EX-10.1






Exhibit 10.1




SECURITIES PURCHASE AGREEMENT




This Securities Purchase Agreement (this “Agreement”) is dated as of March 8, 2007,
among VIASPACE Inc., a Nevada corporation (the “Company”), and each purchaser identified on
the signature pages hereto (each, including its successors and assigns, a “Purchaser” and
collectively the “Purchasers”).



WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.



NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and each Purchaser agree as follows:



ARTICLE I.




DEFINITIONS




1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1:




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




“Articles of Incorporation” shall have the meaning ascribed to such term in
Section 3.1(c).




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




“By-laws” shall have the meaning ascribed to such term in Section 3.1(c).




“Cash Portion” means $990,000, representing that part of the Subscription
Amount payable in cash pursuant to the terms of this Agreement.




“Class A Warrant” shall mean a warrant to purchase one share of common stock of
the company at a Warrant Exercise Price of $0.30.




“Class B Warrant” shall mean a warrant to purchase one share of common stock of
the company at a Warrant Exercise Price of $0.40.




“Class A Units” shall refer to a portion of the securities to be purchased
pursuant to the terms of this Agreement. A Class A Unit shall be comprised of 2.2609 Shares
and One (1) Class A Warrant.




“Class B Units” shall refer to a portion of the securities to be purchased
pursuant to the terms of this Agreement. A Class B Unit shall be comprised of one (1) Share
and one (1) Class B Warrant.




“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.




“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all conditions precedent
to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities have been satisfied or waived.




“Closing Price” means on any particular date (a) the last reported closing
price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg
L.P. at 4:15 PM (New York time)), or (b) if there is no such price on such date, then the
closing price on the Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time)), or (c)  if the Common Stock is not then listed
or quoted on the Trading Market and if prices for the Common Stock are then reported in the
“pink sheets” published by Pink Sheets LLC (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent price per share of the Common Stock
so reported, or (d) if the shares of Common Stock are not then publicly traded the fair
market value of a share of Common Stock as determined by an appraiser selected in good faith
by the Purchasers of a majority in interest of the Shares then outstanding.




“Commission” means the Securities and Exchange Commission.




“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may hereafter be
reclassified or changed into.




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




“Company Counsel” means Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.




“Company Indemnitees” shall have the meaning ascribed to such term in Section
4.9(b).




“Cornell” means Cornell Capital Partners, LP




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




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




“Environmental Laws” shall have the meaning ascribed to such term in Section
3.1(n).




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




“Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers, consultants or directors of the Company pursuant to any stock option
agreements existing on the date of this Agreement or any other stock or option plan duly
adopted by a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any Securities
issued hereunder and/or other securities exercisable or exchangeable for or convertible into
 shares of Common Stock issued and outstanding on the date of this Agreement; provided that
such securities have not been amended since the date of this Agreement to increase the
number of such securities or to decrease the exercise, exchange or conversion price of any
such securities, and (c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the Company’s Board of
Directors; provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is investing in
securities.




“Existing Debentures” means the secured convertible debentures of the Company
issued to Cornell in the Original Financing, dated November 2, 2006 and November 29, 2006,
in the aggregate principal amount of $2,700,000, and all accrued and unpaid interest
thereon.




“Existing Warrants” means the warrants of the Company issued to Cornell in the
Original Financing denominated Nos. VSPC-1-5; VSPC-2-5; VSPC-3-5; VSPC-4-5; and VSPC-5-5, to
purchase an aggregate amount of 5,775,000 shares of Common Stock of the Company.




“Financial Statements” shall have the meaning ascribed to such term in Section
3.1(f).




“Indemnified Liabilities” shall have the meaning ascribed to such term in
Section 4.9(a).




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




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




“Non-Affiliate Purchaser” shall have the meaning ascribed to such term in
Section 4.1(c).




“Original Financing” means those certain transactions dated November 2, 2006
and November 29, 2006 by and between the Company and Cornell, pursuant to which the Company
issued to Cornell and Cornell purchased from the Company, the Existing Debentures and the
Existing Warrants.




“Participation Maximum” shall have the meaning ascribed to such term in Section
4.12.




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




“Preferred Stock” shall have the meaning ascribed to such term in Section
3.1(c).




“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12.




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




“Purchasers Indemnitees” shall have the meaning ascribed to such term in
Section 4.9(a).




“Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.




“Registration Rights Agreement” means the Registration Rights Agreement among
the Company and the Purchasers, in the form of Exhibit A attached hereto.




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




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




“SEC Documents” shall have the meaning ascribed to such term in Section 3.1(f).




“Securities” means the Shares, the Original Financing Shares, the Warrants, and
the Warrant Shares.




“Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.




“Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.




“Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock).




“Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Units purchased hereunder as specified below such Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount,” in United States
Dollars and in immediately available funds. The Subscription Amount for Cornell shall
include the exchange, for the face value of the instrument, of the Existing Debentures.




“Subsequent Financing” shall have the meaning ascribed to such term in Section
4.14.




“Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.12.




“Termination Agreement” means that certain Termination Agreement in
substantially the form attached hereto as Exhibit B, providing for the termination
of certain agreements entered into in connection with the Original Financing,




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




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




“Transaction Documents” means this Agreement, the Warrants and the Registration
Rights Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.




“Units” means Class A Units and Class B Units, taken together.




“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.13(b).




“Warrants” means the Existing Warrants, as amended to provide for an adjustment
to the exercise price set forth therein.




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



ARTICLE II.




