SUBSCRIPTION
AGREEMENT

    


    THIS SUBSCRIPTION AGREEMENT
(this “Agreement”), is
dated as of January ___, 2011, by and between New Generation Biofuels Holdings,
Inc., a Florida corporation (the “Company”), and the subscribers
identified on Schedule
1 hereto (the “Subscribers”).

    


    WHEREAS, the Company and the
Subscribers are executing and delivering this Agreement in reliance upon an
exemption from securities registration afforded by the provisions of Section
4(2), Section 4(6) and/or Regulation D (“Regulation D”) as promulgated
by the United States Securities and Exchange Commission (the “Commission”) under the
Securities Act of 1933, as amended (the “1933 Act”);

    


    WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Subscribers, as provided herein, and the Subscribers
shall purchase, in the aggregate, for up to $1,000,000 (“Purchase Price”) of principal
amount (“Principal
Amount”) of secured promissory notes of the Company (each “Note”, collectively the
“Notes”), a form of
which is annexed hereto as Exhibit A, convertible into
shares of the Company’s Common Stock, $0.001 par value (the “Common Stock”) at a per share
conversion price set forth in the Notes (“Conversion Price”); and issue
and deliver Class A Common
Stock Purchase Warrants and Class B Common Stock Purchase Warrants
(collectively, the “Warrants”) in the form
attached hereto as Exhibit B,
to purchase shares of the Company’s Common Stock (the “Warrant Shares”) (the “Offering”).  The
Notes, shares of Common Stock issuable upon conversion of the Notes (the “Conversion Shares”), the
Warrants and the Warrant Shares are collectively referred to herein as the
“Securities”;
and

    


    WHEREAS, the aggregate
proceeds of the sale of the Notes and the Warrants contemplated hereby (“Purchase Price”) shall be held
in escrow by Grushko & Mittman, P.C. (the “Escrow Agent”) pursuant to the
terms of an Escrow Agreement to be executed by the parties substantially in the
form attached hereto as Exhibit
C (the “Escrow
Agreement”).

    


    NOW, THEREFORE, in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:

     

    1.           
 (a)           Closing
Date.  The “Closing Date” shall be the
date that the Closing Purchase Price (as defined below) is transmitted by wire
transfer or otherwise credited to or for the benefit of the
Company.  The consummation of the transactions contemplated herein
shall take place at the offices of Grushko & Mittman, P.C., 515 Rockaway
Avenue, Valley Stream, New York 11581, upon the satisfaction or waiver of all
conditions to closing set forth in this Agreement with such date referred to
herein as the “Closing
Date.” The closing is referred to herein as a “Closing”.

    


    (b)           Closing.  Subject
to the satisfaction or waiver of the terms and conditions of this Agreement, on
the Closing Date, each Subscriber shall purchase and the Company shall sell to
each Subscriber a Note in the principal amount set forth on Schedule
1 hereto (“Closing
Note”) for the Purchase Price set forth thereon, and deliver Warrants as
described in Section 2 of this Agreement.  The Principal Amount of the
Notes to be purchased by the Subscribers on the Closing Date shall in the
aggregate be up to One Million Dollars ($1,000,000) (the “Closing Principal
Amount”).

    


    (c)           Conditions to
Closing.  The occurrence of the Closing is expressly contingent
on:

    


    (i)           the
truth and accuracy, on the Closing Date of the representations and warranties of
the Company and Subscriber contained in this Agreement except for changes that
do not constitute a Material Adverse Effect as defined in Section 5(a);
and



    
      
         


      

      
        1

        
          

        

      

      
         


      

    


    (ii)           the
non-occurrence of any Event of Default (as defined in the Note and this
Agreement) or an event that with the passage of time or the giving of notice is
reasonably likely to become an Event of Default.

    


    2.           Notes and
Warrants.

    


    (a)           Notes.  Subject
to the satisfaction or waiver of the terms and conditions of this Agreement, on
the Closing Date, each Subscriber shall purchase and the Company shall sell to
each Subscriber a Note in the Principal Amount designated on Schedule
I hereto for such Subscriber’s Purchase Price indicated
thereon.

    


    (b)           Warrants.  On
the Closing Date, the Company will issue four and one-half (4-1/2) Class A
Warrants and one-half (1/2) Class B Warrant for each $1.00 of Purchase Price
paid by each of the Subscribers.  The exercise price to acquire a
Warrant Share upon exercise of a Class A Warrant shall be $0.10, subject to
adjustment as described in the Warrants.  The exercise price to
acquire a Warrant Share upon exercise of a Class B Warrant shall be $0.005,
subject to adjustment as described in the Warrants.  The Warrants
shall be exercisable until five (5) years after the Closing Date.  On
the Closing Date, the subscribers shall pay (pro rata) in the aggregate $12,500
for the Warrants issued on the Closing Date (“Warrant Acquisition
Price”).

    


    (c)           Allocation of Purchase
Price.   The Purchase Price will be allocated by each
Subscriber, at each Subscriber’s election, among the components of the
Securities so that each component of the Securities will be fully paid and
non-assessable, and acquired for value.

    


    3.           Security
Interest.   The Subscribers will be granted a security
interest in the assets of the Company including ownership of the Subsidiaries
(as defined in Section 5(a)), and in the assets of the Subsidiaries, which
security interest will be memorialized in a “Security Agreement,” a form of
which is annexed hereto as Exhibit
D.   The Company and Subsidiaries will acknowledge the
appointment of a collateral agent (the “Collateral Agent”) to act on
behalf of the Subscribers as set forth in the Security Agreement.  The
Subsidiaries of the Company will guaranty the Company’s obligations under the
Transaction Documents as defined in Section 5(c), which guaranty will be
memorialized in a “Guaranty”, the form of which
is annexed hereto as Exhibit
E.  The Company and Subsidiaries will execute such other
agreements, documents and financing statements reasonably requested by the
Subscribers and Collateral Agent, which will be filed at the Company’s expense
with the jurisdictions, states and counties designated by the
Subscribers.  Subsequent to the Closing, the Company and Subsidiaries
will also execute all such documents reasonably necessary in the opinion of the
Subscribers and Collateral Agent to memorialize and further protect the security
interest described herein which will be prepared and filed at the Company’s
expense with the jurisdictions, states and filing offices designated by the
Subscribers and Collateral Agent.

    


                          4.           Subscriber Representations
and Warranties.  Each of the Subscribers hereby represents and
warrants to and agrees with the Company with respect only to such Subscriber
that:

    


    (a)           Organization and Standing of
the Subscriber.  Subscriber, to the extent applicable, is an
entity duly formed, validly existing and in good standing under the laws of the
jurisdiction of its formation.

    


    (b)           Authorization and
Power.  Such Subscriber has the requisite power and authority
to enter into and perform this Agreement and the other Transaction Documents (as
defined herein) and to purchase the Note and Warrants being sold to it
hereunder.  The execution, delivery and performance of this Agreement
and the other Transaction Documents by such Subscriber and the consummation by
it of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action, and no further consent or authorization of
Subscriber or its board of directors or stockholders, if applicable, is
required.  This Agreement and the other Transaction Documents have
been duly authorized, executed and delivered by such Subscriber and constitutes,
or shall constitute, when executed and delivered, a valid and binding obligation
of such Subscriber, enforceable against Subscriber in accordance with the terms
thereof.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

    


    (c)           No
Conflicts.  The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation by such
Subscriber of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Subscriber’s
charter documents, bylaws or other organizational documents, if applicable; (ii)
conflict with nor constitute a default (or an event which with notice or lapse
of time or both would become a default) under any agreement to which such
Subscriber is a party; nor (iii) result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on Subscriber).  Such Subscriber is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement and the other
Transaction Documents  nor to purchase the Securities in accordance
with the terms hereof, provided that for purposes of the representation made in
this sentence, such Subscriber is assuming and relying upon the accuracy of the
relevant representations and agreements of the Company herein.

    


    (d)           Information on
Company.   Subscriber has been furnished with or has had
access at the EDGAR Website of the Commission to the Company’s Form 10-K filed
on March 26, 2010, and the 10-K/A filed on April 30, 2010, for the fiscal year
ended December 31, 2009, and the financial statements included therein for the
year ended December 31, 2009, together with all subsequent filings made with the
Commission available at the EDGAR website until five days before the Closing
Date (hereinafter referred to collectively as the “Reports”).  In
addition, Subscriber may have received in writing from the Company such other
information concerning its operations, financial condition and other matters as
Subscriber has requested in writing, identified thereon as OTHER WRITTEN
INFORMATION (such other information is collectively, the “Other Written Information”),
and considered all factors Subscriber deems material in deciding on the
advisability of investing in the Securities.   

