Document:

Unassociated Document

    DEVELOPMENT
      AND ROYALTY AGREEMENT

     

    This
      DEVELOPMENT AND ROYALTY AGREEMENT (“Agreement”)
      is
      made as of June __, 2008 (the “Effective
      Date”)
      by and
      among QPC LASERS, INC., a Nevada corporation (“QPC”),
      QUINTESSENCE PHOTONICS CORPORATION, a Delaware corporation and wholly-owned
      subsidiary of QPC (“Quintessence”),
      and,
      a____________ (“Customer”)
      (each
      a “Party”
and
      collectively, the “Parties”).
      

     

    RECITALS

     

    WHEREAS:

     

    QPC
      and
      its wholly-owned subsidiary, Quintessence, are engaged in the business of
      designing and manufacturing lasers in the visible light range for use in the
      projection and display business.

     

    Customer
      is seeking to buy such products and to benefit from the commercialization of
      such products for applications in three dimensional projection and display.
      Customer is prepared to fund a portion of the development costs of such products
      in return for certain purchase rights and royalty rights as set forth in this
      Agreement.

     

    NOW,
      THEREFORE, in consideration of the mutual terms and conditions contained herein,
      the sufficiency and adequacy of which is hereby acknowledged, the Parties agree
      as follows:

     

    AGREEMENT

     

    
      	
              1.

            	
              DEFINITIONS
                AND INTERPRETATION

            

    

     

    
      	
              1.1

            	
              Definitions.
                As used in this Agreement, the following terms shall have the meanings
                set
                forth or as referenced below:

            

    

     

    “Affiliate”
means,
      with respect to any specified Person, any other Person which directly or
      indirectly controls, is controlled by, or is under common control with such
      Person, but only for so long as such control continues to exist. For the
      purposes of this definition, “control” (including the terms “controlled by” and
“under common control with”), with respect to the relationship between or among
      two or more Persons, shall mean the possession, directly or indirectly, of
      the
      power to direct or cause the direction of the affairs or management of a Person,
      whether through the ownership of voting securities, by agreement or
      otherwise.

     

    “Agreement”
has
      the
      meaning set forth in the preamble. 

     

    “Confidential
      Information”
has
      the
      meaning set forth in Section 10.2.

     

    “Customer
      Products”
has
      the
      meaning set forth in Section 3.2 below.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    “Effective
      Date”
has
      the
      meaning set forth in the preamble.

     

    “Field”
means
      the use of Products for display/projection applications in connection with
      the
      display and projection business. For the avoidance of doubt, the Field expressly
      excludes the use of Products or infrared lasers in connection with medical
      equipment or other medical applications or any military or industrial
      applications. 

     

    “Licensed
      IP”
means
      the intellectual property rights of QPC set forth in Exhibit C relating to
      the
      Products.

     

    "Net
      Revenues”
means
      the gross revenues actually received by QPC or Quintessence for sales of
      Products in the Field within the Territory, but not including separately stated
      charges for (a) sales to Customer, (b) sales and use taxes, excise taxes,
      customs duties and other similar taxes; (c) shipping and insurance charges;
      and (d) the amount of any bad debts, refunds and credits, but only to the
      extent that such bad debts, refunds and credits are actually recognized against
      such gross revenues. 

     

    “Royalty
      Term”
means
      the period commencing on the Effective Date and ending on the earlier of the
      fifth anniversary thereof or the date in which this Agreement has been
      terminated. 

     

    “Party”
and
      “Parties”
have
      the meaning set forth in the preamble.

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, association,
      trust or other entity or organization, including a government or political
      subdivision or an agency or instrumentality thereof.

     

    "Products"
      means
      laser chips and modules intended for use as a light source for laser projection
      display, products and systems.

     

    "Territory"
      means
      worldwide.

     

    “Third
      Party”
means
      any Person other than QPC, QPC’s Affiliates, Customer, and Customer’s
      Affiliates.

     

    
      	
              2.

            	
              DEVELOPMENT
                PAYMENT

            

    

     

    In
      consideration for the purchase rights set forth in Article 3 of this Agreement,
      the royalty rights set forth in Article 4 of this Agreement and the right of
      participation set forth in Section 6.3 of this Agreement, Customer will make
      a
      development payment in accordance with the terms set forth in Exhibit A (the
      “Development
      Payment”).
      The
      Development Payment shall be used to fund the development of the Products.
      QPC
      shall have full control over the engineering and development process. Customer
      shall have no right to a refund of the Development Payment unless QPC notifies
      Customer that it is abandoning development of the Products.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              PURCHASE
                RIGHTS

            

    

     

    
      	
              3.1

            	
              Purchase
                Rights.
                In partial consideration for payment of the Development Payment set
                forth
                in Article 2, so long as Customer is not in material breach of this
                Agreement, during the Royalty Term, QPC hereby agrees to grant Customer
                the right to purchase units of Products directly from QPC at a price
                that
                is no less favorable to Customer than the price offered by QPC to
                any
                Third Party for similar quantities 

            

    

     

    
      	
