Securities Purchase Agreement


     

    EXHIBIT
      10.1

     

     

    SECURITIES
      PURCHASE AGREEMENT

    


    AGREEMENT,
      dated
      as of October 27, 2006, between Mems USA, Inc. (the “ Company”) and GCA
      Strategic Investment Fund Limited (“Purchaser”).

    


    R
      E C I T A L S:

    


    WHEREAS,
      the
      Company desires to sell and issue to Purchaser, and Purchaser desires to
      purchase from the Company, $3,530,000 aggregate principal amount of the
      Company’s Convertible Note due October 27, 2009 (the “ Convertible Note”), with
      terms and conditions as set forth in the form of Convertible Note attached
      hereto as Exhibit
      A;

    


    WHEREAS,
      the
      Convertible Note will be convertible into shares of the Company’s common stock,
      par value $.001 per share (the “ Common Stock”);

    


    WHEREAS,
      in
      order to induce the Purchaser to enter into the transactions described in this
      Agreement, the Company desires to issue to the Purchaser a warrant to purchase
      shares of Common Stock upon the Closing equal to 1,000,000 shares of Common
      Stock (as defined herein) on the terms and conditions described in the form
      of
      the common stock purchase warrant attached hereto as Exhibit
      F
      (the
“Warrants”), and

    


    WHEREAS,
      Purchaser will have certain registration rights with respect to such shares
      of
      Common Stock issuable as interest under, and upon conversion of, the Convertible
      Note (the “Note Shares”) and upon exercise of the Warrants (the “Warrant
      Shares,” the Note Shares and the Warrant Shares being collectively referred to
      herein as the “Conversion Shares”) as set forth in the Registration Rights
      Agreement in the form attached hereto as Exhibit B;

    


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

    


    ARTICLE
      1. 
      DEFINITIONS

    


    1  
      Definitions
      . The
      following terms, as used herein, have the following meanings:

    


    “Additional
      Shares of Common Stock” has the meaning set forth in
      Section 11.6.

    


    “Affiliate”
      means, with respect to any Person (the “ Subject Person”), (i) any other
      Person (a “ Controlling Person”) that directly, or indirectly through one or
      more intermediaries, Controls the Subject Person or (ii) any other Person
      (other than the Subject Person or a Consolidated Subsidiary of the Subject
      Person) which is Controlled by or is under common Control with a Controlling
      Person.

    


    “Agreement”
      means this Securities Purchase Agreement, as amended, supplemented or otherwise
      modified from time to time in accordance with its terms.

    


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Asset
      Sale” has the meaning set forth in Section 8.4.

    


    “Balance
      Sheet Date” has the meaning set forth in Section 4.7.

    


    “Benefit
      Arrangement” means at any time an employee benefit plan within the meaning of
      Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which
      is maintained or otherwise contributed to by the Company.

    


    “Benefit
      Plans” has the meaning set forth in Section 4.9(b).

    


    “Business
      Day” means any day except a Saturday, Sunday or other day on which commercial
      banks in the City of New York are authorized or required by law to
      close.

    


    “Capital
      Reorganization” has the meaning set forth in Section 11.5.

    


    “Change
      in Control” means (i) after the date of this Agreement, any person or group
      of persons (within the meaning of Sections 13 and 14 of the Exchange Act and
      the
      rules and regulations of the Commission relating to such sections) other than
      Purchaser shall have acquired beneficial ownership (within the meaning of Rules
      13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act)
      of
      33a%
      or more
      of the outstanding shares of Common Stock of the Company without the prior
      written consent of Purchaser; (ii) any sale or other disposition (other
      than by reason of death or disability) to any Person of more than 75,000 shares
      of Common Stock of the Company by any executive officers and/or employee
      directors of the Company without the prior written consent of Purchaser;
      (iii) individuals constituting the Board of Directors of the Company on the
      date hereof (together with any new Directors whose election by such Board of
      Directors or whose nomination for election by the stockholders of the Company
      was approved by a vote of at least 50.1% of the Directors still in office who
      are either Directors as of the date hereof or whose election or nomination
      for
      election was previously so approved), cease for any reason to constitute at
      least two-thirds of the Board of Directors of the Company then in
      office.

    


    “Closing
      Bid Price” shall mean for any security as of any date, the lowest closing bid
      price as reported by Bloomberg, L.P. (“ Bloomberg”) on the principal securities
      exchange or trading market where such security is listed or traded or, if the
      foregoing does not apply, the lowest closing bid price of such security in
      the
      over-the-counter market on the electronic bulletin board for such security
      as
      reported by Bloomberg, or, if no lowest trading price is reported for such
      security by Bloomberg, then the average of the bid prices of any market makers
      for such securities as reported in the “Pink Sheets” by the National Quotation
      Bureau, Inc. If the lowest closing bid price cannot be calculated for such
      security on such date on any of the foregoing bases, the lowest closing bid
      price of such security on such date shall be the fair market value as mutually
      determined by Purchaser and the Company for which the calculation of the closing
      bid price requires, and in the absence of such mutual determination, as
      determined by the Board of Directors of the Company in good faith.

    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Closing
      Date” means the date on which all of the conditions set forth in
      Sections 6.1 and 6.2 shall have been satisfied and Convertible Note in the
      aggregate principal amount of $3,530,000 are issued by the Company to Purchaser.
      

    


    “Code”
      means the Internal Revenue Code of 1986, as amended.

    


    “Commission”
      means the Securities and Exchange Commission or any entity succeeding to all
      of
      its material functions.

    


    “Common
      Stock” means common stock, par value $.001 per share, of the
      Company.

    


    “Company”
      means Mems USA, Inc., a Nevada corporation, and its successors.

    


    “Company
      Corporate Documents” means the certificate of incorporation and bylaws of the
      Company.

    


    “Consolidated
      Net Worth” means at any date the total shareholder’s equity which would appear
      on a consolidated balance sheet of the Company prepared as of such
      date.

    


    “Consolidated
      Subsidiary” means at any date with respect to any Person or Subsidiary or other
      entity, the accounts of which would be consolidated with those of such Person
      in
      its consolidated financial statements if such statements were prepared as of
      such date.

    


    “Control”
      (including, with correlative meanings, the terms “Controlling,” “Controlled by”
and under “common Control with”), as used with respect to any Person, means the
      possession, directly or indirectly, of the power to direct or cause the
      direction of the management and policies of that Person, whether through the
      ownership of voting securities, by contract or otherwise.

    


    “Conversion
      Date” shall mean the date of delivery (including delivery via telecopy) of a
      Notice of Conversion for all or a portion of a Convertible Note by the holder
      thereof to the Company as specified in each Convertible Note.

    


    “Conversion
      Price” has the meaning set forth in the Convertible Note.

    


    “Conversion
      Shares” has the meaning set forth in the Recitals.

    


    “Convertible
      Note” means the Company’s Convertible Note substantially in the form set forth
      as Exhibit A
      hereto.

    


    “Deadline”
      has the meaning set forth in Section 10.1.

    


    “Debt”
of
      any Person means at any date, without duplication, (i) all obligations of
      such Person for borrowed money, (ii) all obligations of such Person
      evidenced by bonds, notes, or other similar instruments issued by such Person,
      (iii) all obligations of such Person as lessee which (y) are
      capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
      transactions, (iv) all reimbursement obligations of such Person in respect
      of letters of credit or other similar instruments, (v) all Debt of others
      secured by a Lien on any asset of such Person, whether or not such Debt is
      otherwise an obligation of such Person and (vi) all Debt of others
      Guaranteed by such Person.

    


    
      
        
        

      

      
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    “Default”
      means any event or condition which constitutes an Event of Default or which
      with
      the giving of notice or lapse of time or both would, unless cured or waived,
      become an Event of Default.

    


    “Default
      Fee” has the meaning set forth in Section 10.4.

    


    “Derivative
      Securities” has the meaning set forth in Section 8.6.

    


    “Discounted
      Equity Offerings” has the meaning set forth in Section 8.6

    


    “Directors”
      means the individuals then serving on the Board of Directors or similar such
      management council of the Company.

    


    “Environmental
      Laws” means any and all federal, state, local and foreign statutes, laws,
      regulations, ordinances, rules, judgments, orders, decrees, permits,
      concessions, grants, franchises, licenses, agreements or other governmental
      restrictions relating to the environment or to emissions, discharges or releases
      of pollutants, contaminants, petroleum or petroleum products, chemicals or
      industrial, toxic or hazardous substances or wastes into the environment,
      including, without limitation, ambient air, surface water, ground water, or
      land, or otherwise relating to the manufacture, processing, distribution, use,
      treatment, storage, disposal, transport or handling of pollutants, contaminants,
      petroleum or petroleum products, chemicals or industrial, toxic or hazardous
      substances or wastes or the cleanup or other remediation thereof.

    


    “ERISA”
      means the Employee Retirement Income Security Act of 1974, as amended, or any
      successor statute.

    


    “ERISA
      Group” means the Company and each Subsidiary and all members of a controlled
      group of corporation and all trades or businesses (whether or not incorporated)
      under common control which, together with the Company or any Subsidiary, are
      treated as a single employer under the Code.

    “Event
      of
      Default” has the meaning set forth in Article XII hereof.

    


    “Exchange
      Act” means the Securities Exchange Act of 1934, as amended.

    


    “Expense
      Reimbursement Fee” has the meaning set forth in Section 134.

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Financing”
      means a public or private financing consummated (meaning closing and funding)
      through the issuance of debt or equity securities (or securities convertible
      into or exchangeable for debt or equity securities) of the Company, other than
      Permitted Financings.

    


    “Fixed
      Price(s)” has the meaning set forth in Section 11.1.

    


    “GAAP”
      has the meaning set forth in Section 1.2.

    


    “Guarantee”
      by any Person means any obligation, contingent or otherwise, of such Person
      directly or indirectly guaranteeing (whether by virtue of partnership
      arrangements, by agreement to keep well, to purchase assets, goods, securities
      or services, to take-or-pay, or to maintain a minimum net worth, financial
      ratio
      or similar requirements, or otherwise) any Debt of any other Person and, without
      limiting the generality of the foregoing, any obligation, direct or indirect,
      contingent or otherwise, of such Person (i) to purchase or pay (or advance
      or supply funds for the purchase or payment of) such Debt or (ii) entered
      into for the purpose of assuring in any other manner the holder of such Debt
      of
      the payment thereof or to protect such holder against loss in respect thereof
      (in whole or in part); provided
      that the
      term Guarantee shall not include endorsements for collection or deposit in
      the
      ordinary course of business. The term Guarantee used as a verb has a
      corresponding meaning.

    


    “Hazardous
      Materials” means any hazardous materials, hazardous wastes, hazardous
      constituents, hazardous or toxic substances or petroleum products (including
      crude oil or any derivative or fraction thereof), defined or regulated as such
      in or under any Environmental Laws.

    


    ‘Intellectual
      Property” has the meaning set forth in Section 4.20.

    


    “Investment”
      means any investment in any Person, whether by means of share purchase,
      partnership interest, capital contribution, loan, time deposit or
      otherwise.

    


    “Lien”
      means any lien, mechanic’s lien, materialmen’s lien, lease, easement, charge,
      encumbrance, mortgage, conditional sale agreement, title retention agreement,
      agreement to sell or convey, option, claim, title imperfection, encroachment
      or
      other survey defect, pledge, restriction, security interest or other adverse
      claim, whether arising by contract or under law or otherwise (including, without
      limitation, any financing lease having substantially the same economic effect
      as
      any of the foregoing, and the filing of any financing statement under the
      Uniform Commercial Code or comparable law of any jurisdiction in respect of
      any
      of the foregoing).

     

    “Listing
      Applications” has the meaning set forth in Section 4.4.

    


    “Majority
      Holders” means (i) as of the Closing Date, Purchaser and (ii) at any
      time thereafter, the holders of more than 50% in aggregate principal amount
      of
      the Convertible Note outstanding at such time.

    


    
      
        
        

      

      
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    “Market
      Price” shall mean the Closing Bid Price of the Common Stock preceding the date
      of determination.

    


    “Material
      Plan” means at any time a Plan or Plans having aggregate Unfunded Liabilities in
      excess of $200,000.

    


    “Maturity
      Date” shall mean the date of maturity of the Convertible Note.

    


    “Maximum
      Number of Shares” shall mean that percentage that the Company may issue without
      shareholder approval under the applicable rules of the OTC Bulletin Board,
      National Market or equivalent entity then applicable to the Company, of the
      then
      issued and outstanding shares of Common Stock of the Company as of the
      applicable date of determination, or such greater number of shares as the
      stockholders of the Company may have previously approved.

    


    "NASD"
      has the meaning set forth in Section 7.10.

    


    “Nasdaq
      Market” means the Nasdaq Stock Market’s National Market System.

    


    “National
      Market” means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock
      Exchange, Inc. or the American Stock Exchange, Inc..

    


    “Net
      Cash
      Proceeds” means, with respect to any transaction, the total amount of cash
      proceeds received by the Company or any Subsidiary less (i) reasonable
      underwriters’ fees, brokerage commissions, reasonable professional fees and
      other customary out-of-pocket expenses payable in connection with such
      transaction, (ii) in the case of dispositions of assets, (A) actual
      transfer taxes (but not income taxes) payable with respect to such dispositions,
      and (B) the amount of Debt, if any, secured by a Lien on the asset or
      assets disposed of and required to be, and actually repaid by the Company or
      any
      Subsidiary in connection therewith, and any trade payables specifically relating
      to such asset or assets sold by the Company or any Subsidiary that are not
      assumed by the purchaser of such asset or assets, and (iii) proceeds of any
      lien
      on any accounts receivable or any alternative energy project..

    


    “Notice
      of Conversion” means the form to be delivered by a holder of a Convertible Note
      upon conversion of all or a portion thereof to the Company substantially in
      the
      form of Exhibit A
      to the
      form of Convertible Note.

    “Officer’s
      Certificate” shall mean a certificate executed by the President, chief executive
      officer or chief financial officer of the Company in the form of Exhibit C
      attached
      hereto.

    


    "OTC
      Bulletin Board" means the over-the-counter bulletin board operated by the
      NASD.

    


    “Other
      Taxes” has the meaning set forth in Section 3.6(b).

    


    “PBGC”
      means the Pension Benefit Guaranty Corporation or any entity succeeding to
      any
      or all of its functions under ERISA.

    


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    “Permits”
      means all domestic and foreign licenses, franchises, grants, authorizations,
      permits, easements, variances, exemptions, consents, certificates, orders and
      approvals necessary to own, lease and operate the properties of, and to carry
      on
      the business of the Company and the Subsidiaries.

    


    “Permitted
      Financings” has the meaning set forth in Section 8.6.

    


    “Person”
      means an individual, corporation, partnership, trust, incorporated or
      unincorporated association, joint venture, joint stock Company, government
      (or
      any agency or political subdivision thereof) or other entity of any
      kind.

    


    “Plan”
      means at any time an employee pension benefit plan which is covered by
      Title IV of ERISA or subject to the minimum funding standards under the
      Code and either (i) is maintained, or contributed to, by any member of the
      ERISA group for employees of any member of the ERISA group or (ii) has at
      any time within the preceding five years been maintained, or contributed to,
      by
      any Person which was at such time a member of the ERISA group for employees
      of
      the Person which was at such time a member of the ERISA Group.

    


    “Purchase
      Price” means the purchase price for the Securities set forth in Section 2.2
      hereof.

    


    “Purchaser”
      means the entity listed on the signature page hereto and its successors and
      assigns, including holders from time to time of the Convertible
      Note.

    


    “Recourse
      Financing” means Debt of the Company or any Subsidiary which, by its terms, does
      not bar the lender thereof from action against the Company or any Subsidiary,
      as
      borrower or guarantor, if the security value of the project or asset pledged
      in
      respect thereof falls below the amount required to repay such Debt.

    


    “Redemption
      Event” has the meaning set forth in Section 3.4.

    


    “Registrable
      Securities” has the meaning set forth in Section 10.4(a).

    


    “Registration
      Statement” has the meaning set forth in Section 10.4(b).

    


    “Registration
      Rights Agreement” means the agreement between the Company and Purchaser dated
      the date hereof substantially in the form set forth in Exhibit B
      attached
      hereto.

    


    “Reserved
      Amount” has the meaning set forth in Section 7.10(a).

