**Exhibit 10.70**

 

**STANDBY EQUITY DISTRIBUTION AGREEMENT**

 

**THIS AGREEMENT** dated as of the 11th day of March 2005 (the “Agreement”) between **CORNELL CAPITAL PARTNERS, LP**, a Delaware limited partnership (the“Investor”), and **LITHIUM TECHNOLOGY CORPORATION**, a corporation organized and existing under the laws of the State of Delaware (the “Company”). 

 

**WHEREAS**, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shallissue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company up to Fifteen Million U.S. Dollars ($15,000,000) of the Company’s common stock, par value $0.01 per share (the“Common Stock”); and 

 

**WHEREAS**, suchinvestments will be made in reliance upon the provisions of Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the “Securities Act”), and or uponsuch other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder. 

 

**WHEREAS**, the Company has engaged Newbridge Securities Corporation (the “Placement Agent”), to act asthe Company’s exclusive placement agent in connection with the sale of the Company’s Common Stock to the Investor hereunder pursuant to the Placement Agent Agreement dated the date hereof by and among the Company, the Placement Agent andthe Investor (the “Placement Agent Agreement”). 

 

**NOW**, **THEREFORE**, the parties hereto agree as follows: 

 

**ARTICLE I.**

**Certain Definitions**

 

Section 1.1. “Advance” shall mean the portion of the Commitment Amount requested by the Company in theAdvance Notice. 

 

Section 1.2. “Advance Date”shall mean the date the David Gonzalez, Esq. Attorney Trust Account is in receipt of the funds from the Investor and David Gonzalez, Esq., is in possession of free trading shares from the Company and therefore an Advance by the Investor to theCompany can be made and David Gonzalez, Esq. can release the free trading shares to the Investor. The Advance Date shall be the first (1st) Trading Day after expiration of the applicable Pricing Period for each Advance. 

 

Section 1.3. “Advance Notice” shall mean a written notice to the Investor setting forth the Advance amount that the Company requests fromthe Investor and the Advance Date. 

 

Section 1.4.“Advance Notice Date” shall mean each date the Company delivers to the Investor an Advance Notice requiring the Investor to advance funds to the Company, subject to the terms of this Agreement. No Advance Notice Date shall be lessthan five (5) Trading Days after the prior Advance Notice Date. 

Section 1.5. “Bid Price” shall mean, on any date, the closing bid price (as reported byBloomberg L.P.) of the Common Stock on the Principal Market or if the Common Stock is not traded on a Principal Market, the highest reported bid price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc.

 

Section 1.6. “Closing” shall mean one of theclosings of a purchase and sale of Common Stock pursuant to Section 2.3. 

 

Section 1.7. “Commitment Amount” shall mean the aggregate amount of up to Fifteen Million U.S. Dollars ($15,000,000) which the Investor has agreed to provide to the Company in order to purchase theCompany’s Common Stock pursuant to the terms and conditions of this Agreement. 

 

Section 1.8. “Commitment Period” shall mean the period commencing on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the Company and the Investor may mutually agree inwriting, and expiring on the earliest to occur of (x) the date on which the Investor shall have made payment of Advances pursuant to this Agreement in the aggregate amount of Fifteen Million U.S. Dollars ($15,000,000), (y) the date this Agreement isterminated pursuant to Section 2.5, or (z) the date occurring twenty-four (24) months after the Effective Date. 

 

Section 1.9. “Common Stock” shall mean the Company’s common stock, par value $0.01 per share. 

 

Section 1.10. “Condition Satisfaction Date” shall have themeaning set forth in Section 7.2. 

 

Section 1.11.“Damages” shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses of expert witnesses and investigation). 

 

Section 1.12. “Effective Date” shall mean the date onwhich the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in Section 7.2(a). 

 

Section 1.13. “Escrow Agreement” shall mean the escrow agreement among the Company, the Investor, and David Gonzalez, Esq., dated thedate hereof. 

 

Section 1.14. “Exchange Act”shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 

 

Section 1.15. “Material Adverse Effect” shall mean any condition, circumstance, or situation that would prohibit or otherwise materiallyinterfere with the ability of the Company to enter into and perform any of its obligations under this Agreement or the Registration Rights Agreement in any material respect. 

 

Section 1.16. “Market Price” shall mean the lowest VWAP of the Common Stock during the Pricing Period.

 

2 

Section 1.17. “Maximum Advance Amount” shall be Two Hundred Thousand U.S. Dollars(US$200,000) per Advance Notice, provided that aggregate Advances in any thirty (30) day period shall not exceed Eight Hundred Thousand Dollars ($800,000). 

 

Section 1.18. “NASD” shall mean the National Association of Securities Dealers, Inc. 

 

Section 1.19. “Person” shall mean an individual, acorporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. 

