**Exhibit 4.28**

 

**SECURITIESPURCHASE AGREEMENT**

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**THIS SECURITIES PURCHASE AGREEMENT**(this “**Agreement**”), dated as of September 12,2008, by and among Open Energy Corporation, a Nevada corporation (the “**Company**”) and The Quercus Trust (the “**Buyer**”).

 

**WITNESSETH**

 

A.            **WHEREAS**, the Company and the Buyer are executing and delivering thisAgreement in reliance upon the exemption from securities registration affordedby Section 4(2) of the Securities Act of 1933, as amended (the “**Securities Act**”), and Rule 506 ofRegulation D (“**Regulation D**”)as promulgated by the United States Securities and Exchange Commission (the “**SEC**”) under the Securities Act;

 

B.            **WHEREAS**, the Buyer wishes to purchase, and the Company wishes to sell,upon the terms and conditions stated in this Agreement, warrants, insubstantially the form attached hereto as Exhibit A (the “**September 2008 Warrants**”) to acquireup to two hundred thirty-five million (235,000,000) shares of Common Stock (asexercised, the “**September 2008 Warrant Shares**”);

 

C.            **WHEREAS**, contemporaneously with the execution and delivery of thisAgreement, the Company and the Buyer desire to amend, as described in Section 4herein (i) that certain Series B Convertible Notes issued in favor ofthe Buyer on September 19, 2007 and in favor of certain other investors(the “**Other Series B Holders**”) on December 7,2007 (collectively the “**Series B Notes**”),(ii) those certain Series B Warrants currently held by the Buyer andthe Other Series B Holders (collectively, the “**Series BWarrants**”), and (iii) the Secured Promissory Note and Loan andSecurity Agreement dated April 30, 2008 by and between the Company andBuyer (the “**Secured Loan**”) (collectively, the “**Amendments”** and together with the purchase of the September 2008Warrants, the “**Transaction**”), which amendmentsare approved by Buyer hereby in its capacity as the holder of overninety-five percent (95%) of the outstanding principal amount of Series BNotes;

 

D.            **WHEREAS**, following the consummation of the Transaction, the Company also desiresto amend its Articles of Incorporation to effect the amendment of the Series BNotes and to increase the number of authorized shares of Common Stock to enablethe exercise of all of the September 2008 Warrants and of all other issuedand outstanding convertible securities, all in accordance with their respectiveterms; and

 

E.             **WHEREAS**, the September 2008 Warrants and the September 2008Warrant Shares are sometimes collectively referred to herein as the “**Securities**.”

 

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**NOW, THEREFORE**, inconsideration of the mutual covenants and other agreements contained in thisAgreement, the Company and Buyerhereby agree as follows:

 

# 1.             PURCHASE AND SALE OF WARRANTS.

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## (a)   Purchase of Warrants.

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### (i)            Warrants.** **Subjectto the satisfaction (or waiver) of the conditions set forth in Sections 7 and 8below, the Company shall issue and sell to Buyer, and Buyer agrees to purchasefrom the Company on the Closing Date (as defined below) the September 2008Warrants (the “**Closing**”).

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### (ii)           Closing.  The date and time of the Closing shall be nolater than September 19, 2008 (or such later date as is mutually agreed toby the Company and Buyer) (the “**Closing Date**”)after notification of satisfaction (or waiver) of the conditions to the Closingset forth in Sections 7 and 8 below, to occur by exchange of electronic orfacsimile signature pages.

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### (iii)          PurchasePrice.  The aggregate purchase pricefor the September 2008 Warrants is Four Million Seven Hundred ThousandDollars ($4,700,000) (the “**Purchase Price**”),consisting of cash in the amount of Four Million Two Hundred Thousand Dollars($4,200,000), forgiveness of interest upon the Series B Note held by Buyerthrough June 30, 2008, in the amount of Three Hundred Thousand Dollars($300,000) and a loan modification fee of Two Hundred Thousand Dollars($200,000) with respect to the Secured Loan.

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## (b)   Form ofPayment.  On the Closing Date, (i) Buyershall deliver the Purchase Price to the Company in the form of cash of FourMillion Two Hundred Thousand Dollars ($4,200,000) by wire transfer of immediatelyavailable funds, an acknowledgement of the forgiveness of interest and anacknowledgement of the modification of the Secured Loan, and (ii) theCompany shall deliver to the Buyer the September 2008 Warrants, dulyexecuted on behalf of the Company and registered in the name of Buyer or itsdesignee.

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# 2.             BUYER’S REPRESENTATIONS AND WARRANTIES.  Buyer represents and warrants that:

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## (a)   Investment Purpose.  Buyer is acquiring the September 2008Warrants, and upon conversion of such Warrants will acquire the September 2008Warrant Shares issuable upon exercise of the September 2008 Warrants, asprincipal for its own account and not with a view towards, or for resale inconnection with, the public sale or distribution thereof, except pursuant tosales registered or exempted under the Securities Act; provided, however, thatby making the representations herein, Buyer reserves the right to dispose ofthe Securities at any time in accordance with or pursuant to a registrationstatement or an exemption under the Securities Act and pursuant to theapplicable terms of the Transaction Documents (as defined in Section 3(b)).  Buyer is acquiring the Securities hereunderin the ordinary course of its business. Buyer does not presently have any agreement or understanding, directlyor indirectly, with any Person (as defined in Section 3(r)) to distributeany of the Securities.

 

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## (b)   Accredited InvestorStatus.  At the time Buyer wasoffered the Securities, it was, at the date hereof, and on each date on whichit exercises any Warrants, it will be either: (i) an “accredited investor”as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) underthe Securities Act or (ii) a “qualified institutional buyer” as defined inRule 144A(a) under the Securities Act.  Buyer is not required to be registered as abroker-dealer under Section 15 of the Securities Exchange Act of 1934, asamended (the “**Exchange Act**”).

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## (c)   Reliance on Exemptions.  Buyer understands that the Securities arebeing offered and sold to it in reliance on specific exemptions from theregistration requirements of United States federal and state securities lawsand that the Company is relying in part upon the truth and accuracy of, andBuyer’s compliance with, the representations, warranties, agreements,acknowledgments and understandings of Buyer set forth herein in order todetermine the availability of such exemptions and the eligibility of Buyer toacquire the Securities.

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## (d)   Information.  Buyer and its advisors, if any, have beenfurnished with all materials relating to the business, finances and operationsof the Company and materials deemed relevant to making an informed investmentdecision relating to the offer and sale of the Securities that have beenrequested by Buyer.  Buyer and itsadvisors, if any, have been afforded the opportunity to ask questions of theCompany.  Neither such inquiries nor anyother due diligence investigations conducted by Buyer or its advisors, if any,or its representatives shall modify, amend or affect Buyer’s right to rely onthe Company’s representations and warranties contained herein.  Buyer understands that its investment in theSecurities involves a high degree of risk and is able to afford a complete lossof such investment.  Buyer has soughtsuch accounting, legal and tax advice as it has considered necessary to make aninformed investment decision with respect to its acquisition of the Securities.

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## (e)   No Governmental Review.  Buyer understands that no United Statesfederal or state agency or any other government or governmental agency haspassed on or made any recommendation or endorsement of the Securities or thefairness or suitability of the investment in the Securities nor have suchauthorities passed upon or endorsed the merits of the offering of theSecurities.

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## (f)    Transfer or Resale.  Buyer understands that except as provided inthe Registration Rights Agreement: (i) the Securities have not been andare not being registered under the Securities Act or any state securities laws,and may not be offered for sale, sold, assigned or transferred unless (A) subsequentlyregistered thereunder, (B) Buyer shall have delivered to the Company anopinion of counsel, in a form reasonably acceptable to the Company, to theeffect that such Securities to be sold, assigned or transferred may be sold,assigned or transferred pursuant to an exemption from such registration, or (C) Buyerprovides the Company with reasonable assurance that such Securities can besold, assigned or transferred pursuant to Rule 144 or Rule 144Apromulgated under the Securities Act, as amended (or a successor rule thereto)(collectively, “**Rule 144**”),notwithstanding the foregoing, the requirement to deliver a legal opinion asset out in clause (B) above shall not apply to transfers to an affiliateof the Buyer; (ii) any sale of the Securities made in reliance on Rule 144may be made only in accordance with the terms of Rule 144 and further, if 

 

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## Rule 144 is not applicable, any resaleof the Securities under circumstances in which the seller (or the Personthrough whom the sale is made) may be deemed to be an underwriter (as that termis defined in the Securities Act) may require compliance with some otherexemption under the Securities Act or the rules and regulations of the SECthereunder; and (iii) neither the Company nor any other Person is underany obligation to register the Securities under the Securities Act or any statesecurities laws or to comply with the terms and conditions of any exemptionthereunder.  The Securities may bepledged in connection with a bona fide margin account or other loan orfinancing arrangement secured by the Securities and such pledge of Securitiesshall not be deemed to be a transfer, sale or assignment of the Securitieshereunder, and no Buyer effecting a pledge of Securities shall be required toprovide the Company with any notice thereof or otherwise make any delivery tothe Company pursuant to this Agreement or any other Transaction Document (asdefined in Section 3(b)), including, without limitation, this Section 2(f).** **TheCompany reserves the right to place stop transfer instructions against theshares and certificates for the September 2008 Warrant Shares.

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## (g)   Legends.  Buyer understands that the certificatesrepresenting the September 2008 Warrants and, solely with respect to the September 2008Warrant Shares until such time as the resale of the September 2008 WarrantShares has been registered under the Securities Act as contemplated by theRegistration Rights Agreement, the stock certificates representing the September 2008Warrant Shares, except as set forth below, shall bear any legend as required bythe “blue sky” laws of any state and a restrictive legend in substantially thefollowing form (and a stop-transfer order may be placed against transfer ofsuch stock certificates):

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NEITHER THEISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THESECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIESLAWS.  THE SECURITIES HAVE BEEN ACQUIREDSOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOTBE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) ANEFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLETO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESSSOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIESMAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOANOR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issuea certificate without such legend to the holder of the Securities upon which itis stamped, if, unless otherwise required 

 

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by state securities laws, (i) such Securities are registered forresale under the Securities Act, (ii) in connection with a sale,assignment or other transfer, such holder provides the Company with an opinionof a law firm reasonably acceptable to the Company, in a form reasonablyacceptable to the Company, to the effect that such sale, assignment or transferof the Securities may be made without registration under the applicablerequirements of the Securities Act, or (iii) such holder provides theCompany with reasonable assurance that the Securities can be sold, assigned ortransferred pursuant to Rule 144 or Rule 144A.

 

## (h)   Authorization.  Buyer has full power and authority to enterinto the Transaction Documents to which it is a signatory.  All action on the part of the Buyer or itsTrustee necessary for authorization, execution and delivery of the TransactionDocuments has been taken or will be taken prior to the Closing.  Each such agreement shall constitute the legal,valid and binding obligations of Buyer enforceable against Buyer in accordancewith their respective terms, except as such enforceability may be limited bygeneral principles of equity or to applicable bankruptcy, insolvency,fraudulent conveyance, reorganization, moratorium, liquidation and othersimilar laws relating to, or affecting generally, the enforcement of applicablecreditors’ rights and remedies.