    


    (e)           Information on
Subscriber.   Such Subscriber is, and will be at the time
of the conversion of the Notes and exercise of the Warrants, an “accredited investor,” as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable such Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment.  Such Subscriber has the
authority and is duly and legally qualified to purchase and own the
Securities.  Such Subscriber is able to bear the risk of such
investment for an indefinite period and to afford a complete loss
thereof.  The information set forth on Schedule
1 hereto
regarding such Subscriber is accurate.

    


    (f)           Purchase of Notes and
Warrants.  On the Closing Date, such Subscriber will purchase
the Note and Warrants as principal for its own account for investment only and
not with a view toward, or for resale in connection with, the public sale or any
distribution thereof.

    


    (g)           Compliance with Securities
Act.   Such Subscriber understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state
securities laws, by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of the Subscriber contained herein), and that
such Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration.  In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into lawful
hedging transactions in the course of hedging the position they assume and the
Subscriber may also enter into lawful short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle other transactions, or loan or pledge the
Securities, or interests in the Securities, to third parties who in turn may
dispose of these Securities.


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

    


    (h)           Conversion Shares and
Warrant Shares Legend.  The Conversion Shares and Warrant
Shares shall bear the following or similar legend:

    


    “THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”

    


    (i)           Notes and Warrants
Legend.  The Notes and Warrants shall bear the following
legend:

    


    “NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE -OR- EXERCISABLE] HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”

    


    (j)           Communication of
Offer.  The offer to sell the Securities was directly
communicated to such Subscriber by the Company.  At no time was such
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated
offer.


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

    


    (k)           Restricted
Securities.   Such Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act, or unless an exemption from registration is
available.  Notwithstanding anything to the contrary contained in this
Agreement, such Subscriber may transfer (without restriction and without the
need for an opinion of counsel) the Securities to its Affiliates (as defined
below) provided that each such Affiliate is an “accredited investor” under
Regulation D and such Affiliate agrees to be bound by the terms and conditions
of this Agreement. For the purposes of this Agreement, an “Affiliate” of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person or
entity.  Each Subsidiary is an Affiliate of the
Company.  For purposes of this definition, “control” means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.

    


    (l)           No Governmental
Review.  Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

    


    (m)           Correctness of
Representations.  Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless Subscriber otherwise notifies the Company prior to the Closing Date,
shall be true and correct as of the Closing Date.

    


    (n)           Survival.  The
foregoing representations and warranties shall survive the Closing
Date.

    


    5.           Company Representations and
Warranties.  Except as set forth in the Schedules, the Company
represents and warrants to and agrees with each Subscriber that:

    


    (a)           Due
Incorporation.  The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business as presently conducted.  The Company is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect (as
defined herein).  For purposes of this Agreement, a “Material Adverse Effect” shall
mean a material adverse effect on the financial condition, results of
operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole.  For purposes of this Agreement, “Subsidiary” means, with
respect to any entity at any date, any direct or indirect corporation, limited
or general partnership, limited liability company, trust, estate, association,
joint venture or other business entity of which (A) more than 30% of
(i) the outstanding capital stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such entity, (ii) in the case of a partnership or limited
liability company, the interest in the capital or profits of such
partnership or limited liability company or (iii) in the case of a trust,
estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity, or (B) is under the actual control of the
Company.  As of the Closing Date, all of the Company’s Subsidiaries
and the Company’s other ownership interests therein are set forth on Schedule
5(a).  The Company represents that it owns all of the equity of
the Subsidiaries and rights to receive equity of the Subsidiaries set forth on
Schedule
5(a), free and clear of all liens, encumbrances and claims, except as set
forth on Schedule
5(a).  No person or entity other than the Company has the right
to receive any equity interest in the Subsidiaries.  The Company
further represents that, other than as set forth on Schedule
5(a), neither the Company nor the Subsidiaries have been known by any
other names for the five (5) years preceding the date of this
Agreement.

    


    (b)           Outstanding
Stock.  All issued and outstanding shares of capital stock and
equity interests in the Company have been duly authorized and validly issued and
are fully paid and non-assessable.


    
      
         


      

      
        5

        
          

        

      

      
         


      

    

    


    (c)           Authority;
Enforceability.  This Agreement, the Notes, Warrants, Security
Agreement, Guaranty, the Escrow Agreement, and any other agreements delivered or
required to be delivered together with or pursuant to this Agreement or in
connection herewith (collectively “Transaction Documents”) have
been duly authorized, executed and delivered by the Company and/or the
Subsidiaries, as the case may be, and are valid and binding agreements of the
Company and/or the Subsidiaries, as the case may be, enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors’ rights generally and to general principles of
equity.  The Company and/or the Subsidiaries, as the case may be, have
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform their obligations thereunder.

    


    (d)           Capitalization and
Additional Issuances.   The authorized and outstanding
capital stock of the Company and Subsidiaries on a fully diluted basis and all
outstanding rights to acquire or receive, directly or indirectly, any equity of
the Company and Subsidiaries as of the date of this Agreement and the Closing
Date (not including the Securities) are set forth on Schedule
5(d).  Except as set forth on Schedule
5(d), there are no options, warrants, or rights to subscribe to,
securities, rights, understandings or obligations convertible into or
exchangeable for or granting any right to subscribe for any shares of capital
stock or other equity interest of the Company or any of the
Subsidiaries.  The only officer, director, employee and consultant
stock option or stock incentive plan or similar plan currently in effect or
contemplated by the Company is described on Schedule
5(d).  There are no outstanding agreements or preemptive or
similar rights affecting the Company’s Common Stock or equity.

    


    (e)           Consents.  Except
as disclosed on Schedule 5(e), no filing, consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, Subsidiaries or any of their Affiliates, any
Principal Market as defined in Section 9(b), or the Company’s stockholders is
required for the execution by the Company of the Transaction Documents and
compliance and performance by the Company and Subsidiaries of their obligations
under the Transaction Documents, including, without limitation, the issuance and
sale of the Securities.  The Transaction Documents and the Company’s
performance of its obligations thereunder has been approved by the Company’s
board of directors in accordance with the Company’s Certificate of Incorporation
and applicable law.  Any such qualifications and filings will, in the
case of qualifications, be effective upon Closing and will, in the case of
filings, be made within the time prescribed by law.

    


    (f)           No Violation or
Conflict.  Except as set forth on Schedule
5(f), upon Closing, and assuming the representations and warranties of
the Subscriber in Section 4 are true and correct, neither the issuance nor the
sale of the Securities nor the performance of the Company’s obligations under
the Transaction Documents by the Company, will:

    


    (i)           violate,
conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company’s knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject or (D) the terms of any
“lock-up” or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect;
or


    
      
         


      

      
        6

        
          

        

      

      
         


      

    

    


    (ii)           result
in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
in favor of each Subscriber as described herein; or

    


    (iii)           result
in the activation of any anti-dilution rights or a reset or repricing of any
debt, equity or security instrument of any creditor or equity holder of the
Company, or the holder of the right to receive any debt, equity or security
instrument of the Company nor result in the acceleration of the due date of any
obligation of the Company, all of the foregoing including but not be limited to
all of the Warrants and shares of Common Stock issued and issuable in connection
with the February 2010 PIPE (as further defined and described in Section 12(a)
of this Agreement); or

    


               (iv)           result
in the triggering of any piggy-back or other registration rights of any person
or entity holding securities of the Company or having the right to receive
securities of the Company.

    


    (g)           The
Securities.  The Securities upon issuance:

    


    (i)           are,
or will be, free and clear of any security interests, liens, claims or other
encumbrances, subject only to restrictions upon transfer under the 1933 Act and
any applicable state securities laws;

    


    (ii)           have
been, or will be, duly and validly authorized and on the dates of issuance of
the Notes and Warrants, the Conversion Shares upon conversion of the Notes, and
the Warrant Shares upon exercise of the Warrants, such Notes, Warrants,
Conversion Shares and Warrant Shares will be duly and validly issued, fully paid
and non-assessable and if registered pursuant to the 1933 Act and resold
pursuant to an effective registration statement or an exemption from
registration, will be free trading, unrestricted and unlegended;

    


    (iii)           will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company or rights to acquire
securities or debt of the Company;

    


    (iv)           will
not subject the holders thereof to personal liability by reason of being such
holders; and

    


               (v)           assuming
the representations and warranties of the Subscribers as set forth in Section 4
hereof are true and correct, will not result in a violation of Section 5 under
the 1933 Act.

    


    (h)           Litigation.  There
is no pending or, to the best knowledge of the Company, threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the complete and timely performance
by the Company of its obligations under the Transaction
Documents.  Except as disclosed in the Reports, there is no pending
or, to the best knowledge of the Company, basis for or threatened action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates which
litigation if adversely determined would have a Material Adverse
Effect.