 

Section 1.20. “Placement Agent” shall mean Newbridge Securities Corporation, a registered broker-dealer.

 

Section 1.21. “Pricing Period” shall mean thefive (5) consecutive Trading Days after the Advance Notice Date. 

 

Section 1.22. “Principal Market” shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or the New York Stock Exchange, whichever is at the time the principaltrading exchange or market for the Common Stock. 

 

Section 1.23.“Purchase Price” shall be set at ninety eight percent (98%) of the Market Price during the Pricing Period. 

 

Section 1.24. “Registrable Securities” shall mean the shares of Common Stock to be issued hereunder**** (i) in respect of which theRegistration Statement has not been declared effective by the SEC, (ii) which have not been sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act(“Rule 144”) or (iii) which have not been otherwise transferred to a holder who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership forsuch securities not bearing a restrictive legend. 

 

Section1.25. “Registration Rights Agreement” shall mean the Registration Rights Agreement dated the date hereof, regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between theCompany and the Investor. 

 

Section 1.26. “RegistrationStatement” shall mean a registration statement on Form S-1 or SB-2 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company thenqualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and the RegistrationRights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act. 

 

Section 1.27. “Regulation D” shall have the meaning setforth in the recitals of this Agreement. 

 

3 

Section 1.28. “SEC” shall mean the Securities and Exchange Commission. 

 

Section 1.29. “Securities Act” shall have the meaning setforth in the recitals of this Agreement. 

 

Section 1.30.“SEC Documents” shall mean Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy Statements of the Company as supplemented to the date hereof, filed by the Company for a period of atleast twelve (12) months immediately preceding the date hereof or the Advance Date, as the case may be, until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in theRegistration Rights Agreement. 

 

Section 1.31. “TradingDay” shall mean any day during which the New York Stock Exchange shall be open for business. 

 

Section 1.32. “VWAP” shall mean the volume weighted average price of the Company’s Common Stock as quoted by Bloomberg, LP.

 

**ARTICLE II.**

**Advances**

 

Section 2.1. Investments. 

 

(a) Advances. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII hereof), on any AdvanceNotice Date the Company may request an Advance by the Investor by the delivery of an Advance Notice. The number of shares of Common Stock that the Investor shall receive for each Advance shall be determined by dividing the amount of the Advance bythe Purchase Price. No fractional shares shall be issued. Fractional shares shall be rounded to the next higher whole number of shares. The aggregate maximum amount of all Advances that the Investor shall be obligated to make under this Agreementshall not exceed the Commitment Amount. 

 

Section 2.2.Mechanics. 

 

(a) Advance Notice. At any timeduring the Commitment Period, the Company may deliver an Advance Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, the amount for each Advance as designated by the Company in the applicable AdvanceNotice, shall not be more than the Maximum Advance Amount. The aggregate amount of the Advances pursuant to this Agreement shall not exceed the Commitment Amount. The Company acknowledges that the Investor may sell shares of the Company’sCommon Stock corresponding with a particular Advance Notice on the day the Advance Notice is received by the Investor. There shall be a minimum of five (5) Trading Days between each Advance Notice Date. 

 

(b) Date of Delivery of Advance Notice. An Advance Notice shall bedeemed delivered on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwiseafter 12:00 noon Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No Advance Notice may be deemed delivered on a day that is not a Trading Day. 

 

4 

Section 2.3 Closings. On each Advance Date, which shall be the first (1st) Trading Day after expiration of the applicable Pricing Period for each Advance, (i) the Company shall deliver to DavidGonzalez, Esq. (the “Escrow Agent”) shares of the Company’s Common Stock, representing the amount of the Advance by the Investor pursuant to Section 2.1 herein, registered in the name of the Investor which shall be delivered tothe Investor, or otherwise in accordance with the Escrow Agreement and (ii) the Investor shall deliver to Escrow Agent the amount of the Advance specified in the Advance Notice by wire transfer of immediately available funds which shall be deliveredto the Company, or otherwise in accordance with the Escrow Agreement. In addition, on or prior to the Advance Date, each of the Company and the Investor shall deliver to the other through the Investor’s counsel, all documents, instruments andwritings required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein. Payment of funds to the Company and delivery of the Company’s Common Stock to the Investorshall occur in accordance with the conditions set forth above and those contained in the Escrow Agreement; provided, however, that to the extent the Company has not paid the fees, expenses, and disbursements of the Investor, theInvestor’s counsel, or the Company’s counsel in accordance with Section 12.4, the amount of such fees, expenses, and disbursements may be deducted by the Investor (and shall be paid to the relevant party) from the amount of the Advancewith no reduction in the amount of shares of the Company’s Common Stock to be delivered on such Advance Date. 