PURCHASE AND SALE




2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and the Purchasers agree to purchase, severally and not
jointly, in the aggregate, 5,175,000 Class A Units and 600,000 Class B Units. Each Purchaser shall
deliver to the Company via wire transfer of immediately available funds equal to their Subscription
Amount and the Company shall deliver to each Purchaser their respective Units (provided
however, that, as payment of the Subscription Amount for its Units, Cornell shall deliver
the Existing Debentures as specified herein and $990,000 via wire transfer of immediately available
funds), as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2
issuable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of Company Counsel, or such other location as the parties
shall mutually agree.



2.2 Deliveries




(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered
to Cornell the following:




(i) this Agreement duly executed by the Company;




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




(iii) a copy of the irrevocable instructions to the Company’s transfer agent
instructing the transfer agent to deliver, on an expedited basis, a certificate
evidencing 12,300,000 Shares included in the number of Units registered in the name
of Cornell;




(iv) an amendment to the Existing Warrants adjusting the Warrant Exercise Price
(as defined in the Existing Warrants), to the exercise prices set forth on Schedule
2.2(a) hereto;




(v) the Registration Rights Agreement duly executed by the Company; and




(vi) the Termination Agreement duly executed by the Company.




(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company (except as noted) the following:




(i) this Agreement duly executed by such Purchaser;




(ii) such Purchaser’s Cash Portion of the Subscription Amount by wire transfer
to the Company, as set forth above;




(iii) the Existing Debentures accompanied by written instructions from the
record holder thereof transferring the Existing Debentures to the Company as
consideration pursuant to the terms of this Agreement;




(iv) the Registration Rights Agreement duly executed by such Purchaser
(including a fully completed Selling Securityholder Notice and Questionnaire);




(v) the Termination Agreement duly executed by Cornell;




(vi) evidence of the filing of a UCC-3 termination statement with respect to
any UCC-1 financing statement filed in connection with the Original Financing; and




(vii) all shares pledged to Cornell in connection with the Original Financing
and evidence of release of such pledge satisfactory to the Company.



2.3 Closing Conditions.




(a) The obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:




(i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Purchasers contained herein;




(ii) all obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed; and




(iii) the delivery by the Purchasers of the items set forth in Section 2.2(b)
of this Agreement.




(b) The respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:




(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;




(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;




(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;




(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and




(v) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any time prior
to the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been declared either
by the United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of each Purchaser,
makes it impracticable or inadvisable to purchase the Shares at the Closing.



ARTICLE III.




REPRESENTATIONS AND WARRANTIES




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




(a) Subsidiaries. All of the direct and indirect majority-owned subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary free and clear of any
Liens other than liens which would not reasonably be expected to result in a Material
Adverse Effect (as defined below), and all the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities held by any Person
other than the Company or any other Subsidiary.




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




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




(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Shares and the consummation by the
Company of the other transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational documents, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both would become
a default) under, result in the creation of any Lien upon any of the properties or assets of
the Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations), or by which any property or asset of the Company
or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii),
such as would not reasonably be expected to result in a Material Adverse Effect.




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




(f) Issuance of the Securities. The Shares are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Warrant Shares, when issued and paid for in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the Transaction
Documents. The Company has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.




(g) Capitalization. As of November 10, 2006, the authorized capital stock of
the Company consists of 800,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock, par value $0.001 (“Preferred Stock”) of which 292,512,205 shares of Common
Stock and zero shares of Preferred Stock were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and nonassessable. As of the
date of this Agreement, the Company has not issued any capital stock since its most recently
filed periodic report under the Exchange Act, other than pursuant to the exercise of stock
options under the Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plan and pursuant to the
conversion or exercise of Common Stock Equivalents outstanding as of the date of the most
recently filed periodic report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents other than rights which have been
waived. As of the date of this Agreement, except as a result of the purchase and sale of
the Securities, there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound
to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and
sale of the Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company
have been issued in compliance with all applicable federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the issuance
and sale of the Securities. There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company’s capital stock to which the Company is
a party or, to the knowledge of the Company, between or among any of the Company’s
stockholders.




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




(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except
as specifically disclosed in a subsequent SEC Report, (i) there has been no event,
occurrence or development that has had or that would reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of accounting, (iv)
the Company has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any
 shares of its capital stock and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock option plans.
Except for the issuance of the Securities contemplated by this Agreement, no event,
liability or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial condition,
that would be required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed at least one (1)
Trading Day prior to the date that this representation is made.




(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
the Company, any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) having jurisdiction over the Company, its Subsidiaries or their
respective properties (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) would reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, and to the knowledge of the Company, no current
director or officer of the Company or any Subsidiary, is or has been the subject of any
Action involving a claim of violation of or liability under federal or state securities laws
or a claim of breach of fiduciary duty, with respect to the Company or any Subsidiary, since
June 30, 2005, and with respect to any such director or officer, or in the last five years.
To the knowledge of the Company, there has not been in the last five years, and there is not
pending, any investigation by the Commission involving the Company or any current director
or officer of the Company. To the knowledge of the Company, the Commission has not issued
any stop order or other order, in each case, which is still in effect, suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.




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




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




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




(n) Title to Assets. Except as would not reasonably be expected to result in a
Material Adverse Effect, the Company and the Subsidiaries have good and marketable title in
fee simple to all real property owned by them that is material to the business of the
Company and the Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in each case free
and clear of all Liens, except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of federal, state or
other taxes, the payment of which is neither delinquent nor subject to penalties, except for
taxes being contested in good faith where an appropriate reserve has been established. Any
real property and facilities held under lease by the Company and the Subsidiaries are held
by them under valid, subsisting and enforceable leases with which the Company and the
Subsidiaries are in compliance, except where the failure of (i) such lease to be valid,
subsisting or enforceable or (ii) the Company or its Subsidiaries to be in compliance, would
not reasonably be expected to result in a Material Adverse Effect.




