Exhibit
10.1

     

    PREFERRED STOCK PURCHASE
AGREEMENT

     

    This
Preferred Stock Purchase Agreement (“Agreement”) is
entered into and effective as of July 29, 2009 (“Effective Date”), by
and among Neah Power Systems, Inc., a
Nevada corporation (“Company”), and
Optimus Capital Partners, LLC, a Delaware limited liability company, dba Optimus
Energy Capital Partners, LLC (including its designees, successors and assigns,
“Investor”).

     

    RECITALS

     

    A.           The
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue to Investor, and Investor shall purchase from
the Company, from time to time as provided herein, up to $10,000,000.00 of
shares of Series B Preferred Stock; and

     

    B.           The
offer and sale of the Securities provided for herein are being made without
registration under the Act, in reliance upon the provisions of Section 4(2) of
the Act, Regulation D promulgated under the Act, and such other exemptions from
the registration requirements of the Act as may be available with respect to any
or all of the purchases of Securities to be made hereunder.

     

    AGREEMENT

     

    In
consideration of the premises, the mutual provisions of this Agreement, and
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, Company and Investor agree as follows:

     

    ARTICLE 1

    DEFINITIONS

     

    1.1             Definitions.  
In
addition to the terms defined elsewhere in this Agreement:  (a)
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Certificate of Designations, and (b) the following terms
have the meanings indicated in this Section
1.1:

     

    “Act” means the
Securities Act of 1933, as amended.

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Act.  With
respect to Investor, without limitation, any Person owning, owned by, or under
common ownership with Investor, and any investment fund or managed account that
is managed on a discretionary basis by the same investment manager as Investor
will  be deemed to be an Affiliate.

     

    “Agreement” means this
Preferred Stock Purchase Agreement.

     

    “Automatic
Termination” has the meaning set forth in Section
3.1.


    
      
         

      

      
        1

        
          
        
      

      
         

      
    


    “Change in Control”
has the meaning set forth within the definition of Fundamental Transaction,
below.

     

    “Certificate of
Designations” means the certificate to be filed with the Secretary of
State of the State of Nevada, in the form
attached hereto as Exhibit
B.

     

    “Closing” means any
one of (i) the Commitment Closing and (ii) each Tranche Closing.

     

    “Commitment Closing”
has the meaning set forth in Section
2.2(a).

     

    “Commitment Fee” means a
non-refundable fee of $500,000.00, payable by Company to Investor, at
Company’s election either:
(a) in cash, on the first Tranche Closing Date, by offset from proceeds of the
first Tranche Amount; or (b) by issuance and delivery of registered and freely
tradable shares of Common Stock, delivered on, and valued based upon
82% of
the VWAP for the Common Stock on the 5 Trading Days immediately preceding, the
earliest of (i) the first Tranche Closing Date, (ii) the six-month anniversary
of the Effective Date, and (iii) the date that the Registration Statement
becomes effective.

     

    “Common Shares” includes the
Warrant Shares and any shares of Common Stock issued as the Commitment
Fee.

     

    “Common Stock” means
the common stock, par value $0.001 per
share, of the Company, and any replacement or substitute thereof, or any share
capital into which such Common Stock shall have been changed or any share
capital resulting from a reclassification of such Common Stock.

     

    “Company Termination”
has the meaning set forth in Section
3.2.

     

    “Delisting Event”
means any time during the term of this Agreement, that the Common Stock is not
listed for and actively trading on a Trading Market, or is suspended or delisted
with respect to the trading of shares of
Common Stock on a Trading Market.

     

    “Disclosure Schedules”
means the disclosure schedules of the Company delivered concurrently herewith
and attached hereto and all disclosures contained in the SEC
Reports.

     

    “DTC” means The
Depository Trust Company, or any successor performing substantially the same
function for Company.

     

    “DWAC Shares” means
all Common Shares or other shares of
Common Stock issued or issuable to Investor or any Affiliate, successor
or assign of Investor pursuant to any of the Transaction Documents, including without limitation any Warrant Shares,
all of which shall be issued in electronic form, freely tradable and without
restriction on resale, and timely credited by Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC under its
Fast Automated Securities Transfer (FAST) Program or any similar program
hereafter adopted by DTC performing substantially the same function, in
accordance with irrevocable instructions issued to and countersigned by the
Transfer Agent, in the form attached hereto as Exhibit
C.


    
      
         

      

      
        2

        
          
        
      

      
         

      
    


    “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

     

    “Fundamental Transaction” means and shall
be deemed to have occurred at such time upon any of the following
events:

     

    (i)           a consolidation, merger or other business combination or
event or transaction following which the holders of Common Stock
immediately preceding such consolidation,
merger, combination or event either (i) no longer hold a majority of the shares
of Common Stock or (ii) no longer have the ability to elect a majority the board
of directors of the Company (a “Change in
Control”);

     

    (ii)          the sale or
transfer of all or substantially all of the Company’s assets, other
than in the ordinary course of business; or

     

    (iii)         a purchase, tender or exchange offer made to the holders
of the outstanding shares of Common Stock.

     

    “GAAP” means United
States generally accepted accounting principles applied on a consistent basis
during the periods involved.

     

    “Indebtedness” means
(a) any liabilities for borrowed money or amounts owed in excess of $100,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $100,000 due under
leases required to be capitalized in accordance with GAAP.

     

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

     

    “Lock-Up Agreements”
means an agreement in the form attached as Exhibit D, executed
by each of the Company’s officers, directors and beneficial owners of 10% or
more of the Common Stock, precluding each such Person from participating in any
sale of the Common Stock from the Tranche Notice Date through the Tranche
Closing Date.

     

    “Material Adverse
Effect” includes any material adverse effect on (i) the legality,
validity or enforceability of any Transaction Document, (ii) the results of
operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a the Company’s ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document.

     

    “Material Agreement”
includes any loan agreement, financing agreement,
equity investment agreement or securities instrument to which Company is a
party, any agreement or instrument to which
Company and Investor or any Affiliate of Investor is a party, and any
other material agreement listed, or required to be listed, on any of
Company’s reports filed or required to be filed with the SEC, including without
limitation Forms 10-K, 10-Q or 8-K.


    
      
         

      

      
        3

        
          
        
      

      
         

      
    


    “Maximum
Placement” means $10,000,000.00.

     

    “Maximum Tranche
Amount” means, subject to any other applicable limitations set forth in
this Agreement, the Maximum Placement less the amount of any previously noticed
and funded Tranches.

     

     “Officer’s Closing
Certificate” means a certificate in customary form reasonably acceptable
to the Investor, executed by an authorized officer of the Company.

     

    “Opinion” means an
opinion from Company’s independent legal counsel, in the form attached as Exhibit E, to be
delivered in connection with the Commitment Closing and any Tranche
Closing.

     

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

     

    “Preferred Shares”
means shares of Series B Preferred Stock of the Company provided for in the
Certificate of Designations, to be issued to Investor pursuant to this
Agreement.

     

    “Pricing Period” means
the 5 Trading Days immediately prior to a Tranche Notice Date.

     

    “Prospectus” includes
each prospectus (within the meaning of the Act) related to the sale or offering
of any Common Shares, including without
limitation any prospectus contained within the Registration
Statement.