    


    “Restricted
      Payment” means, with respect to any Person, (i) any dividend or other
      distribution on any shares of capital stock of such Person (except dividends
      payable solely in shares of capital stock of the same or junior class of such
      Person and dividends from a wholly-owned direct or indirect Subsidiary of the
      Company to its parent corporation), (ii) any payment on account of the
      purchase, redemption, retirement or acquisition of (a) any shares of such
      Person’s capital stock or (b) any option, warrant or other right to acquire
      shares of such Person’s capital stock or (iii) any loan, or advance or
      capital contribution to any Person (a “ Stockholder”) owning any capital stock
      of such Person other than relocation, travel or like advances to officers and
      employees in the ordinary course of business, and other than reasonable
      compensation as determined by the Board of Directors.

    


    
      
        
        

      

      
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    “Rights
      Offering” has the meaning set forth in Section 11.3.

    


    “Sale
      Event” has the meaning set forth in Section 3.4.

    


    “SEC
      Reports” has the meaning set forth in Section 4.7

    


    “Securities”
      means the Convertible Note, the Warrants and, as applicable, the Conversion
      Shares.

    


    “Securities
      Act” means the Securities Act of 1933, as amended.

    


    “Security
      Agreement” has the meaning set forth in the recitals.

    


    “Share
      Reorganization” has the meaning set forth in Section 11.2.

    


    “Special
      Distribution” has the meaning set forth in Section 11.4.

    


    “Subsidiary”
      means, with respect to any Person, any corporation or other entity of which
      (x) a majority of the capital stock or other ownership interests having
      ordinary voting power to elect a majority of the Board of Directors or other
      persons performing similar functions are at the time directly or indirectly
      owned by such Person or (y) the results of operations, the assets and the
      liabilities of which are consolidated with such Person under GAAP.

    


    “Subsidiary
      Corporate Documents” means the certificates of incorporation and bylaws of each
      Subsidiary.

    


    “Taxes”
      has the meaning set forth in Section 3.6.

    


    “Trading
      Day” shall mean any Business Day in which the OTC Bulletin Board, National
      Market or other automated quotation system or exchange on which the Common
      Stock
      is then traded is open for trading for at least four (4) hours.

    


    “Transaction
      Agreements” means this Agreement, the Convertible Note, the Registration Rights
      Agreement, and the other agreements contemplated by this Agreement.

    


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “Transfer”
      means any disposition of Securities that would constitute a sale thereof under
      the Securities Act.

    


    “Unfunded
      Liabilities” means, with respect to any Plan at any time, the amount (if any) by
      which (i) the present value of all benefits under Plan exceeds
      (ii) the fair market value of all Plan assets allocable to such benefits
      (excluding any accrued but unpaid contributions), all determined as of the
      then
      most recent valuation date for such Plan, but only to the extent that such
      excess represents a potential liability of a member of the ERISA Group to the
      PBGC or any other Person under Title IV of ERISA.

    


    “VWAP”
      shall mean for any security as of any date, the volume weighted average price
      as
      reported by Bloomberg, L.P. (“ Bloomberg”) on the principal securities exchange
      or trading market where such security is listed or traded or, if the foregoing
      does not apply, the volume weighted average price of such security in the
      over-the-counter market on the electronic bulletin board for such security
      as
      reported by Bloomberg, or, if no volume weighted average price is reported
      for
      such security by Bloomberg, then the average of the bid prices of any market
      makers for such securities as reported in the “Pink Sheets” by the National
      Quotation Bureau, Inc. If the volume weighted average price cannot be calculated
      for such security on such date on any of the foregoing bases, the volume
      weighted average price of such security on such date shall be the fair market
      value as mutually determined by Purchaser and the Company for which the
      calculation of the volume weighted average price requires, and in the absence
      of
      such mutual determination, as determined by the Board of Directors of the
      Company in good faith.

    


    “Warrant”
      means the Common Stock Purchase Warrants substantially in the form set forth
      in
Exhibits
      F & G
      hereto.

    


    


    2  
      Accounting Terms and Determinations
      . Unless
      otherwise specified herein, all accounting terms used herein shall be
      interpreted, all accounting determinations hereunder shall be made, and all
      financial statements required to be delivered hereunder shall be prepared,
      in
      accordance with generally accepted accounting principles as in effect from
      time
      to time, applied on a consistent basis (except for changes concurred in by
      the
      Company’s independent public accountants) (“ GAAP”) All references to “dollars,”
“Dollars” or “$” are to United States dollars unless otherwise
      indicated.

    


    


    ARTICLE
      2. 
      PURCHASE AND SALE OF SECURITIES

    


    1  
      Purchase and Sale of Convertible Note
      .

    


    (a)  Subject
      to the terms and conditions set forth herein, the Company agrees to issue and
      sell to Purchaser, and Purchaser agrees to purchase from the Company, the
      Convertible Note.

    


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (b)  Purchaser
      shall acquire Convertible Note on the Closing Date in an aggregate principal
      amount of Three Million Five Hundred Thirty Thousand Dollars
      ($3,530,000.00).

    


    


    2  
      Purchase Price
      . The
      purchase price for the Convertible Note on the Closing Date shall be 90% of
      the
      principal amount thereof. Therefore, the aggregate consideration payable by
      Purchaser to the Company for the Convertible Note on the Closing Date shall
      be
      Three Million One Hundred Seventy Seven Thousand Dollars ($3,177,000.00) (the
“
Purchase Price”).

    


    3  
      Closing and Mechanics of Payment
      .

    


    (a)  The
      Purchase Price shall be paid on the Closing Date by wire transfer of immediately
      available funds on or before 5:00 p.m. (EST).

    


    (b)  The
      Convertible Note issued on the Closing Date shall be dated the date
      hereof.

    


    


    ARTICLE
      3. 
      PAYMENT TERMS OF CONVERTIBLE NOTE

    


    1  
      Payment of Principal and Interest; Payment Mechanics
      . The
      Company will pay all amounts due on each Convertible Note by the method and
      at
      the address specified for such purpose by Purchaser in writing, without the
      presentation or surrender of any Convertible Note or the making of any notation
      thereon, except that upon written request of the Company made concurrently
      with
      or reasonably promptly after payment or prepayment in full of this Convertible
      Note, the holder shall surrender the Convertible Note for cancellation,
      reasonably promptly after any such request, to the Company at its principal
      executive office. Prior to any sale or other disposition of any Convertible
      Note, the holder thereof will, at its election, either endorse thereon the
      amount of principal paid thereon and the last date to which interest has been
      paid thereon or surrender the Convertible Note to the Company in exchange for
      a
      new Convertible Note or Convertible Notes. The Company will afford the benefits
      of this Section 3.1 to any direct or indirect transferee of the Convertible
      Note purchased under this Agreement that has made the same agreement relating
      to
      this Convertible Note as Purchaser has in this Section 3.1; provided that
      such transferee is an “accredited investor” under Rule 501 of the
      Securities Act and the transaction is otherwise exempt from the registration
      requirements of the Securities Act and Purchaser provides the Company with
      a
      legal opinion from counsel in form and substance reasonably satisfactory to
      the
      Company.

    


    2   Intentionally
      Omitted.

     

    3  
      Voluntary Prepayment
      . For so
      long as no Event of Default shall have occurred and is continuing, the Company
      may, at its option, repay, in whole or in part, the Convertible Note, per the
      formula set forth in Section 5.1 of Exhibit
      A
      hereto,
      following at least five (5) Business Days prior written notice to Purchaser
      (the
      expiration of such five (5) Business Day period being referred to as the
“prepayment date”); provided,
      however,
      that if
      such date is not a Business Day, the prepayment date shall be the next Business
      Day thereafter. 

    


    
      
        
        

      

      
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    4  
      Mandatory Prepayments
      .

    


    (a)  Upon
      (i) the occurrence of a Change in Control of the Company, (ii) a
      transfer of all or substantially all of the assets of the Company to any Person
      in a single transaction or series of related transactions, (iii) a
      consolidation or merger of the Company with or into another Person in which
      the
      Company is not the surviving entity (other than a merger which is effected
      solely to change the jurisdiction of incorporation of the Company and results
      in
      a reclassification, conversion or exchange of outstanding shares of Common
      Stock
      solely into shares of Common Stock) (each of items (i), (ii) and (iii) being
      referred to as a “ Sale Event”), or (iv) the occurrence of a Registration
      Default which continues uncured for a period of twenty (20) days, then, in
      each
      case, the Company shall, upon request of the Majority Holders, redeem the
      Convertible Note and Warrants. The redemption price payable upon any such
      redemption shall be the redemption price in Section
      5
      of the
      Convertible Note and Section
      13
      of the
      Warrants, respectively (referred to herein as the "Formula Price").

    


    (b)  At
      the
      option of Purchaser, upon the consummation of one or more Financings, the
      Company shall use 25% of the Net Cash Proceeds therefrom (unless such Net Cash
      Proceeds from each such Financing is less than $250,000) to redeem the
      Convertible Note.

    


    (c)  Upon
      the
      issuance of the Maximum Number of Shares, the receipt by the Company of Notice
      of Conversion requiring the issuance of shares of Common Stock in excess of
      the
      Maximum Number of Shares, and the failure within 70 days of such issuance to
      obtain shareholder approval, if such approval is required by either the laws
      of
      the jurisdiction of the Company’s incorporation or the rules of any market on
      which the Company’s securities are then traded, to issue additional shares of
      Common Stock required to be issued in connection with such Notices of Conversion
      (the “ Redemption Event”), the Company shall redeem the outstanding balance of
      each Convertible Note and Warrant for the Formula Price.

    


    (d)  In
      the
      event that there is an insufficient number of authorized, issuable, shares
      of
      Common Stock registered under the Registration Statement filed by the Company
      to
      allow Purchaser to fully convert the Convertible Note and exercise all Warrants
      held by Purchaser and sell such shares issued thereon, then the Company shall
      immediately file an amendment to the then current Registration Statement to
      register a sufficient number of such shares to convert said Convertible Note
      and
      Warrants, provided that no such failure is the result of the conduct of the
      Purchaser. Upon the failure within twenty (20) Trading Days measured from the
      date of filing the Registration Statement to register a sufficient number of
      such shares, the Company shall redeem the outstanding balance of each
      Convertible Note and Warrant for the Formula Price. In addition, failure of
      the
      Company to register a sufficient number of such shares to fully convert said
      Convertible Note and exercise such Warrants shall be a Registration Default
      under Section
      10.4(e)
      from the
      date of the Notice of Conversion to the date of the earlier of (i) the
      redemption of the outstanding balance of the Convertible Note and exercise
      of
      all such Warrants or (ii) full conversion of the Convertible Note and exercise
      of all such Warrants.

    


    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    5  
      Prepayment Procedures.

    


    (a)  Any
      permitted prepayment or redemption of the Convertible Note pursuant to
      Sections 3.3 or 3.4 above shall be deemed to be effective and consummated
      (for purposes of determining the Formula Price and the time at which Purchaser
      shall thereafter not be entitled to deliver a Notice of Conversion for the
      Convertible Note) as follows:

    


    (i)  A
      prepayment pursuant to Section 3.3, the “prepayment date” specified
      therein;

    


    (ii)  A
      redemption pursuant to Section 3.4(a), the date of consummation of the
      applicable Sale Event;

    


    (iii)  A
      redemption pursuant to Section 3.4(b), three (3) Business Days following
      the date of consummation of the applicable Financing (meaning closing and
      funding); and

    


    (iv)  A
      redemption pursuant to Section 3.4(c), the date specified in each
      Convertible Note.

    


    (b)  On
      the
      Maturity Date and on the effective date of a repayment or redemption of the
      Convertible Note as specified in Section 3.5(a) above, the Company shall
      deliver by wire transfer of funds the repayment/redemption price to Purchaser
      of
      the Convertible Note subject to redemption. Should Purchaser not receive payment
      of any amounts due on redemption of its Convertible Note by reason of the
      Company’s failure to make payment at the times prescribed above for any reason,
      the Company shall pay to the applicable holder on demand (x) interest on
      the sums not paid when due at an annual rate equal to the maximum lawful rate
      compounded at the end of each thirty (30) days, until the applicable holder
      is
      paid in full and (y) all costs of collection, including, but not limited
      to, reasonable attorneys’ fees and costs, whether or not suit or other formal
      proceedings are instituted.

    


    (c)  The
      Company shall select the Convertible Note to be redeemed in any redemption
      in
      which not all of the Convertible Note are to be redeemed so that the ratio
      of
      the Convertible Note of each holder selected for redemption to the total
      Convertible Note owned by that holder shall be the same as the ratio of all
      such
      Convertible Note selected for redemption bears to the total of all then
      outstanding Convertible Note . Should any Convertible Note required to be
      redeemed under the terms hereof not be redeemed solely by reason of limitations
      imposed by law, the applicable Convertible Note shall be redeemed on the
      earliest possible dates thereafter to the maximum extent permitted by
      law.

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (d)  Any
      Notice of Conversion delivered by Purchaser (including delivery via telecopy)
      to
      the Company prior to the (x) Maturity Date or (y) effective date of a
      voluntary repayment pursuant to Section 3.3 or a mandatory prepayment
      pursuant to Section 3.4 as specified in Section 3.5(a) above), shall
      be honored by the Company and the conversion of the Convertible Note shall
      be
      deemed effected on the Conversion Date. In addition, between the effective
      date
      of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment
      pursuant to Section 3.4 as specified in Section 3.5(a) above and the
      date the Company is required to deliver the redemption proceeds in full to
      Purchaser, Purchaser may deliver a Notice of Conversion to the Company. Such
      notice will be (x) of no force or effect if the Company timely pays the
      redemption proceeds to Purchaser when due or (y) honored on or as of the
      date of the Notice of Conversion if the Company fails to timely pay the
      redemption proceeds to Purchaser when due.

    


    6  
      Payment of Additional Amounts
      .

    


    (a)  Any
      and
      all payments by the Company hereunder or under the Convertible Note to Purchaser
      and each “qualified assignee” thereof shall be made free and clear of and
      without deduction or withholding for any and all present or future taxes,
      levies, imposts, deductions, charges or withholdings, and all liabilities with
      respect thereto (all such taxes, levies, imposts, deductions, charges,
      withholdings and liabilities being hereinafter referred to as “ Taxes”) unless
      such Taxes are required by law or the administration thereof to be deducted
      or
      withheld. If the Company shall be required by law or the administration thereof
      to deduct or withhold any Taxes from or in respect of any sum payable under
      the
      Convertible Note (i) the holders of the Convertible Note subject to such
      Taxes shall have the right, but not the obligation, for a period of thirty
      (30)
      days commencing upon the day it shall have received written notice from the
      Company that it is required to withhold Taxes to transfer all or any portion
      of
      the Convertible Note to a qualified assignee to the extent such transfer can
      be
      effected in accordance with the other provisions of this Agreement and
      applicable law; (ii) the Company shall make such deductions or
      withholdings; (iii) the sum payable shall be increased as may be necessary
      so that after making all required deductions or withholdings (including
      deductions or withholdings applicable to additional amounts paid under this
      Section 3.6) Purchaser receives an amount equal to the sum it would have
      received if no such deduction or withholding had been made; and (iv) the
      Company shall forthwith pay the full amount deducted or withheld to the relevant
      taxation or other authority in accordance with applicable law. A “qualified
      assignee” of a Purchaser is a Person that is organized under the laws of
      (i) the United States or (II) any jurisdiction other than the United
      States or any political subdivision thereof and that (y) represents and
      warrants to the Company that payments of the Company to such assignee under
      the
      laws in existence on the date of this Agreement would not be subject to any
      Taxes and (z) from time to time, as and when requested by the Company,
      executes and delivers to the Company and the Internal Revenue Service forms,
      and
      provides the Company with any information necessary to establish such assignee’s
      continued exemption from Taxes under applicable law.

    


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (b)  The
      Company shall forthwith pay any present or future stamp or documentary taxes
      or
      any other excise or property taxes, charges or similar levies (all such taxes,
      charges and levies hereinafter referred to as “ Other Taxes”) which arise from
      any payment made under any of the Transaction Agreements or from the execution,
      delivery or registration of, or otherwise with respect to, this Agreement other
      than Taxes payable solely as a result of the transfer from Purchaser to a Person
      of any Security.

