

WHEREAS, contemporaneously with the execution and delivery of this agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
(the “Registration Rights Agreement”) pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act and the rules
and regulations promulgated thereunder, and applicable state securities laws,
with respect to the Convertible Debenture and the Default Warrant, which
Registration Rights Agreement is in the form attached hereto as “Exhibit I”;

WHEREAS, contemporaneously with the execution and delivery of this agreement,
the parties hereto are executing and delivering a Security Agreement to secure
the obligations of the Company to the Holder under the Convertible Debenture in
all of the assets of the Company and each of the Company’s subsidiaries (the
“Security Agreement”), which security agreement is in the form attached hereto
as “Exhibit J”; and

WHEREAS, the Note, the Warrant, the Warrant Shares, the Convertible Debentures,
the Conversion Shares, the Default Warrant and the Default Warrant Shares
collectively are referred to herein as the “Securities”).

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

1.                                       PURCHASE AND SALE OF NOTE AND WARRANT.

(a)           Purchase of Note and Warrant.  Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement and the other documents
delivered in connection herewith (the “Transaction Agreements”), the undersigned
Holder agrees to purchase at the Closing and the Company agrees to sell and
issue the Holder at the Closing, an original issue discount note with respect to
which the Company is obligated to pay Nine Hundred and Fifty Thousand and 00/100
Dollars ($950,000.00) if paid on the first maturity date thereof and One Million
and 00/100 Dollars ($1,000,000.00) if paid on the second maturity date thereof,
in accordance with its terms, and the Warrants to acquire four million
(4,000,000) Warrant Shares at an exercise price (as the same may be adjusted) of
fifty cents ($0.50) per Warrant Share exercisable for three (3) years following
the Closing.  The Company’s obligation to pay the amounts due pursuant to the
Note shall be secured by the pledge of Common Stock by one or more holders
thereof pursuant to the terms of the Stock Pledge Agreement; and, in addition,
any

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unpaid amounts owed following sale of all Pledged Shares (as defined in the
Stock Pledge Agreement) may, at the option of the Holder, be converted into one
or more Convertible Debentures with detachable Default Warrants.

(b)           Closing Date.  The Closing of the purchase and sale of the Notes
and Warrants shall take place at 10:00 a.m. Central Standard Time on the fifth
(5th) business day following the date hereof, subject to notification of
satisfaction of the conditions to the Closing set forth herein and in Sections 7
and 8 below (or such other date as is mutually agreed to by the Company and the
Holder (the “Closing Date”).  The Closing shall occur on the Closing Date at the
offices of Holder, or such other place as is mutually agreed to by the Company
and the Holder.

(c)           Form of Payment.  Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Date (i) the Holder shall deliver
to the Company the Purchase Price for the Notes and Warrants to be issued and
sold to the Holder at the Closing, minus the fees to be paid directly from the
proceeds of the Closing as set forth herein, and (ii) the Company shall deliver
to the Holder the Note, Warrant, and other Transaction Agreements referred to
herein, duly executed on behalf of the Company.

2.                                       HOLDER REPRESENTATIONS AND WARRANTIES;
ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

The Holder represents and warrants that:

(a)           Investment Purpose.  The Holder is acquiring the Securities for
his own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act of 1933, as amended (the
“Securities Act”); provided, however, that by making the representations herein,
the Holder reserves the right to dispose of the Securities at any time in
accordance with or pursuant to an effective registration statement covering such
Securities or an available exemption under the Securities Act.  The Holder does
not currently have any agreement or understanding, directly or indirectly, with
any Person to distribute any of the Securities.

(b)           Accredited Investor Status.  The Holder is an “Accredited
Investor” as that term is defined in Rule 501(a)(3) of Regulation D of the
General Rules and Regulations under the 1933 Act.

(c)           Reliance on Exemptions.  The Holder understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Holder’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Holder set forth herein in order to
determine the availability of such exemptions and the eligibility of the Holder
to acquire the Securities.

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(d)           Information.  The Holder and his advisors (and his counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Securities which have
been requested by him.  The Holder and his advisors, if any, have been afforded
the opportunity to ask questions of the Company and its management.  Neither
such inquiries nor any other due diligence investigations conducted by the
Holder or his advisors, if any, or his representatives shall modify, amend or
affect the Holder’s right to rely on the Company’s representations and
warranties contained in Section 3 below.  The Holder understands that his
investment in the Securities involves a high degree of risk.  The Holder is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables the Holder to
obtain information from the Company in order to evaluate the merits and risks of
this investment.  The Holder has sought such accounting, legal and tax advice as
he has considered necessary to make an informed investment decision with respect
to his acquisition of the Securities.

(e)           No Governmental Review.  The Holder 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, or
the fairness or suitability of the investment in the Securities, nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

(f)            Transfer or Resale.  The Holder understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the Securities Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) the Holder shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration requirements, or
(C) the Holder provides the Company with reasonable assurances (in the form of
seller and broker representation letters) that such Securities can be sold,
assigned or transferred pursuant to Rule 144, Rule 144(k), or Rule 144A
promulgated under the Securities Act, as amended (or a successor rule thereto)
(collectively, “Rule 144”), in each case following the applicable holding period
set forth therein; (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the 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 defined 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 (iii) neither the Company nor any other
person is under any obligation to register the Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.

(G)           LEGENDS.  THE HOLDER AGREES TO THE IMPRINTING, SO LONG AS IS
REQUIRED BY THIS SECTION 2(G), OF A RESTRICTIVE LEGEND IN SUBSTANTIALLY THE
FOLLOWING FORM:

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. 
THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

Certificates evidencing the Conversion Shares, the Warrant Shares or the Default
Warrant Shares shall not contain any legend (including the legend set forth
above) (i) while a registration statement (including the Registration Statement)
covering the resale of such Security is effective under the Securities Act, (ii)
following any sale of such Warrant Shares, Conversion Shares or Default Warrant
Shares pursuant to Rule 144, (iii) if such Warrant Shares, Conversion Shares or
Default Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the SEC).  The Company shall cause its counsel to issue a legal opinion to the
Company’s transfer agent promptly after the effective date (the “Effective
Date”) of a Registration Statement if required by the Company’s transfer agent
to effect the removal of the legend hereunder.  If the Holder exercises all or
any portion of the Convertible Debentures, Warrants or Default Warrants at a
time when he is not an Affiliate of the Company (a “Non-Affiliated Holder”) at a
time when there is an effective registration statement to cover the resale of
the Conversion Shares, Warrant Shares or the Default Warrant Shares, such
Warrant Shares, Conversion Shares or Default Warrant Shares shall be issued free
of all legends.  The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this Section 2(g), it will, no
later than three (3) Trading Days following the delivery by a Non-Affiliated
Holder to the Company or the Company’s transfer agent of a certificate
representing Warrant Shares, Conversion Shares or Default Warrant Shares, as the
case may be, issued with a restrictive legend (such third Trading Day, the
“Legend Removal Date”), deliver or cause to be delivered to such Non-Affiliated
Holder a certificate representing such shares that is free from all restrictive
and other legends.  The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section 2(g).  The Holder acknowledges that the
Company’s agreement hereunder to remove all legends from Conversion Shares or
Warrant Shares is not an affirmative statement or representation that such
Conversion Shares or Warrant Shares are freely tradable.  The Holder agrees that
the removal of the restrictive legend from certificates representing Securities
as set forth in this Section 2(g) is predicated upon the Company’s reliance that
the Holder will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a

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Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein.

(h)           Authorization, Enforcement.  This Agreement is a valid and binding
agreement of the Holder enforceable in accordance with its terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

(i)            Receipt of Documents.  The Holder and his counsel have received
and read in their entirety:  (i) this Agreement and each representation,
warranty and covenant set forth herein and the Transaction Agreements; (ii) all
due diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; (iii) the
Company’s Form 10-KSB for the fiscal year ended May 31, 2006; (iv) the Company’s
Forms 10-QSB for the fiscal quarters ended August 31, 2006, November 30, 2006
February 28, 2007 and (v) answers to all questions the Holder submitted to the
Company regarding an investment in the Company; and the Holder has relied on the
information contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.