(o) Patents and Trademarks. To the knowledge of the Company, the Company and
the Subsidiaries have, or have adequate rights or licenses to use, all patents, trademarks,
service marks, trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights necessary or material for use in connection
with their respective businesses as described in the SEC Reports and which the failure to so
have would have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a notice (written or
otherwise) that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable. The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and value of all
of their intellectual properties, except where failure to do so would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.




(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses in which
the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not result in a Material Adverse
Effect.




(q) Transactions With Affiliates and Employees. Except for arm’s length
transactions pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties, none of the
officers or directors of the Company and, to the knowledge of the Company, none of the
employees of the Company, is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a substantial
interest or is an executive officer, director, trustee or partner, in each case in excess of
$120,000 other than (i) for payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company or any Subsidiary and (iii) for
other employee benefits, including stock option and restricted stock agreements under any
stock option plan of the Company.




(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, and (iii) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act Rule 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures as of the
end of the period covered by the Company’s most recently filed periodic report under the
Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their evaluations
as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in the Exchange
Act) that has materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.




(s) Certain Fees. Other than as set forth in the Transaction Documents, no
brokerage or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the Transaction Documents.
The Purchasers shall have no obligation with respect to any fees or with respect to any
claims made by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by the Transaction
Documents.




(t) Private Placement. Assuming the accuracy of the Purchasers representations
and warranties set forth in the Transaction Documents, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not contravene
the rules and regulations of the National Association of Securities Dealers’ OTC Bulletin
Board.




(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be required to register as
an “investment company” within the meaning of the Investment Company Act of 1940, as
amended.




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




(w) Listing and Maintenance Requirements. The Company has not, in the twelve
(12) months preceding the date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future continue to be,
in compliance with all such listing and maintenance requirements.




(x) Application of Takeover Protections. Assuming that no Purchaser
beneficially owns shares of Common Stock (other than the Securities), the Company and its
Board of Directors have taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar organizational document) or the laws of its state
of incorporation that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.




(y) Disclosure. Except with respect to the terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms that, neither
it nor any other Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that it believes constitutes material, non-public
information. The Company understands and confirms that the Purchasers will rely on the
foregoing representation in effecting transactions in securities of the Company. The
Company acknowledges and agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.




(z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the Company are
listed or designated.




(a) Solvency. The Company has no knowledge of any facts or circumstances which
lead it to believe that it will file for reorganization or liquidation under the bankruptcy
or reorganization laws of any jurisdiction within one year from the Closing Date, other than
the Company’s anticipated need for additional financing. The SEC Reports set forth as of
the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business; and (c) the present value of any lease payments in excess
of $50,000 due under leases required to be capitalized in accordance with GAAP; provided
that the term “Indebtedness shall not include any indebtedness of liabilities to any
Purchaser. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.




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




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




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




(cc) Accountants. The Company’s accountants are set forth on Schedule 3.1(ee)
of the Disclosure Schedule. To the knowledge of the Company, such accountants, who the
Company expects will express their opinion with respect to the financial statements to be
included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2005,
are an independent registered public accounting firm as required by the Securities Act.




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




(ee) Acknowledgement Regarding Purchasers’ Trading Activity; No Holding Period
Representation. The Company expressly recognizes and acknowledges that, other than as
set forth in the Transaction Documents, any Shares or Warrant Shares obtained or acquired by
the Purchasers pursuant to this Agreement or the Transaction Documents may be sold or
otherwise traded by the Purchasers at any time, including the date they are acquired, and
that the decision to trade such shares is within the sole discretion of the Purchasers. The
Purchasers have made no contrary representations to the Company with regard to any
securities contemplated by, or obtained or acquired pursuant, to this Agreement or the
Transaction Documents, or concerning or relating to the length of time it intends to hold
any such security obtained or acquired. The Company acknowledges that, other than as set
forth in the Transaction Documents, such aforementioned trading activities by the Purchasers
do not constitute a breach by the Purchasers of any of the Transaction Documents.




(ff) Manipulation of Price.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the Securities.



3.2 Representations and Warranties of the Purchasers Each Purchaser hereby, for itself and
for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to
the Company as follows:




(a) Investment Purpose. Each Purchaser is acquiring the Securities and, upon
exercise of the Warrants, the Purchaser will acquire the Warrant Shares then issuable, for
its own account for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the representations
herein, such Purchaser reserves the right to dispose of the Securities at any time in
accordance with or pursuant to an effective registration statement covering such Securities
or an available exemption under the Securities Act. The Company acknowledges that this
subsection does not require any Purchaser to hold any Securities or Warrant Shares for any
particular length of time and that no Purchaser has made any representation that it will do
so.




(b) Accredited Investor Status. Each Purchaser is an “Accredited Investor” as
that term is defined in Rule 501(a)(3) of Regulation D.




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




(d) Information. Each Purchaser and its advisors (and his or its counsel), if
any, have been furnished with all materials relating to the business, finances and
operations of the Company and information he deemed material to making an informed
investment decision regarding his purchase of the Securities which have been requested by
such Purchaser. Each Purchaser and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and its management. Neither such inquiries nor any other
due diligence investigations conducted by such Purchaser or its advisors, if any, or its
representatives shall modify, amend or affect such Purchaser’s right to rely on the
Company’s representations and warranties contained in Section 3.1 above. Each Purchaser
understands that its investment in the Securities involves a high degree of risk. Each
Purchaser is in a position regarding the Company, which enabled and enables such Purchaser
to obtain information from the Company in order to evaluate the merits and risks of this
investment. Each Purchaser has sought such accounting, legal and tax advice, as it has
considered necessary to make an informed investment decision with respect to its acquisition
of the Securities.




(e) No Governmental Review. Each Purchaser understands that no United States
federal or state agency or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Securities, or the fairness or suitability of the
investment in the Securities, nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.