     

    “Registration
Statement” means a valid, current and effective registration statement
registering for sale the Common Shares, and
except where the context otherwise requires, means the registration statement,
as amended, including (i) all documents filed as a part thereof or incorporated
by reference therein, and (ii) any information contained or incorporated by
reference in a prospectus filed with the SEC in connection with such
registration statement, to the extent such information is deemed under the Act
to be part of the registration statement.

     

    “Regulation D” means
Regulation D promulgated under the Act.

     

    “Required Approval”
means any approval of the Trading Market or the Company’s stockholders required
to be obtained by Company prior to issuing the Securities pursuant to any
applicable rules of the Trading Market.

     

    “Required Tranche
Documents” has the meaning set forth in Section
2.3(e).

     

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

     

    “SEC” means the United
States Securities and Exchange Commission.


    
      
         

      

      
        4

        
          
        
      

      
         

      
    


    “SEC Reports” includes
all reports required to be filed by the Company under the Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the Effective
Date (or such shorter period as the Company was required by law to file such
material).

     

    “Securities” includes
the Warrants, Common Shares and Preferred
Shares issuable pursuant to this Agreement.

     

    “Subsidiary” means any
Person the Company owns or controls, or in which the Company, directly or
indirectly, owns a majority of the capital stock or similar interest that would
be disclosable pursuant to Regulation S-K, Item 601(b)(21).

     

    “Termination Date”
means the earlier of (i) the date that is one year after the Effective Date, or
(ii) the Tranche Closing Date on which the sum of the aggregate Tranche Purchase
Price for all Tranche Shares equals the Maximum Placement.

     

    “Termination Notice”
has the meaning as set forth in Section
3.2.

     

    “Trading Day” means
any day on which the Common Stock is traded on the Trading Market; provided that
it shall not include any day on which the Common Stock is (a) scheduled to trade
for less than 5 hours, or (b) suspended from trading.

     

    “Trading Market” means
the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market,
the NASDAQ Global Select Market, the NYSE
Amex, or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock, but does not include the Pink
Sheets inter-dealer electronic quotation and trading system.

     

    “Tranche” has the
meaning set forth in Section
2.3.

     

    “Tranche Amount” means
the amount of any individual put purchase, as specified by the Company, and
shall not exceed the Maximum Tranche Amount.

     

    “Tranche Closing” has
the meaning set forth in Section
2.3(f).

     

    “Tranche Closing Date”
has the meaning set forth in Section
2.3(f).

     

    “Tranche Notice” has
the meaning set forth in Section
2.3(b).

     

    “Tranche Notice Date”
has the meaning set forth in Section
2.3(b).

     

    “Tranche Purchase
Price” has the meaning set forth in Section 2.3(b), and
shall be specified in writing by the Company.

     

    “Tranche Share Price”
means $10,000.00 per Preferred Share. Company may not put fractional Preferred
Shares.


    
      
         

      

      
        5

        
          
        
      

      
         

      
    


    “Tranche Shares” means
the Preferred Shares that are purchased by
Investor pursuant to a Tranche.  For the Maximum Placement, the
Company shall issue 1,000 Preferred Shares to Investor.

     

    “Transaction
Documents” include this Agreement and the Exhibits hereto and
thereto.

     

    “Transfer Agent” means
Corporate Stock Transfer, Inc., or any successor transfer agent for the Common
Stock.

     

    “VWAP” means, for any
date, the volume-weighted average price, calculated by dividing the aggregate
value of Common Stock traded on the Trading Market (price multiplied by number
of shares traded) by the total volume (number of shares) of Common Stock traded
on the Trading Market for such date, or the nearest preceding Trading
Day.

     

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

     

    “Warrants” means the
warrants issuable under this Agreement, in the form attached hereto as Exhibit A, to
purchase shares of Common Stock equal in value to
$13,500,000.00.

     

    ARTICLE 2

    PURCHASE AND
SALE

     

    2.1             Agreement to
Purchase.  Subject
to the terms and conditions herein and the satisfaction of the conditions to
closing set forth in this ARTICLE 2:

     

    (a)           Investor
hereby agrees to purchase such amounts of Preferred Shares as the Company may,
in its sole and absolute discretion, from time to time elect to issue and sell
to Investor according to one or more Tranches pursuant to Section 2.3 below;
and

     

    (b)           The
Company agrees to issue the Commitment Fee and the
Warrants to Investor as provided below.

     

    2.2             Investment
Commitment

     

    (a)           Investment
Commitment. The closing of this Agreement (the “Commitment Closing”)
shall be deemed to occur when this Agreement has been duly executed by both
Investor and the Company, and the other Conditions to the Commitment Closing set
forth in Section
2.2(b) have been met.

     

    (b)           Conditions to Investment
Commitment. As a condition precedent to the Commitment Closing, all of
the following (the “Conditions to Commitment
Closing”) shall have been satisfied prior to or concurrently with the
Company’s execution and delivery of this Agreement:


    
      
         

      

      
        6

        
          
        
      

      
         

      
    


     (i)        the
following documents shall have been delivered to Investor:  (A) this
Agreement, executed by the Company; (B) a Secretary’s Certificate as to (x) the
resolutions of the Company’s board of directors authorizing this Agreement and
the Transaction Documents, and the transactions contemplated hereby and thereby,
(y) a copy of the Company’s current Certificate of Incorporation, and (z) a copy
of the Company’s current Bylaws; (C) the Certificate of Designations executed by
the Company and accepted by the Secretary of State of Nevada; (D) the Opinion;
and (E) a copy of the press release announcing the transactions contemplated by
this Agreement and Current Report on Form 8-K describing the transaction
contemplated by, and attaching a complete copy of, the Transaction
Documents;

     

     (ii)       other than for losses incurred in the ordinary
course of business, there have been no
material adverse changes in the Company’s business
prospects or financial condition since the date of the last SEC Report filed by
the Company, including but not limited to incurring material
liabilities;

     

     (iii)      the
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects and the Company shall have delivered an
Officer’s Closing Certificate to such effect to Investor, signed by an officer
of the Company;

     

     (iv)       Investor
shall have received the Commitment Fee and the
Warrant;

     

     (v)        Investor shall have entered into Stock Loan Agreements
with lending stockholders of the Company who are parties thereto (each, a
“Lending
Stockholder,” and, collectively, the “Lending Stockholders”) in the form
attached hereto as Exhibit G (each, a “Stock Loan
Agreement”), and received the Borrowed Shares (as defined in the
Stock Loan Agreement) pursuant thereto; and

     

     (vi)       any Required Approval has been
obtained.

     

    (c)           Investor’s Obligation to
Purchase. Subject to the prior satisfaction of all conditions set forth
in this Agreement, following the Investor’s receipt of a validly delivered
Tranche Notice, the Investor shall be required to purchase from the Company a
number of Tranche Shares equal to the permitted Tranche Share Amount, in the manner described
below.

     

    2.3             Tranches to
Investor

     

    (a)           Procedure to Elect a
Tranche. Subject to the Maximum Tranche Amount, the Maximum Placement and the other conditions
and limitations set forth in this Agreement, at any time beginning on the
Effective Date, the Company may, in its sole and absolute discretion, elect to
exercise one or more tranches of puts (each a “Tranche”) according
to the following procedure, provided that each subsequent Tranche Notice Date
(defined below) after the first Tranche Notice Date shall be no sooner than 5
Trading Days following the preceding Tranche Notice Date.