    


    (i)           No Market
Manipulation.  The Company and its Affiliates have not taken,
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or
resold.


    
      
         


      

      
        7

        
          

        

      

      
         


      

    

    


    (j)           Information Concerning
Company.  The Reports and Other Written Information contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein.   Since November 22, 2010, and except as
disclosed in the Reports or modified in the Reports and Other Written
Information or in the Schedules hereto, there has been no Material Adverse
Effect relating to the Company’s business, financial condition or affairs. The
Reports and Other Written Information including the financial statements
included therein do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, taken as a whole, not misleading in light of the
circumstances and when made.

    


    (k)           Solvency.  Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such amounts are
required to be paid.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its
debt).

    


    (l)           Defaults.  The
Company is not in violation of its articles of incorporation or
bylaws.   The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters which default would
have a Material Adverse Effect, or (iii) not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect.

    


    (m)           No Integrated
Offering.   Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security of the Company nor solicited
any offers to buy any security of the Company under circumstances that would
cause the offer of the Securities pursuant to this Agreement to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of the Bulletin Board.  No prior offering
will impair the exemptions relied upon in this Offering or the Company’s ability
to timely comply with its obligations hereunder.  Neither the Company
nor any of its Affiliates will take any action or suffer any inaction or conduct
any offering other than the transactions contemplated hereby that may be
integrated with the offer or issuance of the Securities or that would impair the
exemptions relied upon in this Offering or the Company’s ability to timely
comply with its obligations hereunder.

    


    (n)           No General
Solicitation.  Neither the Company, nor any of its Affiliates,
nor to its knowledge, any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.

    


    (o)           No Undisclosed
Liabilities.  The Company has no liabilities or obligations
which are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company’s business since November 22, 2010, and
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or in Schedule
5(o).


    
      
         


      

      
        8

        
          

        

      

      
         


      

    

    


    (p)           No Undisclosed Events or
Circumstances.  Since November 22, 2010, except as disclosed in
the Reports, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.

    


    (q)           Dilution.   The
Company’s executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company.  The
board of directors of the Company has concluded, in its good faith business
judgment, that the issuance of the Securities is in the best interests of the
Company.  The Company specifically acknowledges that its obligation to
issue the Conversion Shares upon conversion of the Notes and the Warrant Shares
upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other stockholders of the Company or parties entitled to receive equity of the
Company.

    


    (r)           No Disagreements with
Accountants and Lawyers.  There are no material disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise between the Company and the accountants and lawyers previously and
presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two years prior to the Closing
Date.

    


    (s)           Investment
Company.   Neither the Company nor any Affiliate of the
Company is an “investment company” within the meaning of the Investment Company
Act of 1940, as amended.

    


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

    


    (u)           Shell
Company.  Except as set forth in Schedule
5(u) as of the Closing Date, the Company is not a “shell company” nor a
“former shell company” as those terms are employed in Rule 144 under the 1933
Act.

    


    (v)           Company Predecessor and
Subsidiaries.  The Company makes each of the representations
contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j), (k), (l), (o),
(p), (r), (s) and (t) of this Agreement, as same relate or could be applicable
to each Subsidiary.  All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Section 9 shall relate, apply and refer to the Company and Subsidiaries and
their predecessors and successors.

    


    (w)           Correctness of
Representations.  The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date; provided, that, if such representation or warranty is made
as of a different date, in which case such representation or warranty shall be
true as of such date.


    
      
         


      

      
        9

        
          

        

      

      
         


      

    

    


    (x)           February 2010
PIPE.  (i) The warrants issued in February 2010 in connection
with the February 2010 PIPE transaction do not contain, and the warrants issued
in connection with the issuance of the New Units (as defined below) will not
contain, any anti-dilution rights such that the holders thereof are or would be
entitled to an adjustment in exercise price or an issuance of additional shares
as a result of any subsequent issuance by the Company of any securities at a
price that is lower than the exercise price described in either such warrant,
other than as described in Section 3 of the February 2010 PIPE warrant agreement
or Section 3 of the warrant agreement issued in connection with the New Units,
(ii) for purposes of Rule 144(d), the holding period for the securities
comprising the New Units will commence upon issuance of such New Units and will
not relate back to the date of the original issuance of the securities issued in
connection with the February 2010 PIPE transaction and (iii) the Company will
not issue any New Units until the Reservation (as defined below) has
occurred.

    


    (y)           Survival.  The
foregoing representations and warranties shall survive the Closing
Date.

    


    6.           Regulation D Offering/Legal
Opinion.  The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder.  On the
Closing Date, the Company will provide an opinion reasonably acceptable to the
Subscribers from the Company’s legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities.  A form of the legal opinion is annexed
hereto as Exhibit
F.  The Company will provide, at the Company’s expense, to the
Subscribers, such other legal opinions, if any, as are reasonably necessary in
each Subscriber’s opinion for the issuance and resale of the Notes, Conversion
Shares and Warrant Shares pursuant to an effective registration statement, Rule
144 under the 1933 Act or an exemption from registration.

    


    7.1.           Conversion of
Notes.

    


    (a)           Upon
the conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering an
opinion of counsel to assure that the Company’s transfer agent shall issue stock
certificates in the name of a Subscriber (or its permitted nominee) or such
other persons as designated by Subscriber and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion.  The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company’s Common Stock and that the certificates
representing such shares shall contain no legend other than the legend set forth
in Section 4(h).  If and when a Subscriber sells the Conversion
Shares, assuming (i) a registration statement including such Conversion Shares
for registration has been filed with the Commission, is effective and the
prospectus, as supplemented or amended, contained therein is current and (ii)
Subscriber or its agent confirms in writing to the transfer agent that
Subscriber has complied with the prospectus delivery requirements, the Company
will reissue the Conversion Shares without restrictive legend and the Conversion
Shares will be free-trading, and freely transferable.  In the event
that the Conversion Shares are sold in a manner that complies with an exemption
from registration, the Company will promptly instruct its counsel to issue to
the transfer agent an opinion permitting removal of the legend indefinitely if
such sale is intended to be made in conformity with Rule 144(b)(1)(i) of the
1933 Act, or for 90 days if pursuant to the other provisions of Rule 144 of the
1933 Act, provided that Subscriber delivers reasonably requested representations
in support of such opinion.

    


    (b)           Each
Subscriber will give notice of its decision to exercise its right to convert its
Note, interest, or part thereof by telecopying, or otherwise delivering a
completed Notice of Conversion (a form of which is annexed as Exhibit A to the Note) to the
Company via confirmed telecopier transmission or otherwise pursuant to Section
13(a) of this Agreement.  Subscriber will not be required to surrender
the Note until the Note has been fully converted or satisfied.  Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof by 6 PM Eastern Time (“ET”) (or if received by the
Company after 6 PM ET, then the next business day) shall be deemed a “Conversion
Date.”  The Company will itself or cause the Company’s transfer
agent to transmit the Company’s Common Stock certificates representing the
Conversion Shares issuable upon conversion of the Note to Subscriber via express
courier for receipt by Subscriber within three days after the Conversion Date
(such third day being the “Delivery Date”).  In
the event the Conversion Shares are electronically transferable, then delivery
of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Subscriber.   A Note representing the balance of the Note
not so converted will be provided by the Company to Subscriber if requested by
Subscriber, provided Subscriber delivers the original Note to the
Company.


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

    


    (c)           The
Company understands that a delay in the delivery of the Conversion Shares in the
form required pursuant to Section 7.1 hereof later than the Delivery Date could
result in economic loss to the Subscribers.  As compensation to
Subscribers for such loss, the Company agrees to pay (as liquidated damages and
not as a penalty) to each applicable Subscriber for late issuance of Conversion
Shares in the form required pursuant to Section 7.1 hereof upon Conversion of
the Note, the amount of $100 per business day after the Delivery Date for each
$10,000 of Note principal amount and interest (and proportionately for other
amounts) being converted of the corresponding Conversion Shares which are not
timely delivered.  The Company shall pay any payments incurred under
this Section upon demand.  Furthermore, in addition to any other
remedies which may be available to the Subscribers, in the event that the
Company fails for any reason to effect delivery of the Conversion Shares on or
before the Delivery Date, the Subscriber will be entitled to revoke all or part
of the relevant Notice of Conversion by delivery of a notice to such effect to
the Company whereupon the Company and Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that the damages payable in connection with the Company’s default shall be
payable through the date notice of revocation or rescission is given to the
Company.