(j)            No Legal Advice From the Company.  The Holder acknowledges that
he had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his own legal counsel and investment and tax
advisors.  The Holder is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

3.             COMPANY REPRESENTATIONS.

Except as set forth under the corresponding sections of the Disclosure Schedules
designated “Exhibit L”, which Disclosure Schedules shall be deemed a part hereof
and to qualify any representation or warranty otherwise made herein to the
extent of such disclosure, or as otherwise provided in the Company’s SEC
Documents, the Company hereby makes the representations and warranties set forth
below to the Holder.  To the best knowledge of the Company:

(A)           SUBSIDIARIES.  ALL OF THE DIRECT AND INDIRECT SUBSIDIARIES OF THE
COMPANY ARE SET FORTH ON SCHEDULE 3(A).  THE COMPANY OWNS, DIRECTLY OR
INDIRECTLY, ALL OF THE CAPITAL STOCK OR OTHER EQUITY INTERESTS OF EACH
SUBSIDIARY FREE AND CLEAR OF ANY LIENS, AND ALL THE ISSUED AND OUTSTANDING
SHARES OF CAPITAL STOCK OF EACH SUBSIDIARY ARE VALIDLY ISSUED AND ARE FULLY
PAID, NON-ASSESSABLE AND FREE OF PREEMPTIVE AND SIMILAR RIGHTS TO SUBSCRIBE FOR
OR PURCHASE SECURITIES.

(B)           ORGANIZATION AND QUALIFICATION.  THE COMPANY AND ITS SUBSIDIARIES
ARE CORPORATIONS DULY ORGANIZED AND VALIDLY EXISTING IN GOOD STANDING UNDER THE
LAWS OF THE

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JURISDICTION IN WHICH THEY ARE INCORPORATED, AND HAVE THE REQUISITE CORPORATE
POWER TO OWN THEIR PROPERTIES AND TO CARRY ON THEIR BUSINESS AS NOW BEING
CONDUCTED.  EACH OF THE COMPANY AND ITS SUBSIDIARIES IS DULY QUALIFIED AS A
FOREIGN CORPORATION TO DO BUSINESS AND IS IN GOOD STANDING IN EVERY JURISDICTION
IN WHICH THE NATURE OF THE BUSINESS CONDUCTED BY IT MAKES SUCH QUALIFICATION
NECESSARY, EXCEPT TO THE EXTENT THAT THE FAILURE TO BE SO QUALIFIED OR BE IN
GOOD STANDING WOULD NOT HAVE OR REASONABLY BE EXPECTED TO RESULT IN (I) A
MATERIAL ADVERSE EFFECT ON THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY
TRANSACTION DOCUMENT, (II) A MATERIAL ADVERSE EFFECT ON THE RESULTS OF
OPERATIONS, ASSETS, BUSINESS OR CONDITION (FINANCIAL OR OTHERWISE) OF THE
COMPANY AND THE SUBSIDIARIES, TAKEN AS A WHOLE, OR (III) A MATERIAL ADVERSE
EFFECT ON THE COMPANY’S ABILITY TO PERFORM IN ANY MATERIAL RESPECT ON A TIMELY
BASIS ITS OBLIGATIONS UNDER ANY TRANSACTION DOCUMENT (ANY OF (I), (II) OR (III),
A “MATERIAL ADVERSE EFFECT”) AND NO PROCEEDING HAS BEEN INSTITUTED IN ANY SUCH
JURISDICTION REVOKING, LIMITING OR CURTAILING OR SEEKING TO REVOKE, LIMIT OR
CURTAIL SUCH POWER AND AUTHORITY OR QUALIFICATION.

(C)           AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS. 
(I) THE COMPANY HAS THE REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO
AND PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT, THE NOTE, THE STOCK PLEDGE
AGREEMENT, THE IRREVOCABLE TRANSFER AGENT INSTRUCTIONS, THE WARRANT, THE
CONVERTIBLE DEBENTURES, THE DEFAULT WARRANTS, THE SECURITY AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT, AND EACH OF THE OTHER AGREEMENTS ENTERED INTO BY
THE PARTIES HERETO IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT (COLLECTIVELY THE “TRANSACTION AGREEMENTS”) AND TO ISSUE THE
SECURITIES IN ACCORDANCE WITH THE TERMS HEREOF AND THEREOF, (II) THE EXECUTION
AND DELIVERY OF THE TRANSACTION AGREEMENTS BY THE COMPANY AND THE CONSUMMATION
BY IT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, INCLUDING, WITHOUT
LIMITATION, THE ISSUANCE OF THE SECURITIES, THE RESERVATION FOR ISSUANCE AND THE
ISSUANCE OF THE CONVERSION SHARES, AND THE RESERVATION FOR ISSUANCE AND THE
ISSUANCE OF THE WARRANT SHARES, HAVE BEEN DULY AUTHORIZED BY THE COMPANY’S BOARD
OF DIRECTORS AND NO FURTHER CONSENT OR AUTHORIZATION IS REQUIRED BY THE COMPANY,
ITS BOARD OF DIRECTORS OR ITS STOCKHOLDERS, (III) THE TRANSACTION AGREEMENTS
HAVE BEEN DULY EXECUTED AND DELIVERED BY THE COMPANY, (IV) THE TRANSACTION
AGREEMENTS CONSTITUTE THE VALID AND BINDING OBLIGATIONS OF THE COMPANY
ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH THEIR TERMS, EXCEPT AS SUCH
ENFORCEABILITY MAY BE LIMITED BY GENERAL PRINCIPLES OF EQUITY OR APPLICABLE
BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM, LIQUIDATION OR SIMILAR LAWS
RELATING TO, OR AFFECTING GENERALLY, THE ENFORCEMENT OF CREDITORS’ RIGHTS AND
REMEDIES.  THE AUTHORIZED OFFICER OF THE COMPANY EXECUTING THE TRANSACTION
AGREEMENTS KNOWS OF NO REASON WHY THE COMPANY CANNOT FILE THE REGISTRATION
STATEMENT AS REQUIRED UNDER THE REGISTRATION RIGHTS AGREEMENT OR PERFORM ANY OF
THE COMPANY’S OTHER OBLIGATIONS UNDER THE TRANSACTION AGREEMENTS.

(D)           CAPITALIZATION.  THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
CONSISTS OF 1,125,000,000 SHARES OF COMMON STOCK, OF WHICH, AS OF MAY 16, 2007, 
98,161,724 SHARES OF COMMON STOCK ARE ISSUED AND OUTSTANDING.  ALL OF THE
OUTSTANDING SHARES OF CAPITAL STOCK OF THE COMPANY ARE VALIDLY ISSUED, FULLY
PAID AND NONASSESSABLE, HAVE BEEN ISSUED IN COMPLIANCE WITH ALL FEDERAL AND
STATE SECURITIES LAWS, AND NONE OF SUCH OUTSTANDING SHARES WAS ISSUED IN
VIOLATION OF ANY PREEMPTIVE RIGHTS OR SIMILAR RIGHTS TO SUBSCRIBE FOR OR
PURCHASE SECURITIES.  EXCEPT AS DISCLOSED IN SCHEDULE 3(D) AND THE COMPANY’S SEC
DOCUMENTS: (I) NONE OF THE COMPANY’S CAPITAL STOCK IS SUBJECT TO PREEMPTIVE
RIGHTS OR ANY OTHER SIMILAR RIGHTS OR ANY LIENS OR