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## (i)    No Conflicts.  The execution, delivery and performance byBuyer of this Agreement and the Amendments and the consummation by Buyer of theTransaction will not (i) result in a violation of the organizationaldocuments of Buyer or (ii) conflict with, or constitute a default (or anevent which with notice or lapse of time or both would become a default) under,or give to others any rights of termination, amendment, acceleration orcancellation of, any agreement, indenture or instrument to which Buyer is aparty, or (iii) result in a violation of any law, rule, regulation, order,judgment  or decree (including federaland state securities laws) applicable to Buyer, except in the case of clauses (ii) and(iii) above, for such conflicts, defaults, rights or violations whichwould not, individually or in the aggregate, reasonably be expected to have amaterial adverse effect on the ability of Buyer to perform its obligationshereunder.

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## (j)    Residency.  Buyer is a resident of the State ofCalifornia.

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## (k)   No Legal Advice From theCompany.  Buyer acknowledges that ithad the opportunity to review this Agreement and the transactions contemplatedby this Agreement with his or its own legal counsel and investment and taxadvisors.  Buyer is relying solely onsuch counsel and advisors and not on any statements or representations of theCompany or any of its representatives or agents for legal, tax or investmentadvice with respect to this investment, the Transaction Documents, thetransactions contemplated herein or therein or the securities laws of anyjurisdiction.

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## (l)    Buyer’s Broker Fees.  Buyer shall be responsible for the payment ofany placement agent’s fees, financial advisory fees, or brokers’ commissionsfor placement agents, financial advisors and/or brokers engaged by Buyerrelating to or arising out of the transactions contemplated hereby.

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## (m)  Certain Trading Activities.  Other than the transactions contemplatedherein, since the time that Buyer was first contacted by the Company or anyother Person 

 

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## regarding thisinvestment in the Company, neither the Buyer nor any Affiliate of Buyer which (x) hadknowledge of the transactions contemplated hereby, (y) has or sharesdiscretion relating to Buyer’s investments or trading or information concerningBuyer’s investments and (z) is subject to Buyer’s review or inputconcerning such Affiliate’s investments or trading (collectively, “**Trading Affiliates**”) has directlyor indirectly, nor has any Person acting on behalf of or pursuant to anyunderstanding with Buyer or Trading Affiliate, effected or agreed to effect anytransactions in the securities of the Company. Buyer hereby covenants and agrees not to, and shall cause its TradingAffiliates not to, engage, directly or indirectly, in any transactions in thesecurities of the Company or involving the Company’s securities during theperiod from the date hereof until the earlier to occur of (i) such time asthe transactions contemplated by this Agreement are first publicly announced asdescribed in Section 4(h) hereof or (ii) such time as thisAgreement is terminated in full pursuant to Section 8 hereof.  Other than to other Persons party to thisAgreement and those expressly acknowledged by the Company, Buyer has maintainedthe confidentiality of the existence and terms of this transaction.

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# 3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  Except as set forth in the SEC Documents (asdefined in Section 3(k)) the Disclosure Schedule attached hereto (the “**Disclosure Schedule**”), which Disclosure Schedule shall bedeemed a part hereof and shall qualify any representation made herein to theextent of the disclosure contained in the corresponding section of theDisclosure Schedule, the Company hereby represents and warrants to Buyer that,as of the date hereof and as of the Closing Date:

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## (a)   Organization andQualification.  The Company and its “**Subsidiaries**” (which for purposes of thisAgreement means any joint venture or any entity in which the Company, directlyor indirectly, owns any of the capital stock or holds an equity or similarinterest) are entities validly existing and in good standing under the laws ofthe jurisdiction in which they are formed, and have the requisite power andauthorization to own their properties and to carry on their business as nowbeing conducted.  Each of the Company andits Subsidiaries is duly qualified as a foreign entity to do business and, isin good standing in every jurisdiction in which its ownership of property orthe nature of the business conducted by it makes such qualification necessary,except to the extent that the failure to be so qualified or be in good standingwould not reasonably be expected to have a Material Adverse Effect.  As used in this Agreement, “**Material Adverse Effect**” means any materialadverse effect on the business, properties, assets, operations, results ofoperations or condition (financial or otherwise) of the Company and itsSubsidiaries, individually or taken as a whole, or on the transactionscontemplated hereby or in the other Transaction Documents or by the agreementsand instruments to be entered into in connection herewith or therewith, or onthe authority or ability of the Company to perform in any material respect itsobligations under the Transaction Documents (as defined below).

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## (b)   Authorization;Enforcement; Validity.  Except ascontemplated herein: (i) the Company has the requisite corporate power andauthority to enter into and perform its obligations under this Agreement, the September 2008Warrants, and the Amendments, and each of the other agreements entered into bythe parties hereto in connection with the Transaction (collectively, the “**Transaction Documents**”) and to issue theSecurities in accordance with the terms hereof and thereof; (ii) theexecution and delivery of the 

 

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## Transaction Documents by the Company and theconsummation by the Company of the transactions contemplated hereby andthereby, including, without limitation, the issuance of the September 2008Warrants, the reservation for issuance and the issuance of the September 2008Warrant Shares****issuable uponconversion of the September 2008 Warrants have been duly authorized by theCompany’s Board of Directors and, except as set forth in Section 5(c), nofurther filing, consent, or authorization is required by the Company, its Boardof Directors or its stockholders; and (iii) this Agreement and the otherTransaction Documents of even date herewith have been duly executed anddelivered by the Company and constitute the legal, valid and bindingobligations of the Company, enforceable against the Company in accordance withtheir respective terms, except as such enforceability may be limited by generalprinciples of equity or applicable bankruptcy, insolvency, reorganization,moratorium, liquidation or similar laws relating to, or affecting generally,the enforcement of applicable creditors’ rights and remedies.

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## (c)   Issuance of Securities.  As set forth in Section 5(c) below,as soon as commercially practicable after the Closing Date, and upon approvalby the Company’s stockholders, the Company shall amend its Articles of Incorporationin the form attached hereto as Exhibit B (the “**AmendedArticles**”) to, among other things, increase the number of shares ofauthorized Common Stock to allow for conversion of the September 2008Warrants and to provide certain voting rights with respect to the Series BNotes (as more particularly set forth in Section 4(a) below).  Following filing of the Amended Articles, theCompany shall have reserved from its duly authorized capital stock****not less than the sum of one hundred twenty percent (120%)of the maximum number of shares of Common Stock issuable (x) upon exerciseof the September 2008 Warrants and all of the Company’s other outstandingsecurities which are convertible or exercisable into shares of Common Stock.Upon exercise in accordance with the September 2008 Warrants, the September 2008Warrant Shares, will be validly issued, fully paid and nonassessable and freefrom all preemptive or similar rights, taxes, liens and charges with respect tothe issue thereof, with the holders being entitled to all rights****accorded to a holder of Common Stock.  Assuming the accuracy of each of therepresentations and warranties set forth in Section 2 of this Agreement,the offer and issuance by the Company of the Securities is exempt fromregistration under the Securities Act.

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## (d)   No Conflicts.  Except as set forth in the DisclosureSchedule or the SEC Documents, and after giving effect to the Amended Articles,the execution, delivery and performance of the Transaction Documents by theCompany and the consummation by the Company of the transactions contemplatedhereby and thereby (including, without limitation, the issuance of the September 2008Warrants and reservation for issuance and issuance of the September 2008Warrant Shares) will not (i) result in a violation of any articles ofincorporation, articles of formation, any articles of designations or otherconstituent documents of the Company or any of its Subsidiaries, any capitalstock of the Company or any of its Subsidiaries or bylaws of the Company or anyof its Subsidiaries or (ii) conflict with, or constitute a default (or anevent which with notice or lapse of time or both would become a default) in anyrespect under, or give to others any rights of termination, amendment,acceleration or cancellation of, any agreement, indenture or instrument towhich the Company or any of its Subsidiaries is a party, or (iii) resultin a violation of any law, rule, regulation, order, judgment or decree(including foreign, federal 

 

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## and statesecurities laws and regulations and the rules and regulations of the NASD’sOTC Bulletin Board (the “**Principal Market**”)applicable to the Company or any of its Subsidiaries or by which any propertyor asset of the Company or any of its Subsidiaries is bound or affected, exceptin the case of each of clauses (ii) and (iii), such as would not bereasonably likely to have or reasonably be expected to result in a MaterialAdverse Effect.

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## (e)   Consents.  Neither the Company nor any of itsSubsidiaries is required to obtain any consent, authorization or order of, ormake any filing or registration with, any court, governmental agency or anyregulatory or self-regulatory agency or any other Person in order for it toexecute, deliver or perform any of its obligations under or contemplated by theTransaction Documents, in each case in accordance with the terms hereof orthereof, except for the following consents, authorizations, orders, filings andregistrations (none of which is required to be filed or obtained before theClosing): (i) the filing with the SEC and the California Department ofCorporations of a Form D; (ii) the filing with the SEC of one or moreregistration statements (“**Registration Statement**”)in accordance with the requirements of the Registration Rights Agreement, and (iii) thefiling of a listing application for the Warrant Shares with the PrincipalMarket, if applicable, which shall be done pursuant to the rules of thePrincipal Market, NASD or applicable securities or “Blue Sky” laws of thestates of the United States and the filing with the Nevada Secretary of Stateof the Amended Articles.  The Company andits Subsidiaries are unaware of any facts or circumstances that might preventthe Company from obtaining or effecting any of the registration, application orfilings pursuant to the preceding sentence. The Company is not in violation of the listing requirements of thePrincipal Market and has no knowledge of any facts that would reasonably leadto delisting or suspension of the Common Stock on the Principal Market in theforeseeable future.

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## (f)    No General Solicitation;Placement Agent’s Fees.  Neither theCompany, nor any of its Subsidiaries or affiliates, nor any Person acting onits or their behalf, including, without limitation, any Person related toBuyer, has engaged in any form of general solicitation or general advertising(within the meaning of Regulation D) in connection with the offer or sale ofthe Securities.  Neither the Company norany of its Subsidiaries has engaged any placement agent or other agent inconnection with the sale of the Securities.

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## (g)   Dilutive Effect.  The Company understands and acknowledges thatthe number of the September 2008 Warrant Shares issuable upon exercise ofthe Warrants will increase in certain circumstances in accordance with theterms thereof.  The Company furtheracknowledges that its obligation to issue the September 2008 WarrantShares upon exercise of the September 2008 Warrants in accordance withthis Agreement and the September 2008 Warrants is, in each case, absoluteand unconditional, regardless of the dilutive effect that such issuance mayhave on the ownership interests of other stockholders of the Company.

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## (h)   Application of TakeoverProtections; Rights Agreement. Except as set forth in the Disclosure Schedule or the SEC Documents, theCompany and its board of directors have taken all necessary action in order torender inapplicable any control share acquisition, business combination, poisonpill (including any distribution under a rights 

 

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## agreement) orother similar anti-takeover provision under the Articles of Incorporation orthe laws of the state of its incorporation which is or could become applicableto Buyer as a result of the transactions contemplated by this Agreement,including, without limitation, the Company’s issuance of the Securities andBuyer’s ownership of the Securities.