     

    (b)           Delivery of Tranche
Notice.  The Company shall deliver an irrevocable written
notice (the “Tranche
Notice”), the form of which is attached hereto as Exhibit F, to
Investor stating that the Company shall exercise a Tranche and stating the
number of Preferred Shares which the Company will sell to Investor at the
Tranche Share Price, and the aggregate purchase price for such Tranche (the
“Tranche Purchase
Price”).  A Tranche Notice must be delivered by the Company to
Investor by 4:30 p.m. Eastern time on any Trading Day via facsimile or
electronic mail, with confirming copy by overnight carrier, and shall be deemed
delivered on the next Trading Day (the “Tranche Notice
Date”).


    
      
         

      

      
        7

        
          
        
      

      
         

      
    


    (c)           Issuance of
Warrants.  On each Tranche Notice Date, the Company shall issue a replacement Warrant, in the form attached hereto as Exhibit A, amending and replacing a portion of the initial
Warrant issued on the Commitment
Closing to acquire that portion of Warrant Shares equal in value to
135.0% of the Tranche Purchase Price, at an
exercise price equal to the closing bid price for the Common Stock on the
Trading Day immediately preceding the Tranche Notice Date.  Each
Warrant shall have a term of 5 years from issuance.

     

    (d)           Conditions Precedent to
Right to Deliver a Tranche Notice.  The right of the Company to
deliver a Tranche Notice is subject to the satisfaction, on the date of delivery
of such Tranche Notice, of each of the following conditions:

     

     (i)        the
Common Stock shall be listed for and actively trading on the Trading Market, and
to the Company’s knowledge there is no notice of
any suspension or delisting with respect the trading of the shares of
Common Stock on such market or
exchange;

     

     (ii)       the
representations and warranties of the Company set forth in this Agreement are
true and correct in all material respects as if made on such date (provided, however, that any information disclosed by
the Company in a filing with the SEC after
the Effective Date but prior to the date of the Tranche Notice shall be deemed
to update the Disclosure Schedules), and no default shall have occurred
under this Agreement, or any other agreement with Investor, any Affiliate of
Investor, or any other Material Agreement,
and the Company shall deliver an Officer’s Closing Certificate to such effect to
Investor, signed by an officer of the Company;

     

     (iii)      other than losses incurred in the ordinary course of
business, there have been no material
adverse changes in the Company’s business prospects or financial condition since the
Commitment Closing, including but not limited to incurring material
liabilities;

     

     (iv)       the Company is not, and will not be as a result of the
applicable Tranche, in default of any
Material Agreement;

     

     (v)         there
is not then in effect any law, rule or regulation prohibiting or restricting the
transactions contemplated by any of the Transaction Documents, or requiring any
consent or approval which shall not have been obtained, nor is there any pending
or threatened proceeding or investigation which may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by this
Agreement; no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or adopted by any court
or governmental authority of competent jurisdiction that prohibits the
transactions contemplated by this Agreement, and no actions, suits or
proceedings shall be in progress, pending or, to the Company’s knowledge
threatened, by any person (other than Investor or any Affiliate of Investor), that seek to enjoin or
prohibit the transactions contemplated by this Agreement;


    
      
         

      

      
        8

        
          
        
      

      
         

      
    


     (vi)       all
Common Shares shall have been timely delivered, including all Warrant Shares
issuable pursuant to any Exercise
Notice delivered to Company prior to the Tranche
Notice Date;

     

     (vii)     all
previously-issued and issuable Common Shares are DWAC Shares, are DTC eligible,
and can be immediately converted into electronic form without restriction on
resale, provided that the
foregoing condition shall apply only to Tranche Notices delivered after the
earlier of (A) six months from the Effective Date, or (B) the date that the
Registration Statement is declared effective;

     

     (viii)    Company
is in compliance with all requirements to maintain listing on the Trading
Market;

     

     (ix)      Company
has a current, valid and effective
Registration Statement permitting the lawful resale of all previously-issued and
issuable Common Shares and all Warrant Shares
issuable upon exercise of the Warrant issued in connection with such Tranche,
provided
that the foregoing condition shall apply only to Tranche Notices delivered after
the earlier of (A) six months from the Effective Date, or (B) the date that the
Registration Statement is declared effective;

     

     (x)        Company
has a sufficient number of duly authorized
shares of Common Stock reserved for issuance in such amount as may be required
to fulfill its obligations pursuant to the Transaction Documents and any
outstanding agreements with Investor and any Affiliate of Investor, including without
limitation all Warrant Shares issuable upon
exercise of the Warrant issued in connection with such
Tranche;

     

     (xi)      Company
has provided notice of its delivery of the Tranche Notice to all signatories of
a Lock-Up Agreement as required under the Lock-Up Agreement;

     

     (xii)     the
aggregate number of Warrant Shares issuable upon exercise of the Warrant issued at that Tranche Notice Date,
aggregated with all other shares of Common Stock deemed beneficially owned by
the Investor and its Affiliates, would not result in the Investor owning more
than 9.99% of all Common Stock outstanding on the Tranche Notice Date, as
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder; and

     

     (xiii)   
pursuant to the terms of the Stock Loan Agreements, Investor shall have Borrowed
Shares equal to at least 150% of the Tranche Purchase Price.

     

    (e)           Documents to be Delivered at
Tranche Closing. The Closing of any Tranche and Investor’s obligations
hereunder shall additionally be conditioned upon the delivery to Investor of
each of the following (the “Required Tranche
Documents”) on or before the applicable Tranche Closing
Date:

     

     (i)        a
number of Preferred Shares equal to the Tranche Purchase Price divided by the
Tranche Share Price shall have been delivered to Investor or an account
specified by Investor for the Tranche Shares;


    
      
         

      

      
        9

        
          
        
      

      
         

      
    


    (ii)        the
following executed documents:  Opinion, Officer’s Certificate and
Lock-Up Agreements;

     

    (iii)       a
“Use of Proceeds” certificate, signed by an officer of the Company, and setting
forth how the Tranche Purchase Price will be applied by the
Company;

     

    (iv)        all
Warrant Shares shall have been timely
delivered in accordance with any Exercise Notice delivered to Company prior to the Tranche Closing
Date;

     

    (v)         all
documents, instruments and other writings required to be delivered by the
Company to Investor on or before the Tranche Closing Date pursuant to any
provision of this Agreement or in order to implement and effect the transactions
contemplated herein; and

     

    (vi)        payment
of a $5,000.00 non-refundable administrative fee to Investor’s counsel, by
offset against the Tranche Amount, or wire transfer of immediately available
funds.

     

    (f)           Mechanics of Tranche
Closing.  Each of the Company and Investor shall deliver all
documents, instruments and writings required to be delivered by either of them
pursuant to Section
2.3(e) of this Agreement at or prior to each Tranche Closing. Subject to such delivery and the
satisfaction of the conditions set forth in Section 2.3(d) as of
the Tranche Closing Date, the closing of the purchase by Investor of Preferred
Shares shall occur by 5:00 p.m. Eastern time, on the date which is 10 Trading
Days following the Tranche Notice Date (each a “Tranche Closing
Date”) at the offices of Investor; provided, however, that if any Warrant
Shares are not timely credited by the Share Delivery Date in accordance with
Section 1.1 of any Warrant exercised before the Tranche Closing Date, then the
Tranche Closing Date shall be extended one Trading Day for each Trading Day that
such delivery is not made.  On or before each Tranche Closing Date,
Investor shall deliver to the Company the Tranche Purchase Price to be paid for
such Tranche Shares.  The closing (each a “Tranche Closing”) for
each Tranche shall occur on the date that both (i) the Company has delivered to
Investor all Required Tranche Documents, and (ii) Investor has delivered to the
Company the Tranche Purchase Price.