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ENCUMBRANCES SUFFERED OR PERMITTED BY THE COMPANY; (II) THERE ARE NO OUTSTANDING
OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY
CHARACTER WHATSOEVER RELATING TO, OR SECURITIES OR RIGHTS CONVERTIBLE INTO, OR
EXERCISABLE OR EXCHANGEABLE FOR, ANY CAPITAL STOCK OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES, OR CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH
THE COMPANY OR ANY OF ITS SUBSIDIARIES IS OR MAY BECOME BOUND TO ISSUE
ADDITIONAL CAPITAL STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR OPTIONS,
WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY CHARACTER
WHATSOEVER RELATING TO, OR SECURITIES OR RIGHTS CONVERTIBLE INTO, OR EXERCISABLE
OR EXCHANGEABLE FOR, ANY CAPITAL STOCK OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES; (III) THERE ARE NO OUTSTANDING DEBT SECURITIES, NOTES, CREDIT
AGREEMENTS, CREDIT FACILITIES OR OTHER AGREEMENTS, DOCUMENTS OR INSTRUMENTS
EVIDENCING INDEBTEDNESS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR BY WHICH
THE COMPANY OR ANY OF ITS SUBSIDIARIES IS OR MAY BECOME BOUND; (IV) THERE ARE NO
FINANCING STATEMENTS SECURING OBLIGATIONS IN ANY MATERIAL AMOUNTS, EITHER SINGLY
OR IN THE AGGREGATE, FILED IN CONNECTION WITH THE COMPANY OR ANY OF ITS
SUBSIDIARIES; (V) THERE ARE NO OUTSTANDING SECURITIES OR INSTRUMENTS OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES WHICH CONTAIN ANY REDEMPTION OR SIMILAR
PROVISIONS, AND THERE ARE NO CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR
ARRANGEMENTS BY WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS OR MAY BECOME
BOUND TO REDEEM A SECURITY OF THE COMPANY OR ANY OF ITS SUBSIDIARIES; (VI) THERE
ARE NO SECURITIES OR INSTRUMENTS CONTAINING ANTI-DILUTION OR SIMILAR PROVISIONS
THAT WILL BE TRIGGERED BY THE ISSUANCE OF THE SECURITIES; (VII) THE COMPANY DOES
NOT HAVE ANY STOCK APPRECIATION RIGHTS OR “PHANTOM STOCK” PLANS OR AGREEMENTS OR
ANY SIMILAR PLAN OR AGREEMENT; AND (VIII) THE COMPANY AND ITS SUBSIDIARIES HAVE
NO LIABILITIES OR OBLIGATIONS REQUIRED TO BE DISCLOSED IN THE SEC DOCUMENTS BUT
NOT SO DISCLOSED IN THE SEC DOCUMENTS, OTHER THAN THOSE INCURRED IN THE ORDINARY
COURSE OF THE COMPANY’S OR ITS SUBSIDIARIES’ RESPECTIVE BUSINESSES AND WHICH,
INDIVIDUALLY OR IN THE AGGREGATE, DO NOT OR WOULD NOT HAVE A MATERIAL ADVERSE
EFFECT.   NO FURTHER APPROVAL OR AUTHORIZATION OF ANY STOCKHOLDER, THE BOARD OF
DIRECTORS OF THE COMPANY OR OTHERS IS REQUIRED FOR THE ISSUANCE AND SALE OF THE
SECURITIES.  THERE ARE NO STOCKHOLDERS AGREEMENTS, VOTING AGREEMENTS OR OTHER
SIMILAR AGREEMENTS WITH RESPECT TO THE COMPANY’S CAPITAL STOCK TO WHICH THE
COMPANY IS A PARTY OR, TO THE KNOWLEDGE OF THE COMPANY, BETWEEN OR AMONG ANY OF
THE COMPANY’S STOCKHOLDERS.

(e)           Issuance of Securities.  The issuance of the Note, the Warrants,
the Convertible Debentures and the Default Warrants is duly authorized and free
from all taxes, liens and charges with respect to the issue thereof.  Upon
conversion in accordance with the terms of the Convertible Debentures or
exercise in accordance with the Warrants or the Default Warrants, as the case
may be, the Warrant Shares, the Conversion Shares and the Default Warrant
Shares, respectively, when issued will be validly issued, fully paid and
nonassessable, free from all taxes, liens and charges with respect to the issue
thereof.  The Company has reserved from its duly authorized capital stock the
appropriate number of shares of Common Stock as set forth in this Agreement.

(f)            No Conflicts.  The execution, delivery and performance of the
Transaction Agreements by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Note, the Warrant, the Convertible Debentures and the Default
Warrants, and reservation for

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issuance and issuance of the Warrant Shares, the Conversion Shares and the
Default Warrant Shares) will not (i) result in a violation of any certificate of
incorporation, certificate of formation, any certificate of designations or
other constituent documents of the Company or any of its subsidiaries, any
capital stock of the Company or any of its subsidiaries or bylaws of the Company
or any of its subsidiaries or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) in any
respect under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
foreign, federal and state securities laws and regulations and the rules and
regulations of the National Association of Securities Dealers Inc.’s OTC
Bulletin Board) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.  The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted in violation of any material
law, ordinance, or regulation of any governmental entity.  Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof.  All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof.  The
Company and its subsidiaries are unaware of any facts or circumstance, which
might give rise to any of the foregoing.

(g)           SEC Documents; Financial Statements.  The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), for the two years preceding the date hereof (or such shorter
period as the Company was required by law or regulation to file such material)
(all of the foregoing filed prior to the date hereof or amended after the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, being hereinafter
referred to as the “SEC Documents”) on timely basis or has received a valid
extension of such time of filing and has filed any such SEC Document prior to
the expiration of any such extension.  The Company has delivered to the Holder
or his representatives, or made available through the SEC’s website at
http://www.sec.gov., true and complete copies of the SEC Documents.  As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and

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regulations of the SEC with respect thereto.  Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).  No other information provided by or on behalf of the Company to
the Holder which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(i) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made and not misleading.

(h)           10(b)-5.  The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.

(i)            Absence of Litigation.  There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending against or affecting the
Company, the Common Stock or any of the Company’s subsidiaries, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect.

(j)            Acknowledgment Regarding Holder’s Purchase of the Note, and
Warrant and contingent issuance of Convertible Debentures and Default Warrants. 
The Company acknowledges and agrees that the Holder is acting solely in the
capacity of an arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereby.  The Company further acknowledges that the
Holder is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Holder or any of his
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Holder’s purchase of the
Securities.  The Company further represents to the Holder that the Company’s
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.

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

(l)            No Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require

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registration of the Securities under the Securities Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the Securities Act.

(m)                               Employee Relations.  Neither the Company nor
any of its subsidiaries is involved in any labor dispute or, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened.  None of
the Company’s or its subsidiaries’ employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.

(n)                                 Intellectual Property Rights.  The Company
and its subsidiaries own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted.  The Company and its subsidiaries do not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company there is
no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

(o)                                 Environmental Laws.  The Company and its
subsidiaries are (i) in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.

(p)                                 Title.  All real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.

(q)                                 Insurance.  The Company and each of its
subsidiaries is insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its subsidiaries are engaged.  Neither the Company nor any such subsidiary has
been refused any insurance coverage sought or applied for and neither the
Company nor any such 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 at a cost that would not

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materially and adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its subsidiaries, taken as a
whole.

(r)                                    Regulatory Permits.  The Company and its
subsidiaries possess all material certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.

(s)                                  Internal Accounting Controls.  The Company
and each of its subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, and (iii) the recorded amounts for assets are
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

(t)                                    No Material Adverse Breaches, etc. 
Neither the Company nor any of its subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company’s officers has or is expected in
the future to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries.  Neither the Company nor any of its subsidiaries is
in breach of any contract or agreement which breach, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect on the
business, properties, operations, financial condition, results of operations or
prospects of the Company or its subsidiaries.

(u)                                 Tax Status.  The Company and each of its
subsidiaries has made and filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject and (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.

(v)                                 Certain Transactions.  Except for arm’s
length transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed in the
SEC Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement

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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
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.

(w)                               No Rights of First Refusal.  The Company is
not obligated to offer the securities offered hereunder on a right of first
refusal basis or otherwise to any third parties including, but not limited to,
current or former shareholders of the Company, underwriters, brokers, agents or
other third parties.

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

(y)                                 Registration Rights.  Other than Cornell
Capital Partners, LP and the Holder, no Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company.  There are no outstanding registration statements not yet declared
effective and there are no outstanding comment letters from the SEC or any other
regulatory agency.

(z)                                   Private Placement.  Assuming the accuracy
of the Holder’s representations and warranties set forth in Section 2, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Holders as contemplated hereby.  The issuance
and sale of the Securities hereunder does not contravene the rules and
regulations of the Primary Market (as defined in Section 4(h)).

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

(bb)                          Manipulation of Price.  The Company has not, and
to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any

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compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company’s placement agent in connection
with the placement of the Securities.