(f) Transfer or Resale. Each Purchaser understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not being
registered under the Securities Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B)
such Purchaser shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such registration
requirements; (ii) any sale of such securities made in reliance on Rule 144 under the
Securities Act (or a successor rule thereto) (“Rule 144”) may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale
of such securities under circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act or the rules
and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption thereunder.




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




(h) Receipt of Documents. Each Purchaser and his or its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty and
covenant set forth herein and the Transaction Documents (as defined herein); (ii) all due
diligence and other information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company’s Form 10-KSB for the fiscal
year ended December 31, 2005; (iv) the Company’s Form 10-QSB for the fiscal quarters ended
March 31, 2006, June 30, 2006 and September 30, 2006 and (v) answers to all questions each
Purchaser submitted to the Company regarding an investment in the Company; and each
Purchaser has relied on the information contained therein and has not been furnished any
other documents, literature, memorandum or prospectus.




(i) Due Formation of Corporate and Other Purchasers. If the Purchaser(s) is a
corporation, trust, partnership or other entity that is not an individual person, it has
been formed and validly exists and has not been organized for the specific purpose of
purchasing the Securities and is not prohibited from doing so.




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



ARTICLE IV.




OTHER AGREEMENTS OF THE PARTIES





4.1 Transfer Restrictions. (a) The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or Rule 144, to the
Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such transferred Securities under
the Securities Act. As a condition of transfer (other than pursuant to an effective
Registration Statement or Rule 144), any such transferee shall agree in writing to be bound
by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.




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



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




The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the request of any Purchaser, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities, including, if
the Securities are subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act to appropriately
amend the list of Selling Stockholders thereunder.




(c) Other than certificates representing Shares or Warrant Shares held by Affiliates of
the Company, certificates evidencing the Shares and Warrant Shares shall not contain any
legend (including the legend set forth in Section 4.1(b)), (i) while a registration
statement (including the Registration Statement) covering the resale of such security is
effective under the Securities Act, (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144, (iii) if such Shares or Warrant Shares are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to the
Company’s transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any portion of a
Warrant is exercised by a Purchaser that is not an Affiliate of the Company (a
“Non-Affiliated Purchaser”) at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, such Warrant Shares shall be issued
free of all legends. The Company agrees that following the Effective Date or at such time
as such legend is no longer required under this Section 4.1(c), it will, no later than three
(3) Trading Days following the delivery by a Non-Affiliated Purchaser to the Company or the
Company’s transfer agent of a certificate representing Shares or Warrant Shares, as the case
may be, issued with a restrictive legend (such third Trading Day with respect to each
outstanding certificate, a “Legend Removal Date”), deliver or cause to be delivered
to such Non-Affiliated Purchaser a certificate representing such shares that is free from
all restrictive and other legends. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section. Certificates for Securities subject to legend removal
hereunder shall be transmitted by the transfer agent of the Company to such Purchasers by
crediting the account of such Purchaser’s prime broker with the Depository Trust Company
System. The Purchaser’s acknowledge that the Company’s agreement hereunder to remove all
legends from Shares or Warrant Shares is not an affirmative statement or representation that
such Shares or Warrant Shares are freely tradeable.




(d) Each Purchaser, severally and not jointly with the other Purchasers, agrees that
the removal of the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will, and
each Purchaser severally and not jointly, agrees that it will, sell any Securities pursuant
to either the registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom. Each Purchaser severally and
not jointly agrees that if any Securities are sold pursuant to a Registration Statement,
such Securities will be sold in compliance with the plan of distribution set forth in such
Registration Statement.



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



4.3 Integration. The Company will not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the Purchasers or that would
be integrated with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the closing of such
other transaction unless shareholder approval is obtained before the closing of such subsequent
transaction.



4.4 Securities Laws Disclosure; Publicity. The Company shall, by 4:00 p.m. Eastern
time on the fourth Trading Day following the date hereof, issue a Current Report on Form 8-K,
disclosing the material terms of the transactions contemplated hereby, and file as exhibits thereto
a conformed copy of this Agreement, the form of Warrant and the Registration Rights Agreement. The
Company and each Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall
issue any such press release or otherwise make any such public statement without the prior consent
of the Company, with respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of such public
statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission
or any regulatory agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with (A) any registration statement
contemplated by the Registration Rights Agreement and (B) the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (ii) to the extent such disclosure is
required by law or Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this subclause (ii).



4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such
plan or arrangement, in each case, by virtue of receiving Securities under the Transaction
Documents or under any other present agreement between the Company and the Purchasers.



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



4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes and not for the satisfaction of any portion of
the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s
business and prior practices), to redeem any Common Stock or Common Stock Equivalents or to settle
any outstanding litigation.



4.8 [RESERVED].



4.9 Indemnification.




(a) In consideration of each Purchaser’s execution and delivery of this Agreement and
acquiring the Securities hereunder, and in addition to all of the Company’s other
obligations under this Agreement, the Company shall defend, protect, indemnify and hold
harmless each Purchaser and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Purchaser Indemnitees”) from and
against any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith (irrespective of whether
any such Purchaser Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by the Purchaser Indemnitees or any of them as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement or any of the Transaction Documents, (b) any
breach of any covenant, agreement or obligation of the Company contained in this Agreement
or any of the Transaction Documents, or (c) any cause of action, suit or claim brought or
made against such Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities, which
is permissible under applicable law.




(b) In consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of each Purchaser’s other obligations under this Agreement, each Purchaser
shall defend, protect, indemnify and hold harmless the Company and all of its officers,
directors, employees and agents (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Company
Indemnitees”) from and against any and all Indemnified Liabilities incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by each Purchaser in this
Agreement, instrument or document contemplated hereby or thereby executed by each Purchaser,
(b) any breach of any covenant, agreement or obligation of a Purchaser contained in this
Agreement or any of the Transaction Documents or (c) any cause of action, suit or claim
brought or made against such Company Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement, or any of the Transaction
Documents. To the extent that the foregoing undertaking by each Purchaser may be
unenforceable for any reason, each Purchaser shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.