              3.2

            	
              Purchase
                Terms and License.
                QPC hereby grants to Customer a non-exclusive, non-transferable,
                non-sublicensable right and license to incorporate Products purchased
                from
                QPC as provided hereunder into Customer's own products (the resulting
                product a "Customer
                Product")
                and to sell, have sold, distribute, have distributed, market and
                export
                such Customer Products in the Territory (subject to the restrictions
                in
                Section 10.1). The license granted in this Section 3.2: (a) is not
                sublicensable, but includes the right of Customer to have Third Parties
                carry out the express rights granted herein on Customer's behalf;
                (b) does
                not include the right make, sell, distribute, market or export Products
                on
                a stand-alone basis, or otherwise exploit Products except as expressly
                authorized herein. Customer agrees that it will not use or otherwise
                exploit the Products in any manner except as expressly permitted
                in this
                Agreement and shall not manufacture, market, sell or otherwise distribute
                Customer Products in violation of any applicable laws, regulations
                or
                ordinances. Customer shall not alter or destroy any intellectual
                property
                markings (including without limitation trademarks) on Products or
                their
                packaging. Customer will indemnify, defend and hold harmless QPC,
                its
                Affiliates, and its and their officers, directors, agents, employees,
                against any claims, suits, losses, or damages (including reasonable
                attorneys' fees) arising out of the incorporation of Products into
                Customer Products, and the manufacture, sale, offering for sale,
                distribution or marketing of Customer Products (including, without
                limitation, product liability claims).

            

    

     

    
      	
              4.

            	
              royalty
                payments

            

    

     

    
      	
              4.1

            	
              Royalty
                Payments. 

            

    

     

    
      	 	
              (a)

            	
              In
                partial consideration for payment of the Development Payment set
                forth in
                Article 2, QPC shall pay Customer royalties on Net Revenues during
                the
                Royalty Term at the rates and subject to the terms and conditions
                set
                forth in Exhibit B and this Agreement (collectively, the “Royalty
                Payments”).
                

            

    

     

    
      	 	
              (b)

            	
              Any
                Royalty Payments due under this Agreement shall be payable solely
                in the
                form of shares of unregistered and restricted common stock of QPC
                (the
                “Common
                Stock”).
                For purposes of determining the number of shares of Common Stock
                issuable
                to Customer under this Article 4, the value of a share of Common
                Stock
                shall be fixed at $1.05 per share throughout the Royalty Term, subject
                to
                adjustments for stock dividends and splits as provided in Section
                4.1(d)
                below (as adjusted, the “Share
                Price”).
                The number of shares of Common Stock issuable to Customer shall be
                determined by dividing the Royalty Payment amount due and payable
                hereunder by the Share Price. QPC will not issue any fractional shares
                under this Agreement. As to any fraction of a share that Customer
                would
                otherwise be entitled to receive as a Royalty Payment, QPC shall,
                at its
                election, either pay a cash adjustment in respect of such final fraction
                in an amount equal to such fraction multiplied by the Share Price
                or round
                up to the next whole share. 

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	 	
              (c)

            	
              Any
                shares of Common Stock issuable as Royalty Payments hereunder shall
                be
                issued to Customer on a quarterly basis in arrears on or prior to
                the
                thirtieth (30th)
                day following the end of the quarter in which Royalty Payments, if
                any,
                are due and payable pursuant to this Article 4; provided, however,
                that
                the first issuance of Common Stock as Royalty Payments hereunder
                shall not
                be due until the thirtieth (30th)
                day following the end of fourth quarter of 2008. Accompanying each
                issuance of shares of Common Stock hereunder, QPC will provide Customer
                a
                royalty report specifying the number of units of the Products sold
                by QPC
                during the applicable royalty period, QPC’s Net Revenues of Products for
                such period, and the royalties, if any, payable with respect to sales
                of
                the Product.

            

    

     

    
      	 	
              (d)

            	
              In
                the event QPC should at any time after the Effective Date fix a record
                date for the effectuation of a split or subdivision of the outstanding
                shares of Common Stock or the determination of holders of Common
                Stock
                entitled to receive a dividend or other distribution payable solely
                in
                additional shares of Common Stock without payment of any consideration
                by
                such holder for the additional shares of Common Stock, then, as of
                such
                record date (or the date of such dividend distribution, split or
                subdivision if no record date is fixed), the Share Price shall be
                appropriately decreased so that the number of shares of Common Stock
                issuable for payment of the Royalty Payments shall be increased in
                proportion to such increase of the aggregate of shares of Common
                Stock
                outstanding. If the number of shares of Common Stock outstanding
                at any
                time after the Effective Date is decreased by a combination of the
                outstanding shares of Common Stock, then, following the record date
                of
                such combination, the Share Price shall be appropriately increased
                so that
                the number of shares of Common Stock issuable for payment of the
                Royalty
                Payments shall be decreased in proportion to such decrease in outstanding
                shares.

            

    

     

    
      	
              4.2

            	
              Taxes.
                QPC may withhold from any royalty or other payment to Customer under
                this
                Agreement any taxes required to be withheld by QPC under the applicable
                laws of the United States or any other country, state, territory
                or
                jurisdiction. 

            

    

     

    
      	
              5.

            	
              PRODUCT
                DEVELOPMENT

            

    

     

    
      	
              5.1

            	
              Deliverable
                Items.
                QPC shall deliver to Customer as of the Effective Date the following
                “Deliverable Items”: (1) Demonstration in QPC’s facility of a single laser
                module which emits 400 mW of Blue light, 400 mW of Green light and
                and 600
                mW Red light; (2) Demonstration in QPC’s facility of three individual
                laser chips emitting 3 watts of Green light, 1 watt of Blue light
                and 6
                watts of Red light and (3) Preliminary design of a module which emits
                6
                watts of Green, 6 watts of Blue, and 12 watts of Red light suitable
                for
                integrating into a three dimensional projection system.
                