(cc)                            Dilutive Effect.  The Company understands and
acknowledges that the number of Conversion Shares issuable upon conversion of
the Convertible Debentures and the Default Warrant Shares issuable upon exercise
of the Default Warrants will increase in certain circumstances.  The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Debentures in accordance with this Agreement and
the Convertible Debentures and its obligation to issue the Default Warrant
Shares upon exercise of the Default Warrants in accordance with this Agreement
and the Warrants, in each case, is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.

(dd)                          Purpose of Loan, Plan of Repayment.  The Company
intends to use proceeds for working capital and general business purposes.  The
Company has a reasonable, good faith belief in its ability to repay the loan
evidenced by the Note as and when the same may become due and payable from
future sales revenues and, to the extent necessary, from future financings by
the Company.

4.                                       CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

(A)                                  BEST EFFORTS.  EACH PARTY SHALL USE HIS OR
ITS BEST EFFORTS TO TIMELY SATISFY EACH OF THE CONDITIONS TO BE SATISFIED BY IT
AS PROVIDED IN SECTIONS 7 AND 8 OF THIS AGREEMENT.

(B)                                 FORM D.  THE COMPANY AGREES TO FILE A FORM D
WITH RESPECT TO THE SECURITIES AS REQUIRED UNDER REGULATION D AND TO PROVIDE A
COPY THEREOF TO THE HOLDER PROMPTLY AFTER SUCH FILING.  THE COMPANY SHALL, ON OR
BEFORE THE CLOSING DATE, TAKE SUCH ACTION AS THE COMPANY SHALL REASONABLY
DETERMINE IS NECESSARY TO QUALIFY THE SECURITIES, OR OBTAIN AN EXEMPTION FOR THE
SECURITIES FOR SALE TO THE HOLDER AT THE CLOSING PURSUANT TO THIS AGREEMENT
UNDER APPLICABLE SECURITIES OR “BLUE SKY” LAWS OF THE STATES OF THE UNITED
STATES, AND SHALL PROVIDE EVIDENCE OF ANY SUCH ACTION SO TAKEN TO THE HOLDER ON
OR PRIOR TO THE CLOSING DATE.

(C)                                  REPORTING STATUS.  UNTIL THE EARLIER OF (I)
THE DATE AS OF WHICH THE HOLDER MAY SELL ALL OF THE SECURITIES WITHOUT
RESTRICTION PURSUANT TO RULE 144(K) PROMULGATED UNDER THE SECURITIES ACT (OR
SUCCESSOR THERETO), OR (II) THE DATE ON WHICH (A) THE HOLDER SHALL HAVE SOLD ALL
THE SECURITIES AND (B) NONE OF THE CONVERTIBLE DEBENTURES OR WARRANTS ARE
OUTSTANDING (THE “REGISTRATION PERIOD”), THE COMPANY SHALL FILE WHEN DUE ALL
REPORTS REQUIRED TO BE FILED WITH THE SEC PURSUANT TO THE EXCHANGE ACT AND THE
REGULATIONS OF THE SEC THEREUNDER, AND THE COMPANY 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 OTHERWISE PERMIT SUCH
TERMINATION.

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(D)                                 USE OF PROCEEDS.  THE COMPANY WILL USE THE
PROCEEDS FROM THE SALE OF THE CONVERTIBLE DEBENTURES AS PROVIDED IN SECTION
3(DD) OF THIS AGREEMENT.

(E)                                  RESERVATION OF SHARES.  ON THE DATE HEREOF,
THE COMPANY SHALL RESERVE FOR ISSUANCE TO THE HOLDER FOUR MILLION (4,000,000)
SHARES FOR ISSUANCE UPON EXERCISE OF THE WARRANT, TWO MILLION (2,000,000) SHARES
FOR ISSUANCE UPON CONVERSIONS OF THE CONVERTIBLE DENTURES AND FOUR MILLION
(4,000,000) SHARES FOR ISSUANCE UPON EXERCISE OF THE DEFAULT WARRANTS
(COLLECTIVELY, THE “SHARE RESERVE”).  THE COMPANY REPRESENTS THAT IT HAS
SUFFICIENT AUTHORIZED AND UNISSUED SHARES OF COMMON STOCK AVAILABLE TO CREATE
THE SHARE RESERVE AFTER CONSIDERING ALL OTHER COMMITMENTS THAT MAY REQUIRE THE
ISSUANCE OF COMMON STOCK.  THE COMPANY SHALL TAKE ALL ACTION REASONABLY
NECESSARY TO AT ALL TIMES HAVE AUTHORIZED, AND RESERVED FOR THE PURPOSE OF
ISSUANCE, SUCH NUMBER OF SHARES OF COMMON STOCK AS SHALL BE NECESSARY TO EFFECT
THE FULL EXERCISE OF THE WARRANTS, THE FULL CONVERSION OF THE CONVERTIBLE
DEBENTURES AND THE FULL EXERCISE OF THE DEFAULT WARRANTS.  IF AT ANY TIME THE
SHARE RESERVE IS INSUFFICIENT TO EFFECT THE FULL EXERCISE OF THE WARRANTS, THE
FULL CONVERSION OF THE CONVERTIBLE DEBENTURES OR THE FULL EXERCISE OF THE
DEFAULT WARRANTS, THE COMPANY SHALL INCREASE THE SHARE RESERVE ACCORDINGLY.  IF
THE COMPANY DOES NOT HAVE SUFFICIENT AUTHORIZED AND UNISSUED SHARES OF COMMON
STOCK AVAILABLE TO INCREASE THE SHARE RESERVE, THE COMPANY SHALL CALL AND HOLD A
SPECIAL MEETING OF THE SHAREHOLDERS WITHIN THIRTY (30) DAYS OF SUCH OCCURRENCE,
FOR THE SOLE PURPOSE OF INCREASING THE NUMBER OF SHARES AUTHORIZED.  THE
COMPANY’S MANAGEMENT SHALL RECOMMEND TO THE SHAREHOLDERS TO VOTE IN FAVOR OF
INCREASING THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED.  MANAGEMENT SHALL
ALSO VOTE ALL OF ITS SHARES IN FAVOR OF INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK.

(f)              Warrants.  The Company agrees to issue to the Holder on the
Closing Date a transferable warrant for the purchase of four million (4,000,000)
shares of Common Stock at an exercise price (the “Exercise Price”) equal to
fifty cents ($0.50) per share.  Each Warrant shall be exercisable commencing on
the Commencement Date specified in the Warrants and shall expire at the close of
business on the date which is the last day of the calendar month in which the
third annual anniversary of the Effective Date occurs.  Each Warrant shall have
cashless exercise rights as provided in the Warrant.  Except as specified above,
each Warrant shall generally be in the form annexed hereto as “Exhibit E”.  The
Warrant Shares shall be subject to the provisions of the Registration Rights
Agreement.

(g)           Convertible Debentures and Default Warrants.  The Company agrees
to issue to the Holder on the Closing Date a Convertible Debenture, which shall
become a binding obligation of the Company in the event of a default by the
Company in its performance of its obligations under the Note, and a transferable
warrant for the purchase of shares of Common Stock in the event that the
Convertible Debentures become a binding obligation of the Company.

(H)                                 LISTINGS OR QUOTATION.  THE COMPANY’S COMMON
STOCK SHALL BE LISTED OR QUOTED FOR TRADING ON ANY OF (A) THE AMERICAN STOCK
EXCHANGE, (B) NEW YORK STOCK EXCHANGE, (C) THE NASDAQ GLOBAL MARKET, (D) THE
NASDAQ CAPITAL MARKET, OR (E) THE NASDAQ OTC BULLETIN BOARD (“OTCBB”) (EACH, A
“PRIMARY MARKET”).  THE COMPANY SHALL PROMPTLY SECURE THE LISTING

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OF ALL OF THE REGISTRABLE SECURITIES (AS DEFINED IN THE REGISTRATION RIGHTS
AGREEMENT) UPON EACH NATIONAL SECURITIES EXCHANGE AND AUTOMATED QUOTATION
SYSTEM, IF ANY, UPON WHICH THE COMMON STOCK IS THEN LISTED (SUBJECT TO OFFICIAL
NOTICE OF ISSUANCE) AND SHALL MAINTAIN SUCH LISTING OF ALL REGISTRABLE
SECURITIES FROM TIME TO TIME ISSUABLE UNDER THE TERMS OF THE TRANSACTION
AGREEMENTS.

(I)                                     FEES AND EXPENSES.

