**Exhibit 10.1**

 

**SECURITIES PURCHASE AGREEMENT**

 

This Securities PurchaseAgreement (this “Agreement”) is dated as of March 31, 2008 betweenAdvanced Cell Technology, Inc., a Delaware corporation (the “Company”),and each purchaser identified on the signature pages hereto (each,including its successors and assigns, a “Purchaser” and collectively,the “Purchasers”).

 

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

 

NOW, THEREFORE, INCONSIDERATION of the mutual covenants contained in this Agreement, and forother good and valuable consideration, the receipt and adequacy of which arehereby acknowledged, the Company and each Purchaser agree as follows:

 

# **ARTICLE I.**

**DEFINITIONS**

 

## 1.1           Definitions.  In addition to the terms defined elsewhere inthis Agreement: (a) capitalized terms that are not otherwise definedherein have the meanings given to such terms in the Debentures (as definedherein), and (b) the following terms have the meanings set forth in this Section 1.1:

##  

“2005Debentures” shall have the meaning ascribed to such term in Section 4.18(a).

 

 “2005 Purchase Agreement” shall havethe meaning ascribed to such term in Section 4.18(a).

 

“2005Warrants” shall have the meaning ascribed to such term in Section 4.18(a).

 

 “2006 Debentures” shall have themeaning ascribed to such term in Section 4.18(a).

 

 “2006 Purchase Agreement” shall havethe meaning ascribed to such term in Section 4.18(a).

 

“2006 Warrants”shall have the meaning ascribed to such term in Section 4.18(a).

 

“2007Debentures” shall have the meaning ascribed to such term in Section 4.18(a).

 

“2007Purchase Agreement” shall have the meaning ascribed to such term in Section 4.18(a).

 

----

 

“2007 SecurityAgreement” shall have the meaning ascribed to such term in Section 4.18(a).

 

“2007Warrants” shall have the meaning ascribed to such term in Section 4.18(a).

 

“AcquiringPerson” shall have the meaning ascribed to such term in Section 4.7.

 

“Action”shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate”means any Person that, directly or indirectly through one or moreintermediaries, controls or is controlled by or is under common control with aPerson, as such terms are used in and construed under Rule 405 under theSecurities Act.

 

“Board ofDirectors” means the board of directors of the Company.

 

“BusinessDay” means any day except Saturday, Sunday, any day which is a federallegal holiday in the United States or any day on which banking institutions inthe State of New York are authorized or required by law or other governmentalaction to close.

 

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

 

“ClosingDate” means the Trading Day when all of the Transaction Documents have beenexecuted and delivered by the applicable parties thereto, and all conditionsprecedent to (i) the Purchasers’ obligations to pay the SubscriptionAmount and (ii) the Company’s obligations to deliver the Securities havebeen satisfied or waived.

 

“ClosingStatement” means the Closing Statement in the form Annex A attachedhereto.

 

 “Commission” means the United StatesSecurities and Exchange Commission.

 

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

 

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

 

“CompanyCounsel” means Pierce Atwood LLP, with offices located at One MonumentSquare, Portland, ME 04101.

 

2

----

 

“ConversionPrice” shall have the meaning ascribed to such term in the Debentures.

 

“Debentures”means the Original Issue Discount Senior Secured Convertible Debentures due,subject to the terms therein, one year from their date of issuance, issued bythe Company to the Purchasers hereunder, in the form of Exhibit Aattached hereto.

 

“DisclosureSchedules” shall have the meaning ascribed to such term in Section 3.1.

 

“DiscussionTime” shall have the meaning ascribed to such term in Section 3.2(f).

 

“EvaluationDate” shall have the meaning ascribed to such term in Section 3.1(r).

 

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

 

“Exempt Issuance” means the issuanceof (a) options to employees, officers, directors or consultants (provided,however, that issuances to consultants shall not exceed 500,000 shares in any12 month period, subject to adjustment for reverse and forward stock splits,stock interests, stock combinations and other similar transactions that occurafter the date of this Agreement; provided, further, that the issuance price ofsuch shares shall be equal to or greater than the VWAP on the Trading Dayimmediately prior to the date of such issuance) of the Company pursuant to anystock or option plan currently in effect or hereafter duly adopted by amajority of the non-employee members of the Board of Directors or a majority ofthe members of a committee of non-employee directors established for suchpurpose, provided that the exercise price of such options shall not be lessthan the VWAP on the Trading Day immediately prior to the grant of suchoption), (b) securities upon the exercise or conversion of any securitiesissued pursuant to this Agreement, convertible securities, options or warrantsissued and outstanding on the date of this Agreement, provided that suchsecurities have not been amended since the date of this Agreement to increasethe number of such securities or to decrease the exercise, exchange orconversion price of any such securities except in accordance with their termsas in effect as of the date hereof or (c) securities issued pursuant toacquisitions or strategic transactions, provided any such issuance shall onlybe made in connection with a transaction involving a Person which is, itself orthrough its subsidiaries, an operating company in a business synergistic withthe business of the Company and in which the Company receives benefits inaddition to the investment of funds, but shall not include a transaction inwhich the Company is issuing securities primarily for the purpose of raisingcapital or to an entity whose primary business is investing in securities.

 

“ExercisePrice” shall have the meaning ascribed to such term in the Warrants.

 

“FDA”shall have the meaning ascribed to such term in Section 3.1(kk).

 

“FDCA”shall have the meaning ascribed to such term in Section 3.1(kk).

 

3

----

 

 “FWS” means Feldman Weinstein &Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, NewYork, New York 10170-0002.

 

“ForceMajeure” shall mean any unusual event arising from causes reasonably beyondthe control of the Company that could not be reasonably anticipated that causesa delay in or prevents the performance of any obligation under this Agreementor the Transaction Documents, including but not limited to: acts of God; fire;war; terrorism; insurrection; civil disturbance; explosion; adverse weatherconditions that could not be reasonably anticipated; unusual delay intransportation; strikes or other labor disputes; restraint by court order ororder of public authority but not including delays solely caused by any actionof, or failure to act by, the Commission or the Transfer Agent.

 

“GAAP”shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness”shall have the meaning ascribed to such term in Section 3.1(aa).

 

“IntellectualProperty Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

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

 

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

 

“MaterialAdverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“MaterialPermits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“MaximumRate” shall have the meaning ascribed to such term in Section 5.17.

 

“ParticipationMaximum” shall have the meaning ascribed to such term in Section 4.12(a).

 

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

 

 “Pharmaceutical Product” shall have themeaning ascribed to such term in Section 3.1(kk).

 

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

 

 “Principal Amount” means, as to eachPurchaser, the amounts set forth below such Purchaser’s signature block on thesignature pages hereto next to the heading 

 

4

----

 

“Principal Amount,” in UnitedStates Dollars, which shall equal such Purchaser’s Subscription Amountmultiplied by 1.255.

 

“PriorDebentures” shall have the meaning ascribed to such term in Section 4.18(a).

 

 “Prior Purchase Agreements” shall havethe meaning ascribed to such term in Section 4.18(a).

 

“PriorPurchaser” shall have the meaning ascribed to such term in Section 4.18(a).

 

“PriorTransaction Documents” shall have the meaning ascribed to such term in Section 4.18(a).

 

 “Prior Warrants” shall have the meaningascribed to such term in Section 4.18(a).

 

 “Pro Rata Portion” shall have themeaning ascribed to such term in Section 4.12(e).

 

“Proceeding”means an action, claim, suit, investigation or proceeding (including, withoutlimitation, an informal investigation or partial proceeding, such as adeposition), whether commenced or threatened.

 

“PurchaserParty” shall have the meaning ascribed to such term in Section 4.10.

 

“RequiredApprovals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“RequiredMinimum” means, as of any date, the maximum aggregate number of shares ofCommon Stock then issued or potentially issuable in the future pursuant to theTransaction Documents, including any Underlying Shares issuable upon exercisein full of all Warrants or conversion in full of all Debentures, ignoring anyconversion or exercise limits set forth therein, and assuming that theConversion Price is at all times on and after the date of determination 75% ofthe then Conversion Price on the Trading Day immediately prior to the date ofdetermination.

 

“Rule 144”means Rule 144 promulgated by the Commission pursuant to the SecuritiesAct, as such Rule may be amended from time to time, or any similar rule orregulation hereafter adopted by the Commission having substantially the sameeffect as such Rule.

 

“SECReports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities”means the Debentures, the Warrants, the Warrant Shares and the UnderlyingShares.

 

5

----

 

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

 

 “SecurityAgreement” means the Security Agreement, dated the date hereof, among theCompany and the Purchasers, in the form of Exhibit D attachedhereto.

 

“SecurityDocuments” shall mean the Security Agreement, the Subsidiary Guarantees andany other documents and filing required thereunder in order to grant thePurchasers a first priority security interest in the assets of the Company andthe Subsidiaries as provided in the Security Agreement, including all UCC-1filing receipts.

 

“ShortSales” means all “short sales” as defined in Rule 200 of RegulationSHO under the Exchange Act (but shall not be deemed to include the locationand/or reservation of borrowable shares of Common Stock).

 

 “Subscription Amount” means, as to eachPurchaser, the aggregate amount to be paid for Debentures and Warrantspurchased hereunder as specified below such Purchaser’s name on the signature page ofthis Agreement and next to the heading “Subscription Amount,” in United Statesdollars and in immediately available funds.

 

“SubsequentFinancing” shall have the meaning ascribed to such term in Section 4.12(a).

 

“SubsequentFinancing Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Subsidiary”means any subsidiary of the Company as set forth on Schedule 3.1(a) andshall, where applicable, include any direct or indirect subsidiary of theCompany formed or acquired after the date hereof.

 

 “Subsidiary Guarantee” means theSubsidiary Guarantee, dated the date hereof, by each Subsidiary in favor of thePurchasers, in the form of Exhibit E attached hereto.

 

“TradingDay” means a day on which the principal Trading Market is open for trading.

 

 “Trading Market” means the followingmarkets or exchanges on which the Common Stock is listed or quoted for tradingon the date in question: the American Stock Exchange, the Nasdaq CapitalMarket, the Nasdaq Global Market, the Nasdaq Global Select Market, the New YorkStock Exchange or the OTC Bulletin Board.

 

“TransactionDocuments” means this Agreement, the Debentures, the Warrants, the SecurityAgreement, the Subsidiary Guarantee, all exhibits and schedules thereto andhereto and any other documents or agreements executed in connection with thetransactions contemplated hereunder.

 

6

----

 

“TransferAgent” means Interwest Transfer Company, Inc., the current transferagent of the Company with a mailing address of 1981 East 4800 South, Suite 100,Salt Lake City, UT 84117 and a facsimile number of 801-277-3147, and anysuccessor transfer agent of the Company.

 

“UnderlyingShares” means the shares of Common Stock issued and issuable uponconversion or redemption of the Debentures and upon exercise of the Warrants.

 

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

 

“VWAP”means, for any date, the price determined by the first of the following clausesthat applies: (a) if the Common Stock is then listed or quoted on aTrading Market, the daily volume weighted average price of the Common Stock forsuch date (or the nearest preceding date) on the Trading Market on which theCommon Stock is then listed or quoted as reported by Bloomberg L.P. (based on aTrading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (NewYork City time)); (b)  if the OTC Bulletin Board is not a Trading Market,the volume weighted average price of the Common Stock for such date (or thenearest preceding date) on the OTC Bulletin Board; (c) if the Common Stockis not then listed or quoted for trading on the OTC Bulletin Board and ifprices for the Common Stock are then reported in the “Pink Sheets” published byPink Sheets, LLC (or a similar organization or agency succeeding to itsfunctions of reporting prices), the most recent bid price per share of theCommon Stock so reported; or (d) in all other cases, the fair market valueof a share of Common Stock as determined by an independent appraiser selectedin good faith by the Purchasers of a majority in interest of the Securitiesthen outstanding and reasonably acceptable to the Company, the fees and expensesof which shall be paid by the Company.