    


    (c)  The
      Company shall indemnify Purchaser, or qualified assignee, for the full amount
      of
      Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
      imposed by any jurisdiction on amounts payable under this Section 3.6) paid
      by Purchaser, or qualified assignee, and any liability (including penalties,
      interest and expenses) arising therefrom or with respect thereto, whether or
      not
      such Taxes or Other Taxes were correctly or legally asserted. Payment under
      this
      indemnification shall be made within 30 days from the date Purchaser or assignee
      makes written demand therefor.

    


    (d)  Within
      30
      days after the date of any payment of Taxes, the Company will furnish to
      Purchaser the original or a certified copy of a receipt evidencing payment
      thereof.

    


    (e)  Purchaser
      shall provide to the Company a form W-8, stating that it is a non-U.S person,
      together with any additional tax forms which may be required under the Code,
      as
      amended after the date hereof, to allow interest payments to be made to it
      without deduction.

    


    


    ARTICLE
      4. 
      REPRESENTATIONS AND WARRANTIES

    


    The
      Company represents and warrants to Purchaser, as of the Closing Date, the
      following:

    


    1  
      Organization and Qualification
      . The
      Company and each Subsidiary is a corporation (or other legal entity) duly
      organized, validly existing and in good standing under the laws of its
      jurisdiction of incorporation, with full power and authority to own, lease,
      use
      and operate its properties and to carry on its business as and where now owned,
      leased, used, operated and conducted. The Company is qualified to conduct
      business as a foreign corporation and is in good standing in every jurisdiction
      in which the nature of the business conducted by it makes such qualification
      necessary, except where such failure would not have a Material Adverse Effect.
      A
“ Material Adverse Effect” means any material adverse effect on the operations,
      results of operations, properties, assets or condition (financial or otherwise)
      of the Company or the Company and its Subsidiaries, taken as a whole, or on
      the
      transactions contemplated hereby or by the agreements or instruments to be
      entered into in connection herewith.

    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    2  
      Authorization and Execution
      .

    


    (a)  The
      Company has all requisite corporate power and authority to enter into and
      perform each Transaction Agreement and to consummate the transactions
      contemplated hereby and thereby and to issue the Securities in accordance with
      the terms hereof and thereof.

    


    (b)  The
      execution, delivery and performance by the Company of each Transaction Agreement
      and the issuance by the Company of the Securities have been duly and validly
      authorized and no further consent or authorization of the Company, its Board
      of
      Directors or its shareholders is required.

    


    (c)  This
      Agreement has been duly executed and delivered by the Company.

    


    (d)  This
      Agreement constitutes, and upon execution and delivery thereof by the Company,
      each of the Transaction Agreements will constitute, a valid and binding
      agreement of the Company, in each case enforceable against the Company in
      accordance with its respective terms.

    


    3  
      Capitalization .
      As of
      the date hereof, the authorized, issued and outstanding capital stock of the
      Company is as set forth on Schedule 4.3
      hereto
      and except as set forth on Schedule
      4.3
      no other
      shares of capital stock of the Company will be outstanding as of the Closing
      Date. All of such outstanding shares of capital stock are, or upon issuance
      will
      be, duly authorized, validly issued, fully paid and nonassessable. No shares
      of
      capital stock of the Company are subject to preemptive rights or similar rights
      of the stockholders of the Company or any liens or encumbrances imposed through
      the actions or failure to act of the Company. Other than as set forth on
Schedule 4.3
      hereto,
      as of the date hereof, (i) there are no outstanding options, warrants,
      scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, and (ii) there are no agreements or
      arrangements under which the Company or any of its Subsidiaries are obligated
      to
      register the sale of any of its or their securities under the Securities Act
      (except pursuant to the Registration Rights Agreement) and (iii) there are
      no anti-dilution or price adjustment provisions contained in any security issued
      by the Company (or in any agreement providing rights to security holders) that
      will be triggered by the issuance of the Convertible Note or Conversion Shares.
      The Company has furnished to Purchaser true and correct copies of the Company’s
      Corporate Documents, and the terms of all securities convertible into or
      exercisable for Common Stock and the material rights of the holders thereof
      in
      respect thereto.

    


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    4  
      Governmental Authorization
      . To the
      Company’s knowledge, the execution and delivery by the Company of the
      Transaction Agreements does not and will not, the issuance and sale by the
      Company of the Securities does not and will not, and the consummation of the
      transactions contemplated hereby and by the other Transaction Agreements will
      not, require any action by or in respect of, or filing with, any governmental
      body, agency or governmental official except (a) such actions or filings
      that have been undertaken or made prior to the date hereof and that will be
      in
      full force and effect (or as to which all applicable waiting periods have
      expired) on and as of the date hereof or which are not required to be filed
      on
      or prior to the Closing Date, (b) such actions or filings that, if not
      obtained, would not result in a Material Adverse Effect, and (c) the filing
      of a “Form D” as described in Section 7.13 below.

    


    5  
      Issuance of Shares
      . Upon
      conversion in accordance with the terms of the Convertible Note, the Conversion
      Shares shall be duly and validly issued and outstanding, fully paid and
      nonassessable, free and clear of any Taxes, Liens and charges with respect
      to
      issuance and shall not be subject to preemptive rights or similar rights of
      any
      other stockholders of the Company. Assuming the representations and warranties
      of Purchaser herein are true and correct in all material respects, each of
      the
      Securities will have been issued in material compliance with all applicable
      U.S.
      federal and state securities laws. The Company understands and acknowledges
      that, in certain circumstances, the issuance of Conversion Shares could dilute
      the ownership interests of other stockholders of the Company. The Company
      further acknowledges that its obligation to issue Conversion Shares upon
      conversion of the Convertible Note is absolute and unconditional regardless
      of
      the dilutive effect that such issuance may have on the ownership interests
      of
      other stockholders of the Company.

    


    6  
      No Conflicts
      . The
      execution and delivery by the Company of the Transaction Agreements to which
      it
      is a party did not and will not, the issuance and sale by the Company of the
      Securities did not and will not and the consummation of the transactions
      contemplated hereby and by the other Transaction Agreements will not, contravene
      or constitute a default under or violation of (i) any provision of
      applicable law or regulation, (ii) the Company Corporate Documents,
      (iii) any agreement, judgment, injunction, order, decree or other
      instrument binding upon the Company or any Subsidiary or any of their respective
      assets, or result in the creation or imposition of any Lien on any asset of
      the
      Company or any Subsidiary. The Company and each Subsidiary is in compliance
      with
      and conforms to all statutes, laws, ordinances, rules, regulations, orders,
      restrictions and all other legal requirements of any domestic or foreign
      government or any instrumentality thereof having jurisdiction over the conduct
      of its businesses or the ownership of its properties, except where such failure
      would not have a Material Adverse Effect.

    


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    7  
      Financial Information
      . Since
      June 30, 2006, the Company has timely filed all forms, reports and documents
      with the Commission required to be filed by it under the Exchange Act through
      the date hereof (all of the foregoing filed prior to the date hereof and all
      exhibits included therein and financial statements and schedules thereto and
      documents (other than exhibits) incorporated by reference therein, being
      referred to herein collectively as the “ SEC Reports”). The Company has
      delivered or made available to each Purchaser true and complete copies of the
      SEC Reports, except for such exhibits and incorporated documents. Such SEC
      Reports, at the time filed, complied in all material respects with the
      requirements of the Exchange Act and the rules and regulations of the Commission
      thereunder applicable to such SEC Reports. None of the SEC Reports, including
      without limitation, any financial statements or schedules included therein,
      contains any untrue statement of a material fact or omits to state a material
      fact necessary to in order to make the statements made, in light of the
      circumstances under which they were made, not misleading. There have been no
      material adverse changes in the Company’s business, properties, results of
      operations, condition (financial or otherwise) or prospects since the date
      of
      the Company’s most recent Report on Form 10_K for the years ended December
      31, 2003, December 31, 2004 and December 31, 2005, respectively, which have
      not
      been disclosed in the Company’s SEC Reports or to the Purchaser in writing. The
      audited and unaudited consolidated balance sheets of the Company and its
      Subsidiaries contained in the SEC Reports, and the related consolidated
      statements of income, changes in stockholders’ equity and changes in cash flows
      for the periods then ended, including the footnotes thereto, except as indicated
      therein, (i) complied in all material respects with applicable accounting
      requirements and the published rules and regulations of the Commission with
      respect thereto and (ii) have been prepared in accordance with GAAP
      consistently applied throughout the periods indicated, except that the unaudited
      financial statements do not contain notes and may be subject to normal audit
      adjustments and normal annual adjustments. Such financial statements fairly
      present the financial condition of the Company and its Subsidiaries at the
      dates
      indicated and the consolidated results of their operations and cash flows for
      the periods then ended and, except as indicated therein, reflect all claims
      against and all Debts and liabilities of the Company and its Subsidiaries,
      fixed
      or contingent. Since December 31, 2000 (the “ Balance Sheet Date”), except as
      disclosed in the SEC Reports, there has been (x) no material adverse change
      in the assets or liabilities, or in the business or condition, financial or
      otherwise, or in the results of operations or prospects, of the Company and
      its
      Subsidiaries, whether as a result of any legislative or regulatory change,
      revocation of any license or rights to do business, fire, explosion, accident,
      casualty, labor trouble, flood, drought, riot, storm, condemnation, act of
      God,
      public force or otherwise and (y) no material adverse change in the assets
      or
      liabilities, or in the business or condition, financial or otherwise, or in
      the
      results of operations or prospects, of the Company and its subsidiaries except
      in the ordinary course of business; and no fact or condition exists or is
      contemplated or threatened which might cause such a change in the
      future.

    


    8  
      Litigation
      . To the
      knowledge of the Company, except as set forth on Schedule
      4.8,
      there
      is no action, suit or proceeding pending or threatened against the Company
      or
      any Subsidiary, before any court or arbitrator or any gov to the knowledge
      of
      the Company governmental body, agency or official in which there is a reasonable
      possibility of an adverse decision which could materially adversely affect
      the
      business, condition (financial or otherwise), operations, performance,
      properties or prospects of the Company or which challenges the validity of
      any
      Transaction Agreements.

    


    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    9  
      Compliance with ERISA and other Benefit Plans
      .

    


    (a)  Each
      member of the ERISA Group has fulfilled its obligations under the minimum
      funding standards of ERISA and the Code with respect to each Plan and is in
      compliance in all material respects with the presently applicable provisions
      of
      ERISA and the Code with respect to each Plan. No member of the ERISA Group
      has
      (i) sought a waiver of the minimum funding standard under Section 412 of the
      Code in respect of any Plan, (ii) failed to make any required contribution
      or
      payment to any Plan or Multiemployer Plan or in respect of any Benefit
      Arrangement, or made any amendment to any Plan or Benefit Arrangement, which
      as
      resulted or could result in the imposition of a Lien or the posting of a bond
      or
      other security under ERISA or the Code or (iii) incurred any liability under
      Title IV of ERISA other than a liability to the PBGC for premiums under Section
      4007 of ERISA.

    


    (b)  The
      benefit plans not covered under clause (a) above (including profit sharing,
      deferred compensation, stock option, employee stock purchase, bonus, retirement,
      health or insurance plans, collectively the “ Benefit Plans”) relating to the
      employees of the Company are duly registered where required by, and are in
      good
      standing in all material respects under, all applicable laws. All required
      employer and employee contributions and premiums under the Benefit Plans to
      the
      date hereof have been made, the respective fund or funds established under
      the
      Benefit Plans are funded in accordance with applicable laws, and no past service
      funding liabilities exist thereunder.

    


    (c)  No
      Benefit Plans have any unfunded liabilities, either on a “going concern” or
“winding up” basis and determined in accordance with all applicable laws and
      actuarial practices and using actuarial assumptions and methods that are
      reasonable in the circumstances. No event has occurred and no condition exists
      with respect to any Benefit Plans that has resulted or could reasonably be
      expected to result in any pension plan having its registration revoked or wound
      up (in whole or in part) or refused for the purposes of any applicable laws
      or
      being placed under the administration of any relevant pension benefits
      regulatory authority or being required to pay any taxes or penalties (in any
      material amounts) under any applicable laws.

    


    10  
      Environmental Matters
      . The
      costs and liabilities associated with Environmental Laws (including the cost
      of
      compliance therewith) are unlikely to have a material adverse effect on the
      business, condition (financial or otherwise), operations, performance,
      properties or prospects of the Company or any Subsidiary. Each of the Company
      and the Subsidiaries conducts its businesses in compliance in all material
      respects with all applicable Environmental Laws.

    


    11  
      Taxes
      . All
      United States federal, state, county, municipality, local or foreign income
      tax
      returns and all other material tax returns (including foreign tax returns)
      which
      are required to be filed by or on behalf of the Company and each Subsidiary
      have
      been filed and all material taxes due pursuant to such returns or pursuant
      to
      any assessment received by the Company and each Subsidiary have been paid except
      those being disputed in good faith and for which adequate reserves have been
      established. The charges, accruals and reserves on the books of the Company
      and
      each Subsidiary in respect of taxes and other governmental charges have been
      established in accordance with GAAP.

    


    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    12  
      Investments, Joint Ventures
      . Other
      than as set forth in Schedule
      4.12,
      the
      Company has no Subsidiaries or other direct or indirect Investment in any
      Person, and the Company is not a party to any partnership, management,
      shareholders’ or joint venture or similar agreement.

    


    13  
      Not an Investment Company
      .
      Neither the Company nor any Subsidiary is an “Investment Company” within the
      meaning of Investment Company Act of 1940, as amended.

    


    14  
      Full Disclosure
      . The
      information heretofore furnished by the Company to Purchaser for purposes of
      or
      in connection with this Agreement or any transaction contemplated hereby does
      not, and all such information hereafter furnished by the Company or any
      Subsidiary to Purchaser will not (in each case taken together and on the date
      as
      of which such information is furnished), contain any untrue statement of a
      material fact or omit to state a material fact necessary in order to make the
      statements contained therein, in the light of the circumstances under which
      they
      are made, not misleading.

    


    15  
      No Solicitation; No Integration with Other Offerings
      . No
      form of general solicitation or general advertising was used by the Company
      or,
      to the best of its actual knowledge, any other Person acting on behalf of the
      Company, in connection with the offer and sale of the Securities. Neither the
      Company, nor, to its knowledge, any Person acting on behalf of the Company,
      has,
      either directly or indirectly, sold or offered for sale to any Person (other
      than Purchaser) any of the Securities or, within the six months prior to the
      date hereof, any other similar security of the Company except as contemplated
      by
      this Agreement, and the Company represents that neither itself nor any Person
      authorized to act on its behalf (except that the Company makes no representation
      as to Purchaser and their Affiliates) will sell or offer for sale any such
      security to, or solicit any offers to buy any such security from, or otherwise
      approach or negotiate in respect thereof with, any Person or Persons so as
      thereby to cause the issuance or sale of any of the Securities to be in
      violation of any of the provisions of Section 5 of the Securities Act


    


    16  
      Permits
      . (a)
      Each of the Company and its Subsidiaries has all material Permits; (b) all
      such
      Permits are in full force and effect, and each of the Company and its
      Subsidiaries has fulfilled and performed all material obligations with respect
      to such Permits; (c) no event has occurred which allows, or after notice of
      lapse of time would allow, revocation or termination by the issuer thereof
      or
      which results in any other material impairment of the rights of the holder
      of
      any such Permit; and (d) the Company has no reason to believe that any
      governmental body or agency is considering limiting, suspending or revoking
      any
      such Permit.

    


    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    17  
      Leases
      .
      Neither the Company nor any Subsidiary is a party to any capital lease
      obligation with a value greater than $100,000 or to any operating lease with
      an
      aggregate annual rental greater than $100,000 during the life of such
      lease.

    


    18  
      Absence of Any Undisclosed Liabilities or Capital Calls
      . There
      are no liabilities of the Company or any Subsidiary of any kind whatsoever,
      whether accrued, contingent, absolute, determined, determinable or otherwise,
      and there is no existing condition, situation or set of circumstances which
      would reasonably be expected to result in such a liability, other than (i)
      those
      liabilities provided for in the financial statements delivered pursuant to
      Section 4.7 and (ii) other undisclosed liabilities which, individually or in
      the
      aggregate, would not have a Material Adverse Effect.

