Exhibit 4.1


PRIVATE EQUITY CREDIT AGREEMENT


BY AND BETWEEN


LARGE SCALE BIOLOGY CORPORATION


AND


BRITTANY CAPITAL MANAGEMENT LIMITED


Dated


August 5, 2005


          THIS PRIVATE EQUITY CREDIT AGREEMENT is entered into as of the 5th day of August,  2005 (this “AGREEMENT”), by and between BRITTANY CAPITAL MANAGEMENT LIMITED, a corporation organized and existing under the laws of the Bahamas (“INVESTOR”), and LARGE SCALE BIOLOGY CORPORATION, a Delaware corporation (the “COMPANY”).


          WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to Investor, from time to time as provided herein, and Investor shall purchase, up to Fifteen Million Dollars ($15,000,000) of the Common Stock (as defined below); and


          WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) (“SECTION 4(2)”) of the Securities Act of 1933, Regulation D, and the rules and regulations promulgated thereunder (the “SECURITIES ACT”), and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder.


          NOW, THEREFORE, the parties hereto agree as follows:


ARTICLE I


CERTAIN DEFINITIONS


          Section 1.1  DEFINED TERMS as used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined) 


                    “AGREEMENT” shall have the meaning specified in the preamble hereof.


                    “BID PRICE” shall mean the closing bid price of the Common Stock on the Principal Market.


                    “BLACKOUT NOTICE” shall have the meaning specified in the Registration Rights Agreement.


                    “BLACKOUT SHARES” shall have the meaning specified in Section 2.6


                    “BY-LAWS” shall have the meaning specified in Section 4.8.


                    “CERTIFICATE” shall have the meaning specified in Section 4.8.







                    “CLAIM NOTICE” shall have the meaning specified in Section 9.3(a).


                    “CLOSING” shall mean one of the closings of a purchase and sale of shares of Common Stock pursuant to        Section 2.3.


                    “CLOSING DATE” shall mean, as applicable, an Interim Closing Date or a Remainder Closing Date.


                    “COMMITMENT PERIOD” shall mean the period commencing on the Effective Date, and ending on the earlier of (i) the date on which Investor shall have purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price of the Maximum Commitment Amount, (ii) the date this Agreement is terminated pursuant to Section 2.5, or (iii) the date occurring thirty-six (36) months from the date of commencement of the Commitment Period.


                    “COMMON STOCK” shall mean the Company’s common stock, $0.001 par value per share, and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of dividends (as and when declared) and assets (upon liquidation of the Company).


                    “COMMON STOCK EQUIVALENTS” shall mean any securities that are convertible into or exchangeable for Common Stock or any options or other rights to subscribe for or purchase Common Stock or any such convertible or exchangeable securities.


                    “COMPANY” shall have the meaning specified in the preamble to this Agreement.


                    “CONDITION SATISFACTION DATE” shall have the meaning specified in Section 7.2.


                    “DAMAGES” shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements and costs and expenses of expert witnesses and investigation).


                    “DISCOUNT” shall mean seven percent (7%).


                    “DISPUTE PERIOD” shall have the meaning specified in Section 9.3(a).


                    “DTC” shall have the meaning specified in Section 2.3.


                    “DWAC” shall have the meaning specified in Section 2.3.


                    “EFFECTIVE DATE” shall mean the date on which the SEC first declares effective a Registration Statement registering resale of the Registrable Securities as set forth in Section 7.2(a).


                    “ESCROW AGENT” shall mean Law Offices of Michael S. Rosenblum, Esq. or his successor in accordance with the Escrow Instructions.


                    “ESCROW INSTRUCTIONS” shall mean the Joint Escrow Instructions in the form attached hereto as Exhibit F.


                    “EXCHANGE ACT” shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.


                    “FAST” shall have the meaning specified in Section 2.3.


                    “FLOOR PRICE” shall have the meaning specified in Section 2.1.


                    “INDEMNIFIED PARTY” shall have the meaning specified in Section 9.3(a).


                    “INDEMNIFYING PARTY” shall have the meaning specified in Section 9.3(a).


                    “INDEMNITY NOTICE” shall have the meaning specified in Section 9.3(b).







                    “INTERIM CLOSING DATE” shall mean, with respect to a Closing, the fifth (5th) Trading Day following the Put Date related to a Closing, or such earlier date as the Company and Investor shall agree, provided all conditions to a Closing have been satisfied on or before such Trading Day.


                    “INTERIM INVESTMENT AMOUNT” shall mean fifty percent (50%) of the INVESTMENT AMOUNT with respect to each Put Notice.


                    “INTERIM MARKET PRICE” on any given Put shall mean the average of the closing Bid Prices for the first three (3) Trading Days during the Valuation Period.


                    “INTERIM PUT SHARES” shall be the number of Put Shares deliverable on an Interim Closing Date equal to the Interim Investment Amount divided by the Interim Market Price.


                    “INVESTMENT AMOUNT” shall mean the aggregate dollar amount (within the range specified in Section 2.2) to be invested by Investor to purchase Interim Put Shares and Put Shares with respect to any Put as notified by the Company to Investor in accordance with Section 2.2.


                    “INVESTOR” shall have the meaning specified in the preamble to this Agreement.


                    “LEGEND” shall have the meaning specified in Section 8.1.


                    “MINIMUM COMMITMENT AMOUNT” shall mean Two Million Dollars ($2,000,000).


                    “MAXIMUM COMMITMENT AMOUNT” shall mean Fifteen Million Dollars ($15,000,000).


                    “MATERIAL ADVERSE EFFECT” shall mean any effect on the business, operations, properties, prospects or financial condition of the Company that is material and adverse to the Company or to the Company and such other entities controlling or controlled by the Company, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform its obligations under any of (a) this Agreement and (b) the Registration Rights Agreement.


                    “MAXIMUM PUT AMOUNT” shall mean, with respect to any Put, Five Hundred (500%) percent of the Weighted Average Volume for the twenty (20) trading days immediately preceding the Put Date.


                    “MINIMUM PUT AMOUNT” shall mean, with respect to any Put, Twenty Five Thousand Dollars ($25,000).


                    “NASD” shall mean the National Association of Securities Dealers, Inc.


                    “NASDAQ” shall mean The NASDAQ Stock Market, Inc.


                    “NEW BID PRICE” shall have the meaning specified in Section2.6.


                    “OLD BID PRICE” shall have the meaning specified in Section2.6.


                    “OUTSTANDING” shall mean, with respect to the Common Stock, at any date as of which the number of shares of Common Stock is to be determined, all issued and outstanding shares of Common Stock, including all shares of Common Stock issuable in respect of outstanding convertible securities, scrip or any certificates representing fractional interests in shares of Common Stock; provided, however, that Outstanding shall not include any shares of Common Stock then directly or indirectly owned or held by or for the account of the Company.


                    “PERSON” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.


                    “PRINCIPAL MARKET” shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the Over the Counter Bulletin Board, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.






                    “PURCHASE PRICE” shall mean, with respect to Interim Put Shares, the Interim Market Price less the product of the Discount and the Interim Market Price, and with respect to Remainder Put Shares, the Remainder Market Price less the product of the Discount and the Remainder Market Price.


                    “PUT” shall mean each occasion that the Company elects to exercise its right to tender a Put Notice requiring Investor to purchase shares of Common Stock, subject to the terms and conditions of this Agreement.


                    “PUT DATE” shall mean the Trading Day during the Commitment Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).


                    “PUT NOTICE” shall mean a written notice, substantially in the form of Exhibit B hereto, to Investor setting forth the Investment Amount with respect to which the Company intends to require Investor to purchase shares of Common Stock pursuant to the terms of this Agreement.


                    “PUT SHARES” shall mean the Interim Put Shares and the Remainder Put Shares.


                    “REGISTRABLE SECURITIES” shall mean the (a) Put Shares, (b) the Blackout Shares and (c) any securities issued or issuable with respect to any of the foregoing by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a Registration Statement has been declared effective by the SEC and such Registrable Securities have been disposed of pursuant to a Registration Statement, (ii) such Registrable Securities have been sold under circumstances under which all of the applicable conditions of Rule 144 are met, (iii) such time as such Registrable Securities have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend or (iv) in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to Investor, such Registrable Securities may be sold without registration under the Securities Act the need for an exemption from any such registration requirements and without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act.


                    “REGISTRATION RIGHTS AGREEMENT” shall mean the registration rights agreement in the form of Exhibit A hereto.


                    “REGISTRATION STATEMENT” shall mean a registration statement on Form S-1 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and the Registration Rights Agreement and in accordance with the intended method of distribution of such securities), for the registration of the resale by Investor of the Registrable Securities under the Securities Act.


                    “REGULATION D” shall have the meaning specified in the recitals of this Agreement.


                    “REGULATION S” shall have the meaning specified in the recitals of this Agreement.


                    “REMAINING PUT SHARES” shall have the meaning specified in Section 2.6.


                    “REMAINDER CLOSING DATE” shall mean, with respect to a Closing, the eleventh (11th) Trading Day following the Put Date related to a Closing, or such earlier date as the Company and Investor shall agree, provided all conditions to a Closing have been satisfied on or before such Trading Day.


                    “REMAINING INVESTMENT AMOUNT” shall mean the Investment Amount less the Interim Investment Amount.


                    “REMAINDER MARKET PRICE” on any given Put shall mean the average of the lowest closing Bid Prices (not necessarily consecutive) for any three (3) Trading Days during the Valuation Period.


                    “REMAINDER PUT SHARES” shall be the number of Put Shares deliverable on a Remainder Closing Date equal to the Investment Amount divided by the Remainder Market Price minus the Interim Put Shares.







                    “RULE 144” shall mean Rule 144 under the Securities Act or any similar provision then in force under the Securities Act.


                    “SEC” shall mean the Securities and Exchange Commission.


                    “SECTION 4(2)” shall have the meaning specified in the recitals of this Agreement.


                    “SECURITIES ACT” shall have the meaning specified in the recitals of this Agreement.


                    “SEC DOCUMENTS” shall mean, as of a particular date, all reports and other documents file by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the beginning of the Company’s then most recently completed fiscal year as of the time in question (provided that if the date in question is within ninety days of the beginning of the Company’s fiscal year, the term shall include all documents filed since the beginning of the second preceding fiscal year).


                    “SUBSCRIPTION DATE” shall mean the date on which this Agreement is executed and delivered by the Company and Investor.


                    “THIRD PARTY CLAIM” shall have the meaning specified in Section 9.3(a).


                    “TRADING DAY” shall mean any day during which the Principal Market shall be open for business.


                    “TRANSACTION DOCUMENTS” means the Private Equity Credit Agreement, the Registration Rights Agreement, Closing Certificate, and the Transfer Agent Instructions.


                    “TRANSFER AGENT” shall mean the transfer agent for the Common Stock (and to any substitute or replacement transfer agent for the Common Stock upon the Company’s appointment of any such substitute or replacement transfer agent).


                    “UNDERWRITER” shall mean any underwriter participating in any disposition of the Registrable Securities on behalf of Investor pursuant to a Registration Statement.


                    “VALUATION EVENT” shall mean an event in which the Company at any time during a Valuation Period takes any of the following actions: 

	
   
  	
  
(a)
  	
  
subdivides or combines the Common Stock;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
(b)
  	
  
pays a dividend in shares of Common Stock or makes   any other distribution of shares of Common Stock, except for dividends paid   with respect to the Preferred Stock;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
(c)
  	
  
issues any options or other rights to subscribe for   or purchase shares of Common Stock other than pursuant to this Agreement and   the price per share for which shares of Common Stock may at any time   thereafter be issuable pursuant to such options or other rights shall be less   than the Bid Price in effect immediately prior to such issuance;
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
(d)
  	
  
issues any securities convertible into or   exchangeable for shares of Common Stock and the consideration per share for   which shares of Common Stock may at any time thereafter be issuable pursuant   to the terms of such convertible or exchangeable securities shall be  less than the Bid Price in effect   immediately prior to such issuance;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
(e)
  	
  
issues shares of Common Stock otherwise than as  provided in the foregoing subsections (a)   through (d), at a price per share less, or for other consideration lower,   than the Bid Price in effect immediately prior to such issuance, or without   consideration;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
(f)
  	
  
makes a distribution of its assets or evidences of   indebtedness to the holders of Common Stock as a dividend in liquidation or   by way of return of capital or other than as a dividend  payable out of earnings or surplus legally   available for dividends under applicable law or any distribution to such   holders made in  respect of the sale   of all or substantially all of the Company’s assets (other than under the   circumstances provided for in the foregoing    subsections (a) through (e); or
  







	
  
 
  	
  
(g)
  	
  
takes any action affecting the number of Outstanding   Common Stock, other than an action described in any of the foregoing   subsections (a) through (f) hereof, inclusive, which in the opinion of the   Company’s Board of Directors, determined in good faith, would have a   materially adverse effect upon the rights of Investor at the time of a Put.
  