4.10 Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, free of preemptive rights, a
sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares
pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants.



4.11 Listing of Common Stock. The Company hereby agrees to use commercially
reasonable efforts to maintain the listing of the Common Stock on a Trading Market, and as soon as
reasonably practicable following the Closing (but not later than the earlier of the Effective Date
and the first anniversary of the Closing Date) to list all of the Shares and Warrant Shares on such
Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the Shares and Warrant
Shares, and will take such other action as is necessary to cause all of the Shares and Warrant
Shares to be listed on such other Trading Market as promptly as possible. The Company will take
all action commercially reasonably necessary to continue the listing and trading of its Common
Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Trading Market.



4.12 [RESERVED].



4.13 Equal Treatment of Purchasers. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to the Transaction
Documents. For clarification purposes, this provision constitutes a separate right granted to each
Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for
the Company the Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or voting of Securities
or otherwise.



4.14 Participation in Future Financing.




(a) From the date hereof until the date that is the eighteen (18) month anniversary of
the date of this Agreement, upon any issuance by the Company of Common Stock or Common Stock
Equivalents (a “Subsequent Financing”), each Purchaser shall have the right to
participate in the Subsequent Financing up to their Pro Rata Portion (as defined below) up
to a total amount equal to the lesser of (i) 60% of the amount of the Subsequent Financing
or (ii) $4,000,000 (the “Participation Maximum”) on the same terms, conditions and
price provided for in the Subsequent Financing. 




(b) At least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (the “Pre-Notice”), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a
“Subsequent Financing Notice”).  Upon the request of a Purchaser, and only upon a
request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than one (1) Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser.  The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, including but not limited to, the
amount of proceeds intended to be raised thereunder, and to the extent not prohibited under
the proposed terms of a Subsequent Financing or related agreements, the Person or Persons
through or with whom such Subsequent Financing is proposed to be effected; and attached to
which shall be a term sheet or similar document relating thereto.   




(c) Any Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time) on the
4th Trading Day after all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 4th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate. 




(d) If by 5:30 p.m. (New York City time) on the 4th Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the Purchasers of their
willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing,
then the Company may effect the remaining portion of such Subsequent Financing on the terms
and with the Persons set forth in the Subsequent Financing Notice. 




(e) If by 5:30 p.m. (New York City time) on the 4th Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to purchase the greater of
(a) their Pro Rata Portion (as defined below) of the Participation Maximum and (b) the
difference between the Participation Maximum and the aggregate amount of participation by
all other Purchasers.  “Pro Rata Portion” is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser participating under this
Section 4.14 and (y) the sum of the aggregate Subscription Amounts of Securities purchased
on the Closing Date by all Purchasers participating under this Section 4.14.




(f) The Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in this
Section 4.14, if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on substantially the terms set forth in such Subsequent
Financing Notice within sixty (60) Trading Days after the date of the initial Subsequent
Financing Notice.




(g) Notwithstanding the foregoing, this Section 4.14 shall not apply in respect of an
Exempt Issuance or in respect of any underwritten public offering of the Company’s
securities.



4.15 Subsequent Equity Sales.




(a) From the date hereof until 90 days after the Effective Date (the “Lock-up
Period”), neither the Company nor any Subsidiary shall issue shares of Common Stock or
Common Stock Equivalents. The foregoing sentence shall not apply to (A) the issuance of the
Securities to be sold hereunder, (B) the issuance of shares of Common Stock upon
the exercise of an option or warrant or the conversion, exchange or repurchase of a security
outstanding on the date hereof, (C) the issuance of shares of Common Stock or the grant of
options to purchase Common Stock pursuant to existing employee or director benefit plans of
the Company and registrations in connection with such issuances or grants; provided that
with respect to any issuance of shares or grants of options pursuant to this clause (C), no
more than 150,000 of such shares and options to acquire shares may vest in any month,  (D)
issuances of rights, preferred stock or Common Stock pursuant to any existing rights plan or
any shares of Common Stock issued pursuant to any non-employee director stock plan or
dividend reinvestment plan and registrations in existence at the date of this Agreement in
connection with such issuances or grants, (E) the issuance of shares of Common Stock having
a purchase price, or Common Stock Equivalents having an exercise or conversion price, no
less than the price per share of the Shares sold to Cornell pursuant hereto, or (F) the
issuance of up to 75,000 shares per month of Common Stock or options to purchase Common
Stock granted to consultants to the Company as compensation for their services to the
Company so long as the recipient agrees to be bound for any remaining portion of the Lock-up
Period on the above terms; provided that in the case of clauses (C), (E) and (F), issuances
pursuant to this sentence shall be permitted in amounts in excess of the number specified in
such clause or at price below that specified in such clause, as the case may be, if the
Company first obtains the written consent of Cornell, which consent shall not be
unreasonably withheld.




(b) From the date hereof until the earliest of (i) two years after the Closing Date and
(ii) such time as Cornell ceases to own 90% of the total number of Shares issued as part of
the Units pursuant to this Agreement, the Company shall not effect or enter into an
agreement to effect any Subsequent Financing involving a “Variable Rate Transaction.” The
term “Variable Rate Transaction” shall mean a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common Stock either
(A) at a conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a future determined
price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to collect
damages.