    


    19  
      Public Utility Holding Company
      .
      Neither the Company nor any Subsidiary is, or will be upon issuance and sale
      of
      the Securities and the use of the proceeds described herein, subject to
      regulation under the Public Utility Holding Company Act of 1935, as amended,
      the
      Federal Power Act, the Interstate Commerce Act or to any federal or state
      statute or regulation limiting its ability to issue and perform its obligations
      under any Transaction Agreement.

    


    20  
      Intellectual Property Rights
      . Each
      of the Company and its Subsidiaries owns, or is licensed under, and has the
      rights to use, all material patents, trademarks, trade names, copyrights,
      technology, know-how and processes (collectively, “ Intellectual Property”) used
      in, or necessary for the conduct of its business; no claims have been asserted
      by any Person to the use of any such Intellectual Property or challenging or
      questioning the validity or effectiveness of any license or agreement related
      thereto. To the best of Company’s and its Subsidiaries’ knowledge, there is no
      valid basis for any such claim and the use of such Intellectual Property by
      the
      Company and its Subsidiaries will not infringe upon the rights of any
      Person.

    


    21  
      Insurance
      . The
      Company and its Subsidiaries maintain, with those insurance companies listed
      on
Schedule
      4.21,
      insurance in at least such amounts and against such risks such that any
      uninsured loss would not have a Material Adverse Effect. All insurance coverages
      of the Company and its Subsidiaries are in full force and effect and there
      are
      no past due premiums in respect of any such insurance.

    


    22  
      Title to Properties
      . The
      Company and its Subsidiaries have good and marketable title to all their
      respective properties free and clear of all Liens.

    


    23  
      Internal Accounting Controls
      . The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient, in the judgment of the Company’s Board of Directors, to
      provide reasonable assurance that (i) transactions are executed in accordance
      with managements’ general or specific authorizations, (ii) transactions are
      recorded as necessary to permit preparation of financial statements in
      conformity with GAAP and to maintain asset accountability, (iii) access to
      assets is permitted only in accordance with management’s general or specific
      authorization, and (iv) the recorded accountability for assets is compared
      with
      the existing assets at reasonable intervals and appropriate action is taken
      with
      respect to any differences.

    


    
      
        
        

      

      
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    24  
      Subsidiaries
      . Except
      for the directly and indirectly owned subsidiaries of the Company as set forth
      on Schedule
      4.24
      (the
“Subsidiaries”), the Company does not own or hold any shares of stock or any
      other security or interest in any other equity, or any rights to acquire any
      such security or interest. Except for the Subsidiaries disclosed on Schedule
      4.24,
      the
      Company has never had any subsidiary corporation of which the securities having
      a majority of voting power in electing the board of directors or representing
      a
      majority of the economic interests were, at the time as of which any
      determination was made, owned by the Company either directly or indirectly.
      The
      number of authorized, issued and outstanding shares of capital stock of the
      Subsidiaries is as set forth on Schedule
      4.24.
      All
      outstanding shares of the Subsidiaries capital stock are validly issued, fully
      paid and nonassessable, are free from, and were not issued in violation of
      any
      preemptive rights, and are owned of record and beneficially by the
      Company..

     

    25  
      Foreign Practices
      .
      Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge,
      any employee or agent of the Company or any Subsidiary has made any payments
      of
      funds of the Company or Subsidiary, or received or retained any funds, in each
      case in violation of any law, rule or regulation.

    


    


    ARTICLE
      5. 
      REPRESENTATIONS AND WARRANTIES OF PURCHASER

    


    1  
      Purchaser
      .
      Purchaser hereby represents and warrants to the Company that:

    


    (a)  Purchaser
      is an “accredited investor” within the meaning of Rule 501(a) under the
      Securities Act and the Securities to be acquired by it pursuant to this
      Agreement are being acquired for its own account, for investment purposes,
      and,
      as of the date hereof, not with a view toward, or for sale in connection with,
      any distribution thereof except in compliance with applicable United States
      federal and state securities law; provided that the disposition of Purchaser’s
      property shall at all times be and remain within its control;

    


    (b)  the
      execution, delivery and performance of this Agreement and the purchase of the
      Securities pursuant thereto are within Purchaser’s corporate or partnership
      powers, as applicable, and have been duly and validly authorized by all
      requisite corporate or partnership action;

    


    (c)  this
      Agreement has been duly executed and delivered by Purchaser;

    


    (d)  the
      execution and delivery by Purchaser of the Transaction Agreements to which
      it is
      a party does not, and the consummation of the transactions contemplated hereby
      and thereby will not, contravene or constitute a default under or violation
      of
      (i) any provision of applicable law or regulation, or (ii) any agreement,
      judgment, injunction, order, decree or other instrument binding upon
      Purchaser;

    


    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    (e)  Purchaser
      understands that the Securities have not been registered under the Securities
      Act and may not be transferred or sold except as specified in this Agreement
      or
      the remaining Transaction Agreements;

    


    (f)  this
      Agreement constitutes a valid and binding agreement of Purchaser enforceable
      in
      accordance with its terms, subject to (i) applicable bankruptcy, insolvency
      or
      similar laws affecting the enforceability of creditors rights generally and
      (ii)
      equitable principles of general applicability;

    


    (g)  Purchaser
      has such knowledge and experience in financial and business matters so as to
      be
      capable of evaluating the merits and risks of its investment in the Securities
      and Purchaser is capable of bearing the economic risks of such
      investment;

    


    (h)  Purchaser
      is knowledgeable, sophisticated and experienced in business and financial
      matters; Purchaser has previously invested in securities similar to the
      Securities and fully understands the limitations on transfer described herein;
      Purchaser has been afforded access to information about the Company and the
      financial condition, results of operations, property, management and prospects
      of the Company sufficient to enable it to evaluate its investment in the
      Securities; Purchaser has been afforded the opportunity to ask such questions
      as
      it has deemed necessary of, and to receive answers from, representatives of
      the
      Company concerning the terms and conditions of the offering of the Securities
      and the merits and the risks of investing in the Securities; and Purchaser
      has
      been afforded the opportunity to obtain such additional information which the
      Company possesses or can acquire that is necessary to verify the accuracy and
      completeness of the information given to Purchaser concerning the Company.
      The
      foregoing does not in any way relieve the Company of its representations and
      other undertakings hereunder, and shall not limit Purchaser’s ability to rely
      thereon;

    


    (i)  no
      part
      of the source of funds used by Purchaser to acquire the Securities constitutes
      assets allocated to any separate account maintained by Purchaser in which any
      employee benefit plan (or its related trust) has any interest;

    


    (j)  no
      form
      of general advertising was received by the Purchaser or any other person acting
      on behalf of the Purchaser; and

     

    (k)  Purchaser
      is a corporation organized under the laws of Bermuda.

    


    


    
      
        
        

      

      
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    ARTICLE
      6. 
      CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES

    


    1  
      Conditions Precedent to Purchaser’s Obligations to Purchase
      . The
      obligation of Purchaser hereunder to purchase the Convertible Note at the
      Closing is subject to the satisfaction, on or before the Closing Date, of each
      of the following conditions, provided that these conditions are for Purchaser’s
      sole benefit and may be waived by Purchaser at any time in its sole
      discretion:

    


    (a)  The
      Company shall have duly executed this Agreement, the Warrant, the Mortgages
      and
      the Registration Rights Agreement and delivered the same to
      Purchaser;

    


    (b)  The
      Company shall have delivered to Purchaser duly executed Convertible Note in
      accordance with Section 2.3 hereof;

    


    (c)  The
      representations and warranties of the Company contained in each Transaction
      Agreement 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 such time (except for
      representations and warranties that speak as of a specified date) and the
      Company shall have performed, satisfied and complied with all covenants,
      agreements and conditions required by such Transaction Agreements to be
      performed, satisfied or complied with by it at or prior to the Closing Date.
      Purchaser shall have received an Officer’s Certificate executed by the chief
      executive officer of the Company, dated as of the Closing Date, to the foregoing
      effect and as to such other matters as may be reasonably requested by Purchaser,
      including but not limited to certificates with respect to the Company Corporate
      Documents, resolutions relating to the transactions contemplated hereby and
      the
      incumbencies of certain officers and Directors of the Company. The form of
      such
      certificate is attached hereto as Exhibit
      C;

    


    (d)  The
      Company shall have received all governmental, Board of Directors, shareholders
      and third party consents and approvals necessary or desirable in connection
      with
      the issuance and sale of the Securities and the consummation of the transactions
      contemplated by the Transaction Agreements;

    


    (e)  All
      applicable waiting periods in respect to the issuance and sale of the Securities
      shall have expired without any action having been taken by any competent
      authority that could restrain, prevent or impose any materially adverse
      conditions thereon or that could seek or threaten any of the
      foregoing;

    


    (f)  No
      law or
      regulation shall have been imposed or enacted that, in the judgment of
      Purchaser, could adversely affect the transactions set forth herein or in the
      other Transaction Agreements, and no law or regulation shall have been proposed
      that in the reasonable judgment of Purchaser could reasonably have any such
      effect;

    


    (g)  Purchaser
      shall have received an opinion, dated the Closing Date, of counsel to the
      Company, in form and substance satisfactory to Purchaser;

    


    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    (h)  All
      fees
      and expenses due and payable by the Company on or prior to the Closing Date
      shall have been paid;

    


    (i)  The
      Company Corporate Documents and the Subsidiary Corporate Documents, if any,
      shall be in full force and effect and no term or condition thereof shall have
      been amended, waived or otherwise modified without the prior written consent
      of
      Purchaser;

    


    (j)  There
      shall have occurred no material adverse change in the business, condition
      (financial or otherwise), operations, performance, properties or prospects
      of
      the Company or any Subsidiary since January 1, 2006;

    


    (k)  To
      the
      Company’s knowledge, there shall exist no action, suit, investigation,
      litigation or proceeding pending or threatened in any court or before any
      arbitrator or governmental instrumentality that challenges the validity of
      or
      purports to affect this Agreement or any other Transaction Agreement, or other
      transaction contemplated hereby or thereby or that could reasonably be expected
      to have a Material Adverse Effect, or any material adverse effect on the
      enforceability of the Transaction Agreements or the Securities or the rights
      of
      the holders of the Securities or Purchaser hereunder;

    


    (l)  Purchaser
      shall have confirmed the receipt of the Convertible Note to be issued, duly
      executed by the Company in the denominations and registered in the name of
      Purchaser;

    


    (m)  Immediately
      before and after the Closing Date, no Default or Event of Default shall have
      occurred and be continuing;

    


    (n)  Purchaser
      shall have received all other opinions, resolutions, certificates, instruments,
      agreements or other documents as they shall reasonably request;

    


    (o)   Company
      shall have delivered to Purchaser the Use of Proceeds Schedule
      7.8.

    


    


    2  
      Conditions to the Company’s Obligations
      . The
      obligations of the Company to issue and sell the Securities to Purchaser
      pursuant to this Agreement are subject to the satisfaction, at or prior to
      any
      Closing Date, of the following conditions:

    


    (a)  The
      representations and warranties of Purchaser contained herein shall be true
      and
      correct in all material respects on the Closing Date and Purchaser shall have
      performed and complied in all material respects with all agreements required
      by
      this Agreement to be performed or complied with by Purchaser at or prior to
      the
      Closing Date;

    


    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    (b)  The
      issue
      and sale of the Securities by the Company shall not be prohibited by any
      applicable law, court order or governmental regulation;

    


    (c)  Receipt
      by the Company of duly executed counterparts of this Agreement and the
      Registration Rights Agreement signed by Purchaser;

    


    (d)  The
      Company shall have received payment of the Purchase Price, less the Expense
      Reimbursement Fee.

    


    


    ARTICLE
      7. 
      AFFIRMATIVE COVENANTS

    


    The
      Company hereby agrees that, from and after the date hereof for so long as any
      Convertible Note remains outstanding and for the benefit of
      Purchaser:

    


    1  
      Information
      . The
      Company will deliver to each holder of the Convertible Note:

    (a)   within
      two (2) days after any officer of the Company obtains knowledge of a Default
      or
      Event of Default, or that any Person has given any notice or taken any action
      with respect to a claimed Default hereunder, a certificate of the chief
      financial officer of the Company setting forth the details thereof and the
      action which the Company is taking or proposed to take with respect
      thereto;

    


    (b)  promptly
      upon the mailing thereof to the shareholders of the Company generally, copies
      of
      all financial statements, reports and proxy statements so mailed and any other
      document generally distributed to shareholders;

    


    (c)  at
      least
      two (2) Business Days prior to the consummation of any Financing or other event
      requiring a repayment of the Convertible Note under Section 3.4, notice thereof
      together with a summary of all material terms thereof and copies of all
      documents and instruments associated therewith;

    


    (d)  notice
      promptly upon the occurrence of any event by which the Reserved Amount becomes
      less than the sum of (i) 1.5 times the maximum number of Conversion Shares
      issuable pursuant to the Transaction Agreements; and

    


    (e)  promptly
      following knowledge of the commencement thereof, notice and a description in
      reasonable detail of any litigation or proceeding to which the Company or any
      Subsidiary is a party in which the amount involved is $250,000 or more and
      not
      covered by insurance or in which injunctive or similar relief is
      sought.

    


    2  
      Payment of Obligations
      . The
      Company will, and will cause each Subsidiary to, pay and discharge, at or before
      maturity, all their respective material obligations, including, without
      limitation, tax liabilities, except where the same may be contested in good
      faith by appropriate proceedings and will maintain, in accordance with GAAP,
      appropriate reserves for the accrual of any of the same.

    


    
      
        
        

      

      
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    3  
      Maintenance of Property; Insurance
      . The
      Company will, and will cause each Subsidiary to, keep all property useful and
      necessary in its business in good working order and condition, ordinary wear
      and
      tear excepted. In addition, the Company and each Subsidiary will maintain
      insurance in at least such amounts and against such risks as it has insured
      against as of the Closing Date.

    


    4  
      Maintenance of Existence
      . The
      Company will, and will cause each Subsidiary to, continue to engage in business
      of the same general type as now conducted by the Company and such Subsidiaries,
      and will preserve, renew and keep in full force and effect its respective
      corporate existence and their respective material rights, privileges and
      franchises necessary or desirable in the normal conduct of
      business.

     

    5  
      Compliance with Laws
      . The
      Company will, and will cause each Subsidiary to, comply, in all material
      respects, with all federal, state, municipal, local or foreign applicable laws,
      ordinances, rules, regulations, municipal by-laws, codes and requirements of
      governmental authorities (including, without limitation, Environmental Laws
      and
      ERISA and the rules and regulations thereunder) except (i) where compliance
      therewith is contested in good faith by appropriate proceedings or (ii) where
      non-compliance therewith could not reasonably be expected, in the aggregate,
      to
      have a material adverse effect on the business, condition (financial or
      otherwise), operations, performance, properties or prospects of the Company
      or
      such Subsidiary.

    


    6  
      Inspection of Property, Books and Records
      . The
      Company will, and will cause each Subsidiary to, keep proper books of record
      and
      account in which full, true and correct entries shall be made of all dealings
      and transactions in relation to their respective businesses and activities;
      and
      will permit, during normal business hours, Purchaser’ Representative or an
      affiliate thereof, as representatives of Purchaser, to visit and inspect any
      of
      their respective properties, upon reasonable prior notice, to examine and make
      abstracts from any of their respective books and records and to discuss their
      respective affairs, finances and accounts with their respective executive
      officers and independent public accountants (and by this provision the Company
      authorizes its independent public accountants to disclose and discuss with
      Purchaser the affairs, finances and accounts of the Company and its Subsidiaries
      in the presence of a representative of the Company; provided, however, that
      such
      discussions will not result in any unreasonable expense to the Company, without
      Company consent), all at such reasonable times.

    


    7  
      Investment Company Act
      .
      Provided that Purchaser is not any of the following described entities, the
      Company will not be or become an open-end investment trust, unit investment
      trust or face-amount certificate company that is or is required to be registered
      under Section 8 of the Investment Company Act of 1940, as amended.