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## (i)    SEC Documents; FinancialStatements.  Except as set forth inthe Disclosure Schedule or the SEC Documents, during the two (2) yearsprior to the date hereof, the Company has timely filed all reports, schedules,forms, statements and other documents required to be filed by it with the SECpursuant to the reporting requirements of the Exchange Act (all of theforegoing filed prior to the date hereof and all exhibits included therein andfinancial statements, notes and schedules thereto and documents incorporated byreference therein being hereinafter referred to as the “**SEC Documents**”), or has received a validextension of such time of filing and has filed all SEC Documents prior to theexpiration of any such extension.  TheCompany has delivered to Buyer or its representatives true, correct and completecopies of the SEC Documents not available on the EDGAR system.  As of their respective filing dates, the SECDocuments complied in all material respects with the requirements of theExchange Act and the rules and regulations of the SEC promulgatedthereunder applicable to the SEC Documents, and none of the SEC Documents, atthe time they were filed with the SEC, contained any untrue statement of amaterial fact or omitted to state a material fact required to be stated thereinor necessary in order to make the statements therein, in the light of thecircumstances under which they were made, not misleading.  As of their respective filing dates, thefinancial statements of the Company included in the SEC Documents complied asto form in all material respects with applicable accounting requirements andthe published rules and regulations of the SEC with respect thereto.  Such financial statements have been preparedin accordance with generally accepted accounting principles, consistentlyapplied, during the periods involved (except (i) as may be otherwise indicatedin such financial statements or the notes thereto, or (ii) in the case ofunaudited interim statements, to the extent they may exclude footnotes or maybe condensed or summary statements) and fairly present in all material respectsthe financial position of the Company as of the dates thereof and the resultsof its operations and cash flows for the periods then ended (subject, in thecase of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalfof the Company to the Buyer which is not included in the SEC Documents,including, without limitation, information referred to in Section 2(d) ofthis Agreement or in the disclosure schedule, contains any untrue statement ofa material fact or omits to state any material fact necessary in order to makethe statements therein, in the light of the circumstance under which they areor were made not misleading.

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## (j)    Absence of CertainChanges.** **Sincethe date of the latest audited financial statements included in the Company’s Form 10-KSBfiled on September 13, 2007 and except as specifically disclosed in asubsequent SEC Report filed prior to the date hereof or as set forth theDisclosure Schedule, (i) there has been no event, occurrence ordevelopment that has had or that could reasonably be expected to result in aMaterial Adverse Effect, or be required to be disclosed by the Company underapplicable securities laws on a registration statement filed with the SECrelating to an issuance and sale by the Company of its Common Stock and whichhas not been publicly announced, (ii) the Company has not incurred anyliabilities (contingent or otherwise) other than (A) trade 

 

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## payables andaccrued expenses incurred in the ordinary course of business consistent withpast practice and (B) liabilities not required to be reflected in theCompany’s financial statements pursuant to GAAP or disclosed in filings madewith the SEC, (iii) the Company has not altered its method of accounting, (iv) theCompany has not declared or made any dividend or distribution of cash or otherproperty to its stockholders or purchased, redeemed or made any agreements topurchase or redeem any shares of its capital stock and (v) the Company hasnot issued any equity securities to any officer, director or Affiliate, exceptpursuant to existing Company stock option plans or pursuant to conversion ofoutstanding debt or exercise of outstanding warrants.  The Company does not have pending before theSEC any request for confidential treatment of information.  Except as set forth in the DisclosureSchedule or the SEC Documents or as part of the Transaction or contemplatedhereby, no event, liability or development has occurred or exists with respectto the Company 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 one (1) TradingDay prior to the date that this representation is made.

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## (k)   Conduct of Business;Regulatory Permits.  Neither theCompany nor any of its Subsidiaries is in violation of any term of or indefault under its respective Certificates or Articles of Incorporation or itsBylaws or their organizational charter or bylaws, respectively.  To the Company’s knowledge, neither theCompany nor any of its Subsidiaries is in violation of any judgment, decree ororder or any statute, ordinance, rule or regulation applicable to theCompany or its Subsidiaries, and neither the Company nor any of itsSubsidiaries will conduct its business in violation of any of the foregoing,except for possible violations which could not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of theforegoing, the Company is not in violation of any of the rules, regulations orrequirements of theApproved Market and has no knowledge of any facts or circumstances thatwould reasonably lead to delisting or suspension of the Common Stock by itsApproved Market in the foreseeable future. Since January 1, 2006, (i) the Common Stock has beendesignated for quotation on the Principal Market, (ii) trading in theCommon Stock has not been suspended by the SEC or the Principal Market and (iii) theCompany has received no communication, written or oral, from the SEC or thePrincipal Market regarding the suspension or delisting of the Common Stock fromthe Principal Market.  Except as setforth in the Disclosure Schedule or in the SEC Documents, the Company and itsSubsidiaries possess all certificates, authorizations and permits issued by theappropriate regulatory authorities necessary to conduct their respectivebusinesses, except where the failure to possess such certificates,authorizations or permits would not be reasonably likely to have, individuallyor in the aggregate, a Material Adverse Effect, and neither the Company nor anysuch Subsidiary has received any written notice of proceedings relating to therevocation or modification of any such certificate, authorization or permit.

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## (l)    Foreign CorruptPractices.  Neither the Company norany of its Subsidiaries nor any director, officer, agent, employee or otherPerson acting on behalf of the Company or any of its Subsidiaries has, in thecourse of its actions for, or on behalf of, the Company or any of itsSubsidiaries (i) used any corporate funds for any unlawful 

 

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## contribution,gift, entertainment or other unlawful expenses relating to political activity; (ii) madeany direct or indirect unlawful payment to any foreign or domestic governmentofficial or employee from corporate funds; (iii) violated or is inviolation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,as amended; or (iv) made any unlawful bribe, rebate, payoff, influencepayment, kickback or other unlawful payment to any foreign or domesticgovernment official or employee

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## (m)  Sarbanes-Oxley Act.  To the knowledge of the Company, except asset forth in the Disclosure Schedule or the SEC Documents, the Company is incompliance with any and all applicable requirements of the Sarbanes-Oxley Actof 2002 that are effective as of the date hereof, and any and all applicable rules andregulations promulgated by the SEC thereunder that are effective as of the datehereof.

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## (n)   Transactions WithAffiliates.  Except as set forth inthe SEC Documents filed at least ten (10) days prior to the date hereof andother than the grant of stock options disclosed on the Disclosure Schedule,none of the senior executive officers or directors of the Company or any of itsSubsidiaries is presently a party to any transaction with the Company or any ofits Subsidiaries (other than for ordinary course services as senior executiveofficers or directors), including any contract, agreement or other arrangementproviding for the furnishing of services to or by, providing for rental of realor personal property to or from, or otherwise requiring payments to or from anysuch senior executive officer or director or, to the knowledge of the Companyor any of its Subsidiaries, any corporation, partnership, trust or other entityin which any such senior executive officer or director has a substantialinterest or is an officer, director, trustee or partner, in each case in excessof Sixty Thousand Dollars ($60,000) other than for (i) payment of salaryor consulting fees for services rendered, (ii) reimbursement for expensesincurred on behalf of the Company and (iii) other employee benefits,including stock option agreements under any stock option plan of the Company

##  

## (o)   Equity Capitalization.  As of the date hereof, the capitalization ofthe Company is as set forth in the Disclosure Schedule or the SECDocuments.  The Company has less than twohundred (200) stockholders of record. Except as disclosed in the Disclosure Schedule or the SEC Documents: (i) noneof the Company’s capital stock is subject to preemptive rights or any othersimilar rights or any liens or encumbrances suffered or permitted by theCompany; (ii) there are no outstanding options, warrants, scrip, rights tosubscribe to, calls or commitments of any character whatsoever relating to, orsecurities or rights convertible into, or exercisable or exchangeable for, anycapital stock of the Company or any of its Subsidiaries, or contracts,commitments, understandings or arrangements by which the Company or any of itsSubsidiaries is or may become bound to issue additional capital stock of theCompany or any of its Subsidiaries or options, warrants, scrip, rights tosubscribe to, calls or commitments of any character whatsoever relating to, orsecurities or rights convertible into, or exercisable or exchangeable for, anycapital stock of the Company or any of its Subsidiaries; (iii) other thanthe Series B Notes issued in September of 2007 and the Secured PromissoryNote issued to Buyer in April of 2008 (the “**Secured Note**”)there are no outstanding debt securities, notes, credit agreements, creditfacilities or other agreements, documents or instruments evidencingIndebtedness of the Company or any of its Subsidiaries or by which the Companyor any of its Subsidiaries is or 

 

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## may becomebound; (iv) there are no financing statements, other than the financingstatement filed in connection with the Secured Note, securing obligations inany material amounts, either singly or in the aggregate, filed in connectionwith the Company or any of its Subsidiaries; (v) there are no agreementsor arrangements under which the Company or any of its Subsidiaries is obligatedto register the sale of any of their securities under the Securities Act(except pursuant to the Registration Rights Agreement); (vi) there are nooutstanding securities or instruments of the Company or any of its Subsidiarieswhich contain any redemption or similar provisions, and there are no contracts,commitments, understandings or arrangements by which the Company or any of itsSubsidiaries is or may become bound to redeem a security of the Company or anyof its Subsidiaries; (vii) except as set forth on Schedule 3(q) thereare no securities or instruments containing anti-dilution or similar provisionsthat will be triggered by the issuance of the Securities; (viii) theCompany does not have any stock appreciation rights or “phantom stock” plans oragreements or any similar plan or agreement; and (ix) the Company and itsSubsidiaries have no liabilities or obligations required to be disclosed in theSEC Documents but not so disclosed in the SEC Documents, other than thoseincurred in the ordinary course of the Company’s or its Subsidiaries’respective businesses and which, individually or in the aggregate, do not orwould not have a Material Adverse Effect. The Company has furnished to the Buyer true, correct and complete copiesof the Company’s Certificate of Incorporation, as amended and as in effect onthe date hereof (the “**Articles of Incorporation**”), and theCompany’s Bylaws, as amended and as in effect on the date hereof (the “**Bylaws**”), and the terms of all securitiesconvertible into, or exercisable or exchangeable for, shares of Common Stockand the material rights of the holders thereof in respect thereto.

##  

## (p)   Indebtedness and OtherContracts.  Since the date of thelatest audited financial statements included in the Company’s Form 10-KSBfiled on September 13, 2007 and except as disclosed in the DisclosureSchedule or the SEC Documents, neither the Company nor any of its Subsidiaries (i) hasany additional outstanding Indebtedness (as defined below), (ii) is aparty to any contract, agreement or instrument, the violation of which, ordefault under which, by the other party(ies) to such contract, agreement orinstrument could reasonably be expected to result in a Material Adverse Effect,(iii) is in violation of any term of or in default under any contract,agreement or instrument relating to any Indebtedness, except where suchviolations and defaults would not result, individually or in the aggregate, ina Material Adverse Effect, or (iv) is a party to any contract, agreementor instrument relating to any Indebtedness, the performance of which, in thejudgment of the Company’s officers, has or is expected to have a MaterialAdverse Effect.  For purposes of thisAgreement:  (x) “**Indebtedness**” of any Person means, withoutduplication, (A) all indebtedness for borrowed money, (B) allobligations issued, undertaken or assumed as the deferred purchase price ofproperty or services, including (without limitation) “capital leases” inaccordance with generally accepted accounting principles (other than tradepayables entered into in the ordinary course of business), (C) allreimbursement or payment obligations with respect to letters of credit, suretybonds and other similar instruments, (D) all obligations evidenced bynotes, bonds, debentures or similar instruments, including obligations soevidenced incurred in connection with the acquisition of property, assets orbusinesses, (E) all indebtedness created or arising under any conditionalsale or other title retention agreement, or incurred as financing, in either 

 

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## case withrespect to any property or assets acquired with the proceeds of suchindebtedness (even though the rights and remedies of the seller or bank undersuch agreement in the event of default are limited to repossession or sale ofsuch property), (F) all monetary obligations under any leasing or similararrangement which, in connection with generally accepted accounting principles,consistently applied for the periods covered thereby, is classified as acapital lease, (G) all indebtedness referred to in clauses (A) through(F) above secured by (or for which the holder of such Indebtedness has anexisting right, contingent or otherwise, to be secured by) any mortgage, lien,pledge, charge, security interest or other encumbrance upon or in any propertyor assets (including accounts and contract rights) owned by any Person, eventhough the Person which owns such assets or property has not assumed or becomeliable for the payment of such indebtedness, and (H) all ContingentObligations in respect of indebtedness or obligations of others of the kindsreferred to in clauses (A) through (G) above; (y) “**Contingent Obligation**” means, as to anyPerson, any direct or indirect liability, contingent or otherwise, of thatPerson with respect to any indebtedness, lease, dividend or other obligation ofanother Person if the primary purpose or intent of the Person incurring suchliability, or the primary effect thereof, is to provide assurance to theobligee of such liability that such liability will be paid or discharged, orthat any agreements relating thereto will be complied with, or that the holdersof such liability will be protected (in whole or in part) against loss withrespect thereto; and (z) “**Person**”means an individual or legal entity, including but not limited to acorporation, a limited liability company, a partnership, a joint venture, atrust, an unincorporated organization and a government or any department oragency thereof.