               “VALUATION PERIOD” shall mean the period of ten (10) Trading Days immediately following the date on which the applicable Put Notice is deemed to be delivered and during which the Purchase Price of the Common Stock is valued; provided, however, that if a Valuation Event occurs during any Valuation Period, a new Valuation Period shall begin on the Trading Day immediately after the occurrence of such Valuation Event and end on the tenth (10th) Trading Day thereafter.


               “WEIGHTED AVERAGE VOLUME” shall mean the average of the Weighted Volume for the relevant days.


               “WEIGHTED VOLUME” shall mean the product of (a) the Closing Bid Price times (b) the volume on the Principal Market.


ARTICLE II

PURCHASE AND SALE OF COMMON STOCK



Section 2.1  INVESTMENTS.


(a)          PUTS. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII), on any Put Date the Company may exercise a Put by the delivery of a Put Notice.

(b)          MINIMUM AMOUNT OF PUTS. The Company shall, in accordance with Section 2.2(a), deliver to Investor during the Commitment Period, Put Notices with an aggregate Investment Amount at least equal to the Minimum Commitment Amount. If the Company for any reason fails to issue and deliver such Put Shares during the Commitment Period, on the first Trading Day after the expiration of the Commitment Period, the Company shall wire to Investor a sum in immediately available funds equal to the product of (i) the Minimum Commitment Amount minus the aggregate Investment Amounts of the Put Notices delivered to Investor hereunder, and (ii) the Discount.


(c)          FLOOR PRICE.    The Company may, at its option, specify in each Put Notice a minimum Market Price (“Floor Price”).  In the event that during a Valuation Period, the Bid Price on any Trading Day falls below the Floor Price (a “Low Bid Price”), the Company shall be under no obligation to sell and the Investor shall be under no obligation to purchase one tenth (1/10) of the Investment Amount specified in the Put Notice for each such Trading Day, and the Investment Amount shall accordingly be deemed reduced by such amount. In the event that during a Valuation Period there exists a Low Bid Price for any three (3) Trading Days - not necessarily consecutive – then, unless the Company confirms in writing by the close of business on the third such Trading Day of its desire to sell the full Investment Amount by waiving the Floor Price, the balance of each party’s

obligation for the Investment Amount under such Put Notice shall terminate on such third Trading Day (“Termination Day”), and the Investment Amount shall be adjusted to include only one-tenth of the initial Investment Amount for each Trading Day during the Valuation Period prior to the Termination Day that the Bid Price equals or exceeds the Floor Price.


Section 2.2  MECHANICS.


(a)          PUT NOTICE. At any time during the Commitment Period, the Company may deliver a Put Notice to Investor, subject to the conditions set forth in Section 7.2; provided, however, the Investment Amount for each Put as designated by the Company in the applicable Put Notice shall be neither less than the Minimum Put Amount nor more than the Maximum Put Amount.


(b)          DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by Investor if such notice is received on or prior to 12:00 noon New York time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 12:00 noon New York time on a Trading Day or at anytime on a day which is not a Trading Day.


Section 2.3  CLOSINGS. On or prior to each Remainder Closing Date, or Interim Closing Date, for a Put, (a) the Company shall deliver to the Escrow Agent one or more certificates representing the Remainder Put Shares, or Interim Put Shares, as applicable, to be purchased by Investor pursuant to Section 2.1 herein, registered in the name of Investor and (b) Investor shall deliver to the Escrow Agent the Remainder Investment Amount, or Interim Investment Amount, as applicable, by wire transfer of immediately available funds to an account designated by the Escrow Agent, all in accordance with the Escrow Instructions.  In lieu of delivering physical certificates representing the Common Stock issuable in accordance with clause (a) of this Section 2.3, and provided that the Transfer Agent then is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon 







request of Investor, the Company shall use its commercially reasonable efforts to cause the Transfer Agent to electronically transmit, prior to the applicable Closing Date the applicable Put Shares by crediting the Escrow Agent’s account of the Investor’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system, and provide proof satisfactory to the Escrow Agent of such delivery.  In addition, on or prior to such Closing Date, each of the Company and Investor shall deliver to the Escrow Agent all documents, instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein. On or before the applicable Closing Date, and provided all conditions to Closing have been satisfied by the Company, the Escrow Agent shall wire transfer to the Company, the Remaining Investment Amount, or Interim
Investment Amount, as applicable, less escrow fees and any applicable fees and expenses specified in the Registration Rights Agreement, and shall deliver the Put Shares to the Investor, as provided in and subject to the terms and conditions of the Escrow Instructions.


Section 2.4  [INTENTIONALLY OMITTED]


Section 2.5  TERMINATION OF INVESTMENT OBLIGATION. The obligation of Investor pursuant to this Agreement to purchase shares of Common Stock shall, at Investor’s option, terminate (including with respect to a Closing Date that has not yet occurred) in the event that (a) there shall occur any stop order or suspension of the effectiveness of any Registration Statement for an aggregate of thirty (30)Trading Days during the Commitment Period, for any reason other than deferrals or suspension during a Blackout Period in accordance with the Registration Rights Agreement, as a result of corporate developments subsequent to the Subscription Date that would require such Registration Statement to be amended to reflect such event in order to maintain its compliance with the disclosure requirements of the Securities Act, or (b) the Company shall at any time fail to comply with the requirements of Section 6.3, 6.4, or 6.6 and such failure shall continue for more
than thirty (30) days.


Section 2.6  BLACKOUT SHARES. In the event that, (a) within fifteen (15) Trading Days following any Closing Date, the Company gives a Blackout Notice to Investor of a Blackout Period in accordance with the Registration Rights Agreement, and (b) the Bid Price on the Trading Day immediately preceding such Blackout Period (“OLD BID PRICE”) is greater than the Bid Price on the first Trading Day following such Blackout Period that Investor may sell its Registrable Securities pursuant to an effective Registration Statement (“NEW BID PRICE”), then the Company shall issue to Investor the number of additional shares of Registrable Securities (the “BLACKOUT SHARES”) equal to the difference between (i) the product of the number of Put Shares held by Investor immediately prior to the Blackout Period that were issued on the most recent Closing Date(the “REMAINING PUT SHARES”) multiplied by the Old Bid Price, divided by the New
Bid Price, and (ii) the Remaining Put Shares.


Section 2.7  [INTENTIONALLY LEFT BLANK]


Section 2.8  LIQUIDATED DAMAGES. Each of the Company and Investor acknowledge and agree that the requirement to issue Blackout Shares under Section 2.6 shall give rise to liquidated damages and not penalties. Each of the Company and Investor further acknowledge that (a) the amount of loss or damages likely to be incurred is incapable or is difficult to precisely estimate, (b) the amounts specified in such Sections bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by Investor in connection with the failure by the Company to make Puts with aggregate Purchase Prices totaling at least the Minimum Commitment Amount or in connection with a Blackout Period under the Registration Rights Agreement, and (c) each of the Company and Investor are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at
arm’s length.


ARTICLE III


REPRESENTATIONS AND WARRANTIES OF INVESTOR


Investor represents and warrants to the Company that:


Section 3.1  INTENT. Investor is entering into this Agreement for its own account and Investor has no present arrangement (whether or not legally binding) at any time to sell the Common Stock to or through any person or entity; provided, however, Investor reserves the right to dispose of the Common Stock at any time in accordance with federal and state securities laws applicable to such disposition.


Section 3.2  SOPHISTICATED INVESTOR. Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and Investor has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Common Stock. Investor acknowledges that an investment in the Common Stock is speculative and involves a high degree of risk.  In addition, the Investor is an “accredited investor” as that term is defined in Rule 501 of Regulation D







Section 3.3  AUTHORITY. (a) Investor has the requisite power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby in accordance with its terms; (b) the execution and delivery of this Agreement and the Registration Rights Agreement, and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action and no further consent or authorization of Investor or its partners is required; and (c) this Agreement has been duly authorized and validly executed and delivered by Investor and is a valid and binding agreement of Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.


Section 3.4  NOT AN AFFILIATE. Investor is not an officer, director or “affiliate” (as that term is defined in Rule 405 of the Securities Act) of the Company.


Section 3.5  ORGANIZATION AND STANDING. Investor is a corporation duly organized, validly existing and in good standing under the laws of the Bahamas, and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Investor is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a material adverse effect on Investor.


Section 3.6  ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and any other document or instrument contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, and compliance with the requirements hereof and thereof, will not (a) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investor, (b) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound, or conflict with or constitute a material default thereunder, (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party, or (d) require the approval of any third-party (that has not been obtained) pursuant to any material contract, instrument, agreement, relationship
or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject


Section 3.7  DISCLOSURE; ACCESS TO INFORMATION. Investor has received all documents, records, books and other information pertaining to Investor’s investment in the Company that has been requested by Investor. Investor has reviewed or received copies of the SEC Documents.


Section 3.8  MANNER OF SALE. At no time was Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising.


Section 3.9  FINANCIAL CAPABILITY. Investor presently has the financial capacity and the necessary capital to perform its obligations hereunder.


Section 3.10  Investor is not an underwriter of or dealer in, the Securities, and Investor is not participating, pursuant to a contractual agreement, in the distribution of Put Shares.  The Investor does not, as of the date of this Agreement, have any current short position in the Company’s stock.


ARTICLE IV


REPRESENTATIONS AND WARRANTIES OF THE COMPANY


The Company represents and warrants to Investor that, except as disclosed in the SEC Documents:


Section 4.1  ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware, and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect.







Section 4.2  AUTHORITY. (a) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the Registration Rights Agreement and to issue the Put Shares and the Blackout Shares, if any; (b) the execution and delivery of this Agreement and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required; and (c) each of this Agreement and the Registration Rights Agreement has been duly executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to,

or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.


Section 4.3  CAPITALIZATION. As of May 11, 2005, the authorized capital stock of the Company consisted of 60,000,000 shares of Common Stock, of which 31,486,299  shares were issued and outstanding, and 10,000,000 shares of Preferred stock, none of which are issued and outstanding.  As of May 11, 2005, there were no options, warrants, or rights to subscribe to, securities, rights or obligations convertible into or exchangeable for or giving any right to subscribe for any shares of capital stock of the Company. All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and nonassessable.


Section 4.4  COMMON STOCK. The Company has registered the Common Stock pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance with all reporting requirements of the Exchange Act, and the Company has maintained all requirements for the continued listing or quotation of the Common Stock, and such Common Stock is currently listed or quoted on the Principal Market. As of the date of this Agreement, the Principal Market is the Nasdaq SmallCap Market.


Section 4.5  SEC DOCUMENTS. The Company has delivered or made available to Investor true and complete copies of the SEC Documents (including, without limitation, proxy information and solicitation materials). To the best of Company’s knowledge, the Company has not provided to Investor any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and other federal, state and local laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. In the opinion of management, the financial statements of the Company included in the SEC Documents comply as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto or (b) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).


Section 4.6  EXEMPTION FROM REGISTRATION; VALID ISSUANCES. To the best of Company’s knowledge, the sale and issuance of the Put Shares and the Blackout Shares, if any, in accordance with the terms and on the bases of the representations and warranties set forth in this Agreement, may and shall be properly issued by the Company to Investor pursuant to Section 4(2), Regulation D and/or any applicable state law. When issued and paid for as herein provided, the Put Shares, and the Blackout Shares, if any, shall be duly and validly issued, fully paid, and nonassessable. Neither the sales of the Put Shares or the Blackout Shares, if any, pursuant to, nor the Company’s performance of its obligations under, this Agreement or the Registration Rights Agreement shall (a) result in the creation or imposition of any liens, charges, claims or other encumbrances upon the Put Shares or the Blackout Shares, if any, or any of the assets of the Company, or (b)

entitle the holders of Outstanding Common Stock to preemptive or other rights to subscribe to or acquire the Common Stock or other securities of the Company. The Put Shares and the Blackout Shares, if any, shall not subject Investor to personal liability for obligations of the Company by reason of the ownership thereof.


Section 4.7  NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS TRANSACTION. Neither the Company nor any of its affiliates nor any person acting on its or their behalf (a) has conducted or will conduct any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general advertising with respect to any of the Put Shares or the Blackout Shares, if any, or (b) made any offers or sales of any security or solicited any offers to buy any security under any circumstances that would require registration of the Common Stock under the Securities Act.


Section 4.8  CORPORATE DOCUMENTS. The Company has furnished or made available to Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and in effect on the date hereof (the “CERTIFICATE”), and the Company’s By-Laws, as amended and in effect on the date hereof (the “BY-LAWS”).