(I)                                     EACH OF THE COMPANY AND THE HOLDER SHALL
PAY ALL COSTS AND EXPENSES INCURRED BY SUCH PARTY IN CONNECTION WITH THE
NEGOTIATION, INVESTIGATION, PREPARATION, EXECUTION AND DELIVERY OF THE
TRANSACTION AGREEMENTS.  THE COMPANY SHALL PAY J.H.DARBIE & CO. A FEE EQUAL TO
$50,000 WHICH SHALL BE PAID DIRECTLY FROM THE GROSS PROCEEDS OF THE CLOSING.

(II)                                  THE COMPANY SHALL PAY A STRUCTURING AND
DUE DILIGENCE FEE TO THE HOLDER OF FIVE THOUSAND AND 00/100 DOLLARS ($5,000.00),
WHICH SHALL BE PAID DIRECTLY FROM THE PROCEEDS OF THE CLOSING.

(J)                                     CORPORATE EXISTENCE.  SO LONG AS ANY OF
THE NOTE, THE CONVERTIBLE DEBENTURES OR THE DEFAULT WARRANTS REMAINS
OUTSTANDING, THE COMPANY SHALL NOT DIRECTLY OR INDIRECTLY CONSUMMATE ANY MERGER,
REORGANIZATION, RESTRUCTURING, REVERSE STOCK SPLIT CONSOLIDATION, SALE OF ALL OR
SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS OR ANY SIMILAR TRANSACTION OR RELATED
TRANSACTIONS (EACH SUCH TRANSACTION, AN “ORGANIZATIONAL CHANGE”) UNLESS, PRIOR
TO THE CONSUMMATION AN ORGANIZATIONAL CHANGE, THE COMPANY OBTAINS THE WRITTEN
CONSENT OF THE HOLDER.

(K)                                  DISCLOSURE OF TRANSACTION.  WITHIN FOUR (4)
BUSINESS DAY FOLLOWING THE DATE OF THIS AGREEMENT, THE COMPANY SHALL FILE A
CURRENT REPORT ON FORM 8-K DESCRIBING THE TERMS OF THE TRANSACTIONS CONTEMPLATED
BY THE TRANSACTION AGREEMENTS IN THE FORM REQUIRED BY THE EXCHANGE ACT AND
ATTACHING THE MATERIAL TRANSACTION AGREEMENTS (INCLUDING, WITHOUT LIMITATION,
THIS AGREEMENT, THE FORM OF THE CONVERTIBLE DEBENTURE, THE FORM OF WARRANT AND
THE FORM OF THE REGISTRATION RIGHTS AGREEMENT) AS EXHIBITS TO SUCH FILING.

(L)                                     REGISTRATION RIGHTS.  IF AT ANY TIME
AFTER THE DATE HEREOF THE COMPANY SHALL FILE A REGISTRATION STATEMENT, THE
COMPANY SHALL, AT THE HOLDER’S OPTION, INCLUDE THE CONVERSION SHARES AND THE
WARRANT SHARES ISSUABLE TO THE HOLDER.

(m)                               Payments.  The Company agrees that it shall
not fail to make any payment of the principal of, interest on, or other
obligations in respect of, the Notes, free of any claim of subordination, as and
when the same shall become due and payable (whether on the Maturity Date or by
acceleration or otherwise), for five (5) business days after the same shall be
due and payable.

(n)                                 Observe Covenants.  The Company agrees that
it shall not fail to observe or perform any other covenant, agreement or
warranty contained in, or otherwise commit, any breach of, the Notes or any
other of the Loan Agreements.

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(o)                                 Bankruptcy.  The Company agrees that it
shall not commence a voluntary case under the United States Bankruptcy Code or
insolvency laws as now or hereafter in effect or any successor thereto (the
“Bankruptcy Code”); or suffer to have an involuntary case commenced against it
under the Bankruptcy Code in which the petition is not controverted within
thirty (30 days), or is not dismissed within sixty (60) days, after commencement
of such involuntary case; or suffer to have a “custodian” (as defined in the
Bankruptcy Code) appointed for, or take charge of, all or any substantial part
of the property of the Company, or commence any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company, or suffer to have commenced against
it any such proceeding which remains undismissed for a period of sixty (60)
days; or be adjudicated insolvent or bankrupt; or have or suffer to have any
order of relief or other order approving any such case or proceeding entered; or
have or suffer to have any appointment of any custodian or the like for any
thereof or any substantial part of its property which continues undischarged or
unstayed for a period of sixty (60) days; or make a general assignment for the
benefit of creditors; or fail to pay, or state that it is unable to pay, its
debts generally as they become due; call a meeting of all of its respective
creditors with a view to arranging a composition or adjustment of its debts; or
by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or take any corporate or other action for
the purpose of effecting any of the foregoing.

(p)                                 Cross-Defaults.  The Company agrees that it
shall not default in any of its obligations under any mortgage, credit agreement
or other facility, indenture, agreement or other instrument under which there
may be issued, or by which there may be secured or evidenced any indebtedness
thereof in an amount exceeding fifty thousand dollars ($50,000.00), whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable.

(q)                                 Trading Suspension, Delisting.  The Company
agrees that it shall not suffer to have its Common Stock suspended or delisted
from trading for in excess of three (3) Trading Days.

(r)                                    Trading Volume.  The Company agrees that
it shall not suffer to have the average daily trading volume of the Common
Stock, during any consecutive ten (10) trading-day period, be less than fifty
thousand and 00/100 ($50,000.00) dollars in value; provided, that for purposes
of measuring compliance with this covenant, the value of the Common Stock traded
shall be deemed to be equal to the average of the Volume-Weighted Average Price
(the “VWAP”) of Common Stock times the volume, each as reported by Bloomberg,
L.P.

(s)                                  Securities Law Violation.  The Company
agrees that it shall not suffer a determination by the U.S. Securities and
Exchange Commission or National Association of Securities Dealers, or any
applicable state regulatory authority, that it or the Issuer has violated
applicable Securities Laws.

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(t)                                    Dilution.  The Company agrees that it
shall not enter into a transaction or series of transactions that would violate
the “Twenty Percent Rule” if the Common Stock were traded on the NASDAQ market.

(u)                                 Adverse Judgment.  The Company agrees that
it shall not suffer to have a final judgment in respect of any action, suit or
proceeding commenced against it or the Issuer awarding damages in an amount
exceeding fifty thousand dollars ($50,000.00).

(v)                                 Material Misstatement or Omission.  The
Company agrees that it shall not make any representation or warranty that is not
true and correct in all material respects as of the date of this Agreement,
except for representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all material respects as of
such date.

5.                                       EVENT OF DEFAULT.

A breach by the Company of any covenant hereof shall be deemed to be an Event of
Default.

(a)                                  Upon the occurrence of an Event of Default,
which Event of Default is not cured within ten (10) business days after its
occurrence:  (i) the amount of principal due under the Note shall be immediately
due and payable to the Holder; (ii) default interest shall begin to accrue at
the annual rate of eighteen (18%) percent per annum; (iii) the Holder may file
the Affidavit of Confession of Judgment in a court of law; and (iv) the Holder
shall be entitled to all remedies under law and as set forth in the Stock Pledge
Agreement, and in connection therewith may transfer the shares of Common Stock
pledged as collateral into his name or at his direction as provided in the
Irrevocable Transfer Agent Instructions.

(b)                                 In the event that (i) an Event of Default
shall occur and not be cured as provided above, (ii) the stock pledged as
collateral pursuant to the Stock Pledge Agreement shall be sold or,
alternatively, some or all of the stock pledged as collateral shall not be
delivered in freely-salable form within five (5) business days following the
request therefor, and (iii) a deficiency remains on the amount due hereunder
(the “Remaining Deficiency”), then in such case, at the option of the Holder
pursuant to a Note Conversion Letter in the form of “Exhibit F” and upon five
(5) days’ written notice (the “Contingent Effective Date”), all or any portion
of the unpaid amounts of principal and interest may be converted into the
Convertible Debenture, the Company shall issue to the Holder a Default Warrant,
the Company’s obligation under the Convertible Debenture shall be secured as
provided in the Security Agreement, and the shares of Common Stock that may be
issued upon conversion of the Convertible Debenture and the Default Warrant
shall be subject to registration rights as provided in the Registration Rights
Agreement.