##  

## (q)   Absence of Litigation.  To the knowledge of the Company, except as setforth in the Disclosure Schedule or the SEC Documents, there is no action,suit, proceeding, inquiry or investigation before or by the Principal Market,any court, public board, government agency, self-regulatory organization orbody pending or, threatened against or affecting the Company or any of itsSubsidiaries, the Common Stock or any of the Company’s Subsidiaries or any ofthe Company’s or its Subsidiaries’ officers or directors that, if adverselydecided against the Company, would have a Material Adverse Effect on theCompany.

##  

## (r)    Insurance.  Except as set forth in the DisclosureSchedule or the SEC Documents, the Company and each of its Subsidiaries areinsured by insurers of recognized financial responsibility against such lossesand risks and in such amounts as management of the Company believes to beprudent and customary in the businesses in which the Company and itsSubsidiaries are engaged.  Neither theCompany nor any such Subsidiary has been refused any insurance coverage soughtor applied for and neither the Company nor any such Subsidiary has any reasonto believe that it will not be able to renew its existing insurance coverage asand when such coverage expires or to obtain similar coverage from similarinsurers as may be necessary to continue its business at a cost that would nothave a Material Adverse Effect.

##  

## (s)   Employee Relations.  Neither the Company nor any of itsSubsidiaries is a party to any collective bargaining agreement or employs anymember of a labor union in connection with work performed for the Company.  The Company and its Subsidiaries believe thattheir relations with their employees are good. No executive officer of the

 

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## Company or anyof its Subsidiaries (as defined in Rule 501(f) of the Securities Act)has notified the Company or any such Subsidiary that such officer intends toleave the Company or any such Subsidiary or otherwise terminate such officer’semployment with the Company or any such Subsidiary.  To the knowledge of the Company, no executiveofficer of the Company or any of its Subsidiaries, is, or is now expected tobe, in violation of any material term of any employment contract,confidentiality, disclosure or proprietary information agreement,non-competition agreement, or any other contract or agreement or anyrestrictive covenant, and the continued employment of each such executiveofficer does not subject the Company or any of its Subsidiaries to any liabilitywith respect to any of the foregoing matters. The Company and its Subsidiaries, to their knowledge, are in compliancein all material respects with all federal, state, local and foreign laws andregulations respecting labor, employment and employment practices and benefits,terms and conditions of employment and wages and hours, except where failure tobe in compliance would not, either individually or in the aggregate, reasonablybe expected to result in a Material Adverse Effect.

##  

## (t)    Title. Except as setforth in the Disclosure Schedule or the SEC Documents, the Company and itsSubsidiaries have good and marketable title in fee simple to all real propertyand good and marketable title to all personal property owned by them which ismaterial to the business of the Company and its Subsidiaries, in each case freeand clear of all liens, encumbrances and defects except such as are describedin the Disclosure Schedule or the SEC Documents or such as do not materiallyaffect the value of such property and do not interfere with the use made andproposed to be made of such property by the Company and any of itsSubsidiaries.  Any real property andfacilities held under lease by the Company and any of its Subsidiaries are heldby them under valid, subsisting and enforceable leases with such exceptions asare not material and do not interfere with the use made and proposed to be madeof such property and buildings by the Company and its Subsidiaries.

##  

## (u)   Intellectual PropertyRights.  The Company and its Subsidiariesown or possess adequate rights or licenses to use all trademarks, service marksand all applications and registrations therefor, trade names, patents, patentrights, copyrights, original works of authorship, inventions, trade secrets andother intellectual property rights (“**IntellectualProperty Rights**”) necessary to conduct their respective businessesas now conducted.  None of the Company’sregistered, or applied for, Intellectual Property Rights, to the extent theCompany has such Intellectual Property Rights, have expired or terminated orhave been abandoned, or are expected to expire or terminate or expected to beabandoned, within three (3) years from the date of thisAgreement.  The Company does not have anyknowledge of any infringement by the Company or its Subsidiaries ofIntellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to theknowledge of the Company, being threatened, against the Company or itsSubsidiaries regarding its Intellectual Property Rights.  Neither the Company nor any of itsSubsidiaries is aware of any facts or circumstances which might give rise toany of the foregoing infringements or claims, actions or proceedings.  The Company and its Subsidiaries have takenreasonable security measures to protect the secrecy, confidentiality and valueof all of their Intellectual Property Rights, except where failure to do sowould not, individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect.

 

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## (v)   Environmental Laws.  Except as set forth in the DisclosureSchedule or the SEC Documents, the Company and its Subsidiaries, to theirknowledge, (i) are in compliance with any and all Environmental Laws (ashereinafter defined), (ii) have received all permits, licenses or otherapprovals required of them under applicable Environmental Laws to conduct theirrespective businesses, (iii) are in compliance with all terms andconditions of any such permit, license or approval, (iv) do not own oroperate any real property contaminated with any substance that is in violationof Environmental Laws, and (v) is not liable for any off-site disposal orcontamination pursuant to any Environmental Laws where, in each of theforegoing clauses (i), (ii), (iii), (iv) and (v) the failure to socomply could be reasonably expected to have, individually or in the aggregate,a Material Adverse Effect.  There is nocivil, criminal or administrative action, suit, investigation, inquiry orproceeding pending or, to the knowledge of the Company, threatened by or beforeany court or governmental authority against the Company or any of itsSubsidiaries relating to or arising from the Company’s nor any Subsidiary’snon-compliance with any Environmental Laws, nor has the Company receivedwritten notice of any alleged violations of Environmental Laws.  The term “**EnvironmentalLaws**” means all federal, state, local or foreign laws relating topollution or protection of human health or the environment (including, withoutlimitation, ambient air, surface water, groundwater, land surface or subsurfacestrata), including, without limitation, laws relating to emissions, discharges,releases or threatened releases of chemicals, pollutants, contaminants, ortoxic or hazardous substances or wastes (collectively, “**HazardousMaterials**”)****into theenvironment, or otherwise relating to the manufacture, processing,distribution, use, treatment, storage, disposal, transport or handling ofHazardous Materials, as well as all authorizations, codes, decrees, demands ordemand letters, injunctions, judgments, licenses, notices or notice letters,orders, permits, plans or regulations issued, entered, promulgated or approvedthereunder.

##  

## (w)  Subsidiary Rights.  The Company or one of its Subsidiaries hasthe unrestricted right to vote, and (subject to limitations imposed byapplicable law) to receive dividends and distributions on, all capitalsecurities of its Subsidiaries as owned by the Company or such Subsidiary.

##  

## (x)    Tax Status.  Except as set forth in the DisclosureSchedule or the SEC Documents, the Company and each of its Subsidiaries (i) hasmade or filed all foreign, federal and state income and all other tax returns,reports and declarations required by any jurisdiction to which it is subject, (ii) haspaid all taxes and other governmental assessments and charges that are materialin amount, shown or determined to be due on such returns, reports anddeclarations, except those being contested in good faith and (iii) has setaside on its books provision reasonably adequate for the payment of all taxesfor periods subsequent to the periods to which such returns, reports ordeclarations apply.  There are no unpaidtaxes in any material amount claimed to be due by the taxing authority of anyjurisdiction, and the officers of the Company know of no basis for any suchclaim.

##  

## (y) Internal Accounting and Disclosure Controls.  The Company and each of its Subsidiariesmaintain a system of internal accounting controls sufficient to providereasonable assurance that (i) transactions are executed in accordance withmanagement’s general or specific authorizations, (ii) transactions arerecorded as necessary to permit 

 

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## preparation offinancial statements in conformity with generally accepted accountingprinciples and to maintain asset and liability accountability, (iii) accessto assets or incurrence of liabilities is permitted only in accordance withmanagement’s general or specific authorization and (iv) the recordedaccountability for assets and liabilities is compared with the existing assetsand liabilities at reasonable intervals and appropriate action is taken withrespect to any difference.  The Companymaintains disclosure controls and procedures (as such term is defined in Rule 13a-14under the Exchange Act) that are effective in ensuring that informationrequired to be disclosed by the Company in the reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the rules and forms of the SEC, including,without limitation, controls and procedures designed in to ensure thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its principal executive officer or officers andits principal financial officer or officers, as appropriate, to allow timelydecisions regarding required disclosure. During the twelve (12) months prior to the date hereof neither theCompany nor any of its Subsidiaries have received any notice or correspondencefrom any accountant relating to any potential material weakness in any part of thesystem of internal accounting controls of the Company or any of itsSubsidiaries.

##  

## (z)  Off Balance Sheet Arrangements.  There is no transaction, arrangement, orother relationship between the Company and an unconsolidated or other offbalance sheet entity that is required to be disclosed by the Company in itsExchange Act filings and is not so disclosed or that otherwise would bereasonably likely to have a Material Adverse Effect.

##  

## (aa)               InvestmentCompany Status.  The Company is not,and upon consummation of the sale of the Securities will not be, an “investmentcompany,” a company controlled by an “investment company” or an “affiliatedperson” of, or “promoter” or “principal underwriter” for, an “investmentcompany” as such terms are defined in the Investment Company Act of 1940, asamended.

##  

## (bb)               Transfer Taxes.  On the Closing Date, all stock transfer orother taxes (other than income or similar taxes) which are required to be paidin connection with the sale and transfer of the Securities to be sold to Buyerhereunder will be, or will have been, fully paid or provided for by theCompany, and all laws imposing such taxes will be or will have been compliedwith.

##  

## (cc)               Manipulationof Price.  The Company has not, andto its knowledge no one acting on its behalf has, (i) taken, directly orindirectly, any action designed to cause or to result in the stabilization ormanipulation of the price of any security of the Company to facilitate the saleor resale of any of the Securities, (ii) sold, bid for, purchased, or paidany compensation for soliciting purchases of, any of the Securities, or (iii) paidor agreed to pay to any person any compensation for soliciting another topurchase any other securities of the Company.