            

    

     

    
      	
              5.2

            	
              Use
                of the Product and Deliverable Items.
                Customer shall not make use of the Products or Deliverable Items
                (or any
                portion thereof) except in strict compliance with the provisions
                of this
                Agreement. Customer shall not use or exploit any of the intellectual
                property rights relating to the Product including, without limitation,
                the
                Deliverable Items and other Confidential Information of QPC, in connection
                with the development, use, manufacture, sale or other distribution
                of any
                product or material.

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    
      	
              5.3

            	
              Ownership.
                QPC and Quintessence shall retain ownership of all intellectual property
                rights in and to the Products and the Deliverable Items (including
                without
                limitation all rights under patent, copyright, trademark, and trade
                secrets), and nothing in this Agreement shall be construed to convey
                any
                intellectual property or other rights in the Products or Deliverable
                Items
                to Customer except for the express licenses set forth
                herein.

            

    

     

    
      	
              6.

            	
              additional
                Obligations, Covenants and
                agreements

            

    

     

    
      	
              6.1

            	
              Non-Compete
                Covenant.
                Without the prior written consent of QPC, which consent may be withheld
                in
                its sole discretion, Customer shall not, nor shall it allow any Affiliate
                or Third Party acting on behalf of or for the benefit of Customer
                or any
                of its Affiliates to, commercialize or promote a product that could
                reasonably be expected to compete with Products in the Territory
                during
                the Royalty Term. 

            

    

     

    
      	
              6.2

            	
              Right
                of Participation. 

            

    

     

    
      	 	
              (a)

            	
              Subject
                to the terms and conditions specified in this Section 6.2, in the
                event
                that QPC or Quintessence elects, in its sole discretion, to form
                a
                separate company to service and otherwise operate its laser display
                and
                projection business, then QPC or Quintessence, as applicable, hereby
                grants to Customer a right of first offer (“Right
                of First Offer”)
                to purchase up to ten percent (10%) of the equity interest in the
                separate
                company (the
                “Separate
                Company”)
                being offered upon its formation on terms and conditions that are
                identical to those offered to other Third Party investors.
                

            

    

     

    
      	 	
              (b)

            	
              If
                either QPC or Quintessence elects to form a Separate Company in accordance
                with Section 6.2(a) above, it shall give Customer written notice
                (the
                “Offer
                Notice”)
                of its intention, describing the amount and type of securities of
                the
                Separate Company to be issued, and the price and terms upon which
                QPC or
                Quintessence proposes to issue the same. Customer shall have fifteen
                (15)
                days from the date of receipt of the Offer Notice to exercise Customer’s
                Right of First Offer to purchase up to ten percent (10%) of the equity
                interest in the Separate Company for the price and upon the terms
                specified in the Offer Notice by delivering written notice (the
                “Right
                of First Offer Election Notice”)
                to QPC or Quintessence, as applicable, and stating therein the quantity
                of
                equity interest in the Separate Company to be
                purchased.

            

    

     

    
      	 	
              (c)

            	
              Settlement
                for the purchase of equity interest in the Separate Company by Customer
                pursuant to this Section 6.2 shall be made in cash within thirty (30)
                days from the Customer’s deemed date of receipt of the Offer Notice;
                provided,
                however,
                that such time period may be extended for purposes of obtaining necessary
                governmental approvals or by mutual agreement between QPC or Quintessence,
                on the one hand, and Customer, on the other. If Customer shall have
                failed
                to deliver to QPC or Quintessence, as applicable, its Right of First
                Offer
                Election Notice within the time periods described in this
                Section 6.2, Customer shall be deemed to have waived its Right of
                First Offer.

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    
      	 	
              (d)

            	
              Notwithstanding
                the foregoing, either QPC or Quintessence, as applicable, may in
                its sole
                discretion terminate any proposed issuance of equity interest in
                the
                Separate Company in respect of which either one of them has given
                the
                Offer Notice, at any time prior to the consummation thereof. The
                foregoing
                provision shall apply even in the event that Customer shall have
                exercised
                its Rights of First Offer hereunder; provided, however, that no equity
                interest in the Separate Company shall then have been
                issued.

            

    

     

    
      	
              7.

            	
              REPRESENTATIONS
                AND WARRANTIES

            

    

     

    
      	
              7.1

            	
              Representations
                and Warranties of QPC and Quintessence.
                QPC and Quintessence hereby represent and warrant
                that:

            

    

     

    
      	 	
              (a)

            	
              QPC
                is a corporation duly organized, validly existing and in good standing
                under the laws of the state of Nevada. QPC is duly qualified as a
                foreign
                corporation in all jurisdictions in which the failure to so qualify
                would
                have a material adverse effect on QPC and any subsidiaries taken
                as a
                whole. Quintessence is a corporation duly organized, validly existing
                and
                in good standing under the laws of the state of Delaware. Quintessence
                is
                duly qualified as a foreign corporation in all jurisdictions in which
                the
                failure to so qualify would have a material adverse effect on QPC
                and any
                subsidiaries taken as a whole. 

            

    

     

    
      	 	
              (b)

            	
              This
                Agreement and the transactions contemplated hereby have been duly
                and
                validly authorized by QPC and Quintessence and constitute a valid
                and
                binding agreement of QPC and Quintessence, enforceable in accordance
                with
                their respective terms, except to the extent that (i) enforcement
                of each
                of this Agreement may be limited by bankruptcy, insolvency,
                reorganization, moratorium, fraudulent conveyance or other similar
                laws
                now or hereafter in effect relating to creditors’ rights generally, and
                (ii) general principles of equity.