    


    8  
      Use of Proceeds
      . The
      proceeds from the issuance and sale of the Convertible Note by the Company
      shall
      be used in accordance with Schedule
      7.8
      attached
      hereto. None of the proceeds from the issuance and sale of the Convertible
      Note
      by the Company pursuant to this Agreement will be used directly or indirectly
      for the purpose, whether immediate, incidental or ultimate, of purchasing or
      carrying any “margin stock” within the meaning of Regulation G of the Board of
      Governors of the Federal Reserve System.

    


    
      
        
        

      

      
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    9  
      Compliance with Terms and Conditions of Material Contracts
      . The
      Company will, and will cause each Subsidiary to, comply, in all respects, with
      all terms and conditions of all material contracts to which it is
      subject.

    


    10  
      Reserved Shares
      .

    


    (a)  The
      Company shall at all times have authorized, and reserved for the purpose of
      issuance, a sufficient number of shares of Common Stock to provide for the
      full
      conversion of the outstanding Convertible Note and issuance of the Conversion
      Shares (based on the conversion price of the Convertible Note in effect from
      time to time) (the “Reserved Amount”). The Company shall not reduce the Reserved
      Amount without the prior written consent of Purchaser. With respect to all
      Securities which contain an indeterminate number of shares of Common Stock
      issuable in connection therewith (such as the Convertible Note), the Company
      shall include in the Reserve Amount, no less than two (2) times the number
      of
      shares that is then actually issuable upon conversion or exercise of such
      Securities. If at any time the number of shares of Common Stock authorized
      and
      reserved for issuance is below the number of Conversion Shares issued or
      issuable upon conversion of the Convertible Note, the Company will promptly
      take
      all corporate action necessary to authorize and reserve a sufficient number
      of
      shares, including, without limitation, either (x) calling a special meeting
      of
      shareholders to authorize additional shares, in the case of an insufficient
      number of authorized shares or (y) in lieu thereof, consummating the immediate
      repurchase of the Convertible Note contemplated in Sections 3.4(c)
      hereof.

    


    11  
      Transfer Agent Instructions
      . Upon
      receipt of a Notice of Conversion or Notice of Exercise, as applicable, the
      Company shall immediately direct the Company's transfer agent to issue
      certificates, registered in the name of Purchaser or its nominee, for the
      Conversion Shares, in such amounts as specified from time to time by Purchaser
      to the Company upon proper conversion of the Convertible Note. Upon conversion
      of any Convertible Note in accordance with their terms, the Company will, and
      will use its best lawful efforts to cause its transfer agent to, issue one
      or
      more certificates representing shares of Common Stock in such name or names
      and
      in such denominations specified by a Purchaser in a Notice of Conversion. As
      long as the Registration Statement contemplated by the Registration Rights
      Agreement shall remain effective, the shares of Common Stock issuable upon
      conversion of any Convertible Note shall be issued to any transferee of such
      shares from Purchaser without any restrictive legend upon appropriate evidence
      of transfer in compliance with the Securities Act and the rules and regulations
      of the Commission; provided that for so long as the Registration Statement
      is
      effective, no opinion of counsel will be required to effect any such transfer.
      The Company further warrants and agrees that no instructions other than these
      instructions have been or will be given to its transfer agent. Nothing in this
      Section 7.11 shall affect in any way a Purchaser’s obligation to comply with all
      securities laws applicable to Purchaser upon resale of such shares of Common
      Stock, including any prospectus delivery requirements.

    


    
      
        
        

      

      
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    12  
      Maintenance of Reporting Status; Supplemental Information
      . So
      long as any of the Securities are outstanding, the Company shall timely file
      all
      reports required to be filed with the Commission pursuant to the Exchange Act.
      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 permit such termination. If at anytime the Company is not
      subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
      Company will promptly furnish at its expense, upon request, for the benefit
      of
      the holders from time to time of Securities, and prospective purchasers of
      Securities, information satisfying the information requirements of Rule 144
      under the Securities Act.

    


    13  
      Form D; Blue Sky Laws
      . The
      Company agrees to file a “Form D” with respect to the Securities as required
      under Regulation D of the Securities Act and to provide a copy thereof to
      Purchaser 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 for sale, if required, to Purchaser at
      the
      Closing pursuant to this Agreement under applicable securities or “blue sky”
laws of the states of the United States (or to obtain an exemption from such
      qualification), and shall provide evidence of any such action so taken to
      Purchaser on or prior to the Closing Date.

    


    


    ARTICLE
      8. 
      NEGATIVE COVENANTS

    


    The
      Company hereby agrees that after the date hereof for so long as any Convertible
      Note remains outstanding and for the benefit of Purchaser:

    


    1  
      Limitations on Debt or Other Liabilities
      .
      Neither the Company nor any Subsidiary will create, incur, assume or suffer
      to
      exist (at any time after the Closing Date, after giving effect to the
      application of the proceeds of the issuance of the Securities) (i) any Debt
      except (x) Debt incurred in a Permitted Financing, (y) Debt incurred in
      connection with equipment leases to which the Company or its Subsidiaries are
      a
      party incurred in the ordinary course of business; and (z) Debt incurred in
      connection with trade accounts payable, imbalances and refunds arising in the
      ordinary course of business and (ii) any equity securities (including Derivative
      Securities) (other than those securities that are issuable (x) under or pursuant
      to stock option plans, warrants or other rights programs that exist as of the
      date hereof, (z) in connection with the acquisition (including by merger) of
      a
      business or of assets otherwise permitted under this Agreement), unless the
      Company complies with the mandatory prepayment terms of Section 3.4(b)
      hereof.

    


    2  
      Transactions with Affiliates
      . The
      Company and each Subsidiary will not, directly or indirectly, pay any funds
      to
      or for the account of, make any investment (whether by acquisition or stock
      or
      indebtedness, by loan, advance, transfer of property, guarantee or other
      agreement to pay, purchase or service, directly or indirectly, and Debt, or
      otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
      tangible or intangible, to, or participate in, or effect any transaction in
      connection with any joint enterprise or other joint arrangement with, any
      Affiliate, except, (1) pursuant to those agreements specifically identified
      on
Schedule
      8.2
      attached
      hereto (with a copy of such agreements annexed to such Schedule
      8.2)
      or
      hereafter entered into with the prior written consent of Purchaser and (2)
      on
      terms to the Company or such Subsidiary no less favorable than terms that could
      be obtained by the Company or such Subsidiary from a Person that is not an
      Affiliate of the Company upon negotiation at arms’ length, as determined in good
      faith by the Board of Directors of the Company; provided
      that no
      determination of the Board of Directors shall be required with respect to any
      such transactions entered into in the ordinary course of business.

    


    
      
        
        

      

      
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    3  
      Merger or Consolidation
      . The
      Company will not, in a single transaction or a series of related transactions
      (i) consolidate with or merge with or into any other Person, or (ii) permit
      any
      other Person to consolidate with or merge into it, unless the Company shall
      be
      the survivor of such merger or consolidation and (x) immediately before and
      immediately after given effect to such transaction (including any indebtedness
      incurred or anticipated to be incurred in connection with the transaction),
      no
      Default or Event of Default shall have occurred and be continuing; and (y)
      the
      Company has delivered to Purchaser an Officer’s Certificate stating that such
      consolidation, merger or transfer complies with this Agreement, and that all
      conditions precedent in this Agreement relating to such transaction have been
      satisfied.

    


    4  
      Limitation on Asset Sales
      .
      Neither the Company nor any Subsidiary will consummate an Asset Sale of material
      assets of the Company or any Subsidiary without the prior written consent of
      Purchaser, which consent shall not be unreasonably withheld. As used herein,
      “Asset Sale” means any sale, lease, transfer or other disposition (or series of
      related sales, leases, transfers or dispositions) or sales of capital stock
      of a
      Subsidiary (other than directors’ qualifying shares), property or other assets
      (each referred to for the purpose of this definition as a “disposition”),
      including any disposition by means of a merger, consolidation or similar
      transaction other than a disposition of property or assets at fair market value
      in the ordinary course of business.

    


    5  
      Restrictions on Certain Amendments
      .
      Neither the Company nor any Subsidiary will waive any provision of, amend,
      or
      suffer to be amended, any provision of such entity’s existing Debt, any material
      contract or agreement, any Company Corporate Document or Subsidiary Corporate
      Document if such amendment, in the Company’s reasonable judgment, would
      materially adversely affect Purchaser or the holders of the Securities without
      the prior written consent of Purchaser.

    


    6  
      Restrictions on Issuances of Securities
      .

    


    (a)  In
      addition to and not in lieu of the covenant specified in Section 8.1
      above:

    


    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    (1)      From
      the
      Closing Date and continuing until 180 days following the date on which the
      Registration Statement becomes effective, the Company agrees that it will not
      issue any of its equity securities (or securities convertible into or
      exchangeable or exercisable for equity securities (the “Derivative Securities”))
      on terms that allow a holder thereof to acquire such equity securities (or
      Derivative Securities) at a discount to the Market Price of
      the
      Common Stock at the time of issuance or, in the case of Derivative Securities,
      at a conversion price based on any formula (other than standard anti-dilution
      provisions) based on the Market Price on a date later than the date of issuance
      which is below the Market Price on the date of issuance (each such event, a
      “Discounted Equity Offering”) other than (i) borrowings under conventional
      credit facilities existing as of the date hereof, (ii) stock issued or credit
      facilities to be established in connection with acquisitions, (iii) equity
      securities or Derivative Securities in connection with employee and director
      stock option and stock purchase plans and (iv) securities issued under the
      Convertible Note or Warrants. In addition, the Company shall not issue any
      equity securities in connection with a strategic alliance entered into by the
      Company unless such securities are the subject of a one year statutory or
      contractual hold period or, if not subject to such a hold period, unless the
      Purchaser has fully converted all outstanding Convertible Note and exercised
      all
      Warrants. As used herein, “discount” shall include, but not be limited to, (i)
      any warrant, right or other security granted or offered in connection with
      such
      issuance which, on the applicable date of grant, is offered with an exercise
      or
      conversion price, as the case may be, at less than the then current Market
      Price
      of the Common Stock or, if such security has an exercise or conversion price
      based on any formula (other than standard anti-dilution provisions) based on
      the
      Market Price on a date later than the date of issuance, then at a price below
      the Market Price on such date of exercise or conversion, as the case may be,
      or
      (ii) any commissions, fees or other allowances paid in connection with such
      issuances (other than customary underwriter or placement agent commissions,
      fees
      or allowances). For the purposes of determining the Market Price at which Common
      Stock is acquired under this Section, normal underwriting commissions and
      placement fees (including underwriters’ warrants) shall be excluded.
      Notwithstanding the foregoing, the Company may enter into the following types
      of
      transactions (collectively referred to as "Permitted Financings"): (1)
      "permanent financing" transactions, which would include any form of debt or
      equity financing (other than an underwritten offering), which is followed by
      a
      reduction of the said financing commitment to zero and payment of all related
      fees and expenses; (2) "project financing" which provide for the issuance of
      recourse debt instruments in connection with the operation of the Company's
      business as presently conducted or as proposed to be conducted; (3) an
      underwritten offering of Common Stock, provided that such offering provides
      for
      the registration of the Conversion Shares if the Registration Statement has
      not
      been declared effective; (4) any non-convertible financings solely for
      alternative fuel projects that do not create a direct obligation to the Company
      or involve the issuance of Company debt or equity; and (5) other financing
      transactions specifically consented to in writing by the Purchaser.

    


    
      
        
        

      

      
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    (2)      The
      180-day restrictive period set forth in paragraph (1) of this Section 8.6(a)
      shall be increased by one day for each day a Registration Default has occurred
      and not been cured by the Company. 

    


    (b)  Until
      such time as all of the Convertible Note has been either redeemed or converted
      into Conversion Shares in full, the Company agrees it will not issue any of
      its
      equity securities (or Derivative Securities), unless any shares of Common Stock
      issued or issuable in connection therewith are “restricted securities.” As used
      herein “restricted securities” shall mean securities which may not be sold prior
      to twelve (12) months following the date of issuance of such securities by
      virtue of contractual restrictions imposed by the Company or
      otherwise.


    


    7  
      Limitation on Stock Repurchases
      . Except
      as otherwise set forth in the Convertible Note and the Warrants, the Company
      shall not, without the written consent of the Majority Holders, redeem,
      repurchase or otherwise acquire (whether for cash or in exchange for property
      or
      other securities or otherwise) any shares of capital stock of the Company or
      any
      warrants, rights or options to purchase or acquire any such
      shares.


     

    8  
      Limitation on Sales By Officers and Employee Directors
      . For a
      period of 180 days following the date the Registration Statement is declared
      effective by the Commission, no executive officer or a employee director of
      the
      Company shall, individually, sell or otherwise dispose of (other than by reason
      of death or disability) to any Person an amount of Common stock greater than
      that allowed by Rule 144, promulgated under the Securities Act.

    


    ARTICLE
      9. 
      RESTRICTIVE LEGENDS

    


    1  
      Restrictions on Transfer
      . From
      and after their respective dates of issuance, none of the Securities shall
      be
      transferable except upon the conditions specified in this Article IX, which
      conditions are intended to ensure compliance with the provisions of the
      Securities Act in respect of the Transfer of any of such Securities or any
      interest therein. Purchaser will use its best efforts to cause any proposed
      transferee of any Securities held by it to agree to take and hold such
      Securities subject to the provisions and upon the conditions specified in this
      Article IX.

    


    2  
      Legends.
      The
      Conversion Shares, upon resale by the Purchaser pursuant to the Registration
      Statement, shall be freely tradeable and unrestricted.

    


    
      
        
        

      

      
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    3   Notice
      of Proposed Transfers
      . Prior
      to any proposed Transfer of the Securities (other than a Transfer (i) registered
      or exempt from registration under the Securities Act, (ii) to an affiliate
      of a
      Purchaser which is an “accredited investor” within the meaning of Rule 501(a)
      under the Securities Act, provided that any such transferee shall agree to
      be
      bound by the terms of this Agreement and the Registration Rights Agreement,
      or
      (iii) to be made in reliance on Rule 144 under the Securities Act), the holder
      thereof shall give written notice to the Company of such holder’s intention to
      effect such Transfer, setting forth the manner and circumstances of the proposed
      Transfer, which shall be accompanied by (a) an opinion of counsel reasonably
      acceptable to the Company, confirming that such transfer is in compliance with
      and does not give rise to a violation of the Securities Act, (B) representation
      letters in form and substance reasonably satisfactory to the Company to ensure
      compliance with the provisions of the Securities Act and (C) letters in form
      and
      substance reasonably satisfactory to the Company from each such transferee
      stating such transferee’s agreement to be bound by the terms of this Agreement
      and the Registration Rights Agreement. Such proposed Transfer may be effected
      only if the Company shall have received such notice of transfer, opinion of
      counsel, representation letters and other letters referred to in the immediately
      preceding sentence, whereupon the holder of such Securities shall be entitled
      to
      Transfer such Securities in accordance with the terms of the notice delivered
      by
      the holder to the Company.

    


    ARTICLE
      10. 
      ADDITIONAL AGREEMENTS AMONG THE PARTIES

    


    1  
      Liquidated Damages
      .

    


    (a)  The
      Company shall cause its transfer agent to, issue and deliver shares of Common
      Stock consistent with Section 7.11 hereof within three (3) Trading Days after
      delivery of a Notice of Conversion, as applicable (the “Deadline”) to Purchaser
      (or any party receiving Securities by transfer from Purchaser) at the address
      of
      Purchaser set forth in the Notice of Conversion. The Company understands that
      a
      delay in the issuance of such certificates after the Deadline could result
      in
      economic loss to Purchaser.

    


    (b)  Without
      in any way limiting Purchaser’s right to pursue other remedies, including actual
      damages and/or equitable relief, the Company agrees that if delivery of the
      Conversion Shares is more than one (1) Business Day after the Deadline (other
      than a failure due to the circumstances described in Section 4.3 of the
      Convertible Note, which failure shall be governed by such Section) the Company
      shall pay to Purchaser, as liquidated damages and not as a penalty, $500 for
      each $100,000 of Convertible Note then outstanding per day in cash, for each
      of
      the first ten (10) days beyond the Deadline, and $1,000 for each $100,000 of
      Convertible Note then outstanding per day in cash for each day thereafter that
      the Company fails to deliver such Common Stock. Such cash amount shall be paid
      to Purchaser by the last day of the calendar week following the week in which
      it
      has accrued or, at the option of Purchaser (by written notice to the Company
      by
      the first day of the week following the week in which it has accrued), shall
      be
      added to the principal amount of the Convertible Note (if then outstanding)
      payable to Purchaser, in which event interest shall accrue thereon in accordance
      with the terms of the Convertible Note and such additional principal amount
      shall be convertible into Common Stock in accordance with the terms of the
      Convertible Note.