     

    (g)           Limitation on Obligations to
Purchase and Sell.  Notwithstanding anything herein to the
contrary, in the event the closing price of the Common Stock during the 9
Trading Days following the Tranche Notice Date falls below 75.0% of the closing
price on the day prior to the Tranche Notice Date:  (i) Investor may,
at its option, and without penalty, decline to purchase the applicable Tranche
Shares on the Tranche Closing Date, and return to the Company all Warrants
issued in connection with such Tranche Notice that remain unexercised; or (ii)
Company may, at its option, and without penalty, terminate the Tranche Notice
and decline to sell the applicable Tranche Shares on the Tranche Closing
Date.


    
      
         

      

      
        10

        
          
        
      

      
         

      
    


    2.4             Maximum
Placement.  Investor
shall not be obligated to purchase any additional Tranche Shares once the
aggregate Tranche Purchase Price paid by Investor equals the Maximum
Placement.

     

    ARTICLE 3

    TERMINATION

     

    3.1             Automatic
Termination.  This
Agreement and the Company’s right to initiate subsequent Tranches to Investor
under this Agreement shall terminate permanently (each, an “Automatic
Termination”) upon the occurrence of any of the following:

     

    (a)           if,
at any time, either the Company or any director or executive officer of the
Company has engaged in a transaction or conduct related to the Company that has
resulted in (i) a SEC enforcement action, or (ii) a civil judgment or criminal
conviction for fraud or misrepresentation, or for any other offense that, if
prosecuted criminally, would constitute a felony under applicable
law;

     

    (b)           on
any date after a Delisting Event that lasts for an aggregate of 20 Trading Days
during any calendar year;

     

    (c)           if
at any time the Company has filed for and/or is subject to any bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors instituted
by or against the Company or any subsidiary of the Company;

     

    (d)           the
Company is in breach or default of any Material Agreement,
which default could have a Material Adverse
Effect;

     

    (e)           the
Company is in breach or default of this Agreement, any Transaction Document, or
any agreement with Investor or any Affiliate of Investor;

     

    (f)           upon
the occurrence of a Fundamental Transaction;

     

    (g)           so
long as any Preferred Shares are outstanding, the Company effects or publicly
announces its intention to create a security senior to the Series B Preferred
Stock, or substantially altering the capital
structure of the Company in a manner that
materially adversely effects the rights or preferences of the Series B Preferred
Stock; and

     

    (h)           on
the Termination Date.

     

    3.2             Company
Termination.  The
Company may at any time in its sole discretion terminate (a “Company Termination”)
this Agreement and its right to initiate future Tranches by providing 30 days
advanced written notice (“Termination Notice”)
to Investor.

     

    3.3             Effect of
Termination.  The
termination of this Agreement will have no
effect on any Common Shares, Preferred
Shares, Warrants or DWAC Shares previously
issued, delivered or credited, or on any rights of any holder
thereof.  Notwithstanding any other provision, all fees paid to
Investor or its counsel are non-refundable.


    
      
         

      

      
        11

        
          
        
      

      
         

      
    


    ARTICLE 4

    REPRESENTATIONS AND
WARRANTIES

     

    4.1             Representations and
Warranties of the Company.  Except
as set forth under the corresponding section of the Disclosure Schedules, which
shall be deemed a part hereof, the Company hereby represents and warrants to,
and as applicable covenants with, Investor as of each Closing:

     

    (a)           Subsidiaries.  All
of the direct and indirect subsidiaries of the Company are set forth on Schedule
4.1(a).  The Company owns,
directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary, and all of such directly or indirectly owned capital tock or
other equity interests are owned free and clear of any Liens.  All the issued and outstanding shares of capital
stock of each Subsidiary are duly authorized, validly issued, fully paid,
non-assessable and free of preemptive and similar rights to subscribe for or
purchase securities.  If the Company has
no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.

     

    (b)           Organization and
Qualification.  Each of the Company and the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, as applicable, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in a Material Adverse Effect and no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

     

    (c)           Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder or thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company other than the filing of the Certificate of
Designations.  Each of the Transaction Documents has been, or upon
delivery will be, duly executed by the Company and, when delivered in accordance
with the terms hereof, will constitute the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and
remedies.  Neither the Company nor any Subsidiary is in violation of
any of the provisions of its respective certificate or articles of
incorporation, by-laws or other
organizational or charter documents except
where such violation could not, individually or in the aggregate, constitute a
Material Adverse Effect.


    
      
         

      

      
        12

        
          
        
      

      
         

      
    


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

     

    (e)           Filings, Consents and
Approvals.  Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than the filing of the Certificate of Designations and required federal
and state securities filings, each of which has been, or (if not yet required to
be filed) shall be, timely filed.

     

    (f)           Issuance of the
Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens.  The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock and Preferred Stock for issuance of the
Securities at least equal to the number of Securities which could be issued
pursuant to the terms of the Transaction Documents.

     

    (g)           Capitalization.  The
capitalization of the Company is as described in the Company’s most recently
filed SEC Report.  The Company has not issued any capital stock since
such filing.  No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.  Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or securities
convertible into or exercisable for shares of Common Stock.  The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than Investor)
and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange, or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the shares of the
Securities.  There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.


    
      
         

      

      
        13

        
          
        
      

      
         

      
    


    (h)           SEC Reports; Financial
Statements.  The Company
has filed all required SEC Reports for the two years preceding the Effective
Date (or such shorter period as the Company was required by law to file such
material) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension.  As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Act and the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, as
applicable, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the SEC with respect thereto as in effect at the time of
filing.  Such financial statements have been prepared in accordance
with GAAP, except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit
adjustments.

     

    (i)           Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the SEC, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company equity
incentive plans.  The Company does not have pending before the SEC any
request for confidential treatment of information.


    
      
         

      

      
        14

        
          
        
      

      
         

      
    


    (j)           Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”), which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities, or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any Subsidiary, nor to the knowledge of the Company any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the SEC
involving the Company or any current or former director or officer of the
Company.  The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Act.

     

    (k)           Labor
Relations.  No material
labor dispute exists or, to the knowledge of the Company, is imminent with
respect to any of the employees of the Company, which could reasonably be
expected to result in a Material Adverse Effect.

     

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

     

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

     

    (n)           Title to
Assets.  The Company and
the Subsidiaries have good and marketable title in
fee simple to all real property owned by
them that is material to the business of the Company and the Subsidiaries
and good and marketable title in all personal property owned by them that
is material to the business of the Company and the Subsidiaries, in each case
free and clear of all Liens, except for Liens as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries and
Liens for the payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties.  Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.


    
      
         

      

      
        15

        
          
        
      

      
         

      
    

    

      (o)           Patents and
Trademarks.  The Company
and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material for
use in connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”).  Neither the
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights of the Company or the Subsidiaries.

       

      (p)           Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including but not limited to directors and officers insurance coverage
at least equal to the Maximum Placement.  To the best of Company’s
knowledge, such insurance contracts and policies are accurate and
complete.  Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.

       

      (q)           Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any
equity incentive plan of the Company.

       

      (r)           Sarbanes-Oxley; Internal
Accounting Controls.  The Company is in material compliance
with all provisions of the Sarbanes-Oxley Act of 2002, which are applicable to
it as of the date of the Commitment Closing.  The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.  The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared.  The
Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of the date prior to
the filing date of the most recently filed periodic report under the Exchange
Act (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
significant changes in the Company’s
internal controls or, to the
Company’s knowledge, in other factors that
could materially affect the Company’s
internal controls.

       

      
        
                    
        

        
          16

          
            
          
        

        
                    
        
      

       

      (s)           Certain
Fees.  Except for the payment of (i) the Commitment Fee, (ii)
any placement agent fees payable to licensed broker/dealers representing the
Company, or (iii) or any fees contemplated by the Transaction Documents, no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
any Persons for fees of a type
contemplated in this Section 4.1(s) that
may be due in connection with the transactions contemplated by the Transaction
Documents.

       

      (t)           Private Placement.
Assuming the accuracy of Investor representations and warranties set forth in
Section 4.2, no
registration under the Act is required for the offer and sale of the Securities
by the Company to Investor as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of any
Trading Market.

       

      (u)           Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act.

       

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

       

      (w)           Listing and Maintenance
Requirements.  The Common Stock is registered pursuant to
Section 12 of the Exchange Act, and the Company has taken no action designed to,
or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the SEC is contemplating terminating such
registration.  The Company has
not, in the 12 months preceding the Effective Date, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such
listing and maintenance requirements.

       

      
        
                    
        

        
          17

          
            
          
        

        
                    
        
      

       

      (x)           Application of Takeover
Protections.  The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to Investor as a
result of Investor and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and Investor’s ownership of the
Securities.

       

      (y)           Disclosure.  Except with respect to the information that will be, and
to the extent that it actually is timely publicly disclosed by the Company
pursuant to Section
2.2(b)(i)E, the Company confirms
that, neither the Company nor any other Person acting on its behalf has provided
Investor or its agents or counsel with any information that constitutes or might
constitute material, non-public information, including without limitation this
Agreement and the Exhibits and Schedules hereto.  The Company
understands and confirms that Investor will rely on the foregoing
representations and covenants in effecting transactions in securities of the
Company.  All disclosure provided to Investor regarding the Company,
its business and the transactions contemplated hereby, furnished by or on behalf
of the Company with respect to the representations and warranties made herein
are true and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.  

       

      (z)           No Integrated
Offering. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the Act or which could
violate any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Trading Market.

       

      (aa)      
  Financial
Condition.  Based on the
financial condition of the Company as of the date of the Commitment Closing: (i) the fair saleable
market value of the Company’s 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). The Company has no knowledge of any facts or circumstances, which lead it to
believe that it will file for reorganization or liquidation under the bankruptcy
or reorganization laws of any jurisdiction within one year from the date of the
Commitment Closing.  The SEC Reports set forth as of
the dates thereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments.  Neither the Company nor any Subsidiary is in default
with respect to any Indebtedness.  

       

      
        
                    
        

        
          18

          
            
          
        

        
                    
        
      

       

      (bb)         Tax
Status.  The Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.  The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, statue or local tax.  None of the Company’s
tax returns is presently being audited by any taxing authority.

       

      (cc)         No General Solicitation or
Advertising.  Neither the Company nor, to the knowledge of the
Company, any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to the sale of the Securities, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Securities under
the Act or made any “directed selling efforts” as defined in Rule 902 of
Regulation S.

       

      (dd)         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 corrupt 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.

       

      (ee)         Acknowledgment Regarding
Investor’s Purchase of Securities.  The Company acknowledges
and agrees that Investor is acting solely in the capacity of arm’s length
purchaser with respect to this Agreement and the transactions contemplated
hereby.  The Company further acknowledges that Investor is not acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to Investor’s purchase of the Securities.  The Company further
represents to Investor that the Company’s decision to enter into this Agreement
has been based solely on the independent evaluation of the Company and its
representatives.

       

      
        
                    
        

        
          19

          
            
          
        

        
                    
        
      

       

      (ff)          Accountants.  The
Company’s accountants are set forth in the SEC Reports.  To the Company’s
knowledge, such accountants are an independent registered public accounting firm
as required by the Act.

       

      (gg)        No Disagreements with
Accountants and Lawyers.  There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the accountants and lawyers formerly or presently employed by the
Company, and the Company is current with respect
to any fees owed to its accountants and lawyers.

       

      (hh)        Registration Statements and
Prospectuses.

       

      (i)           Company
will use its best efforts to file within 30
calendar days after the Effective Date (or as soon as possible thereafter), cause to become effective as soon as possible
thereafter, and remain effective until all Common Shares have been sold or are
eligible for resale without limitation under Rule 144, a Registration Statement
for the sale of all Common
Shares.  Each Registration Statement shall comply when it
becomes effective, and, as amended or supplemented, at the time of any Tranche
Notice Date, Tranche Closing Date, or issuance of any Common Shares, and at all times during which a
prospectus is required by the Act to be delivered in connection with any sale of
Common Shares, will comply, in all material
respects, with the requirements of the Act.  

       

      (ii)         Each
Registration Statement, as of its respective effective time, will not, as
applicable, 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 not misleading.

       

      (iii)        Each
Prospectus will comply, as of its date and the date it  will be filed
with the SEC,  and, at the time of any Tranche Notice Date, Tranche
Closing Date, or issuance of any Common
Shares, and at all times during which a prospectus is required by the Act to be
delivered in connection with any sale of Common Shares, will
comply, in all material respects, with the requirements of the
Act.

       

      (iv)         At
no time during the period that begins on the date a Prospectus is filed with the
SEC and ends at the time a prospectus is no longer required by the Act to be
delivered in connection with any sale of Common Shares did or will any such Prospectus, as
then amended or supplemented, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and at no time during such period will such Prospectus, as then amended or
supplemented, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

       

      (v)          Each
Registration Statement will meet, and the offering and sale of the Common Shares as contemplated hereby complies
with, and will comply with, the requirements of Rule 415 under the
Act.

       

      (vi)         The
Company has not, directly or indirectly, used or referred to any “free writing
prospectus” (as defined in Rule 405 under the Act) except in compliance with
Rules 164 and 433 under the Act.

       

      
        
                    
        

        
          20

          
            
          
        

        
                    
        
      

       

      (vii)        The
Company is not an “ineligible issuer” (as defined in Rule 405 under the Act) as
of the eligibility determination date for purposes of Rules 164 and 433 under
the Act with respect to the offering of the Common Shares contemplated by any Registration
Statement, without taking into account any determination by the SEC pursuant to
Rule 405 under the Act that it is not necessary under the circumstances that the
Company be considered an “ineligible issuer.”

       

      (ii)          
Stock Loan
Agreements.  None of the Lending Stockholders are, or within 90
days of the Effective Date have been, (i) officers, directors, representatives
or Affiliates of the Company, (ii) directly or indirectly, through one or more
intermediaries, in control of, controlled by, or under common control with
Company, or (iii) alone or together with any group, in beneficial ownership or
control of more than 9.99% of the total outstanding voting securities of the
Company.  No Lending Stockholder or any Affiliate of any Lending
Stockholder has been, or will be, compensated by the Company, or to the
Company’s knowledge any Person, in any manner, directly or indirectly, for
entering into a Stock Loan Agreement except as expressly set forth
therein.  The execution, delivery and performance of the Stock Loan
Agreements, the consummation the transactions contemplated by the Stock Loan
Agreements, the borrowing and receipt of the Borrowed Shares, and any subsequent
sale of any Borrowed Shares as permitted by the Stock Loan Agreements do not and
will not conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company, or to the Company’s knowledge any
Lending Stockholder or other Person, is subject, including without limitation
Section 5 of the Act and other federal and state securities laws and
regulations.

       

      (jj)          No
representation or warranty or other statement made by Company, or to Company’s
knowledge the Lending Stockholders, in the Transaction Documents contains any
untrue statement or omits to state a material fact necessary to make any of
them, in light of the circumstances in which it was made, not misleading. The Company
is not aware of any facts or circumstances that would cause the transactions
contemplated by the Transaction Documents, when consummated, to violate Section
5 of the Act or other federal or state securities laws or
regulations.

       

      4.2         
Representations
and Warranties of Investor. Investor hereby represents and warrants as of
the Effective Date as follows:

       

      (a)           Organization;
Authority.  Investor is an entity validly existing and in good
standing under the laws of the jurisdiction of its organization with full right,
company power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder.  The execution, delivery and performance by
Investor of the transactions contemplated by this Agreement have been duly
authorized by all necessary company or similar action on the part of
Investor.  Each Transaction Document to which it is a party has been
(or will be) duly executed by Investor, and when delivered by Investor in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of Investor, enforceable against it in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

       

      
        
                    
        

        
          21

          
            
          
        

        
                    
        
      

       

      (b)           Investor
Status.  At the time Investor was offered the Securities, it
was, and at the Effective Date it is:  (i) an “accredited investor” as
defined in Rule 501(a) under the Act.

       

      (c)           Experience of
Investor.  Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Investor is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

       

      (d)           General
Solicitation.  Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

       

      The
Company acknowledges and agrees that Investor does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section
4.2.

       

      ARTICLE 5

      OTHER AGREEMENTS OF THE
PARTIES

       

      5.1      
   Transfer
Restrictions

       

      (a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than (i) pursuant to an effective Registration Statement or Rule 144, (ii) to
the Company, (iii) to an Affiliate of Investor, or (iv) in connection with a
pledge as contemplated in Section 5.1(b), the
Company may require the transferor thereof to provide to the Company an opinion
of Luce Forward Hamilton & Scripps LLP (“Luce Forward”), or other counsel
selected by the transferor and reasonably acceptable to the Company, to the
effect that such transfer does not require registration of such transferred
Securities under the Act.

       

      (b)           Investor
agrees to the imprinting, so long as is required by this Section 5.1, of the
following legend, or substantially similar legend, on any certificate evidencing
Securities other than DWC Shares:

       

      
        
                    
        

        
          22

          
            
          
        

        
                    
        
      

       

      NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

       

      The
Company agrees to cause such legend to be removed immediately upon effectiveness
of a Registration Statement, or when any
Common Shares are eligible for sale under Rule 144.  Company
further acknowledges and agrees that Investor may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Act and who agrees to be bound by the provisions of this Agreement and, if
required under the terms of such arrangement, Investor may transfer pledged or
secured Securities to the pledgees or secured parties.  Such a pledge
or transfer would not be subject to approval of the Company and no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith.  Further, no notice shall be required of such
pledge.  At Investor’s reasonable expense, the Company will execute
and deliver such documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the
Securities.

       

      5.2          Furnishing of
Information.  As
long as Investor owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the Effective Date
pursuant to the Exchange Act.  Upon the request of Investor, the
Company shall deliver to Investor a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
Investor owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to Investor and make publicly
available in accordance with Rule 144(c) such information as is required for
Investor to sell the Securities under Rule 144.  The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Act within the
limitation of the exemptions provided by Rule 144.

       

      
        
                    
        

        
          23

          
            
          
        

        
                    
        
      

       

      5.3         
Integration.  The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Act of the sale of the Securities to
Investor or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.

       

      5.4          Securities Laws Disclosure;
Publicity.  The
Company shall, by 8:30 a.m. Eastern time on the Trading Day following the
Effective Date, issue a press release or if required file a Current Report on
Form 8-K, in each case reasonably acceptable to Investor, disclosing the
material terms of the transactions contemplated hereby.  The Company
and Investor shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby, and neither the Company nor
Investor shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any such press release of Investor, or without the
prior consent of Investor, with respect to any such press release of the Company, which consent
shall not unreasonably be withheld or
delayed, except if such disclosure is required by law or Trading Market
regulations, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or
communication.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Investor, or include the name of Investor in any
filing with the SEC or any regulatory agency or Trading Market, without the
prior written consent of Investor, except (i) as required by federal securities
law in connection with any registration statement under which the Common Shares are registered, and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide Investor with prior notice of such
disclosure permitted under subclause (i) or (ii).

       

      5.5         
Shareholders
Rights Plan.  No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that Investor is an “Acquiring Person” under any
shareholders rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that Investor could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company
and Investor. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act of 1940, as
amended.

       

      5.6         
Non-Public
Information.  The
Company represents and warrants that neither it nor any Person acting on its
behalf has, and covenants and agrees that neither it nor any other Person acting
on its behalf will, provide Investor or its agents or counsel with any
information that the Company believes or reasonably should believe constitutes
material non-public information, unless prior thereto Investor shall have
executed a written agreement regarding the confidentiality and use of such
information.  On and after the Effective Date, neither Investor nor
any Affiliate Investor shall have any duty of trust or confidence that is owed
directly, indirectly, or derivatively, to the Company or the shareholders of the
Company, or to any other Person who is the source of material non-public
information regarding the Company.  The Company understands and
confirms that Investor shall be relying on the foregoing representations in
effecting transactions in securities of the Company.

       

      
        
                    
        

        
          24

          
            
          
        

        
                    
        
      

       

      5.7         
Reimbursement.  If Investor becomes involved in any
capacity in any proceeding by or against any Person who is a stockholder
of the Company (except as a result of
sales, pledges, margin sales and similar transactions by Investor to or with any
current stockholder), solely as a result of Investor’s acquisition of
the Securities under this Agreement, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred, or will assume the defense of Investor
in such matter.  The reimbursement obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of Investor who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Investor and any such Affiliate,
and shall be binding upon and inure to the
benefit of any successors, assigns, heirs
and personal representatives of the
Company, Investor and any such Affiliate and any such Person.  The
Company also agrees that neither Investor nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability
to the Company or any Person asserting claims on behalf of
or in right of the Company solely as a result of acquiring the Securities under
this Agreement, except with respect to information provided to the Company in
writing by Investor or its representatives for use in
preparing the Registration Statement.

       

      5.8         
Indemnification
of Investor.  Subject
to the provisions of this section, the Company will indemnify and hold Investor
and any Warrant holder, their Affiliates and attorneys, and each of their
directors, officers, shareholders, partners, employees, agents, and any person
who controls Investor within the meaning of Section 15 of the Act or Section 20
of the Exchange Act (collectively, the “Investor Parties” and
each an “Investor
Party”), harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation (collectively, “Losses”) that any Investor Party may
suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents, (b) any action instituted
against any Investor Party, or any of them or their respective Affiliates, by
any stockholder of the Company who is not an Affiliate of an Investor Party,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of Investor’s
representation, warranties or covenants under the Transaction Documents or any
agreements or understandings Investor may have with any such stockholder or any
violations by Investor of state or federal securities laws or any conduct by
Investor which constitutes fraud, gross negligence, willful misconduct or
malfeasance), (c)  any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement (or in a Registration Statement as amended
by any post-effective amendment thereof by the Company) or arising out of or
based upon any omission or alleged omission
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and/or (d) any untrue statement
or alleged untrue statement of a material
fact included in any Prospectus ( or any amendments or supplements to any
Prospectus ), in any free writing
prospectus, in any “issuer information” (as defined in Rule 433 under the
Act) of the Company, or in any Prospectus together
with any combination of one or more of the  free writing prospectuses,
if any, or arising out of or based upon any omission or alleged omission
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that Company shall not be obligated to indemnify any Investor
Party for any Losses finally adjudicated to be caused solely by a false
statement of material fact contained within written information provided by such
Person expressly for the purpose of including it in the Registration
Statement.

       

      
        
                    
        

        
          25

          
            
          
        

        
                    
        
      

       

      If any
action shall be brought against an Investor Party in respect of which indemnity
may be sought pursuant to this Agreement, such Investor Party shall promptly
notify the Company in writing, and the Company shall have the right to assume
the defense thereof with counsel of its own choosing.  The Investor
Parties shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Investor Parties except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict with respect to the dispute in question on any
material issue between the position of the Company and the position of the Investor Parties such that it would be
inappropriate for one counsel to represent the Company and the Investor
Parties.  The Company will not be liable to the Investor Parties under
this Agreement (i) for any settlement by an Investor Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is either attributable
to Investor’s breach of any of the representations, warranties, covenants or
agreements made by Investor in this Agreement or in the other Transaction
Documents or is a result of any information
provided by Investor or its representatives to Company in writing for inclusion in the Registration
Statement.

       

      5.9         
Reservation of
Securities.  The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.

       

      5.10       Limited
Standstill.  The
Company will deliver to Investor on or before the
each Tranche Closing Date, and will honor and enforce the provisions of,
the Lock-Up Agreements with the Company’s officers,
directors and beneficial owners of 10% or more of the Common
Stock.

       

      5.11       Prospectus Availability and
Changes.  The
Company will make available to Investor upon request, and thereafter from time
to time will furnish Investor, as many copies of any Prospectus (or of the
Prospectus as amended or supplemented if the Company shall have made any
amendments or supplements thereto after the effective date of the applicable
Registration Statement) as Investor may request for the purposes contemplated by
the Act; and in case Investor is required to deliver  a prospectus
after the nine-month period referred to in Section 10(a)(3) of the Act in
connection with the sale of the Common
Shares, or after the time a post-effective amendment to the applicable
Registration Statement is required pursuant to Item 512(a) of Regulation S-K
under the Act, the Company will prepare, at its expense, promptly upon request
such amendment or amendments to the Registration Statement and the Prospectus as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act or Item 512(a) of Regulation S-K under the Act, as the case may
be.

       

      
        
                    
        

        
          26

          
            
          
        

        
                    
        
      

       

      The
Company will advise Investor promptly of the happening of any event within the
time during which a Prospectus is required to be delivered under the Act which
could require the making of any change in the Prospectus then being used so that
the Prospectus would not include an untrue statement of material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading, and to
advise Investor promptly if, during such period, it shall become necessary to
amend or supplement any Prospectus to cause such Prospectus to comply with the
requirements of the Act, and in each case, during such time, to prepare and
furnish, at the Company’s expense, to Investor promptly such amendments or
supplements to such Prospectus as may be necessary to reflect any such change or
to effect such compliance.

       

      5.12       Required
Approval.  No transactions
contemplated under this Agreement or the Transaction Documents shall be
consummated for an amount that would require approval by any Trading Market or
Company stockholders under any approval provisions, rules or regulations of any
Trading Market applicable to the Company, unless and until such approval is
obtained.  Company shall use best efforts to obtain any required
approval as soon as possible.

       

      5.13        Activity
Restrictions. For so long as Investor or
any of its Affiliates holds any Preferred Shares, Warrants or Warrant Shares,
neither Investor nor any Affiliate will:  (i) vote any shares of
Common Stock owned or controlled by it, solicit any proxies, or seek to advise
or influence any Person with respect to any voting securities of the Company;
(ii) engage or participate in any actions, plans or proposals which relate to or
would result in (a) acquiring additional securities of the Company, alone or
together with any other Person, which would result in beneficially owning or
controlling more than 9.99% of the total outstanding Common Stock or other
voting securities of the Company, (b) an extraordinary corporate transaction,
such as a merger, reorganization or liquidation, involving Company or any of its
subsidiaries, (c) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries, (d) any change in the present board of
directors or management of the Company, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the
board, (e) any material change in the present capitalization or dividend policy
of the Company, (f) any other material change in the Company’s business or
corporate structure, including but not limited to, if the Company is a
registered closed-end investment company, any plans or proposals to make any
changes in its investment policy for which a vote is required by Section 13 of
the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws
or instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any Person, (h) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association, (i) a class of equity securities of
the Company becoming eligible for termination of registration
pursuant  to Section 12(g)(4) of the Act, or (j) any action,
intention, plan or arrangement similar to any of those enumerated above; or
(iii) request the Company or its directors, officers, employees, agents or
representatives to amend or waive any provision of this Section
5.13.

       

      5.14       Registration. In the event that all Common
Shares that Company is required to make available to Investor, including as
Warrant Shares upon the exercise of Warrants, are not, by the one year
anniversary of the Effective Date, made available to Investor as DWAC Shares
without restriction on resale pursuant to (i) an effective Registration
Statement, or (ii) Rule 144 without requiring discharge by payment in full of
any notes given in exchange for any Warrant Shares prior to the sale thereof or
limiting the amount of securities that may be sold, Company shall, at Investor’s
election in Investor’s sole discretion, exercise the Company’s Redemption Option
provided for in Section 6 of the Certificate of Designations to effectuate the
repurchase of any outstanding Preferred Shares.

      


      
        
                    
        

        
          27

          
            
          
        

        
                    
        
      

       

      ARTICLE 6

      MISCELLANEOUS

       

      6.1         
Fees and
Expenses.  A
non-refundable document preparation fee shall be paid by the Company to counsel
for Investor, in the amount of $50,000.00, payable on the earlier of (a) the
first Tranche Closing Date, by offset from the first Tranche Amount, or (b)
three months from the Effective Date, in cash or by wire transfer to an account
designated by such counsel.  Except for the non-refundable document
preparation fee and the $5,000.00 non-refundable administrative fee payable to
counsel for Investor at each Tranche closing, or as may be otherwise provided in
this Agreement, each party shall pay the fees and expenses of its own advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents.  The Company acknowledges and
agrees that Luce Forward solely represents Investor, and does not represent the
Company or its interests in connection with the Transaction Documents or the
transactions contemplated thereby.  The Company shall pay all stamp and
other taxes and duties levied in connection with the sale of the Securities, if
any.

       

      6.2         
Notices.  Unless
a different time of day or method of delivery is set forth in the Transaction
Documents, any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of (a) the date after the day of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page hereto prior to 5:30 p.m. Eastern time on a
Trading Day and an electronic confirmation of delivery is received by the
sender, (b) two Trading Days after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section 6.2 on a day that is not a Trading Day or later than 5:30 p.m.
(Eastern time) on any Trading Day, (c) three Trading Days following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be
given.  The addresses for such notices and communications are those
set forth following the signature page hereof, or such other address as may be
designated in writing hereafter, in the same manner, by such
Person.

       

      6.3         
Amendments;
Waivers.  No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and Investor or, in the case of a waiver, by the
party against whom enforcement of any such
waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default
or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

       

      
        
                    
        

        
          28

          
            
          
        

        
                    
        
      

       

      6.4         
Headings.  The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof

       

      6.5         
Successors and
Assigns.  This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The Company may not assign this Agreement or
any rights or obligations hereunder without
the prior written consent of Investor.  Investor may assign any or all of its rights under this
Agreement to any Affiliate or to any Person to whom Investor assigns or
transfers any Securities.

       

      6.6         
No
Third-Party
Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Section 5.8.

       

      6.7         
Governing
Law.  All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.  Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New
York.  Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding 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 manner permitted by
law.  The parties hereby waive all rights to a trial by
jury.  If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its
attorneys’ fees and other costs and expenses reasonably incurred in
connection with the
investigation, preparation and prosecution
of such action or proceeding.

       

      6.8         
Survival.  The
representations and warranties contained herein shall survive the Closing and
the delivery, exercise and/or conversion of the Securities, as
applicable.

       

      
        
                    
        

        
          29

          
            
          
        

        
                    
        
      

       

      6.9         
Execution.  This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

       

      6.10       Severability.  If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

       

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

       

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

       

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

       

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


      
        
           

        

        
          30

          
            
          
        

        
           

        
      
    

     

    6.15           Time of the
Essence.  Time
is of the essence with respect to all provisions of this Agreement that specify
a time for performance.

     

    6.16           Construction.  The parties agree that each of them and/or
their respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall not be employed in the
interpretation of the Transaction Documents or any amendments hereto. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

     

    6.17           Entire
Agreement.  This
Agreement, together with the exhibits hereto,
contains the entire agreement and understanding of the parties, and supersedes all prior and contemporaneous
agreements, term sheets, letters, discussions, communications
and understandings, both oral and written,
which the parties acknowledge have been merged into this
Agreement.  No party, representative, attorney or agent has
relied upon any collateral contract, agreement,
assurance, promise, understanding or representation not expressly set forth
hereinabove.  The parties hereby expressly waive all rights and
remedies, at law and in equity, directly or indirectly arising out of or
relating to, or which may arise as a result of, any Person’s reliance on any
such assurance.


    
      
         

      

      
        31

        
          
        
      

      
         

      
    


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

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	

                                      NEAH POWER SYSTEMS, INC.
                                      
	 
      	 
      
	

                                      By:
                                      	

                                      /s/
      Gerard C. D’Couto
                                      
	

                                      Name: Gerard C. D’Couto
                                      
	

                                      Title: President and CEO
                                      
	 
      	 
      
	

                                      By:
                                      	

                                      /s/
      Stephen Wilson
                                      
	

                                      Name: Stephen Wilson
                                      
	

                                      Title: CFO
                                      
	 
      	 
      
	

                                      OPTIMUS ENERGY CAPITAL PARTNERS,
      LLC
                                      
	 
      	 
      
	

                                      By:
                                      	

                                      /s/
      Terry Peizer
                                      
	

                                      Name: Terry Peizer
                                      
	

                                      Title: Managing
  Director
                                      

                              
                            
                          
                        
                      
                    
                  
                
              
            
          
        
      
    

     

    
      
         

      

      
        32

        
          
        
      

      
         

      
    


    Addresses
for Notice

    


    
      
        	

              To
      Company:
              	 
      	 
      
	 
      	 
      	 
      
	

              Neah
      Power Systems, Inc.
              	 
      	 
      
	

              22118
      20th  Avenue SW, Suite 142
              	 
      	 
      
	

              Bothell,
      Washington 98021
              	 
      	 
      
	

              Fax
      No.:  (425) 483-8454
              	 
      	 
      
	

              Email:  cdcouto@neahpower.com
              	 
      	 
      
	 
      	 
      	 
      
	

              with
      a copy to:
              	 
      	 
      
	 
      	 
      	 
      
	

              Seyfarth
      Shaw LLP
              	 
      	 
      
	

              975
      F Street, N.W.
              	 
      	 
      
	

              Washington,
      D.C. 20004
              	 
      	 
      
	

              Attention:
      Ernest M. Stern, Esq.
              	 
      	 
      
	

              Fax
      No.:  (202) 641-9260
              	 
      	 
      
	

              Email:  estern@seyfarth.com
              	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	

              To
      Investor:
              
	 
      	 
      	 
      
	 
      	 
      	

              Optimus
      Energy Capital Partners, LLC
              
	 
      	 
      	

              11150
      Santa Monica Boulevard, Suite 1500
              
	 
      	 
      	

              Los
      Angeles, CA 90025
              
	 
      	 
      	

              Fax
      No.:  (310) 444-5300
              
	 
      	 
      	

              Email:  info@optimuscg.com
              
	 
      	 
      	 
      
	 
      	 
      	

              with
      a copy to:
              
	 
      	 
      	 
      
	 
      	 
      	

              Luce
      Forward Hamilton & Scripps LLP
              
	 
      	 
      	

              601
      South Figueroa Street, Suite 3900
              
	 
      	 
      	

              Los
      Angeles, CA 90017
              
	 
      	 
      	

              Attention:  John
      C. Kirkland, Esq.
              
	 
      	 
      	

              Fax
      No.:  (213) 452-8035
              
	 
      	 
      	

              Email:  jkirkland@luce.com
              

      
    


    
      
         

      

      
        33

        
          
        
      

      
         

      
    

    


    
      
        	 
      	 
      	

              To
      Borrower:
              
	 
      	 
      	 
      
	 
      	 
      	

              Optimus
      Energy Capital Partners, LLC
              
	 
      	 
      	

              11150
      Santa Monica Boulevard, Suite 1500
              
	 
      	 
      	

              Los
      Angeles, CA 90025
              
	 
      	 
      	

              Attention:  Terry
      Peizer
              
	 
      	 
      	

              Fax
      No.:  (310) 444-5300
              
	 
      	 
      	

              Email:  info@optimuscg.com
              
	 
      	 
      	 
      
	 
      	 
      	

              with
      a copy to:
              
	 
      	 
      	 
      
	 
      	 
      	

              Luce
      Forward Hamilton & Scripps LLP
              
	 
      	 
      	

              601
      South Figueroa Street, Suite 3900
              
	 
      	 
      	

              Los
      Angeles, CA 90017
              
	 
      	 
      	

              Attention:  John
      C. Kirkland, Esq.
              
	 
      	 
      	

              Fax No.:  (213) 452-8035
              
	 
      	 
      	

              Email:  jkirkland@luce.com