Section 4.9  NO CONFLICTS. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including without limitation the issuance of the Put Shares and the Blackout Shares, if any, do not and will not (a) result in a violation of the Certificate or By-Laws or (b) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture, instrument or any “lock-up” or similar provision of any underwriting or similar agreement to which the Company is a party, or (c) result in a violation of any federal, state, local or foreign law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations)applicable to the Company or by
which any property or asset of the Company is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect) nor is the Company otherwise in violation of, conflict with or in default under any of the foregoing; provided, however, that for purposes of the Company’s representations and warranties as to violations of foreign law, rule or regulation referenced in clause (c), such representations and warranties are made only to the best of the Company’s knowledge insofar as the execution, delivery and  performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby are or may be affected by the status of Investor under or pursuant to any such foreign law, rule or regulation. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Common Stock in accordance with the terms hereof (other than any SEC, NASD or state securities filings that may be required to be made by the Company subsequent to any Closing, any registration statement that may be filed pursuant hereto, and any shareholder approval required by the rules applicable to companies whose common stock trades on the Over The Counter Bulletin Board); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of Investor
herein.


Section 4.10  NO MATERIAL ADVERSE CHANGE. Since June 30, 2005, no event has occurred that would have a Material Adverse Effect on the Company, except as disclosed in the SEC Documents.


Section 4.11  NO UNDISCLOSED LIABILITIES. The Company has no liabilities or obligations that are material, individually or in the aggregate, and that are not disclosed in the SEC Documents or otherwise publicly announced, other than those incurred in the ordinary course of the Company’s businesses since June 30, 2005 and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company.


Section 4.12  NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since  June  30, 2005, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Documents.


Section 4.13  NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, other than pursuant to this Agreement, under circumstances that would require registration of the Common Stock under the Securities Act.


Section 4.14  LITIGATION AND OTHER PROCEEDINGS. Except as may beset forth in the SEC Documents, there are no lawsuits or proceedings pending or to the best knowledge of the Company threatened, against the Company, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which would have a Material Adverse Effect. Except as set forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued by or, so far as is known by the Company, requested of any court, arbitrator or governmental agency which would have a Material Adverse Effect.


Section 4.15  NO MISLEADING OR UNTRUE COMMUNICATION. The Company, any Person representing the Company, and, to the knowledge of the Company, any other Person selling or offering to sell the Put Shares or the Blackout Shares, if any, in connection with the transactions contemplated by this Agreement, have not made, at any time, any oral communication in connection with the offer or sale of the same which contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.


Section 4.16   MATERIAL NON-PUBLIC INFORMATION. The Company is not in possession of, nor has the Company or its agents disclosed to Investor, any material non-public information that (a) if disclosed, would reasonably be expected to have a materially adverse effect on the price of the Common Stock or(b) according to applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the date hereof but which has not been so disclosed.







Section 4.17.  [INTENTIONALLY OMITTED]


ARTICLE V


COVENANTS OF INVESTOR


Section 5.1  COMPLIANCE WITH LAW. Investor’s trading activities with respect to shares of the Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and the rules and regulations of the NASD and the Principal Market on which the Common stock is listed.


Section 5.2  TRADING IN SECURITIES. The Company specifically acknowledges that, except to the extent specifically provided herein or in any of the other Transaction Agreements (but limited in each instance to the extent so specified), the Investor retains the right (but is not otherwise obligated) to buy, sell, engage in hedging transactions or otherwise trade in the Securities at any time after the delivery of a Put Notice pursuant to this Agreement as permitted by applicable federal and state securities laws.  Notwithstanding the preceding sentence, the Investor warrant that it will only sell shares of Company common stock for which it has received a Put Notice from the Company. The Investor, its affiliates, agents and representatives shall not cause, engage in, in any manner whatsoever, and direct or indirect short-selling or hedging of the securities of the Company. Any sales subsequent to delivery of a Put Notice shall not be deemed a short
sale or hedging transaction.


ARTICLE VI


COVENANTS OF THE COMPANY


Section 6.1  REGISTRATION RIGHTS. The Company shall use its best efforts to cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all respects with the terms thereof.


Section 6.2  RESERVATION OF COMMON STOCK. As of the date hereof, the Company has available and the Company shall reserve and keep available at all times, free of preemptive rights, shares of Common Stock for the purpose of enabling the Company to satisfy any obligation to issue the Put Shares and the Blackout Shares, if any; such amount of shares of Common Stock to be reserved shall be 6,500,000 for the Put Shares under the terms and conditions of this Agreement and a good faith estimate by the Company in consultation with Investor of the number of Blackout Shares, if any, that will need to be issued. The number of shares so reserved from time to time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of shares actually delivered hereunder.


Section 6.3  LISTING OF COMMON STOCK. The Company shall use its best efforts to maintain the listing of the Common Stock on a Principal Market, and will cause the Put Shares and the Blackout Shares, if any, to be listed on the Principal Market. The Company further shall, if the Company applies to have the Common Stock traded on any other Principal Market, include in such application the Put Shares and the Blackout Shares, if any, and shall take such other action as is necessary or desirable in the reasonable opinion of Investor to use its best efforts to cause the Common Stock to be listed on such other Principal Market as promptly as possible. The Company shall use its commercially reasonable efforts to continue the listing and trading of the Common Stock on the Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will comply in all respects with the Company’s reporting, filing and other obligations under

the bylaws or rules of the NASD and the Principal Market.


Section 6.4  EXCHANGE ACT REGISTRATION. The Company shall take all commercially reasonable steps to cause the Common Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will use its commercially reasonable efforts to comply in all material respects with its reporting and filing obligations under said Act, and will not take any action or file any document (whether or not permitted by said Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Act.


Section 6.5  LEGENDS. The certificates evidencing the Put Shares and the Blackout Shares, if any, shall be free of legends, except as provided for in Article VIII.


Section 6.6  CORPORATE EXISTENCE. The Company shall take all commercially reasonable steps necessary to preserve and continue the corporate existence of the Company.


Section 6.7  ADDITIONAL SEC DOCUMENTS. The Company shall deliver to Investor, promptly after the originals thereof are submitted to the SEC for filing, copies of all SEC Documents so furnished or submitted to the SEC.







Section 6.8  NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of any of the following events in respect of a registration statement or related prospectus in respect of an offering of Registrable Securities: (a) receipt of any request for additional information by the SEC or any other federal or state governmental authority during the period of effectiveness of the registration statement for amendments or supplements to the registration statement or related prospectus; (b) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (c) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or

the initiation or threatening of any proceeding for such purpose; (d) the happening of any event that makes any statement made in such Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the registration statement, related prospectus or documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (e) the Company’s reasonable determination that a post-effective amendment to
the registration statement would be appropriate, and the Company shall promptly make available to Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to Investor any Put Notice during the continuation of any of the foregoing events.


Section 6.9  EXPECTATIONS REGARDING PUT NOTICES. Within ten (10) days after the commencement of each calendar quarter occurring subsequent to the commencement of the Commitment Period, the Company undertakes to notify Investor as to its reasonable expectations as to the dollar amount it intends to raise during such calendar quarter, if any, through the issuance of Put Notices. Such notification shall constitute only the Company’s good faith estimate with respect to such calendar quarter and shall in no way obligate the Company to raise such amount during such calendar quarter or otherwise limit its ability to deliver Put Notices during such calendar quarter. The failure by the Company to comply with this provision can be cured by the Company’s notifying Investor at any time as to its reasonable expectations with respect to the current calendar quarter.


Section 6.10  CONSOLIDATION; MERGER. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to Investor such shares of Common Stock and/or securities as Investor is entitled to receive pursuant to this Agreement.


Section 6.11  ISSUANCE OF PUT SHARES AND BLACKOUT SHARES. The sale of the Put Shares and the issuance of the Blackout Shares, if any, shall be made in accordance with the provisions and requirements of Regulation D and any applicable state law.


Section 6.12  [INTENTIONALLY LEFT BLANK]


Section 6.13  DILUTION.  The number of shares of Common Stock issuable as Put Shares may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Effective Date and the end of the Commitment Period.  The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect.  The board of directors of the Company has concluded, in its good faith business judgment, that such issuance is in the best interests of the Company.  The Company specifically acknowledges that its obligation to issue the Put Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.


Section 6.14  USE OF PROCEEDS.    The Company will use the proceeds received hereunder (excluding amounts paid by the Company for legal fees, finder’s fees and escrow fees in connection with the sale of the Common Stock) for internal working capital purposes, and, unless specifically consented to in advance in each instance by the Investor, the Company shall not, directly or indirectly, use such proceeds for any loan to or investment in any other affiliated corporation, partnership enterprise or other affiliated person, except a wholly owned subsidiary, or for the repayment of any outstanding loan to any Company affiliate other than the repayment of loans existing on the date of this Agreement payable by the Company to Company affiliates in the aggregate principal amount of up to $4.5 million and associated interest, fees and expenses.







Section 6.15  CERTAIN AGREEMENTS.  (a) (i) The Company covenants and agrees that it will not, without the prior written consent of the Investor, enter into any subsequent or further private equity credit agreement similar in nature to this Agreement for the offer or sale of Common Stock or Common Stock Equivalents (collectively, “New Common Stock”) with any third party from the date of this Agreement until the expiration of the Commitment Period.


(ii)          The provisions of subparagraph 6.15(i) will not apply to (w) Common Stock issued pursuant to an exemption from registration under the Securities Act of 1933; (x) an underwritten public offering of shares of Common Stock or Preferred Stock; (y) an offering of convertible Preferred Stock at market or above; or (z) the issuance of securities (other than for cash) in connection with an acquisition, merger, consolidation, sale of assets, disposition or the exchange of the capital stock for assets, stock, strategic arrangements, or other joint venture interests.


(iii)          In the event the Company breaches the provisions of this Section 6.15, the Discount shall be amended to be equal to (x)110% of  the Discount set forth herein, and the Investor may terminate its obligations under this Agreement and demand such amounts as may be owing under Section 2.1(b), which shall become immediately due and payable by the Company.


ARTICLE VII


CONDITIONS TO DELIVERY OF
 PUT NOTICES AND CONDITIONS TO CLOSING


Section 7.1  CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell the Put Shares to Investor incident to each Closing is subject to the satisfaction, at or before each such Closing, of each of the conditions set forth below.


(a)          ACCURACY OF INVESTOR’S REPRESENTATIONS AND WARRANTIES. The representations and warranties of Investor shall be true and correct in all material respects as of the date of this Agreement and as of the date of each such Closing as though made at each such time, except for changes which have not had a Material Adverse Effect.


(b)          PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Investor at or prior to such Closing.


Section 7.2  CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of the Company to deliver a Put Notice and the obligation of Investor hereunder to acquire and pay for the Put Shares incident to a Closing is subject to the satisfaction, on (a) the date of delivery of such Put Notice and (b) the applicable Closing Date (each a “CONDITION SATISFACTION DATE”), of each of the following conditions: 


(a)          REGISTRATION OF REGISTRABLE SECURITIES WITH THE SEC. As set forth in the Registration Rights Agreement, the Company shall have filed with the SEC the Initial Registration Statement with respect to the resale of the Initial Registrable Securities by Investor and such Registration Statement shall have been declared effective by the SEC prior to the first Put Date. For the purposes of any Put Notice with respect to the Registrable Securities other than the Initial Registrable Securities, the Company shall have filed with the SEC a Registration Statement with respect to the resale of such Registrable Securities by Investor which shall have been declared effective by the SEC prior to the Put Date therefore.


(b)          EFFECTIVE REGISTRATION STATEMENT. As set forth in the Registration Rights Agreement, a Registration Statement shall have previously become effective for the resale by Investor of the Registrable Securities subject to such Put Notice and such Registration Statement shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC’s concerns have been addressed and Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action),and (ii) no other suspension of the use or withdrawal of the effectiveness of such
Registration Statement or related prospectus shall exist.







(c)          ACCURACY OF THE COMPANY’S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company shall be true and correct in all material respects as of each Condition Satisfaction Date as though made at each such time (except for representations and warranties specifically made as of a particular date) with respect to all periods, and as to all events and circumstances occurring or existing to and including each Condition Satisfaction Date, except for any conditions which have temporarily caused any representations or warranties herein to be incorrect and which have been corrected with no continuing impairment to the Company or Investor.


(d)          PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date


(e)          NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by this Agreement.


(f)          ADVERSE CHANGES. Since the date of filing of the Company’s most recent SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect has occurred.


(g)          NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the Common Stock shall not have been suspended by the SEC, the Principal Market or the NASD and the Common Stock shall have been approved for listing or quotation on and shall not have been delisted from the Principal Market.