6.                                       TRANSFER AGENT INSTRUCTIONS

(a)  At the Closing, the Company shall deliver to the Holder the Irrevocable
Transfer Agent Instructions, signed by the Transfer Agent of the Company’s
Common Stock to

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indicate the Transfer Agent’s consent thereto. At such time as the Note shall be
fully paid, the shares of Common Stock of the Company that are represented by
the share certificate identified in the Irrevocable Transfer Agent Instructions
shall have been sold by the Holder, or the Note shall be converted into the
Convertible Debenture or otherwise satisfied, the Irrevocable Transfer Agent
Instructions shall be cancelled, and shall be of no further force and effect,
and promptly shall be returned to the Company.

(b)                                 The Company warrants that it will give the
Transfer Agent no instructions inconsistent with instructions to issue Common
Stock from time to time upon exercise of the Warrants, conversion of the
Contingent Convertible Debentures or exercise of the Default Warrants, as may be
applicable from time to time, in such amounts as specified from time to time by
the Company to the Transfer Agent, bearing the restrictive legend specified in
Section 2(g) of this Agreement prior to registration of the Shares under the
Securities Act, registered in the name of the Holder or his nominee and in such
denominations to be specified by the Holder in connection therewith.  Except as
so provided, the Securities 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 Holder’s obligations and agreement to comply with all applicable
securities laws upon resale of the Securities.

(c)                                  If the Holder provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Holder of any of the Securities in accordance with clause (1)(B)
of Section 4(a) of this Agreement is not required under the 1933 Act,  the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities.

(d)                                 The Company understands that a delay in the
delivery of certificates evidencing shares of Common Stock (“Conversion
Certificates”), whether on foreclosure on collateral pledged pursuant to the
Note, exercise of the Warrants, conversion of the Contingent Convertible
Debentures, exercise of the Default Warrants or in payment of accrued interest,
beyond the relevant delivery date therefor could result in economic loss to the
Holder.  As compensation to the Holder for such loss, the Company agrees to pay
late payments to the Holder for late issuance of the Conversion Certificates in
accordance with the following schedule:

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

 

 

 

Late Payment For Each $10,000

 

No. of Trading Days Late

 

of Principal or Interest Being Converted

 

1

 

$100

 

2

 

$200

 

3

 

$300

 

4

 

$400

 

5

 

$500

 

6

 

$600

 

7

 

$700

 

8

 

$800

 

9

 

$900

 

10

 

$1,000

 

>10

 

$1,000 + $200 for each Business Day Late beyond 10 days

 

 

The Company shall pay any payments incurred under this Section 6(d) in
immediately available funds upon demand.  Nothing herein shall limit the
Holder’s right to pursue actual damages for the Company’s failure to issue and
deliver the Conversion Certificates to the Holder within a reasonable time. 
Furthermore, in addition to any other remedies that may be available to a
Holder, in the event that the Company fails for any reason to effect delivery of
such Conversion Certificates within ten (10) Trading Days after the required
delivery date therefor, the Converting Holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company prior to the Converting Holder’s receipt of the relevant Conversion
Certificates, whereupon the Company and the Converting Holder each shall be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion; provided, however, that any payments contemplated by this
Section 6(d) of this Agreement which have accrued through the date of such
revocation notice shall remain due and owing to the Converting Holder
notwithstanding such revocation.

(e)                                  If, after the Holder has submitted a Notice
of Conversion, the Company fails for any reason to deliver the Conversion
Certificates by the relevant delivery date therefor, and at any time thereafter
prior to the actual delivery of the Conversion Certificates the Converting
Holder purchases, in an arm’s-length open market transaction or otherwise,
shares of Common Stock (the “Covering Shares”) in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder (the “Sold
Shares”), which delivery such Converting Holder anticipated to make using the
shares to be issued upon such conversion (a “Buy-In”), the Converting Holder
shall have the right to require the Company to pay to the Converting Holder, in
addition to and not in lieu of the amounts contemplated in other provisions of
the Transaction Agreements, including, but not limited to, the provisions of the
immediately preceding Section 6(d)), the Buy-In Adjustment Amount (as defined
below).  The “Buy-In Adjustment Amount” is the amount equal to the number of
Sold Shares multiplied by the excess, if any, of (x) the Holder’s total purchase
price per share (including brokerage commissions, if any) for the Covering
Shares over (y) the net proceeds per share (after brokerage commissions, if any)
received by the Holder from the sale of the Sold Shares.  The Company shall pay
the Buy-In Adjustment Amount to the Holder in immediately available funds
immediately upon demand by the Converting Holder.  By way of illustration and
not in limitation of the foregoing, if the

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

Holder purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which Company will be required to pay to the Holder will be $1,000.

(f)                                    In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion of the
Contingent Convertible Debentures, exercise of a Warrant or at the request of
the Holder with respect to any Shares previously issued, including the shares of
Common Stock pledged pursuant to the Stock Pledge Agreement, provided the
Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast
Automated Securities Transfer program, upon request of the Holder and the
Holder’s compliance with the provisions contained in this paragraph, so long as
the certificates therefor do not bear a legend and the Holder thereof is not
obligated to return such certificate for the placement of a legend thereon, the
Company shall use its best efforts to cause the Transfer Agent to electronically
transmit to the Holder the Common Stock issuable upon foreclosure on the shares
of Common Stock pledged as collateral to secure performance of the Company’s
obligations with respect to the Note, exercise of the Warrants, conversion of
the Convertible Debentures or exercise of a Contingent Warrant, by crediting the
account of the Holder’s Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system.

(g)                                 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 Conversion or a Notice of Exercise, 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.

7.                                       CONDITIONS TO THE COMPANY’S OBLIGATION
TO SELL.  THE OBLIGATION OF THE COMPANY HEREUNDER TO ISSUE AND SELL THE NOTES
AND THE WARRANTS TO THE HOLDER AT THE CLOSING, AND TO DELIVER THE OTHER
TRANSACTION AGREEMENTS TO THE HOLDER, IS SUBJECT TO THE SATISFACTION, AT OR
BEFORE THE CLOSING DATES, OF EACH OF THE FOLLOWING CONDITIONS, PROVIDED THAT
THESE CONDITIONS ARE FOR THE COMPANY’S SOLE BENEFIT AND MAY BE WAIVED BY THE
COMPANY AT ANY TIME IN ITS SOLE DISCRETION:

(A)                                  THE HOLDER SHALL HAVE EXECUTED THE
TRANSACTION AGREEMENTS AND DELIVERED THEM TO THE COMPANY.

(B)                                 THE HOLDER SHALL HAVE DELIVERED TO THE
COMPANY THE PURCHASE PRICE FOR THE NOTES AND WARRANTS, MINUS ANY FEES TO BE PAID
DIRECTLY FROM THE PROCEEDS OF THE CLOSING AS SET FORTH HEREIN, BY WIRE TRANSFER
OF IMMEDIATELY AVAILABLE U.S. FUNDS PURSUANT TO THE WIRE INSTRUCTIONS PROVIDED
BY THE COMPANY.

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

(c)                                  The representations and warranties of the
Holder shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and the Holder
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Holder at or prior to the Closing Date.

8.                                       CONDITIONS TO THE HOLDER’S OBLIGATION
TO PURCHASE.  The obligation of the Holder to purchase the Notes and Warrants
and to accept delivery of the other Transaction Agreements at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions:

(A)                                  THE COMPANY SHALL HAVE EXECUTED THE
TRANSACTION AGREEMENTS AND DELIVERED THE SAME TO THE HOLDER.

(B)                                 THE COMMON STOCK SHALL BE AUTHORIZED FOR
QUOTATION OR TRADING ON THE PRIMARY MARKET, TRADING IN THE COMMON STOCK SHALL
NOT HAVE BEEN SUSPENDED FOR ANY REASON, AND ALL THE CONVERSION SHARES ISSUABLE
UPON THE CONVERSION OF THE CONVERTIBLE DEBENTURES, AS WELL AS THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS OR UPON EXERCISE OF THE
DEFAULT WARRANTS, SHALL BE APPROVED FOR LISTING OR TRADING ON THE PRIMARY
MARKET.