    


    7.2.           Mandatory Redemption at
Subscriber’s Election.  In the event (i) the Company is
prohibited from issuing Conversion Shares, (ii) upon the occurrence of any other
Event of Default (as defined in the Note, this Agreement or any other
Transaction Document), that continues beyond any applicable cure period, (iii) a
Change in Control (as defined below) occurs, or (iv) upon the liquidation,
dissolution or winding up of the Company or any Subsidiary, then at the
Subscriber’s election, the Company must pay to each Subscriber not later than
ten (10) days after request by such Subscriber, a sum of money determined by
multiplying up to the outstanding principal amount of the Note designated by
each such Subscriber by, at Subscriber’s election, the greater of (i) 120%, or
(ii) a fraction the numerator of which is the highest closing price of the
Common Stock for the thirty days preceding the date demand is made by Subscriber
pursuant to this Section 7.2 and the denominator of which is the lowest
applicable conversion price during such thirty (30) day period, plus accrued but
unpaid interest and any other amounts due under the Transaction Documents
(“Mandatory Redemption
Payment”). The Mandatory Redemption Payment must be received by each
Subscriber on the same date as the Conversion Shares otherwise deliverable or
within ten (10) days after request, whichever is sooner (“Mandatory Redemption Payment
Date”). Upon receipt of the Mandatory Redemption Payment, the
corresponding Note principal, interest and other amounts will be deemed paid and
no longer outstanding.  The Subscriber may rescind the election to
receive a Mandatory Redemption Payment at any time until such payment is
actually received.  Liquidated damages calculated pursuant to Section
7.1(c) hereof, that have been paid or accrued for the ten day period prior to
the actual receipt of the Mandatory Redemption Payment by such Subscriber shall
be credited against the Mandatory Redemption Payment provided the balance of the
Mandatory Redemption Payment is timely paid.  For purposes of this
Section 7.2, “Change in
Control” shall mean (i) the Company  becoming a Subsidiary of
another entity (other than a corporation formed by the Company for purposes of
reincorporation in another U.S. jurisdiction), (ii) the sale, lease or transfer
of substantially all the assets of the Company or any Subsidiary, or (iii) a
majority of the members of the Company’s board of directors as of the Closing
Date no longer serving as directors of the Company, except as a result of
natural causes or as a result of hiring additional outside directors in order to
meet appropriate stock exchange requirements, unless prior written consent of
the Subscribers had been obtained by the Company.  The foregoing
notwithstanding, Subscriber may demand and receive from the Company the amount
stated above or any other greater amount which Subscriber is entitled to receive
or demand pursuant to the Transaction Documents.


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

    


               7.3.           Maximum
Conversion.  A Subscriber shall not be entitled to convert on a
Conversion Date that amount of a Note nor may the Company make any payment
including principal, interest, or liquidated or other damages by delivery of
Conversion Shares in connection with that number of Conversion Shares which
would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by such Subscriber and its Affiliates on a Conversion Date or
payment date, and (ii) the number of Conversion Shares issuable upon the
conversion of the Note with respect to which the determination of this provision
is being made on a calculation date, which would result in beneficial ownership
by Subscriber and its Affiliates of more than 4.99% of the outstanding shares of
Common Stock of the Company on such Conversion Date.  For the purposes
of the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Rule 13d-3 thereunder.  Subject to the foregoing, the
Subscriber shall not be limited to aggregate conversions of only 4.99% and
aggregate conversions by the Subscriber may exceed 4.99%.  The
Subscriber shall have the authority to determine whether the restriction
contained in this Section 7.3 will limit any conversion of a Note and the extent
such limitation applies and to which convertible or exercisable instrument or
part thereof such limitation applies.  The Subscriber may increase the
permitted beneficial ownership amount to exceed 4.99% upon and effective after
61 days prior written notice to the Company.  Subscriber may allocate
which of the equity of the Company deemed beneficially owned by Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.  The determination of the beneficial ownership
by the Subscriber and its affiliates shall be made by the Subscriber, in its
sole and absolute discretion, and the Subscriber shall hold the Company harmless
against any and all damages arising out of or in connection with any conversion
of Notes or exercise of Warrants in violation of this paragraph
7.3.  Notwithstanding anything in this Agreement or the Transaction
Documents to the contrary, if Subscriber gives notice of exercise to the Company
to convert Notes or exercise Warrants for shares of Common Stock that, when
issued, would violate the restrictions described in this paragraph and either
(i) the Company issues shares of Common Stock as exercised by Subscriber in
excess of 4.99%, or (ii) Subscriber does not waive the restrictions described in
this paragraph and the Company complies with the restrictions described in this
paragraph, neither action by the Company shall be considered an Event of Default
under this Agreement or any other Transaction Document or otherwise give to
Subscriber any additional rights whether contemplated herein or
otherwise.

    


    7.4.           Injunction Posting of
Bond.  In the event a Subscriber shall elect to convert a Note
or part thereof, or exercise a Warrant, the Company may not refuse conversion or
exercise, unless, a final non-appealable injunction from a court made on notice
to Subscriber, restraining and or enjoining conversion of all or part of such
Note or exercise of such Warrant shall have been sought and obtained by the
Company or the Company has posted a surety bond for the benefit of Subscriber in
the amount of 120% of the greater of the outstanding principal and accrued but
unpaid interest of the Note, or aggregate purchase price of the Conversion
Shares, or 120% of the aggregate exercise price of the Warrants which are sought
to be subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to Subscriber to the extent the judgment or decision is in
Subscriber’s favor.

    


    7.5.           Buy-In.   In
addition to any other rights available to Subscribers, if the Company fails to
deliver to a Subscriber Conversion Shares by the Delivery Date and if after the
Delivery Date Subscriber or a broker on Subscriber’s behalf purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by Subscriber of the Common Stock which Subscriber was
entitled to receive upon such conversion (a “Buy-In”), then the Company
shall pay to Subscriber (in addition to any remedies available to or elected by
the Subscriber) the amount by which (A) Subscriber’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion request was not timely honored together with interest
thereon at a rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty).  For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 of Note principal
and/or interest, the Company shall be required to pay Subscriber $1,000 plus
interest. Subscriber shall provide the Company written notice and evidence
indicating the amounts payable to Subscriber in respect of the
Buy-In.


    
      
         


      

      
        12

        
          

        

      

      
         


      

    

    


    7.6.       Redemption.    The
Note shall be redeemable by the Company as described in the Note.

    


    8.           Fees.

    


    (a)           Broker’s
Commission.  The Company on the one hand, and each Subscriber
(for himself only) on the other hand, agrees to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or similar fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions.  The Company represents that there are no parties
entitled to receive fees, commissions, finder’s fees, due diligence fees or
similar payments in connection with the Offering except as set forth on Schedule
8(a).  Anything in this Agreement to the contrary
notwithstanding, each Subscriber is providing indemnification only for such
Subscriber’s own actions and not for any action of any other
Subscriber.  The liability of the Company and each Subscriber’s
liability hereunder is several and not joint.  The Company represents
that to the best of its knowledge there are no other parties entitled to receive
fees, commissions, or similar payments in connection with the
Offering.

    


    (b)           Subscriber’s Legal
Fees.   The Company shall pay to Grushko & Mittman,
P.C., a cash fee of $20,000 (“Subscriber’s Legal Fees”) as reimbursement
for services rendered in connection with the transactions described in the
Transaction Documents.  On the Closing Date, the Subscriber’s Legal
Fees will be payable out of funds held pursuant to the Escrow
Agreement.  In addition to the Subscriber’s Legal Fees, Grushko &
Mittman, P.C. will be reimbursed at Closing by the Company for all lien
searches, filing fees, and reasonable printing and shipping costs for the
closing statements to be delivered to Subscribers.

    


    (c)           The
Company shall pay to Fredrikson & Byron, P.A., a cash fee of $b50,000
(“Company Legal Fees”) for services
rendered to the Company.  On the Closing Date, the Company Legal Fees
will be payable out of funds held pursuant to the Escrow Agreement.

    


    9.           Covenants of the
Company.  The Company covenants and agrees with the Subscribers
as follows:

    


    (a)           Stop
Orders.  Subject to the prior notice requirement described in
Section 9(n), the Company will advise the Subscribers, within twenty-four hours
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.  The Company will not issue any stop transfer order
or other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws
provided at least five (5) days prior notice of such instruction is given to the
Subscribers.

    


    (b)           Listing/Quotation.  The
Company shall promptly secure the quotation or listing of the Conversion Shares
and Warrant Shares upon each national securities exchange, or automated
quotation system upon which the Company’s Common Stock is quoted or listed and
upon which such Conversion Shares and Warrant Shares are or become eligible for
quotation or listing (subject to official notice of issuance) and shall maintain
same so long as any Notes and Warrants are outstanding.  The Company
will obtain and maintain the quotation or listing of its Common Stock on the
NYSE Amex Equities, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq Global
Select Market, OTC Bulletin Board (“Bulletin Board”), OTCQB, or
New York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock (the “Principal Market”), and will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
Subject to the limitation set forth in Section 9(n), the Company will provide
Subscribers with copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal
Market.