(h)          LEGAL OPINION. The Company shall have caused to be delivered to Investor and to the Company’s transfer agent, within two (2) Trading Days of the effective date of the Initial Registration Statement and each subsequent Registration Statement, an opinion of the Company’s legal counsel in the form of Exhibit C hereto, addressed to Investor.


(i)          [INTENTIONALLY OMITTED]


(j)          FIVE PERCENT LIMITATION. On each Closing Date, the number of Put Shares then to be purchased by Investor shall not exceed the number of such shares that, when aggregated with all other shares of Registrable Securities then owned by Investor beneficially or deemed beneficially owned by Investor, would result in Investor owning more than 4.99% of all of such Common Stock as would be outstanding on such Closing Date, as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder. For purposes of this Section 7.2(j), in the event that the amount of Common Stock outstanding as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder is greater on a Closing Date than on the date upon which the Put Notice associated with such Closing Date is given, the amount of Common Stock outstanding on such Closing Date shall govern

for purposes of determining whether Investor, when aggregating all purchases of Common Stock made pursuant to this Agreement and Blackout Shares, if any, would own more than 4.99% of the Common Stock following such Closing Date.


(k)          TWENTY PERCENT LIMITATION.  Notwithstanding any other provision of this Agreement, the maximum aggregate number of Put Shares and Blackout Shares issuable to Investor under this Agreement shall not exceed the number of such shares that, when aggregated with all other shares of Registrable Securities then owned by Investor beneficially or deemed beneficially owned by Investor, would result in Investor owning more than 19.99% of all of such Common Stock as would be outstanding immediately prior to the execution and delivery of this Agreement by both parties, unless the Company has obtained all necessary approvals of its stockholders in accordance with the rules and requirements of the NASD and the Principal Market, which the Company may or may not seek in its discretion.  Failure to seek or obtain such approval(s) will not change any other term or condition of this Agreement.


(l)          NO KNOWLEDGE. The Company shall have no knowledge of any event more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective (which event is more likely than not to occur within the fifteen Trading Days following the Trading Day on which such Notice is deemed delivered).


(m)          [INTENTIONALLY OMITTED]


(n)          SHAREHOLDER VOTE. The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market.


(o)          NO VALUATION EVENT.   No Valuation Event shall have occurred since the Put Date.







(p)          OTHER. On each Condition Satisfaction Date, Investor shall have received and been reasonably satisfied with such other certificates and documents as shall have been reasonably requested by Investor in order for Investor to confirm the Company’s satisfaction of the conditions set forth in this Section 7.2., including, without limitation, a certificate in substantially the form and substance of Exhibit D hereto, executed by an executive officer of the Company and to the effect that all the conditions to such Closing shall have been satisfied as at the date of each such certificate.


Section 7.3  DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.


(a)          The Company shall make available for inspection and review by Investor, advisors to and representatives of Investor (who may or may not be affiliated with Investor and who are reasonably acceptable to the Company), any Underwriter, any Registration Statement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees to supply all such information reasonably requested by Investor or any such representative, advisor or Underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from
time to time after the filing and effectiveness of such Registration. This is subject to SEC Regulation FD.


(b)          Each of the Company, its officers, directors, employees and agents shall in no event disclose non-public information to Investor, advisors to or representatives of Investor.


(c)          Nothing herein shall require the Company to disclose non-public information to Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts; provided, however, that notwithstanding anything herein to the contrary, the Company shall, as hereinabove provided, immediately notify the advisors and representatives of Investor and any Underwriters of any event or the existence of any circumstance(without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in a Registration
Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 7.3 shall be construed to mean that such persons or entities other than Investor (without the written consent of Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms and conditions of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, any Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in such Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not
misleading.


ARTICLE VIII


LEGENDS


Section 8.1  LEGENDS. Unless otherwise provided below, each certificate representing Registrable Securities will bear the following legend (the “LEGEND”):


“The securities represented by this certificate have not been registered under the Securities Act of 1933 (the “Securities Act”) or qualified under applicable state securities laws. These securities may not be offered, sold, pledged, hypothecated, transferred or otherwise disposed of except pursuant to (I) an effective registration statement and qualification in effect with respect thereto under the Securities Act and under any applicable state securities law, (ii) to the extent applicable, Rule 144 under the Securities Act, or (iii) an opinion of counsel reasonably acceptable to the Company that such registration and qualification is not required under applicable federal and state securities laws.” 


As soon as practicable after the execution and delivery hereof, the Company shall issue to the Transfer Agent Instructions in substantially the form of Exhibit E hereto. Such instructions shall be irrevocable by the Company from and after the date thereof or from and after the issuance thereof except as otherwise expressly provided in the Registration Rights Agreement. It is the intent and purpose of such instructions, as provided therein, to require the Transfer Agent to issue to Investor certificates evidencing shares of Common Stock incident to a Closing, free of the Legend, without consultation by the transfer agent with the Company or its counsel and without the need for any further advice or instruction or documentation to the Transfer Agent by or from the Company or its counsel or Investor; provided that (a) a Registration Statement shall then be effective, (b) Investor confirms to the Transfer Agent and the Company that it has or intends to sell such
Common Stock to a third party which is not an affiliate of Investor or the Company and 







Investor agrees to redeliver the certificate representing such shares of Common Stock to the Transfer Agent to add the Legend in the event the Common Stock is not sold, and (c) if reasonably requested by the transfer agent or the Company, Investor confirms to the transfer agent and the Company that Investor has complied with the prospectus delivery requirement under the Securities Act. At any time after the Effective Date, upon surrender of one or more certificates evidencing Common Stock that bear the Legend, to the extent accompanied by a notice requesting the issuance of new certificates free of the Legend to replace those surrendered.


Section 8.2  NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other than the one specified in Section 8.1, and the legend set forth in the amended and restated rights agreement dated June 29, 2005 and disclosed in the SEC Documents, shall be placed on the share certificates representing the Common Stock and no instructions or “stop transfers orders,” so called, “stock transfer restrictions,” or other restrictions have been or shall be given to the Company’s transfer agent with respect thereto other than as expressly set forth in this Article VIII.


Section 8.3  COVER.  If the Company fails for any reason to deliver the Put Shares on such Closing Date and the holder of the Put Shares (a “Investor”) purchases, in an open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by such Investor (the “Sold Shares”), which delivery such Investor anticipated to make using the Put Shares (a “Buy-In”), then the Company shall pay to such Investor, in addition to all other amounts contemplated in other provisions of the Transaction Documents, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The “Buy-In Adjustment Amount” is the amount equal to the excess, if any, of (x) such Investor’s total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any)
received by such Investor from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to such Investor in immediately available funds immediately upon demand by such Investor. By way of illustration and not in limitation of the foregoing, if such Investor purchases Covering Shares having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock that it sold for net proceeds of $10,000, the Buy-In Adjustment Amount that the Company will be required to pay to such Investor will be $1,000.


Section 8.4  INVESTOR’S COMPLIANCE. Nothing in this Article VIII shall affect in any way Investor’s obligations under any agreement to comply with all applicable securities laws upon resale of the Common Stock.


ARTICLE IX


NOTICES


Section 9.1  NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served,(b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received),

or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

	
  
If to the Company: 
  	
  
 
  	
  
 
  
	
  
 
  	
  
3333 Vaca Valley Parkway
  	
  
 
  
	
   
  	
  
Vacaville, CA 95688
  	
  
 
  
	
  
 
  	
  
Attention: President
  	
  
 
  
	
  
 
  	
  
Facsimile (707) 466-3917
  	
  
 
  





	
  
with a copy to:
  	
  
3333 Vaca Valley Parkway
  	
  
 
  
	
  
 
  	
  
Vacaville, CA 95688
  	
  
 
  
	
  
 
  	
  
Attention: Chief Operating   Officer
  	
  
 
  
	
   
  	
  
Facsimile (707) 466-3917
  	
  
 
  








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

	
  
 
  	
  
Fenwick & West LLP
  	
  
 
  
	
  
 
  	
  
275 Battery Street, Suite 1600
  	
  
 
  
	
  
 
  	
  
San Francisco, CA 94111
  	
  
 
  
	
  
 
  	
  
Attention: Robert B. Dellenbach, Esq.
  	
  
 
  
	
  
 
  	
  
Facsimile (415) 875-2323
  	
  
 
  





	
  
If to Investor:
  	
  
Brittany Capital Management Limited
  	
  
 
  
	
  
 
  	
  
c/o Cumberland House
  	
  
 
  
	
  
 
  	
  
27 Cumberland Street
  	
  
 
  
	
  
 
  	
  
PO Box N-10818
  	
  
 
  
	
  
 
  	
  
Nassau, New Providence
  	
  
 
  
	
  
 
  	
  
Bahamas
  	
  
 
  



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

	
  
 
  	
  
Southridge Capital Management LLC
  	
  
 
  
	
  
 
  	
  
90 Grove Street
  	
  
 
  
	
  
 
  	
  
Ridgefield, CT 06877
  	
  
 
  
	
  
 
  	
  
Telephone:    (203) 431-8300
  	
  
 
  
	
  
 
  	
  
Facsimile:    (212) 431-8301
  	
  
 
  




Either party hereto may from time to time change its address or facsimile number for notices under this Section 9.1 by giving at least ten (10) days’ prior written notice of such changed address or facsimile number to the other party hereto.


ARTICLE X


MISCELLANEOUS


Section 10.1   GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflicts of law. Each of the Company and Investor hereby submit to the exclusive jurisdiction of the United States Federal and state courts located in New York with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby.


Section 10.2   JURY TRIAL WAIVER.  The Company and the Investor hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in respect of any matter arising out of or in connection with the Transaction Documents.


Section 10.3   SPECIFIC ENFORCEMENT.  The Company and the Investor acknowledge and agree that irreparable damage would occur to the Investor in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Investor shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.


Section 10.4   ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Company and Investor and their respective successors and permitted assigns. Neither this Agreement nor any rights of Investor or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the Common Stock purchased or acquired by Investor hereunder with respect to the Common Stock held by such person, and (b) Investor’s interest in this Agreement may be assigned at any time, in whole but not in part, to any affiliate of Investor.


Section 10.5   THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the Company and Investor 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, other than as contemplated under Section 6.10.







Section 10.6   TERMINATION; PRIOR AGREEMENTS TERMINATED. This Agreement shall terminate at the end of Commitment Period or as otherwise provided herein (unless extended by the agreement of the Company and Investor); provided, however, that the provisions of Article VI, VIII, and Sections 9.2,10.2, 10.3 and 10.4 shall survive the termination of this Agreement.  Effective on the execution hereof, the parties mutually agree that with respect to any outstanding Put Notices, the obligations of the parties under the Third Agreement shall terminate.


Section 10.7   ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the instruments referenced herein contain the entire understanding of the Company and Investor with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.


Section 10.8   FEES AND EXPENSES. Each of the Company and Investor agrees to pay its own expenses in connection with the preparation of this Agreement and performance of its obligations hereunder.  In addition, the Company shall pay all reasonable fees and expenses incurred by the Investor in connection with any amendments, modifications or waivers of this Agreement or the Registration Rights Agreement, or incurred in connection with the enforcement of this Agreement and the Registration Rights Agreement, including, without limitation, all reasonable attorneys fees and expenses. The Company shall pay all stamp or other similar taxes and duties levied in connection with issuance of the Shares pursuant hereto.


Section 10.9   NO BROKERS. Each of the Company and Investor represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company agrees to indemnify the Investor against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or finder’s fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby.


Section 10.10  COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the Company and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the parties so delivering this Agreement.


Section 10.11  SURVIVAL; SEVERABILITY. The representations, warranties, covenants and agreements of the Company hereto shall survive each Closing hereunder for a period of one (1) year thereafter. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party.


Section 10.12  FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.


Section 10.13  NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.


Section 10.14  EQUITABLE RELIEF. The Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to Investor. The Company therefore agrees that Investor shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages


Section 10.15  TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for the convenience of reference and are not to be considered in construing or interpreting this Agreement.


Section 10.16  REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the trading price of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg L.P. or any successor thereto. The written mutual consent of Investor and the Company shall be required to employ any other reporting entity.







Section 10.17  PUBLICITY.   The Company and Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement.  Investor acknowledges that this Agreement and all or part of the Transaction Documents may be deemed to be “material contracts” as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the
Securities Act or the Exchange Act. Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.






          IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Credit Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

	
  
LARGE SCALE   BIOLOGY CORPORATION
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ RONALD J. ARTALE
  	
  
 
  
	
  
 
  	
  


  	
  
 
  
	
  
Name:
  	
  
Ronald J. Artale
  	
  
 
  
	
  Title:  
  	
  
Chief Operating Officer, Chief Financial Officer,
  	
  
 
  
	
  
 
  	
  
Senior Vice President
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
BRITTANY CAPITAL   MANAGEMENT LIMITED
  	
  
 
  
	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ BARRY W. HERMAN
  	
  
 
  
	
  
 
  	
  


  	
  
 
  
	
  Name:
  	
  Barry W. Herman
  	
   
  
	
  Title:
  	
  Director
  	
   
  








EXHIBITS

	
  
EXHIBIT A
  	
  
Registration Rights Agreement
  
	
  
 
  	
  
 
  
	
  
EXHIBIT B
  	
  
Put Notice
  
	
  
 
  	
  
 
  
	
  
EXHIBIT C
  	
  
Opinion
  
	
  
 
  	
  
 
  
	
  
EXHIBIT D
  	
  
Closing Certificate
  
	
  
 
  	
  
 
  
	
  
EXHIBIT E
  	
  
Transfer Agent Instructions
  
	
   
  	
  
 
  
	
  
EXHIBIT F
  	
  
Joint Escrow Instructions
  










REGISTRATION RIGHTS AGREEMENT


          This Registration Rights Agreement (“Agreement”), dated as of August 5, 2005, is made by and between LARGE SCALE BIOLOGY CORPORATION, a Delaware corporation (“Company”), and BRITTANY CAPITAL MANAGEMENT LIMITED, a Bahamian corporation (the “Subscriber”).


RECITALS


          WHEREAS, upon the terms and subject to the conditions of the Private Equity Credit Agreement (“Purchase Agreement”), between the Subscriber and the Company, the Company has agreed to issue and sell to the Subscriber up to fifteen million dollars ($15,000,000) of the common stock of the Company (“Subscribed Shares”), $0.001 par value per share (the “Common Stock”), and


          WHEREAS, to induce the Subscriber to execute and deliver the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, “Securities Act”), and applicable state securities laws with respect to the Subscribed Shares;


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


          1.        Definitions.


          (a)       As used in this Agreement, the following terms shall have the following meaning:


          (i)        “Potential Material Event” means any of the following: (a) the possession by the Company of material information not ripe for disclosure in a Registration Statement, which shall be evidenced by determinations in good faith by the Board of Directors of the Company that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company, or (b) any material engagement or activity by the Company which would, in the good faith determination of the Board of Directors of the Company, be adversely affected by disclosure in a Registration Statement at such time, which determination shall be accompanied by a good faith determination by the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information.


          (ii)        “Subscription Date” means the date of this Agreement.


          (iii)       “Subscriber” has the meaning set forth in the preamble to this Agreement.


          (iv)       “Register”, “registered” and “registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a delayed or continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “SEC”).


          (v)        “Registrable Securities” means the Subscribed Shares.


          (vi)       “Registration Statement” means a registration statement of the Company under the Securities Act.


          (b)        Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Purchase Agreement.


          2.          Registration.


          (a)        Mandatory Registration.  The Company shall prepare and file with the SEC, no later than sixty (60) business days after the Subscription Date, a Registration Statement on Form  S-1 (“Registration Statement”), or such other appropriate Registration Statement, pursuant to Rule  457(o) of the Securities Act, no less than (a) 200% of the Minimum Commitment Amount. Such Registration Statement shall state that, in accordance with the Securities Act, it also covers such indeterminate number of additional shares of Common Stock as may become issuable to prevent dilution resulting from stock splits, or stock dividends.  If at any time the number of Subscribed Shares exceeds the aggregate number of shares of Common Stock then registered, the Company shall, within five (5) business days after receipt of written notice
from the Subscriber, file with the SEC an additional Registration Statement on Form S-3 or any other applicable registration statement, to register the Subscribed Shares that exceed the aggregate number of shares of Common Stock already registered.









          (b)        Damages.  If the Registration Statement covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof is not declared effective within two hundred and seventy (270) days from the Subscription Date (for any reason other than the requirement by the SEC of modifications to the structure of the transactions or trading contemplated hereby that are unacceptable to the Company or the Subscriber), then the Subscriber shall be entitled to the sums set forth in Section 2.1(b) of the Private Equity Credit Agreement. 


          The Company acknowledges that its failure to have the Registration Statement declared effective within two hundred seventy (270) days from the Subscription Date (for any reason other than the requirement by the SEC of modifications to the structure of the transactions or trading contemplated hereby that are unacceptable to the Company or the Subscriber) shall cause the Subscriber to suffer damages in an amount that shall be difficult to ascertain.  Accordingly, the parties agree that it is appropriate to include in the Private Equity Credit Agreement a provision for liquidated damages.  The parties acknowledge and agree that the liquidated damages provision set forth in such Section 2.1(b) of the Private Equity Credit Agreement represents the parties’ good faith effort to quantify such damages and, as such, agree that the form and amount of such liquidated damages are reasonable and will
not constitute a penalty.  The payment of liquidated damages shall not relieve the Company from its obligations to register the Common Stock and deliver the Common Stock pursuant to the terms of this Agreement, the Purchase Agreement and the Subscribed Shares.


          3.        Obligation of the Company.  In connection with the registration of the Registrable Securities, the Company shall do each of the following:


                    (a)          Prepare promptly, and file with the SEC within sixty (60) days of the Subscription Date, a Registration Statement with respect to not less than the number of Registrable Securities provided in Section 2(a) above, and, thereafter, use all diligent efforts to cause the Registration Statement relating to the Registrable Securities to become effective the earlier of (a) five (5) business days after notice from the Securities and Exchange Commission that the Registration Statement may be declared effective, or (b) two hundred seventy (270) days after the Subscription Date, and keep the Registration Statement effective at all times until the earliest of (i) the date that is one year after the completion of the last Closing Date under the Purchase Agreement, (ii) the date when the Subscriber
may sell all Registrable Securities under Rule 144 without volume limitations, or (iii) the date the Subscriber no longer owns any of the Registrable Securities (collectively, the “Registration Period”), which Registration Statement (including any amendments or supplements, thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;


                    (b)          Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during the Registration Period, and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until the expiration of the Registration Period.


                    (c)          Permit a single firm of counsel designated by Subscriber to review the Registration Statement and all amendments and supplements thereto a reasonable period of time (but not less than three (3) Business Day) prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects.


                    (d)          Notify Subscriber and Subscriber’s legal counsel identified to the Company (“Subscriber’s Counsel”) (and, in the case of (i)(A) below, not less than one (1) Business Day prior to such filing) and (if requested by any such person) confirm such notice in writing no later than one (1) Business Day following the day (i): (A) when a prospectus or any prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the SEC notifies the Company whether there will be a “review” of such Registration Statement; (C) whenever the Company receives (or a representative of the Company receives on its behalf) any oral or written comments from the SEC respect of a Registration Statement (copies or, in the case of
oral comments, written or oral summaries of such comments shall be promptly furnished by the Company to Subscriber’s Counsel); and (D) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or the prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iv) if at any time any of the representations or warranties of the Company contained in any agreement (including any securities purchase agreement) contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for 








sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (vi) of the occurrence of any event that to the knowledge of the Company makes any statement made in the Registration Statement or the prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, the prospectus or other documents so that, in the case of the Registration Statement or the prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In addition, the Company shall furnish Subscriber’s Counsel with copies of all intended written responses to the comments contemplated in clause (C) of this Section not later than
one (1) Business Day in advance of the filing of such responses with the SEC so that Subscriber shall have the opportunity to comment thereon.


                    (e)          Furnish to Subscriber, (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one (1) copy of the Registration Statement, each preliminary prospectus and the prospectus, and each amendment or supplement thereto, and (ii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents, as the Subscriber may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Subscriber;


                    (f)          Use all diligent efforts to (i) register and/or qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Subscriber may reasonably request and in which significant volumes of shares of Common Stock are traded, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualification in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (B) subject itself to general taxation in any such jurisdiction, (C) file a general consent to service of process in any such jurisdiction, (D) provide any undertakings that cause more than nominal expense or burden to the Company or (E) make any change in its charter or by-laws or any then existing contracts, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders;


                    (g)          As promptly as practicable after becoming aware of such event, notify the Subscriber of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (“Registration Default”), and uses all diligent efforts to promptly prepare a supplement or amendment to the Registration Statement or other appropriate filing with the SEC to correct such untrue statement or omission, and any other necessary steps to cure the Registration Default, and deliver a
number of copies of such supplement or amendment to the Subscriber as the Subscriber may reasonably request.  Failure to cure the Registration Default within ten (10) business days shall result in the Company including liquidated damages of 2% of the cost of all common stock then held by the investor for each 15 day period or portion thereof, beginning on the date of suspension. 


                    (h)          As promptly as practicable after becoming aware of such event, notify the Subscriber (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any notice of effectiveness or any stop order or other suspension of the effectiveness of  the Registration Statement at the earliest possible time;


                    (i)          Notwithstanding the foregoing, if at any time or from time to time after the date of effectiveness of the Registration Statement, the Company notifies Investor in writing of the existence of a Potential Material Event (“Blackout Notice”), Investor shall not offer or sell any Registrable Securities, or engage in any other transaction involving or relating to the Registrable Securities, from the time of the giving of notice with respect to a Potential Material Event until Investor receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that (a) the Company may not so suspend the right to such holders of Registrable Securities for
more than two ten (10) day periods in the aggregate during any 12-month period (“Blackout Period”) with at least a ten (10) Business Day interval between such periods, during the periods the Registration Statement is required to be in effect, or (b) that if such Blackout Period exceeds the permitted ten (10) day periods, the Company shall pay damages of  2% of the cost of all common stock then held by the Investor for each fifteen (15) day period or portion thereof, beginning on the date of the suspension.








                    (j)          Use its commercially reasonable efforts to secure designation of all the Registrable Securities covered by the Registration Statement as a National Association of Securities Dealers Automated Quotations System (“Nasdaq”) “Small Capitalization” within the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the quotation of the Registrable Securities on the Nasdaq Small Cap Market; or if, despite the Company’s commercially reasonable efforts to satisfy the preceding clause, the Company is unsuccessful in doing so, to secure NASD authorization and quotation for such Registrable Securities on the Over-the-Counter Bulletin Board and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. (“NASD”) as such with respect to such registrable  securities;


                    (k)          Provide a transfer agent for the Registrable Securities not later than the Subscription Date of the Registration Statement;


                    (l)          Cooperate with the Subscriber to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts as the case may be, as the Subscriber may reasonably request and registration in such names as the Subscriber may request; and, within five (5) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Subscriber) an appropriate instruction and opinion of such counsel, if so required by the
Company’s transfer agent; and


                    (m)         Take all other reasonable actions necessary to expedite and facilitate distribution to the Subscriber of the Registrable Securities pursuant to the Registration Statement.


          4.        Obligations of the Subscriber.  In connection with the registration of the Registrable Securities, the Subscriber shall have the following obligations;


                    (a)          It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of the Subscriber that the Subscriber shall timely furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall timely execute such documents in connection with such registration as the Company may reasonably request.


                    (b)          The Subscriber by such Subscriber’s acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder; and


                    (c)          The Subscriber agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or 3(h) above, the Subscriber will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until the Subscriber receives the copies of the supplemented or amended prospectus contemplated by Section 3(g) or 3(h) and, if so directed by the Company, the Subscriber shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in the Subscriber’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.


          5.        Expenses of Registration.  (a)  All reasonable expenses incurred in connection with Registrations, filings or qualifications pursuant to Section 3, including, without limitation, all Registration, listing, and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company shall be borne by the Company.  A fee for a single counsel for Investor for the initial Registration Statement and for each Additional Registration Statement covering the Registrable Securities shall be borne by the Company.


                    (b)          Except as otherwise provided for in Schedule 5(b) attached hereto, the Company nor any of its subsidiaries has, as of the date hereof, and the Company shall not on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to Investor in this Agreement or otherwise conflicts with the provisions hereof.  Except as otherwise provided for in Schedule 5(b), the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any person.  Except as otherwise provided for in this Section 5, and without limiting the generality of the foregoing, without the written consent of Investor, the Company shall not grant to any
person the right to request the Company to Register any securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement and the other Transaction Documents.









                    6.          Indemnification. After Registrable Securities are included in a Registration Statement under this Agreement:


                    (a)        To the extent permitted by law, the Company will indemnify and hold harmless, the Subscriber, the directors, if any, of such Subscriber, the officers, if any, of such Subscriber, each person, if any, who controls the Subscriber within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, “Claims”) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the Subscription Date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being collectively referred to as  “Violations”).  The Company shall reimburse the Subscriber, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.   Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) shall not (i) apply to any Claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof; (ii) with respect to any preliminary prospectus, inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(b) hereof; (iii) be available to the extent such Claim is based on a failure of the Subscriber to deliver or cause to be delivered the prospectus made available by the Company; or (iv) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the  Company, which consent shall not be unreasonably withheld.  The Subscriber will indemnify the Company, its officers, directors and agents (including legal counsel) against any claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of such Subscriber, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions set forth in the previous sentence.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person or Indemnified Party.