            

    

     

    
      	 	
              (c)

            	
              The
                shares of Common Stock issuable under Article 4 hereof, when issued
                in
                accordance with the terms of this Agreement, will be validly issued,
                fully
                paid and nonassessable, free and clear of all liens imposed by the
                Company
                other than restrictions on transfers imposed by applicable federal
                and
                state securities law. 

            

    

     

    
      	
              7.2

            	
              Representations
                and Warranties of Customer.
                Customer represents and warrants
                that:

            

    

     

    
      	 	
              (a)

            	
              Customer
                is a _______ duly organized, validly existing and in good standing
                under
                the laws of the state of _________. Customer is duly qualified as
                a
                foreign limited liability company in all jurisdictions in which the
                failure to so qualify would have a material adverse effect on Customer
                and
                any subsidiaries taken as a whole. 

            

    

     

    
      	 	
              (b)

            	
              This
                Agreement and the transactions contemplated hereby have been duly
                and
                validly authorized by Customer and constitute a valid and binding
                agreement of Customer, enforceable in accordance with their respective
                terms, except to the extent that (i) enforcement of each of this
                Agreement
                may be limited by bankruptcy, insolvency, reorganization, moratorium,
                fraudulent conveyance or other similar laws now or hereafter in effect
                relating to creditors’ rights generally, and (ii) general principles of
                equity.

            

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    
      	 	
              (c)

            	
              Customer
                understands
                that the Common Stock issuable hereunder are “restricted securities” and
                have not been registered under the Securities Act of 1933, as amended
                (the
                “Securities
                Act”)
                or any applicable state securities law and is acquiring the Securities
                as
                principal for its own account and not with a view to or for distributing
                or reselling such Securities or any part thereof in violation of
                the
                Securities Act or any applicable state securities law, has no present
                intention of distributing any of such Securities in violation of
                the
                Securities Act or any applicable state securities law and has no
                direct or
                indirect arrangement or understandings with any other persons to
                distribute or regarding the distribution of such Securities in violation
                of the Securities Act or any applicable state securities law. Customer
                is
                acquiring the Common Stock hereunder in the ordinary course of its
                business. Customer further acknowledges and understands that the
                Common
                Stock issuable hereunder must be held indefinitely unless they are
                subsequently registered under the Securities Act or an exemption
                from such
                registration is available.

            

    

     

    
      	 	
              (d)

            	
              Customer
                is an “accredited investor” as defined in Regulation D promulgated under
                the Securities Act. 

            

    

     

    
      	 	
              (e)

            	
              Customer,
                either alone or together with its representatives, has such knowledge,
                sophistication and experience in business and financial matters so
                as to
                be capable of evaluating the merits and risks of the prospective
                investment in the Common Stock, and has so evaluated the merits and
                risks
                of such investment. Customer acknowledges receipt of the Company’s most
                recent quarterly report on Form 10-Q filed with the Securities and
                Exchange Commission (which report is also available at http://www.sec.gov)
                and has reviewed the risk factors and other matters described therein.
                Customer is able to bear the economic risk of an investment in the
                Securities and, at the present time, is able to afford a complete
                loss of
                such investment.

            

    

     

    
      	 	
              (f)

            	
              Customer
                is not acquiring the Common Stock issuable hereunder as a result
                of any
                advertisement, article, notice or other communication regarding the
                Common
                Stock published in any newspaper, magazine or similar media or broadcast
                over television or radio or presented at any seminar or any other
                general
                solicitation or general
                advertisement.

            

    

     

    
      	
              8.

            	
              TERM
                AND TERMINATION

            

    

     

    
      	
              8.1

            	
              Term;
                Termination.
                This Agreement and the rights granted pursuant to this Agreement
                shall
                commence on the Effective Date and, unless earlier terminated as
                provided
                in this Article 8 shall continue in full force and effect
                until expiration of the Royalty Term. Except as otherwise provided
                in
                Section 8.2 below, upon the expiration or earlier termination of
                this
                Agreement, all rights granted to the Parties hereunder shall terminate,
                and each Party shall be released from all obligations and liabilities
                to
                the other occurring or arising after the date of such termination,
                except
                that Sections 6.1 and 10.2 of this Agreement shall
                survive.

            

    

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    
      	
              8.2

            	
              Termination
                for Breach. 

            

    

     

    
      	 	
              (a)

            	
              By
                QPC or Quintessence:
                Either QPC or Quintessence may terminate this Agreement upon written
                notice to Customer if Customer materially breaches a provision of
                this
                Agreement and fails to correct such breach within thirty (30) days
                following written notice specifying such breach.
                

            

    

     

    
      	 	
              (b)

            	
              By
                Customer:
                Upon the occurrence of an Event of Default (as defined below), Customer
                may at any time, if an Event of Default shall then be continuing,
                by
                written notice to QPC terminate this Agreement. “Event of Default” shall
                mean and include each of the
                following:

            

    

     

    
      	 	
              (i)

            	
              QPC
                shall fail to make any royalty payments when the same become due
                and
                payable to Customer under this Agreement and fails to cure such missed
                payment(s) within thirty (30) days following receipt of written notice
                of
                such non-payment from Customer to
                QPC;

            

    

     

    
      	 	
              (ii)

            	
              Either
                QPC or Quintessence shall fail to perform or comply with any material
                agreement or covenant made by it under this Agreement in any material
                respect and fails to substantially cure such default within sixty
                (60)
                days following receipt of written notice specifying the nature of
                such
                default from Customer to QPC; provided, however, that if such default
                is
                not curable within such 60-day period, an Event of Default shall
                be deemed
                to occur only if QPC or Quintessence, as applicable, has not commenced
                and
                diligently continued during such 60-day period reasonable actions
                to cure
                such breach.