    
      
         


      

      
        13

        
          

        

      

      
         


      

    

    


    (c)           Market
Regulations.  If required, the Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to the Subscribers.

    


    (d)           Filing
Requirements.  From the date of this Agreement and until the
last to occur of (i) two (2) years after the Closing Date, (ii) until all the
Shares have been resold or transferred by the Subscriber pursuant to a
registration statement or pursuant to Rule 144(b)(1)(i), or (iii) the Note,
Warrants and Additional Investment Rights are no longer outstanding (the date of
such latest occurrence being the “End Date”), the Company will
(A) cause its Common Stock to continue to be registered under Section 12(b) or
12(g) of the 1934 Act, (B) comply in all respects with its reporting and filing
obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if the Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement.  The Company
will use reasonable efforts not to take any action or file any document (whether
or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said acts until the End Date.  Until the
End Date, the Company will continue the listing or quotation of the Common Stock
on a Principal Market and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market.  The Company agrees to timely file a Form D with
respect to the Securities if required under Regulation D and to provide a copy
thereof to Subscriber promptly after such filing.

    


    (e)           Use of
Proceeds.   The proceeds of the Offering will be
substantially employed by the Company for the purposes set forth on Schedule
9(e) hereto.  Except as described on Schedule
9(e), the Purchase Price may not and will not be used for accrued and
unpaid officer and director salaries, nor payment of financing related debt nor
redemption of outstanding notes or equity instruments of the Company nor
non-trade payables outstanding on the Closing Date.

    


    (f)           Reservation.   After
the Reservation Approval (as described in Section 9(w) of this Agreement), the
Company will reserve pro-rata on behalf of the Subscribers from its authorized
but unissued Common Stock a number of common shares equal to 150% of the amount
of Common Stock necessary to allow each holder of a Note to be able to convert
all such outstanding Notes and interest and reserve the amount of Warrant Shares
issuable upon exercise of the Warrants.  Thereafter, if additional
shares of Common Stock are issuable upon conversion of the Note as a result of
the application of the provisions of Section 12(b) of this Agreement and Section
3.1(c)(D) of the Note, the Company will not be in default of its reservation
obligations provided that at all times not less than 100% of the amount of
Common Stock necessary to allow each holder of a Note to be able to convert all
such outstanding Note, interest and Warrant Shares are reserved. Failure to have
sufficient shares reserved pursuant to this Section 9(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company’s obligations under this Agreement and an Event of
Default under the Note.  The Subscribers acknowledge that until the
Reservation Approval is obtained, no shares of Common Stock will be reserved on
their behalf and the Notes will not be convertible nor the Warrants
exercisable.

    


    (g)           DTC
Program.  At all times that Notes or Warrants are outstanding,
the Company will employ as the transfer agent for the Common Stock, Conversion
Shares and Warrant Shares a participant in the Depository Trust Company
Automated Securities Transfer Program and cause the Common Stock to be
transferable pursuant to such program.


    
      
         


      

      
        14

        
          

        

      

      
         


      

    

    


    (h)           Taxes.  From
the date of this Agreement and until the End Date, the Company will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefore.

    


    (i)           Insurance.  From
the date of this Agreement and until the End Date, the Company will keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business and
location, in amounts and to the extent and in the manner customary for companies
in similar businesses similarly situated and located and to the extent available
on commercially reasonable terms.

    


    (j)           Books and
Records.  From the date of this Agreement and until the End
Date, the Company will keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.

    


    (k)           Governmental
Authorities.   From the date of this Agreement and until
the End Date, the Company shall duly observe and conform in all material
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its properties or assets.

    


    (l)           Intellectual
Property.  From the date of this Agreement and until the End
Date, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business, unless it is sold for
value.  Schedule
9(l)
hereto identifies all of the intellectual property owned by the Company and
Subsidiaries, which schedule includes but is not limited to patents, patents
pending, patent applications, trademarks, tradenames, service marks and
copyrights.

    


    (m)           Properties.  From
the date of this Agreement and until the End Date, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases and claims to which it is a party
or under which it occupies or has rights to property if the breach of such
provision could reasonably be expected to have a Material Adverse
Effect.  The Company will not abandon any of its assets except for
those assets which have negligible or marginal value or for which it is prudent
to do so under the circumstances.


    
      
         


      

      
        15

        
          

        

      

      
         


      

    

    


    (n)           Confidentiality/Public
Announcement.   From the date of this Agreement and until
the End Date, the Company agrees that except in connection with a Form 8-K, Form
10-Q, Form 10-K and the registration statement or statements regarding the
Subscribers’ Securities or in correspondence with the Commission regarding same,
it will not disclose publicly or privately the identity of the Subscribers
unless expressly agreed to in writing by Subscribers or only to the extent
required by law and then only upon not less than three days prior notice to
Subscribers.  In any event and subject to the foregoing, the Company
undertakes to file a Form 8-K describing the Offering not later than the fourth
(4th) business day after the Closing Date.  Prior to the filing date
of such Form 8-K, a draft in the final form will be provided to Subscribers for
Subscribers’ review.  In the Form 8-K, the Company will specifically
disclose the amount of Common Stock outstanding immediately after the
Closing.  Upon  delivery by the Company to the Subscribers
after the Closing Date of any notice or information, in writing, electronically
or otherwise, and while a Note, Conversion Shares or Warrants are held by
Subscribers, unless the  Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or
Subsidiaries, the Company  shall within one business day after
any such delivery publicly disclose such  material,  nonpublic 
information on a Report on Form 8-K.  In the event that
the Company believes that a notice or communication to
Subscribers contains material, nonpublic information relating to the Company or
Subsidiaries, the Company shall so indicate to Subscribers prior to delivery of
such notice or information.  Subscribers will be granted sufficient
time to notify the Company that Subscribers elects not to receive such
information.   In such case, the Company will not deliver such
information to Subscribers.  In the absence of any such
indication, Subscribers shall be allowed to presume that all matters
relating to such notice and information do not constitute material,
nonpublic information relating to the Company or
Subsidiaries.

    


               (o)           Non-Public
Information.  The Company covenants
and agrees that except for the Reports, Other Written Information and schedules
and exhibits to this Agreement and the Transaction Documents, which information
the Company undertakes to publicly disclose on the Form 8-K described in Section
9(n) above, neither it nor any other person acting on its behalf will at any
time provide Subscribers or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto Subscribers shall have agreed in writing to accept such
information.  The Company understands and confirms that Subscribers
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.

    


    (p)           Negative
Covenants.   So long as a Note is outstanding, without the
consent of a Majority in Interest, the Company will not and will not permit any
of its Subsidiaries to directly or indirectly:

    


    (i)           create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “Lien”) upon any of its
property, whether now owned or hereafter acquired except for:  ) (a)
Liens imposed by law for taxes that are not yet due or are being contested in
good faith and for which adequate reserves have been established in accordance
with generally accepted accounting principles; (b) carriers’, warehousemen’s,
mechanic’s, material men’s, repairmen’s and other like Liens imposed by law,
arising in the ordinary course of business and securing obligations that are not
overdue by more than 30 days or that are being contested in good faith and by
appropriate proceedings; (c) pledges and deposits made in the ordinary course of
business in compliance with workers’ compensation, unemployment insurance and
other social security laws or regulations; (d) deposits to secure the
performance of bids, trade contracts, leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature, in each
case in the ordinary course of business; (e) Liens created with respect to the
financing of the purchase of new property in the ordinary course of the
Company’s business up to the amount of the purchase price of such
property;  (f) easements, zoning restrictions, rights-of-way and
similar encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property (each of (a) through
(f), a “Permitted
Lien”);

    


    (ii)           except
in connection with the Reservation, amend its certificate of incorporation,
bylaws or its charter documents so as to materially and adversely affect any
rights of the Subscribers;


    
      
         


      

      
        16

        
          

        

      

      
         


      

    

    


    (iii)           repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;

    


    (iv)           except
as set forth on Schedule
9(p)(iv), engage in any transactions with any officer, director, employee
or any Affiliate of the Company, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $100,000 other than (i) for payment of salary, or fees for
services rendered, pursuant to and on the terms of a written contract in effect
at least one  day prior to the Closing Date, a copy of which has been
provided to the Subscriber at least five (5) days prior to the Closing Date,
(ii) reimbursement for authorized expenses incurred on behalf of the Company,
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company disclosed in the Reports, or (iv) other
transactions disclosed in the Reports; or

    


    (v)           pay
or redeem any financing related debt, nor past due obligations except as
described on Schedule
9(p)(v), or securities outstanding as of the Closing Date, or past due
obligations.