    


    
      
        
        

      

      
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    2  
      Conversion Notice
      . The
      Company agrees that, in addition to any other remedies which may be available
      to
      Purchaser, including, but not limited to, the remedies available under Section
      10.1, in the event the Company fails for any reason (other than as a result
      of
      actions taken by a Purchaser in breach of this Agreement) to effect delivery
      to
      a Purchaser of certificates with or without restrictive legends as contemplated
      by Article IX representing the shares of Common Stock on or prior to the
      Deadline after conversion of any Convertible Note, Purchaser will be entitled,
      if prior to the delivery of such certificates, to revoke the Notice of
      Conversion by delivering a notice to such effect to the Company whereupon the
      Company and Purchaser shall each be restored to their respective positions
      immediately prior to delivery of such Notice of Conversion.

    


    3  
      Conversion Limit
      .
      Notwithstanding the conversion rights under the Convertible Note, unless
      Purchaser delivers a waiver in accordance with the last sentence in this
      Section, in no event shall Purchaser be entitled to convert any portion of
      the
      Convertible Note, in excess of that portion of the Convertible Note, as
      applicable, of which the sum of (i) the number of shares of Common Stock
      beneficially owned by Purchaser and its Affiliates (other than shares of Common
      Stock which may be deemed beneficially owned through the ownership of the
      unconverted portion of the Convertible Note or other Derivative Securities
      convertible into or exchangeable for shares of Common Stock which contain a
      limitation similar to that set forth in this Section 10.3), and (ii) the number
      of shares of Common Stock issuable upon the conversion of the portion of the
      Convertible Note with respect to which this determination is being made, would
      result in beneficial ownership by Purchaser and its Affiliates of more than
      4.99% of the outstanding shares of Common Stock. For purposes of Section 10.3(i)
      beneficial ownership shall be determined in accordance with Rule 13d-3 of the
      Exchange Act and Regulations 13 D-G thereunder, except as otherwise provided
      in
      this Section 10.3. The foregoing limitation shall not apply and shall be of
      no
      further force or effect (i) immediately preceding and upon the occurrence of
      any
      voluntary or mandatory redemption or repayment transaction described herein
      or
      in the Convertible Note, (ii) immediately preceding and upon any Sale Event,
      (iii) on the Maturity Date or (iv) following the occurrence of any Event of
      Default which is not cured for a period of ten (10) calendar days.

    


    4  
      Registration Rights
      .


    


    (a)  The
      Company shall grant Purchaser registration rights covering the Conversion Shares
      (the “Registrable Securities”) on the terms set forth in the Registration Rights
      Agreement and herein.

    


    (b)  The
      Company shall prepare and file on or before the 60th
      day
      following the Closing Date (the “Filing Date”), a registration statement or
      amendment thereto (the “Registration Statement”) to register no less than
      10,000,000 shares of Common Stock covering the resale of the Registrable
      Securities with the Commission. In the event the Company fails to file the
      Registration Statement by the Filing Date for any reason other than Purchaser’s
      failure to provide information requested by the Company for the completion
      and
      filing of the Registration Statement, the Company shall pay to Purchaser as
      liquidated damages (and not as a penalty) one percent (1%) of the then
      outstanding principal amount of Convertible Note per day until the Registration
      Statement is filed with the Commission. The Company shall use its best efforts
      to cause the Registration Statement to be declared effective by the Commission
      or the earlier of (i) 90 days following the Closing Date, (ii) ten days
      following the receipt of a “No Review” Letter from the Commission or (iii) the
      first Business Day following the day the Commission determines the Registration
      Statement eligible to be declared effective (the “Required Effectiveness Date”).
      The Company shall pay all expenses of registration (other than underwriting
      fees
      and discounts, if any, in respect of Registrable Securities offered and sold
      under the registration statement by Purchaser). The Company agrees to file
      an
      initial written response to the Commission within ten calender days of receipt
      of any comments by the Commission relating to the Registration
      Statement.

    


    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    (c)  If
      the
      Registration Statement is not declared effective by the Commission by the
      Required Effectiveness Date, the Company shall pay to Purchaser, as liquidated
      damages (and not as a penalty), an amount equal to 2% of the outstanding
      principal amount of the Convertible Note, prorated, for each 30 day period
      the
      Registration Statement is not declared effective by the Commission. In the
      event
      the Company fails to obtain a valid registration statement by the 360th day
      following the Closing Date, the Company will redeem the Convertible Note and
      the
      Warrants as set forth in Section 5 of the Convertible Note and Section 13 of
      the
      Warrants, respectively. Additionally, the Company will grant to Purchaser
      certain piggyback registration rights in the event the Company proposes to
      effect a registered offering of Common Stock or warrants or both prior to the
      filing of the Registration Statement referenced above.

    


    (d)  Any
      such
      liquidated damages shall be paid in cash by the Company to Purchaser by wire
      transfer in immediately available funds on the last day of each calendar week
      following the event requiring its payment.

    


    (e)  If,
      following the declaration of effectiveness of the Registration Statement, such
      registration statement (or any prospectus or supplemental prospectus contained
      therein) shall cease to be effective for any reason (including but not limited
      to the occurrence of any event that results in any prospectus or supplemental
      prospectus containing an untrue statement of a material fact or omitting a
      material fact required to be stated therein or necessary in order to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading), the Company fails to file required amendments to the
      Registration Statement in order to allow the Purchaser to resell the Conversion
      Shares pursuant to the Registration Statement as unrestricted, unlegended,
      freely tradeable shares of Common Stock, or if for any reason there are
      insufficient shares of such shares of Common Stock registered under the then
      current Registration Statement to effect full conversion of the Convertible
      Note
      or exercise of the Warrants (a "Registration Default"), the Company shall
      immediately take all necessary steps to cause the Registration Statement to
      be
      amended or supplemented so as to cure such Registration Default. Failure to
      cure
      a Registration Default within ten (10) Business Days shall result in the Company
      paying to Purchaser liquidated damages at the rate of one percent (1%) of the
      outstanding principal amount of Convertible Note for each 30 day period
      (prorated), the Registration Default remains uncured.

    


    
      
        
        

      

      
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    ARTICLE
      11. 
      ADJUSTMENT OF FIXED PRICE 

    


    1  
      Reorganization
      . The
      Conversion Price (the “Fixed Price”) shall be adjusted, as applicable, as
      hereafter provided.

    


    2  
      Share Reorganization
      . If and
      whenever the Company shall:

    


    (i)  subdivide
      the outstanding shares of Common Stock into a greater number of
      shares;

    


    (ii)  consolidate
      the outstanding shares of Common Stock into a smaller number of
      shares;

    


    (iii)  issue
      Common Stock or securities convertible into or exchangeable for shares of Common
      Stock as a stock dividend to all or substantially all the holders of Common
      Stock; or

    


    (iv)  make
      a
      distribution on the outstanding Common Stock to all or substantially all the
      holders of Common Stock payable in Common Stock or securities convertible into
      or exchangeable for Common Stock;

    


    any
      of
      such events being herein called a “Share Reorganization,” then in each such case
      the applicable Fixed Price shall be adjusted, effective immediately after the
      record date at which the holders of Common Stock are determined for the purposes
      of the Share Reorganization or, if no record date is fixed, the effective date
      of the Share Reorganization, by multiplying the applicable Fixed Price in effect
      on such record or effective date, as the case may be, by a fraction of
      which:

    


    (i) the
      numerator shall be the number of shares of Common Stock outstanding on such
      record or effective date (without giving effect to the transaction);
      and

    


    (ii) the
      denominator shall be the number of shares of Common Stock outstanding after
      giving effect to such Share Reorganization, including, in the case of a
      distribution of securities convertible into or exchangeable for shares of Common
      Stock, the number of shares of Common Stock that would have been outstanding
      if
      such securities had been converted into or exchanged for Common Stock on such
      record or effective date.

    


    3  
      Rights Offering
      . If and
      whenever the Company shall issue to all or substantially all the holders of
      Common Stock, rights, options or warrants under which such holders are entitled,
      during a period expiring not more than 45 days after the record date of such
      issue, to subscribe for or purchase Common Stock (or Derivative Securities),
      at
      a price per share (or, in the case of securities convertible into or
      exchangeable for Common Stock, at an exchange or conversion price per share
      at
      the date of issue of such securities) of less than 95% of the Market Price
      of
      the Common Stock on such record date (any such event being herein called a
      “Rights Offering”), then in each such case the applicable Fixed Price shall be
      adjusted, effective immediately after the record date at which holders of Common
      Stock are determined for the purposes of the Rights Offering, by multiplying
      the
      applicable Fixed Price in effect on such record date by a fraction of
      which:

    


    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    (i)  the
      numerator shall be the sum of:

    


    (i) the
      number of shares of Common Stock outstanding on such record date;
      and

    


    (ii) a
      number
      obtained by dividing:

    


    (A)  either,

    


    (x) the
      product of the total number of shares of Common Stock so offered for
      subscription or purchase and the price at which such shares are so offered,
      or

    


    (y) the
      product of the maximum number of shares of Common Stock into or for which the
      convertible or exchangeable securities so offered for subscription or purchase
      may be converted or exchanged and the conversion or exchange price of such
      securities, or, as the case may be, by

    


    (B)  the
      Market Price of the Common Stock on such record date; and

    


    (ii)  the
      denominator shall be the sum of:

    


    (i) the
      number of shares of Common Stock outstanding on such record date;
      and

    


    (ii) the
      number of shares of Common Stock so offered for subscription or purchase (or,
      in
      the case of Derivative Securities, the maximum number of shares of Common Stock
      for or into which the securities so offered for subscription or purchase may
      be
      converted or exchanged).

    


    To
      the
      extent that such rights, options or warrants are not exercised prior to the
      expiry time thereof, the applicable Fixed Price shall be readjusted effective
      immediately after such expiry time to the applicable Fixed Price which would
      then have been in effect upon the number of shares of Common Stock (or
      Derivative Securities) actually delivered upon the exercise of such rights,
      options or warrants.

    


    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    4   
      Special Distribution
      . If and
      whenever the Company shall issue or distribute to all or substantially all
      the
      holders of Common Stock:

    


    (i)  shares
      of
      the Company of any class, other than Common Stock;

    


    (ii)  rights,
      options or warrants; or

    


    (iii)  any
      other
      assets (excluding cash dividends and equivalent dividends in shares paid in
      lieu
      of cash dividends in the ordinary course);

    


    and
      if
      such issuance or distribution does not constitute a Share Reorganization or
      a
      Rights Offering (any such event being herein called a “Special Distribution”),
      then in each such case the applicable Fixed Price shall be adjusted, effective
      immediately after the record date at which the holders of Common Stock are
      determined for purposes of the Special Distribution, by multiplying the
      applicable Fixed Price in effect on such record date by a fraction of
      which:


    (i)  the
      numerator shall be the difference between:

    


    (A)  the
      product of the number of shares of Common Stock outstanding on such record
      date
      and the Market Price of the Common Stock on such date; and

    


    (B)  the
      fair
      market value, as determined by the Directors (whose determination shall be
      conclusive), to the holders of Common Stock of the shares, rights, options,
      warrants, evidences of indebtedness or other assets issued or distributed in
      the
      Special Distribution (net of any consideration paid therefor by the holders
      of
      Common Stock), and

    


    (ii)  the
      denominator shall be the product of the number of shares of Common Stock
      outstanding on such record date and the Market Price of the Common Stock on
      such
      date.


    


    5  
      Capital Reorganization
      . If and
      whenever there shall occur:

    


    (i)  a
      reclassification or redesignation of the shares of Common Stock or any change
      of
      the shares of Common Stock into other shares, other than in a Share
      Reorganization;

    


    (ii)  a
      consolidation, merger or amalgamation of the Company with, or into another
      body
      corporate; or

    


    (iii)  the
      transfer of all or substantially all of the assets of the Company to another
      body corporate;

    


    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    (any
      such
      event being herein called a “Capital Reorganization”), then in each such case
      the holder who exercises the right to convert Convertible Note after the
      effective date of such Capital Reorganization shall be entitled to receive
      and
      shall accept, upon the exercise of such right, in lieu of the number of shares
      of Common Stock to which such holder was theretofore entitled upon the exercise
      of the conversion privilege, the aggregate number of shares or other securities
      or property of the Company or of the body corporate resulting from such Capital
      Reorganization that such holder would have been entitled to receive as a result
      of such Capital Reorganization if, on the effective date thereof, such holders
      had been the holder of the number of shares of Common Stock to which such holder
      was theretofore entitled upon conversion; provided, however, that no such
      Capital Reorganization shall be consummated in effect unless all necessary
      steps
      shall have been taken so that such holders shall thereafter be entitled to
      receive such number of shares or other securities of the Company or of the
      body
      corporate resulting from such Capital Reorganization, subject to adjustment
      thereafter in accordance with provisions the same, as nearly as may be possible,
      as those contained above.

    


    6   
      Purchase Price Adjustments
      . In
      case at any time and from time to time the Company shall issue any shares of
      Common Stock or Derivative Securities convertible or exercisable for shares
      of
      Common Stock (the number of shares so issued, or issuable upon conversion or
      exercise of such Derivative Securities, as applicable, being referred to as
      “Additional Shares of Common Stock”) for consideration less than the then Market
      Price at the date of issuance of such shares of Common Stock or such Derivative
      Securities, in each such case the Conversion Price shall, concurrently with
      such
      issuance, be adjusted by multiplying the Conversion Price immediately prior
      to
      such event by a fraction: (i) the numerator of which shall be the number of
      shares of Common Stock outstanding immediately prior to the issuance of such
      Additional Shares of Common Stock plus the number of shares of Common Stock
      that
      the aggregate consideration received by the Company for the total number of
      such
      Additional Shares of Common Stock so issued would purchase at the Market Price
      and (ii) the denominator of which shall be the number of shares of Common Stock
      outstanding immediately prior to the issuance of Additional Shares of Common
      Stock plus the number of such Additional Shares of Common Stock so issued or
      sold.

    


    7  
      Adjustment Rules
      . The
      following rules and procedures shall be applicable to adjustments made in this
      Article XI:

    


    (a)  no
      adjustment in the applicable Fixed Price shall be required unless such
      adjustment would result in a change of at least 1% in the applicable Fixed
      Price
      then in effect, provided, however, that any adjustments which, but for the
      provisions of this clause would otherwise have been required to be made, shall
      be carried forward and taken into account in any subsequent
      adjustment;

    


    (b)  if
      any
      event occurs of the type contemplated by the adjustment provisions of this
      Article XI but not expressly provided for by such provisions, the Company will
      give notice of such event as provided herein, and the Company’s board of
      directors will make an appropriate adjustment in the Fixed Price so that the
      rights of the holders of the applicable Security shall not be diminished by
      such
      event; and

    


    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    (c)  if
      a
      dispute shall at any time arise with respect to any adjustment of the applicable
      Fixed Price, such dispute shall be conclusively determined by the auditors
      of
      the Company or, if they are unable or unwilling to act, by a firm of independent
      chartered accountants selected by the Directors and any such determination
      shall
      be binding upon the Company and Purchaser.

    


    8  
      Certificate as to Adjustment
      . The
      Company shall from time to time promptly after the occurrence of any event
      which
      requires an adjustment in the applicable Fixed Price deliver to Purchaser a
      certificate specifying the nature of the event requiring the adjustment, the
      amount of the adjustment necessitated thereby, the applicable Fixed Price after
      giving effect to such adjustment and setting forth, in reasonable detail, the
      method of calculation and the facts upon which such calculation is
      based.

    


    9  
      Notice to Holders
      . If the
      Company shall fix a record date for:

    


    (a)  any
      Share
      Reorganization (other than the subdivision of outstanding Common Stock into
      a
      greater number of shares or the consolidation of outstanding Common Stock into
      a
      smaller number of shares),

    


    (b)  any
      Rights Offering,

    


    (c)  any
      Special Distribution,

    


    (d)  any
      Capital Reorganization (other than a reclassification or redesignation of the
      Common Stock into other shares),

    


    (e)  Sale
      Event; or

    


    (f)  any
      cash
      dividend,

    


    the
      Company shall, not less than 10 days prior to such record date or, if no record
      date is fixed, prior to the effective date of such event, give to Purchaser
      notice of the particulars of the proposed event or the extent that such
      particulars have been determined at the time of giving the notice.

    


    


    ARTICLE
      13. 
      EVENTS OF DEFAULT

    


    5  
      Events of Default.
      If one
      or more of the following events (each an “Event of Default”) shall have occurred
      and be continuing:

    


    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    (a)  failure
      by the Company to pay or repay when due, all or any part of the principal on
      any
      of the Convertible Note (whether by virtue of the agreements specified in this
      Agreement or the Convertible Note);

    


    (b)  failure
      by the Company to pay (i) within five (5) Business Days of the due date thereof
      any interest on any Convertible Note or (ii) within five (5) Business Days
      following the delivery of notice to the Company of any fees or any other amount
      payable (not otherwise referred to in (a) above or this clause (b)) by the
      Company under this Agreement or any other Transaction Agreement;

    


    (c)  failure
      by the Company to timely comply with the requirements of Section 7.11 or 10.1
      hereof, which failure is not cured within five (5) Business Days of such
      failure;

    


    (d)  failure
      on the part of the Company to observe or perform any covenant contained in
      Section 7.10 or Article VIII of this Agreement;

    


    (e)  failure
      on the part of the Company to observe or perform any covenant or agreement
      contained in any Transaction Agreement (other than those covered by clauses
      (a),
      (b), (c) or (d) above) for 30 days from the date of such
      occurrence;

    


    (f)  the
      trading in the Common Stock shall have been suspended by the Commission, the
      OTC
      Bulletin Board or any market on which the securities of the Company are then
      traded (except for any suspension of trading of limited duration solely to
      permit dissemination of material information regarding the Company and except
      if, at the time there is any suspension on any market, the Common Stock is
      then
      listed and approved for trading on another market within ten (10) Trading Days
      thereof);

    


    (g)  the
      Company shall have its Common Stock delisted from the OTC Bulletin Board for
      at
      least ten (10) consecutive Trading Days and is unable to obtain a listing on
      the
      OTC Bulletin Board within such ten (10) Trading Days;

    


    (h)  the
      Registration Statement shall not have been declared effective by the Commission
      by the Required Effectiveness Date, or such effectiveness shall not be
      maintained for the Registration Maintenance Period, in each case which results
      in the Company incurring liquidated damages or a default fee for a period in
      excess of 10 days;

    


    (i)  the
      Company or any Subsidiary has commenced a voluntary case or other proceeding
      seeking liquidation, winding-up, reorganization or other relief with respect
      to
      itself or its debts under any bankruptcy, insolvency, moratorium or other
      similar law now or hereafter in effect or seeking the appointment of a trustee,
      receiver, liquidator, custodian or other similar official of it or any
      substantial part of its property, or has consented to any such relief or to
      the
      appointment of or taking possession by any such official in an involuntary
      case
      or other proceeding commenced against it, or has made a general assignment
      for
      the benefit of creditors, or has failed generally to pay its debts as they
      become due, or has taken any corporate action to authorize any of the
      foregoing;

    


    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

    (j)  an
      involuntary case or other proceeding has been commenced against the Company
      or
      any Subsidiary seeking liquidation, winding-up, reorganization or other relief
      with respect to it or its debts under any bankruptcy, insolvency, moratorium
      or
      other similar law now or hereafter in effect or seeking the appointment of
      a
      trustee, receiver, liquidator, custodian or other similar official of it or
      any
      substantial part of its property, and such involuntary case or other proceeding
      shall remain undismissed and unstayed for a period of 60 days, or an order
      for
      relief has been entered against the Company or any Subsidiary under the federal
      bankruptcy laws as now or hereafter in effect;

    


    (k)  default
      in any provision (including payment) or any agreement governing the terms of
      any
      Debt of the Company or any Subsidiary in excess of $500,000, which has not
      been
      cured within any applicable period of grace associated therewith;

    


    (l)  judgments
      or orders for the payment of money which in the aggregate at any one time exceed
      $1,000,000 and are not covered by insurance have been rendered against the
      Company or any Subsidiary by a court of competent jurisdiction and such
      judgments or orders shall continue unsatisfied and unstayed for a period of
      60
      days; or

    


    (m)  any
      representation, warranty, certification or statement made by the Company in
      any
      Transaction Agreement or which is contained in any certificate, document or
      financial or other statement furnished at any time under or in connection with
      any Transaction Agreement shall prove to have been untrue in any material
      respect when made.

    


    then,
      and
      in every such occurrence, Purchaser may, with respect to an Event of Default
      specified in paragraphs (a) or (b), and the Majority Holders may, with respect
      to any other Event of Default, by notice to the Company, declare the Convertible
      Note to be, and the Convertible Note shall thereon become immediately due and
      payable; provided
      that in
      the case of any of the Events of Default specified in paragraph (i) or (j)
      above
      with respect to the Company or any Subsidiary, then, without any notice to
      the
      Company or any other act by Purchaser, the entire amount of the Convertible
      Note
      shall become immediately due and payable, provided,
      further,
      if any
      Event of Default has occurred and is continuing, and irrespective of whether
      any
      Convertible Note has been declared immediately due and payable hereunder, any
      Purchaser of Convertible Note may proceed to protect and enforce the rights
      of
      Purchaser by an action at law, suit in equity or other appropriate proceeding,
      whether for the specific performance of any agreement contained herein or in
      any
      Convertible Note, or for an injunction against a violation of any of the terms
      hereof or thereof, or in aid of the exercise of any power granted hereby or
      thereby or by law or otherwise, and provided further,
      in the
      case of any Event of Default, the amount declared due and payable on the
      Convertible Note shall be the Formula Price thereof.

    


    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    6  
      Powers and Remedies Cumulative
      . No
      right or remedy herein conferred upon or reserved to Purchaser is intended
      to be
      exclusive of any other right or remedy, and every right and remedy shall, to
      the
      extent permitted by law, be cumulative and in addition to every other right
      and
      remedy given hereunder or now hereafter existing at law or in equity or
      otherwise. The assertion or employment of any right or remedy hereunder, or
      otherwise, shall not prevent the concurrent assertion or employment of any
      other
      appropriate right or remedy. Every power and remedy given by the Convertible
      Note or by law may be exercised from time to time, and as often as shall be
      deemed expedient, by Purchaser.

    


    


    ARTICLE
      14. 
      MISCELLANEOUS

    


    5  
      Notices
      . All
      notices, demands and other communications to any party hereunder shall be in
      writing (including telecopier or similar writing) and shall be given to such
      party at its address set forth on the signature pages hereof, or such other
      address as such party may hereafter specify for the purpose to the other
      parties. Each such notice, demand or other communication shall be effective
      (i)
      if given by telecopy, when such telecopy is transmitted to the telecopy number
      specified on the signature page hereof, (ii) if given by mail, four days after
      such communication is deposited in the mail with first class postage prepaid,
      addressed as aforesaid or (iii) if given by any other means, when delivered
      at
      the address specified in or pursuant to this Section.

    


    6  
      No Waivers; Amendments
      .

    


    (a)  No
      failure or delay on the part of any party in exercising any right, power or
      remedy hereunder shall operate as a waiver thereof, nor shall any single or
      partial exercise of any such right, power or remedy preclude any other or
      further exercise thereof or the exercise of any other right, power or
      remedy.

    


    (b)  Any
      provision of this Agreement may be amended, supplemented or waived if, but
      only
      if, such amendment, supplement or waiver is in writing and is signed by the
      Company and the Majority Holders; provided,
      that
      without the consent of each holder of any Convertible Note affected thereby,
      an
      amendment or waiver may not (a) reduce the aggregate principal amount of
      Convertible Note whose holders must consent to an amendment or waiver, (b)
      reduce the rate or extend the time for payment of interest on any Convertible
      Note, (c) reduce the principal amount of or extend the stated maturity of any
      Convertible Note or (d) make any Convertible Note payable in money or property
      other than as stated in such Convertible Note. In determining whether the
      holders of the requisite principal amount of Convertible Note have concurred
      in
      any direction, consent, or waiver as provided in any Transaction Agreement,
      Convertible Note which are owned by the Company or any other obligor on or
      guarantor of the Convertible Note, or by any Person Controlling, Controlled
      by,
      or under common Control with any of the foregoing, shall be disregarded and
      deemed not to be outstanding for the purpose of any such determination; and
      provided further
      that no
      such amendment, supplement or waiver which affects the rights of Purchaser
      and
      their affiliates otherwise than solely in their capacities as holders of
      Convertible Note shall be effective with respect to them without their prior
      written consent.

    


    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    7  
      Indemnification
      .

    


    (a)  The
      Company agrees to indemnify and hold harmless Purchaser, its Affiliates, and
      each Person, if any, who controls Purchaser, or any of its Affiliates, within
      the meaning of the Securities Act or the Exchange Act (each, a “Controlling
      Person”), and the respective partners, agents, employees, officers and Directors
      of Purchaser, their Affiliates and any such Controlling Person (each an
“Indemnified Party”) and collectively, the “Indemnified Parties”), from and
      against any and all losses, claims, damages, liabilities and expenses
      (including, without limitation and as incurred, reasonable costs of
      investigating, preparing or defending any such claim or action, whether or
      not
      such Indemnified Party is a party thereto, provided that the Company shall
      not
      be obligated to advance such costs to any Indemnified Party other than Purchaser
      unless it has received from such Indemnified Party an undertaking to repay
      to
      the Company the costs so advanced if it should be determined by final judgment
      of a court of competent jurisdiction that such Indemnified Party was not
      entitled to indemnification hereunder with respect to such costs) which may
      be
      incurred by such Indemnified Party in connection with any investigative,
      administrative or judicial proceeding brought or threatened that relates to
      or
      arises out of, or is in connection with any activities contemplated by any
      Transaction Agreement or any other services rendered in connection herewith;
      provided
      that the
      Company will not be responsible for any claims, liabilities, losses, damages
      or
      expenses that (i) are determined by final judgment of a court of competent
      jurisdiction to result from such Indemnified Party’s gross negligence, willful
      misconduct or bad faith and (ii) not in excess of the amount of funds actually
      received by the Company pursuant to this Agreement.

    


    (b)  If
      any
      action shall be brought against an Indemnified Party with respect to which
      indemnity may be sought against the Company under this Agreement, such
      Indemnified Party shall promptly notify the Company in writing and the Company,
      at its option, may, assume the defense thereof, including the employment of
      counsel reasonably satisfactory to such Indemnified Party and payment of all
      reasonable fees and expenses. The failure to so notify the Company shall not
      affect any obligations the Company may have to such Indemnified Party under
      this
      Agreement or otherwise unless the Company is materially adversely affected
      by
      such failure. Such Indemnified Party shall have the right to employ separate
      counsel in such action and participate in the defense thereof, but the fees
      and
      expenses of such counsel shall be at the expense of such Indemnified Party,
      unless (i) the Company has failed to assume the defense and employ counsel
      or
      (ii) the named parties to any such action (including any impleaded parties)
      include such Indemnified Party and the Company, and such Indemnified Party
      shall
      have been advised by counsel that there may be one or more legal defenses
      available to it which are different from or additional to those available to
      the
      Company, in which case, if such Indemnified Party notifies the Company in
      writing that it elects to employ separate counsel at the expense of the Company,
      the Company shall not have the right to assume the defense of such action or
      proceeding on behalf of such Indemnified Party, provided,
      however,
      that
      the Company shall not, in connection with any one such action or proceeding
      or
      separate but substantially similar or related actions or proceedings in the
      same
      jurisdiction arising out of the same general allegations or circumstances,
      be
      responsible hereunder for the reasonable fees and expenses of more than one
      such
      firm of separate counsel, in addition to any local counsel, which counsel shall
      be designated by the Company and subject to approval by the Purchaser The
      Company shall not be liable for any settlement of any such action effected
      without the written consent of the Company (which shall not be unreasonably
      withheld) and the Company agrees to indemnify and hold harmless each Indemnified
      Party from and against any loss or liability by reason of settlement of any
      action effected with the consent of the Company. In addition, the Company will
      not, without the prior written consent of Purchaser, settle or compromise or
      consent to the entry of any judgment in or otherwise seek to terminate any
      pending or threatened action, claim, suit or proceeding in respect to which
      indemnification or contribution may be sought hereunder (whether or not any
      Indemnified Party is a party thereto) unless such settlement, compromise,
      consent or termination includes an express unconditional release of Purchaser
      and the other Indemnified Parties, satisfactory in form and substance to
      Purchaser, from all liability arising out of such action, claim, suit or
      proceeding.

    


    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

    (c)  If
      for
      any reason the foregoing indemnity is unavailable (otherwise than pursuant
      to
      the express terms of such indemnity) to an Indemnified Party or insufficient
      to
      hold an Indemnified Party harmless, then in lieu of indemnifying such
      Indemnified Party, the Company shall contribute to the amount paid or payable
      by
      such Indemnified Party as a result of such claims, liabilities, losses, damages,
      or expenses (i) in such proportion as is appropriate to reflect the relative
      benefits received by the Company on the one hand and by Purchaser on the other
      from the transactions contemplated by this Agreement or (ii) if the allocation
      provided by clause (i) is not permitted under applicable law, in such proportion
      as is appropriate to reflect not only the relative benefits received by the
      Company on the one hand and Purchaser on the other, but also the relative fault
      of the Company and Purchaser as well as any other relevant equitable
      considerations. Notwithstanding the provisions of this Section 13.3, the
      aggregate contribution of all Indemnified Parties shall not exceed the amount
      of
      interest and fees actually received by Purchaser pursuant to this Agreement.
      It
      is hereby further agreed that the relative benefits to the Company on the one
      hand and Purchaser on the other with respect to the transactions contemplated
      hereby shall be determined by reference to, among other things, whether any
      untrue or alleged untrue statement of material fact or the omission or alleged
      omission to state a material fact related to information supplied by the Company
      or by Purchaser and the parties’ relative intent, knowledge, access to
      information and opportunity to correct or prevent such statement or omission.
      No
      Person guilty of fraudulent misrepresentation (within the meaning of Section
      11(f) of the Securities Act) shall be entitled to contribution from any Person
      who was not guilty of such fraudulent misrepresentation.

    


    (d)  The
      indemnification, contribution and expense reimbursement obligations set forth
      in
      this Section 13.3 (i) shall be in addition to any liability the Company may
      have
      to any Indemnified Party at common law or otherwise; (ii) shall survive the
      termination of this Agreement and the other Transaction Agreements and the
      payment in full of the Convertible Note and (iii) shall remain operative and
      in
      full force and effect regardless of any investigation made by or on behalf
      of
      Purchaser or any other Indemnified Party.

    


    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    8  
      Expenses: Documentary Taxes
      . The
      Company has incurred an application fee equal to 1% per each USD$1,000,000
      funded of the principal amount of the Convertible Note which shall be payable
      on
      the Closing Date. In addition, the Company agrees to pay to Global Capital
      Advisors, LLC (“GCA”), on the Closing Date, a fee equal to $15,000.00 (the “Out
      of Pocket Fee”) in full satisfaction of all obligations of the Company to
      Purchaser and its agents in connection with the negotiation and preparation
      of
      the Transaction Agreements, relevant due diligence, and fees and disbursements
      of legal counsel. The Company has paid earnest money of $7,500 which shall
      be
      applied toward the Out of Pocket Fee on the Closing Date. In addition, the
      Company agrees to pay any and all stamp, transfer and other similar taxes,
      assessments or charges payable in connection with the execution and delivery
      of
      any Transaction Agreement or the issuance of the Securities to Purchaser,
      excluding their assigns.

    


    Additionally,
      the Company shall issue to GCA a Warrant to purchase shares of Common Stock
      upon
      the Closing equal to 500,000 shares of Common Stock on the terms and conditions
      described in the form of the common stock purchase warrant attached hereto
      as
Exhibit
      G.
      