(C)                                  THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS (EXCEPT TO THE EXTENT
THAT ANY OF SUCH REPRESENTATIONS AND WARRANTIES ALREADY IS QUALIFIED AS TO
MATERIALITY IN SECTION 3 ABOVE, IN WHICH CASE, SUCH REPRESENTATIONS AND
WARRANTIES SHALL BE TRUE AND CORRECT WITHOUT FURTHER QUALIFICATION) AS OF THE
DATE WHEN MADE AND AS OF THE CLOSING DATE AS THOUGH MADE AT THAT TIME (EXCEPT
FOR REPRESENTATIONS AND WARRANTIES THAT SPEAK AS OF A SPECIFIC DATE) AND THE
COMPANY SHALL HAVE PERFORMED, SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS
WITH THE COVENANTS, AGREEMENTS AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE
PERFORMED, SATISFIED OR COMPLIED WITH BY THE COMPANY AT OR PRIOR TO THE CLOSING
DATE

(D)                                 THE COMPANY SHALL HAVE EXECUTED AND
DELIVERED TO THE HOLDER THE NOTE AND THE WARRANT.

(E)                                  THE HOLDER SHALL HAVE RECEIVED THE
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS.(F)                THE HOLDER SHALL HAVE
RECEIVED AN OPINION OF COUNSEL IN FORM SATISFACTORY TO THE HOLDER, IN HIS SOLE
DISCRETION.

(f)                                    The Company shall have delivered to the
Holder a certificate, executed by the Secretary of the Company and dated as of
the Closing Date, as to (i) the resolutions consistent with Section 3(c) as
adopted by the Company’s Board of Directors in a form reasonably acceptable to
the Holder, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as
in effect at the Closing.

(G)                                 THE COMPANY SHALL HAVE CREATED THE SHARE
RESERVE.

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

(h)                                 The Irrevocable Transfer Agent Instructions,
in form and substance satisfactory to the Holder, shall have been delivered to
and acknowledged in writing by the Company’s transfer agent.

9.                                       INDEMNIFICATION.

(a)                                  (i)                                     The
Company agrees to indemnify and hold harmless the Holder and his employees and
agents, and each Holder 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 Holder, his partners,
Affiliates, employees, and duly authorized agents, and any such Holder Control
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or non-fulfillment 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 a material breach of a material representation by the
Holder or the Holder’s material failure to perform any covenant or agreement
contained in this Agreement (in each case, as determined by a non-appealable
judgment to such effect).

(ii)                                  The Company hereby agrees that, if the
Holder, other than by reason of his gross negligence or willful misconduct or by
reason of his trading of the Common Stock in a manner that is illegal under the
federal securities laws (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
Holder 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 Holder from and against
and in respect of all losses, claims, liabilities, damages or expenses resulting
from, imposed upon or incurred by the Holder, directly or indirectly, and
reimburse the Holder for his 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 Holder who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and the
Holder Control Persons (if any), as the case may be, of the Holder 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 Holder, any such
Affiliate and any such Person.  The Company also agrees that neither

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

the Holder nor any such Affiliate, partner, director, agent, employee or the
Holder 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 to the extent such liability is based on a material
misrepresentation made by the Holder in Section 2 hereof or the Holder’s
material failure to perform any material covenant or agreement of the Holder
contained in the Transaction Agreements (in each case, as determined by a
non-appealable judgment to such effect).

(b)                                 All claims for indemnification by any
Indemnified Party (as defined below) under this Section 9 shall be asserted and
resolved as follows:

(i)                                     In the event that 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 his or its liability or the amount of his or its
liability to the Indemnified Party under this Section and whether the
Indemnifying Party desires, at his or 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 Section 9(b), 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 his
or 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 his or 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 his or its right to
indemnity under paragraph (a) of this Section with respect to such Third Party
Claim.

(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, each in a reasonable
manner, 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
his or 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 his or its
liability or the amount of his or 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 his or its own costs and expenses
with respect to such participation.

(z)                                   If the Indemnifying Party notifies the
Indemnified Party that it does not dispute his or its liability or the amount of
his or 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 his or
its liability or the amount of his or 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 his or its liability or the amount of his or 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.

(ii)                                  In the event that any Indemnified Party
should have a claim under Section 9(a) 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 Section 9(a) 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 Section 9(a) and
the Indemnifying Party shall pay the amount of such Damages to the Indemnified
Party on demand.  If the Indemnifying Party has timely disputed his or its
liability or the amount of his or 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.

(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 to which the indemnifying party may be subject.

10.                                 GOVERNING LAW: MISCELLANEOUS

(a)                                  Governing Law.  This Agreement shall be
governed by and interpreted in accordance with the laws of the State of Illinois
for contracts to be wholly performed in such state and without giving effect to
the principles thereof regarding the conflict of laws.  Each of the parties
consents to the exclusive jurisdiction of the federal courts whose districts
encompass any part of the County of Cook or the state courts of the State of
Illinois sitting in the County of Cook in connection with any dispute arising
under this Agreement or any of the other Transaction Agreements and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions.  To the extent determined by such court, the Company
shall reimburse the Holder for any reasonable legal fees and disbursements
incurred by the Holder in enforcement of or protection of any of his rights
under any of the Transaction Agreements.

(B)                                 COUNTERPARTS.  THIS AGREEMENT MAY BE
EXECUTED IN TWO OR MORE IDENTICAL COUNTERPARTS, ALL OF WHICH SHALL BE CONSIDERED
ONE AND THE SAME AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE
BEEN SIGNED BY EACH PARTY AND DELIVERED TO THE OTHER PARTY.  IN THE EVENT ANY
SIGNATURE PAGE IS DELIVERED BY FACSIMILE TRANSMISSION, THE PARTY USING SUCH
MEANS OF DELIVERY SHALL CAUSE FOUR (4) ADDITIONAL ORIGINAL EXECUTED SIGNATURE
PAGES TO BE PHYSICALLY DELIVERED TO THE OTHER PARTY WITHIN FIVE (5) DAYS OF THE
EXECUTION AND DELIVERY HEREOF.

(C)                                  HEADINGS.  THE HEADINGS OF THIS AGREEMENT
ARE FOR CONVENIENCE OF REFERENCE AND SHALL NOT FORM PART OF, OR AFFECT THE
INTERPRETATION OF, THIS AGREEMENT.

(D)                                 SEVERABILITY.  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 IN THAT JURISDICTION OR THE VALIDITY OR
ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER JURISDICTION.

(E)                                  ENTIRE AGREEMENT, AMENDMENTS.  THIS
AGREEMENT SUPERSEDES ALL OTHER PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN THE
HOLDER, THE COMPANY, THEIR AFFILIATES AND PERSONS ACTING ON THEIR BEHALF WITH
RESPECT TO THE MATTERS DISCUSSED HEREIN, AND THIS AGREEMENT AND THE INSTRUMENTS
REFERENCED HEREIN CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT
TO THE MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS SPECIFICALLY SET FORTH
HEREIN OR THEREIN, NEITHER THE COMPANY NOR THE HOLDER MAKES ANY REPRESENTATION,
WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT TO SUCH MATTERS.  NO PROVISION OF
THIS AGREEMENT MAY BE WAIVED OR AMENDED OTHER THAN BY AN INSTRUMENT IN WRITING
SIGNED BY THE PARTY TO BE CHARGED WITH ENFORCEMENT.

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

(F)                                    NOTICES.  ANY NOTICES, CONSENTS, WAIVERS,
OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED TO BE GIVEN UNDER THE TERMS OF
THIS AGREEMENT MUST BE IN WRITING AND WILL BE DEEMED TO HAVE BEEN DELIVERED (I)
UPON RECEIPT, WHEN DELIVERED PERSONALLY; (II) UPON CONFIRMATION OF RECEIPT, WHEN
SENT BY FACSIMILE; (III) THREE (3) DAYS AFTER BEING SENT BY U.S. CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, OR (IV) ONE (1) DAY AFTER DEPOSIT WITH A NATIONALLY
RECOGNIZED OVERNIGHT DELIVERY SERVICE, IN EACH CASE PROPERLY ADDRESSED TO THE
PARTY TO RECEIVE THE SAME.  THE ADDRESSES AND FACSIMILE NUMBERS FOR SUCH
COMMUNICATIONS SHALL BE:

If to the Company:

Open Energy Corporation

 

514 Via de la Valle, Suite 200

 

Solana Beach, CA 92075

 

Attention: David Saltman, Chief Executive Officer

 

Telephone:  858-794-8800

 

Facsimile:  858-794-8811

 

 

With a copy to:

John Hart, Esq.