            

    

     

    
      	 	
              (iii)

            	
              Any
                material representation or warranty made by QPC or Quintessence under
                this
                Agreement shall prove to have been untrue or incorrect in any material
                respect when made.

            

    

     

    
      	 	
              (c)

            	
              Effect
                of Termination.
                Subject to the limitations set forth in Section 8.4, any termination
                of
                this Agreement under this Section 8.2 shall not
                affect the right of a Party to sue the other Parties for any damages
                recoverable under applicable law as a result of such
                termination.

            

    

     

    
      	
              8.3

            	
              Option
                to Terminate.
                QPC may elect to terminate this Agreement for any reason at any time
                prior
                to the expiration of the five-year royalty term upon the delivery
                of
                written notice of termination and payment of a termination fee in
                the
                amount of Five Million Dollars ($5,000,000) to Customer. In the event
                of
                such termination, all rights granted to the Parties hereunder shall
                terminate, and each Party shall be released from all obligations
                and
                liabilities to the other occurring or arising after the date of such
                termination; provided, however, that that Sections 6.1 and 10.2;
                and
                provided, further, that any Common Stock issued to Customer under
                this
                Agreement prior to the effective date of termination under this Section
                8.3 shall not be subject to repurchase and shall remain the property
                of
                Customer or its assignees. 

            

    

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    
      	
              8.4

            	
              Limitations
                on Damages.
                Notwithstanding anything to the contrary set forth in this Agreement,
                no
                Party shall be liable to the others under any theory of liability
                for any
                indirect, exemplary, incidental, or consequential damages of any
                kind,
                including, without limitation: (i) for the loss of prospective
                profits, anticipated sales or goodwill, or the interruption of business
                or
                ; (ii)  on account of any expenditures, investments or commitments
                made by either party; or (iii) for any other reason whatsoever based
                upon the result of such expiration or termination.
                

            

    

     

    
      	
              9.

            	
              DISCLAIMERS

            

    

     

    9.1  EXCEPT
      AS
      EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES, AND HEREBY EXPRESSLY
      DISCLAIMS, ANY AND ALL REPRESENTATIONS OR WARRANTIES HEREUNDER, WHETHER EXPRESS
      OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
      MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT,
      OR
      ANY WARRANTIES THAT MAY ARISE FROM COURSE OF PERFORMANCE, COURSE OF DEALING
      OR
      USAGE OF TRADE.

     

    
      	
              10.

            	
              GENERAL

            

    

     

    
      	
              10.1

            	
              Export
                Control.
                Customer agrees to comply fully with all relevant export laws and
                regulations, including, without limitation, the laws and regulations
                of
                the United States and worldwide, as applicable (“Export
                Laws”),
                to assure that the Products (nor any direct product thereof) is (a)
                exported, directly or indirectly, in violation of Export Laws, or
                (b)
                intended to be used for any purposes prohibited by the Export Laws,
                including, without limitation, nuclear, chemical or biological weapons
                proliferation.

            

    

     

    
      	
              10.2

            	
              Confidentiality.
                The Parties hereby acknowledge and agree that this Agreement, the
                Product
                and Deliverable Items, including any portion thereof, modifications
                and
                derivatives thereof, information or materials derived therefrom and
                any
                specifications or documentation relating to the Products or Deliverable
                Items, and other confidential information provided by QPC or Quintessence
                to Customer hereunder, shall constitute “Confidential
                Information”
                under, and be subject to the terms and conditions of, that certain
                Mutual
                Non-Disclosure Agreement, dated June 16, 2008, between QPC and
                Customer.

            

    

     

    
      	
              10.3

            	
              Entire
                Agreement.
                This Agreement (including, without limitation, all Exhibits hereto)
                contains the entire agreement among the Parties with respect to the
                subject matter hereof and supersedes all previous, contemporaneous
                and
                inconsistent agreements, negotiations, representations and promises
                between the Parties, written or oral, regarding the subject matter
                hereof.

            

    

     

    
      	
              10.4

            	
              Headings.
                The headings contained in this Agreement are inserted only as a matter
                of
                convenience and for reference and in no way define, limit or describe
                the
                scope or intent of this Agreement nor in any way affect its terms
                and
                provisions.

            

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    
      	
              10.5

            	
              Governing
                Law.
                This Agreement shall be governed by and construed in accordance with
                the
                laws of the State of California, without reference to its conflicts
                of law
                provisions.  

            

    

     

    
      	
              10.6

            	
              Notices.
                All notices hereunder shall be in writing and shall be delivered
                by hand,
                mailed by registered or certified mail (return receipt requested),
                deposited with a reputable, established overnight courier service
                for
                delivery to the intended addressee against receipt, or sent by telecopy
                (confirmed by regular, first-class mail), to the Parties at the following
                addresses (or at such other addresses for a Party as shall be specified
                by
                like notice) and shall be deemed given on the date on which such
                notice is
                received:

            

    

     

    
      	 	
              if
                to QPC:

            	
              QPC
                Lasers, Inc,.

            

    

    15632
      Roxford Street

    Sylmar,
      California 91342

    Attention:
      George Lintz

    Fax:
      331
      4186 5638

     

    and
      a
      copy 

    (which
      shall not 

    
      	 	
              constitute
                notice) to:

            	
              Morrison
                & Foerster LLP

            

    

    555
      West
      Fifth Street, Suite 3500

    Los
      Angeles, California 90013

    Attention:
      Hillel T. Cohn, Esq.