    


    9  
      Payment
      . The
      Company agrees that, so long as Purchaser shall own any Convertible Note
      purchased by it from the Company hereunder, the Company will make payments
      to
      Purchaser of all amounts due thereon by wire transfer by 4:00 P.M. (ES.T.)
      pursuant to those instruction set forth in Schedule
      13.5.

    


    10  
      Successors and Assigns
      . This
      Agreement shall be binding upon the Company and upon Purchaser and its
      respective successors and assigns; provided
      that the
      Company shall not assign or otherwise transfer its rights or obligations under
      this Agreement to any other Person without the prior written consent of the
      Majority Holders. All provisions hereunder purporting to give rights to
      Purchaser and its affiliates or to holders of Securities are for the express
      benefit of such Persons and their successors and assigns.

    


    11  
      Brokers
      . Except
      for Colony Park Financial, LLC, Antaeus Capital, Inc. and Bill and Elizabeth
      von
      Gremp, (the “Brokers”), the Company represents and warrants that it has not
      employed any broker, finder, financial advisor or investment banker who would
      be
      entitled to any brokerage, finder’s or other fee or commission payable by the
      Company or Purchaser in connection with the sale of the Securities. The Company
      represents and warrants that it is solely responsible for any fees due
      Brokers.

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

    12  
      Nevada Law; Submission to Jurisdiction; Waiver of Jury Trial; Appointment of
      Agent
      . THIS
      AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
      THE
      STATE OF NEVADA. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
      OF THE UNITED STATES DISTRICT COURT FOR THE STATE OF NEVADA AND OF ANY FEDERAL
      DISTRICT COURT SITTING IN NEVADA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
      OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
      EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
      ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
      OF
      ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
      PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
      EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
      IN
      ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
      MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING
      HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER
      PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY.

     

    13   Entire
      Agreement
      . This
      Agreement, the Exhibits or Schedules hereto, which include, but are not limited
      to the Convertible Note and the Registration Rights Agreement, set forth the
      entire agreement and understanding of the parties relating to the subject matter
      hereof and supersedes all prior and contemporaneous agreements, negotiations
      and
      understandings between the parties, both oral and written relating to the
      subject matter hereof. The terms and conditions of all Exhibits and Schedules
      to
      this Agreement are incorporated herein by this reference and shall constitute
      part of this Agreement as is fully set forth herein.

     

    14   Survival;
      Severability.
      The
      representations, warranties, covenants and agreements of the parties hereto
      shall survive the Closing hereunder. In the event that any provision of this
      Agreement becomes or is declared by a court of competent jurisdiction to be
      illegal, unenforceable or void, this Agreement shall continue in full force
      and
      effect without said provision; provided that such severability shall be
      ineffective if it materially changes the economic benefit of this Agreement
      to
      any party.

     

    15   Title
      and Subtitles
      . The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this Agreement


     

    16   Reporting
      Entity for the Common Stock.
      The
      reporting entity relied upon for the determination of the trading price or
      trading volume of the Common Stock on any given Trading Day for the purposes
      of
      this Agreement and all Exhibits shall be Bloomberg, L.P. or any successor
      thereto. The written mutual consent of the Purchaser and the Company shall
      be
      required to employ any other reporting entity. 

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

    17   Publicity.
      The
      Company and the Purchaser shall consult with each other in issuing any press
      releases or otherwise making public statements with respect to the transactions
      contemplated hereby and no party shall issue any such press release or otherwise
      make any such public statement without the prior written consent of the other
      parties, which consent shall not be unreasonably withheld or delayed, except
      that no prior consent shall be required if such disclosure is required by law,
      in which such case the disclosing party shall provide the other parties with
      prior notice of such public statement. Notwithstanding the foregoing, the
      Company shall not publicly disclose the name of Purchaser without the prior
      written consent of Purchaser, except to the extent required by law, in which
      case the Company shall provide Purchaser with prior written notice of such
      public disclosure.

    


    


    [signature
      page follows]

    


    


    


    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    


    


    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Agreement to be duly executed by their
      respective authorized officers, as of the date first above written.

     

     

    Mems
      USA,
      Inc.

    
      	 	 	 


      	 	 	 


      	 	By:	/S/
              James A. Latty


      	 	Name:	James
              A. Latty


      	 	Title: 	Chairman,
              CEO and President


      	 	 	 


      	 	 	 


      	 	Address:	Mems
              USA, Inc.


      	 	 	5701
              Lindero Canyon Road


      	 	 	
              Suite
                2-100

            


    

    
      	 	 	
              Westlake
                Village, CA 91362

            


      	 	 	 


      	 	 	Fax: 818-735-4753


      	 	 	Tel.: 818-735-4750


    

     

     

    


    GCA
      STRATEGIC INVESTMENT FUND LIMITED

    
      
        	 	 	 


        	 	 	 


        	 	By:	/S/
                Lewis N. Lester


        	 	Name:	James
                A. Latty


        	 	Title: 	Director


        	 	 	 


        	 	 	 


        	 	Address:	c/o
                Prime Management Limited


        	 	 	Mechanics
                Building


        	 	 	
                12
                  Church Street

              


      

      
        	 	 	
                Hamilton
                  HM II, Bermuda

              


        	 	 	 


        	 	 	Fax: 441-295-3926


        	 	 	Tel.: 441-295-0329


      

       

    

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    


    TABLE
      OF CONTENTS

    

      
        	
                ARTICLE
                  I. DEFINITIONS

              	
                1

              
	
                 

              	
                Section
                  1.1 Definitions

              	
                1

              
	
                 

              	
                Section
                  1.2 Accounting Terms and Determinations

              	
                9

              
	 	 	 
	
                ARTICLE
                  II. PURCHASE AND SALE OF SECURITIES

              	
                10

              
	
                 

              	
                Section
                  2.1 Purchase and Sale of Convertible Note

              	
                10

              
	
                 

              	
                Section
                  2.2 Purchase Price

              	
                10

              
	
                 

              	
                Section
                  2.3 Closing and Mechanics of Payment

              	
                10

              
	 	 	 
	
                ARTICLE
                  III. PAYMENT TERMS OF CONVERTIBLE NOTE

              	
                10

              
	
                 

              	
                Section
                  3.1 Payment of Principal and Interest; Payment Mechanics

              	
                10

              
	
                 

              	
                Section
                  3.2

              	
                11

              
	
                 

              	
                Section
                  3.3 Voluntary Prepayment

              	
                11

              
	
                 

              	
                Section
                  3.4 Mandatory Prepayments

              	
                11

              
	
                 

              	
                Section
                  3.5 Prepayment Procedures

              	
                12

              
	
                 

              	
                Section
                  3.6 Payment of Additional Amounts

              	
                13

              
	 	 	 
	
                ARTICLE
                  IV. REPRESENTATIONS AND WARRANTIES

              	
                15

              
	
                 

              	
                Section
                  4.1 Organization and Qualification

              	
                15

              
	
                 

              	
                Section
                  4.2 Authorization and Execution

              	
                15

              
	
                 

              	
                Section
                  4.3 Capitalization 

              	
                16

              
	
                 

              	
                Section
                  4.4 Governmental Authorization

              	
                16

              
	
                 

              	
                Section
                  4.5 Issuance of Shares

              	
                16

              
	
                 

              	
                Section
                  4.6 No Conflicts

              	
                17

              
	
                 

              	
                Section
                  4.7 Financial Information

              	
                17

              
	
                 

              	
                Section
                  4.8 Litigation

              	
                18

              
	
                 

              	
                Section
                  4.9 Compliance with ERISA and other Benefit Plans

              	
                18

              
	
                 

              	
                Section
                  4.10 Environmental Matters

              	
                19

              
	
                 

              	
                Section
                  4.11 Taxes

              	
                19

              
	
                 

              	
                Section
                  4.12 Investments, Joint Ventures

              	
                19

              
	
                 

              	
                Section
                  4.13 Not an Investment Company

              	
                19

              
	
                 

              	
                Section
                  4.14 Full Disclosure

              	
                19

              
	
                 

              	
                Section
                  4.15 No Solicitation; No Integration with Other Offerings

              	
                19

              
	
                 

              	
                Section
                  4.16 Permits

              	
                20

              
	
                 

              	
                Section
                  4.17 Leases

              	
                20

              
	
                 

              	
                Section
                  4.18 Absence of Any Undisclosed Liabilities or Capital
                  Calls

              	
                20

              
	
                 

              	
                Section
                  4.19 Public Utility Holding Company

              	
                20

              
	
                 

              	
                Section
                  4.20 Intellectual Property Rights

              	
                20

              
	
                 

              	
                Section
                  4.21 Insurance

              	
                21

              
	
                 

              	
                Section
                  4.22 Title to Properties

              	
                21

              
	
                 

              	
                Section
                  4.23 Internal Accounting Controls

              	
                21

              
	
                 

              	
                Section
                  4.24 Subsidiaries

              	
                21

              
	
                 

              	
                Section
                  4.25 Foreign Practices

              	
                21

              


      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

      
        	
                 

              	 	 
	
                ARTICLE
                  V.
                  REPRESENTATIONS AND WARRANTIES OF PURCHASER

              	
                22

              
	
                 

              	
                Section
                  5.1 Purchaser

              	
                22

              
	 	 	 
	
                ARTICLE
                  VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES

              	
                23

              
	
                 

              	
                Section
                  6.1 Conditions Precedent to Purchaser's Obligations to
                  Purchase

              	
                23

              
	
                 

              	
                Section
                  6.2 Conditions to the Company's Obligations

              	
                25

              
	 	 	 
	
                ARTICLE
                  VII. AFFIRMATIVE COVENANTS

              	
                25

              
	
                 

              	
                Section
                  7.1 Information

              	
                26

              
	
                 

              	
                Section
                  7.2 Payment of Obligations

              	
                26

              
	
                 

              	
                Section
                  7.3 Maintenance of Property; Insurance

              	
                26

              
	
                 

              	
                Section
                  7.4 Maintenance of Existence

              	
                26

              
	
                 

              	
                Section
                  7.5 Compliance with Laws

              	
                27

              
	
                 

              	
                Section
                  7.6 Inspection of Property, Books and Records

              	
                27

              
	
                 

              	
                Section
                  7.7 Investment Company Act

              	
                27

              
	
                 

              	
                Section
                  7.8 Use of Proceeds

              	
                27

              
	
                 

              	
                Section
                  7.9 Compliance with Terms and Conditions of Material
                  Contracts

              	
                27

              
	
                 

              	
                Section
                  7.10 Reserved Shares

              	
                28

              
	
                 

              	
                Section
                  7.11 Transfer Agent Instructions

              	
                28

              
	
                 

              	
                Section
                  7.12 Maintenance of Reporting Status; Supplemental
                  Information

              	
                28

              
	
                 

              	
                Section
                  7.13 Form D; Blue Sky Laws

              	
                29

              
	 	 	 
	
                ARTICLE
                  VIII. NEGATIVE COVENANTS

              	
                29

              
	
                 

              	
                Section
                  8.1 Limitations on Debt or Other Liabilities

              	
                29

              
	
                 

              	
                Section
                  8.2 Transactions with Affiliates

              	
                29

              
	
                 

              	
                Section
                  8.3 Merger or Consolidation

              	
                30

              
	
                 

              	
                Section
                  8.4 Limitation on Asset Sales

              	
                30

              
	
                 

              	
                Section
                  8.5 Restrictions on Certain Amendments

              	
                30

              
	
                 

              	
                Section
                  8.6 Restrictions on Issuances of Securities

              	
                30

              
	
                 

              	
                Section
                  8.7 Limitation on Stock Repurchases

              	
                32

              
	
                 

              	
                Section
                  8.8 Limitation on Sales By Officers and Employee Directors

              	
                32

              
	 	 	 
	
                ARTICLE
                  IX. RESTRICTIVE LEGENDS

              	
                32

              
	
                 

              	
                Section
                  9.1 Restrictions on Transfer

              	
                32

              
	
                 

              	
                Section
                  9.2 Legends

              	
                32

              
	
                 

              	
                Section
                  9.3 Notice of Proposed Transfers

              	
                32

              
	 	 	 
	
                ARTICLE
                  X. ADDITIONAL AGREEMENTS AMONG THE PARTIES

              	
                33

              
	
                 

              	
                Section
                  10.1 Liquidated Damages

              	
                33

              
	
                 

              	
                Section
                  10.2 Conversion Notice

              	
                33

              
	
                 

              	
                Section
                  10.3 Conversion Limit

              	
                34

              
	
                 

              	
                Section
                  10.4 Registration Rights

              	
                34

              


      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      
        	 	 	 
	
                ARTICLE
                  XI. ADJUSTMENT OF FIXED PRICE

              	
                36

              
	
                 

              	
                Section
                  11.1 Reorganization

              	
                36

              
	
                 

              	
                Section
                  11.2 Share Reorganization

              	
                36

              
	
                 

              	
                Section
                  11.3 Rights Offering

              	
                36

              
	
                 

              	
                Section
                  11.4 Special Distribution

              	
                38

              
	
                 

              	
                Section
                  11.5 Capital Reorganization

              	
                38

              
	
                 

              	
                Section
                  11.6 Purchase Price Adjustments

              	
                39

              
	
                 

              	
                Section
                  11.7 Adjustment Rules

              	
                39

              
	
                 

              	
                Section
                  11.8 Certificate as to Adjustment

              	
                40

              
	
                 

              	
                Section
                  11.9 Notice to Holders

              	
                40

              
	 	 	 
	
                ARTICLE
                  XII. EVENTS OF DEFAULT

              	
                41

              
	
                 

              	
                Section
                  12.1 Events of Default

              	
                41

              
	
                 

              	
                Section
                  12.2 Powers and Remedies Cumulative

              	
                43

              
	 	 	 
	
                ARTICLE
                  XIII. MISCELLANEOUS

              	
                43

              
	
                 

              	
                Section
                  13.1 Notices

              	
                43

              
	
                 

              	
                Section
                  13.2 No Waivers; Amendments

              	
                43

              
	
                 

              	
                Section
                  13.3 Indemnification

              	
                44

              
	
                 

              	
                Section
                  13.4 Expenses: Documentary Taxes

              	
                46

              
	
                 

              	
                Section
                  13.5 Payment

              	
                46

              
	
                 

              	
                Section
                  13.6 Successors and Assigns

              	
                46

              
	
                 

              	
                Section
                  13.7 Brokers

              	
                47

              
	
                 

              	
                Section
                  13.8 Nevada Law; Submission to Jurisdiction; Waiver of Jury Trial;
                  Appointment of Agent 

              	
                47

              
	
                 

              	
                Section
                  13.9 Entire Agreement

              	
                47

              
	
                 

              	
                Section
                  13.10 Survival; Severability

              	
                47

              
	
                 

              	
                Section
                  13.11 Title and Subtitles

              	
                48

              
	
                 

              	
                Section
                  13.12 Reporting Entity for the Common Stock

              	
                48

              
	
                 

              	
                Section
                  13.13 Publicity

              	
                48

              


      



    
 

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

    LIST
      OF SCHEDULES

    


    Schedule 4.3
      Capitalization 

    Schedule
      4.7 Financial
      Information 

    Schedule
      4.8  Litigation

    Schedule
      4.12  Investments,
      Joint Ventures

    Schedule
      4.21  List
      of
      Insurance Companies

    Schedule
      7.8  Use
      of
      Proceeds

    Schedule
      8.2  Transactions
      with Affiliates

    Schedule
      13.5  Wiring
      Instructions

    


    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    

    LIST
      OF EXHIBITS

    


    Exhibit
      A  Form
      of
      Convertible Note

    Exhibit B 
      Form
      of
      Registration Rights Agreement

    Exhibit C 
      Form
      of
      Officer’s Certificate

    Exhibit
      D  Form
      of
      Solvency Certificate

    Exhibit
      E  Form
      of
      Escrow Agreement

    Exhibit
      F  Form
      of
      Common Stock Purchase Warrant

    Exhibit
      G  Form
      of
      Common Stock Purchase Warrant

    


    


    
      
        
        

      

      
        v

        
          

        

      

      
        
        

      

    

    


    

      SECURITIES
        PURCHASE AGREEMENT

      


      


      dated
        as of

      


      


      October
        27, 2006

      


      


      by
        and between

      


      


      Mems
        USA, Inc.

      as
        the Issuer,

      


      


      and

      


      


      GCA
        Strategic Investment Fund Limited