 

Section 2.4 Termination of Investment. The obligation of the Investor to make an Advance to the Company pursuant to this Agreement shall terminatepermanently (including with respect to an Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of fifty (50) Trading Days,other than due to the acts of the Investor, during the Commitment Period, and (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure is not cured within thirty (30) days after receipt ofwritten notice from the Investor, provided, however, that this termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to such Registration Statement and ending upon the date onwhich such post effective amendment is declared effective by the SEC. 

 

Section 2.5 Agreement to Advance Funds. 

 

(c)The Investor agrees to advance the amount specified in the Advance Notice to the Company after the completion of each of the following conditions and the other conditions set forth in this Agreement: 

 

(i) the execution and delivery by the Company, and the Investor, of thisAgreement and the Exhibits hereto; 

 

(ii) the Escrow Agentshall have received the shares of Common Stock applicable to the Advance in accordance with Section 2. 3. Such shares shall be free of restrictive legends; 

 

5 

(iii) the Company’s Registration Statement with respect to the resale of the Registrable Securitiesin accordance with the terms of the Registration Rights Agreement shall have been declared effective by the SEC; 

 

(iv) the Company shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the RegistrableSecurities, or shall have the availability of exemptions therefrom. The sale and issuance of the Registrable Securities shall be legally permitted by all laws and regulations to which the Company is subject; 

 

(v) the Company shall have filed with the Commission in a timely manner allreports, notices and other documents required of a “reporting company” under the Exchange Act and applicable Commission regulations; 

 

(vi) the fees as set forth in Section 12.4 below shall have been paid or can be withheld as provided in Section 2.3; 

 

(vii) the conditions set forth in Section 7.2 shall have been satisfied;

 

(viii) the Company shall have provided to the Investor anacknowledgement, from BDO Seidman, LLP as to its ability to provide all consents required in order to file a registration statement in connection with this transaction; and 

 

(ix) The Company’s transfer agent shall be DWAC eligible. 

 

Section 2.6 Lock Up Period. On the date hereof, the Company shallobtain from each officer and director a lock-up agreement, as defined below, in the form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with the volume limitation of Rule 144. 

 

Section 2.7 Hardship. In the event the Investor sells shares of theCompany’s Common Stock after receipt of an Advance Notice and the Company fails to perform its obligations as mandated in Section 2.3, and specifically the Company fails to deliver to the Escrow Agent on the Advance Date the shares of CommonStock corresponding to the applicable Advance, the Company acknowledges that the Investor shall suffer financial hardship and therefore shall be liable for any and all losses, commissions, fees, or financial hardship caused to the Investor.

 

**ARTICLE III.**

**Representations and Warranties of Investor**

 

Investor hereby represents and warrants to, and agrees with, the Company that the following are true and as of the date hereof and as of each AdvanceDate: 

 

Section 3.1. Organization and Authorization. TheInvestor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder. The decision to invest and theexecution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other

 

6 

proceedings on the part of the Investor. The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments(including, without limitations, the Registration Rights Agreement), on behalf of the Investor. This Agreement has been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by theCompany, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms. 

 

Section 3.2. Evaluation of Risks. The Investor has such knowledge and experience in financial tax and business matters as to be capable ofevaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction. It recognizes that its investment in the Company involves a high degreeof risk. 

 

Section 3.3. No Legal Advice From the Company.The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel andadvisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities lawsof any jurisdiction. 

 

Section 3.4. Investment Purpose.The securities are being purchased by the Investor for its own account, for investment and without any view to the distribution, assignment or resale to others or fractionalization in whole or in part. The Investor agrees not to assign or in any waytransfer the Investor’s rights to the securities or any interest therein and acknowledges that the Company will not recognize any purported assignment or transfer except in accordance with applicable Federal and state securities laws. No otherperson has or will have a direct or indirect beneficial interest in the securities. The Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s securities unless the securities are registered under Federal and applicablestate securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such laws is available. 

 

Section 3.5. Accredited Investor. The Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of RegulationD of the Securities Act. 

 

Section 3.6. Information. TheInvestor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed investment decision. The Investorand its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or itsrepresentatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement. The Investor understands that its investment involves a high degree of risk. TheInvestor is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Investor to obtain information from the Company in order to evaluate the merits and risks ofthis investment. The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction. 

 

7 

Section 3.7. Receipt of Documents. The Investor and its counsel have received and read in theirentirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company’s Form 10-KSB forthe year ended December 31, 2003, Form 10-QSB for the period ended June 30, 2004, Form 10-QSB for the period ended September 30, 2004 and Form 8-Ks dated August 30, 2004, November 5, 2004, November 9, 2004, December 1, 2004, January 6, 2005 andFebruary 3, 2005; and (iv) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents,literature, memorandum or prospectus. 

 

Section 3.8.Registration Rights Agreement and Escrow Agreement. The parties have entered into the Registration Rights Agreement and the Escrow Agreement, each dated the date hereof. 