 

Open Energy Corporation

 

514 Via de la Valle, Suite 200

 

Solana Beach, CA 92075

 

Telephone:  858-794-8800

 

Facsimile:  858-794-8811

 

 

If to the Holder:

John M. Fife

 

303 East Wacker Drive, Suite 311

 

Chicago, IL 60657

 

Telephone:  312-565-1569

 

Facsimile:  312-819-9701

 

 

With a copy to:

Merrill E. Weber, Esq.

 

303 East Wacker Drive, Suite 311

 

Chicago, IL 60657

 

Telephone:  773-406-2386

 

Facsimile:  312-819-9701

 

Each party shall provide five (5) days’ prior written notice to the other party
of any change in address or facsimile number.

(G)                                 SUCCESSORS AND ASSIGNS.  THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS.  THE COMPANY SHALL NOT ASSIGN THIS AGREEMENT
OR ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE
OTHER PARTY HERETO.

(H)                                 NO THIRD PARTY BENEFICIARIES.  THIS
AGREEMENT IS INTENDED FOR THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE
PERMITTED SUCCESSORS AND ASSIGNS, AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY
PROVISION HEREOF BE ENFORCED BY, ANY OTHER PERSON.

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(I)                                     SURVIVAL.  UNLESS THIS AGREEMENT IS
TERMINATED UNDER SECTION 10(L), THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE HOLDER CONTAINED IN SECTIONS 2 AND 3, THE AGREEMENTS AND
COVENANTS SET FORTH IN SECTIONS 4 AND 6, AND THE INDEMNIFICATION PROVISIONS SET
FORTH IN SECTION 9 SHALL SURVIVE THE CLOSING FOR A PERIOD OF TWO (2) YEARS
FOLLOWING THE DATE ON WHICH THE CONVERTIBLE DEBENTURES ARE CONVERTED IN FULL. 
THE HOLDER SHALL BE RESPONSIBLE ONLY FOR ITS OWN REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND COVENANTS HEREUNDER.

(J)                                     PUBLICITY.  THE COMPANY AND THE HOLDER
SHALL HAVE THE RIGHT TO APPROVE, BEFORE ISSUANCE ANY PRESS RELEASE OR ANY OTHER
PUBLIC STATEMENT WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY MADE BY
ANY PARTY; PROVIDED, HOWEVER, THAT THE COMPANY SHALL BE ENTITLED, WITHOUT THE
PRIOR APPROVAL OF THE HOLDER, TO ISSUE ANY PRESS RELEASE OR OTHER PUBLIC
DISCLOSURE WITH RESPECT TO SUCH TRANSACTIONS REQUIRED UNDER APPLICABLE
SECURITIES OR OTHER LAWS OR REGULATIONS (THE COMPANY SHALL USE ITS BEST EFFORTS
TO CONSULT THE HOLDER IN CONNECTION WITH ANY SUCH PRESS RELEASE OR OTHER PUBLIC
DISCLOSURE PRIOR TO ITS RELEASE AND HOLDER SHALL BE PROVIDED WITH A COPY THEREOF
UPON RELEASE THEREOF).

(K)                                  FURTHER ASSURANCES.  EACH PARTY SHALL DO
AND PERFORM, OR CAUSE TO BE DONE AND PERFORMED, ALL SUCH FURTHER ACTS AND
THINGS, AND SHALL EXECUTE AND DELIVER ALL SUCH OTHER AGREEMENTS, CERTIFICATES,
INSTRUMENTS AND DOCUMENTS, AS THE OTHER PARTY MAY REASONABLY REQUEST IN ORDER TO
CARRY OUT THE INTENT AND ACCOMPLISH THE PURPOSES OF THIS AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY.

(L)                                     TERMINATION.  IN THE EVENT THAT THE
CLOSING SHALL NOT HAVE OCCURRED ON OR BEFORE FIVE (5) BUSINESS DAYS FROM THE
DATE HEREOF DUE TO THE COMPANY’S OR THE HOLDER’S FAILURE TO SATISFY THE
CONDITIONS SET FORTH IN SECTIONS 6 AND 7 ABOVE (AND THE NON-BREACHING PARTY’S
FAILURE TO WAIVE SUCH UNSATISFIED CONDITION(S)), THE NON-BREACHING PARTY SHALL
HAVE THE OPTION TO TERMINATE THIS AGREEMENT WITH RESPECT TO SUCH BREACHING PARTY
AT THE CLOSE OF BUSINESS ON SUCH DATE WITHOUT LIABILITY OF ANY PARTY TO ANY
OTHER PARTY; PROVIDED, HOWEVER, THAT IF THIS AGREEMENT IS TERMINATED BY THE
COMPANY PURSUANT TO THIS SECTION 9(L), THE COMPANY SHALL REMAIN OBLIGATED TO
REIMBURSE THE HOLDER FOR THE FEES AND EXPENSES OF YORKVILLE ADVISORS LLC
DESCRIBED IN SECTION 4(G) ABOVE.

(M)                               NO STRICT CONSTRUCTION.  THE LANGUAGE USED IN
THIS AGREEMENT WILL BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO
EXPRESS THEIR MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED
AGAINST ANY PARTY.

(n)                                 Jury Trial Waiver.  The Company and the
Holder 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.

(o)                                 Specific Performance.  The Company and the
Holder acknowledge and agree that irreparable damage would occur in the event
that any provision of this Agreement or any of the other Transaction Agreements
were not performed in accordance with his or its specific terms or were
otherwise breached.  It is accordingly agreed that the parties (including

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any Holder) shall be entitled to an injunction or injunctions, without (except
as specified below) the necessity to post a bond, to prevent or cure breaches of
the provisions of this Agreement or such other Transaction Agreement and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity; provided, however that the Company, upon receipt of a Notice of
Conversion or a Notice of Exercise, may not fail or refuse to deliver the stock
certificates and the related legal opinions, if any, based on any claim that the
Holder has violated any provision hereof or for any other reason, unless the
Company has first posted a bond for one hundred fifty percent (150%) of the
principal amount and then obtained a court order specifically directing it not
to deliver said stock certificates to the Holder.  This provision is deemed
incorporated by reference into each of the Transaction Agreements as if set
forth therein in full.

(p)                                 No Waiver by Failure or Delay.  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.

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

(r)                                    Binding Effect of Facsimile
Transmissions.              A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.

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(s)                                  Survival of Representations and
Warranties.  The Company’s and the Holder’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 Price, for a period
of three (3) years after the Closing Date and shall inure to the benefit of the
Holder and the Company and their respective successors and assigns.

IN WITNESS WHEREOF, each the undersigned represents that the foregoing
statements made by it above are true and correct and that it has caused this
Agreement to be duly executed on his or its behalf (if an entity, by one of its
officers thereunto duly authorized) as of the date first above written.

HOLDER:

 

 

 

 

 

COMPANY:

 

OPEN ENERGY CORP.

 

 

 

 

 

 

Name:

 

Title:

 

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EXHIBIT A

 

FORM OF NOTE

 

 

 

EXHIBIT B

 

AFFIDAVIT OF CONFESSION OF JUDGMENT

 

 

 

EXHIBIT C

 

FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS WITH LEGAL OPINION ATTACHED

 

 

 

EXHIBIT D

 

FORM OF STOCK PLEDGE AGREEMENT

 

 

 

EXHIBIT E

 

FORM OF WARRANT

 

 

 

EXHIBIT F

 

FORM OF NOTE CONVERSION LETTER

 

 

 

EXHIBIT G

 

CONVERTIBLE DEBENTURE

 

 

 

EXHIBIT H

 

FORM OF DEFAULT WARRANT

 

 

 

EXHIBIT I

 

FORM OF REGISTRATION RIGHTS AGREEMENT

 

 

 

EXHIBIT J

 

FORM OF SECURITY AGREEMENT

 

 

 

EXHIBIT K

 

FORM OF OPINION OF COUNSEL

 

 

 

EXHIBIT L

 

COMPANY DISCLOSURE SCHEDULES

 

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