                    (b)        Promptly after receipt by an Indemnified Person under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person, as the case may be; provided, however, that an Indemnified Person shall have the right to retain its own
counsel with the reasonable fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding.  In such event, the Company shall pay for only one separate legal counsel for the Subscriber selected by the Subscriber.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.  The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.









                    7.          Contribution.  To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation;
and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.


                    8.          Reports under Exchange Act.  With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to use its reasonable best efforts to:


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


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


                    (c)          furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company solely if unavailable by EDGAR, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration; and 


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





	 	
  
(i) a certificate (a “Rule 144 Certificate”)   certifying (A) that such Investor has held the shares of Registrable   Securities which the Investor proposes to sell (the “Securities Being Sold”)   for a period of not less than (1) year and (B) as to such other matters as   may be appropriate in accordance with Rule 144 under the Securities Act, and 
  
	 	
  
 
  
	 	
  
(ii) an opinion of counsel acceptable to the Company   (for which purposes it is agreed that the initial Investor’s Counsel shall be   deemed acceptable if such opinion is not given by Company Counsel) that,   based on the Rule 144 Certificate, Securities Being Sold  may be sold pursuant to the provisions of   Rule 144, even in the absence of an effective Registration Statement,
  







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


                    9.          Miscellaneous.


          (a)     Registered Owners.  A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.









          (b)     Rights Cumulative; Waivers.  The rights of each of the parties under this Agreement are cumulative.  The rights of each of the parties hereunder shall not be capable of being waived or varied other than by an express waiver or variation in writing.  Any failure to exercise or any delay in exercising any of such rights shall not operate as a waiver or variation of that or any other such right.  Any defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right.  No act or course of conduct or negotiation on the part of any party shall in any way preclude such party from exercising any such right or constitute a suspension or any variation of any such right.


          (c)     Benefit; Successors Bound.  This Agreement and the terms, covenants, conditions, provisions, obligations, undertakings, rights, and benefits hereof, shall be binding upon, and shall inure to the benefit of, the undersigned parties and their heirs, executors, administrators, representatives, successors, and permitted assigns.


          (d)     Entire Agreement.  This Agreement contains the entire agreement between the parties with respect to the subject matter hereof.  There are no promises, agreements, conditions, undertakings, understandings, warranties, covenants or representations, oral or written, express or implied, between them with respect to this Agreement or the matters described in this Agreement, except as set forth in this Agreement and in the other documentation relating to the transactions contemplated by this Agreement.  Any such negotiations, promises, or understandings shall not be used to interpret or constitute this Agreement.


          (e)     Assignment.  The rights to have the Company register Registrable Securities pursuant to this Agreement may be assigned by the Subscribers to any transferee, only if:  (a) the assignment relates to not less than one million dollars ($1,000,000) of Registrable Securities and the Transferee is an  Accredited Investor under Regulation D not in competition with the Company; (b) the Company receives a legal opinion in form and substance satisfactory to the Company that the proposed transfer complies with federal and state securities laws and does not adversely effect the validity of the transactions executed (or to be executed) under this Agreement and the Purchase Agreement under federal and state securities laws; (c)  the assignment requires that the Transferee be bound by all of the provisions contained in this Agreement, and Subscriber, the
Company and the transferee or assignee (the “Transferee”) enter into a written agreement, which shall be enforceable by the Company against the Transferee and by the Transferee against the Company, to assign such rights; and (d) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws.  Prior to the assignment the company shall have the right to perform its own due diligence regarding the assignee and have the right to approve the assignment, provided that such approval shall not be unreasonably withheld. In the event of any delay in filing or effectiveness of the Registration Statement as a result of such assignment, the Company shall not be liable for any damages arising from such delay, or the payments set forth in Section 2(c) hereof.


          (f)     Amendment.  Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Subscriber.  Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Company and any subsequent Transferees.


          (g)     Severability. Each part of this Agreement is intended to be severable.  In the event that any provision of this Agreement is found by any court or other authority of competent jurisdiction to be illegal or unenforceable, such provision shall be severed or modified to the extent necessary to render it enforceable and as so severed or modified, this Agreement shall continue in full force and effect.


          (h)     Notices.  Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (by hand, by courier, by telephone line facsimile transmission, receipt confirmed, or other means) or sent by certified mail, return receipt requested, properly addressed and with proper postage pre-paid (i) if to the Company, at its executive office and (ii) if to the Subscriber, at the address set forth under its name in the Purchase Agreement, with a copy to its designated attorney, or at such other address as each such party furnishes by notice given in accordance with this Section 9(a), and shall be effective, when personally delivered, upon receipt and, when so sent by certified mail, five (5) business days after deposit with the United States Postal Service.


          (i)     Governing Law.  This Agreement shall be governed by the interpreted in accordance with the laws of the State of New York without reference to its conflicts of laws rules or principles.  Each of the parties consents to the exclusive jurisdiction of the federal courts of the State of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions.  Each of the parties hereby waives a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in respect of any matter arising out of or in connection with this Agreement.


          (j)     Consents.  The person signing this Agreement on behalf of each party hereby represents and warrants that he has the necessary power, consent and authority to execute and deliver this Agreement on behalf of that party.









          (k)     Further Assurances.  In addition to the instruments and documents to be made, executed and delivered pursuant to this Agreement, the parties hereto agree to make, execute and deliver or cause to be made, executed and delivered, to the requesting party such other instruments and to take such other actions as the requesting party may reasonably require to carry out the terms of this Agreement and the transactions contemplated hereby.


          (l)     Section Headings.  The Section headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.


          (m)     Construction.  Unless the context otherwise requires, when used herein, the singular shall be deemed to include the plural, the plural shall be deemed to include each of the singular, and pronouns of one or no gender shall be deemed to include the equivalent pronoun of the other or no gender.


          (n)     Execution in Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered to the other party hereto by telephone line facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.  A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto.








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

	
  
 
  	
  
COMPANY:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
LARGE SCALE BIOLOGY   CORPORATION
  
	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ RONALD J. ARTALE
  
	
  
 
  	
  
 
  	
  


  
	
   
  	
  
Name:
  	
  
Ronald J. Artale
  
	
  
 
  	
  
Title:
  	
  
Chief Operating Officer,   Chief Financial Officer,
  
	
  
 
  	
  
 
  	
  
Senior Vice President
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
SUBSCRIBER:
  
	
  
 
  	
  
 
  
	
  
 
  	
  
BRITTANY   CAPITAL MANAGEMENT   LIMITED
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
By:
  	
  
/s/ BARRY W. HERMAN
  
	
  
 
  	
  
 
  	
  


  
	
  
 
  	
  
Name:
  	
  
Barry W. Herman
  
	
  
 
  	
  
Title:
  	
  
President
  










EXHIBIT B TO PRIVATE EQUITY CREDIT AGREEMENT


PUT NOTICE


TO:


          We refer to the Private Equity Credit Agreement dated as of August ___, 2005 (the “Agreement”) made between ourselves as the issuer and you as the Investor.  Expressions defined or to which a meaning is assigned in the Agreement shall, unless the context otherwise requires, bear the same meaning when used herein.


          We hereby:


          1.          give you notice that we require you to subscribe for $_______________ in Common Stock of Large Scale Biology Corporation (the “Investment Amount”); and furthermore that the Floor Price for this Put Notice shall be $___________.


          2.          certify that the conditions stipulated in Section 7.2 of the Agreement have been fulfilled and satisfied. 

	  
	  
	 LARGE SCALE BIOLOGY CORPORATION

	  
	  
	  
	 
	  Date:  ___________, 200___
	  
	  By:
	 

	  
	  
	  
	

	
  
 
  	 	 Name:
	
   
  
	
  
 
  	 	 Title:
	
   
  









EXHIBIT C TO PRIVATE EQUITY CREDIT AGREEMENT


FORM OF OPINION OF THE COMPANY’S COUNSEL


_______________, 2005


To Brittany Capital Management Limited


Ladies and Gentlemen:


          We have acted as co-counsel for Large Scale Biology Corporation, a Delaware corporation (the “Company”), in connection with the execution and delivery by the Company of that certain Private Equity Credit Agreement, dated as of August 5, 2005 (the “Equity Credit Agreement”), between you and the Company, and the execution and delivery by the Company of that certain Registration Rights Agreement dated as of even date therewith (the “Rights Agreement”).  This opinion is given to you pursuant to Section 7(h) of the Equity Credit Agreement in connection with the effectiveness of the Company’s Registration Statement on Form S-1 described in the Rights Agreement (“Registration Statement”)   The shares of the Company’s Common Stock issuable pursuant to the Equity Credit Agreement are
referred to herein collectively as the “Common Stock.”  The Equity Credit Agreement and the Rights Agreement are referred to herein collectively as the “Transaction Documents.”  Our opinion is limited to the Transaction Documents as expressly described above, and we render no opinion with respect to the other agreements to be entered into between the Company and the you pursuant to the terms thereof.  Unless defined herein, capitalized terms have the meaning given them in the Transaction Documents.


          In rendering this opinion, we have examined such matters of law as we considered necessary for the purpose of rendering this opinion.  As to matters of fact material to the opinions expressed herein, we have relied upon the representations and warranties as to factual matters contained in, and made by the Company pursuant to, the Equity Credit Agreement and on the certificate of the Company delivered in connection with our delivery hereof (the “Opinion Certificate”), and upon certificates and statements of government officials and of officers of the Company.  In addition, we have examined originals or copies of documents, corporate records and other writings that we consider relevant for the purposes of this opinion.  In such examination, we have assumed that the signatures on documents and instruments examined by us are authentic, that each is what it purports to be,
and that all documents and instruments submitted to us as copies or facsimiles conform with the originals, which facts we have not independently verified.  


          In making our examination of documents, we have further assumed that (a) each party to such documents (other than the Company in connection with its corporate power and authority in executing, delivering and performing the Transaction Documents) had the power, legal competence and capacity to enter into and perform all of such party’s obligations thereunder, (b) each party to such documents (other than the Company in connection with the Transaction Documents) has duly authorized, executed and delivered such documents, (c) each of such documents is enforceable against and binding upon the parties thereto (other than the Transaction Documents against the Company), (d) the representations and warranties of you set forth in the Transaction Documents are accurate and complete, and (e) there is no fact or circumstance relating to you or your business that might prevent you from enforcing any of your
rights provided for in the Transaction Documents.  We have also assumed (i) that there are no extrinsic agreements or understandings among the parties to the Transaction Documents that would modify or interpret the terms of the Transaction Documents or the respective rights or obligations of the parties thereto, and (ii) the Company’s receipt in full of funds delivered by any wire transfers, drafts or checks tendered by the purchasers of the Company’s securities.


          Notwithstanding the examination described above, the expressions “to our knowledge” or words of similar import when used in this opinion letter, refer to the current actual knowledge of attorneys within the firm principally responsible for handling current matters for the Company and indicate that we have not undertaken any independent investigation with respect to the statements being qualified by such knowledge limitation.


          We express no opinion as to matters governed by any laws other than the laws of the State of California, the Delaware General Corporation Law (the “DGCL”) and the federal law of the United States of America, including the rules and regulations promulgated by governmental authorities thereunder, but, other than as expressly set forth in paragraph 9 below, excluding laws, rules and regulations concerning the offer or sale of securities (referred to collectively herein as “Applicable Laws”).  We express no opinion as to whether the laws of any particular jurisdiction apply, or to the extent that the laws of any jurisdiction other than those identified above are applicable to the Transaction Documents or the transactions contemplated thereby.  


          In rendering the opinion set forth in paragraph 2 below as to the good standing of the Company as to its qualification to do business in California and Kentucky, we have relied exclusively on certificates of public officials.









          We note that the parties to the Transaction Documents have designated the laws of the State of New York as the laws governing the Transaction Documents.  Notwithstanding the designation therein of the laws of the State of New York, our opinion in paragraph 5 below as to the validity, binding effect and enforceability of the Transaction Documents is premised upon the result that would be obtained if a California court were to apply the internal laws of the State of California to the interpretation and enforcement of the Transaction Documents.  


          We also note that, in accordance with Nasdaq rules and regulations, a vote of the Company’s stockholders would be required to permit the purchase of Common Stock representing 20% or more of the capital stock of the Company outstanding on the date of execution and delivery of the Equity Credit Agreement, which stockholder consent may or may not be obtained in the future.  We assume in rendering this opinion that such stockholder consent will be obtained in accordance with the rules and regulations of the Nasdaq Stock Market.