 

Section 3.9. No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its ortheir behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the shares of Common Stock offered hereby. 

 

Section 3.10. Not an Affiliate. The Investor is not an officer,director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any “Affiliate” of the Company (as that term is defined in Rule 405of the Securities Act). 

 

Section 3.11. TradingActivities. The Investor’s trading activities with respect to the Company’s Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the PrincipalMarket on which the Company’s Common Stock is listed or traded. Neither the Investor nor its affiliates has an open short position in the Common Stock of the Company, the Investor agrees that it shall not, and that it will cause its affiliatesnot to, engage in any short sales of or hedging transactions with respect to the Common Stock, *provided* that the Company acknowledges and agrees that upon receipt of an Advance Notice the Investor is permitted to sell the shares to be issuedto the Investor pursuant to the Advance Notice during the applicable Pricing Period. 

 

**ARTICLE IV.**

**Representations and Warranties of the Company**

 

Except as stated below, on the disclosure schedules attached hereto (the“Disclosure Schedules”) or in the SEC Documents (as defined herein), the Company hereby represents and warrants to, and covenants with, the Investor that the following are true and correct as of the date hereof: 

 

Section 4.1. Organization and Qualification. The Company is dulyincorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all 

 

8 

requisite power and authority corporate power to own its properties and to carry on its business as now being conducted. Each of the Company and itssubsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to beso qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole. 

 

Section 4.2. Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority toenter into and perform this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placement Agent Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of thisAgreement, the Registration Rights Agreement, the Escrow Agreement, the Placement Agent Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized bythe Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placement AgentAgreement and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placement Agent Agreement and assuming the execution and delivery thereofand acceptance by the Investor and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principlesof equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. 

 

Section 4.3. Capitalization. As of the date hereof, the authorizedcapital stock of the Company consists of 125,000,000 shares of Common Stock, par value $0.01 per share and 100,000 shares of Preferred Stock of which 57,907,558 shares of Common Stock and no shares of Preferred Stock were issued and outstanding. Allof such outstanding shares have been validly issued and are fully paid and nonassessable. Except as disclosed in the SEC Documents, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrancessuffered or permitted by the Company. Except as disclosed in the SEC Documents or the Disclosure Schedules, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any characterwhatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is ormay become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rightsconvertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities **(**iii) there are no outstanding registration statements other than on Form S-8 and (iv) there are noagreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement). Except as set forth on theDisclosure Schedules, no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions 

 

9 

described herein or therein. The Company has furnished to the Investor true and correct copies of the Company’s Certificate of Incorporation, as amendedand as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into orexercisable for Common Stock and the material rights of the holders thereof in respect thereto. 

 

Section 4.4. No Conflict. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of thetransactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute adefault (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company orany of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market on which theCommon Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect. Except asdisclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract,agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted inviolation of any material law, ordinance, regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required toobtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or theRegistration Rights Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effectedon or prior to the date hereof. The Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing. 

 

Section 4.5. SEC Documents; Financial Statements. Since January 1, 2002, the Company has filed all reports, schedules, forms, statements and otherdocuments required to be filed by it with the SEC under of the Exchange Act. The Company has delivered to the Investor or its representatives, or made available through the SEC’s website at http://www.sec.gov, true and complete copies of theSEC Documents. As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirementsand the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as maybe otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all materialrespects the financial position of the Company as of the dates thereof and the results 

 

10 

of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No otherinformation provided by or on behalf of the Company to the Investor which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, inthe light of the circumstances under which they were made, not misleading. 

 

Section 4.6. 10b-5. The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, inlight of the circumstances under which they were made, not misleading. 

 

Section 4.7. No Default. Except as disclosed in the SEC Documents, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deedof trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under thisAgreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assetsor properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other material agreement applicable to the Company or instrument to which the Company is a party or by which it isbound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a MaterialAdverse Effect on the Company’s business or financial condition. 

 

Section 4.8. Absence of Events of Default. Except for matters described in the SEC Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to which the Company is a party, and no event which, withthe giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect on the Company’s business, properties, prospects, financialcondition or results of operations. 

 

Section 4.9.Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights,copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement bythe Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to theknowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights,invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of theforegoing. 

 

11 

Section 4.10. Employee Relations. Neither the Company nor any of its subsidiaries is involved inany labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believethat their relations with their employees are good. 

 

Section4.11. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable material foreign, federal, state and local laws and regulations relating to the protection of human health and safety, theenvironment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conducttheir respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval. 

 

Section 4.12. Title. Except as set forth in the SEC Documents, the Company has good and marketable title to its properties and material assetsowned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company. Any real property and facilities held under lease by the Company and itssubsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

 

Section 4.13. Insurance. The Company and each of itssubsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and itssubsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew itsexisting insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial orotherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole. 