##  

## (dd)               Disclosure.  To the Company’s knowledge, all disclosureprovided by the Company to the Buyer regarding the Company or any of itsSubsidiaries, their 

 

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## business andthe transactions contemplated hereby in the Transaction Documents and the Schedulesto this Agreement is true and correct and does not contain any untrue statementof a material fact or omit to state any material fact necessary in order tomake the statements made therein, in the light of the circumstances under whichthey were made, not misleading.  No eventor circumstance has occurred or information exists with respect to the Companyor any of its Subsidiaries or its or their business, properties, prospects,operations or financial conditions, which, under applicable law, rule orregulation, requires public disclosure or announcement by the Company but whichhas not been so publicly announced or disclosed.

##  

# 4.             AMENDMENTS;ACKNOWLEDGEMENTS.  Buyer, as theholder of over ninety-five percent (95%) of the principal amount of the outstandingSeries B Notes and the Series B Warrants, hereby consents to thefollowing amendments of such agreements, which amendments shall apply to alloutstanding Series B Notes and Series B Warrants.  The Series B Notes, the Series BWarrants, the Secured Loan and the Interest Warrants (defined below), arehereby amended (or the effect of the Transaction is hereby acknowledged),effective at Closing without further instruments or action, as follows:

#  

## (a)   Amendment to Series BNotes.

##  

### (i)            Section 2of the Series B Notes (captioned “Interest; Interest Rate”) shall bedeleted, effective upon the Closing, and the following substituted in its placeand stead:  “During the term of thisNote, interest shall accrue on outstanding Principal at an interest rate equalto six percent (6%) per annum (the “**Interest Rate**”)commencing on July 1, 2008. Interest shall be calculated on the basis of a three hundred sixty-five(365)-day year and the actual number of days elapsed, to the extent permittedby applicable law.  Any Interest thatshall accrue hereunder shall be payable quarterly in arrears on each January 1,April 1, July 1 and October 1 (each an “**InterestPayment Due Date**”) beginning on October 1, 2008.  Interest shall be paid by the issuance ofWarrants valued at Two Cents ($0.02)  perWarrant Share, with a term of three (3) years from the date of issuancewith an exercise price of Six and Seven-Tenths of a Cent ($0.067) per WarrantShare and otherwise substantially in the form of the Warrant to Purchase CommonStock, dated June 10, 2008, issued to the Quercus Trust, represented byWarrant No.: Quercus 2008-IW3.”

###  

### (ii)           Basedupon the issuance of the September 2008 Warrants and the application of Section 8of the Series B Notes, the Company acknowledges that the Conversion Priceof the Series B Notes is reduced to Eight and Seven-Tenths of a Cent($0.087) effective upon the Closing. Company further acknowledges that, as a result of the reduction of suchConversion Price, without taking into account accrued and unpaid Interest, ifany, the Twenty Million Dollar ($20,000,000) Series B Note issued tothe Quercus Trust, as of the Closing, will be convertible into two hundredtwenty-nine million eight hundred eighty-five thousand fifty-eight(229,885,058) Warrant Shares.

###  

### (iii)          Section (3)(e) ofthe Series B Notes shall be deleted in its entirety.

###  

### (iv)          Section 4(a) ofthe Series B Notes shall be amended by adding the following: “(xiii) theCompany has failed to obtain Shareholder approval of, and has failed to file 

 

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## with theSecretary of State of Nevada, an Amendment to its Articles of Incorporationwithin six (6) months of Closing, as required by the 2008 SecuritiesPurchase Agreement.”

###  

### (v)           Thefollowing shall be added as Section 13(f) of the Series B Notes:“Protective Provisions.  So longas Notes remain outstanding with a principal balance of at least Ten MillionDollars ($10,000,000), consent of the holders of a majority of the principalamount of the outstanding Notes shall be required for any action, by merger,reclassification or otherwise) that (i) results in the redemption orrepurchase of any stock, (ii) results in any merger or any other corporatereorganization that results in a change of control of the Company, or in anytransaction in which all or substantially all of the assets of the Company aresold, (iii) authorizes indebtedness in excess of Five Hundred ThousandDollars ($500,000), (iv) changes the business of the Company in anymaterial respect or (v) involves any transaction or compensationarrangements between the Company and its officers and directors; provided,however, that the Company may set aside fifteen percent (15%) of the Company’scommon stock, on a fully-diluted basis, as an option pool for management andother key employees.”

###  

### (vi)          Effectiveas of the filing of the Amended Articles pursuant to Section 5(c) hereof,the following shall be added as Section 29 of the Series BNotes:  “29. Voting Rights.  Each Holder in whose name the indebtednessrepresented by the Series B Convertible Note is registered on the books ofthe Company on the record date for any action of shareholders establishedpursuant to applicable law shall have voting rights identical to those held bythe holders of the Common Stock and shall vote as a class with the CommonStock.  Each Holder shall have the rightto one (1) vote for each share of Common Stock into which the Noteregistered in such Holder’s name could be converted on the record date for thevote or written consent of stockholders. With respect to such vote, such Holder shall have full voting rights andpowers equal to the voting rights and powers of the holders of the CommonStock, and shall be entitled, notwithstanding any provision hereof, to noticeof any stockholders’ meeting in accordance with the bylaws of the Company andshall be entitled to vote, together with holders of Common Stock, with respectto any question upon which the holders of Common Stock have the right to vote.”

###  

## (b)   Amendment to Series BWarrants.

##  

### (i)            Section 1(f) ofthe Series B Warrants shall be deleted in its entirety.

###  

### (ii)           Companyacknowledges that, based upon the issuance of the September 2008 Warrants,and the application of Section 2 of the Series B Warrants, from andafter the Closing, the Exercise Price of the Series B Warrants shall beEight and Seven-Tenths of a Cent ($0.087) per Warrant Share, subject to furtheradjustment as provided in the Series B Warrants and that, as a resultthereof, as of Closing, the Series B Warrants issued to The Quercus Trust,originally exercisable into forty-three million three thousand three hundredseventy (43,003,370) Warrant Shares will be exercisable into two hundred fiftymillion one hundred eleven thousand five hundred fifty-four (250,111,554) WarrantShares.

###  

## (c)   Acknowledgement RegardingInterest Warrants.  Companyacknowledges with respect to Warrant No. Quercus 2008-IW1, Warrant No. Quercus

 

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## 2008-IW2 andWarrant No. Quercus 2008-IW3 (collectively, the “**InterestWarrants**”), based upon the issuance of the September 2008Warrants and the application of Section 2 of such Warrants, from and afterthe Closing the Exercise Price shall be Eight and Seven-Tenths of a Cent($0.087) per Warrant Share, subject to further adjustment as provided in suchWarrants and that, as a result thereof, as of Closing, such Warrants will beexercisable into eight million seventy-nine thousand one hundred ten(8,079,110) Warrant Shares.

##  

## (d)   Amendment to Secured Loan.

##  

### (i)            Theprovisions of the Secured Loan documents with respect to the Borrowing Base areamended to provide that, notwithstanding anything to the contrary in any of thedocuments constituting the Secured Loan, the Borrowing Base shall be onehundred percent (100%) of the sum of the Company’s aggregate Qualified AccountsReceivable, the Company’s Inventory and the Company’s cash account balances.

###  

### (ii)           Theprovisions of the Secured Loan requires prepayment upon receipt by the Companyof Rebates are deleted and Company may retain such Rebates upon receiptthereof.

###  

### (iii)          TheMaturity Date of the Secured Loan is extended to March 30, 2009.

###  

# 5.             COVENANTS.

#  

## (a)   Best Efforts.  Each party shall use its reasonable bestefforts to timely satisfy each of the conditions to be satisfied by it asprovided in Sections 7 and 8 of this Agreement.

##  

## (b)   Form D and Blue Sky.  The Company agrees to file a Form D withrespect to the Securities as required under Regulation D and to provide a copythereof to Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action asthe Company shall reasonably determine is necessary in order to obtain anexemption for or to qualify the Securities for sale to the Buyer at the Closingpursuant to this Agreement under applicable securities or “Blue Sky” laws ofthe states of the United States (or to obtain an exemption from suchqualification), and shall provide evidence of any such action so taken to theBuyer on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer andsale of the Securities required under applicable securities or “Blue Sky” lawsof the states of the United States following the Closing Date.

##  

## (c)   Amended Articles ofIncorporation.  As soon as commerciallypracticable, the Company shall solicit shareholder approval of the AmendedArticles attached hereto as Exhibit B (the “**AmendedArticles**”) and shall promptly file the Amended Articles with theNevada Secretary of State following receipt of such approval.

##  

## (d)   Reporting Status.  Until the date on which the Buyer shall havesold all the September 2008 Warrant Shares****and none of the September 2008 Warrants is 

 

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## outstanding,(the “**Reporting Period**”), theCompany shall file, in a timely manner, all reports required to be filed withthe SEC pursuant to the Exchange Act, and the Company shall not terminate itsstatus as an issuer required to file reports under the Exchange Act even if theExchange Act or the rules and regulations thereunder would permit suchtermination.

##  

## (e)   Use of Proceeds.  The Company will use the proceeds from thesale of the Securities for general corporate and working capital purposes andnot for (i) the repayment of any outstanding Indebtedness of the Companyor any of its Subsidiaries, except for the repayment of outstandingindebtedness as set forth on the Disclosure Schedule, or (ii) redemptionor repurchase of any of its or its Subsidiaries’ equity securities.

##  

## (f)    Financial Information.  The Company agrees to send the following toBuyer during the Reporting Period (i) unless the following are filed withthe SEC through EDGAR and are available to the public through the EDGAR system,within one (1) Business Day after the filing thereof with the SEC, a copyof its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or10-QSB, any interim reports or any consolidated balance sheets, incomestatements, stockholders’ equity statements and/or cash flow statements for anyperiod other than annual, any Current Reports on Form 8-K and anyregistration statements (other than on Form S-8) or amendments filedpursuant to the Securities Act, (ii) on the same day as the releasethereof, facsimile or e-mailed copies of all press releases issued by theCompany or any of its Subsidiaries, and (iii) copies of any notices andother information made available or given to the stockholders of the Companygenerally, contemporaneously with the making available or giving thereof to thestockholders.  As used herein, “**Business Day**” means any day other thanSaturday, Sunday or other day on which commercial banks in the City of New Yorkare authorized or required by law to remain closed.

##  

## (g)   Pledge of Securities.  The Company acknowledges and agrees that theSecurities may be pledged by Buyer in connection with a bona fide marginagreement or other loan or financing arrangement that is secured by theSecurities.  The pledge of Securitiesshall not be deemed to be a transfer, sale or assignment of the Securitieshereunder, and Buyer shall not be required to provide the Company with anynotice of a pledge of Securities or otherwise make any delivery to the Companypursuant to this Agreement or any other Transaction Document, including,without limitation, Section 2(f) hereof; provided that an Investorand its pledgee shall be required to comply with the provisions of Section 2(f) hereofin order to effect a sale, transfer or assignment of Securities to suchpledgee.  The Company hereby agrees toexecute and deliver such documentation as a pledgee of the Securities mayreasonably request in connection with a pledge of the Securities to suchpledgee by an Investor

 

## (h)   Disclosure ofTransactions and Other Material Information.  The Company shall (i) within forty-eight (48)hours following the date of this Agreement issue a press release describing thematerial terms of the transactions contemplated hereby, and (ii) by 8:30 a.m.,New York City time on or before the fourth (4th)Business Day immediately following the date of this Agreement, file a CurrentReport on Form 8-K describing the terms of the transactions contemplated by theTransaction Documents in the

 

 

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## form requiredby the Exchange Act and attaching the material Transaction Documents(including, without limitation, this Agreement and the form of the September 2008Warrants) as exhibits to such filing (including all attachments, the “**8-K Filing**”).  Neither the Company, its Subsidiaries norBuyer shall issue any press releases or any other public statements withrespect to the transactions contemplated hereby; provided, however, that theCompany shall be entitled, without the prior approval of Buyer, to make anypress release or other public disclosure with respect to such transactions (i) insubstantial conformity with the 8-K Filing and contemporaneously therewith and (ii) asis required by applicable law and regulations. Without the prior written consent of Buyer, which consent shall not beunreasonably withheld, delayed or conditioned, neither the Company nor any ofits Subsidiaries or affiliates shall disclose the name of Buyer in any filing,announcement, release or otherwise; provided, however, that such consent shallbe deemed to be given for any disclosure required by law in the reasonableopinion of the Company or its counsel.