4.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally
and not jointly with the other Purchasers covenants that neither it nor any Affiliate acting on its
behalf or pursuant to any understanding with it will execute any Short Sales during the period
commencing on the date the Purchasers first received a term sheet (written or oral) from the
Company or any other person setting forth the material terms of the transactions contemplated
hereby and ending at the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.4. Each Purchaser, severally and not jointly with the
other Purchasers, covenants that until such time as the transactions contemplated by this Agreement
are publicly disclosed by the Company as described in Section 4.4, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Each Purchaser understands and acknowledges, severally
and not jointly with any other Purchaser, that the Commission currently takes the position that
coverage of short sales of shares of the Common Stock “against the box” prior to the Effective Date
of the Registration Statement with the Securities is a violation of Section 5 of the Securities
Act, as set forth in Item 65, Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance.



4.17 Delivery of Securities After Closing. The Company shall deliver, or cause to be
delivered, the Units purchased by each Purchaser to such Purchaser within three (3) Trading Days of
the Closing Date, or such combination of Securities that, in total, represent identical constituent
parts of such Units, as defined herein (totaling 12,300,000 Shares, 5,175,000 Class A Warrants, and
600,000 Class B Warrants.) As to Cornell, the Company shall satisfy its delivery obligation with
respect to 850,592 of such Shares by delivering to Cornell a written notification that Cornell
shall be entitled to retain possession and title to all of the 850,592 Shares delivered by the
Company to it in connection with the Original Financing (the “Original Financing Shares”)
and such Original Financing Shares shall offset the Company’s delivery obligations as to Shares on
a one-to-one basis. The Company shall satisfy its obligation to deliver Warrants by delivering to
Cornell the amendment of the Warrant Exercise Price of the Existing Warrants pursuant to Paragraph
2.2 (a)(iv) and effectuating such amendment on its records. Upon delivery of the Existing
Debentures by Cornell pursuant to Section 2.2(b) hereof, all accrued and unpaid interest thereon
shall be deemed to have been waived and there shall be no further obligation on the part of the
Company or any other party to pay interest or fees on the Existing Debentures and all other
obligations of the Company under the Existing Debentures shall be deemed to be terminated. The
parties hereto acknowledge the current possession of the Original Financing Shares by Cornell and
their obligation to act in good faith to effectuate final delivery and title to, and possession by,
Cornell of all Securities to be transferred pursuant to this Agreement, including the Original
Financing Shares.



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



ARTICLE V.




MISCELLANEOUS




5.1 Termination.  This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before March 31, 2007; provided, however, that no such termination will
affect the right of any party to sue for any breach by the other party (or parties).



5.2 Fees and Expenses The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A. Except as expressly
set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by
such party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties
levied in connection with the delivery of any Securities to the Purchasers.



5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules.



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



5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived
provision is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.



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



5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to a “Purchaser”.



5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.9.



5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New Jersey, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in Hudson County, New Jersey. Each party hereby irrevocably submits to
the exclusive jurisdiction of the Superior Court of New Jersey, sitting in Hudson County and the
United States District Court for the District of New Jersey sitting in Newark, New Jersey for the
adjudication of any civil action asserted pursuant to this Paragraph (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. The parties hereby waive all rights to a trial by jury.



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



5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature
page were an original thereof.



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



5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.



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



5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in
any action for specific performance of any such obligation the defense that a remedy at law would
be adequate.



5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.



5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser
has been represented by its own separate legal counsel in their review and negotiation of the
Transaction Documents. The Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was required or
requested to do so by the Purchasers.



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



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



(Signature Pages Follow)






1






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



	 	 	 
	VIASPACE INC.

	 	Address for Notice:
	
 
	 	 
	
 
	 	VIASPACE Inc.

171 N. Altadena Drive – Suite 101

Pasadena, CA 91107

Attention: Carl Kukkonen,

President and CEO
	 
	 	 
	By:_/s/ Carl Kukkonen     

	 	

	 

	 	

	Name: Carl Kukkonen

Title: President and Chief Executive Officer

	 	



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

	 	

	Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

Attention: Megan N. Gates, Esq.

Telephone: (617) 348-4443

Facsimile: (617) 542-2241

	 	

















[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]





2






[PURCHASER SIGNATURE PAGES TO VIASPACE, INC. SECURITIES PURCHASE AGREEMENT]




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



Name of Purchaser: Cornell Capital Partners, LP


Signature of Authorized Signatory of Purchaser: /s/ Mark Angelo


Name of Authorized Signatory: Mark Angelo


Title of Authorized Signatory: Portfolio Manager of Yorkville Advisors, LLC, the investment manager
of Cornell Capital Partners, LP


Email Address of Purchaser: trillo@cornellcapital.com


Fax Number of Purchaser: 201-985-8266


Address for Notice of Purchaser: 101 Hudson Street, Suite 3700, Jersey City, NJ 07302



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



Subscription Amount: $3,690,000


Units Purchased: 5,175,000 Class A Units and 600,000 Class B Units, which in the aggregate are
comprised of 12,300,000 Shares and Warrants to purchase 5,775,000 Warrant Shares.



[SIGNATURE PAGES CONTINUE]





3






Annex A




CLOSING STATEMENT




Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the
Purchasers, for an aggregate purchase price of $3,690,000, shall purchase from VIASPACE Inc. (the
“Company”) 5,175,000 Class A Units and 600,000 Class B Units, which in the aggregate are
comprised of 12,300,000 Shares and Warrants to purchase 5,775,000 Warrant Shares. All funds will
be wired to the Company. All funds will be disbursed in accordance with this Closing Statement.