    Fax:
      (213) 892-5454

    

     

    if
      to
      Customer:  

    

    and
      a
      copy 

    (which
      shall not 

    constitute
      notice) to:  

    

    
      	
              10.7

            	
              Assignment.
                Neither QPC nor Customer may assign this Agreement, in whole or in
                part,
                without the prior written consent of the other Party. Notwithstanding
                the
                foregoing, QPC may convey its entire right and interest under this
                Agreement to any successor by way of merger, acquisition or similar
                transaction. Subject to the foregoing, this Agreement shall be binding
                upon and inure to the benefit of each party’s respective successors and
                lawful assigns.

            

    

     

    
      	
              10.8

            	
              Public
                Announcements.
                No Party to this Agreement shall make, or cause to be made, any press
                release or public announcement in respect of this Agreement or otherwise
                communicate with any news media without the prior written consent
                of the
                other Party, and the Parties shall cooperate as to the timing and
                contents
                of any such press release or public announcement. Notwithstanding
                the
                foregoing, QPC shall be free to make such disclosures regarding this
                Agreement as it reasonably determines are required by applicable
                federal
                securities laws.

            

    

     

    
      	
              10.9

            	
              Amendment.
                Any amendment to this Agreement, or any subsequent agreement among
                the
                Parties in respect of the subject matter hereof, shall not be binding
                on
                the Parties unless such amendment or agreement is executed by QPC
                and
                Customer.

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
              10.10

            	
              Waiver.
                The failure of a Party to insist upon strict adherence to any term
                of this
                Agreement on any occasion shall not be considered a waiver or deprive
                that
                Party of the right thereafter to insist upon strict adherence to
                that term
                or any other term of this Agreement. Without limitation of the foregoing,
                failure or delay on the part of a Party in exercising a right of
                termination hereunder with respect to any act or event shall not
                be
                construed to prejudice its right of termination for such act or event
                in
                the future or for any subsequent act or event. No waiver shall be
                effective unless it is in writing and is signed by the Party asserted
                to
                have granted such waiver.

            

    

     

    
      	
              10.11

            	
              Severability.
                The provisions of this Agreement shall be deemed severable and the
                invalidity or unenforceability of any provision shall not affect
                the
                validity or enforceability of the other provisions hereof. If any
                provision of this Agreement, or the application thereof to any person
                or
                entity or any circumstance, is found by a governmental authority
                or court
                of competence jurisdiction to be invalid or unenforceable, (i) the
                Parties
                shall amend such provision in accordance to obtain a legal, enforceable
                and valid provision that most nearly effects the Parties’ intent in
                entering into this Agreement and (ii) the remainder of this Agreement
                and
                the application of such provision to other persons, entities or
                circumstances shall not be affected by such invalidity or
                unenforceability, nor shall such invalidity or unenforceability affect
                the
                validity or enforceability of such provision, or the application
                thereof,
                in any other jurisdiction.

            

    

     

    
      	
              10.12

            	
              Counterparts.
                This Agreement may be executed in two or more counterparts (by original
                or
                facsimile signature), each of which shall be deemed an original,
                but all
                of which together shall constitute one and the same
                instrument

            

    

     

    
      	
              10.13

            	
              Relationship
                of the Parties.
                The relationship hereby established between the Parties is and shall
                be
                solely that of independent contractors. Nothing in this Agreement
                is
                intended or shall be deemed to (a) constitute a partnership, agency,
                franchise or joint venture relationship between the Parties hereto,
                (b)
                give any Party hereto the power to direct or control the day-to-day
                activities of the employees of the other Party, (c) cause any employees
                or
                agents of any Party to be deemed to be employees or agents of the
                other
                Party for any purpose, or (d) allow a Party to create or assume any
                obligation on behalf of the other Party, except as expressly provided
                herein. In addition, no Party shall have any power to act for or
                represent
                the other, except as expressly provided in this
                Agreement.

            

    

     

    
      	
              10.14

            	
              Interpretation.
                This Agreement shall be construed without regard to any presumption
                or
                rule requiring construction or interpretation against the Party drafting
                or causing any instrument to be drafted. Words of inclusion shall
                not be
                construed as terms of limitations, so that references to “included”
                matters shall be regarded as non-exclusive, non-characterizing
                illustrations. 

            

    

     

    [Signature
      page follows]

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

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

     

    
      	QPC LASERS, INC. 	 	 	 
	 	 	 	 	 
	By: 	
            	 	 	
            
	 	
              
Name:	 	 	
            
	 	 	 	 	 
	 	Title:	 	 	
            

    

    
       

      
        	QUINTESSENCE PHOTONICS
                CORPORATION	 	 	 
	 	 	 	 	 
	By: 	
              	 	 	
              
	 	
                
Name:	 	 	
              
	 	 	 	 	 
	 	Title:

      

    

    
      
         

        
          	[CUSTOMER]	 	 	 
	 	 	 	 	 
	By: 	
                	 	 	
                
	 	
                  
Name:	 	 	
                
	 	 	 	 	 
	 	Title:

        

      

    

     

    SIGNATURE
      PAGE TO DEVELOPMENT
      AGREEMENT

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    Development
      Payment

     

    Pursuant
      to Section 2 of the Agreement, Customer hereby agrees to make a Development
      Payment in the amount of Two Million Dollars ($2,000,000), which payment shall
      be due as of the Effective Date and payable in the following manner:

     

    
      	
              Payment
                Date

            	 	 	
              Payment
                Amount

            	 
	