     

    (q)           Seniority.   Except
for Permitted Liens, until the Notes are fully satisfied or converted, without
written consent of a Majority in Interest, the Company and Subsidiaries shall
not grant nor allow any security interest to be taken in any assets of the
Company or any Subsidiary or any Subsidiary’s assets; nor issue or amend any
debt, equity or other instrument which would give the holder thereof directly or
indirectly, a right in any equity or assets of the Company or any Subsidiary or
any right to payment equal to or superior to any right of the Subscribers as
holders of the Notes in or to such equity, assets or payment, nor issue or incur
any debt not in the ordinary course of business.

    


    (r)           Notices.   For
so long as the Subscribers hold any Securities, the Company will maintain a
United States address and United States fax number for notice purposes under the
Transaction Documents.

    


    (s)           Transactions with
Insiders.  So long as the Notes are outstanding without a
consent of a Majority in Interest, the Company shall not, and shall cause each
of its Subsidiaries not to, enter into, materially amend, materially modify or
materially supplement, or permit any Subsidiary to enter into, materially amend,
materially modify or materially supplement, any agreement, transaction,
commitment, or arrangement relating to the sale, transfer or assignment of any
of the Company’s tangible or intangible assets with any of its Insiders (as
defined below)(or any persons who were Insiders at any time during the previous
two (2) years), or any Affiliates (as defined below) thereof, or with any
individual related by blood, marriage, or adoption to any such
individual.  “Affiliate” for purposes of
this Section 9(t) means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity.  “Control” or
“Controls” for purposes of the Transaction Documents means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.  For purposes hereof, “Insiders” shall mean
any officer, director or manager of the Company, including but not limited to
the Company’s president, chief executive officer, chief financial officer and
chief operations officer, and any of their affiliates or family
members.

    


    (t)           Stock
Splits.  For so long as the Notes are outstanding, the Company
undertakes and covenants that without the consent of a Majority in Interest, the
Company will not enter into any stock splits.


    
      
         


      

      
        17

        
          

        

      

      
         


      

    

    


    (u)           Notice of Event of
Default.  The Company agrees to notify Subscriber of the
occurrence of an Event of Default (as defined and employed in the Transaction
Documents) not later than ten (10) days after any of the Company’s officers or
directors becomes aware of such Event of Default.

    


    (v)           Further Registration
Statements.   The Company will not, without the consent of
a Majority in Interest, file with the Commission or with state regulatory
authorities any registration statements, or amend any already filed registration
statement to increase the amount of Common Stock registered therein, or reduce
the price of which such company securities are registered therein, until the
expiration of the “Exclusion
Period,” which shall be defined as the later of (i) eighteen (18) months
after the Closing Date, or (ii) until all the Conversion Shares and Warrant
Shares may have been resold for six consecutive months by the Subscribers
pursuant to a registration statement or Rule 144b(1)(i), without regard to
volume limitations.  The Exclusion Period will be tolled or
reinstated, as the case may be, during the pendency of an Event of Default as
defined in the Note.

    


    (w)           Shareholder
Approval.  The Company and Subscribers agree that until the
Company obtains shareholder approval (“Shareholder Approval”) of an
increase in the authorized Common Stock of the Company to not less than
500,000,000 Shares of Common Stock, files an amendment to the Company’s Articles
of Incorporation and reserves 150% of the amount of shares of Common Stock
necessary to allow the conversion of the entire Note principal and interest that
may accrue thereon on each Closing Date, and 100% of the Common Stock issuable
upon exercise of all of the Warrants issued in connection with this Agreement
(collectively such shares of Common Stock being the “Reserve Amount” and the
Shareholder Approval, amendment and reservation being the “Reservation”), each Subscriber
may not convert the Note nor exercise any Warrants.  The Company has
filed a preliminary proxy statement for a meeting of the Company’s shareholders
relating to the Reservation with the Commission on December 30, 2010 (“Proxy Filing
Date”).   The Company covenants to use its best efforts to
obtain the Reservation.  Failure to  obtain the Reservation
on or before February 28, 2011 (each a “Reservation Default”), is an
Event of Default under the Note for which liquidated damages will accrue at the
rate of two percent (2%) for each thirty (30) days, or pro rata portion thereof
during the pendency of such Reservation Default.

     

    10.           Covenants of the Company
Regarding Indemnification.

     

    (a)           Indemnification.   The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers’ officers, directors, agents, counsel, Affiliates,
members, managers, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the
Subscribers or any such person which results, arises out of or is based upon (i)
any material misrepresentation by Company or breach of any material
representation or warranty by Company in this Agreement or in any Exhibits or
Schedules attached hereto in any Transaction Document, or other agreement
delivered pursuant hereto or in connection herewith, now or after the date
hereof; or (ii) after any applicable notice and/or cure periods, any breach or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by the
Company and Subscribers relating hereto.

    


    (b)           Indemnification
Procedures.   Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 10(b) and shall only relieve it from any liability which it may have to
such indemnified party under this Section 10(b), except and only if and to the
extent the indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 10(b) for
any legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected, provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnifying party shall have reasonably concluded that there may be
reasonable defenses available to indemnified party which are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified parties, as a group, shall have the
right to select one separate counsel, reasonably satisfactory to the indemnified
and indemnifying party, and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.


    
      
         


      

      
        18

        
          

        

      

      
         


      

    

    


    11.           Additional Post-Closing
Obligations.

     

    11.1.       
Delivery of Unlegended
Shares.

     

    (a)           Within
three (3) business days (such third business day being the “Unlegended Shares Delivery
Date”) after the business day on which the Company has received (i) a
notice that Conversion Shares, or any other Common Stock held by Subscriber has
been sold pursuant to a registration statement or Rule 144 under the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable and if required, have been satisfied,
(iii) the original share certificates representing the shares of Common Stock
that have been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and, if required, Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4(h) above (the “Unlegended Shares”); and (z)
cause the transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the submitted
Common Stock certificate, if any, to the Subscriber at the address specified in
the notice of sale, via express courier, by electronic transfer or otherwise on
or before the Unlegended Shares Delivery Date.

     

    (b)           In
lieu of delivering physical certificates representing the Unlegended Shares,
upon request of Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such
DWAC system.  Such delivery must be made on or before the Unlegended
Shares Delivery Date.

    


    (c)           The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than the Unlegended Shares Delivery Date
could result in economic loss to a Subscriber.  As compensation to a
Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default.  If during any three hundred and sixty (360) day
period, the Company fails to deliver Unlegended Shares as required by this
Section 11.1 for an aggregate of thirty (30) days, then each Subscriber or
assignee holding Securities subject to such default may, at its option, require
the Company to redeem all or any portion of the Shares subject to such default
at a price per share equal to the greater of (i) 120%, or (ii) a fraction in
which the numerator is the highest closing price of the Common Stock during the
aforedescribed thirty (30) day period and the denominator of which is the lowest
conversion price during such thirty (30) day period, multiplied by the price
paid by Subscriber for such Common Stock (“Unlegended Redemption
Amount”).  The Company shall pay any payments incurred under
this Section in immediately available funds upon demand.


    
      
         


      

      
        19

        
          

        

      

      
         


      

    

    


    (d)           In
the event a Subscriber shall request delivery of Unlegended Shares as described
in Section 11.1 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.1, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction or temporary restraining order from a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company and the Company has
posted a surety bond for the benefit of such Subscriber in the amount of 120% of
the amount of the aggregate purchase price of the Common Stock which are subject
to the injunction or temporary restraining order, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Subscriber to the extent Subscriber
obtains judgment in Subscriber’s favor.

    


    (e)           In
addition to any other rights available to Subscriber, if the Company fails to
deliver to a Subscriber Unlegended Shares as required pursuant to this Agreement
and after the Unlegended Shares Delivery Date, the Subscriber or a broker on the
Subscriber’s behalf, purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which the Subscriber was entitled to receive from
the Company (a “Buy-In”), then the Company
shall pay in cash to the Subscriber (in addition to any remedies available to or
elected by the Subscriber) the amount by which (A) the Subscriber’s total
purchase price (including brokerage commissions, if any) for the shares of
common stock so purchased exceeds (B) the aggregate purchase price of the shares
of Common Stock delivered to the Company for reissuance as Unlegended
Shares together with interest thereon at a rate of 15% per annum accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty).  For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the
Buy-In.