 

Section 4.14. Regulatory Permits. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by theappropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of anysuch certificate, authorization or permit. 

 

Section 4.15.Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’sgeneral or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, 

 

12 

(iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability forassets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 

 

Section 4.16. No Material Adverse Breaches, etc. Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries issubject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect on the business,properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreementwhich breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.

 

Section 4.17. Absence of Litigation. Except as setforth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock orany of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority orability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a Material Adverse Effect on the business, operations, properties,financial condition or results of operation of the Company and its subsidiaries taken as a whole. ****

 

Section 4.18. Subsidiaries. Except as disclosed in the SEC Documents or the Disclosure Schedules, the Company does not presently own or control,directly or indirectly, any interest in any other corporation, partnership, association or other business entity. 

 

Section 4.19. Tax Status. Except as disclosed in the SEC Documents, the Company and each of its subsidiaries has made or filed all federal andstate income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonablyadequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those beingcontested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any materialamount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 

 

Section 4.20. Certain Transactions. Except as set forth in the SEC Documents none of the officers, directors, or employees of the Company ispresently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental ofreal or personal property to or from, or otherwise requiring payments to or 

 

13 

from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer,director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 

 

Section 4.21. Fees and Rights of First Refusal. Except as disclosed in the Disclosure Schedules, the Company is not obligated to offer thesecurities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties. 

 

Section 4.22. Use of Proceeds. The Company represents that the netproceeds from this offering will be used for general corporate purposes and working capital purposes. However, in no event shall the net proceeds from this offering be used by the Company for the payment (or loaned to any such person for thepayment) of any judgment, or other liability, incurred by any executive officer, officer, director or employee of the Company, except for any liability owed to such person for services rendered, or if any judgment or other liability is incurred bysuch person originating from services rendered to the Company, or the Company has indemnified such person from liability. 

 

Section 4.23. Further Representation and Warranties of the Company. For so long as any securities issuable hereunder held by the Investor remainoutstanding, the Company acknowledges, represents, warrants and agrees that it will maintain the listing of its Common Stock on the Principal Market. 

 

Section 4.24. Opinion of Counsel. Investor shall receive an opinion letter from Gallagher, Briody & Butler, counsel to the Company, on the datehereof. 

 

Section 4.25. Opinion of Counsel. The Companywill obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may be reasonably required in order to sell the securities issuable hereunder without restriction. 

 

Section 4.26. Dilution. The Company is aware and acknowledges thatissuance of shares of the Company’s Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock. 

 

**ARTICLE V.**

**Indemnification**

 

The Investor and the Companyrepresent to the other the following with respect to itself: 

 

Section 5.1. Indemnification. 

 

(a) Inconsideration of the Investor’s execution and delivery of this Agreement, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and allof its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Investor Indemnitees”) from andagainst any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of 

 

14 

whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ feesand disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made bythe Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement orthe Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Investor Indemnitee not arising out of any action or inactionof an Investor Indemnitee, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees. To theextent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicablelaw. 

 

(b) In consideration of the Company’s execution anddelivery of this Agreement, and in addition to all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employeesand agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred bythe Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement, the Registration Rights Agreement, or anyinstrument or document contemplated hereby or thereby executed by the Investor, (b) any breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement, the Registration Rights Agreement or any other certificate,instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on misrepresentations or due to a breach by the Investor and arising outof or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees. To the extent that the foregoing undertaking by theInvestor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. 

 

(c) The obligations of the parties to indemnify or make contribution underthis Section 5.1 shall survive termination. 

 

**ARTICLE VI.**

**Covenants of the Company**

 

Section 6.1. Registration Rights. The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Companyshall comply in all material respects with the terms thereof. 

 

15 

Section 6.2. Listing of Common Stock. The Company shall maintain the Common Stock’sauthorization for quotation on a Principal Market. 

 

Section6.3. Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and other documents required of it as a reporting companyunder the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligationsunder said Exchange Act. 

 

Section 6.4. Transfer AgentInstructions. Upon effectiveness of the Registration Statement the Company shall deliver instructions to its transfer agent to issue shares of Common Stock to the Investor free of restrictive legends on or before each Advance Date. 

 

Section 6.5. Corporate Existence. The Company will take all stepsnecessary to preserve and continue the corporate existence of the Company. 

 

Section 6.6. Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance. The Company will immediately notify the Investor upon its becoming aware of the occurrence of any of thefollowing events in respect of a registration statement or related prospectus relating to an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other Federal or state governmental authorityduring the period of effectiveness of the Registration Statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of any stop ordersuspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of theRegistrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus of anydocument incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the RegistrationStatement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, itwill not contain any untrue statement of a material fact or omit to state any 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; and(v) the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the relatedprospectus. The Company shall not deliver to the Investor any Advance Notice during the continuation of any of the foregoing events. 