 

“Warrants”means, collectively, the Common Stock purchase warrants delivered to thePurchasers at the Closing in accordance with Section 2.2(a) hereof,which Warrants shall be exercisable immediately and have a term of exerciseequal to five years, in the form of Exhibit C attached hereto.

 

“WarrantShares” means the shares of Common Stock issuable upon exercise of theWarrants.

 

# **ARTICLE II.**

**PURCHASEAND SALE**

 

## 2.1           Closing.  On the Closing Date, upon the terms andsubject to the conditions set forth herein, substantially concurrent with theexecution and delivery of this Agreement by the parties hereto, the Companyagrees to sell, and the Purchasers, severally and not jointly, agree topurchase, up to an aggregate of $6,275,000 in Principal Amount of theDebentures.  Each Purchaser shall deliverto the Company via wire transfer or a certified check, immediately availablefunds equal to its Subscription Amount and the Company shall deliver to eachPurchaser its respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),and 

 

7

----

 

## the Companyand each Purchaser shall deliver the other items set forth in Section 2.2deliverable at the Closing.  Upon satisfactionof the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur atthe offices of FWS or such other location as the parties shall mutually agree.

##  

2.2           Deliveries.

 

### (a)           Onthe Closing Date, the Company shall deliver or cause to be delivered to eachPurchaser the following:

###  

### (i)            thisAgreement duly executed by the Company;

###  

### (ii)           alegal opinion of Company Counsel, in substantially the form of Exhibit Battached hereto;

###  

### (iii)          aDebenture with a principal amount equal to such Purchaser’s Principal Amount,registered in the name of such Purchaser;

###  

### (iv)          aWarrant registered in the name of such Purchaser to purchase up to a number ofshares of Common Stock equal to 100% of such Purchaser’s Principal Amountdivided by the Conversion Price, with an exercise price equal to **$0.165**, subject to adjustment therein; and

###  

### (v)           theSecurity Agreement, duly executed by the Company and each Subsidiary, alongwith all of the Security Documents, including the Subsidiary Guarantee, dulyexecuted by the parties thereto.

###  

### (b)           Onthe Closing Date, each Purchaser shall deliver or cause to be delivered to theCompany the following:

###  

#### (i)            thisAgreement duly executed by such Purchaser;

####  

#### (ii)           suchPurchaser’s Subscription Amount by wire transfer to the account as specified inwriting by the Company; and

####  

#### (iii)          theSecurity Agreement duly executed by such Purchaser.

####  

## 2.3           ClosingConditions.

##  

### (a)             Theobligations of the Company hereunder in connection with the Closing are subjectto the following conditions being met:

###  

#### (i)            theaccuracy in all material respects on the Closing Date of the representationsand warranties of the Purchasers contained herein;

####  

#### (ii)           allobligations, covenants and agreements of each Purchaser required to beperformed at or prior to the Closing Date shall have been performed; and

 

8

----

 

#### (iii)          thedelivery by each Purchaser of the items set forth in Section 2.2(b) ofthis Agreement.

####  

### (b)           Therespective obligations of the Purchasers hereunder in connection with theClosing are subject to the following conditions being met:

###  

#### (i)            theaccuracy in all material respects when made and on the Closing Date of therepresentations and warranties of the Company contained herein;

####  

#### (ii)           allobligations, covenants and agreements of the Company required to be performedat or prior to the Closing Date shall have been performed;

####  

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

####  

#### (iv)          there shall have been no Material Adverse Effect withrespect to the Company since the date hereof;

####  

#### (v)           the Company shall have received a sufficient numberof Purchasers such that the amendments set forth in Section 4.18 to thePrior Transaction Documents are deemed effective;

####  

#### (vi)          theholders of the $600,000 principal amount of unsecured bridge notes issued bythe Company to on February 19, 2008 to JMJ Financial shall have agreed toa permanent conversion floor on such notes of at least $0.15, subject toadjustment for reverse and forward stock splits, stock dividends, stockcombinations and other similar transactions of the Common Stock that occurafter the date of this Agreement, or such holders shall have exchanged thenotes, in full, into debentures in the form of the Debentures;

####  

#### (vii)          the $130,000 in unsecured convertible notesissued to PDPI LLC and The Shapiro Family Trust on March 21, 2008 shallhave exchanged such notes into Debentures on a $1 for $1 basis; and

####  

#### (viii)        fromthe date hereof to the Closing Date, trading in the Common Stock shall not havebeen suspended by the Commission  or theCompany’s principal Trading Market (except for any suspension of trading oflimited duration agreed to by the Company, which suspension shall be terminatedprior to the Closing), and, at any time prior to the Closing Date, trading insecurities generally as reported by Bloomberg L.P. shall not have beensuspended or limited, or minimum prices shall not have been established onsecurities whose trades are reported by such service, or on any Trading Market,nor shall a banking moratorium have been declared either by the United Statesor New York State authorities nor shall there have occurred any materialoutbreak or escalation of hostilities or other national or internationalcalamity of such magnitude in its effect on, or any material adverse change in,any financial market which, in each case, in the reasonable judgment of eachPurchaser, makes it impracticable or 

 

9

----

 

#### inadvisable to purchase the Securities at the Closing.

####  

# **ARTICLE III.**

**REPRESENTATIONS AND WARRANTIES**

 

3.1           Representations and Warranties of the Company.  Except as set forth in the DisclosureSchedules, which Disclosure Schedules shall be deemed a part hereof and shallqualify any representation or otherwise made herein to the extent of thedisclosure contained in the corresponding section of the Disclosure Schedules,the Company hereby makes the following representations and warranties to eachPurchaser:

 

### (a)           Subsidiaries.  All of the direct and indirect subsidiariesof the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, allof the capital stock or other equity interests of each Subsidiary free andclear of any Liens, and all of the issued and outstanding shares of capitalstock of each Subsidiary are validly issued and are fully paid, non-assessableand free of preemptive and similar rights to subscribe for or purchasesecurities.  If the Company has nosubsidiaries, all other references to the Subsidiaries or any of them in theTransaction Documents shall be disregarded.

###  

### (b)           Organizationand Qualification.  The Company andeach of the Subsidiaries is an entity duly incorporated or otherwise organized,validly existing and in good standing under the laws of the jurisdiction of itsincorporation or organization, with the requisite power and authority to ownand use its properties and assets and to carry on its business as currentlyconducted.  Neither the Company nor anySubsidiary is in violation nor default of any of the provisions of itsrespective certificate or articles of incorporation, bylaws or otherorganizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conductbusiness and is in good standing as a foreign corporation or other entity ineach jurisdiction in which the nature of the business conducted or propertyowned by it makes such qualification necessary, except where the failure to beso qualified or in good standing, as the case may be, could not have or reasonablybe expected to result in: (i) a material adverse effect on the legality,validity or enforceability of any Transaction Document, (ii) a materialadverse effect on the results of operations, assets, business, or condition(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,or (iii) a material adverse effect on the Company’s ability to perform inany material respect on a timely basis its obligations under any TransactionDocument (any of (i), (ii) or (iii), a “Material Adverse Effect”)and no Proceeding has been instituted in any such jurisdiction revoking,limiting or curtailing or seeking to revoke, limit or curtail such power andauthority or qualification.

###  

### (c)           Authorization;Enforcement.  The Company has therequisite corporate power and authority to enter into and to consummate thetransactions contemplated by each of the Transaction Documents and otherwise tocarry out its obligations hereunder and thereunder.  The execution and delivery of each of theTransaction Documents by the Company and the consummation by it of thetransactions contemplated hereby and 

 

10

----

 

### thereby have been duly authorized by all necessary action on the partof the Company and no further action is required by the Company, the Board ofDirectors or the Company’s stockholders in connection therewith other than inconnection with the Required Approvals. Each Transaction Document to which it is a party has been (or upondelivery will have been) duly executed by the Company and, when delivered inaccordance with the terms hereof and thereof, will constitute the valid andbinding obligation of the Company enforceable against the Company in accordancewith its terms, except: (i) as limited by general equitable principles andapplicable bankruptcy, insolvency, reorganization, moratorium and other laws ofgeneral application affecting enforcement of creditors’ rights generally, (ii) aslimited by laws relating to the availability of specific performance, injunctiverelief or other equitable remedies and (iii) insofar as indemnificationand contribution provisions may be limited by applicable law.

###  

### (d)           No Conflicts.  The execution, delivery and performance bythe Company of the Transaction Documents and the consummation by it to which itis a party of the other transactions contemplated hereby and thereby do not andwill not: (i) conflict with or violate any provision of the Company’s orany Subsidiary’s certificate or articles of incorporation, bylaws or other organizationalor charter documents, or (ii) conflict with, or constitute a default (oran event that with notice or lapse of time or both would become a default)under, result in the creation of any Lien upon any of the properties or assetsof the Company or any Subsidiary, or give to others any rights of termination,amendment, acceleration or cancellation (with or without notice, lapse of timeor both) of, any agreement, credit facility, debt or other instrument(evidencing a Company or Subsidiary debt or otherwise) or other understandingto which the Company or any Subsidiary is a party or by which any property orasset of the Company or any Subsidiary is bound or affected, (iii) subjectto the Required Approvals, conflict with or result in a violation of any law,rule, regulation, order, judgment, injunction, decree or other restriction ofany court or governmental authority to which the Company or a Subsidiary issubject (including federal and state securities laws and regulations), or bywhich any property or asset of the Company or a Subsidiary is bound oraffected; except in the case of each of clauses (ii) and (iii), such ascould not have or reasonably be expected to result in a Material AdverseEffect.

###  

### (e)           Filings, Consents and Approvals.  The Company is not required to obtain anyconsent, waiver, authorization or order of, give any notice to, or make anyfiling or registration with, any court or other federal, state, local or othergovernmental authority or other Person in connection with the execution,delivery and performance by the Company of the Transaction Documents, otherthan: (i) the filings required pursuant to Section 4.6, (ii) thenotice and/or application(s) to each applicable Trading Market for theissuance and sale of the Securities and the listing of the Underlying Sharesfor trading thereon in the time and manner required thereby and (iii) thefiling of Form D with the Commission and such filings as are required tobe made under applicable state securities laws (collectively, the “RequiredApprovals”).

###  

### (f)            Issuance of the Securities.  The Securities are duly authorized and, whenissued and paid for in accordance with the applicable Transaction Documents,will be 

 

11

----

 

### duly andvalidly issued, fully paid and nonassessable, free and clear of all Liensimposed by the Company other than restrictions on transfer provided for in theTransaction Documents.  The UnderlyingShares, when issued in accordance with the terms of the Transaction Documents,will be validly issued, fully paid and nonassessable, free and clear of allLiens imposed by the Company other than restrictions on transfer provided forin the Transaction Documents.  TheCompany has reserved from its duly authorized capital stock a number of sharesof Common Stock for issuance of the Underlying Shares at least equal to theRequired Minimum on the date hereof.

###  

### (g)           Capitalization.  The list of the shareholders of the Companyholding in excess of five percent (5%) of the issued and outstanding stock ofthe Company as of December 31, 2007, and stating in the aggregate thenumber of shares held by shareholders holding less than five percent (5%) ofthe outstanding stock of the Company and listing the number of shares of CommonStock owned beneficially, and of record, by Affiliates of the Company as of thedate hereof is set forth on Schedule 3.1(g). The Company has not issuedany capital stock since its most recently filedperiodic report under the Exchange Act, other than pursuant to theexercise of employee stock options under the Company’s stock option plans, theissuance of shares of Common Stock to employees pursuant to the Company’semployee stock purchase plans and pursuant to the conversion and/or exercise ofCommon Stock Equivalents outstanding as of the date of the most recently filedperiodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right ofparticipation, or any similar right to participate in the transactionscontemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities, there areno outstanding options, warrants, scrip rights to subscribe to, calls orcommitments of any character whatsoever relating to, or securities, rights orobligations convertible into or exercisable or exchangeable for, or giving anyPerson any right to subscribe for or acquire any shares of Common Stock, orcontracts, commitments, understandings or arrangements by which the Company orany Subsidiary is or may become bound to issue additional shares of CommonStock or Common Stock Equivalents. The issuance and sale of the Securities willnot obligate the Company to issue shares of Common Stock or other securities toany Person (other than the Purchasers) and will not result in a right of anyholder of Company securities to adjust the exercise, conversion, exchange orreset price under any of such securities. All of the outstanding shares ofcapital stock of the Company are validly issued, fully paid and nonassessable,have been issued in compliance with all federal and state securities laws, andnone of such outstanding shares was issued in violation of any preemptiverights or similar rights to subscribe for or purchase securities.  No further approval or authorization of anystockholder, the Board of Directors or others is required for the issuance andsale of the Securities.  There are nostockholders agreements, voting agreements or other similar agreements withrespect to the Company’s capital stock to which the Company is a party or, tothe knowledge of the Company, between or among any of the Company’sstockholders.