    


                          11.2.           144
Default.  In the event commencing six (6) months after the
Closing Date and ending twenty-four (24) months thereafter, the Subscriber is
not permitted to resell any of the Conversion Shares without any restrictive
legend or if such sales are permitted but subject to volume limitations or
further restrictions on resale as a result of the unavailability to Subscriber
of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a “144 Default”), for any reason
except for Subscriber’s status as an Affiliate or “control person” of the
Company, or as a result of a change in current applicable securities laws, then
the Company shall pay such Subscriber as liquidated damages and not as a penalty
an amount equal to two percent (2%) for each thirty (30) days (or such lesser
pro-rata amount for any period less than thirty days) thereafter of the purchase
price of the Conversion Shares subject to such 144 Default during the pendency
of the 144 Default.  Liquidated Damages shall not be payable pursuant
to this Section 11.2 in connection with Shares for such times as such Shares may
be sold by the holder thereof without volume or other restrictions pursuant to
Section 144(b)(1)(i) of the 1933 Act or pursuant to an effective registration
statement.


    
      
         


      

      
        20

        
          

        

      

      
         


      

    

    


    12.           (a)           Right of First
Refusal.  From the Closing Date until the later of (i) the date
on which the Notes are no longer outstanding, or (ii) twelve (12) months
following the completion of the Reservation (as defined in Section 9(w) herein),
the Subscribers shall be given not less than three (3) business days prior
written notice of any proposed sale by the Company of its Common Stock or other
securities or equity linked debt obligations (“Other Offering”), except in
connection with (i) the Company’s issuance of securities as full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of a corporation or
other entity which holders of such securities or debt are not at any time
granted registration rights, (ii) the Company’s issuance of securities in
connection with strategic license agreements and other partnering arrangements
so long as such issuances are not for the purpose of raising capital and which
holders of such securities or debt are not at any time granted registration
rights, (iii) the Company’s issuance of Common Stock or the issuances or grants
of options to purchase Common Stock to employees, directors, and consultants,
pursuant to plans described on Schedule
5(d), (iv) the Company’s issuance of securities upon the exercise or
exchange of or conversion of any securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
this Agreement on the unamended terms in effect on the Closing Date or
securities issued pursuant to subpart (iii) hereof, (v) as a result of the
exercise of Warrants or conversion of Notes which are granted or issued pursuant
to this Agreement, (vi) a limited amendment in connection with the Company’s
February 2010 PIPE transaction exclusively to (A) issue to each Subscriber (as
such term is defined in that certain Subscription Agreement, dated February 2,
2010, by and between the Company and the Subscribers set forth on the signature
page thereto) one unit (each such unit, a “New Unit”) consisting of one
share of Common Stock and one warrant to purchase one share of Common Stock at
an exercise price of not less than $0.30 for each share of Common Stock such
Subscriber was issued in the Company’s February 2010 PIPE transaction, (B) amend
the warrant issued to each Subscriber (as such term is defined in that certain
Subscription Agreement, dated February 2, 2010, by and between the Company and
the Subscribers set forth on the signature page thereto) to provide for an
exercise price of not less than $0.25 and (C) to terminate that certain
Registration Rights Agreement, dated February 2, 2010, by and between the
Company and the Holders set forth on Exhibit A attached thereto and no other
amendment or changes to the terms of the February 2010 PIPE transaction
(collectively, the foregoing (i) through (vi) are “Excepted
Issuances”).  If Subscribers elect to exercise their rights
pursuant to this Section 12(a), the Subscribers shall have the right during the
three (3) business days following receipt of the notice, to purchase in the
aggregate up to all of such offered
Common Stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale, relative to each other in proportion
to the amount of Note Principal issued to them on the Closing
Date.  Subscribers who participate in such Other Offering shall be
entitled at their option to purchase, in proportion to each other, the amount of
such Other Offering that could have been purchased by Subscribers who do not
exercise their rights hereunder until up to the entire Other Offering is
purchased by Subscribers.  In the event such terms and conditions are
modified during the notice period, Subscribers shall be given prompt notice of
such modification and shall have the right during the three (3) business days
following the notice of modification to exercise such right.

    


    (b)           Favored Nations
Provision.  Other than in connection with the Excepted
Issuances, if at any time the Notes or Warrants are outstanding, the Company
shall agree to or issue (the “Lower Price Issuance”) any
Common Stock or securities convertible into or exercisable for shares of Common
Stock (or modify any of the foregoing which may be outstanding) to any person or
entity at a price per share or conversion or exercise price per share which
shall be less than the Conversion Price in effect at such time, or if less than
the Warrant exercise price in effect at such time, without the consent of the
Subscribers, then the Conversion Price and Warrant exercise price shall
automatically be reduced to such other lower price.  The average
Purchase Price of the Conversion Shares and average exercise price in relation
to the Warrant Shares shall be calculated separately for the Conversion Shares
and Warrant Shares.  Common Stock issued or issuable by the Company
for no consideration or for consideration that cannot be determined at the time
of issue will be deemed issuable or to have been issued for $0.001 per share of
Common Stock.  The rights of Subscribers set forth in this Section 12
are in addition to any other rights the Subscribers have pursuant to this
Agreement, the Notes, Warrants, any Transaction Document, and any other
agreement referred to or entered into in connection herewith or to which
Subscriber and Company are parties.

    


    (c)           Maximum Exercise of
Rights.   In the event the exercise of the rights
described in Section 12(a) and Section 12(b) would or could result in the
issuance of an amount of Common Stock of the Company that would exceed the
maximum amount that may be issued to Subscribers calculated in the manner
described in Section 7.3 of this Agreement, then the issuance of such additional
shares of Common Stock of the Company to Subscribers will be deferred in whole
or in part until such time as Subscribers are able to beneficially own such
Common Stock without exceeding the applicable maximum amount set forth
calculated in the manner described in Section 7.3 of this Agreement and notifies
the Company accordingly.  The exercise by the Subscriber of the rights
described in this Section 12(c) will not be deemed to result in a Material
Adverse Effect as to the Company nor an Event of Default nor result in the
accrual of liquidated or other damages against the Company.


    
      
         


      

      
        21

        
          

        

      

      
         


      

    

    


    13.           Offering
Restrictions.   Subject to the consent of a Majority in
Interest [as defined in Section 14(j)], for so long as the Notes are
outstanding, the Company will not enter into or exercise any Equity Line of
Credit or similar agreement, nor issue nor agree to issue any floating or
Variable Priced Equity Linked Instruments nor any of the foregoing or equity
with price reset rights (collectively, the “Variable Rate
Restrictions”).   For purposes hereof, “Equity Line of Credit” shall
include any transaction involving a written agreement between the Company and an
investor or underwriter whereby the Company has the right to “put” its
securities to the investor or underwriter over an agreed period of time and at
an agreed price or price formula, and “Variable Priced Equity Linked
Instruments” shall include: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive
additional shares of Common Stock either (1) at any conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for Common Stock at any time after the initial issuance
of such debt or equity security, or (2) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date at any time
after the initial issuance of such debt or equity security due to a change in
the market price of the Company’s Common Stock since date of initial issuance,
and (B) any amortizing convertible security which amortizes prior to its
maturity date, where the Company is required or has the option to (or any
investor in such transaction has the option to require the Company to) make such
amortization payments in shares of Common Stock which are valued at a price that
is based upon and/or varies with the trading prices of or quotations for Common
Stock at any time after the initial issuance of such debt or equity security
(whether or not such payments in stock are subject to certain equity
conditions).  Until two (2) years after the Closing Date for so long
as the Notes are outstanding, except for the Excepted Issuances, the Company
will not enter into an agreement to issue nor issue any equity, convertible debt
or other securities convertible into Common Stock or equity of the Company nor
modify any of the foregoing which may be outstanding at anytime, without the
prior written consent of the Majority in Interest.

    


    14.           Qualified
Offering.  The provisions of Sections 9(p), 9(q), 9(v), 12(a)
and 13 shall not apply with respect to nor (i) after the sale by the Company of
equity or debt securities for which the Company has received in one or more
closings in a single or series of relating offerings actual net cash proceeds of
Two Million Dollars ($2,000,000) after all commissions, fees, expenses,
discounts and similar expenses, which receipt of funds is reported by the
Company in a Report filed with the Commission within four (4) business days
after the receipt of such $2,000,000 or more (“Qualified Offering”), or (ii) the
date on which fifty-one percent (51%) of the aggregate principal of the Notes
issued in connection with the Closing is no longer outstanding whether due to
being indefeasibly paid in full or converted pursuant to the terms Transaction
Documents.