##  

## (i)    Corporate Existence.  So long as Buyer beneficially owns anySecurities, the Company shall not be party to any Fundamental Transaction (asdefined in the September 2008 Warrants) unless the Company is incompliance with the applicable provisions governing Fundamental Transactionsset forth in the September 2008 Warrant.

##  

## (j)    Conduct of Business.  The business of the Company and itsSubsidiaries shall not be conducted in violation of any law, ordinance orregulation of any governmental entity, except where such violations would notresult, either individually or in the aggregate, in a Material Adverse Effect.

##  

## (k)   Delivery of Certificates.  Upon exercise of September 2008Warrants, any request for removal of restrictive legends on the shares ofCommon Stock issuable in connection therewith, certificates for shares ofCommon Stock will be delivered to the Investor within three (3) TradingDays.  If such delivery is made more thantwo (2) additional Trading Days after exercise or request for removal oflegend, as the case may be, the Company will compensate Buyer at a rate of OneHundred Dollars ($100) per day for each of the first ten (10) Trading Daysand Two Hundred Dollars ($200) per day thereafter for each Ten Thousand Dollars($10,000) of securities.  In such event,after the first such ten (10) Trading Days noted above, the Investorwill also have right to rescind its conversion notice for the September 2008Warrants.  In addition, if thecertificates have not been delivered by the fifth (5th) Trading Day, then, if the Buyer has sold shares ofCommon Stock after the conversion or exercise date, as the case may be, theCompany will compensate Buyer for extra costs, if any, incurred to cover thesale, all as agreed upon and reflected in the Transaction Documents.

##  

## (l)    Participation in FutureFinancing.  From the date hereofuntil September 30, 2009, upon any issuance by the Company or any of itsSubsidiaries of Common Stock or Common Stock Equivalents for cash consideration(a “**Subsequent Financing**”):

##  

### (i)            With respect to any SubsequentFinancing or successive Subsequent Financings up to an aggregate of FiveMillion One Hundred Thousand Dollars ($5,100,000) in gross proceeds to theCompany, Buyer shall have the right to 

 

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### fund all or a part of suchSubsequent Financing by purchasing, at a purchase price of Two Cents ($0.02)per warrant, warrants containing the same terms as the September 2008Warrants.  The Company shall deliver awritten notice of its intention to engage in such Subsequent Financing at leastten (10) Trading Days before any Subsequent Financing is scheduled toClose, setting forth the amount thereof and any other relevant detailsthereof.  Buyer shall have five (5) TradingDays to notify Company of Buyer’s intention to fund all or a part of suchSubsequent Financing up to the Five Million One Hundred Thousand Dollars($5,100,000), pursuant to the provisions of this Section 5(l)(i).

###  

### (ii)           In the event any Subsequent Financingexceeds Five Million One Hundred Thousand Dollars ($5,100,000) in theaggregate, or in the event Buyer has not elected to fund the entire SubsequentFinancing up to Five Million One Hundred Thousand Dollars ($5,100,000):

###  

#### (1)           least five (5) Trading Daysprior to the closing of the Subsequent Financing, the Company shall deliver toBuyer a written notice of its intention to effect a Subsequent Financing (“**Pre-Notice**”), which Pre-Notice shall ask Buyer if it wantsto review the details of such financing (such additional notice, a “**Subsequent Financing Notice**”).  Upon the request ofBuyer, which shall be delivered to the Company within one (1) Trading Dayof the Company’s delivery of a Pre-Notice, and only upon a request by Buyer,for a Subsequent Financing Notice, the Company shall promptly, but no laterthan one (1) Trading Day after such request, deliver a SubsequentFinancing Notice to Buyer.  The Subsequent Financing Notice shall describein reasonable detail the proposed terms of such Subsequent Financing, theamount of proceeds intended to be raised thereunder and the Person or Personsthrough or with whom such Subsequent Financing is proposed to be effected andshall include a term sheet or similar document relating thereto as anattachment.

####  

#### (2)           If Buyer desires to participate insuch Subsequent Financing it must provide written notice to the Company by notlater than 5:30 p.m. (New York City time) on the fifth (5th)Trading Day after the Buyer has received the Pre-Notice that the Buyer iswilling to participate in the Subsequent Financing, the amount of the Buyer’sparticipation, and that the Buyer has such funds ready, willing, and availablefor investment on the terms set forth in the Subsequent Financing Notice.  If the Company receives no notice from Buyeras of such fifth (5th) Trading Day, Buyer shall be deemed to havenotified the Company that it does not elect to participate.

####  

#### (3)           If by 5:30 p.m. (New York Citytime) on the fifth (5th) Trading Day after the Buyer has receivedthe Pre-Notice, notification by the Buyer of its willingness to participate inthe Subsequent Financing (or to cause its designees to participate) is, in theaggregate, less than the total amount of the Subsequent Financing, then theCompany may effect the remaining portion of such Subsequent Financing on theterms and with the Persons set forth in the Subsequent Financing Notice.

####  

#### (4)           The Company must provide the Buyerwith a second Subsequent Financing Notice, and the Buyer will again have theright of participation set forth above in this Section 5(l), if theSubsequent Financing subject to the initial 

 

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## SubsequentFinancing Notice is not consummated for any reason on the terms set forth insuch Subsequent Financing Notice within sixty (60) Trading Days after the dateof the initial Subsequent Financing Notice.

####  

Notwithstanding the foregoing, this Section 5(l) shall notapply in respect of an underwritten public offering of Common Stock.

##  

## (m)  Shareholder Issuance Vote.  If the Company, at any time while any portionof the Series B Notes, or any of the Series B Warrants, the September 2008Warrants, or the Interest Warrants (collectively, the “**BuyerSecurities**”) are outstanding, becomes listed on a National Exchange(as defined below) (a “**National Listing**”),and the rules or regulations of such National Exchange limit the number ofshares of Common Stock which the Company may issue upon exercise of the BuyerSecurities (the amount of such limit is referred to herein as the “**Exchange Cap Amount**”), or if Buyer so requests in connectionwith the solicitation of shareholders pursuant to Section 5(c) hereof,then, within thirty (30) days of the date of such National Listing or suchrequest, the Company shall (i) prepare a proxy statement, (ii) file apreliminary and definitive proxy statement with the SEC and (iii) mail thedefinitive proxy statement to its shareholders, requesting and recommendingthat they vote affirmatively (a “**Shareholder Issuance Vote**”)on a proposal to approve the issuance, under the applicable rules of suchNational Exchange, of all of the Warrant Shares and other shares of CommonStock issuable pursuant to the Transaction Documents, and all other shares ofCommon Stock issuable pursuant to the conversion of the Series B Notes orupon the exercise of the Series B Warrants, or upon exercise of any otherWarrants owned by Buyer, without regard to the Exchange Cap Amount and toeliminate any prohibitions under applicable law or the rules orregulations of any stock exchange, interdealer quotation system or otherself-regulatory organization with jurisdiction over the Company or any of itssecurities on the Company’s ability to issue shares of Common Stock in excessof the Exchange Cap Amount (the shareholder approval of such proposal isreferred to herein as the “**Shareholder IssuanceApproval**”).  The ShareholderIssuance Approval, if required hereunder, shall occur before the date that isninety (90) days after the date of the National Listing (the “**Shareholder Issuance Voting Deadline**”).  For purposes hereof, “**NationalExchange**” shall mean an Approved Market other than NASD’s OTCBulletin Board.

##  

## (n)   Retention of Transfer Agent.  The Company will continue to engage theservices of a transfer agent for its Common Stock that is a participant in theDepository Trust Company’s Full Fast Program.

##  

## (o)   Limitation On Sale OrDisposition Of Intellectual Property to Related Parties.  So long as any portion of the September 2008Warrants remain outstanding, and so long as the Company shall have anyobligation under the September 2008 Warrants, the Company shall not sell,convey, dispose of, spin off or assign any or all of its Intellectual PropertyRights (as defined in Section 3(w) above), or the rights to receiveproceeds from patent licensing agreements, patent infringement litigation orother litigation related to such Intellectual Property Rights to any RelatedParty (as defined below) in each case without Buyer’s written consent.  For purposes hereof, “**Related Party**” shallmean any of the Company’s or any Subsidiary’s officers, directors, persons whowere officers or directors at 

 

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## any timeduring the previous two (2) years, stockholders who beneficially own fivepercent (5%) or more of the Common Stock, or Affiliates (as defined below) or (ii) withany individual related by blood, marriage, or adoption to any such individualor with any entity in which any such entity or individual owns a five percent(5%) or more beneficial interest.  “**Affiliate**”for purposes hereof means, with respect to any person or entity, another personor entity that, directly or indirectly, (i) has a ten percent (10%) ormore equity interest in that person or entity, (ii) has ten percent (10%)or more common ownership with that person or entity, (iii) controls thatperson or entity, or (iv) shares common control with that person orentity.  “**Control**” or “**Controls**”for purposes hereof means that a person or entity has the power, direct orindirect, to conduct or govern the policies of another person or entity.

##  

## (p)   Retention Agreements.  The Company will offer to Messrs. DavidField, Christopher Gopal, Aidan Shields and Dalton Sprinkle retentionagreements in form and substance satisfactory to Buyer, pursuant to which theyshall be entitled to three (3) month’s severance in the event they areterminated without cause or terminate their employment voluntarily for goodreason, and pursuant to which all other severance rights or right to employmentother than at-will rights shall be waived (the “**RetentionAgreements**”).

##  

## (q)   Saltman.  The Company shall use its best efforts toenter into a transition services agreement with David Saltman, substantially inform and substance satisfactory to Buyer (the “**SaltmanAgreement**”).

##  

## (r)    Bostater Loan.  The Company shall loan the sum of Sixty-TwoThousand Dollars ($62,000) to or on behalf of Bostater, which shall be paiddirectly to the relevant tax authorities to pay taxes on prior share grants bythe Company,  in connection with theexecution of an agreement in form and substance satisfactory to Buyer, whichthe Company shall use its best efforts to obtain (the “**BostaterAgreement**”).

##  

## (s)   Registration RightsAgreement.  The Company and Buyershall enter into a Registration Rights Agreement at, or promptly after,Closing, in form and substance identical to the Registration Rights Agreementattached as Exhibit E to the Securities Purchase Agreement dated September 19,2007; provided, however, that the Registrable Securities shall be all of theSecurities owned by Buyer, that Buyer shall be substituted for the Investors,and that the initial registration shall be required only on Buyer’s demand atleast six (6) months after Closing.