 

Section 6.7. Expectations Regarding Advance Notices. Within ten (10) days after the commencement of each calendar quarter occurring subsequent tothe commencement of the Commitment Period, the Company must notify the Investor, in writing, as to its reasonable expectations as to the dollar amount it intends to raise during such calendar quarter, if any, 

 

16 

through the issuance of Advance Notices. Such notification shall constitute only the Company’s good faith estimate and shall in no way obligate theCompany to raise such amount, or any amount, or otherwise limit its ability to deliver Advance Notices. The failure by the Company to comply with this provision can be cured by the Company’s notifying the Investor, in writing, at any time as toits reasonable expectations with respect to the current calendar quarter. 

 

Section 6.8. Restriction on Sale of Capital Stock. 

 

(a) During the Commitment Period, the Company, except as set forth in Section 6.8(b) of this Agreement or as set forth on Schedule I, shall not without the prior written consent of the Investor not to be unreasonablywithheld (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than the average Bid Price for the 10 trading days prior to the date of issuance, (ii) issue or sell any Preferred Stockwarrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than the average Bid Price for the 10 trading daysprior to the date of issuance, or (iii) file any registration statement on Form S-8 except to register securities to be issued under a stock incentive plan of the Company up to a maximum of 10% of the outstanding shares of Company Common Stock foreach 12 month period commencing on the date of this Agreement. 

 

(b) Notwithstanding Section 6.8(a), the Company may (i) issue or sell securities in connection with a strategic alliance, joint venture or similar transaction; and (ii) sell up to $800,000 per month of securities for a consideration of notless than a 20% discount to the average Bid Price for the 10 trading days prior to the date of issuance in the event the Company has requested an advance pursuant to the terms of this Agreement and the Investor has failed to provide the Company withthe amount for such advance by the Advance Date. 

 

Section 6.9.Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity (a“Consolidation Event”) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor isentitled to receive pursuant to this Agreement. 

 

Section 6.10.Issuance of the Company’s Common Stock. The sale of the shares of Common Stock shall be made in accordance with the provisions and requirements of Regulation D and any applicable state securities law. 

 

**ARTICLE VII.**

**Conditions for Advance and Conditions to Closing**

 

Section 7.1. Conditions Precedent to the Obligations of the Company. The obligation hereunder of the Company to issue and sell the shares of CommonStock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below. 

 

(a) Accuracy of the Investor’s Representations and Warranties. The representations and warranties of theInvestor shall be true and correct in all material respects. 

 

17 

(b) Performance by the Investor. The Investor shall have performed, satisfied and complied in allrespects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing. 

 

Section 7.2. Conditions Precedent to the Right of the Company to Deliveran Advance Notice and the Obligation of the Investor to Purchase Shares of Common Stock. The right of the Company to deliver an Advance Notice and the obligation of the Investor hereunder to acquire and pay for shares of the Company’sCommon Stock incident to a Closing is subject to the fulfillment by the Company, on (i) the date of delivery of such Advance Notice and (ii) the applicable Advance Date (each a “Condition Satisfaction Date”), of each of thefollowing conditions: 

 

(a) Registration of the Common Stockwith the SEC. The Company shall have filed with the SEC a Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement. As set forth in the Registration RightsAgreement, the Registration Statement shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends toissue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless theSEC’s concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the RegistrationStatement or related prospectus shall exist. The Registration Statement must have been declared effective by the SEC prior to the first Advance Notice Date. 

 

(b) Authority. The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the RegistrationRights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of exemptions therefrom. The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which theCompany is subject. 

 

(c) Fundamental Changes. Thereshall not exist any fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post-effective amendment to the Registration Statement. 

 

(d) Performance by the Company. The Company shall have performed,satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement (including, without limitation, the conditions specified in Section 2.5 hereof) and the Registration Rights Agreement to beperformed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date. 

 

(e) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated orendorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effectof prohibiting or adversely affecting any of the transactions contemplated by this Agreement. 

 

18 

(f) No Suspension of Trading in or Delisting of Common Stock. The trading of the Common Stock isnot suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market). The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements ofthe Principal Market (if the Common Stock is traded on a Principal Market). The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a PrincipalMarket). 

 

(g) Maximum Advance Amount. The amount of anAdvance requested by the Company shall not exceed the Maximum Advance Amount. In addition, in no event shall the number of shares issuable to the Investor pursuant to an Advance cause the aggregate number of shares of Common Stock beneficially owedby the Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company. For the purposes of this section beneficial ownership shall be calculated in accordance with Section 13(d) of the ExchangeAct. 