	 	 	Disbursement Date: March 8, 2007





	 	 	 	 	 
	I. PURCHASE PRICE	 	 	 	 
	Gross Proceeds to be Received
	 	 	 	 
	$3,690,000 (consisting of $2,700,000 in aggregate

	amount of Existing Debentures and $990,000 in

	cash)
	 	 	 	 
	II. DISBURSEMENTS
	 	 	 	 
	 
	 	 	 	 
	VIASPACE Inc. $910,800
	 	 	 	 
	Gilford Securities Incorporated $79,200

	Total Amount Disbursed: $990,000







4




Schedule 2.2(a)




	 	 	 	 	 	 	 	 	 
	Number of Warrants	 	Original Exercise Price	 	Amended Exercise Price
	1,500,000

	 	$	0.50	 	 	$	0.30	 
	 
	 	 	 	 	 	 	 	 
	2,000,000

	 	$	0.60	 	 	$	0.30	 
	 
	 	 	 	 	 	 	 	 
	885,000

	 	$	0.75	 	 	$	0.30	 
	 
	 	 	 	 	 	 	 	 
	790,000

	 	$	0.95	 	 	$	0.30	 
	 
	 	 	 	 	 	 	 	 
	600,000

	 	$	1.15	 	 	$	0.40	 
	 
	 	 	 	 	 	 	 	 






5




DISCLOSURE SCHEDULE




TO SECURITIES PURCHASE AGREEMENT




March 8, 2007




This Disclosure Schedule (the “Disclosure Schedule”) is being furnished by VIASPACE Inc.,
a Nevada corporation (the “Company”) to Cornell Capital Partners LP (the “Buyer”), pursuant to
Section 3 of that certain Securities Purchase Agreement (the “Agreement”) dated of even date
herewith by and between the Company and the Buyer. Unless the context otherwise requires, all
capitalized terms used but not defined in this Disclosure Schedule shall have the respective
meanings assigned to them in the Agreement.




	 	1.	 	The subsection references in this Disclosure Schedule correspond to the subsections in
Section 3 of the Agreement. Information disclosed in a particular subsection of the
Disclosure Schedule shall be deemed to be disclosed and incorporated into any other
subsection of the Disclosure Schedule where the applicability of such disclosure is
reasonably apparent.






	 	2.	 	Headings, captions and cross-references in the Disclosure Schedule are for convenience
of reference only and shall in no way modify, limit or affect, or be considered in
construing or interpreting any information provided herein. References to attached
documents are intended to incorporate the contents of the attached document into this
Disclosure Schedule.






	 	3.	 	The information contained in this Disclosure Schedule is as of the date of the
Agreement, but shall not alter the date as of which any representation or warranty is made
pursuant to the Agreement.






	 	4.	 	The inclusion of any information on any part of Disclosure Schedule shall not be deemed
to be an admission or acknowledgement by the Company or any of its subsidiaries that such
information is material or that such information includes any act or omission outside the
ordinary course of business of the Company or its subsidiaries.






	 	5.	 	Nothing herein constitutes an admission of liability or obligation of the Company or
any of its subsidiaries or an admission against the interest of the Company or any of its
subsidiaries.




6









Schedule 3.1(a) — Subsidiaries



Viaspace Security Inc., a Delaware corporation (formerly known as Arroyo Sciences, Inc.)
(“Security”)



Concentric Water Technology, LLC, a Delaware limited liability company (“Concentric)



Direct Methanol Fuel Cell Corporation, a Delaware corporation (“DMFCC”)



eCARmerce Incorporated, a Delaware corporation (“eCARmerce”)



7



Schedule 3.1(e) — No Conflicts



DMFCC is a party to a Technology Transfer and Subscription Agreement, dated as of May 21, 2002 with
University of Southern California (“USC”), and California Institute of Technology (“Caltech”).
Section 5 of the Technology Transfer and Subscription Agreement provides, in part, that until the
shareholdings of USC and Caltech constitute less than 5% of the issued and outstanding shares of
common Stock of DMFCC on an as-converted basis, DMFCC will not (i) engage in any transaction with
any of DMFCC’s stockholders except for certain defined exceptions; (ii) enter into or become a
party to any agreement or instrument which by its terms would violate or be in conflict with or
restrict DMFCC’s performance of its obligations under the Technology Transfer and Subscription
Agreement; or (iii) sell, transfer, assign, license or hypothecate substantially all of its
properties or assets or rights thereto other than in the usual and ordinary course of its business,
or enter into any agreement to do any of the foregoing. USC and Caltech currently hold more than
5% of the issued and outstanding shares of common stock of DMFCC on an as-converted basis and have
not waived these negative covenants in connection with this Agreement.



8



Schedule 3.1(c) — Capitalization




	 	1.	 	On November 2, 2006, in connection with the Original Financing, Cornell was issued
850,592 shares of Common Stock






	 	2.	 	On November 2, 2006, in connection with the Original Financing, Newbridge Securities
was issued 12,327 shares of Common Stock.






	 	3.	 	Gilford Securities Incorporated (“Gilford”) is the holder of a warrant to purchase
200,000 shares of the Common Stock for a period of five years at an exercise price of $0.60
per share and a warrant to purchase 160,000 shares of the Common Stock for a period of five
years at an exercise price of $0.60 per share, such warrants are subject to adjustment
pursuant to the terms thereof. Gilford is entitled to an additional warrant to purchase
Common Stock in accordance with that certain Engagement Letter dated September 12, 2006, as
amended on November 1, 2006, by and between the Company and Gilford, as disclosed in the
Company’s periodic report on Form 10-QSB for the period ending September 30, 2006
(collectively referred to as the “Gilford Warrants”).