              Effective
                Date

            	 	
              $

            	
              150,000

            	 
	
              Ten
                days following the Effective Date

            	 	
              $

            	
              350,000

            	 
	
              August
                31, 2008

            	 	
              $

            	
              500,000

            	 
	
              September
                30, 2008

            	 	
              $

            	
              250,000

            	 
	
              October
                31, 2008

            	 	
              $

            	
              250,000

            	 
	
              November
                30, 2008

            	 	
              $

            	
              250,000

            	 
	
              December
                31, 2008

            	 	
              $

            	
              250,000

            	 

    

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

     

    Royalties

     

    Royalty
      Rates.
      Royalty
      Payments due and payable in accordance with the Agreement shall be determined
      as
      follows:

     

    
      	 	
              (a)

            	
              QPC
                shall pay Customer ten percent (10%) of Net Revenues that QPC or
                Quintessence actually receives during the Royalty Term from the sale
                of
                the Products for use in three-dimensional (“3-D”) display/projection
                applications in connection with the 3-D display and projection
                business.

            

    

     

    
      	 	
              (b)

            	
              QPC
                shall pay Customer three percent (10%) of Net Revenues that QPC or
                Quintessence actually receives during the Royalty Term from the sale
                of
                the Products for use in display/projection applications other than
                in 3-D
                display/projection applications.

            

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
      C

     

    Licensed
      IP 

     

    
      	
              COUNTRY

            	
              Application/Publication/Grant
                NO.

            	
              DATEAXION
      POWER INTERNATIONAL, INC.

    

    Securities
      Purchase Agreement

    

    This
      Securities Purchase Agreement (this“Agreement”)
      is
      dated as of January 14, 2008, by and between Axion Power International, Inc.,
      a
      Delaware corporation (the“Company”),
      and
      The Quercus Trust (the“Investor”).

    

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated
      thereunder, the Company desires to issue and sell to the Investor, and the
      Investor desires to purchase from the Company certain securities of the Company,
      as more fully described in this Agreement.

    

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration the receipt and adequacy of which
      are hereby acknowledged, the Company and the Investor agree as
      follows:

     

    ARTICLE
      1

    

    Definitions

    

    Section
      1.1. Definitions.
      In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms have the meanings indicated in this Section
      1.1:

    

    “Action”
      means
      any action, suit, inquiry, notice of violation, proceeding (including any
      partial proceeding such as a deposition) or investigation pending or threatened
      in writing against or affecting the Company, any Subsidiary or any of their
      respective properties before or by any court, arbitrator, governmental or
      administrative agency, regulatory authority (federal, state, county, local
      or
      foreign), stock market, stock exchange or trading facility.

    

    “Adjusted
      Purchase Price”
      has the
      meaning set forth in Section 2.2.

    

    “Affiliate”
      means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144.

    

    “Board”
      means
      the
      Board of Directors of the Company.

    

    “Business
      Day”
      means
      any day except Saturday, Sunday and any day which is a federal legal holiday
      or
      a day on which banking institutions in the City of New York are authorized
      or
      required by law or other governmental action to close.

    

    “Buy-In”
      has the
      meaning set forth in Section 5.1(c).

    

    “Charter
      Amendment”
      means a
      proposed amendment to the Company’s Certificate of Incorporation
      that its
      board of directors intends to submit for consideration by stockholders at the
      Company’s 2008 Annual Meeting and will, if approved in accordance with the DGCL,
      increase the number of authorized shares of Common Stock from the current limit
      of 50 million shares to a proposed limit of not less than 75 million
      shares.

    

    “Claim”
      has
      the
      meaning set forth in Section 4.6(c).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Closing”
      means
      each closing of the purchase and sale of Units consisting of Shares and Warrants
      pursuant to Article 2.

    

    “Closing
      Date”
      means
      the First Closing Date, the date on which the Second Closing, if any, occurs
      pursuant to Section 2.2 hereof, and the date on which the Third Closing, if
      any,
      occurs pursuant to Section 2.3 hereof.

    

    “Commission”
      means
      the Securities and Exchange Commission.

    

    “Common
      Stock”
      means
      the common stock of the Company, par value $0.001 per share, and any securities
      into which such common stock may hereafter be reclassified.

    

    “Common
      Stock Equivalents”
      means
      any securities of the Company or any Subsidiary which entitle the holder thereof
      to acquire Common Stock at any time, including without limitation, any debt,
      preferred stock, rights, options, warrants or other instrument or right that
      is
      at any time convertible into or exchangeable for, or otherwise entitles the
      holder thereof to receive, Common Stock or other securities that entitle the
      holder to receive, directly or indirectly, Common Stock.

    

    “Company
      Counsel”
      means
      Fefer Petersen & Cie with respect to the First Closing and Andrews Kurth,
      LLP with respect to the Second and Third Closings.

    

    “Company
      Deliverables”
      has the
      meaning set forth in Section 2.2(a). 

    

    “Company
      Stock Options”
has
      the
      meaning set forth in Section 3.1(g).

    

    “Compliance
      Date” means
      the
      date the Chief Financial Officer of the Company certifies in writing to the
      Investor that, to the knowledge of such officer after reasonable investigation,
      the Company is current in its reporting obligations under the Securities
      Exchange Act of 1934, that each report filed complied in form with the
      applicable requirements of the Commission with respect to such filing on the
      date of filing, and that the Company’s filings, taken together, do not contain
      any untrue or misleading statements of fact, or fail to contain any statements
      necessary to make the statements made therein not misleading.