 

(h) No Knowledge. The Company has no knowledge ofany event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective. 

 

(i) Other. On each Condition Satisfaction Date, the Investor shall have received the certificate executed by an officer of the Company in the formof Exhibit A attached hereto. 

 

**ARTICLE VIII.**

**Due Diligence Review; Non-Disclosure of Non-Public Information**

 

Section 8.1. Due Diligence Review. Prior to the filing of the Registration Statement the Company shall make availablefor inspection and review by the Investor, its advisors and representatives, and any underwriter participating in any disposition of the Registrable Securities on behalf of the Investor pursuant to the Registration Statement, any such registrationstatement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may bereasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connectionwith such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the RegistrationStatement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy ofthe Registration Statement. 

 

19 

Section 8.2. Non-Disclosure of Non-Public Information. 

 

(a) The Company shall not disclose non-public information to the Investor,its advisors, or its representatives, unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investor, such advisors and representatives with the opportunity to acceptor refuse to accept such non-public information for review. The Company may, as a condition to disclosing any non-public information hereunder, require the Investor’s advisors and representatives to enter into a confidentiality agreement inform reasonably satisfactory to the Company and the Investor. 

 

(b) Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchasestock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors andrepresentatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information(whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus toinclude a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 8.2 shall beconstrued to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence inaccordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statementcontains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

 

**ARTICLE IX.**

**Choice of Law/Jurisdiction**

 

Section 9.1. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey withoutregard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting inHudson County, New Jersey and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action asserted pursuant to this paragraph. 

 

20 

**ARTICLE X.**

**Assignment; Termination**

 

Section 10.1. Assignment. Neither this Agreement nor any rights of the Company hereunder may be assigned to any other Person. 

 

Section 10.2. Termination. The obligations of the Investor to make Advances under Article II hereof shall terminate twenty-four (24) months afterthe Effective Date. 

 

**ARTICLE XI.**

**Notices**

 

Section 11.1. Notices. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreementmust be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) daysafter being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses andfacsimile numbers for such communications shall be: 

 

If to the Company, to:
 
Lithium Technology Corporation
  
5115 Campus Drive
  
Plymouth Meeting, PA 19462
  
Attention:
  
John J. McGovern
  
Telephone:
  
(610) 940-6090
  
Facsimile:
  
(610) 940-6091

With a copy to:
 
Gallagher, Briody & Butler
  
Princeton Forrestal Village
  
155 Village Blvd. – Suite 201
  
Princeton, NJ 08540
  
Attention:
  
Tom Gallagher, Esq.
  
Telephone:
  
(609) 452-6000
  
Facsimile:
  
(609) 452-0090

If to the Investor(s):
 
Cornell Capital Partners, LP
  
101 Hudson Street –Suite 3700
  
Jersey City, NJ 07302
  
Attention:
  
Mark Angelo
     
Portfolio Manager
  
Telephone:
  
(201) 985-8300
  
Facsimile:
  
(201) 985-8266

 

21 

With a Copy to:
 
Cornell Capital Partners, LP
  
101 Hudson Street –Suite 3700
  
Jersey City, NJ 07302
  
Attention:
  
Troy Rillo, Esq.
     
Senior Vice-President
  
Telephone:
  
(201) 985-8300
  
Facsimile:
  
(201) 985-8266

 

Each party shall provide five (5)days’ prior written notice to the other party of any change in address or facsimile number. 

 

**ARTICLE XII.**

**Miscellaneous**

 

Section 12.1. Counterparts. This Agreement may be executed in two ormore identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered byfacsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof, though failureto deliver such copies shall not affect the validity of this Agreement. 

 

Section 12.2. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the mattersdiscussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither theCompany nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged withenforcement. 

 

Section 12.3. Reporting Entity for the CommonStock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The writtenmutual consent of the Investor and the Company shall be required to employ any other reporting entity. 

 

Section 12.4. Fees and Expenses. The Company hereby agrees to pay the following fees: 

 

(a) Structuring Fees. Each of the parties shall pay its own fees andexpenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, except that the Company will pay Fifteen Thousand Dollars ($15,000)to Yorkville Advisors Management, LLC as a structuring fee which shall be paid on the date hereof. This structuring fee shall be deemed fully earned on the date hereof. Subsequently on each Advance Date, the Company shall pay Yorkville AdvisorsManagement, LLC a structuring fee of Five Hundred Dollars ($500). 

 

22 

In addition, the Company has paid to the Yorkville Advisors Management LLC a non-accountable duediligence fee of Five Thousand Dollars ($5,000). This fee is deemed fully earned. 

 

(b) Commitment Fees. 