##  

# 6.             REGISTER; TRANSFER AGENT INSTRUCTIONS.

#  

## (a)   Register.  The Company shall maintain at its principalexecutive offices (or such other office or agency of the Company as it maydesignate by notice to each holder of Securities), a register for the September 2008Warrants in which the Company shall record the name and address of the Personin whose name the September 2008 Warrants have been issued (including thename and address of each transferee) and the number of September 2008 WarrantShares issuable upon exercise of the September 2008 Warrants held by suchPerson.  The Company shall keep theregister open and available at all times during business hours for inspectionof Buyer or its legal representatives.

 

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## (b)   Transfer AgentInstructions.  The Company shallissue irrevocable instructions to its transfer agent, and any subsequenttransfer agent, to issue certificates or credit shares to the applicablebalance accounts at The Depository Trust Company (“**DTC**”), registered in the name of Buyer or its respectivenominee(s), for the September 2008 Warrant Shares issued upon exercise ofthe September 2008 Warrants in such amounts as specified from time to timeby Buyer to the Company upon exercise of the September 2008 Warrants (the “**Transfer Agent Instructions**”).  The Company warrants that no instructionother than the Transfer Agent Instructions referred to in this Section 6(b),and stop transfer instructions to give effect to Section 2(g) hereof,will be given by the Company to its transfer agent, and that the September 2008Warrant Shares shall otherwise be freely transferable on the books and recordsof the Company as and to the extent provided in this Agreement and the otherTransaction Documents.  If Buyer effectsa sale, assignment or transfer of the Securities in accordance with Section 2(f),the Company shall permit the transfer and shall promptly instruct its transferagent to issue one or more certificates or credit shares to the applicablebalance accounts at DTC in such name and in such denominations as specified byBuyer to effect such sale, transfer or assignment.  In the event that such sale, assignment ortransfer involves September 2008 Warrant Shares sold, assigned ortransferred pursuant to an effective registration statement or pursuant to Rule 144,the transfer agent shall issue such Securities to the Buyer, assignee ortransferee, as the case may be, without any restrictive legend.  The Company acknowledges that a breach by itof its obligations hereunder will cause irreparable harm to Buyer.  Accordingly, the Company acknowledges thatthe remedy at law for a breach of its obligations under this Section 6(b) willbe inadequate and agrees, in the event of a breach or threatened breach by theCompany of the provisions of this Section 6(b), that Buyer shall beentitled, in addition to all other available remedies, to an order and/orinjunction restraining any breach and requiring immediate issuance andtransfer, without the necessity of showing economic loss and without any bondor other security being required.

##  

## (c)   Additional Relief.  If the Company shall fail for any reason orfor no reason to issue to such holder unlegended certificates or to credit theholder’s balance account with DTC within two (2) Trading Days of receiptof documents necessary for the removal of legend set forth above, then theCompany will compensate the holder at a rate of One Hundred Dollars ($100)per day for each of the first ten (10) Trading Days and Two HundredDollars ($200) per day thereafter for each Ten Thousand Dollars ($10,000) ofsecurities.  If the Company shall failfor any reason or for no reason to issue to such holder unlegended certificatesor to credit the holder’s balance account with DTC within five (5) TradingDays of receipt of documents necessary for the removal of legend set forthabove (the “**Deadline Date**”) and if on or afterthe Trading Day (as defined in the Warrants) immediately following suchDeadline Date, the holder purchases (in an open market transaction orotherwise) shares of Common Stock to deliver in satisfaction of a sale by theholder of shares of Common Stock that the holder anticipated receiving from theCompany, then the Company shall, within three (3) Trading Days after theholder’s request and in the holder’s discretion, pay cash to the holder in anamount equal to the holder’s total purchase price (including brokeragecommissions, if any) for the shares of Common Stock so purchased, at whichpoint the Company’s obligation to deliver such certificate (and to issue suchshares of Common Stock) shall terminate.

 

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# 7.             CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

#  

The obligation of the Company hereunder to issue and sell the September 2008Warrants to Buyer at the Closing is subject to the satisfaction, at or beforeeach of the Closing Date of each of the following conditions, provided thatthese conditions are for the Company’s sole benefit and may be waived by theCompany at any time in its sole discretion by providing Buyer with priorwritten notice thereof:

 

### (i)            Buyershall have executed each of the Transaction Documents to which it is a partyand delivered the same to the Company.

###  

### (ii)           Buyershall have delivered to the Company the Purchase Price by wire transfer ofimmediately available funds pursuant to the wire instructions provided by theCompany, or by the acknowledgements provided for in Section 1(b).

###  

### (iii)          Therepresentations and warranties of Buyer shall be true and correct in allmaterial respects (except for those representations and warranties that arequalified by materiality or Material Adverse Effect, which shall be true andcorrect in all respects) as of the date when made and as of the Closing Date asthough made at that time (except for representations and warranties that speakas of a specific date, which shall be true and correct as of such specifieddate), and Buyer shall have performed, satisfied and complied in all materialrespects with the covenants, agreements and conditions required by thisAgreement to be performed, satisfied or complied with by Buyer at or prior tothe Closing Date.

###  

# 8.             CONDITIONS TO BUYER’S OBLIGATION TO PURCHASE.

#  

The obligation of Buyer hereunder to purchase the September 2008Warrants at the Closing is subject to the satisfaction, at or before theClosing Date, of each of the following conditions, provided that theseconditions are for Buyer’s sole benefit and may be waived by Buyer at any timein its sole discretion by providing the Company with prior written noticethereof:

 

### (i)            TheCompany shall have duly executed and delivered (physically or by electroniccopy) to Buyer (i) each of the Transaction Documents and  (ii) the September 2008 Warrants onthe date immediately prior to Closing.

###  

### (ii)           Buyershall have received the opinion of Sheppard, Mullin, Richter & HamptonLLP, the Company’s outside counsel (“**Opinion of Counsel**”),dated as of the Closing Date, in substantially the form of Exhibit Cattached hereto.

###  

### (iii)          TheCompany shall have delivered to Buyer a certificate evidencing the formationand good standing of the Company and each of its Subsidiaries in such entity’sjurisdiction of formation issued by the Secretary of State (or comparableoffice) of such jurisdiction, as of a date within ten (10) days of theClosing Date.

###  

### (iv)          TheCompany shall have delivered to Buyer a certificate evidencing the Company’squalification as a foreign corporation and good standing issued by the 

 

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### Secretary of State (orcomparable office) in each jurisdiction in which the Company has so qualified,as of a date within ten (10) days of the Closing Date.

###  

### (v)           TheCompany shall have delivered to Buyer a certificate, executed by the Secretaryof the Company and dated as of the Closing Date as to (i) the resolutionsconsistent with Section 3(b) as adopted by the Company’s Board ofDirectors in a form reasonably acceptable to Buyer, (ii) the Articles ofIncorporation and (iii) the Bylaws, each as in effect at the Closing, inform and substance satisfactory to Buyer.

###  

### (vi)          Therepresentations and warranties of the Company shall be true and correct in allmaterial respects (except for those representations and warranties that arequalified by materiality or Material Adverse Effect, which shall be true andcorrect in all respects) as of the date when made and as of the Closing Date asthough made at that time (except for representations and warranties that speakas of a specific date, which shall be true and correct as of such specifieddate) and the Company shall have performed, satisfied and complied in allmaterial respects with the covenants, agreements and conditions required by theTransaction Documents to be performed, satisfied or complied with by the Companyat or prior to the Closing Date.  Buyershall have received a certificate, executed by the Chief Executive Officer ofthe Company, dated as of the Closing Date to the foregoing effect and as tosuch other matters as may be reasonably requested by Buyer in form andsubstance satisfactory to Buyer.

###  

### (vii)         TheCompany shall have delivered the Retention Agreements, the Saltman Agreementand the Bostater Agreement, all in form and substance satisfactory to Buyer.

###  

### (viii)        TheCompany shall have delivered to Buyer such other documents relating to thetransactions contemplated by this Agreement as Buyer or its counsel mayreasonably request.

###  

# 9.             TERMINATION. This Agreement may be terminated by Buyer, as to Buyer’s obligationshereunder, by written notice to the Company, if the Closing has not beenconsummated on or before September 19, 2008; provided, however, that nosuch termination will affect the right of any party to sue for any breach bythe other party (or parties).

#  

# 10.           MISCELLANEOUS.

#  

## (a)   Governing Law; Jurisdiction;Jury Trial.  All questions concerningthe construction, validity, enforcement and interpretation of this Agreementshall be governed by the internal laws of the State of New York, without givingeffect to any choice of law or conflict of law provision or rule (whetherof the State of New York or any other jurisdictions) that would cause theapplication of the laws of any jurisdictions other than the State 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, and hereby irrevocably waives, and agreesnot to assert in any suit, action or proceeding, any claim that it is notpersonally subject to the jurisdiction of any such court, that such suit,action or proceeding is brought in an inconvenient forum or that the venue ofsuch suit, action or proceeding is improper. Each 

 

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## party herebyirrevocably waives personal service of process and consents to process beingserved in any such suit, action or proceeding by mailing a copy thereof to suchparty at the address for such notices to it under this Agreement and agreesthat such service shall constitute good and sufficient service of process andnotice thereof.  Nothing contained hereinshall be deemed to limit in any way any right to serve process in any mannerpermitted by law.  **EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTEHEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANYTRANSACTION CONTEMPLATED HEREBY.**

##  

## (b)   Counterparts.  This Agreement may be executed in two or moreidentical counterparts, all of which shall be considered one and the sameagreement and shall become effective when counterparts have been signed by eachparty and delivered to the other party; provided that a facsimile signatureshall be considered due execution and shall be binding upon the signatorythereto with the same force and effect as if the signature were an original,not a facsimile signature.

##  

## (c)   Headings.  The headings of this Agreement are forconvenience of reference and shall not form part of, or affect theinterpretation of, this Agreement.

##  

## (d)   Severability.  If any provision of this Agreement shall beinvalid or unenforceable in any jurisdiction, such invalidity orunenforceability shall not affect the validity or enforceability of theremainder of this Agreement in that jurisdiction or the validity orenforceability of any provision of this Agreement in any other jurisdiction.

##  

## (e)   Entire Agreement;Amendments.  This Agreement and theother Transaction Documents supersede all other prior oral or writtenagreements between the Buyer, the Company, their affiliates and Persons actingon their behalf with respect to the matters discussed herein, and thisAgreement, the other Transaction Documents and the instruments referencedherein and therein contain the entire understanding of the parties with respectto the matters covered herein and therein and, except as specifically set forthherein or therein, neither the Company nor Buyer makes any representation,warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amendedother than by an instrument in writing signed by the Company and the holders ofat least eighty-five percent (85%) of the aggregate number of Warrant Sharesissued and issuable  upon exercise of theSeptember 2008 Warrants, and any amendment to this Agreement made inconformity with the provisions of this Section 10(e) shall be bindingon Buyer and all holders of Securities as applicable.  No provision hereof may be waived other thanby an instrument in writing signed by the party against whom enforcement issought.  No such amendment shall beeffective to the extent that it applies to less than all of the holders of theapplicable Securities then outstanding. No consideration shall be offered or paid to any Person to amend orconsent to a waiver or modification of any provision of any of the TransactionDocuments unless the same consideration also is offered to all of the partiesto the Transaction Documents, or holders of the September 2008Warrants.  The Company has not, directlyor indirectly, made any agreements with Buyer relating to the terms orconditions of the transactions contemplated by the Transaction Documents except

 

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## as set forthin the Transaction Documents.  Withoutlimiting the foregoing, the Company confirms that, except as set forth in thisAgreement, Buyer has not made any commitment or promise or has any otherobligation to provide any financing to the Company or otherwise.