          In connection with the opinion set forth in paragraph 5 below, this opinion is qualified by, and we render no opinion respect to, or as to the effect of, the following:

	
  
 
  	
  
          (a)          bankruptcy,   insolvency, reorganization, moratorium and other similar laws relating to or   affecting the relief of debtors or the rights and remedies of creditors   generally, including without limitation the effect of statutory or other law   regarding fraudulent conveyances, preferential transfers and equitable   subordination;
  
	
   
  	
  
 
  
	
  
 
  	
  
          (b)          general   principles of equity, including but not limited to judicial decisions holding   that certain provisions are unenforceable when their enforcement would   violate the implied covenant of good faith and fair dealing, or would be   commercially unreasonable or involve undue delay, whether or not such   principles or decisions have been codified by statute;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (c)          Section 1670.5 of the California Civil   Code or any other California   or United States federal law or provision of the DGCL or equitable principle   which provides that a court may refuse to enforce, or may limit the   application of, a contract or any clause thereof that the court finds to have   been unconscionable at the time it was made, unconscionable in performance or   contrary to public policy;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (d)          any   provision of any Transaction Document purporting to (i) exclude conflict of   law principles under any law or (ii) select certain courts as the venue, or   establish a particular jurisdiction as the forum, for the adjudication of any   controversy;
  
	
   
  	
  
 
  
	
  
 
  	
  
          (e)          judicial   decisions, that may permit the introduction of extrinsic evidence to modify   the terms or the interpretation of the Transaction Documents;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (f)          the   tax or accounting consequences of any transaction contemplated in connection   with the sale of the Common Stock under applicable tax laws and regulations   and under applicable accounting rules, regulations, releases, statements,   interpretations or technical bulletins;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (g)          applicable   antifraud statutes, rules or regulations of United States federal or   applicable state laws concerning the issuance or sale of securities,   including, without limitation, (i) the accuracy and completeness of the   information provided by the Company to you in connection with the offer and   sale of the Common Stock, (ii) the accuracy and completeness of any   information provided by the Company or you in the Registration Statement, and   (iii) the accuracy or fairness of the past, present or future fair market   value of any securities;
  
	
   
  	
  
 
  
	
  
 
  	
  
          (h)          any   provision of any Transaction Document purporting to (i) waive rights to trial   by jury, service of process or objections to the laying of venue or forum in   connection with any litigation arising out of or pertaining to the   Transaction Documents, (ii) change or waive the rules of evidence, make   determinations conclusive or fix the method or quantum of proof (iii) limit   the effect of waivers by trade practice or course of conduct or (iv) waive   the statute of limitations;
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (i)          statutes   or public policy principles that limit waivers of broadly or vaguely stated   rights, the benefits of statutory, regulatory or constitutional rights,   unknown future defenses or rights to damages;
  









	
  
 
  	
  
          (j)          provisions   stating that rights set forth in the Transaction Documents may only be waived   in writing if an implied agreement by trade practice or course of conduct has   given rise to a waiver;
  
	
   
  	
  
 
  
	
  
 
  	
  
          (k)          any   provisions of the Transaction Documents providing that (i) rights or remedies   are not exclusive, (ii) rights or remedies may be exercised without notice,   (iii) every right or remedy is cumulative and may be exercised in addition to   or with any other right or remedy, (iv) the election of a particular remedy   or remedies does not preclude recourse to one or more other remedies, (v)   liquidated damages are to be paid upon the breach of any Transaction Document   or (vi) the failure to exercise, or any delay in exercising, rights or   remedies available under the Transaction Documents will not operate as a   waiver of any such right or remedy; and
  
	
  
 
  	
  
 
  
	
  
 
  	
  
          (l)          the   indemnification and contribution   provisions of any Transaction Document to the extent enforcement of such provisions are contrary to public   policy or indemnify a party against liability for future conduct or the   party’s own fraud or wrongful or negligent acts or omissions.
  




          In rendering the opinion in paragraph 5 and paragraph 8 below relating to consents, approvals, authorizations, designations, declarations and filings under, or pursuant to, Applicable Laws, such opinions are limited to Applicable Laws that in our experience are typically applicable to transactions of the nature provided for in the Transaction Documents.


          In rendering the opinion expressed in paragraphs 8 and 9 below, we have assumed the accuracy of, and have relied upon, the Company’s representations to us that the Company has made no offer to sell the Common Stock by means of any general solicitation or publication of any advertisement therefor and we have assumed that the offer and sale of the Common Stock is not integrated with any future securities offering of the Company.


          In accordance with Section 95 of the American Law Institute’s Restatement (Third) of the Law Governing Lawyers (2000), this opinion letter is to be interpreted in accordance with customary practices of lawyers rendering opinions to third parties in transactions of the type provided for in the Transaction Documents.


          Based upon and subject to the foregoing, and except as set forth in the Equity Credit Agreement, as of the date of this letter we are of the following opinion.


          (1)          The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate power and authority necessary to own its properties and to conduct its business as, to our knowledge, it is presently conducted.  


          (2)          The Company is qualified to do business as a foreign corporation in, and is in good standing under laws of, the States of California and Kentucky.


          (3)          The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents.


          (4)          All corporate action has been taken on the part of the Company’s Board of Directors that is necessary for the authorization, execution and delivery of the Transaction Documents by the Company and the performance of by the Company of the obligations to be performed by the Company as of the date hereof under the Transaction Documents.  


          (5)          Each of the Transaction Documents constitutes valid and binding obligations of the Company, enforceable by you against the Company in accordance with its terms.  


          (6)          The Common Stock to be issued pursuant to the Equity Credit Agreement, has been duly and validly reserved for issuance and, when and if issued in accordance with the terms of, and assuming no change in, the Equity Credit Agreement, the Company’s Certificate of Incorporation and applicable law, will be validly issued, fully paid and nonassessable. 


          (7)          The execution, delivery and performance of the Transaction Documents do not, as of the date of this letter, result in a violation of the Company’s Certificate of Incorporation or Bylaws of the Company.


          (8)          No consent, approval or authorization of or designation, declaration or filing with, any governmental authority pursuant to any Applicable Law is required on the part of the Company in connection with the valid execution, delivery and performance, as of the date of this letter, of the Transaction Documents. 









          (9)          Based in part upon the representations made by you in the Equity Credit Agreement, the offer, sale and issuance of the Common Stock to you in accordance with the terms of the Equity Credit Agreement, assuming no change in the Equity Credit Agreement, the Company’s Certificate of Incorporation or applicable law, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended. 


          In addition to the foregoing, we supplementally inform you that, to our knowledge and except as set forth on the SEC Documents, there is no action, suit, proceeding or investigation pending or threatened in writing against the Company that questions the validity of the Transaction Documents or the right of the Company to enter into the Transaction Documents.  Please note that we have not conducted a docket search in any jurisdiction with respect to litigation that may be pending against the Company or any of its affiliates, officers or directors, nor, other than to request the Opinion Certificate from the Company, have we undertaken any further inquiry whatsoever in connection with the existence any such action, suit, proceeding or investigation.


          This opinion is rendered as of the date first written above solely for your benefit pursuant to the Equity Credit Agreement and may not be relied on by, nor may any copy be delivered to, any other person without our prior written consent.  Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company.  We assume no obligation to inform you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention that may alter, affect or modify the opinions expressed herein.

	
  
 
  	
  
Very truly yours,
  
	
  
 
  	
  
 
  
	
   
  	
  
FENWICK   & WEST LLP
  
	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  


  
	
  
 
  	
  
 
  	
  
Robert B. Dellenbach, a Partner
  










EXHIBIT D TO PRIVATE EQUITY CREDIT AGREEMENT


CLOSING CERTIFICATE







          The undersigned hereby certifies, with respect to the shares of Common Stock of Large Scale Biology Corporation (the “Company”) issuable in connection with the Put Notice, dated __________________, 20__ (the “Notice”), delivered to Brittany Capital Management Ltd. (the “Investor”) pursuant to Article II of the Private Equity Credit Agreement, dated as of August __, 2005, by and between the Company and the Investor (the “Agreement”), as follows:


          1.          The undersigned is the duly elected __________________________ of the Company.


          2.          Except for the provisions of Section 4.3 of the Agreement, the representations and warranties of the Company set forth in the Agreement are true and correct in all material respects as though made on and as of the date hereof.


          3.          The Company has performed in all material respects all covenants and agreements to be performed by the Company on or prior to the Closing Date related to the Notice and has complied in all material respects with all obligations and conditions contained in the Agreement.


          4.          The number of shares of Common Stock remaining registered in an effective registration statement on behalf of the Investor as of this date equals or exceeds the number of shares of Common Stock issuable in connection with the Notice.


          The undersigned has executed this Certificate this ___day of __________, 200__.

	
  
 
  	
  
LARGE   SCALE BIOLOGY   CORPORATION
  
	
   
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  


  
	
  
 
  	
  
Name:
  	
  
     
  
	
  
 
  	
  
    Title:
  	
  
     
  










EXHIBIT E TO PRIVATE EQUITY CREDIT AGREEMENT


_____________, 20___


[Transfer Agent]
 [Address]


Ladies and Gentlemen:


          Reference is made to that certain Private Equity Credit Agreement (the “Agreement”) dated as of August ___, 2005, between Large Scale Biology Corporation, a Delaware corporation (the “Company”), and Brittany Capital Management Ltd. (the “Investor”).  Pursuant to the Agreement, and subject to the terms and conditions set forth in the Agreement, the Investor has agreed to purchase from the Company and the Company has agreed to sell to the Investor from time to time during the term of the Agreement, shares of Common Stock of the Company, $.001 par value per share (the “Common Stock”).  As a condition to the effectiveness of the Agreement, the Company has agreed to issue to you, as the transfer agent for the Common Stock (the “Transfer Agent”), these instructions relating to the Common Stock to be issued to the Investor (or a permitted assignee)
pursuant to the Agreement.  All terms used herein and not otherwise defined shall have the meaning set forth in the Agreement.  The shares of Common Stock issuable to the Investor pursuant to the Agreement are referred to herein as “Underlying Shares.”


          This letter shall serve as our irrevocable authorization and direction to you (provided that you are the transfer agent of the Company at such time) to issue shares of Common Stock upon a request from the Company for the issuance of certificates.


          So long as you have previously received an opinion of the Company’s counsel substantially in the form of Exhibit 1 attached hereto (which the Company shall direct be delivered to you by such counsel upon the effectiveness of the registration statement covering Underlying Shares) stating that a registration statement covering resales of Underlying Shares has been declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, and that Underlying Shares may be resold without any restrictive legend (the “Opinion”), certificates representing Underlying Shares shall not bear a legend provided that:


          (a) in connection with such event, the Investor (or its permitted assignee) shall confirm in writing to the Transfer Agent that (i) the Investor confirms to the Transfer Agent that it has sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer such Common Stock in a bona fide transaction to a transferee that is not an affiliate of the Company; and (ii) the Investor confirms to the Transfer Agent that the Investor has complied, or will comply with the prospectus delivery requirement; 


          (b) the Investor (or its permitted assignee) shall represent that it is permitted to dispose thereof with limitation as to amount of manner of sale pursuant to Rule 144(k) under the Securities Act.


          Provided, however, that if you have not previously received a copy of the Opinion, then the certificates for Underlying Shares shall bear the following legend:




	 	
  “The securities represented by this certificate have   not been registered under the Securities Act of 1933, as amended (the   “Securities Act”) or qualified under applicable state securities laws.  These securities may not be offered, sold,   pledged, hypothecated, transferred or otherwise disposed of except pursuant   to (i) an effective registration statement and qualification in effect with   respect thereto under the Securities Act and under applicable state   securities law, (ii) to the extent applicable, Rule 144 under the Securities   Act, or (iii) an opinion of counsel reasonable acceptable to the Company that   such registration and qualification is not required under applicable federal   and state securities laws.”
  







and, provided further, that the Company may from time to time notify you to place stop-transfer restrictions on the certificates for Underlying Shares in the event a registration statement covering Underlying Shares is subject to amendment for events then current.









          If the Company then is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of Investor, the Transfer Agent shall use its commercially reasonable efforts to electronically transmit the Put Shares by crediting the account of the holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system, and provide proof satisfactory to the Investor or the Escrow Agent of such delivery.


          Please be advised that the Investors have relied upon this letter as an inducement to enter into the Agreement and, accordingly, the Investor is a third party beneficiary to these instructions.