	 	4.	 	On August 16, 2005, the Company entered into a two-year Consulting, Confidentiality and
Proprietary Rights Agreement (the “Consulting Agreement”) with Synthetic/A/(America) Ltd.,
a California corporation (“Synthetica”). Pursuant to the Consulting Agreement, Synthetica
provides the Company with consulting services and advice relating to capital market goals,
strategic business planning, financial controls, regulatory compliance, revenue generation
and business development. In connection with this Consulting Agreement, the Company issued
three warrants to Synthetica to purchase shares of the Company’s common stock. The first
warrant issued to Synthetica (“Warrant No. 1”) gives Synthetica the right to purchase
250,000 shares of the Common Stock at an exercise price of $4.00 per share. Warrant No. 1
was fully vested upon issuance and expires upon the earliest to occur of the following: (i)
the date of termination of the Consulting Agreement by the Company due to a material breach
of the Consulting Agreement by Synthetica; (ii) the closing of a merger or consolidation of
the Company pursuant to which the stockholders of the Company hold less than 50% of the
voting securities of the surviving or acquiring entity, or a sale of all or substantially
all the assets of the Company; (iii) August 16, 2007, provided that at least 25% of the
outstanding capital stock of the Company has not been held by institutional investors (at
any single moment) on or prior to such time; or (iv) August 16, 2009. The second warrant
issued to Synthetica (“Warrant No. 2”) gives Synthetica the right to purchase 500,000
shares of Common Stock at an exercise price of $4.00 per share. Warrant No. 2 was fully
vested upon issuance and expires upon the earliest to occur of the following: (i) the date
of termination of the Consulting Agreement by the Company due to a material breach of the
Consulting Agreement by Synthetica; (ii) the closing of a merger or consolidation of the
Company pursuant to which the stockholders of the Company hold less than 50% of the voting
securities of the surviving or acquiring entity, or a sale of all or substantially all the
assets of the Company; (iii) August 16, 2007, provided that the Company has not completed a
secondary offering equal to or in excess of $200,000,000; or (iv) August 16, 2009. The
third warrant issued to Synthetica (“Warrant No. 3”) gives Synthetica the right to purchase
250,000 shares of Common Stock at an exercise price of $4.00 per share. Warrant No. 3 was
fully vested upon issuance and expires upon the earliest to occur of the following: (i) the
date of termination of the Consulting Agreement by the Company due to a material breach of
the Consulting Agreement by Synthetica; (ii) the closing of a merger or consolidation of
the Company pursuant to which the stockholders of the Company hold less than 50% of the
voting securities of the surviving or acquiring entity, or a sale of all or substantially
all the assets of the Company; (iii) August 16, 2007, provided that the Company’s Common
Stock has not become publicly traded on NASDAQ on or prior to such time; or (iv) August 16,
2009.






	 	5.	 	Pursuant to the Company’s 2005 Stock Incentive Plan (the “2005 Plan”), as of December
31, 2006, there are 7,833,500 issued and outstanding options to purchase shares of Common
Stock, and 20,166,500 options were available for future grant.






	 	6.	 	DMFCC formed a stock-based compensation plan in 2002 entitled the 2002 Stock Option
Stock Issuance Plan (the “DMFCC Option Plan”) that reserved 2,000,000 shares of DMFCC stock
for issuance to employees, non-employee members of the board of directors of DMFCC, board
members of its parent company, consultants, and other independent advisors. As of December
31, 2006, the DMFCC Option Plan has 1,581,000 issued and outstanding options to purchase
 shares of Common Stock of DMFCC and 419,000 options available for future grant.




9









Schedule 3.1(h) — SEC Reports; Financial Statements



On December 27, 2006, the Company received comments from the Commission on the registration
statement that was filed pursuant to the Registration Rights Agreement executed in connection with
the Original Financing, which registration statement was subsequently withdrawn on December 29,
2006. The comments from the Commission also addressed the Company’s Annual Report on Form 10-KSB
for the year ending December 31, 2005, and the Company’s Period Report on Form 10-QSB for the
period ending September 30, 2006. The Company is currently addressing the Commission’s comments.



10



Schedule 3.1(i) — Material Changes; Undisclosed Events, Liabilities or Developments



See Schedule 3.1(h).



11



Schedule 3.1(j) — Litigation




	 	1.	 	The Company was contacted informally by the Pacific Regional Office of the Commission
in March 2006 requesting the voluntary provision of documents concerning the reverse merger
of Global-Wide Publication, Ltd. and Viaspace Technologies LLC in June 2005 (the “GW
Merger”) and related matters. The Company provided documents in connection with the
inquiry and is cooperating fully with this inquiry.






	 	2.	 	See Schedule 3.1(h).




12









Schedule 3.1(l) — Compliance



See Schedule 3.1(h).



13



Schedule 3.1(n) — Title to Assets




	 	1.	 	UCC-1 Financing Statement #22387631, dated September 17, 2002 filed in Delaware against
Concentric Water Technology LLC by the Community Development Commission of the County of
Los Angeles.






	 	2.	 	UCC-1 Financing Statement #42321927, dated August 13, 2004 filed in Delaware against
Arroyo Sciences, Inc. by the Community Development Commission of the County of Los Angeles.




14









Schedule 3.1(o) – Patents and Trademarks



The Company and its Subsidiaries are development stage companies and have yet to fully define their
expected product and service offerings.  As a result, the Company and its subsidiaries are not able
to determine if the various product and service offerings that will be provided in the future will
infringe any third party intellectual property. 



15



Schedule 3.1(r) – Sarbanes-Oxley; Internal Accounting Controls



See Schedule 3.1(h).



16



Schedule 3.1(s) – Certain Fees



Gilford, as placement agent for the Company, is entitled to a fee of 8% of the Cash Portion of the
Subscription Amount, less any fees paid to the Buyer, pursuant to that certain Engagement Letter
dated September 12, 2006, as amended on November 1, 2006, by and between the Company and Gilford,
as disclosed in the Company’s periodic report on Form 10-QSB for the period ending September 30,
2006.



17



Schedule 3.1(cc) – Accountants



Singer Lewak Greenbaum & Goldstein LLP




18