##  

## (f)    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 (2nd) TradingDay following the date of mailing, if sent by U.S. nationally recognizedovernight courier service, or (d) upon actual receipt by the party to whomsuch notice is required to be given.  Theaddress for such notices and communications shall be as set forth on thesignature pages attached hereto.

##  

## (g)   Successors and Assigns.  This Agreement shall be binding upon andinure to the benefit of the parties and their respective successors andassigns, including any purchasers of the September 2008 Warrants.  The Company shall not assign this Agreementor any rights or obligations hereunder without the prior written consent of theholders of at least seventy-five percent (75%) of the aggregate number of September 2008Warrant Shares issued and issuable upon exercise of the September 2008Warrants, including by way of a Fundamental Transaction.  Buyer may assign some or all of its rightshereunder without the consent of the Company, in which event such assigneeshall be deemed to be Buyer hereunder with respect to such assigned rights

##  

## (h)   No Third PartyBeneficiaries.  This Agreement isintended for the benefit of the parties hereto and their respective permittedsuccessors and assigns, and is not for the benefit of, nor may any provisionhereof be enforced by, any other Person.

##  

## (i)    Survival.  Unless this Agreement is terminated under Section 8,the representations and warranties of the Company and Buyer contained inSections 2 and 3, and the agreements and covenants set forth in Sections 4, 5and 6 shall survive the Closing for a period of one (1) year, or suchlonger period as is specified in any such provision.

##  

## (j)    Further Assurances.  Each party shall do and perform, or cause tobe done and performed, all such further acts and things, and shall execute anddeliver all such other agreements, certificates, instruments and documents, asany other party may reasonably request in order to carry out the intent andaccomplish the purposes of this Agreement and the consummation of thetransactions contemplated hereby.

##  

## (k)   Indemnification.  In consideration of Buyer’s execution anddelivery of the Transaction Documents and acquiring the Securities thereunderand in addition to all of the Company’s other obligations under the TransactionDocuments, the Company shall defend, protect, indemnify and hold harmless Buyerand each other holder of the Securities and all of their stockholders,partners, members, officers, directors, employees and direct or 

 

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## indirectinvestors and any of the foregoing Persons’ agents or other representatives(including, without limitation, those retained in connection with thetransactions contemplated by this Agreement) (collectively, the “**Buyer Indemnitees**”)from and against any and all actions, causes of action, suits, claims, losses,costs, penalties, fees, liabilities and damages, and expenses in connectiontherewith (irrespective of whether Buyer Indemnitee is a party to the actionfor which indemnification hereunder is sought), and including reasonableattorneys’ fees and disbursements (the “**IndemnifiedLiabilities**”), incurred by Buyer Indemnitee as a result of, orarising out of, or relating to (a) any misrepresentation or breach of any representationor warranty made by the Company in the Transaction Documents or any othercertificate, instrument or document contemplated hereby or thereby, (b) anybreach of any covenant, agreement or obligation of the Company contained in theTransaction Documents or any other certificate, instrument or documentcontemplated hereby or thereby or (c) any cause of action, suit or claimbrought or made against Buyer Indemnitee by a third party (including for thesepurposes a derivative action brought on behalf of the Company) and arising outof or resulting from (i) the execution, delivery, performance orenforcement of the Transaction Documents or any other certificate, instrumentor document contemplated hereby or thereby, (ii) any transaction financedor to be financed in whole or in part, directly or indirectly, with theproceeds of the issuance of the Securities, (iii) any disclosure made byBuyer pursuant to Section 4(g), or (iv) the status of Buyer or holderof the Securities as an investor in the Company pursuant to the transactionscontemplated by the Transaction Documents. The Company shall not be obligated to indemnify Buyer Indemniteepursuant to this Section 10(k) for Indemnified Liabilities to theextent such Indemnified Liabilities are caused by acts of gross negligence orwillful misconduct on the part of Buyer Indemnitee.  To the extent that the foregoing undertakingby the Company may be unenforceable for any reason, the Company shall make themaximum contribution to the payment and satisfaction of each of the IndemnifiedLiabilities that is permissible under applicable law.  Except as otherwise set forth herein, themechanics and procedures with respect to the rights and obligations under this Section 10(k) shallbe the same as those set forth in Section 6 of the Registration RightsAgreement.

##  

## (l)    No Strict Construction.  The language used in this Agreement will bedeemed to be the language chosen by the parties to express their mutual intent,and no rules of strict construction will be applied against any party.

##  

## (m)  Remedies.  The Company, Buyer, and each holder of theSecurities shall have all rights and remedies set forth in the TransactionDocuments and all rights and remedies which such Company or holders have beengranted at any time under any other agreement or contract and all of the rightswhich such holders have under any law. Any Person having any rights under any provision of this Agreement shallbe entitled to enforce such rights specifically (without posting a bond orother security), to recover damages by reason of any breach of any provision ofthis Agreement and to exercise all other rights granted by law.  Furthermore, the Company recognizes that inthe event that it fails to perform, observe, or discharge any or all of its obligationsunder the Transaction Documents, any remedy at law may prove to be inadequaterelief to the Buyer.  The Companytherefore agrees that the Buyer shall be entitled to seek temporary andpermanent injunctive relief in any such case without the necessity of provingactual damages and without posting a bond or other security.

 

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## (n)   Rescission and WithdrawalRight.  Notwithstanding anything tothe contrary contained in (and without limiting any similar provisions of) theTransaction Documents, whenever Buyer exercises a right, election, demand oroption under a Transaction Document and the Company does not perform, in atimely manner, its related obligations within the periods therein provided,then Buyer may rescind or withdraw, in its sole discretion from time to timeupon written notice to the Company, any relevant notice, demand or election inwhole or in part without prejudice to its future actions and rights.

##  

## (o)   Payment Set Aside.  To the extent that the Company makes apayment or payments to the Buyer hereunder or pursuant to any of the otherTransaction Documents or the Buyer enforces or exercise its rights hereunder orthereunder, and such payment or payments or the proceeds of such enforcement orexercise or any part thereof are subsequently invalidated, declared to befraudulent or preferential, set aside, recovered from, disgorged by or arerequired to be refunded, repaid or otherwise restored to the Company, atrustee, receiver or any other Person under any law (including, withoutlimitation, any bankruptcy law, foreign, state or federal law, common law orequitable cause of action), then to the extent of any such restoration theobligation or part thereof originally intended to be satisfied shall be revivedand continued in full force and effect as if such payment had not been made orsuch enforcement or setoff had not occurred.

##  

**[Signature Pages Follow]**

 

31

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

 

 
| **Open  Energy Corporation**                         |              | Address for  Notice:                 |
|------------------------------------------------------|-------------------|--------------------------------------|
|                                                 |              | 514 Via de  la Valle, Suite 200 |
|                                                 |              | Solana  Beach, CA 92075              |
| ** **                                           | ** **        | ** **                           |
| By:                                                  | /s/ David Saltman |                                 | Facsimile: (858) 794-8811 |
| Name: David Saltman                                  |              | Attention: David Saltman,            |
| Title: Chief Executive Officer                       |              | Chief Executive Officer              |
|                                                 |              |                                 |
| With a copy  to (which shall not constitute notice): |              | Address for Notice:                  |
|                                                 |              |                                 |
| James Mercer  III                                    |              | 12275 El Camino Real, Suite 200 |
| Sheppard, Mullin,  Richter & Hampton LLP    |              | San Diego, CA 92130                  |
|                                                 |              | Facsimile: (858) 509-3691            |
|                                                      |                   |                                      |  |

 

 

*[REMAINDEROF PAGE INTENTIONALLY LEFT BLANK*

*SIGNATUREPAGE FOR BUYER FOLLOWS]*

 

32

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*[BUYER SIGNATURE PAGES TO OPEN ENERGYCORPORATION SECURITIES PURCHASE AGREEMENT]*

 

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

 

Name of Buyer: The Quercus Trust

 
| *Signature  of Authorized Signatory of Buyer*: | /s/ David Gelbaum |   |
|------------------------------------------------|-------------------|--------|

 

Name of Authorized Signatory: David Gelbaum

 

Title of Authorized Signatory: Trustee

 

Email Address of Buyer: xaixai@pacbell.net

 

Fax Number of Buyer: (949) 631-2325

 

Address for Notice of Buyer: 1835 Newport Blvd., A109 - PMB 467, CostaMesa, CA 92627

 

Address for Delivery of Securities for Buyer (if not same as addressfor notice):

 

September 2008 Warrant Shares: 235,000,000

 

 

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

 

33

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**SCHEDULE OFWARRANT BUYER**

 
| **(1)**           | ** ** | **(2)**                                                | ** ** | **(4)**                 | ** ** | **(5)**                | ** ** | **(6)**                         | ** ** |
|-------------------|------------|--------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|---------------------------------|------------|
| ** **        | ** ** | ** **                                             | ** ** | **Number of**           | ** ** | ** **             | ** ** | **Legal Representative’s** | ** ** |
| ** **        | ** ** | **Address and**                                        | ** ** | **September 2008** | ** ** | **Aggregate Purchase** | ** ** | **Address and Facsimile**       | ** ** |
| **Buyer**         | ** ** | **Facsimile Number**                                   | ** ** | **Warrant Shares**      | ** ** | **Price**              | ** ** | **Number**                      | ** ** |
|              |       |                                                   |       |                    |       |                   |       |                            |       |
| The Quercus Trust |       | 1835 Newport Blvd.  A109 - PMB 467Costa Mesa, CA 92627 |       | 235,000,000             |       | $4,700,000             |       | David GelbaumTrustee            |       |

 

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**EXHIBITS**

** **
| Exhibit A |   | Form of September 2008 Warrant  |
|----------------|--------|-------------------------------------------|
| Exhibit B |   | Amended Articles                          |
| Exhibit C |   | Form of Opinion of Company’s Counsel |

 

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**EXHIBIT B**

** **

**AMENDMENT TOARTICLES**

** **

ARTICLE FOURTH HAS BEEN DELETED AND REPLACED IN ITS ENTIRETY ASFOLLOWS:

 

“FOURTH:  The total number ofauthorized shares of common stock that may be issued by the Corporation is                                    (                        ),with a par value of One-Tenth of a Cent ($0.001) and no other class of stockshall be authorized.  Said shares may beissued by the corporation from time to time for such consideration as may befixed by the Board of Directors.”

 

THE FOLLOWING IS ADDED TO THE ARTICLES AS ARTICLE FIFTEENTH:

 

“FIFTEENTH:  Each Holder in whosename the indebtedness represented by those certain Series B ConvertibleNotes issued by the Corporation on September 19 2007 and December 7,2007, and any substitutions for such Series B Convertible Notes, isregistered on the books of the Corporation on the record date for any action ofstockholders established pursuant to applicable law shall have voting rightsidentical to those held by the holders of the Common Stock and shall vote as aclass with the Common Stock.  Each Holdershall have the right to one (1) vote for each share of Common Stock intowhich the Series B Convertible Note registered in such Holder’s name couldbe converted on the record date for the vote or written consent ofstockholders.  With respect to such vote,each such Holder shall have full voting rights and powers equal to the votingrights and powers of the holders of the Common Stock, and shall be entitled,notwithstanding any provision hereof, to notice of any stockholders’ meeting inaccordance with the bylaws of the Corporation and shall be entitled to vote,together with holders of Common Stock, with respect to any question upon whichthe holders of Common Stock have the right to vote.”

 

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