###  

### (h)           SECReports; Financial Statements.  TheCompany has filed all reports, schedules, forms, statements and other documentsrequired to be filed by the Company under the Securities Act and the ExchangeAct, including pursuant to Section 13(a) or 

 

12

----

 

### 15(d) thereof, for the two years preceding the date hereof (orsuch shorter period as the Company was required by law or regulation to filesuch material) (the foregoing materials, including the exhibits thereto anddocuments incorporated by reference therein, being collectively referred toherein as the “SEC Reports”) on a timely basis or has received a validextension of such time of filing and has filed any such SEC Reports prior tothe expiration of any such extension.  Asof their respective dates, the SEC Reports complied in all material respectswith the requirements of the Securities Act and the Exchange Act, asapplicable, and none of the SEC Reports, when filed, contained any untruestatement of a material fact or omitted to state a material fact required to bestated therein or necessary in order to make the statements therein, in thelight of the circumstances under which they were made, not misleading.  The Company has never been an issuer subjectto Rule 144(i) under the Securities Act. The financial statements ofthe Company included in the SEC Reports comply in all material respects withapplicable accounting requirements and the rules and regulations of theCommission with respect thereto as in effect at the time of filing.  Such financial statements have been preparedin accordance with United States generally accepted accounting principles appliedon a consistent basis during the periods involved (“GAAP”), except asmay be otherwise specified in such financial statements or the notes theretoand except that unaudited financial statements may not contain all footnotesrequired by GAAP, and fairly present in all material respects the financialposition of the Company and its consolidated Subsidiaries as of and for thedates thereof and the results of operations and cash flows for the periods thenended, subject, in the case of unaudited statements, to normal, immaterial,year-end audit adjustments.

###  

### (i)            Material Changes.  Since the date of the latest auditedfinancial statements included within the SEC Reports, except as specificallydisclosed in a subsequent SEC Report filed prior to the date hereof: (i) therehas been no event, occurrence or development that has had or that couldreasonably be expected to result in a Material Adverse Effect, (ii) theCompany has not incurred any liabilities (contingent or otherwise) other than (A) tradepayables and accrued expenses incurred in the ordinary course of businessconsistent with past practice and (B) liabilities not required to bereflected in the Company’s financial statements pursuant to GAAP or disclosedin filings made with the Commission, (iii) the Company has not altered itsmethod of accounting, (iv) the Company has not declared or made anydividend or distribution of cash or other property to its stockholders orpurchased, redeemed or made any agreements to purchase or redeem any shares ofits capital stock and (v) the Company has not issued any equity securitiesto any officer, director or Affiliate, except pursuant to existing Companystock option plans. The Company does not have pending before the Commission anyrequest for confidential treatment of information.  Except for the issuance of the Securitiescontemplated by this Agreement or as set forth on Schedule 3.1(i), noevent, liability or development has occurred or exists with respect to theCompany or its Subsidiaries or their respective business, properties,operations or financial condition, that would be required to be disclosed bythe Company under applicable securities laws at the time this representation ismade or deemed made that has not been publicly disclosed at least 1 Trading Dayprior to the date that this representation is made.

 

13

----

 

### (j)            Litigation.  There is no action, suit, inquiry, notice ofviolation, proceeding or investigation pending or, to the knowledge of theCompany, threatened against or affecting the Company, any Subsidiary or any oftheir respective properties before or by any court, arbitrator, governmental oradministrative agency or regulatory authority (federal, state, county, local orforeign) (collectively, an “Action”) which (i) adversely affects orchallenges the legality, validity or enforceability of any of the TransactionDocuments or the Securities or (ii) could, if there were an unfavorabledecision, have or reasonably be expected to result in a Material AdverseEffect.  Neither the Company nor anySubsidiary, nor any director or officer thereof, is or has been the subject ofany Action involving a claim of violation of or liability under federal orstate securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge ofthe Company, there is not pending or contemplated, any investigation by theCommission involving the Company or any current or former director or officerof the Company.  The Commission has notissued any stop order or other order suspending the effectiveness of anyregistration statement filed by the Company or any Subsidiary under theExchange Act or the Securities Act.

###  

### (k)           Labor Relations.  No material labor dispute exists or, to theknowledge of the Company, is imminent with respect to any of the employees ofthe Company which could reasonably be expected to result in a Material AdverseEffect.  None of the Company’s or itsSubsidiaries’ employees is a member of a union that relates to such employee’srelationship with the Company or such Subsidiary, and neither the Company norany of its Subsidiaries is a party to a collective bargaining agreement, andthe Company and its Subsidiaries believe that their relationships with theiremployees are good.  No executiveofficer, to the knowledge of the Company, is, or is now expected to be, inviolation of any material term of any employment contract, confidentiality,disclosure or proprietary information agreement or non-competition agreement,or any other contract or agreement or any restrictive covenant in favor of anythird party, and the continued employment of each such executive officer doesnot subject the Company or any of its Subsidiaries to any liability withrespect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S.federal, state, local and foreign laws and regulations relating to employmentand employment practices, terms and conditions of employment and wages andhours, except where the failure to be in compliance could not, individually orin the aggregate, reasonably be expected to have a Material Adverse Effect.

###  

### (l)            Compliance.  Neither the Company nor any Subsidiary: (i) isin default under or in violation of (and no event has occurred that has not beenwaived that, with notice or lapse of time or both, would result in a default bythe Company or any Subsidiary under), nor has the Company or any Subsidiaryreceived notice of a claim that it is in default under or that it is inviolation of, any indenture, loan or credit agreement or any other materialagreement or instrument to which it is a party or by which it or any of itsproperties is bound (whether or not such default or violation has been waived),(ii) is in violation of any order of any court, arbitrator or governmentalbody or (iii) is or has been in violation of any statute, rule orregulation of any governmental authority, 

 

14

----

 

### including without limitation all foreign, federal, state and local lawsapplicable to its business except in each case as could not have a MaterialAdverse Effect.

###  

### (m)          RegulatoryPermits.  The Company and theSubsidiaries possess all certificates, authorizations and permits issued by theappropriate federal, state, local or foreign regulatory authorities necessaryto conduct their respective businesses as described in the SEC Reports, exceptwhere the failure to possess such permits could not reasonably be expected toresult in a Material Adverse Effect (“Material Permits”), and neitherthe Company nor any Subsidiary has received any notice of proceedings relatingto the revocation or modification of any Material Permit.

###  

### (n)           Titleto Assets.  The Company and theSubsidiaries have good and marketable title in fee simple to all real propertyowned by them that is material to the business of the Company and theSubsidiaries and good and marketable title in all personal property owned bythem that is material to the business of the Company and the Subsidiaries, ineach case free and clear of all Liens, except for Liens as do not materiallyaffect the value of such property and do not materially interfere with the usemade and proposed to be made of such property by the Company and theSubsidiaries and Liens for the payment of federal, state or other taxes, thepayment of which is neither delinquent nor subject to penalties, except in eachcase as could not have a Material Adverse Effect.  Any real property and facilities held underlease by the Company and the Subsidiaries are held by them under valid,subsisting and enforceable leases with which the Company and the Subsidiariesare in compliance, except in each case as could no have a Material AdverseEffect.

###  

### (o)           Patents and Trademarks.  The Company and the Subsidiaries have, orhave rights to use, all patents, patent applications, trademarks, trademarkapplications, service marks, trade names, licenses and other similar rights asdescribed in the SEC Reports as necessary or material for use in connectionwith their respective businesses and which the failure to so have could have aMaterial Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary hasreceived a notice (written or otherwise) that any of the Intellectual PropertyRights used by the Company or any Subsidiary in connection with theirrespective businesses as described in the SEC Reports violates or infringesupon the rights of any Person. To the knowledge of the Company, all suchIntellectual Property Rights are enforceable and there is no existinginfringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have takenreasonable security measures to protect the secrecy, confidentiality and valueof all of their intellectual properties, except where failure to do so couldnot, individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect.

###  

### (p)           Insurance.  The Company and the Subsidiaries are insuredby insurers of recognized financial responsibility against such losses andrisks and in such amounts as are prudent and customary in the businesses inwhich the Company and the Subsidiaries are engaged, including, but not limitedto, directors and officers insurance coverage at least equal to the aggregateSubscription Amount.  To the bestknowledge of the 

 

15

----

 

### Company, suchinsurance contracts and policies are accurate and complete.  Neither the Company nor any Subsidiary hasany reason to believe that it will not be able to renew its existing insurancecoverage as and when such coverage expires or to obtain similar coverage fromsimilar insurers as may be necessary to continue its business without asignificant increase in cost.

###  

### (q)           Transactionswith Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers ordirectors of the Company and, to the knowledge of the Company, none of theemployees of the Company is presently a party to any transaction with the Companyor any Subsidiary (other than for services as employees, officers anddirectors), including any contract, agreement or other arrangement providingfor the furnishing of services to or by, providing for rental of real orpersonal property to or from, or otherwise requiring payments to or from anyofficer, director or such employee or, to the knowledge of the Company, anyentity in which any officer, director, or any such employee has a substantialinterest or is an officer, director, trustee or partner, in each case in excessof $120,000 other than for: (i) payment of salary or consulting fees forservices rendered, (ii) reimbursement for expenses incurred on behalf ofthe Company and (iii) other employee benefits, including stock optionagreements under any stock option plan of the Company.

###  

### (r)            Sarbanes-Oxley; InternalAccounting Controls.  The Company isin material compliance with all provisions of the Sarbanes-Oxley Act of 2002which are applicable to it as of the Closing Date.  The Companyand the Subsidiaries maintain a system of internal accounting controlssufficient to provide reasonable assurance that: (i) transactions areexecuted in accordance with management’s general or specific authorizations, (ii) transactionsare recorded as necessary to permit preparation of financial statements inconformity with GAAP and to maintain asset accountability, (iii) access toassets is permitted only in accordance with management’s general or specificauthorization, and (iv) the recorded accountability for assets is comparedwith the existing assets at reasonable intervals and appropriate action istaken with respect to any differences. The Company has established disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) for the Company and designed such disclosure controls and proceduresto ensure that information required to be disclosed by the Company in thereports it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Commission’s rules andforms.  The Company’s certifying officershave evaluated the effectiveness of the Company’s disclosure controls andprocedures as of the end of the period covered by the Company’s most recentlyfiled periodic report under the Exchange Act (such date, the “EvaluationDate”).  The Company presented in itsmost recently filed periodic report under the Exchange Act the conclusions ofthe certifying officers about the effectiveness of the disclosure controls andprocedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been nochanges in the Company’s internal control over financial reporting (as suchterm is defined in the Exchange Act) that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

16

----

###  

### (s)           Certain Fees.  Except as set forth on Schedule 3.1(s),no brokerage or finder’s fees or commissions are or will be payable by theCompany to any broker, financial advisor or consultant, finder, placementagent, investment banker, bank or other Person with respect to the transactionscontemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or withrespect to any claims made by or on behalf of other Persons for fees of a typecontemplated in this Section that may be due in connection with thetransactions contemplated by the Transaction Documents.

###  

### (t)            Private Placement.  Assuming the accuracy of the Purchasers’representations and warranties set forth in Section 3.2, no registrationunder the Securities Act is required for the offer and sale of the Securitiesby the Company to the Purchasers as contemplated hereby. The issuance and saleof the Securities hereunder does not contravene the rules and regulationsof the Trading Market.

###  

### (u)           Investment Company. TheCompany is not, and is not an Affiliate of, and immediately after receipt ofpayment for the Securities, will not be or be an Affiliate of, an “investmentcompany” within the meaning of the Investment Company Act of 1940, asamended.  The Company shall conduct itsbusiness in a manner so that it will not become subject to the InvestmentCompany Act of 1940, as amended.

###  

### (v)           Registration Rights.  No Person has any right to cause the Companyto effect the registration under the Securities Act of any securities of theCompany.

###  

### (w)          Listing and MaintenanceRequirements.  The Common Stock isregistered pursuant to Section 12(b) or 12(g) of the ExchangeAct, and the Company has taken no action designed to, or which to its knowledgeis likely to have the effect of, terminating the registration of the CommonStock under the Exchange Act nor has the Company received any notification thatthe Commission is contemplating terminating such registration.  The Company has not, in the 12 monthspreceding the date hereof, received notice from any Trading Market on which theCommon Stock is or has been listed or quoted to the effect that the Company isnot in compliance with the listing or maintenance requirements of such TradingMarket. The Company is, and has no reason to believe that it will not in theforeseeable future continue to be, in compliance with all such listing andmaintenance requirements.

###  

### (x)            Application of TakeoverProtections.  The Company and itsBoard of Directors have not taken any affirmative measures or action, toinstitute any control share acquisition, business combination, poison pill(including any distribution under a rights agreement) or other similaranti-takeover provision under the Company’s Certificate of Incorporation (orsimilar charter documents) or the laws of its state of incorporation that is orcould become applicable to the Purchasers as a result of the Purchasers and theCompany fulfilling their obligations or exercising their rights under theTransaction Documents, including without limitation as a result of the Company’sissuance of the Securities and the Purchasers’ ownership of the Securities,other than those provisions of Delaware law generally applicable tocorporations organized under the laws of that State.

 

17

----

 

### (y)           Disclosure.  Except with respect to the material terms andconditions of the transactions contemplated by the Transaction Documents, theCompany confirms that neither it nor any other Person acting on its behalf hasprovided any of the Purchasers or their agents or counsel with any informationthat it believes constitutes or might constitute material, nonpublicinformation.  The Company understands andconfirms that the Purchasers will rely on the foregoing representation ineffecting transactions in securities of the Company.  All disclosure furnished by or on behalf ofthe Company to the Purchasers regarding the Company, its business and thetransactions contemplated hereby, including the Disclosure Schedules to thisAgreement, is true and correct and does not contain any untrue statement of amaterial fact or omit to state any material fact necessary in order to make thestatements made therein, in light of the circumstances under which they weremade, not misleading. The Company acknowledges and agrees that no Purchasermakes or has made any representations or warranties with respect to thetransactions contemplated hereby other than those specifically set forth in Section 3.2hereof.

###  

### (z)            NoIntegrated Offering. Assuming the accuracy of the Purchasers’representations and warranties set forth in Section 3.2, neither theCompany, nor any of its Affiliates, nor any Person acting on its or theirbehalf has, directly or indirectly, made any offers or sales of any security orsolicited any offers to buy any security, under circumstances that would causethis offering of the Securities to be integrated with prior offerings by theCompany for purposes of (i) the Securities Act which would require theregistration of any such securities under the Securities Act, or (ii) anyapplicable shareholder approval provisions of any Trading Market on which anyof the securities of the Company are listed or designated.

###  

### (aa)         Solvency.  Based on the consolidated financial conditionof the Company as of the Closing Date after giving effect to the receipt by theCompany of the proceeds from the sale of the Securities hereunder and assumingfor purposes of this representation that the Securities are all converted intoequity, (i) the Company’s fair saleable value of the Company’s assetsexceeds the amount that will be required to be paid on or in respect of theCompany’s existing debts and other liabilities (including known contingentliabilities) as they mature, (ii) the Company’s assets do not constituteunreasonably small capital to carry on its business for the current fiscal yearas now conducted and as proposed to be conducted including its capital needstaking into account the particular capital requirements of the business conductedby the Company, and projected capital requirements and capital availabilitythereof, and (iii) the current cash flow of the Company, together with theproceeds the Company would receive, were it to liquidate all of its assets,after taking into account all anticipated uses of the cash, would be sufficientto pay all amounts on or in respect of its liabilities when such amounts arerequired to be paid.  The Company doesnot intend to incur debts beyond its ability to pay such debts as they mature(taking into account the timing and amounts of cash to be payable on or inrespect of its debt).  The Company has noknowledge of any facts or circumstances which lead it to believe that it willfile for reorganization or liquidation under the bankruptcy or reorganizationlaws of any jurisdiction within one year from the Closing Date.  Schedule 3.1(aa) sets forth as of thedate hereof all outstanding secured and unsecured 

 

18

----

 

### Indebtedness of the Company or any Subsidiary, or for which the Companyor any Subsidiary has commitments.  Forthe purposes of this Agreement, “Indebtedness” means (x) anyliabilities for borrowed money or amounts owed in excess of $50,000 (other thantrade accounts payable incurred in the ordinary course of business), (y) allguaranties, endorsements and other contingent obligations in respect ofindebtedness of others, whether or not the same are or should be reflected inthe Company’s balance sheet (or the notes thereto), except guaranties by endorsementof negotiable instruments for deposit or collection or similar transactions inthe ordinary course of business; and (z) the present value of any leasepayments in excess of $50,000 due under leases required to be capitalized inaccordance with GAAP.  Neither theCompany nor any Subsidiary is in default with respect to any Indebtedness.

###  

### (bb)         Tax Status.   Exceptfor matters that would not, individually or in the aggregate, have orreasonably be expected to result in a Material Adverse Effect, the Company andeach Subsidiary has filed all necessary federal, state and foreign income andfranchise tax returns and has paid or accrued all taxes shown as due thereon,and the Company has no knowledge of a tax deficiency which has been asserted orthreatened against the Company or any Subsidiary.

###  

### (cc)         No General Solicitation. Neitherthe Company nor any person acting on behalf of the Company has offered or soldany of the Securities by any form of general solicitation or generaladvertising.  The Company has offered theSecurities for sale only to the Purchasers and certain other “accreditedinvestors” within the meaning of Rule 501 under the Securities Act.

###  

### (dd)         Foreign Corrupt Practices.  Neither the Company, nor to the knowledge ofthe Company, any agent or other person acting on behalf of the Company, has: (i) directlyor indirectly, used any funds for unlawful contributions, gifts, entertainmentor other unlawful expenses related to foreign or domestic political activity, (ii) madeany unlawful payment to foreign or domestic government officials or employeesor to any foreign or domestic political parties or campaigns from corporatefunds, (iii) failed to disclose fully any contribution made by the Company(or made by any person acting on its behalf of which the Company is aware)which is  in violation of law or (iv) violatedin any material respect any provision of the Foreign Corrupt Practices Act of1977, as amended.

###  

### (ee)         Accountants.  The Company’s accounting firm is set forth onSchedule 3.1(ee) of the Disclosure Schedules.  To the knowledge and belief of the Company,such accounting firm: (i) is a registered public accounting firm asrequired by the Exchange Act and (ii) shall express its opinion withrespect to the financial statements to be included in the Company’s AnnualReport for the year ended December 31, 2007.

###  

### (ff)           Seniority.  As of the Closing Date, no Indebtedness orother claim against the Company is senior to the Debentures in right ofpayment, whether with respect to interest or upon liquidation or dissolution,or otherwise, other than general unsecured indebtedness incurred in connectionwith equipment and real estate financing customary 

 

19

----

 

### for researchand development companies, accounts payables and indebtedness secured bypurchase money security interests (which is senior only as to underlying assetscovered thereby) and capital lease obligations (which is senior only as to theproperty covered thereby), which indebtedness is set forth on Schedule3.1(ff).

###  

### (gg)         No Disagreements with Accountantsand Lawyers.  There are nodisagreements of any kind presently existing, or reasonably anticipated by theCompany to arise, between the Company and the accountants and lawyers formerlyor presently employed by the Company and the Company has fully accrued allamounts owed to its accountants and lawyers which could affect the Company’sability to perform any of its obligations under any of the TransactionDocuments.

###  

### (hh)         Acknowledgment Regarding Purchasers’Purchase of Securities.  The Companyacknowledges and agrees that each of the Purchasers is acting solely in thecapacity of an arm’s length purchaser with respect to the Transaction Documentsand the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as afinancial advisor or fiduciary of the Company (or in any similar capacity) withrespect to the Transaction Documents and the transactions contemplated therebyand any advice given by any Purchaser or any of their respectiverepresentatives or agents in connection with the Transaction Documents and thetransactions contemplated thereby is merely incidental to the Purchasers’purchase of the Securities.  The Companyfurther represents to each Purchaser that the Company’s decision to enter intothis Agreement and the other Transaction Documents has been based solely on theindependent evaluation of the transactions contemplated hereby by the Companyand its representatives.

###  

### (ii)           Acknowledgment RegardingPurchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to thecontrary, it is understood and acknowledged by the Company that: (i) noneof the Purchasers has been asked to agree by the Company, nor has any Purchaseragreed, to desist from purchasing or selling, long and/or short, securities ofthe Company, or “derivative” securities based on securities issued by theCompany or to hold the Securities for any specified term, (ii) past orfuture open market or other transactions by any Purchaser, specificallyincluding, without limitation, Short Sales or “derivative” transactions, beforeor after the closing of this or future private placement transactions, maynegatively impact the market price of the Company’s publicly-traded securities,(iii) any Purchaser, and counter-parties in “derivative” transactions towhich any such Purchaser is a party, directly or indirectly, may presently havea “short” position in the Common Stock and (iv) each Purchaser shall notbe deemed to have any affiliation with or control over any arm’s lengthcounter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one ormore Purchasers may engage in hedging activities at various times during theperiod that the Securities are outstanding, including, without limitation,during the periods that the value of the Underlying Shares deliverable withrespect to Securities are being determined, and (z) such hedgingactivities (if any) could reduce the value of the existing stockholders’ equityinterests in the Company at and after the time that the hedging activities arebeing conducted.  The Company acknowledges that such 

 

20

----

 

### aforementionedhedging activities do not constitute a breach of any of the TransactionDocuments.

###  

### (jj)           RegulationM Compliance.  The Company has not, and to its knowledge no one actingon its behalf has, (i) taken, directly or indirectly, any action designedto cause or to result in the stabilization or manipulation of the price of anysecurity of the Company to facilitate the sale or resale of any of theSecurities, (ii) sold, bid for, purchased, or paid any compensation forsoliciting purchases of, any of the securities of the Company, or (iii) paidor agreed to pay to any Person any compensation for soliciting another topurchase any other securities of the Company, other than, in the case ofclauses (ii) and (iii), compensation paid to the Company’s placement agentin connection with the placement of the Securities.

###  

### (kk)         FDA.  As to each product subject to the jurisdiction of the U.S. Foodand Drug Administration (“FDA”)under the Federal Food, Drug and Cosmetic Act, as amended, and the regulationsthereunder (“FDCA”) thatis manufactured, packaged, labeled, tested, distributed, sold, and/or marketedby the Company or any of its Subsidiaries (each such product, a “Pharmaceutical Product”), suchPharmaceutical Product is being manufactured, packaged, labeled, tested,distributed, sold and/or marketed by the Company in compliance with allapplicable requirements under FDCA and similar laws, rules and regulationsrelating to registration, investigational use, premarket clearance, licensure,or application approval, good manufacturing practices, good laboratorypractices, good clinical practices, product listing, quotas, labeling,advertising, record keeping and filing of reports, except where the failure tobe in compliance would not have a Material Adverse Effect.  There is no pending, completed or, to theCompany’s knowledge, threatened, action (including any lawsuit, arbitration, orlegal or administrative or regulatory proceeding, charge, complaint, orinvestigation) against the Company or any of its Subsidiaries, and none of theCompany or any of its Subsidiaries has received any notice, warning letter orother communication from the FDA or any other governmental entity, which (i) conteststhe premarket clearance, licensure, registration, or approval of, the uses of,the distribution of, the manufacturing or packaging of, the testing of, thesale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdrawsits approval of, requests the recall, suspension, or seizure of, or withdrawsor orders the withdrawal of advertising or sales promotional materials relatingto, any Pharmaceutical Product, (iii) imposes a clinical hold on anyclinical investigation by the Company or any of its Subsidiaries, (iv) enjoinsproduction at any facility of the Company or any of its Subsidiaries, (v) entersor proposes to enter into a consent decree of permanent injunction with theCompany or any of its Subsidiaries, or (vi) otherwise alleges anyviolation of any laws, rules or regulations by the Company or any of itsSubsidiaries, and which, either individually or in the aggregate, would have aMaterial Adverse Effect.  The properties, business and operations of theCompany have been and are being conducted in all material respects inaccordance with all applicable laws, rules and regulations of theFDA.  The Company has not been informed by the FDA that the FDA willprohibit the marketing, sale, license or use in the United States of anyproduct proposed to be developed, produced or marketed by the Company nor hasthe FDA expressed any concern as to approving or clearing for marketing 

 

21

----

 

### any product being developed or proposed to bedeveloped by the Company.

###  

## 3.2           Representationsand Warranties of the Purchasers.   Each Purchaser, for itself and for no other Purchaser, hereby representsand warrants as of the date hereof and as of the Closing Date to the Company asfollows:

##  

### (a)           Organization;Authority.  Such Purchaser is anentity duly organized, validly existing and in good standing under the laws ofthe jurisdiction of its organization with full right, corporate or partnershippower and authority to enter into and to consummate the transactionscontemplated by the Transaction Documents and otherwise to carry out itsobligations hereunder and thereunder. The execution and delivery of theTransaction Documents and performance by such Purchaser of the transactionscontemplated by the Transaction Documents have been duly authorized by allnecessary corporate or similar action on the part of such Purchaser.  Each Transaction Document to which it is aparty has been duly executed by such Purchaser, and when delivered by suchPurchaser in accordance with the terms hereof, will constitute the valid andlegally binding obligation of such Purchaser, enforceable against it inaccordance with its terms, except: (i) as limited by general equitableprinciples and applicable bankruptcy, insolvency, reorganization, moratoriumand other laws of general application affecting enforcement of creditors’rights generally, (ii) as limited by laws relating to the availability ofspecific performance, injunctive relief or other equitable remedies and (iii) insofaras indemnification and contribution provisions may be limited by applicablelaw.

###  

### (b)           OwnAccount.  Such Purchaser understandsthat the Securities are “restricted securities” and have not been registeredunder the Securities Act or any applicable state securities law and isacquiring the Securities as principal for its own account and not with a viewto or for distributing or reselling such Securities or any part thereof inviolation of the Securities Act or any applicable state securities law,has no present intention of distributing any of such Securities in violation ofthe Securities Act or anyapplicable state securities law and has no direct or indirectarrangement or understandings with any other persons to distribute or regardingthe distribution of such Securities (this representation and warranty notlimiting such Purchaser’s right to sell the Securities pursuant to aregistration statement or otherwise in compliance with applicable federal andstate securities laws) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securitieshereunder in the ordinary course of its business. Such Purchaser does not haveany agreement or understanding, directly or indirectly, with any Person todistribute any of the Securities.

###  

### (c)           Purchaser Status.  At the time such Purchaser was offered theSecurities, it was, and as of the date hereof it is, and on each date on whichit exercises any Warrants or converts any Debentures it will be either: (i) an“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or(a)(8) under the Securities Act or (ii) a “qualified institutionalbuyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to beregistered as a broker-dealer under Section 15 of the Exchange Act.

 

22

----

 

### (d)           Experience of Such Purchaser.  Such Purchaser, either alone or together withits representatives, has such knowledge, sophistication and experience inbusiness and financial matters so as to be capable of evaluating the merits andrisks of the prospective investment in the Securities, and has so evaluated themerits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in theSecurities and, at the present time, is able to afford a complete loss of suchinvestment.

###  

### (e)           General Solicitation.  Such Purchaser is not purchasing theSecurities as a result of any advertisement, article, notice or othercommunication regarding the Securities published in any newspaper, magazine orsimilar media or broadcast over television or radio or presented at any seminaror any other general solicitation or general advertisement.

###  

# **ARTICLE IV.**

**OTHER AGREEMENTS OF THE PARTIES**

 

## 4.1           TransferRestrictions.

##  

### (a)           The Securities may only be disposedof in compliance with state and federal securities laws.  In connection with any transfer of Securitiesother than pursuant to an effective registration statement or Rule 144, tothe Company or to an Affiliate of a Purchaser or in connection with a pledge ascontemplated in Section 4.1(b), the Company may require the transferorthereof to provide to the Company an opinion of counsel selected by thetransferor and reasonably acceptable to the Company, the form and substance ofwhich opinion shall be reasonably satisfactory to the Company, to the effect thatsuch transfer does not require registration of such transferred Securitiesunder the Securities Act.  As a conditionof transfer, any such transferee shall agree in writing to be bound by theterms of this Agreement and shall have the rights of a Purchaser under thisAgreement.

###  

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

###  

[NEITHER] THIS SECURITY [NORTHE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS[NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THESECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROMREGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO ANEFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO ANAVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATIONREQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATESECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TOSUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE 

 

23

----

 

COMPANY.  THIS SECURITY [AND THE SECURITIES ISSUABLEUPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCHSECURITIES.

 

The Company acknowledges andagrees that a Purchaser may from time to time pledge pursuant to a bona fidemargin agreement with a registered broker-dealer or grant a security interestin some or all of the Securities to a financial institution that is an “accreditedinvestor” as defined in Rule 501(a) under the Securities Act and whoagrees to be bound by the provisions of this Agreement and, if required underthe terms of such arrangement, such Purchaser may transfer pledged or securedSecurities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of theCompany and no legal opinion of legal counsel of the pledgee, secured party orpledgor shall be required in connection therewith.  Further, no notice shall be required of suchpledge.  At the appropriate Purchaser’sexpense, the Company will execute and deliver such reasonable documentation asa pledgee or secured party of Securities may reasonably request in connectionwith a pledge or transfer of the Securities, including, if the Securities aresubject to registration, the preparation and filing of any required prospectussupplement under Rule 424(b)(3) under the Securities Act or otherapplicable provision of the Securities Act to appropriately amend the list ofSelling Stockholders thereunder.

 

### (c)   Certificates evidencing the Underlying Sharesshall not contain any legend (including the legend set forth in Section 4.1(b) hereof):(i) while a registration statement covering the resale of such security iseffective under the Securities Act, (ii) following any sale of suchUnderlying Shares pursuant to Rule 144, (iii) if such UnderlyingShares are eligible for sale under Rule 144, without the requirement forthe Company to be in compliance with the current public information requiredunder Rule 144 as to such Underlying Shares and without volume ormanner-of-sale restrictions or (iv) if such legend is not required underapplicable requirements of the Securities Act (including judicialinterpretations and pronouncements issued by the staff of the Commission). TheCompany shall cause its counsel to issue a legal opinion to the Transfer Agentif required by the Transfer Agent to effect the removal of the legendhereunder.  If all or any portion of aDebenture is converted or Warrant is exercised at a time when there is an effectiveregistration statement to cover the resale of the Underlying Shares, or if suchUnderlying Shares may be sold under Rule 144, without the requirement forthe Company to be in compliance with the current public information requiredunder Rule 144 as to such Underlying Shares and without volume ormanner-of-sale restrictions or if such legend is not otherwise required underapplicable requirements of the Securities Act (including judicialinterpretations and pronouncements issued by the staff of the Commission) thensuch Underlying Shares shall be issued free of all legends.  The Company agrees that at such time as suchlegend is no longer required under this Section 4.1(c), it will, no laterthan three Trading Days following the delivery by a Purchaser to the Company orthe Transfer Agent of a certificate representing Underlying Shares, asapplicable, issued with a restrictive legend (such third Trading Day, the “LegendRemoval Date”), deliver or cause to be delivered to such Purchaser acertificate representing such shares that is free 

 

24

----

 

### from allrestrictive and other legends.  TheCompany may not make any notation on its records or give instructions to theTransfer Agent that enlarge the restrictions on transfer set forth in this Section 4.  Certificates for Underlying Shares subject tolegend removal hereunder shall be transmitted by the Transfer Agent to thePurchaser by crediting the account of the Purchaser’s prime broker with theDepository Trust Company System as directed by such Purchaser.

###  

### (d)           In addition to such Purchaser’s otheravailable remedies, the Company shall pay to a Purchaser, in cash, as partialliquidated damages and not as a penalty, for each $1,000 of Underlying Shares(based on the VWAP of the Common Stock on the date such Securities aresubmitted to the Transfer Agent) delivered for removal of the restrictivelegend and subject to Section 4.1(c), $10 per Trading Day (increasing to$20 per Trading Day 5 Trading Days after such damages have begun to accrue) foreach Trading Day after the Legend Removal Date until such certificate isdelivered without a legend.  Nothingherein shall limit such Purchaser’s right to pursue actual damages for theCompany’s failure to deliver certificates representing any Securities asrequired by the Transaction Documents, and such Purchaser shall have the rightto pursue all remedies available to it at law or in equity including, withoutlimitation, a decree of specific performance and/or injunctive relief.

###  

### (e)           EachPurchaser, severally and not jointly with the other Purchasers, agrees thatsuch Purchaser will sell any Securities pursuant to either the registrationrequirements of the Securities Act, including any applicable prospectusdelivery requirements, or an exemption therefrom, and that if Securities aresold pursuant to a registration statement, they will be sold in compliance withthe plan of distribution set forth therein, and acknowledges that the removalof the restrictive legend from certificates representing Securities as setforth in this Section 4.1 is predicated upon the Company’s reliance uponthis understanding.

###  

### (f)            Noliquidated damages, financial penalty or other remedies provided for under thisAgreement, or any of the other Transaction Documents, in the event of delay indelivery of share certificates or delay in the de-legending of sharecertificates beyond any applicable deadline provided for herein, or therein, bythe Company, shall apply as to a Purchaser in the event such delay is theresult of (i) solely the fault of such Purchaser or (ii) any ForceMajeure, provided that the Company shall continue to use best efforts to causesuch delivery or de-legending as soon as possible.

###  

## 4.2           Acknowledgment ofDilution.  The Company acknowledgesthat the issuance of the Securities may result in dilution of the outstandingshares of Common Stock, which dilution may be substantial under certain marketconditions.  The Company furtheracknowledges that its obligations under the Transaction Documents, including,without limitation, its obligation to issue the Underlying Shares pursuant tothe Transaction Documents, are unconditional and absolute and not subject toany right of set off, counterclaim, delay or reduction, regardless of the effectof any such dilution or any claim the Company may have against any Purchaserand regardless of the dilutive effect that such issuance may have on theownership of the other stockholders of the Company.

 

25

----

 

4.3           Furnishingof Information.  If the Common Stockis not registered under Section 12(b) or 12(g) of the Exchange Act on the datehereof, the Company agrees to cause the Common Stock to be registered underSection 12(g) of the Exchange Act on or before the 60th calendar day followingthe date hereof. Until the time that no Purchaser owns Securities, the Companycovenants to maintain the registration of the Common Stock under Section 12(b)or 12(g) of the Exchange Act and to timely file (or obtain extensions inrespect thereof and file within the applicable grace period) all reportsrequired to be filed by the Company after the date hereof pursuant to theExchange Act.    As long as any Purchaserowns Securities, if the Company is not required to file reports pursuant to theExchange Act, it will prepare and furnish to the Purchasers and make publiclyavailable in accordance with Rule 144(c) such information as is required forthe Purchasers to sell the Securities under Rule 144.  The Company further covenants that it willtake such further action as any holder of Securities may reasonably request, tothe extent required from time to time to enable such Person to sell suchSecurities without registration under the Securities Act within therequirements of the exemption provided by Rule 144.

 

## 4.4           Integration.  The Company shall not sell, offer for sale orsolicit offers to buy or otherwise negotiate in respect of any security (asdefined in Section 2 of the Securities Act) that would be integrated withthe offer or sale of the Securities to the Purchasers in a manner that wouldrequire the registration under the Securities Act of the sale of the Securitiesto the Purchasers or that would be integrated with the offer or sale of theSecurities for purposes of the rules and regulations of any TradingMarket.

##  

## 4.5           Conversion andExercise Procedures.  Each of theform of Notice of Exercise included in the Warrants and the form of Notice ofConversion included in the Debentures****setforth the totality of the procedures required of the Purchasers in order toexercise the Warrants or convert the Debentures.  No additional legal opinion, otherinformation or instructions shall be required of the Purchasers to exercisetheir Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of theDebentures and shall deliver Underlying Shares in accordance with the terms,conditions and time periods set forth in the Transaction Documents.

##  

## 4.6           SecuritiesLaws Disclosure; Publicity.  TheCompany shall, by 8:30 a.m. (New York City time) on the Trading Dayimmediately following the date hereof, issue a Current Report on Form 8-K,reasonably acceptable to the placement agents, disclosing the material terms ofthe transactions contemplated hereby and including the Transaction Documents asexhibits thereto.  The Company and eachPurchaser shall consult with each other in issuing any other press releaseswith respect to the transactions contemplated hereby, and neither the Companynor any Purchaser shall issue any such press release nor otherwise make anysuch public statement without the prior consent of the Company, with respect toany press release of any Purchaser, or without the prior consent of eachPurchaser, with respect to any press release of the Company, which consentshall not unreasonably be withheld or delayed, except if such disclosure isrequired by law, in which case the disclosing party shall promptly provide theother party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Companyshall not publicly disclose the name of any Purchaser, or include the name ofany Purchaser in any filing with the Commission or any regulatory agency orTrading 

 

26

----

 

## Market, without the prior written consent ofsuch Purchaser, except: (a) as required by federal securities law inconnection with the filing of final Transaction Documents (including signature pages thereto)with the Commission and (b) to the extent such disclosure is required bylaw or Trading Market regulations, in which case the Company shall provide thePurchasers with prior notice of such disclosure permitted under this clause(b).

##  

## 4.7           ShareholderRights Plan.  No claim will be madeor enforced by the Company or, with the consent of the Company, any otherPerson, that any Purchaser is an “Acquiring Person” under any control shareacquisition, business combination, poison pill (including any distributionunder a rights agreement) or similar anti-takeover plan or arrangement ineffect or hereafter adopted by the Company, or that any Purchaser could bedeemed to trigger the provisions of any such plan or arrangement, by virtue ofreceiving Securities under the Transaction Documents or under any otheragreement between the Company and the Purchasers.

##  

## 4.8           Non-PublicInformation.  The Company covenantsand agrees that, except as specifically required to comply with the terms ofthe Transaction Documents, neither it nor any other Person acting on itsbehalf, will provide any Purchaser or its agents or counsel with anyinformation that the Company believes constitutes material non-publicinformation, unless prior thereto such Purchaser shall have executed a writtenagreement regarding the confidentiality and use of such information.  The Company understands and confirms thateach Purchaser shall be relying on the foregoing covenant in effectingtransactions in securities of the Company.

##  

## 4.9           Use of Proceeds.  The Company shall use the net proceeds from thesale of the Securities hereunder for working capital purposes and shall not usesuch proceeds for: (a) the satisfaction of any portion of the Company’sdebt (other than payment of trade payables in the ordinary course of theCompany’s business and prior practices), (b) the redemption of any CommonStock or Common Stock Equivalents or (c) the settlement of any outstandinglitigation.

##  

## 4.10         Indemnificationof Purchasers.   Subject to theprovisions of this Section 4.10, the Company will indemnify and hold eachPurchaser and its directors, officers, shareholders, members, partners,employees and agents (and any other Persons with a functionally equivalent roleof a Person holding such titles notwithstanding a lack of such title or anyother title), each Person who controls such Purchaser (within the meaning of Section 15of the Securities Act and Section 20 of the Exchange Act), and thedirectors, officers, shareholders, agents, members, partners or employees (andany other Persons with a functionally equivalent role of a Person holding suchtitles notwithstanding a lack of such title or any other title) of suchcontrolling person (each, a “Purchaser Party”) harmless from any and alllosses, liabilities, obligations, claims, contingencies, damages, costs and expenses,including all judgments, amounts paid in settlements, court costs andreasonable attorneys’ fees and costs of investigation that any such PurchaserParty may suffer or incur as a result of or relating to (a) any breach ofany of the representations, warranties, covenants or agreements made by theCompany in this Agreement or in the other Transaction Documents or (b) anyaction instituted against a Purchaser in any capacity, or any of them or theirrespective Affiliates, by any stockholder of the Company who is not anAffiliate of such Purchaser, with respect to any of the transactionscontemplated by the Transaction Documents (unless such action is based upon abreach of such Purchaser’s representations, warranties or covenants under theTransaction Documents or any agreements or 

 

27

----

 

## understandings such Purchaser may have withany such stockholder or any violations by the Purchaser of state or federalsecurities laws or any conduct by such Purchaser which constitutes fraud, grossnegligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect ofwhich indemnity may be sought pursuant to this Agreement, such Purchaser Partyshall promptly notify the Company in writing, and the Company shall have theright to assume the defense thereof with counsel of its own choosing reasonablyacceptable to the Purchaser Party.  AnyPurchaser Party shall have the right to employ separate counsel in any suchaction and participate in the defense thereof, but the fees and expenses ofsuch counsel shall be at the expense of such Purchaser Party except to theextent that (i) the employment thereof has been specifically authorized bythe Company in writing, (ii) the Company has failed after a reasonableperiod of time to assume such defense and to employ counsel or (iii) insuch action there is, in the reasonable opinion of such separate counsel, amaterial conflict on any material issue between the position of the Company andthe position of such Purchaser Party, in which case the Company shall beresponsible for the reasonable fees and expenses of no more than one suchseparate counsel.  The Company will notbe liable to any Purchaser Party under this Agreement (y) for anysettlement by a Purchaser Party effected without the Company’s prior writtenconsent, which shall not be unreasonably withheld or delayed; or (z) tothe extent, but only to the extent that a loss, claim, damage or liability isattributable to any Purchaser Party’s breach of any of the representations,warranties, covenants or agreements made by such Purchaser Party in thisAgreement or in the other Transaction Documents.

##  

## 4.11         Reservation andListing of Securities.

##  

### (a)           The Company shall maintain a reservefrom its duly authorized shares of Common Stock for issuance pursuant to theTransaction Documents in such amount as may then be required to fulfill itsobligations in full under the Transaction Documents.

###  

### (b)           If, on any date, the number ofauthorized but unissued (and otherwise unreserved) shares of Common Stock isless than the Required Minimum on such date, then the Board of Directors shalluse commercially reasonable efforts to amend the Company’s certificate orarticles of incorporation to increase the number of authorized but unissuedshares of Common Stock to at least the Required Minimum at such time, as soonas possible and in any event not later than the 75th day after such date.

###  

### (c)           The Company shall, if applicable: (i) inthe time and manner required by the principal Trading Market, prepare and filewith such Trading Market an additional shares listing application covering anumber of shares of Common Stock at least equal to the Required Minimum on thedate of such application, (ii) take all steps necessary to cause suchshares of Common Stock to be approved for listing on such Trading Market assoon as possible thereafter, (iii) provide to the Purchasers evidence ofsuch listing and (iv) maintain the listing of such Common Stock on anydate at least equal to the Required Minimum on such date on such Trading Marketor another Trading Market.

 

28

----

 

## 4.12         Participation inFuture Financing.

##  

### (a)           From the date hereof until aPurchaser of Debentures (or their permitted assigns) holds less than 50% of thePrincipal Amount of Debenture initially purchased pursuant to this Agreement,upon any financing by the Company or any of its Subsidiaries of Common Stock orCommon Stock Equivalents, Indebtedness (or a combination of units hereof) (a “SubsequentFinancing”), each Purchaser shall have the right to participate in up to anamount of the Subsequent Financing equal to 100% of the Subsequent Financing(the “Participation Maximum”) on the same terms, conditions and priceprovided for in the Subsequent Financing.

###  

### (b)           At least 5 Trading Days prior to theclosing of the Subsequent Financing, the Company shall deliver to eachPurchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”),which Pre-Notice shall ask such Purchaser if it wants to review the details ofsuch financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Purchaser, and onlyupon a request by such Purchaser, for a Subsequent Financing Notice, theCompany shall promptly, but no later than 1 Trading Day after such request,deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice shalldescribe in reasonable detail the proposed terms of such Subsequent Financing,the amount of proceeds intended to be raised thereunder and the Person orPersons through or with whom such Subsequent Financing is proposed to beeffected and shall include a term sheet or similar document relating thereto asan attachment.

###  

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

###  

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

###  

### (e)           If by 5:30 p.m. (New York Citytime) on the 5th Trading Day after all of the Purchasers have receivedthe Pre-Notice, the Company receives responses to a Subsequent Financing Noticefrom Purchasers seeking to purchase more than the aggregate amount of theParticipation Maximum, each such Purchaser shall have the right to purchase itsPro Rata Portion (as defined below) of the Participation Maximum.  “ProRata Portion” means the ratio of (x) the Subscription Amount ofSecurities purchased on the Closing Date by a Purchaser participating underthis Section 4.12 and (y) the sum of the aggregate SubscriptionAmounts of Securities purchased on the Closing Date by all 

 

29

----

 

### Purchasers participating under this Section 4.12.

###  

### (f)            The Company must provide thePurchasers with a second Subsequent Financing Notice, and the Purchasers willagain have the right of participation set forth above in this Section 4.12,if the Subsequent Financing subject to the initial Subsequent Financing Noticeis not consummated for any reason on the terms set forth in such Subsequent FinancingNotice within 30 Trading Days after the date of the initial SubsequentFinancing Notice.

###  

### (g)           Notwithstanding the foregoing, this Section 4.12shall not apply in respect of (i) an Exempt Issuance, or (ii) anunderwritten public offering of Common Stock.

###  

## 4.13         Subsequent EquitySales.

##  

### (a)           From the date hereof until 270 daysafter the Closing Date, neither the Company nor any Subsidiary shall issueshares of Common Stock or Common Stock Equivalents; provided, however,the 270 day period set forth in this Section 4.13 shall be extended forthe number of Trading Days during such period in which trading in the CommonStock is suspended by any Trading Market.

###  

### (b)           From the date hereof until such timeas no Purchaser holds any of the Securities, the Company shall be prohibitedfrom effecting or entering into an agreement to effect any Subsequent Financinginvolving a Variable Rate Transaction. “Variable Rate Transaction” meansa transaction in which the Company issues or sells (i) any debt or equitysecurities that are convertible into, exchangeable or exercisable for, orinclude the right to receive additional shares of Common Stock either (A) ata conversion price, exercise price or exchange rate or other price that isbased upon and/or varies with the trading prices of or quotations for theshares of Common Stock at any time after the initial issuance of such debt orequity securities or (B) with a conversion, exercise or exchange pricethat is subject to being reset at some future date after the initial issuanceof such debt or equity security or upon the occurrence of specified orcontingent events directly or indirectly related to the business of the Companyor the market for the Common Stock or (ii) enters into any agreement,including, but not limited to, an equity line of credit, whereby the Companymay sell securities at a future determined price.

###  

### (c)           From the date hereof until such timeas no Purchaser holds any of the Securities, in the event the Company issues orsells any shares of Common Stock or Common Stock Equivalents, if a Purchaserreasonably believes that any of the terms and conditions thereunder are morefavorable to such investors as the terms and conditions granted hereunder, uponnotice to the Company by such Purchaser the Company shall amend the terms ofthis transaction as to such Purchaser only so as to give such Purchaser thebenefit of such more favorable terms or conditions.

###  

### (d)           Notwithstanding the foregoing, this Section 4.13shall not apply in respect of an Exempt Issuance, except that no Variable RateTransaction shall be an Exempt Issuance.

 

30

----

 

## 4.14         Equal Treatment ofPurchasers.  No consideration(including any modification of any Transaction Document) shall be offered orpaid to any Person to amend or consent to a waiver or modification of anyprovision of any of the Transaction Documents unless the same consideration isalso offered to all of the parties to the Transaction Documents. Further, theCompany shall not make any payment of principal on the Debentures in amountswhich are disproportionate to the respective Principal Amounts outstanding onthe Debentures at any applicable time. For clarification purposes, this provision constitutes a separate rightgranted to each Purchaser by the Company and negotiated separately by eachPurchaser, and is intended for the Company to treat the Purchasers as a classand shall not in any way be construed as the Purchasers acting in concert or asa group with respect to the purchase, disposition or voting of Securities orotherwise.

##  

## 4.15         [IntentionallyDeleted]

##  

## 4.16         Form D; Blue Sky Filings.  The Company agrees to timely file a Form Dwith respect to the Securities as required under Regulation D and to provide acopy thereof, promptly upon request of any Purchaser. The Company shall takesuch action as the Company shall reasonably determine is necessary in order toobtain an exemption for, or to qualify the Securities for, sale to thePurchasers at the Closing under applicable securities or “Blue Sky” laws of thestates of the United States, and shall provide evidence of such actionspromptly upon request of any Purchaser.

##  

## 4.17         Capital Changes.  So long as any Debentures remain outstanding,the Company shall not undertake a reverse or forward stock split orreclassification of the Common Stock without the prior written consent of thePurchasers then holding at least 67% of the Principal Amount outstanding of theDebentures.

##  

## 4.18         Certain Amendments.

##  

### (a)          TheCompany entered into the following agreements: (i) the Securities PurchaseAgreement, dated September 15, 2005 by and among the Company and thepurchasers signatory thereto (the “2005 Purchase Agreement”) for theissuance of amortizing convertible debentures (the “2005 Debentures”) andcommon stock purchase warrants (the “2005 Warrants”), (ii) theSecurities Purchase Agreement, dated August 30, 2006 by and among theCompany and the purchasers signatory thereto (the “2006 Purchase Agreement”)for the issuance of amortizing convertible debentures (the “2006 Debentures”)and common stock purchase warrants (the “2006 Warrants”), and (iii) theSecurities Purchase Agreement, dated August 31, 2007 by and among theCompany and the purchasers signatory thereto (the “2007 Purchase Agreement”,collectively with the 2005 Purchase Agreement and the 2006 Purchase Agreement,the “Prior Purchase Agreements”) for the issuance of amortizingconvertible debentures (the “2007 Debentures”, together with the 2005Debentures and the 2006 Debentures, the “Prior Debentures”) and commonstock purchase warrants (the “2007 Warrants”, together with the 2005Warrants and the 2006 Warrants, the “Prior Warrants”) and the SecurityAgreement, dated August 31, 2007, by and among the Company and the securedparties signatory thereto (the “2007 Security Agreement”). The PriorPurchase Agreements, 

 

31

----

 

### Prior Debentures, Prior Warrants and 2007 Security Agreement arehereinafter collectively referred to as the “Prior Transaction Documents.”In connection with the transactions contemplated by the Transaction Documents,and, if and only if, (y) a purchaser from a Prior Purchase Agreement (“PriorPurchaser”) is also a Purchaser and (z) such Purchaser still holds thePrior Debentures or the Prior Warrants, the Company hereby agrees to amend theterms of the applicable Prior Transaction Documents as follows:

###  

#### (i)            The“Conversion Price” of the Prior Debentures held by Purchasers purchasing theirpro-rata share (based on initial purchases of the 2007 Debentures) of Debenturehereunder (but not the Prior Debenture held by non-participating PriorPurchasers) is hereby reduced to equal $0.15, subject to further adjustmenttherein;

####  

#### (ii)           The“Exercise Price” of the Prior Warrants held by Purchasers purchasing theirpro-rata share (based on initial purchases of the 2007 Debentures) ofDebentures hereunder (but not the Prior Warrants held by non-participatingPrior Purchasers) is hereby reduced to equal $0.165, subject to furtheradjustment therein;

####  

#### (iii)          Thedefinition of “Exempt Issuance” in each of the Prior Purchase Agreements shallinclude (in addition to existing Exempt Issuances) (i) the transactionscontemplated under this Agreement, (ii) the issuance of additionalDebentures to Prior Purchasers in lieu of cash payments of any outstanding feesor expenses incurred prior to the date hereof pursuant to the terms of thePrior Transaction Documents on a $1 for $1 basis, (iii) the $600,000principal amount of unsecured bridge notes issued by the Company to on February 19,2008 to JMJ Financial and the $130,000 in unsecured convertible notes issued toPDPI LLC and The Shapiro Family Trust on March 21, 2008 and (iv) theissuance of Debentures to service providers of the Company in lieu of cash paymentsfor amounts incurred prior to the date hereof and set forth in the DisclosureSchedules, including the payment of placement agent fees hereunder and accruedbut unpaid legal and consulting fees and expenses;

####  

#### (iv)          Thedefinition of “Variable Rate Transaction” in each of the Prior PurchaseAgreements is amended to exclude the transactions contemplated under thisAgreement, the $600,000 principal amount of unsecured bridge notes issued bythe Company to on February 19, 2008 to JMJ Financial and the $130,000 inunsecured convertible notes issued to PDPI LLC and The Shapiro Family Trust on March 21,2008;

####  

#### (v)           Section 9(b)(ii) ofthe 2007 Security Agreement is hereby amended to be: “(ii) agree that the2006 Transaction Documents or any provision thereof, may be modified or amendedor the provisions hereof waived with the prior written consent of the Companyand the holders holding at least 67% of the principal amount of the Company’sdebentures held by the Secured Parties.”;

 

32

----

 

#### (vi)          Section 9(c)(ii) ofthe 2007 Security Agreement is amended to be: “(ii) agree that the 2005Transaction Documents or any provision thereof, may be modified or amended orthe provisions hereof waived with the prior written consent of the Company andthe holders holding at least 67% of the principal amount of the Company’sdebentures held by the Secured Parties.”;

####  

#### (vii)         Thesecond sentence of Section 19(c) of the 2007 Security Agreement isamended to be: “No provision of the Transaction Documents may be waived,modified, supplemented or amended except in a written instrument signed by theDebtors and the holders holding at least 67% of the principal amount of theCompany’s debentures held by the Secured Parties.”;

####  

#### (viii)        Section 9of the 2007 Security Agreement is hereby amended such that the “Obligations”under the Security Agreement shall rank in the order or priority paripassu  and pro-rata with the “Obligations”under the 2007 Security Agreement; and

####  

#### (ix)           SuchPurchaser consents to the consummation of the transaction contemplated pursuantto this Agreement and waives all items set forth on Schedule 4.18(a).

####  

### Subject to the amendments provided in this Section 4.18, all ofthe terms and conditions of the Prior Transaction Documents shall continue in fullforce and effect after the execution of this Agreement and shall not be in anyway changed, modified or superseded by the terms set forth herein, includingbut not limited to, any other obligations the Company may have to thepurchasers under the Prior Purchase Agreements. Except as expressly set forth herein, this Section 4.18 shall notbe deemed to be a waiver, amendment or modification of any provisions of thePrior Purchase Agreements or the respective transaction documents or of anyright, power or remedy of the purchasers, or constitute a waiver of anyprovision of the Prior Purchase Agreements or the respective transactiondocuments (except to the extent set forth in this Section 4.18), or anyother document, instrument and/or agreement executed or delivered in connectiontherewith, in each case whether arising before or after the date hereof or as aresult of performance hereunder or thereunder.

###  

### (b)           ThePurchasers and the Company agree that the Prior Transaction Documents arehereby amended to provide that if a Prior Purchaser is not a Purchaser pursuantto this Agreement, such Prior Purchaser shall be deemed to have consented tothe consummation of the transaction contemplated pursuant to this Agreement,the $600,000 principal amount of unsecured bridge notes issued by the Companyto on February 19, 2008 to JMJ Financial and the $130,000 in unsecuredconvertible notes issued to PDPI LLC and The Shapiro Family Trust on March 21,2008, waived any Events of Default or default that has occurred or wouldotherwise occur under the Prior Transaction Documents, or any registrationrights agreements (without waiving the right of the Prior Purchasers to receiveaccrued but unpaid liquidated damages in kind incurred 

 

33

----

 

### prior to the date hereof), documents or agreements related to thefinancing contemplated by the Prior Transaction Documents, and waived anyrights to prohibit, participate in, collect liquidated damages with respect toor otherwise take any action solely as a result of the Company entering intoand consummating this Agreement, the $600,000 principal amount of unsecuredbridge notes issued by the Company to on February 19, 2008 to JMJFinancial or the $130,000 in unsecured convertible notes issued to PDPI LLC andThe Shapiro Family Trust on March 21, 2008.

###  

# **ARTICLE V.**

**MISCELLANEOUS**

** **

## 5.1           Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’sobligations hereunder only and without any effect whatsoever on the obligationsbetween the Company and the other Purchasers, by written notice to the otherparties, if the Closing has not been consummated on or before March       ,2008; provided, however, that such termination will not affectthe right of any party to sue for any breach by the other party (or parties).

##  

## 5.2           Fees and Expenses.  At the Closing, the Company has agreed toreimburse T.R. Winston & Company, LLC (“T.R. Winston”) thenon-accountable sum of $20,000 for its legal fees and expenses, $10,000 ofwhich has been paid prior to closing. Accordingly, in lieu of the foregoing payments, the aggregate amountthat T.R. Winston is to pay for the Securities at the Closing shall be reducedby $10,000 in lieu thereof. The Company shall deliver to each Purchaser, priorto the Closing, a completed and executed copy of the Closing Statement attachedhereto as Annex A.  Except asexpressly set forth in the Transaction Documents to the contrary, each partyshall pay the fees and expenses of its advisers, counsel, accountants and otherexperts, if any, and all other expenses incurred by such party incident to thenegotiation, preparation, execution, delivery and performance of thisAgreement.  The Company shall pay alltransfer agent fees, stamp taxes and other taxes and duties levied inconnection with the delivery of any Securities to the Purchasers.

##  

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

##  

## 5.4           Notices.  Any and all notices or other communicationsor deliveries required or permitted to be provided hereunder shall be inwriting and shall be deemed given and effective on the earliest of: (a) thedate of transmission, if such notice or communication is delivered viafacsimile at the facsimile number set forth on the signature pages attachedhereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) thenext Trading Day after the date of transmission, if such notice orcommunication is delivered via facsimile at the facsimile number set forth onthe signature pages attached hereto on a day that is not a Trading Day orlater than 5:30 p.m. (New York City time) on any Trading Day, (c) thesecond Trading Day following the date of mailing, if sent by U.S. nationallyrecognized overnight courier service or (d) upon actual 

 

34

----

 

## receipt by the party to whom such notice isrequired to be given.  The address forsuch notices and communications shall be as set forth on the signature pages attachedhereto.

##  

## 5.5           Amendments;Waivers.  No provision of thisAgreement may be waived, modified, supplemented or amended except in a writteninstrument signed, in the case of an amendment, by the Company and thePurchasers holding at least 67% in interest of the Securities then outstandingor, in the case of a waiver, by the party against whom enforcement of any suchwaived provision is sought.  No waiver ofany default with respect to any provision, condition or requirement of thisAgreement shall be deemed to be a continuing waiver in the future or a waiverof any subsequent default or a waiver of any other provision, condition orrequirement hereof, nor shall any delay or omission of any party to exerciseany right hereunder in any manner impair the exercise of any such right.

##  

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

##  

## 5.7           Successors andAssigns.  This Agreement shall bebinding upon and inure to the benefit of the parties and their successors andpermitted assigns.  The Company may notassign this Agreement or any rights or obligations hereunder without the priorwritten consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of itsrights under this Agreement to any Person to whom such Purchaser assigns ortransfers any Securities, provided that such transferee agrees in writing to bebound, with respect to the transferred Securities, by the provisions of theTransaction Documents that apply to the “Purchasers.”

##  

## 5.8           No Third-PartyBeneficiaries.  This Agreement isintended for the benefit of the parties hereto and their respective successorsand permitted assigns and is not for the benefit of, nor may any provisionhereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

##  

## 5.9           Governing Law.  All questions concerning the construction,validity, enforcement and interpretation of the Transaction Documents shall begoverned by and construed and enforced in accordance with the internal laws ofthe State of New York, without regard to the principles of conflicts of lawthereof.  Each party agrees that alllegal proceedings concerning the interpretations, enforcement and defense ofthe transactions contemplated by this Agreement and any other TransactionDocuments (whether brought against a party hereto or its respective affiliates,directors, officers, shareholders, employees or agents) shall be commencedexclusively in the state and federal courts sitting in the City of NewYork.  Each party hereby irrevocablysubmits to the exclusive jurisdiction of the state and federal courts sittingin the City of New York, borough of Manhattan for the adjudication of anydispute hereunder or in connection herewith or with any transactioncontemplated hereby or discussed herein (including with respect to theenforcement of any of the Transaction Documents), and hereby irrevocablywaives, and agrees not to assert in any suit, action or proceeding, any claimthat it is not personally subject to the jurisdiction of any such court, thatsuch suit, action or proceeding is improper or is an inconvenient venue forsuch proceeding.  Each party herebyirrevocably waives personal service of process and consents to process beingserved in any such suit, action or proceeding by mailing a copy thereof viaregistered or certified mail or overnight delivery (with evidence of delivery)to 

 

35

----

 

## such party atthe address in effect for notices to it under this Agreement and agrees thatsuch service shall constitute good and sufficient service of process and noticethereof.  Nothing contained herein shallbe deemed to limit in any way any right to serve process in any other mannerpermitted by law.   If either party shallcommence an action or proceeding to enforce any provisions of the TransactionDocuments, then the prevailing party in such action or proceeding shall be reimbursedby the other party for its reasonable attorneys’ fees and other costs andexpenses incurred with the investigation, preparation and prosecution of suchaction or proceeding.

##  

## 5.10         Survival.  The representations and warranties shallsurvive the Closing and the delivery of the Securities for the applicablestatute of limitations.

##  

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

##  

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

##  

## 5.13         Rescission andWithdrawal Right.  Notwithstandinganything to the contrary contained in (and without limiting any similarprovisions of) any of the other Transaction Documents, whenever any Purchaserexercises a right, election, demand or option under a Transaction Document andthe Company does not timely perform its related obligations within the periodstherein provided, then such Purchaser may rescind or withdraw, in its solediscretion from time to time upon written notice to the Company, any relevantnotice, demand or election in whole or in part without prejudice to its futureactions and rights; provided, however, that in the case of arescission of a conversion of a Debenture or exercise of a Warrant, thePurchaser shall be required to return any shares of Common Stock subject to anysuch rescinded conversion or exercise notice.

##  

## 5.14         Replacement ofSecurities.  If any certificate orinstrument evidencing any Securities is mutilated, lost, stolen or destroyed,the Company shall issue or cause to be issued in exchange and substitution forand upon cancellation thereof (in the case of mutilation), or in lieu of andsubstitution therefor, a new certificate or instrument, but only upon receiptof evidence 

 

36

----

 

## reasonablysatisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate orinstrument under such circumstances shall also pay any reasonable third-partycosts (including customary indemnity) associated with the issuance of suchreplacement Securities.

##  

## 5.15         Remedies.  In addition to being entitled to exercise allrights provided herein or granted by law, including recovery of damages, eachof the Purchasers and the Company will be entitled to specific performanceunder the Transaction Documents.  Theparties agree that monetary damages may not be adequate compensation for anyloss incurred by reason of any breach of obligations contained in the TransactionDocuments and hereby agrees to waive and not to assert in any action forspecific performance of any such obligation the defense that a remedy at lawwould be adequate.

##  

## 5.16         Payment Set Aside.To the extent that the Company makes a payment or payments to any Purchaserpursuant to any Transaction Document or a Purchaser enforces or exercises itsrights thereunder, and such payment or payments or the proceeds of suchenforcement or exercise or any part thereof are subsequently invalidated,declared to be fraudulent or preferential, set aside, recovered from, disgorgedby or are required to be refunded, repaid or otherwise restored to the Company,a trustee, receiver or any other person under any law (including, withoutlimitation, any bankruptcy law, state or federal law, common law or equitablecause of action), then to the extent of any such restoration the obligation orpart thereof originally intended to be satisfied shall be revived and continuedin full force and effect as if such payment had not been made or suchenforcement or setoff had not occurred.

##  

## 5.17         Usury.  To the extent it may lawfully do so, theCompany hereby agrees not to insist upon or plead or in any manner whatsoeverclaim, and will resist any and all efforts to be compelled to take the benefitor advantage of, usury laws wherever enacted, now or at any time hereafter inforce, in connection with any claim, action or proceeding that may be broughtby any Purchaser in order to enforce any right or remedy under any TransactionDocument.  Notwithstanding any provisionto the contrary contained in any Transaction Document, it is expressly agreedand provided that the total liability of the Company under the TransactionDocuments for payments in the nature of interest shall not exceed the maximumlawful rate authorized under applicable law (the “Maximum Rate”), and,without limiting the foregoing, in no event shall any rate of interest ordefault interest, or both of them, when aggregated with any other sums in thenature of interest that the Company may be obligated to pay under theTransaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed bylaw and applicable to the Transaction Documents is increased or decreased bystatute or any official governmental action subsequent to the date hereof, thenew maximum contract rate of interest allowed by law will be the Maximum Rateapplicable to the Transaction Documents from the effective date forward, unlesssuch application is precluded by applicable law.  If under any circumstances whatsoever,interest in excess of the Maximum Rate is paid by the Company to any Purchaserwith respect to indebtedness evidenced by the Transaction Documents, such excessshall be applied by such Purchaser to the unpaid principal balance of any suchindebtedness or be refunded to the Company, the manner of handling such excessto be at such Purchaser’s election.

 

37

----

 

## 5.18         Independent Natureof Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document areseveral and not joint with the obligations of any other Purchaser, and noPurchaser shall be responsible in any way for the performance or non-performanceof the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any otherTransaction Document, and no action taken by any Purchaser pursuant thereto,shall be deemed to constitute the Purchasers as a partnership, an association,a joint venture or any other kind of entity, or create a presumption that thePurchasers are in any way acting in concert or as a group with respect to suchobligations or the transactions contemplated by the Transaction Documents.  Each Purchaser shall be entitled toindependently protect and enforce its rights, including, without limitation,the rights arising out of this Agreement or out of the other TransactionDocuments, and it shall not be necessary for any other Purchaser to be joinedas an additional party in any proceeding for such purpose.  Each Purchaser has been represented by itsown separate legal counsel in their review and negotiation of the TransactionDocuments.  For reasons of administrativeconvenience only, Purchasers and their respective counsel have chosen tocommunicate with the Company through FWS. FWS does not represent all of the Purchasers but only T.R. Winston. TheCompany has elected to provide all Purchasers with the same terms and TransactionDocuments for the convenience of the Company and not because it was required orrequested to do so by the Purchasers.

##  

## 5.19         Liquidated Damages.  The Company’s obligations to pay any partialliquidated damages or other amounts owing under the Transaction Documents is acontinuing obligation of the Company and shall not terminate until all unpaidpartial liquidated damages and other amounts have been paid notwithstanding thefact that the instrument or security pursuant to which such partial liquidateddamages or other amounts are due and payable shall have been canceled.

##  

## 5.20         Saturdays,Sundays, Holidays, etc.  If the lastor appointed day for the taking of any action or the expiration of any rightrequired or granted herein shall not be a Business Day, then such action may betaken or such right may be exercised on the next succeeding Business Day.

##  

## 5.21         Construction.The parties agree that each of them and/or their respective counsel hasreviewed and had an opportunity to revise the Transaction Documents and,therefore, the normal rule of construction to the effect that anyambiguities are to be resolved against the drafting party shall not be employedin the interpretation of the Transaction Documents or any amendments hereto.

##  

## 5.22         **WAIVER OFJURY TRIAL.  IN ANY ACTION,SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHERPARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENTPERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLYAND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.**

 

38

----

 

## *(Signature Pages Follow)*

 

39

----

 

## IN WITNESSWHEREOF, the parties hereto have caused this Securities Purchase Agreement tobe duly executed by their respective authorized signatories as of the datefirst indicated above.

 
| **ADVANCED CELL TECHNOLOGY, INC.**                                  | Address for Notice:         |
|---------------------------------------------------------------------|-----------------------------|
| ** **                                                          |                        |
| ** **                                                          |                        |
| By:                                                                 | /s/ William M. Caldwell, IV |   | Fax: 310-481-0833 |
|        Name: William M. Caldwell, IV  |                        |
|        Title: Chairman & CEO |                        |
| With a copy to (which shall not constitute  notice):                |                        |
|                                                                     |                             |  |  |

** **

** **

[REMAINDER OF PAGEINTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASERFOLLOWS]

 

40

----

 

[PURCHASER SIGNATURE PAGES TO ACTC SECURITIESPURCHASE AGREEMENT]

 

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

 
| Name of Purchaser:                                                                     |   |   |
|----------------------------------------------------------------------------------------|--------|--------|
|                                                                                   |   |
| *Signature of Authorized Signatory of  Purchaser*:                                     |   |   |
| * *                                                                               |   |
| Name of Authorized Signatory:                                                          |   |   |
|                                                                                   |   |
| Title of Authorized Signatory:                                                         |   |   |
|                                                                                   |   |
| Email Address of Authorized Signatory:                                                 |   |   |
|                                                                                   |   |
| Facsimile Number of Authorized Signatory:                                              |   |   |
|                                                                                   |   |
|                                                                                   |   |
| Address for Notice of Purchaser:                                                       |   |
|                                                                                   |   |
|                                                                                   |   |
| Address for Delivery of Securities for  Purchaser (if not same as address for notice): |   |
|                                                                                   |   |
|                                                                                   |   |
| Subscription Amount:                                                                   |   |
|                                                                                   |   |
| Principal Amount *(1.255x  Subscription Amount)*:                                      |   |
|                                                                                   |   |
| Warrant Shares:                                                                        |   |
|                                                                                   |   |
| Adjusted Conversion Price for 2005  Debenture *(if applicable)*:                       |   |
| Adjusted Conversion Price for 2006  Debenture: *(if applicable)*:                      |   |
| Adjusted Conversion Price for 2007  Debenture: *(if applicable)*:                      |   |
| Adjusted Exercise Price for 2005 Warrant: *(if applicable)*:                           |   |
| Adjusted Exercise Price for 2006 Warrant: *(if applicable)*:                           |   |
| Adjusted Exercise Price for 2007 Warrant: *(if applicable)*:                           |   |
|                                                                                        |        |        |  |  |  |  |  |

 

 

EIN Number:  **[PROVIDETHIS UNDER SEPARATE COVER]**

 

41

----