	
   
  	
  
Very truly yours,
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
LARGE SCALE   BIOLOGY CORPORATION
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  


  
	
  
 
  	
  
Name:
  	
  
     
  
	
  
 
  	
  
Title:
  	
  
     
  










Exhibit 1


___________________, 2005


American Stock Transfer Company 
 [Address]
 Attn:  [Name]


Re:          Large Scale Biology Registration Statement on Form S-1


Ladies and Gentlemen:


          This law firm represents Large Scale Biology Corporation, a Delaware corporation (the “Company”).  We have been provided with the following: (a) a copy of the Registration Statement on Form S-1  filed with the Securities and Exchange Commission (the “Commission”) on ____________ (the “Registration Statement”) pursuant to the registration and prospectus delivery requirements of Section 5 of the Securities Act of 1933, as amended (the Securities Act”), and (b) the Prospectus to be used in connection with the Registration Statement that is dated _______ (the “Prospectus”).  The Company has requested that we render our opinion to you in connection with the resale by the individuals or entitles listed on Schedule A attached hereto (the “Selling
Stockholders”), of an aggregate of __________ shares (the “Shares”) of the Company’s Common Stock.


          In rendering this opinion, (a) we have relied solely upon a review of the Commission’s website of filed and effective registration statements that the Registration Statement has been declared by the Commission as effective under the Securities Act on ____________ and that no stop order has been issued by the Commission with respect thereto, (b) we have been informed by the Company that the shares registered pursuant Registration Statement include the Shares and (c) we have assumed that no amendment, termination or withdrawal of the Registration Statement has been made by the Company or the Commission.  We understand that the Shares are to be offered and sold in the manner described in the Prospectus, a copy of which has been delivered to you.


          In reliance on the correctness and completeness of the foregoing and of the documents referred to above, we have determined that the Shares held by the Selling Stockholders may be sold pursuant to the Registration Statement.  Accordingly upon request by the Selling Stockholders at any time while the Registration Statement remains effective, and upon receipt from such Selling Stockholders of a statement that the Shares were sold pursuant to, and in the manner specified in, the Registration Statement (or other information reasonably satisfactory to you that the Shares were so sold), it is our opinion that new certificates evidencing the Shares so sold may be issued without restrictive legend. 


          In rendering the opinion above, we are opining only as to the specific legal issue expressly set forth herein, and no opinion shall be inferred as to other matters.  This opinion is intended solely for your use for the purpose of the above transfers, and is not to be made available to or relied upon for any other purpose or by, any other person or entity, without our prior written consent.  We assume no obligation to advise you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention, whether or not such occurrence would affect or modify the opinions expressed herein.

	
  
 
  	
  
 
  	
  
 
  	
  
Sincerely,
  
	
   
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  	
  


  
	
  
Enclosure
  	
  
 
  	
  
 
  	
  
 
  
	
  
cc:
  	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  


  	
  
 
  	
  
 
  










Schedule A

	
  Selling Stockholder
  	
   
 	
  
Shares
   Being Offered
  
	
  


  	
  
 
  	
  


  
	
  
 
  	
  
 
  	
  
 
  










EXHIBIT F TO PRIVATE EQUITY CREDIT AGREEMENT


JOINT ESCROW INSTRUCTIONS


Dated as of the date of the
 Private Equity Credit Agreement 
 To Which These Joint Escrow
 Instructions Are Attached


Law Offices of Michael S. Rosenblum, Esq.
 1875 Century Park East, Ste 700
 Los Angeles, CA 90067


Attention:          Michael Rosenblum, Esq.


Dear Michael:


          As escrow agent for both LARGE SCALE BIOLOGY CORPORATION, a Delaware corporation (the “Company”), and BRITTANY CAPITAL MANAGEMENT LTD, a Bahamas entity (“Investor”), in connection with Puts relating to of shares of Common Stock of the Company, pursuant to the Private Equity Credit Agreement between the Company and the Investor (the “Agreement”) to which a copy of these Joint Escrow Instructions is attached as Exhibit F (capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided in the Agreement), you (the “Escrow Agent”) are hereby authorized and directed to hold the documents and funds (together with any interest thereon, the “Escrow Funds”) delivered to the Escrow Agent pursuant to the terms of the Agreement in accordance with the following instructions:


          1.          The parties shall forward to the Escrow Agent any Put Notice or other notice under the Agreement and related documentation simultaneously with delivery to any other party.


          2.          The Escrow Agent shall, as promptly as feasible, notify the Company orally or in writing of receipt of the Purchase Price for the applicable Remainder Put Shares or Interim Put Shares from or on behalf of the Investor, and notify the Investor (or such agent as the Investor may designate in writing) orally or in writing of receipt of the certificates for Common Stock described in the Put Notice (“Certificates”) free of restrictive legends or of receipt of proof satisfactory to the Escrow Agent of delivery of the Remainder Put Shares or Interim Put Shares, as applicable, to the Escrow Agent’s account of the Investor’s prime broker with DTC (for purposes of this Agreement the Certificates and the shares of Common Stock delivered through DTC shall be designated the “Shares”). As promptly as feasible (and in any event
within One Trading Day) upon receipt of notice (whether oral or in written form) from the Company and the Investor that the respective conditions precedent to a Closing have been satisfied (which notice shall not be unreasonably withheld or delayed beyond the applicable Closing Date), the Escrow Agent shall retain escrow fees in the amount of $2,000 per Put Notice and all reasonable accrued and unpaid out of pocket fees and expenses, if any, of the Escrow Agent (“the Escrow Agent Fees”), shall remit the balance of the applicable Purchase Price to the Company, and shall deliver the applicable Shares to the Investor. 


          3.          If the Shares are not deposited with the Escrow Agent (or the Escrow Agent’s designee) within, with respect to the Interim Put Shares five (5) days after delivery of a Put Notice or, with respect to the Remainder Put Shares, eleven (11) days after delivery of a Put Notice, the Escrow Agent shall notify the Investor and the Investor shall be entitled to cancel the purchase of the Interim Put Shares (and the related Remainder Put Shares specified in the Put Notice) or Remainder Put Shares, as applicable, and demand repayment of the funds. If the Purchase Price funds are not deposited with the Escrow Agent within, with respect to the Interim Put Shares five (5) days after delivery of a Put Notice or, with respect to the Remainder Put Shares, eleven (11) days after delivery of a Put Notice, the Escrow Agent shall notify the Company and the
Company shall be entitled to cancel the sale of the Interim Put Shares (and the related Remainder Put Shares specified in the Put Notice) or Remainder Put Shares, as applicable, and demand return of the Shares. If the Company or the Investor notifies the Escrow Agent that on the Closing Date the conditions precedent to the obligations of the Company or the Investor, as the case may be, under the Agreement with respect to the purchase and sale of Common Stock to be effected that date were not satisfied or waived, then the Escrow Agent shall return the applicable Purchase Price to the Investor and shall return the applicable Shares to the Company.  The Escrow Agent shall deposit all funds received hereunder and hold all Shares received hereunder in the Escrow Agent’s attorney escrow brokerage account at VFinance Investments, Inc., 3010 North Military Trail, Suite 300, Boca Raton, FL  33431; Account # ______________. 









          3.          The Escrow Agent’s duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, the Investor and the Escrow Agent.


          4.          The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent’s attorneys-at-law shall be conclusive evidence of such good faith.


          5.          The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 


          6.          The Escrow Agent shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder, or in respect of any calculation or date related to a Put Notice supplied by any party and relied upon in good faith by the Escrow Agent.


          7.          The Escrow Agent has acted as legal counsel for the Investor and may continue to act as legal counsel for such party, from time to time, notwithstanding its duties as the Escrow Agent hereunder. The Company consents to the Escrow Agent acting in such capacity as legal counsel for the Investor and waives any claim that such representation represents a conflict of interest on the part of the Escrow Agent. The Company understands that the Investor and the Escrow Agent are relying explicitly on the foregoing provision in entering into these Joint Escrow Instructions.


          8.          The Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by written notice to the Company and the Investor. In the event of any such resignation, the Investor and the Company shall appoint a successor Escrow Agent.


          9.          If the Escrow Agent reasonably requires other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.


          10.        It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the Shares, documents or the Escrow Funds held by the Escrow Agent hereunder (“Escrow Dispute”), the Escrow Agent is authorized and directed to retain in the Escrow Agent’s possession without liability to anyone all or any part of said documents or the Escrow Funds until such disputes shall have been settled either by mutual written agreement of the parties concerned or by arbitration as set forth below, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings.


In the event of any Escrow Dispute, Investor and the Company will submit such Escrow Dispute to voluntary mediation.  The Chief Executive Officer, Chief Operating Officer or another executive officer designated by the same of each party will participate in such mediation and will use reasonable good faith efforts to seek resolution of such Escrow Dispute within 60 days following the initial notice delivered by a party of such Escrow Dispute.


If, and to the extent that, any such Escrow Dispute has not been settled pursuant to the mediation within 60 days following the initial notice delivered by a party of such Escrow Dispute, upon the filing of a request for arbitration (“Request”) by either party, the Escrow Dispute will be referred to and finally determined by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“Rules”). The terms set forth in this Agreement will control in the event of any inconsistency between such terms and the Rules. The arbitration will be conducted by a sole arbitrator selected by mutual agreement of the parties. If the parties fail to select the arbitrator within thirty (30) days following the date of either party’s Request, then an arbitrator will be appointed by the AAA pursuant to the Rules. The place of arbitration shall be New York
City, New York.









The parties will use reasonable efforts to conclude the arbitration within ninety (90) days following the appointment of the arbitrator.  The award of the arbitrator will be in writing setting forth  findings of fact and conclusions of law. Judgment on the arbitrator’s award will be final and binding upon the parties and may be entered in any court having jurisdiction thereof. The arbitrator’s fees will be shared equally by the parties and each party will bear its own costs and attorneys’ fees.  All papers, documents, or evidence, whether written or oral, filed with or presented in connection with the arbitration proceeding will be deemed by the parties and by the arbitrator to be confidential information of both parties.


          11.        The Company and the Investor agree jointly and severally to indemnify and hold harmless the Escrow Agent from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder other than any such claim, liability, cost or expense to the extent the same shall (a) have been tax obligations in connection with Escrow Agent’s fee hereunder, or (b) have resulted from the gross negligence or willful misconduct of the Escrow Agent.


          12.        Any notice required or permitted hereunder shall be given in manner provided in the Section headed “NOTICES” in the Agreement, the terms of which are incorporated herein by reference. Notice to the Escrow Agent shall be as follows: 

	
  
 
  	
  
Law Offices   of Michael Rosenblum, Esq.
  
	
  
 
  	
  
1875 Century   Park East, Ste 700
  
	
  
 
  	
  
Los Angeles,   CA 90067
  
	
  
 
  	
  
Tel. No.:   (310) 286-2100
  
	
  
 
  	
  
Fax No.:   (310) 286-3010
  




          13.        By signing these Joint Escrow Instructions, the Escrow Agent becomes a party hereto only for the purpose of these Joint Escrow Instructions; the Escrow Agent does not become a party to the Agreement. The Company and the Investor have become parties hereto by their execution and delivery of the Agreement, as provided therein.


          14.        This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns and shall be governed by the laws of the State of New York without giving effect to principles governing the conflicts of laws. A facsimile transmission of these instructions signed by the Escrow Agent shall be legal and binding on all parties hereto.


          15.        The rights and obligations of any party hereto are not assignable without the written consent of the other parties hereto. These Joint Escrow Instructions constitute the entire agreement amongst the parties with respect to the subject matter hereof. 


[REMAINDER OF PAGE LEFT BLANK]










          IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be executed by the undersigned, thereunto duly authorized, as of the date of the Private Equity Credit Agreement. 

	
  
LARGE SCALE   BIOLOGY CORPORATION
  
	  

	
  
 
  
	
  
By:
  	
  
/s/ RONALD J. ARTALE
  	
  
 
  
	
   
  	
  


  	
  
 
  
	
  
Name:
  	
  
Ronald J.   Artale
  	
  
 
  
	
  
Title:
  	
  
Chief   Operating Officer, Chief Financial Officer,
  	
  
 
  
	
  
 
  	
  
Senior Vice   President
  	
  
 
  
	  

	
  
 
  	
  
 
  	
  
 
  
	
  
BRITTANY CAPITAL MANAGEMENT LIMITED
  
	  

	
  
 
  
	
  
By:
  	
  
/s/ BARRY W. HERMAN
  	
  
 
  
	
  
 
  	
  


  	
  
 
  
	
  Name:
  	
  
Barry W.   Herman
  	
  
 
  
	
  
Title:
  	
  
Director
  	
  
 
  
	  
	  
	  

	
  
 
  	
  
 
  	
  
 
  
	
  
ACCEPTED BY   ESCROW AGENT:
  	
  
 
  
	
  
MICHAEL S.   ROSENBLUM, ESQ.
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  


  	
  
 
  
	
  
 

  	
  
 
  
	Date: