Unassociated Document


    REGISTRATION
      RIGHTS AGREEMENT

     

    REGISTRATION
      RIGHTS AGREEMENT
      (this
      "Agreement"),
      dated
      as of November 20, 2007, by and among TXCO Resources Inc., a Delaware
      corporation, with headquarters located at 777
      E.
      Sonterra Blvd., Suite 350, San Antonio, Texas 78258 (the
      "Company"),
      and
      the undersigned buyers (each, a "Buyer",
      and
      collectively, the "Buyers").

     

    WHEREAS:

     

    A. In
      connection with the Securities Purchase Agreement by and among the parties
      hereto, dated November 20, 2007 (the "Securities
      Purchase Agreement"),
      the
      Company has agreed, upon the terms and subject to the conditions set forth
      in
      the Securities Purchase Agreement, to issue and sell to each Buyer shares of
      the
      Company's Series C Convertible Preferred Stock, par value $0.01 per share (the
      "Preferred
      Shares"),
      which
      will, among other things, be convertible into a certain number of shares of
      the
      Company's common stock, $0.01 par value per share (the "Common
      Stock",
      as
      converted, the "Conversion
      Shares")
      in
      accordance with the terms of the Certificate of Designations, Preferences and
      Rights of Series C Convertible Preferred Stock, dated as of November 21, 2007
      (the "Certificate
      of Designations").

     

    B. The
      Preferred Shares may be entitled to dividends, which at the option of the
      Company, subject to certain conditions, may be paid in shares of Common Stock
      (the "Dividend
      Shares").
      

     

    C. To
      induce
      the Buyers to execute and deliver the Securities Purchase Agreement, the Company
      has agreed to provide certain registration rights under the Securities Act
      of
      1933, as amended, and the rules and regulations promulgated thereunder, or
      any
      similar successor statute (collectively, the "1933
      Act"),
      and
      applicable state securities or "blue sky" laws and regulations.

     

     

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

     

    1. Definitions.
      

     

    Capitalized
      terms used herein and not otherwise defined herein shall have the respective
      meanings set forth in the Securities Purchase Agreement. As used in this
      Agreement, the following terms shall have the following meanings:

     

    a. "Additional
      Closing Date" shall
      have the meaning set forth in the Securities Purchase Agreement.

     

    b. "Additional
      Effectiveness Date"
      means
      the date the Additional Registration Statement is declared effective by the
      SEC.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    c. "Additional
      Effectiveness Deadline"
      means
      the earlier of the date which is (i) in the event that the Additional
      Registration Statement is not subject to a full review by the SEC, ninety (90)
      calendar days after the earlier of (x) the Additional Filing Date and (y) the
      Additional Filing Deadline or (ii) in the event that the Additional Registration
      Statement is subject to a full review by the SEC, one hundred and twenty (120)
      calendar days after the earlier of (x) the Additional Filing Date and (y) the
      Additional Filing Deadline.

     

    d. "Additional
      Filing Date"
      means
      the date on which any Additional Registration Statement is filed with the
      SEC.

     

    e. "Additional
      Filing Deadline"
      means
      if Cutback Shares are required to be included in any Additional Registration
      Statement, the later of (i) the date sixty (60) days after the date
      substantially all of the Registrable Securities registered
      under the immediately preceding Registration Statement are sold
      and (ii)
      the date six (6) months from the Initial Effective Date or the last Additional
      Effective Date, as applicable.

     

    f. "Additional
      Registrable Securities"
      means
      any (i) any Cutback Shares not previously included on a Registration Statement
      and (ii) any capital stock of the Company issued or issuable with respect to
      the
      Preferred Shares, the Conversion Shares, the Dividend Shares or Cutback Shares,
      as applicable, as a result of any stock split, stock dividend, recapitalization,
      exchange or similar event or otherwise, without regard to any limitations on
      conversions of the Preferred Shares.

     

    g. "Additional
      Registration Statement"
      means a
      registration statement or registration statements of the Company filed under
      the
      1933 Act covering any Additional Registrable Securities.

     

    h. "Additional
      Required Registration Amount"
      means
      any Cutback Shares not previously included on a Registration Statement, all
      subject to adjustment as provided in Section 2(f), without regard to any
      limitations on conversions of Preferred Shares. 

     

    i. "Business
      Day"
      means
      any day other than Saturday, Sunday or any other day on which commercial banks
      in the City of New York are authorized or required by law to remain
      closed.

     

    j. "Closing
      Date"
      shall
      mean either the Initial Closing Date or the Additional Closing Date, as
      applicable.

     

    k. "Cutback
      Shares"
      means
      any of the Initial Required Registration Amount (without regard to clause (II)
      in the definition thereof) of Registrable Securities not included in all
      Registration Statements previously declared effective hereunder as a result
      of
      (x) a limitation on the maximum number of shares of Common Stock of the Company
      permitted to be registered by the staff of the SEC pursuant to Rule 415 or
      (y)
      an election of an Investor in accordance with Section 2(h) hereof.

     

    l. "Effective
      Date"
      means
      the Initial Effective Date and the Additional Effective Date, as
      applicable.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    m. "Effectiveness
      Deadline"
      means
      the Initial Effectiveness Deadline and the Additional Effectiveness Deadline,
      as
      applicable.

     

    n. "Filing
      Date"
      means
      the Initial Filing Date and the Additional Filing Date, as applicable.


     

    o. "Filing
      Deadline"
      means
      the Initial Filing Deadline and the Additional Filing Deadline, as
      applicable.

     

    p. "Initial
      Closing Date"
      shall
      have the meaning set forth in the Securities Purchase Agreement.

     

    q. "Initial
      Effective Date"
      means
      the date the Initial Registration Statement has been declared effective by
      the
      SEC.

     

    r. "Initial Effectiveness
      Deadline"
      means
      the earlier of the date which is (i) in the event that the Initial Registration
      Statement is not subject to a full review by the SEC, the earlier of (x) ninety
      (90) calendar days after the Initial Filing Date and (y) one hundred five (105)
      days after the Additional Closing Expiration Date or (ii) in the event that
      the
      Registration Statement is subject to a full review by the SEC, the earlier
      of
      (x) one hundred and twenty (120) calendar days after the Initial Filing Date
      and
      (y) one hundred thirty five (135) days after the Additional Closing Expiration
      Date.

     

    s. "Initial
      Filing Date"
      means
      the date on which the Initial Registration Statement is filed with the
      SEC.

     

    t. "Initial
      Filing Deadline"
      means
      the first Business Day on or after the earlier of (x) fifteen (15) calendar
      days
      immediately following the Additional Closing Expiration Date (as defined in
      the
      Securities Purchase Agreement) and (x) fifteen
      (15) calendar
      days
      immediately
      following such Additional Closing Date whereafter the Company shall have issued
      the maximum amount of Additional Preferred Shares issuable pursuant to the
      Securities Purchase Agreement.

     

    u. "Initial
      Registration Statement"
      means
      the registration statement of the Company filed under the 1933 Act covering
      the
      Initial Required Registration Amount.

     

    v. "Initial
      Required Registration Amount"
      means
      (I) the sum of (i) the number of Conversion Shares issued and issuable pursuant
      to the Preferred Shares as of the Trading Day (as defined in the Certificate
      of
      Designations) immediately preceding the applicable date of determination and
      (ii) the number of Dividend Shares issued or issuable with respect to the
      Preferred Shares as of the Trading Day immediately preceding the applicable
      date
      of determination assuming that the Preferred Shares remain outstanding through
      the third (3rd)
      anniversary of the Initial Closing Date, each subject to adjustment as provided
      in Section 2(f), without regard to any limitations on conversions or redemptions
      of the Preferred Shares or (II) such other amount as may be required by the
      staff of the SEC pursuant to Rule 415 with any cutback applied pro rata to
      all
      Registrable Securities.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    w. ."Investor"
      means a
      Buyer or any transferee or assignee thereof to whom a Buyer assigns its rights
      as a holder of Registrable Securities under this Agreement and who agrees to
      become bound by the provisions of this Agreement in accordance with Section
      9
      and any transferee or assignee thereof to whom a transferee or assignee assigns
      its rights as a holder of Registrable Securities under this Agreement and who
      agrees to become bound by the provisions of this Agreement in accordance with
      Section 9.

     

    x. "Person"
      means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    y. "register,"
      "registered,"
      and
      "registration"
      refer
      to a registration effected by preparing and filing one or more Registration
      Statements (as defined below) in compliance with the 1933 Act and pursuant
      to
      Rule 415 and the declaration or ordering of effectiveness of such Registration
      Statement(s) by the SEC.

     

    z. "Registrable
      Securities"
      means
      the Securities; provided,
      however,
      that a
      Security shall cease to be a Registrable Security upon the earliest to occur
      of
      the following: (i) a Registration Statement registering such Security under
      the
      1933 Act has been declared or becomes effective and such Security has been
      sold
      or otherwise transferred by the holder thereof pursuant to and in a manner
      contemplated by such effective Registration Statement; (ii) such Security is
      sold pursuant to Rule 144 under circumstances in which any legend borne by
      such
      Security relating to restrictions on transferability thereof, under the 1933
      Act
      or otherwise, is removed by the Company; (iii) such Security is eligible to
      be
      sold pursuant to paragraph (k) of Rule 144; or (iv) such Security shall cease
      to
      be outstanding.

     

    aa. "Registration
      Statement"
      means
      the Initial Registration Statement and the Additional Registration Statements,
      as applicable.

     

    bb. "Required
      Holders"
      means
      Investors that hold at least two-thirds of the Registrable
      Securities.

     

    cc. "Securities"
      means
      (i) the Conversion Shares issued or issuable upon conversion of the Preferred
      Shares, (ii) the Dividend Shares issued or issuable with respect to the
      Preferred Shares and (iii) any capital stock of the Company issued or issuable
      with respect to the Conversion Shares, the Preferred Shares and the Dividend
      Shares as a result of any stock split, stock dividend, recapitalization,
      exchange or similar event or otherwise, without regard to any limitations on
      conversions of the Preferred Shares.

     

    dd. "Rule
      415"
      means
      Rule 415 promulgated under the 1933 Act or any successor rule providing for
      offering securities on a continuous or delayed basis.

     

    ee. "SEC"
      means
      the United States Securities and Exchange Commission.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    2. Registration.

     

    a. Initial
      Mandatory Registration.
      The
      Company shall prepare, and, as soon as practicable but in no event later than
      the Initial Filing Deadline, file with the SEC the Initial Registration
      Statement on Form S-3 covering the resale of at least the number of shares
      of
      Common Stock equal to the Initial Required Registration Amount determined as
      of
      date the Registration Statement is initially filed with the SEC. In the event
      that Form S-3 is unavailable for such a registration, the Company shall use
      such
      other form as is available for such a registration on another form reasonably
      acceptable to the Required Holders, subject to the provisions of Section 2(e).
      The Initial Registration Statement prepared pursuant hereto shall register
      for
      resale that number of shares of Common Stock equal to the Initial Required
      Registration Amount determined as of the date such Initial Registration
      Statement is initially filed with the SEC. The Initial Registration Statement
      shall contain (except if otherwise directed by the Required Holders) the
      "Selling
      Stockholders"
      and
      "Plan
      of Distribution"
      sections for the Investors in substantially the form attached hereto as
Exhibit
      B.
      The
      Company shall use its reasonable best efforts to have the Initial Registration
      Statement declared effective by the SEC as soon as practicable, but in no event
      later than the Initial Effectiveness Deadline. By 9:30 a.m., New York time,
      on
      the Business Day following the Initial Effective Date, the Company shall file
      with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus
      to be used in connection with sales pursuant to such Initial Registration
      Statement.

     

    b. Additional
      Mandatory Registrations.
      The
      Company shall prepare, and, as soon as practicable but in no event later than
      the Additional Filing Deadline, file with the SEC an Additional Registration
      Statement on Form S-3 covering the resale of all of the Additional Registrable
      Securities not previously registered on a Registration Statement hereunder.
      To
      the extent the staff of the SEC does not permit the Additional Required
      Registration Amount to be registered on an Additional Registration Statement,
      the Company shall file Additional Registration Statements successively trying
      to
      register on each such Additional Registration Statement the maximum number
      of
      remaining Additional Registrable Securities until the Additional Required
      Registration Amount has been registered with the SEC. In the event that Form
      S-3
      is unavailable for such a registration, the Company shall use such other form
      as
      is available for such a registration on another form reasonably acceptable
      to
      the Required Holders, subject to the provisions of Section 2(e). Each Additional
      Registration Statement prepared pursuant hereto shall register for resale that
      number of shares of Common Stock equal to the Additional Required Registration
      Amount determined as of the date such Additional Registration Statement is
      initially filed with the SEC. Each Additional Registration Statement shall
      contain (except if otherwise directed by the Required Holders) the "Selling
      Stockholders"
      and
      "Plan
      of Distribution"
      sections in substantially the form attached hereto as Exhibit
      B.
      The
      Company shall use its reasonable best efforts to have each Additional
      Registration Statement declared effective by the SEC as soon as practicable,
      but
      in no event later than the Additional Effectiveness Deadline. By 9:30 am on
      the
      Business Day following the Additional Effective Date, the Company shall file
      with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus
      to be used in connection with sales pursuant to such Additional Registration
      Statement.

     

    c. Allocation
      of Registrable Securities.
      The
      initial number of Registrable Securities included in any Registration Statement
      and any increase or decrease in the number of Registrable Securities included
      therein shall be allocated pro rata among the Investors based on the number
      of
      Registrable Securities held by each Investor at the time the Registration
      Statement covering such initial number of Registrable Securities or increase
      or
      decrease thereof is declared effective by the SEC. In the event that an Investor
      sells or otherwise transfers any of such Investor's Registrable Securities,
      each
      transferee shall be allocated a pro rata portion of the then remaining number
      of
      Registrable Securities included in such Registration Statement for such
      transferor. Any shares of Common Stock included in a Registration Statement
      and
      which remain allocated to any Person which ceases to hold any Registrable
      Securities covered by such Registration Statement shall be allocated to the
      remaining Investors, pro rata based on the number of Registrable Securities
      then
      held by such Investors which are covered by such Registration Statement. In
      no
      event shall the Company include any securities other than Registrable Securities
      on any Registration Statement without the prior written consent of the Required
      Holders; provided, however, that the Company shall be permitted to include
      on
      any Registration Statement securities issued pursuant to the transactions
      described on Schedule 2(e) to the Securities Purchase Agreement; provided,
      further, that any such securities issued to an Investor that are to be included
      in a Registration Statement shall be included as Registrable Securities of
      such
      Investor for the purpose of allocating securities in such Registration Statement
      pursuant to this Section 2(c).


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    d. Legal
      Counsel.
      Subject
      to Section 5 hereof, the Required Holders shall have the right to select one
      legal counsel to review and oversee any registration pursuant to this Section
      2
      ("Legal
      Counsel"),
      which
      shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
      designated by the Required Holders. The Company and Legal Counsel shall
      reasonably cooperate with each other in performing the Company's obligations
      under this Agreement.

     

    e. Ineligibility
      for Form S-3.
      In the
      event that Form S-3 is not available for the registration of the resale of
      Registrable Securities hereunder, the Company shall (i) register the resale
      of
      the Registrable Securities on another form reasonably acceptable to the Required
      Holders and (ii) undertake to register the Registrable Securities on Form S-3
      as
      soon as the use of such form for such purpose is permitted, provided that the
      Company shall maintain the effectiveness of the Registration Statement then
      in
      effect until such time as a Registration Statement on Form S-3 covering the
      Registrable Securities has been declared effective by the SEC.

     

    f. Sufficient
      Number of Shares Registered.
      In the
      event the number of shares available under a Registration Statement filed
      pursuant to Section 2(a) or 2(b) is insufficient to cover all of the Registrable
      Securities required to be covered by such Registration Statement or an
      Investor's allocated portion of the Registrable Securities pursuant to Section
      2(b), the Company shall, if the Registration Statement has not been declared
      effective, amend the applicable Registration Statement, or, in all other cases,
      file a new Registration Statement (on the short form available therefor, if
      applicable), so as to cover at least the Initial Required Registration Amount
      or
      the Additional Required Registration Amount, as applicable, as of the Trading
      Day immediately preceding the date of the filing of such amendment or new
      Registration Statement, in each case, as soon as practicable, but in any event
      not later than thirty (30) Business Days after the necessity therefor arises.
      The Company shall use its reasonable best efforts to cause such amendment or
      new
      Registration Statement to become effective as soon as practicable following
      the
      filing thereof. For purposes of the foregoing provision, the number of shares
      available under a Registration Statement shall be deemed "insufficient to cover
      all of the Registrable Securities" if at any time the number of shares of Common
      Stock available for resale under the Registration Statement is less than the
      product determined by multiplying (i) the Initial Required Registration Amount
      or Additional Required Registration Amount, as applicable, as of such time
      by
      (ii) 0.90. The calculation set forth in the foregoing sentence shall be made
      without regard to any limitations on the conversion of the Preferred Shares
      and
      such calculation shall assume that the Preferred Shares are then convertible
      into shares of Common Stock at the then prevailing Conversion Rate (as defined
      in the Certificate of Designations).


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    g. Effect
      of Failure to File and Obtain and Maintain Effectiveness of Registration
      Statement.
      If (i)
      a Registration Statement covering all of the Registrable Securities required
      to
      be covered thereby and required to be filed by the Company pursuant to this
      Agreement is (A) not filed with the SEC on or before the respective Filing
      Deadline (a "Filing
      Failure")
      or (B)
      not declared effective by the SEC on or before the Effectiveness Deadline (an
      "Effectiveness
      Failure")
      or
      (ii) on any day after the Effective Date sales of all of the Registrable
      Securities required to be included on such Registration Statement cannot be
      made
      (other than during an Allowable Grace Period (as defined in Section 3(q))
      pursuant to such Registration Statement or otherwise (including, without
      limitation, because of a failure to keep such Registration Statement effective,
      to disclose such information as is necessary for sales to be made pursuant
      to
      such Registration Statement or to register a sufficient number of shares of
      Common Stock or to maintain the listing of the shares of Common Stock) (a
      "Maintenance
      Failure")
      then,
      as partial relief for the damages to any Investor by reason of any such delay
      in
      or reduction of its ability to sell the underlying shares of Common Stock (which
      remedy shall not be exclusive of any other remedies available at law or in
      equity), the Company shall pay to each Investor relating to such Registration
      Statement an amount in cash equal to (A) one percent (1.0%) of the aggregate
      Purchase Price (as such term is defined in the Securities Purchase Agreement)
      of
      such Investor's Registrable Securities included in such Registration Statement
      on each of the following dates: (i) the day of a Filing Failure and on every
      thirtieth day (pro rated for periods totaling less than thirty (30) days)
      thereafter until the date such Filing Failure is cured; (ii) the day of an
      Effectiveness Failure and on every thirtieth day (pro rated for periods totaling
      less than thirty (30) days) thereafter until the date such Effectiveness Failure
      is cured; and (iii) the initial day of a Maintenance Failure and on every
      thirtieth day (pro rated for periods totaling less than thirty (30) days)
      thereafter until the date such Maintenance Failure is cured. The payments to
      which an Investor shall be entitled to pursuant to this Section 2(g) are
      referred to herein "Registration
      Delay Payments." Registration
      Delay Payments shall be paid on the earlier of (I) the last day of the calendar
      month during which such Registration Delay Payments are incurred and (II) the
      third Business Day after the event or failure giving rise to the Registration
      Delay Payments is cured. In the event the Company fails to make Registration
      Delay Payments in a timely manner, such Registration Delay Payments shall bear
      interest at the rate of one percent (1.0%) per month (prorated for partial
      months) until paid in full. The parties agree that the maximum aggregate
      Registration Delay Payments payable to an Investor under this Agreement shall
      be
      10% of the aggregate purchase price paid by such Investor pursuant to the
      Purchase Agreement. 

     

    h. Neither
      the Company nor any Subsidiary (as defined in the Securities Purchase Agreement)
      nor affiliate thereof shall identify any Buyer as an underwriter in any public
      disclosure or filing with the SEC or any Principal Market (as defined in the
      Securities Purchase Agreement) or any Trading Market (as defined in the
      Securities Purchase Agreement) without the prior written consent of such
      Investor. If the Company is required by law to identify an Investor as an
      underwriter in any public disclosure or filing with the Commission or any
      Trading Market, it must notify such Investor in writing in advance (the
      "Identification
      Notice")
      and
      such Investor shall have the option, in its sole discretion, to consent to
      such
      identification as an underwriter or to elect to have its Registrable Securities
      be deemed Cutback Shares solely for the purposes of such Registration Statement
      and removed from such Registration Statement. If the Investor does not make
      such
      election within five (5) Business Days of such Investor receipt of the
      Identification Notice, such Investor shall be deemed to have elected to have
      its
      Registrable Securities be deemed to be Cutback Shares.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    3. Related
      Obligations.

     

    At
      such
      time as the Company is obligated to file a Registration Statement with the
      SEC
      pursuant to Section 2(a), 2(b), 2(e), or 2(f) the Company will use its
      reasonable best efforts to effect the registration of the Registrable Securities
      in accordance with the intended method of disposition thereof and, pursuant
      thereto, the Company shall have the following obligations:

     

    a. The
      Company shall submit to the SEC, within two (2) Business Days after the Company
      learns that no review of a particular Registration Statement will be made by
      the
      staff of the SEC or that the staff has no further comments on a particular
      Registration Statement, as the case may be, a request for acceleration of
      effectiveness of such Registration Statement to a time and date not later than
      48 hours after the submission of such request. The
      Company shall keep each Registration Statement effective pursuant to Rule 415
      at
      all times until the earlier of (i) the date when the securities covered by
      the
      Registration Statement are no longer Registrable Securities as defined herein,
      or (ii) the date on which the Investors shall have sold all of the Registrable
      Securities covered by such Registration Statement (the "Registration
      Period").
      The
      Company shall ensure that each Registration Statement (including any amendments
      or supplements thereto and prospectuses contained therein) shall not contain
      any
      untrue statement of a material fact or omit to state a material fact required
      to
      be stated therein, or necessary to make the statements therein (in the case
      of
      prospectuses, in the light of the circumstances in which they were made) not
      misleading.

     

    b. The
      Company shall prepare and file with the SEC such amendments (including
      post-effective amendments) and supplements to a Registration Statement and
      the
      prospectus used in connection with such Registration Statement, which prospectus
      is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may
      be
      necessary to keep such Registration Statement effective at all times during
      the
      Registration Period, and, during such period, comply with the provisions of
      the
      1933 Act with respect to the disposition of all Registrable Securities of the
      Company covered by such Registration Statement until such time as all of such
      Registrable Securities shall have been disposed of in accordance with the
      intended methods of disposition by the seller or sellers thereof as set forth
      in
      such Registration Statement. In the case of amendments and supplements to a
      Registration Statement which are required to be filed pursuant to this Agreement
      (including pursuant to this Section 3(b)) by reason of the Company filing a
      report on Form 10-Q, Form 10-K or any analogous report under the Securities
      Exchange Act of 1934, as amended (the "1934
      Act"),
      the
      Company shall have incorporated such report by reference into such Registration
      Statement, if applicable, or shall file such amendments or supplements with
      the
      SEC on the same day on which the 1934 Act report is filed which created the
      requirement for the Company to amend or supplement such Registration
      Statement.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    c. The
      Company shall furnish to Legal Counsel and each Investor whose Registrable
      Securities are included in any Registration Statement, without charge, (i)
      promptly after the same is prepared and filed with the SEC, at least one copy
      of
      such Registration Statement and any amendment(s) thereto, including financial
      statements and schedules, all documents incorporated therein by reference,
      if
      requested by an Investor, all exhibits and each preliminary prospectus (unless
      such Registration Statement is available on EDGAR), (ii) upon the effectiveness
      of any Registration Statement, ten (10) copies of the prospectus included in
      such Registration Statement and all amendments and supplements thereto (unless
      such amendments and supplements are available on EDGAR) and (iii) such other
      documents, including copies of the foregoing (regardless of whether such
      documents are available upon EDGAR) and any preliminary or final prospectus,
      as
      such Investor may reasonably request from time to time in order to facilitate
      the disposition of the Registrable Securities owned by such
      Investor.

     

    d. The
      Company shall use its reasonable best efforts to (i) register and qualify,
      unless an exemption from registration and qualification applies, the resale
      by
      Investors of the Registrable Securities covered by a Registration Statement
      under such other securities or "blue sky" laws of all applicable jurisdictions
      in the United States, (ii) prepare and file in those jurisdictions, such
      amendments (including post-effective amendments) and supplements to such
      registrations and qualifications as may be necessary to maintain the
      effectiveness thereof during the Registration Period, (iii) take such other
      actions as may be reasonably necessary to maintain such registrations and
      qualifications in effect at all times during the Registration Period, and (iv)
      take all other actions reasonably necessary or advisable to qualify the
      Registrable Securities for sale in such jurisdictions; provided,
      however,
      that
      the Company shall not be required in connection therewith or as a condition
      thereto to (x) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify but for this Section 3(e), (y) subject itself
      to general taxation in any such jurisdiction, or (z) file a general consent
      to
      service of process in any such jurisdiction. The Company shall promptly notify
      Legal Counsel and each Investor who holds Registrable Securities of the receipt
      by the Company of any notification with respect to the suspension of the
      registration or qualification of any of the Registrable Securities for sale
      under the securities or "blue sky" laws of any jurisdiction in the United States
      or its receipt of notice of the initiation or threatening of any proceeding
      for
      such purpose.

     

    e. The
      Company shall notify Legal Counsel and each Investor in writing of the happening
      of any event, as promptly as practicable after becoming aware of such event,
      as
      a result of which the prospectus included in a Registration Statement, as then
      in effect, includes an untrue statement of a material fact or omission to state
      a material fact required to be stated therein or necessary to make the
      statements therein, in the light of the circumstances under which they were
      made, not misleading (provided that in no event shall such notice contain any
      material, nonpublic information), and, subject to Section 3(r), promptly prepare
      a supplement or amendment to such Registration Statement to correct such untrue
      statement or omission, and deliver ten (10) copies of such supplement or
      amendment to Legal Counsel and each Investor (or such other number of copies
      as
      Legal Counsel or such Investor may reasonably request) (unless such supplements
      or amendments are available on EDGAR). The Company shall also promptly notify
      Legal Counsel and each Investor in writing (i) when a prospectus or any
      prospectus supplement or post-effective amendment has been filed, and when
      a
      Registration Statement or any post-effective amendment has become effective
      (notification of such effectiveness shall be delivered to Legal Counsel and
      each
      Investor by facsimile no later than the next Business Day of such effectiveness
      and by overnight mail), (ii) of any request by the SEC for amendments or
      supplements to a Registration Statement or related prospectus or related
      information, and (iii) of the Company's reasonable determination that a
      post-effective amendment to a Registration Statement would be
      appropriate.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    f. The
      Company shall use its reasonable best efforts to prevent the issuance of any
      stop order or other suspension of effectiveness of a Registration Statement,
      or
      the suspension of the qualification of any of the Registrable Securities for
      sale in any jurisdiction and, if such an order or suspension is issued, to
      obtain the withdrawal of such order or suspension at the earliest possible
      moment and to notify Legal Counsel and each Investor who holds Registrable
      Securities being sold of the issuance of such order and the resolution thereof
      or its receipt of notice of the initiation of any proceeding for such
      purpose.

     

    g. If
      any
      Investor is deemed to be, alleged to be or reasonably believes it may be deemed
      or alleged to be, an underwriter or is required under applicable securities
      law
      to be described in the Registration Statement as an underwriter of Registrable
      Securities, at the reasonable request of such Investor, the Company shall
      furnish to such Investor, on the date of the effectiveness of the Registration
      Statement and thereafter from time to time on such dates as an Investor may
      reasonably request (i) a letter, dated such date, from the Company's independent
      certified public accountants in form and substance as is customarily given
      by
      independent certified public accountants to underwriters in an underwritten
      public offering, addressed to the Investors, and (ii) an opinion, dated as
      of
      such date, of counsel representing the Company for purposes of such Registration
      Statement, in form, scope and substance as is customarily given in an
      underwritten public offering, addressed to the Investors.

     

    h. If
      any
      Investor is deemed to be, alleged to be or reasonably believes it may be deemed
      or alleged to be, an underwriter or is required under applicable securities
      law
      to be described in the Registration Statement as an underwriter of Registrable
      Securities, upon the request of such Investor, the Company shall make available
      for inspection by (i) any Investor, (ii) Legal Counsel and (iii) one firm of
      accountants or other agents retained by the Investors (collectively, the
      "Inspectors"),
      all
      pertinent financial and other records, and pertinent corporate documents and
      properties of the Company (collectively, the "Records"),
      as
      shall be reasonably deemed necessary by each Inspector, and cause the Company's
      officers, directors and employees to supply all information which any Inspector
      may reasonably request; provided, however, that each Inspector shall agree
      to
      hold in strict confidence and shall not make any disclosure (except to an
      Investor) or use of any Record or other information which the Company determines
      in good faith to be confidential, and of which determination the Inspectors
      are
      so notified, unless (a) the disclosure of such Records is necessary to avoid
      or
      correct a misstatement or omission in any Registration Statement or is otherwise
      required under the 1933 Act, (b) the release of such Records is ordered pursuant
      to a final, non-appealable subpoena or order from a court or government body
      of
      competent jurisdiction, or (c) the information in such Records has been made
      generally available to the public other than by disclosure in violation of
      this
      or any other Transaction Document. Each Investor agrees that it shall, upon
      learning that disclosure of such Records is sought in or by a court or
      governmental body of competent jurisdiction or through other means, give prompt
      notice to the Company and allow the Company, at its expense, to undertake
      appropriate action to prevent disclosure of, or to obtain a protective order
      for, the Records deemed confidential. Nothing herein (or in any other
      confidentiality agreement between the Company and any Investor) shall be deemed
      to limit the Investors' ability to sell Registrable Securities in a manner
      which
      is otherwise consistent with applicable laws and regulations.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    i. The
      Company shall hold in confidence and not make any disclosure of information
      concerning an Investor provided to the Company unless (i) disclosure of such
      information is necessary to comply with federal or state securities laws or
      the
      rules of any exchange or other market in which the Company's securities are
      then
      traded, listed or quoted, (ii) the disclosure of such information is necessary
      to avoid or correct a misstatement or omission in any Registration Statement,
      (iii) the release of such information is ordered pursuant to a subpoena or
      other
      final, non-appealable order from a court or governmental body of competent
      jurisdiction or (iv) such information has been made generally available to
      the
      public other than by disclosure in violation of this Agreement, any other
      agreement to which the Company is a party, or, to the Company's knowledge,
      any
      other agreement. The Company agrees that it shall, upon learning that disclosure
      of such information concerning an Investor is sought in or by a court or
      governmental body of competent jurisdiction or through other means, give prompt
      written notice to such Investor and allow such Investor, at the Investor's
      expense, to undertake appropriate action to prevent disclosure of, or to obtain
      a protective order for, such information.

     

    j. The
      Company shall use its reasonable best efforts either to (i) cause all of the
      Registrable Securities covered by a Registration Statement to be listed on
      each
      securities exchange on which securities of the same class or series issued
      by
      the Company are then listed, if any, if the listing of such Registrable
      Securities is then permitted under the rules of such exchange, or (ii) secure
      designation and quotation of all of the Registrable Securities covered by a
      Registration Statement on The NASDAQ Capital Market or (iii) if, despite the
      Company's reasonable best efforts to satisfy, the preceding clauses (i) and
      (ii)
      the Company is unsuccessful in satisfying the preceding clauses (i) and (ii),
      to
      secure the inclusion for quotation on the The New York Stock Exchange, The
      NASDAQ Global Market or the American Stock Exchange for such Registrable
      Securities and, without limiting the generality of the foregoing, to use its
      reasonable best efforts to arrange for at least two market makers to register
      with the Financial Industry Regulatory Authority as such with respect to such
      Registrable Securities. The Company shall pay all fees and expenses in
      connection with satisfying its obligation under this Section 3(k).

     

    k. The
      Company shall cooperate with the Investors who hold Registrable Securities
      being
      offered and, to the extent applicable, facilitate the timely preparation and
      delivery of certificates (not bearing any restrictive legend) representing
      the
      Registrable Securities to be offered pursuant to a Registration Statement and
      enable such certificates to be in such denominations or amounts, as the case
      may
      be, as the Investors may reasonably request and registered in such names as
      the
      Investors may request.

     

    l. If
      reasonably requested by an Investor, the Company shall (i) as soon as
      practicable incorporate in a prospectus supplement or post-effective amendment
      such information as an Investor reasonably requests to be included in the Plan
      of Distribution or Selling Stockholder sections relating to the sale and
      distribution of Registrable Securities, including, without limitation,
      information with respect to the number of Registrable Securities being offered
      or sold, the purchase price being paid therefor and any other terms of the
      offering of the Registrable Securities to be sold in such offering; (ii) as
      soon
      as practicable make all required filings of such prospectus supplement or
      post-effective amendment after being notified of the matters to be incorporated
      in such prospectus supplement or post-effective amendment; and (iii) as soon
      as
      practicable, supplement or make amendments to any Registration Statement if
      reasonably requested by an Investor holding any Registrable
      Securities.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    m. The
      Company shall use its reasonable best efforts to cause the Registrable
      Securities covered by a Registration Statement to be registered with or approved
      by such other governmental agencies or authorities as may be necessary to
      consummate the disposition of such Registrable Securities.

     

    n. The
      Company shall make generally available to its security holders as soon as
      practical, but not later than ninety (90) days after the close of the period
      covered thereby, an earnings statement (in form complying with, and in the
      manner provided by, the provisions of Rule 158 under the 1933 Act) covering
      a
      twelve-month period beginning not later than the first day of the Company's
      fiscal quarter next following the effective date of a Registration Statement.
      

     

    o. The
      Company shall otherwise use its reasonable best efforts to comply with all
      applicable rules and regulations of the SEC in connection with any registration
      hereunder.

     

    p. Within
      five (5) Business Days after a Registration Statement which covers Registrable
      Securities is ordered effective by the SEC, the Company shall deliver, and
      shall
      cause legal counsel for the Company (which may be the General Counsel of the
      Company) to deliver, to the transfer agent for such Registrable Securities
      (with
      copies to the Investors whose Registrable Securities are included in such
      Registration Statement) confirmation that such Registration Statement has been
      declared effective by the SEC in the form attached hereto as Exhibit
      A.

     

    q. Notwithstanding
      anything to the contrary herein, at any time after the Effective Date, the
      Company may delay the disclosure of material, non-public information concerning
      the Company the disclosure of which at the time is not, in the good faith
      opinion of the Board of Directors of the Company, in the best interest of the
      Company otherwise required or otherwise render the Registration Statement
      unavailable for sales to be effected thereunder (a "Grace
      Period");
      provided, that the Company shall promptly (i) notify the Investors in writing
      of
      the existence of material, non-public information giving rise to a Grace Period
      (provided that in each notice the Company will not disclose the content of
      such
      material, non-public information to the Investors) and the date on which the
      Grace Period will begin on the first day that the effectiveness of the
      Registration Statement is suspended, and (ii) notify the Investors in writing
      of
      the date on which the Grace Period ends; and, provided further, that no Grace
      Period shall exceed twenty-five (25) consecutive days and during any three
      hundred sixty five (365) day period such Grace Periods shall not exceed an
      aggregate of sixty (60) days and the first day of any Grace Period must be
      at
      least five (5) Trading Days after the last day of any prior Grace Period (each,
      an "Allowable
      Grace Period").
      For
      purposes of determining the length of a Grace Period above, the Grace Period
      shall begin on and include the date the Investors receive the notice referred
      to
      in clause (i) and shall end on and include the later of the date the Investors
      receive the notice referred to in clause (ii) and the date referred to in such
      notice. The provisions of Section 3(g) hereof shall not be applicable during
      the
      period of any Allowable Grace Period. Upon expiration of the Grace Period,
      the
      Company shall again be bound by the first sentence of Section 3(f) with respect
      to the information giving rise thereto unless such material, non-public
      information is no longer applicable. Notwithstanding anything to the contrary,
      the Company shall cause its transfer agent to deliver unlegended shares of
      Common Stock to a transferee of an Investor in accordance with the terms of
      the
      Securities Purchase Agreement in connection with any sale of Registrable
      Securities with respect to which an Investor has entered into a contract for
      sale, and delivered a copy of the prospectus included as part of the applicable
      Registration Statement (unless an exemption from such prospectus delivery
      requirement exists), prior to the Investor's receipt of the notice of a Grace
      Period and for which the Investor has not yet settled. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    r. If
      NASDR
      Rule 2710 requires any broker-dealer to make a filing prior to executing a
      sale
      by a Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc.
      Corporate Financing Department pursuant to proposed NASDR Rule
      2710(b)(10)(A)(i), (ii) respond within five Trading Days to any comments
      received from NASDR in connection therewith, and (iii) pay the filing fee
      required in connection therewith.

     

    4. Obligations
      of the Investors.

     

    a. At
      least
      five (5) Business Days prior to the first anticipated filing date of a
      Registration Statement, the Company shall notify each Investor in writing of
      the
      information the Company requires from each such Investor if such Investor elects
      to have any of such Investor's Registrable Securities included in such
      Registration Statement. It shall be a condition precedent to the obligations
      of
      the Company to complete the registration pursuant to this Agreement with respect
      to the Registrable Securities of a particular Investor that such Investor shall
      furnish to the Company such information regarding itself, the Registrable
      Securities held by it and the intended method of disposition of the Registrable
      Securities held by it, as shall be reasonably required to effect and maintain
      the effectiveness of the registration of such Registrable Securities within
      five
      (5) Business Days and such Investor shall execute such documents in connection
      with such registration as the Company may reasonably request. 

     

    b. Each
      Investor, by such Investor's acceptance of the Registrable Securities, agrees
      to
      cooperate with the Company as reasonably requested by the Company in connection
      with the preparation and filing of any Registration Statement hereunder, unless
      such Investor has notified the Company in writing of such Investor's election
      to
      exclude all of such Investor's Registrable Securities from such Registration
      Statement.

     

    c. Each
      Investor agrees that, upon receipt of any notice from the Company of the
      happening of any event of the kind described in Section 3(g) or the first
      sentence of Section 3(f), such Investor will immediately discontinue disposition
      of Registrable Securities pursuant to any Registration Statement(s) covering
      such Registrable Securities until such Investor's receipt of the copies of
      the
      supplemented or amended prospectus contemplated by Section 3(g) or the first
      sentence of Section 3(f) or receipt of notice that no supplement or amendment
      is
      required. Notwithstanding anything to the contrary, the Company shall cause
      its
      transfer agent to deliver unlegended shares of Common Stock to a transferee
      of
      an Investor in accordance with the terms of the Securities Purchase Agreement
      in
      connection with any sale of Registrable Securities with respect to which an
      Investor has entered into a contract for sale prior to the Investor's receipt
      of
      a notice from the Company of the happening of any event of the kind described
      in
      Section 3(g) or the first sentence of Section 3(f) and for which the Investor
      has not yet settled. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    d. Each
      Investor covenants and agrees that it will comply with the prospectus delivery
      requirements of the 1933 Act as applicable to it or an exemption therefrom
      in
      connection with sales of Registrable
      Securities pursuant to the Registration Statement.

     

    5. Expenses
      of Registration.

     

    All
      reasonable expenses, other than underwriting discounts and commissions incurred
      in connection with registrations, filings or qualifications pursuant to Sections
      2 and 3, including, without limitation, all registration, listing and
      qualifications fees, printers and accounting fees, and fees and disbursements
      of
      counsel for the Company, shall be paid by the Company. 

    


    6. Indemnification.

     

    In
      the
      event any Registrable Securities are included in a Registration Statement under
      this Agreement:

     

    a. To
      the
      fullest extent permitted by law, the Company will, and hereby does, indemnify,
      hold harmless and defend each Investor, the directors, officers, members,
      partners, employees, agents, representatives of, and each Person, if any, who
      controls any Investor within the meaning of the 1933 Act or the 1934 Act (each,
      an "Indemnified
      Person"),
      against any losses, claims, damages, liabilities, judgments, fines, penalties,
      charges, costs, reasonable attorneys' fees, amounts paid in settlement or
      expenses, joint or several, (collectively, "Claims")
      incurred in investigating, preparing or defending any action, claim, suit,
      inquiry, proceeding, investigation or appeal taken from the foregoing by or
      before any court or governmental, administrative or other regulatory agency,
      body or the SEC, whether pending or threatened, whether or not an indemnified
      party is or may be a party thereto ("Indemnified
      Damages"),
      to
      which any of them may become subject insofar as such Claims (or actions or
      proceedings, whether commenced or threatened, in respect thereof) arise out
      of
      or are based upon: (i) any untrue statement or alleged untrue statement of
      a
      material fact in a Registration Statement or any post-effective amendment
      thereto or in any filing made in connection with the qualification of the
      offering under the securities or other "blue sky" laws of any jurisdiction
      in
      which Registrable Securities are offered ("Blue
      Sky Filing"),
      or
      the omission or alleged omission to state a material fact required to be stated
      therein or necessary to make the statements therein not misleading, (ii) any
      untrue statement or alleged untrue statement of a material fact contained in
      any
      preliminary prospectus if used prior to the effective date of such Registration
      Statement, or contained in the final prospectus (as amended or supplemented,
      if
      the Company files any amendment thereof or supplement thereto with the SEC)
      or
      the omission or alleged omission to state therein any material fact necessary
      to
      make the statements made therein, in the light of the circumstances under which
      the statements therein were made, not misleading, (iii) any violation or alleged
      violation by the Company of the 1933 Act, the 1934 Act, any other law,
      including, without limitation, any state securities law, or any rule or
      regulation thereunder relating to the offer or sale of the Registrable
      Securities pursuant to a Registration Statement or (iv) any breach by the
      Company of a representation, warranty or covenant contained in this Agreement
      (the matters in the foregoing clauses (i) through (iv) being, collectively,
      "Violations").
      Subject to Section 6(c), the Company shall reimburse the Indemnified Persons,
      promptly as such expenses are incurred and are due and payable, for any
      reasonable legal fees or other reasonable expenses incurred by them in
      connection with investigating or defending any such Claim. Notwithstanding
      anything to the contrary contained herein, the indemnification agreement
      contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
      Person arising out of or based upon a Violation which occurs (A) in reliance
      upon and in conformity with information furnished in writing to the Company
      by
      such Indemnified Person expressly for use in connection with the preparation
      of
      the Registration Statement (including any amendment thereto, any related
      prospectus, or any prospectus supplement) (which information provided by the
      Investors includes Exhibits B and C to this Agreement), (B) failure by the
      Investor to comply with prospectus delivery requirements, if such prospectus,
      or
      any such amendment thereof or supplement thereto, was timely made available
      by
      the Company pursuant to Section 3(d), or (C) the use by such Investor of an
      outdated or defective prospectus after the Company has notified such Investor
      in
      writing that the prospectus is outdated or defective and prior to the receipt
      by
      such Investor of an amended or supplemented prospectus, and (ii) shall not
      apply
      to amounts paid in settlement of any Claim if such settlement is effected
      without the prior written consent of the Company, which consent shall not be
      unreasonably withheld or delayed. Such indemnity shall remain in full force
      and
      effect regardless of any investigation made by or on behalf of the Indemnified
      Person and shall survive the transfer of the Registrable Securities by the
      Investors pursuant to Section 9.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    b. In
      connection with any Registration Statement in which an Investor is
      participating, each such Investor agrees to severally and not jointly indemnify,
      hold harmless and defend, to the same extent and in the same manner as is set
      forth in Section 6(a), the Company, each of its directors, each of its officers
      who signs the Registration Statement and each Person, if any, who controls
      the
      Company within the meaning of the 1933 Act or the 1934 Act (each, an
      "Indemnified
      Party"),
      against any Claim or Indemnified Damages to which any of them may become
      subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
      or
      Indemnified Damages arise out of or are based upon any Violation, in each case
      to the extent, and only to the extent, that such Violation arises from the
      circumstances described in clauses (A) through (C) of Section 6(a) above; and,
      subject to Section 6(c), such Investor shall reimburse the Indemnified Party,
      promptly as such expenses are incurred and are due and payable, for any legal
      fees or other reasonable expenses incurred by it in connection with
      investigating or defending any such Claim; provided, however, that the indemnity
      agreement contained in this Section 6(b) and the agreement with respect to
      contribution contained in Section 7 shall not apply to amounts paid in
      settlement of any Claim if such settlement is effected without the prior written
      consent of such Investor, which consent shall not be unreasonably withheld
      or
      delayed; provided, further, however, that the Investor shall be liable under
      this Section 6(b) for only that amount of a Claim or Indemnified Damages as
      does
      not exceed the net proceeds to such Investor as a result of the sale of
      Registrable Securities pursuant to such Registration Statement. Such indemnity
      shall remain in full force and effect regardless of any investigation made
      by or
      on behalf of such Indemnified Party and shall survive the transfer of the
      Registrable Securities by the Investors pursuant to Section 9. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    c. Promptly
      after receipt by an Indemnified Person or Indemnified Party under this Section
      6
      of notice of the commencement of any action or proceeding (including any
      governmental action or proceeding) involving a Claim, such Indemnified Person
      or
      Indemnified Party shall, if a Claim in respect thereof is to be made against
      any
      indemnifying party under this Section 6, deliver to the indemnifying party
      a
      written notice of the commencement thereof, and the indemnifying party shall
      have the right to participate in, and, to the extent the indemnifying party
      so
      desires, jointly with any other indemnifying party similarly noticed, to assume
      control of the defense thereof with counsel mutually satisfactory to the
      indemnifying party and the Indemnified Person or the Indemnified Party, who
      shall not, except with the consent of the Indemnifying Party, be counsel to
      the
      Indemnified Person as the case may be; and after notice from the indemnifying
      party of its election to assume the defense thereof, the indemnifying party
      shall not be liable to the Indemnified party or Indemnified Person for any
      legal
      expenses of other counsel or other expenses incurred in connection with the
      defense thereof; provided,
      however,
      that an
      Indemnified Person or Indemnified Party shall have the right to retain its
      own
      counsel with the fees and expenses of not more than one counsel for such
      Indemnified Person or Indemnified Party to be paid by the indemnifying party,
      if, in the reasonable opinion of counsel retained by the indemnifying party,
      the
      representation by such counsel of the Indemnified Person or Indemnified Party
      and the Indemnifying Party would likely represent a conflict of interest that
      would legally preclude such representation. In the case of an Indemnified
      Person, legal counsel referred to in the immediately preceding sentence shall
      be
      selected by the Investors holding at least 80% in
      interest of the Registrable Securities included in the Registration Statement
      to
      which the Claim relates. The Indemnified Party or Indemnified Person shall
      cooperate fully with the indemnifying party in connection with any negotiation
      or defense of any such action or Claim by the indemnifying party and shall
      furnish to the indemnifying party all information reasonably available to the
      Indemnified Party or Indemnified Person which relates to such action or Claim.
      The indemnifying party shall keep the Indemnified Party or Indemnified Person
      reasonably apprised at all times as to the status of the defense or any
      settlement negotiations with respect thereto. No indemnifying party shall be
      liable for any settlement of any action, claim or proceeding effected without
      its prior written consent; provided,
      however,
      that
      the indemnifying party shall not unreasonably withhold, delay or condition
      its
      consent. No indemnifying party shall, without the prior written consent of
      the
      Indemnified Party or Indemnified Person, consent to entry of any judgment or
      enter into any settlement or other compromise which does not include as an
      unconditional term thereof the giving by the claimant or plaintiff to such
      Indemnified Party or Indemnified Person of a release from all liability in
      respect to such Claim or litigation, and such settlement shall not include
      any
      admission as to fault on the part of the Indemnified Party. Following
      indemnification as provided for hereunder, the indemnifying party shall be
      subrogated to all rights of the Indemnified Party or Indemnified Person with
      respect to all third parties, firms or corporations relating to the matter
      for
      which indemnification has been made. The failure to deliver written notice
      to
      the indemnifying party within a reasonable time of the commencement of any
      such
      action shall not relieve such indemnifying party of any liability to the
      Indemnified Person or Indemnified Party under this Section 6, except to the
      extent that the indemnifying party is prejudiced in its ability to defend such
      action.

     

    d. The
      indemnification required by this Section 6 shall be made by periodic payments
      of
      the amount thereof during the course of the investigation or defense, as and
      when bills are received or Indemnified Damages are incurred.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    e. The
      indemnity agreements contained herein shall be in addition to (i) any cause
      of
      action or similar right of the Indemnified Party or Indemnified Person against
      the indemnifying party or others, and (ii) any liabilities the indemnifying
      party may be subject to pursuant to the law.

     

    7. Contribution.

     

    To
      the
      extent any indemnification by an Indemnified Party is prohibited or limited
      by
      law, the indemnifying party agrees, in lieu of providing such indemnification,
      to contribute to the amount paid or payable by such Indemnified Party or
      Indemnifying Person as a result of such Claims or Indemnified Damages, in such
      proportion as is appropriate to reflect the relative fault of the Company,
      on
      the one hand, and the Investors, on the other hand, in connection with the
      statements or omissions which resulted in such Claims or Indemnified Damages,
      as
      well as any other relevant equitable considerations; provided,
      however,
      that
      (i) no Person involved in the sale of Registrable Securities which is guilty
      of
      fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
      Act) in connection with such sale shall be entitled to contribution from any
      Person who was not guilty of fraudulent misrepresentation and (ii) contribution
      by any seller of Registrable Securities shall be limited in amount of net
      proceeds received by such seller from the sale of such Registrable Securities
      subject to the Claim. The relative fault shall be determined by reference to,
      among other things, whether the untrue or alleged untrue statement of a material
      fact or the omission or alleged omission to state a material fact relates to
      information supplied by the Company, on the one hand, or the Investors, on
      the
      other hand, and the parties' relative intent, knowledge, access to information
      and opportunity to correct or prevent such statement or omission. The Company
      and the Investors agree that it would not be just and equitable if contribution
      pursuant to this Section 7 were determined by pro rata allocation (even if
      the
      Investors were treated as one entity for such purpose) or by any other method
      of
      allocation which does not take account of the equitable considerations referred
      to above in this Section 7. The amount paid or payable by an indemnified party
      as a result of the Claims or Indemnified Damages referred to above in this
      Section 7 shall be deemed to include any legal or other expenses reasonably
      incurred by such Indemnified Party in connection with investigating or defending
      any such action or claim. The Investors' obligations in this Section 7 to
      contribute are several in proportion to their respective underwriting
      obligations and not joint. 

     

    8. Reports
      Under the 1934 Act.
      

     

    With
      a
      view to making available to the Investors the benefits of Rule 144 promulgated
      under the 1933 Act or any other similar rule or regulation of the SEC that
      may
      at any time permit the Investors to sell securities of the Company to the public
      without registration ("Rule
      144"),
      the
      Company agrees to:

     

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

     

    b. file
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the 1933 Act and the 1934 Act so long as the Company remains
      subject to such requirements and the filing of such reports and other documents
      is required for the applicable provisions of Rule 144; and


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    c. furnish
      to each Investor so long as such Investor owns Registrable Securities, as soon
      as reasonably practicable upon request, (i) a written statement by the Company,
      if true, that it has complied with the reporting requirements of Rule 144,
      the
      1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
      report of the Company and such other reports and documents so filed by the
      Company and (iii) such other information as may be reasonably requested to
      permit the Investors to sell such securities pursuant to Rule 144 without
      registration.

     

    9. Assignment
      of Registration Rights.
      

     

    The
      rights under this Agreement shall be automatically assignable by the Investors
      to any transferee of all or any portion of such Investor's Registrable
      Securities if: (i) the Investor agrees in writing with the transferee or
      assignee to assign such rights and a copy of such agreement is furnished to
      the
      Company within a reasonable time after such assignment; (ii) the Company is,
      within a reasonable time after such transfer or assignment, furnished with
      written notice of (a) the name and address of such transferee or assignee and
      (b) the securities with respect to which such registration rights are being
      transferred or assigned; (iii) immediately following such transfer or assignment
      the further disposition of such securities by the transferee or assignee is
      restricted under the 1933 Act or applicable state securities laws; (iv) at
      or
      before the time the Company receives the written notice contemplated by clause
      (ii) of this sentence the transferee or assignee agrees in writing with the
      Company to be bound by all of the provisions contained herein; and (v) such
      transfer shall have been made in accordance with the applicable requirements
      of
      the Securities Purchase Agreement.

     

    10. Amendment
      of Registration Rights.

     

    Provisions
      of this Agreement may be amended and the observance thereof may be waived
      (either generally or in a particular instance and either retroactively or
      prospectively), only with the written consent of the Company and the Required
      Holders. Any amendment or waiver effected in accordance with this Section 10
      shall be binding upon each Investor and the Company. No such amendment shall
      be
      effective to the extent that it applies to less than all of the Investors.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of this Agreement unless the
      same
      consideration also is offered to all of the parties to this
      Agreement.

     

    11. Miscellaneous.

     

    a. For
      the
      purposes of this Agreement, a Person is deemed to be a holder of Registrable
      Securities whenever such Person owns or is deemed to own of record such
      Registrable Securities. If the Company receives conflicting instructions,
      notices or elections from two or more Persons with respect to the same
      Registrable Securities, the Company shall act upon the basis of instructions,
      notice or election received from the such record owner of such Registrable
      Securities.

     

    b. Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile or electronic mail (provided confirmation of
      transmission is mechanically or electronically generated and kept on file by
      the
      sending party); or (iii) one (1) Business Day after deposit with a nationally
      recognized overnight delivery service, in each case properly addressed to the
      party to receive the same. The addresses and facsimile numbers for such
      communications shall be:


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    If
      to the
      Company: 

    


    TXCO
      Resources, Inc.

    777
      E.
      Sonterra Blvd., Suite 350

    San
      Antonio, Texas 78258

    Telephone:
      (210)
      679-2429

    Facsimile:
      (210)
      496-3232

    Attention:
      M.
      Frank
      Russell, Vice President and General Counsel

     

    Copy
      to:

     

    Winstead
      PC

    401
      Congress Avenue, Suite 2100

    Austin,
      TX 78701

    Telephone:
      (512)
      370-2800

    Facsimile:
      (512)
      370-2850

    Attention:
      J.
      Rowland Cook

    


    If
      to
      Legal Counsel:

    

      Schulte
        Roth & Zabel LLP

      919
        Third
        Avenue

      New
        York,
        New York 10022

      Telephone:
        (212) 756-2000

      Facsimile:
        (212) 593-5955

      Attention:
        Eleazer N. Klein, Esq.

    

     

    If
      to a
      Buyer, to its address and facsimile number or electronic mail set forth on
      the
      Schedule of Buyers attached hereto, with copies to such Buyer's representatives
      as set forth on the Schedule of Buyers, or to such other address and/or
      facsimile number and/or to the attention of such other Person as the recipient
      party has specified by written notice given to each other party five (5) days
      prior to the effectiveness of such change. Written confirmation of receipt
      (A)
      given by the recipient of such notice, consent, waiver or other communication,
      (B) mechanically or electronically generated by the sender's facsimile machine
      containing the time, date, recipient facsimile number and an image of the first
      page of such transmission or (C) provided by a courier or overnight courier
      service shall be rebuttable evidence of personal service, receipt by facsimile
      or receipt from a nationally recognized overnight delivery service in accordance
      with clause (i), (ii) or (iii) above, respectively.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    c. Failure
      of any party to exercise any right or remedy under this Agreement or otherwise,
      or delay by a party in exercising such right or remedy, shall not operate as
      a
      waiver thereof.

     

    d. All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) that would
      cause the application of the laws of any jurisdictions other than the State
      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, 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 brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. 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 to such party at the address for such 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.
      EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
      CONTEMPLATED HEREBY.

     

    e. This
      Agreement, the other Transaction Documents and the instruments referenced herein
      and therein constitute the entire agreement among the parties hereto with
      respect to the subject matter hereof and thereof. There are no restrictions,
      promises, warranties or undertakings, other than those set forth or referred
      to
      herein and therein. This Agreement, the other Transaction Documents and the
      instruments referenced herein and therein supersede all prior agreements and
      understandings among the parties hereto with respect to the subject matter
      hereof and thereof.

     

    f. If
      any
      provision of this Agreement is prohibited by law or otherwise determined to
      be
      invalid or unenforceable by a court of competent jurisdiction, the provision
      that would otherwise be prohibited, invalid or unenforceable shall be deemed
      amended to apply to the broadest extent that it would be valid and enforceable,
      and the invalidity or unenforceability of such provision shall not affect the
      validity of the remaining provisions of this Agreement so long as this Agreement
      as so modified continues to express, without material change, the original
      intentions of the parties as to the subject matter hereof and the prohibited
      nature, invalidity or unenforceability of the provision(s) in question does
      not
      substantially impair the respective expectations or reciprocal obligations
      of
      the parties or the practical realization of the benefits that would otherwise
      be
      conferred upon the parties. The parties will endeavor in good faith negotiations
      to replace the prohibited, invalid or unenforceable provision(s) with a valid
      provision(s), the effect of which comes as close as possible to that of the
      prohibited, invalid or unenforceable provision(s).


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    g. Subject
      to the requirements of Section 9, this Agreement shall inure to the benefit
      of
      and be binding upon the permitted successors and assigns of each of the parties
      hereto.

     

    h. The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

    i. This
      Agreement may be executed in identical counterparts, each of which shall be
      deemed an original but all of which shall constitute one and the same agreement.
      This Agreement, once executed by a party, may be delivered to the other party
      hereto by facsimile transmission of a copy of this Agreement bearing the
      signature of the party so delivering this Agreement.

     

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

     

    k. All
      consents and other determinations required to be made by the Investors pursuant
      to this Agreement shall be made, unless otherwise specified in this Agreement,
      by the Required Holders.

     

    l. 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. 

     

    m. This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

    n. The
      obligations of each Investor hereunder are several and not joint with the
      obligations of any other Investor, and no provision of this Agreement is
      intended to confer any obligations on any Investor vis-à-vis any other Investor.
      Nothing contained herein, and no action taken by any Investor pursuant hereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated herein.

     

    *
      * * * *
      *


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              COMPANY:

            
	 
	
              TXCO
                RESOURCES INC.

            
	 
	
              By:  

            	 
	 	
              Name:

            
	 	
              Title:

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              BUYERS:

            
	 
	
              CAPITAL
                VENTURES INTERNATIONAL 

              BY: HEIGHTS
                CAPITAL MANAGEMENT, 

              INC., its
                authorized agent  

            
	 
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:
                

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

    


    
      	
              OTHER
                BUYERS: 

            
	 
	
              UBS
                O'CONNOR LLC F/B/O: O'CONNOR 

              PIPES
                CORPORATE STRATEGIES MASTER 

              LTD

            
	 
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              UBS
                O'CONNOR LLC F/B/O: O'CONNOR 

              GLOBAL
                CONVERTIBLE ARBITRAGE 

              MASTER
                LTD 

            
	 
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              UBS
                O'CONNOR LLC F/B/O: O'CONNOR
GLOBAL CONVERTIBLE ARBITRAGE II 
MASTER
                LTD

            
	 
	
               

            
	
              By: 

            	 
	 	
              Name:
                

              Title:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              RADCLIFFE
                SPC, LTD. FOR AND ON 
BEHALF OF THE CLASS A SEGREGATED
                
PORTFOLIO

            
	 
	 
	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              WHITEBOX
                CONVERTIBLE ARBITRAGE 
PARTNERS, LP

            
	 
	
               

            
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              GUGGENHEIM
                PORTFOLIO COMPANY 
XXXI, LLC

            
	 
	
               

            
	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              WHITEBOX
                INTERMARKET PARTNERS, LP

            
	 
	
               

            
	
              By:

            	 
	 	
              Name:

            
	 	
              Title:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      each
      Buyer and the Company have caused their respective signature page to this
      Registration Rights Agreement to be duly executed as of the date first written
      above.

     

    
      	
              WHITEBOX
                SPECIAL OPPORTUNITIES 
PARTNERS, SERIES B,
                LP

            
	 
	
               

            
	
              By: 

            	 
	 	
              Name:

            
	 	
              Title:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    SCHEDULE
      OF BUYERS

    

      
        	
                Buyer

              	 	
                Buyer's Address

                and Facsimile Number

              	 	
                Buyer's Representative's Address 

                and Facsimile Number

              
	 	 	 	 	 
	
                Capital
                  Ventures International

              	 	
                 

              	 	
                Schulte
                  Roth & Zabel LLP

                919
                  Third Avenue

                New
                  York, New York 10022

                Attention:
                  Eleazer Klein, Esq.

                Facsimile:
                  (212) 593-5955

                Telephone:
                  (212) 756-2000

              
	 	 	 	 	 
	
                Whitebox
                  Convertible Arbitrage Partners, LP

              	 	
                 

              	 	
                N/A

              
	 	 	 	 	 
	
                Guggenheim
                  Portfolio Company XXXI, LLC

              	 	
                 

              	 	
                N/A

              
	 	 	 	 	 
	
                Whitebox
                  Intermarket Partners, LP

              	 	
                 

              	 	
                N/A

              
	 	 	 	 	 
	
                Whitebox
                  Special Opportunities Partners, Series B, LP

              	 	
                 

              	 	
                N/A

              
	 	 	 	 	 
	
                Radcliffe
                  SPC, Ltd. For and on behalf of the Class A Convertible Crossover
                  Segregated Portfolio

              	 	
                 

              	 	
                N/A

              
	 	 	 	 	 
	
                UBS
                  O’Connor LLC fbo O’Connor Global Convertible Arbitrage Master
                  Limited

              	 	
                 

              	 	
                N/A

              


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                UBS
                  O’Connor LLC fbo O’Connor Global Convertible Arbitrage II Master
                  Limited

              	 	
                 

              	 	
                N/A

              
	 	 	 	 	 
	
                UBS
                  O’Connor LLC fbo O’Connor Pipes Corporate Strategies Master
                  Limited

              	 	
                 

              	 	
                N/A

              


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

    


    FORM
      OF NOTICE OF EFFECTIVENESS

    OF
      REGISTRATION STATEMENT

     

    American
      Stock Transfer & Trust Company

    59
      Maiden
      Lane

    New
      York,
      NY 10038 

    Attention:
      Carlos
      Pinto, Vice President

    


    Re: TXCO
      Resources Inc.

     

    Ladies
      and Gentlemen:

     

     

    [We
      are][I am] counsel to TXCO Resources Inc., a Delaware corporation, (the
      "Company"),
      and
      have represented the Company in connection with that certain Securities Purchase
      Agreement (the "Securities
      Purchase Agreement")
      entered into by and among the Company and the buyers named therein
      (collectively, the "Holders")
      pursuant to which the Company issued to the Holders senior convertible Preferred
      Shares (the "Preferred
      Shares")
      convertible into the Company's common stock, $0.01 par value per share
      (the "Common
      Stock").
      Pursuant to the Securities Purchase Agreement, the Company also has entered
      into
      a Registration Rights Agreement with the Holders (the "Registration
      Rights Agreement")
      pursuant to which the Company agreed, among other things, to register the
      Registrable Securities (as defined in the Registration Rights Agreement),
      including the shares of Common Stock issuable upon conversion of the Preferred
      Shares, under the Securities Act of 1933, as amended (the "1933
      Act").
      In
      connection with the Company's obligations under the Registration Rights
      Agreement, on [   ], the Company filed a Registration Statement on
      Form S-3 (File No. 333-_____________) (the "Registration
      Statement")
      with
      the Securities and Exchange Commission (the "SEC")
      relating to the Registrable Securities which names each of the Holders as a
      selling stockholder thereunder.

     

    In
      connection with the foregoing, [we][I] advise you that a member of the SEC's
      staff has advised [us][me] by telephone that the SEC has entered an order
      declaring the Registration Statement effective under the 1933 Act at
[ENTER
      TIME OF EFFECTIVENESS]
      on
[ENTER
      DATE OF EFFECTIVENESS]
      and
      [we][I] have no knowledge, after telephonic inquiry of a member of the SEC's
      staff, that any stop order suspending its effectiveness has been issued or
      that
      any proceedings for that purpose are pending before, or threatened by, the
      SEC
      and the Registrable Securities are available for resale under the 1933 Act
      pursuant to the Registration Statement.

     

    This
      letter shall serve as our standing instruction to you that the shares of Common
      Stock are freely transferable by the Holders pursuant to the Registration
      Statement. You need not require further letters from us to effect any future
      legend-free issuance or reissuance of shares of Common Stock to the Holders
      as
      contemplated by the Company's Irrevocable Transfer Agent Instructions dated
      November ____, 2007, provided at the time of such reissuance, the Company has
      not otherwise notified you that the Registration Statement is unavailable for
      the resale of the Registrable Securities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

      
        	 	
                Very
                  truly yours,

              
	 	 
	 	
                [ISSUER'S
                  COUNSEL]

              
	 	 
	 	
                By:

              	 	 
	
                CC: 
                  [LIST
                  NAMES OF HOLDERS]

              


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
      B

    


    SELLING
      STOCKHOLDERS

     

    The
      shares of Common Stock being offered by the selling stockholders are issuable
      upon conversion of the convertible Preferred Shares and in payment of interest
      on the convertible Preferred Shares. For additional information regarding the
      issuance of those convertible Preferred Shares, see "Private Placement of
      Convertible Preferred Shares" above. We are registering the shares of Common
      Stock in order to permit the selling stockholders to offer the shares for resale
      from time to time. Except for the ownership of the convertible Preferred Shares
      issued pursuant to the Securities Purchase Agreement, the selling stockholders
      have not had any material relationship with us within the past three
      years.

     

    The
      table
      below lists the selling stockholders and other information regarding the
      beneficial ownership of the shares of Common Stock by each of the selling
      stockholders. The second column lists the number of shares of Common Stock
      beneficially owned by each selling stockholder, based on its ownership of the
      convertible Preferred Shares, as of ________, 200_, assuming conversion of
      all
      convertible Preferred Shares held by the selling stockholders on that date,
      without regard to any limitations on conversions.

     

    The
      third
      column lists the shares of Common Stock being offered by this prospectus by
      each
      selling stockholder.

     

    In
      accordance with the terms of a registration rights agreement among the Company
      and the selling stockholders, this prospectus generally covers the resale of
      at
      least 110% of the sum of the aggregate number of shares of Common Stock issued
      or issuable (i) upon conversion of the convertible Preferred Shares as of the
      trading day immediately preceding the date the registration statement is
      initially filed with the SEC and (ii) as Dividend Shares pursuant to the terms
      of the Preferred Shares as of the trading day immediately preceding the date
      the
      registration statement is initially filed with the SEC.
      Because
      the conversion price of the convertible Preferred Shares may be adjusted, the
      number of shares that will actually be issued may be more or less than the
      number of shares being offered by this prospectus. The fourth column assumes
      the
      sale of all of the shares offered by the selling stockholders pursuant to this
      prospectus.

     

    Under
      the
      terms of the convertible Preferred Shares, a selling stockholder may not convert
      the convertible Preferred Shares to the extent such conversion would cause
      such
      selling stockholder, together with its affiliates, to beneficially own a number
      of shares of Common Stock which would exceed 4.99% of our then outstanding
      shares of Common Stock following such conversion, excluding for purposes of
      such
      determination shares of Common Stock issuable upon conversion of the convertible
      Preferred Shares which have not been converted. The number of shares in the
      second column does not reflect this limitation. The selling stockholders may
      sell all, some or none of their shares in this offering. See "Plan of
      Distribution."

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                Name of Selling Stockholder

              	 	
                Number of Shares

                Owned Prior to

                Offering

              	 	
                Maximum Number of

                Shares to be Sold

                Pursuant to this

                Prospectus

              	 	
                Number of Shares

                Owned After

                Offering

              
	 	 	 	 	 	 	 
	
                (1)
                  Capital
                  Ventures International

              	 	 	 	 	 	
                0

              


      

    

     

    (1) Heights
      Capital Management, Inc., the authorized agent of Capital Ventures
      International, has discretionary authority to vote and dispose of the shares
      held by Capital Ventures International and may be deemed to be the beneficial
      owner of these shares. Capital Ventures International
      is
      affiliated with one or more registered broker-dealers. Capital
      Ventures International
      purchased the shares being registered hereunder in the ordinary course of
      business and at the time of purchase, had no agreements or understandings,
      directly or indirectly, with any other person to distribute such
      shares.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    Exhibit
      C

    


    PLAN
      OF DISTRIBUTION

     

    We
      are
      registering the shares of Common Stock issuable upon conversion of the
      convertible Preferred Shares and as interest on the convertible Preferred Shares
      to permit the resale of these shares of Common Stock by the holders of the
      convertible Preferred Shares from time to time after the date of this
      prospectus. We will not receive any of the proceeds from the sale by the selling
      stockholders of the shares of Common Stock. We will bear all fees and expenses
      incident to our obligation to register the shares of Common Stock.

     

    The
      selling stockholders may sell all or a portion of the shares of Common Stock
      beneficially owned by them and offered hereby from time to time directly or
      through one or more underwriters, broker-dealers or agents. If the shares of
      Common Stock are sold through underwriters or broker-dealers, the selling
      stockholders will be responsible for paying any underwriting discounts or
      commissions or agent's commissions. The shares of Common Stock may be sold
      in
      one or more transactions at fixed prices, at prevailing market prices at the
      time of the sale, at varying prices determined at the time of sale, or at
      negotiated prices or any combination of the foregoing. These sales may be
      effected in transactions, which may involve:

     

    · crosses
      or block transactions or other transaction

     

    · on
      any
      national securities exchange or quotation service on which the securities may
      be
      listed or quoted at the time of sale;

     

    · transactions
      in the over-the-counter market;

     

    · transactions
      otherwise than on these exchanges or systems or in the over-the-counter
      market;

     

    · the
      writing of options, whether such options are listed on an options exchange
      or
      otherwise;

     

    · ordinary
      brokerage transactions and transactions in which the broker-dealer solicits
      purchasers;

     

    · block
      trades in which the broker-dealer will attempt to sell the shares as agent
      but
      may position and resell a portion of the block as principal to facilitate the
      transaction;

     

    · purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

     

    · an
      exchange distribution in accordance with the rules of the applicable
      exchange;

     

    · privately
      negotiated transactions;

     

    · short
      sales;

     

    · sales
      pursuant to Rule 144;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    · transactions
      where broker-dealers may agree with the selling securityholders to sell a
      specified number of such shares at a stipulated price per share;

     

    · a
      combination of any such methods of sale; and

     

    · any
      other
      method permitted pursuant to applicable law.

     

    If
      the
      selling stockholders effect such transactions by selling shares of Common Stock
      to or through underwriters, broker-dealers or agents, such underwriters,
      broker-dealers or agents may receive commissions in the form of discounts,
      concessions or commissions from the selling stockholders or commissions from
      purchasers of the shares of Common Stock for whom they may act as agent or
      to
      whom they may sell as principal (which discounts, concessions or commissions
      as
      to particular underwriters, broker-dealers or agents may be in excess of those
      customary in the types of transactions involved). In connection with sales
      of
      the shares of Common Stock or otherwise, the selling stockholders may enter
      into
      hedging transactions with broker-dealers, which may in turn engage in short
      sales of the shares of Common Stock in the course of hedging in positions they
      assume. The selling stockholders may also sell shares of Common Stock short
      and
      deliver shares of Common Stock covered by this prospectus to close out short
      positions and to return borrowed shares in connection with such short sales.
      The
      selling stockholders may also loan or pledge shares of Common Stock to
      broker-dealers that in turn may sell such shares.

     

    The
      selling stockholders may pledge or grant a security interest in some or all
      of
      the convertible Preferred Shares or shares of Common Stock owned by them and,
      if
      they default in the performance of their secured obligations, the pledgees
      or
      secured parties may offer and sell the shares of Common Stock from time to
      time
      pursuant to this prospectus or any amendment to this prospectus under Rule
      424(b)(3) or other applicable provision of the Securities Act of 1933, as
      amended, amending, if necessary, the list of selling stockholders to include
      the
      pledgee, transferee or other successors in interest as selling stockholders
      under this prospectus. The selling stockholders also may transfer and donate
      the
      shares of Common Stock in other circumstances in which case the transferees,
      donees, pledgees or other successors in interest will be the selling beneficial
      owners for purposes of this prospectus, subject to any requirement of the SEC
      that we amend this prospectus to include the name of such transferee, donee,
      pledge or other successor-in-interest in this prospectus.

     

    The
      selling stockholders and any broker-dealer participating in the distribution
      of
      the shares of Common Stock may be deemed to be "underwriters" within the meaning
      of the Securities Act, and any commission paid, or any discounts or concessions
      allowed to, any such broker-dealer may be deemed to be underwriting commissions
      or discounts under the Securities Act. At the time a particular offering of
      the
      shares of Common Stock is made, a prospectus supplement, if required, will
      be
      distributed which will set forth the aggregate amount of shares of Common Stock
      being offered and the terms of the offering, including the name or names of
      any
      broker-dealers or agents, any discounts, commissions and other terms
      constituting compensation from the selling stockholders and any discounts,
      commissions or concessions allowed or reallowed or paid to
      broker-dealers.

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    


    Under
      the
      securities laws of some states, the shares of Common Stock may be sold in such
      states only through registered or licensed brokers or dealers. In addition,
      in
      some states the shares of Common Stock may not be sold unless such shares have
      been registered or qualified for sale in such state or an exemption from
      registration or qualification is available and is complied with.

     

    There
      can
      be no assurance that any selling stockholder will sell any or all of the shares
      of Common Stock registered pursuant to the registration statement, of which
      this
      prospectus forms a part.

     

    The
      selling stockholders and any other person participating in such distribution
      will be subject to applicable provisions of the 1934 Act and the rules and
      regulations thereunder, including, without limitation, Regulation M of the
      1934
      Act, which may limit the timing of purchases and sales of any of the shares
      of
      Common Stock by the selling stockholders and any other participating person.
      Regulation M may also restrict the ability of any person engaged in the
      distribution of the shares of Common Stock to engage in market-making activities
      with respect to the shares of Common Stock. All of the foregoing may affect
      the
      marketability of the shares of Common Stock and the ability of any person or
      entity to engage in market-making activities with respect to the shares of
      Common Stock.

     

    We
      will
      pay all expenses of the registration of the shares of Common Stock pursuant
      to
      the registration rights agreement, estimated to be $[ ] in total, including,
      without limitation, SEC filing fees and expenses of compliance with state
      securities or "blue sky" laws; provided, however, that a selling stockholder
      will pay all underwriting discounts and selling commissions, if any. We will
      indemnify the selling stockholders against liabilities, including some
      liabilities under the Securities Act, in accordance with the registration rights
      agreements, or the selling stockholders will be entitled to contribution. We
      may
      be indemnified by the selling stockholders against civil liabilities, including
      liabilities under the Securities Act, that may arise from any written
      information furnished to us by the selling stockholder specifically for use
      in
      this prospectus, in accordance with the related registration rights agreement,
      or we may be entitled to contribution.

     

    Once
      sold
      under the registration statement, of which this prospectus forms a part, the
      shares of Common Stock will be freely tradable in the hands of persons other
      than our affiliates.

     

    
      
        
        

      

      
        C-3