    


    15.           Miscellaneous.

    


    (a)           Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second (2nd) business day following the date of
mailing by express courier service, fully prepaid, addressed to such address, or
upon actual receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be: (i) if to the Company, to: New Generation
Biofuels Holdings, Inc., 5850 Waterloo Road, Suite 140, Columbia, MD 21045,
attention Dane Saglio, facsimile: (561) 847-2875, with a copy by fax only to
(which shall not constitute notice) to: Fredrikson & Byron, P.A. 200 South
Sixth Street, Suite 4000, Minneapolis, MN 55402, facsimile: (612) 492-7077, and
(ii) if to the Subscribers, to: the addresses and fax numbers indicated on Schedule
1 hereto, with an additional copy by fax only to (which shall not
constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley
Stream, New York 11581, facsimile: (212) 697-3575.


    
      
         


      

      
        22

        
          

        

      

      
         


      

    

    


    (b)           Entire Agreement;
Assignment.  This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by both parties.  Neither the Company nor the Subscribers has
relied on any representations not contained or referred to in this Agreement and
the documents delivered herewith.   No right or obligation of the
Company shall be assigned without prior notice to and the written consent of the
Subscribers.

    


    (c)           Counterparts/Execution.  This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument.  This Agreement may be executed by facsimile
transmission, PDF, electronic signature or other similar electronic means with
the same force and effect as if such signature page were an original
thereof.

    


    (d)           Law Governing this
Agreement.  This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state and county of New York.  The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non
conveniens.  The parties executing this Agreement
and other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably waive trial by jury.  The
prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs.  In the event that any provision
of this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of any agreement.  Each party hereby irrevocably waives
personal service of process and consents to process being served in any suit,
action or proceeding in connection with this Agreement or any other Transaction
Document by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law.

    


    (e)           Specific Enforcement,
Consent to Jurisdiction.  The Company and Subscribers
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.  It is accordingly agreed
that the parties shall be entitled to seek an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which any of them may be entitled by law or
equity.  Subject to Section 15(d) hereof, the Company and each
Subscriber hereby irrevocably waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction in New York of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper.  Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by
law.


    
      
         


      

      
        23

        
          

        

      

      
         


      

    

    


    (f)           Damages.   In
the event the Subscriber is entitled to receive any liquidated or other damages
pursuant to the Transactions Documents, the Subscriber may elect to receive the
greater of actual damages or such liquidated damages.  In the event
the Subscriber is granted rights under different sections of the Transaction
Documents relating to the same subject matter or which may be exercised
contemporaneously, or pursuant to which damages or remedies are different,
Subscriber is granted the right in Subscriber’s absolute discretion to proceed
under such section as Subscriber elects.

    


    (g)           Maximum
Payments.   Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that
the rate of interest or dividends required to be paid or other charges hereunder
exceed the maximum permitted by such law, any payments in excess of such maximum
shall be credited against amounts owed by the Company to the Subscribers and
thus refunded to the Company.  The Company agrees that it may not and
actually waives any right to challenge the effectiveness or applicability of
this Section 15(g).

    


    (h)           Calendar
Days.   All references to “days” in the Transaction
Documents shall mean calendar days unless otherwise stated.  The terms
“business days” and “trading days” shall mean days that the New York Stock
Exchange is open for trading for three or more hours.  Time periods
shall be determined as if the relevant action, calculation or time period were
occurring in New York City.  Any deadline that falls on a non-business
day in any of the Transaction Documents shall be automatically extended to the
next business day and interest, if any, shall be calculated and payable through
such extended period.

    


    (i)           Captions: Certain
Definitions.  The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.  As used in this Agreement the term
“person” shall
mean and include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.

    


    (j)           Consent.   As
used in this Agreement and the Transaction Documents and any other agreement
delivered in connection herewith, “Consent of the Subscribers” or similar
language means the consent of holders of not less than seventy percent (70%) of
the outstanding Principal Amount of Notes on the date consent is requested (such
Subscribers being a “Majority
in Interest”).  A Majority in Interest may consent to take or
forebear from any action permitted under or in connection with the Transaction
Documents, modify any Transaction Documents or waive any default or requirement
applicable to the Company, Subsidiaries or Subscribers under the Transaction
Documents provided the effect of such action does not waive any accrued interest
or damages and further provided that the relative rights of the Subscribers to
each other remains unchanged.

    


    (k)           Severability.  In
the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement.

    


    (l)           Successor
Laws.  References in the Transaction Documents to laws, rules,
regulations and forms shall also include successors to and functionally
equivalent replacements of such laws, rules, regulations and forms.  A
successor rule to Rule 144(b)(1)(i) shall include any rule that would be
available to a non-Affiliate of the Company for the sale of Common Stock not
subject to volume restrictions and after a six month holding
period.


    
      
         


      

      
        24

        
          

        

      

      
         


      

    

    


    (m)           Maximum
Liability.   In no event shall the liability of the
Subscribers or permitted successor hereunder or under any Transaction Document
or other agreement delivered in connection herewith be greater in amount than
the dollar amount of the net proceeds actually received by such Subscriber or
successor upon the sale of Conversion Shares.

    


    (n)           Independent Nature of
Subscribers.  The Company acknowledges that the obligations of
each Subscriber under the Transaction Documents are several and not joint with
the obligations of any other Subscriber, and no Subscriber shall be responsible
in any way for the performance of the obligations of any other Subscriber under
the Transaction Documents. The Company acknowledges that each Subscriber has
represented that the decision of each Subscriber to purchase Securities has been
made by such Subscriber independently of any other Subscriber and independently
of any information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company which may have
been made or given by any other Subscriber or by any agent or employee of any
other Subscriber, and no Subscriber or any of its agents or employees shall have
any liability to any other Subscriber (or any other person) relating to or
arising from any such information, materials, statements or opinions.  The
Company acknowledges that nothing contained in any Transaction Document, and no
action taken by any Subscriber pursuant hereto or thereto shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers.  The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.

    


    (o)           Equal
Treatment.   No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
the Transaction Documents unless the same consideration is also offered and paid
to all the Subscribers and their permitted successors and assigns.

    


    (p)           Adjustments.   The
conversion price, Warrant exercise price, amount of Conversion Shares and
Warrant Shares, trading volume amounts, price/volume amounts and similar figures
in the Transaction Documents shall be equitably adjusted and as otherwise
described in this Agreement, the Notes and Warrants.

    


    [Signature
pages follow]


    
      
         


      

      
        25

        
          

        

      

      
         


      

    

    


    SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (A)

    


    Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.

    


    
      
        
          
            	
                    NEW
      GENERATION BIOFUELS

                  
	
                    HOLDINGS,
      INC.

                  
	
                    a
      Florida corporation

                  
	 
      
	
                    By:

                  	
                        

                  
	 
      	
                    Name:

                  
	 
      	
                    Title:

                  
	 
      
	
                    Dated:
      January ___,
  2011

                  


          

        

      

    

    


    
      
        
          
            
              
                
                  
                    	
                            SUBSCRIBER

                          	 	
                            PURCHASE

                            PRICE AND

                            PRINCIPAL

                            AMOUNT

                          	 	
                            CLASS A

                            WARRANTS

                          	 	
                            CLASS B

                            WARRANTS

                          
	
                            ALPHA
      CAPITAL ANSTALT

                            Pradafant
      7

                            9490
      Furstentums

                            Vaduz,
      Lichtenstein

                            Fax
      No.: 011-42-32323196

                             

                            Taxpayer
      ID# (if applicable): __________________

                             

                            __________________________________________

                            (Signature)

                            By:

                          	 	 
      	 	 
      	 	 
      


                  

                

              

            

          

        

      

    

     

    
      
         


      

      
        26

        
          

        

      

      
         


      

    

    


    SIGNATURE PAGE TO
SUBSCRIPTION AGREEMENT (B)

    


    Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.

    


    
      
        
          
            	
                    NEW
      GENERATION BIOFUELS

                  
	
                    HOLDINGS,
      INC.

                  
	
                    a
      Florida corporation

                  
	 
      
	
                    By:

                  	
                        

                  
	 
      	
                    Name:

                  
	 
      	
                    Title:

                  
	 
      
	
                    Dated:
      January ___,
  2011

                  


          

        

      

    

    


    
      
        
          
            
              
                
                  
                    	
                            SUBSCRIBER

                          	 	
                            PURCHASE

                            PRICE AND

                            PRINCIPAL

                            AMOUNT

                          	 	
                            CLASS A

                            WARRANTS

                          	 	
                            CLASS B

                            WARRANTS

                          
	
                            Name
      of Subscriber:

                             

                            ______________________________________

                             

                            Address:
      _______________________________

                             

                            ______________________________________

                             

                            Fax
      No.: _______________________________

                             

                            Taxpayer
      ID# (if applicable): ________________

                             

                            ______________________________________

                            (Signature)

                            By:

                          	 	 
      	 	 
      	 	 
      


                  

                

              

            

          

        

      

    

     

    
      
         


      

      
        27