 

(i) On each Advance Date the Company shall pay to the Investor, directly from the gross proceeds held in escrow, an amount equal to five percent (5%) of the amount of each Advance. The Company hereby agrees that if such payment, as isdescribed above, is not made by the Company on the Advance Date, such payment will be made at the direction of the Investor as outlined and mandated by Section 2.3 of this Agreement. 

 

(ii) Upon the execution of this Agreement the Company shall issue to the Investor two million nine hundred twenty twothousand seventy eight shares (2,922,078) (the “Investor’s Shares”).****

 

(iii) Fully Earned. The Investor’s Shares shall be deemed fully earned as of the date hereof. 

 

(iv) Registration Rights. The Investor’s Shares will have“piggy-back” registration rights. 

 

Section 12.5.Brokerage. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, andthe Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder’s fees on account of services purported to have been renderedon behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby. 

 

Section 12.6. Confidentiality. If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties heretoshall keep confidential any information obtained from any other party (except information publicly available or in such party’s domain prior to the date hereof, and except as required by court order) and shall promptly return to the otherparties all schedules, documents, instruments, work papers or other written information without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herein. 

 

**[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]**

 

23 

**IN WITNESS WHEREOF**, the parties hereto have caused this Standby Equity Distribution Agreement tobe executed by the undersigned, thereunto duly authorized, as of the date first set forth above. 

 
**COMPANY:****LITHIUM TECHNOLOGY CORPORATION**
By:
 
/s/ John J. McGovern

Name:
 
John J. McGovern

Title:
 
Chief Financial Officer
**INVESTOR:****CORNELL CAPITAL PARTNERS, LP****By:** **Yorkville Advisors, LLC****Its:** **General Partner**
By:
 
/s/ Mark Angelo

Name:
 
Mark Angelo

Title:
 
Portfolio Manager

 

24 

**EXHIBIT A**

 

**ADVANCE NOTICE/COMPLIANCE CERTIFICATE**

 

**LITHIUM TECHNOLOGY CORPORATION**

 

The undersigned, John J. McGovern, hereby certifies, with respect to the sale of shares of Common Stock of **LITHIUMTECHNOLOGY CORPORATION** (the “Company”), issuable in connection with this Advance Notice and Compliance Certificate dated                     (the “Notice”), delivered pursuant to the Standby Equity Distribution Agreement (the“Agreement”), as follows: 

 

1. The undersignedis the duly elected Chief Financial Officer of the Company. 

 

2.There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post effective amendment to the Registration Statement. 

 

3. The Company has performed in all material respects all covenants andagreements to be performed by the Company on or prior to the Advance Date related to the Notice and has complied in all material respects with all obligations and conditions contained in the Agreement. 

 

4. The undersigned hereby represents, warrants and covenants that it has madeall filings (“SEC Filings”) required to be made by it pursuant to applicable securities laws (including, without limitation, all filings required under the Securities Exchange Act of 1934, which include Forms 10-QSB, 10-KSB, 8-K,etc. All SEC Filings and other public disclosures made by the Company, including, without limitation, all press releases, analysts meetings and calls, etc. (collectively, the “Public Disclosures”), have been reviewed and approvedfor release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants. None of the Company’s Public Disclosures contain any untrue statement of a material fact or omitto state any 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. 

 

5. The Advance requested is                    . 

 

The undersigned has executed this Certificate this      day of                    . 

 
**LITHIUM TECHNOLOGY CORPORATION**
By:
 
 

Name:
 
John J. McGovern

Title:
 
Chief Financial Officer

**SCHEDULE 2.6**

 

**LITHIUM TECHNOLOGY CORPORATION**

 

The undersigned hereby agrees that for a period commencing on the date hereof and expiring on the termination of theAgreement dated March     , 2005 between Lithium Technology Corporation, (the “Company”), and Cornell Capital Partners, LP, (the “Investor”) (the “Lock-up Period”), he,she or it will not, directly or indirectly, without the prior written consent of the Investor, issue, offer, agree or offer to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or otherwiseencumber or dispose of except pursuant to Rule 144 of the General Rules and Regulations under the Securities Act of 1933, any securities of the Company, including common stock or options, rights, warrants or other securities underlying, convertibleinto, exchangeable or exercisable for or evidencing any right to purchase or subscribe for any common stock (whether or not beneficially owned by the undersigned), or any beneficial interest therein (collectively, the “Securities”).

 

In order to enable the aforesaid covenants to be enforced, theundersigned hereby consents to the placing of legends and/or stop-transfer orders with the transfer agent of the Company’s securities with respect to any of the Securities registered in the name of the undersigned or beneficially owned by theundersigned, and the undersigned hereby confirms the undersigned’s investment in the Company. 

 

Dated:             , 2005 

 

Signature

 

Name:
 
 

Address:
 
 

City, State,

  Zip Code:
 
 

 

 

Print Social Security Number

or Taxpayer I.D. Number

 

26