    

    “Contingent
      Obligations”
      has the
      meaning set forth in Section 3.1(r). 

    

    “Convertible
      Securities”
has
      the
      meaning set forth in Section 3.1(g). 

    

    “Cut
      Back Shares”
      has the
      meaning assigned thereto in Section 4.1(a).

    

    “Delaware
      Courts”
      has the
      meaning set forth in Section 7.9. 

    

    “Effective
      Date”
      means
      the date that any Registration Statement filed pursuant to Article 4 is first
      declared effective by the Commission. 

    

    “Effectiveness
      Period”
      has the
      meaning set forth in Section 4.1(b). 

    

    “Environmental
      Law”
      has the
      meaning set forth in Section 3.1(aa).

    

    “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as amended, and the rules
      and regulations promulgated thereunder.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “ERISA
      Affiliate” means
      any
      trade or business, whether or not incorporated, that together with the Company
      would be deemed to be a single employer for purposes of Section 4001 of ERISA
      or
      Sections 414(b), (c), (m), (n) or (o) of the Internal Revenue Code of 1986,
      as
      amended.

     

    “Evaluation
      Date” has
      the
      meaning set forth in Section 3.1(r). 

    

    “Event”
      has the
      meaning set forth in Section 4.1(d). 

    

    “Event
      Date”
      has the
      meaning set forth in Section 4.1(d).

    

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

    

    “Exempt
      Issuance”
      means
the
      issuance by the Company (a) to employees, officers, directors of,
      and
      consultants to, the
      Company of shares of Common Stock or options for the purchase of shares of
      Common Stock pursuant to stock option or long-term incentive plans approved
      by
      the Board, (b) of shares of Common Stock upon the exercise of Warrants issued
      hereunder, (c) of shares of Common Stock upon exercise of Prior Warrants or
      conversion of Prior Convertible Securities, (d) of securities issued pursuant
      to
      acquisitions, licensing agreements, or
      other
      strategic transactions, (e) of securities issued in connection with equipment
      leases, real
      property leases, loans, credit lines, guaranties or similar transactions
      approved by the Board,
      (f) of
      securities issued in connection with join ventures or similar strategic
      relationships approved by the Board, (g) of securities in a merger, or (h)
      of
      securities in a public offering registered under the Securities Act; provided
      that in the case of securities issued pursuant clauses (e), (f) and (g), the
      purpose of such issuance may not be primarily to obtain cash
      financing.

     

    “Filing
      Date”
      means
      the date that is 30 days after the Second Closing Date. 

    

    “Financing
      Notice” has
      the
      meaning set forth in Section 5.5(b).

    

    “First
      Closing Date”
      means
      the fifth Business Day immediately following the date on which all of the
      conditions set forth in Sections 6.1 and 6.2 hereof are satisfied, or such
      other
      date as the parties may agree. 

    

    “First
      Closing Unit”
      means a
      Unit consisting of one Share and a Warrant to purchase one and one-half shares
      of Common Stock, issued in combination.

    

    “GAAP”
      means
      generally accepted accounting principles as in effect from time to time in
      the
      United States of America.

    

    “Governmental
      Authority” has
      the
      meaning set forth in Section 3.1(e). 

    

    “Hazardous
      Substance”
      has the
      meaning set forth in Section 3.1(aa).

    

    “Indebtedness”
      has the
      meaning set forth in Section 3.1(r).

    

    “Indemnified
      Party” has
      the
      meaning set forth in Section 4.6(c).

    

    “Indemnified
      Person”
      has the
      meaning set forth in Section 4.6(a). 

    

    “Indemnifying
      Party” has
      the
      meaning set forth in Section 4.6(c). 

    

    “Initial
      Purchase Price” has
      the
      meaning set forth in Section 2.1.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Intellectual
      Property Rights”
      has the
      meaning set forth in Section 3.1(o).

    

    “Investor
      Deliverables”
      has the
      meaning set forth in Section 2.2(b).

    

    “Lien”
      means
      any lien, charge, encumbrance, security interest, right of first refusal or
      other restrictions of any kind.

    

    “Liquidated
      Damages Base”
      has the
      meaning set forth in Section 4.1(d).

    

    “Losses”
      has the
      meaning set forth in Section 5.7.

    

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

    

    “NASD
      Rules”
      has the
      meaning set forth in Section 4.3(o). 

    

    “OFAC”
      has the
      meaning set forth in Section 3.1(ee).

    

    “Outside
      Date”
      means
      June 30, 2009.

    

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

    

    “Placement
      Agent”
      has the
      meaning set forth in Section 3.1(s).

    

    “Plan
      of Distribution”
      has the
      meaning set forth in Section 4.2(o).

    

    “Post-Effective
      Amendment” means
      a
      post-effective amendment to the Registration Statement.

     

    “Post-Effective
      Amendment Filing Deadline”
means
      the seventh Business Day after the Registration Statement ceases to be effective
      pursuant to applicable securities laws due to the passage of time or the
      occurrence of an event requiring the Company to file a Post-Effective Amendment;
      provided, however, that in the event that a Post-Effective Amendment must be
      filed to include information contained in an annual report on Form 10-K or
      Form
      10-KSB that is not otherwise incorporated by reference into the Registration
      Statement, then the Company shall have thirty (30) days after the date such
      annual report is filed to file such Post-Effective.

     

    “Pre-Notice”
      has the
      meaning set forth in Section 5.5(b).

     

    “Prior
      Warrants”
has
      the
      meaning set forth in Section 3.1(g).

    

    “Proceeding”
      means an
      action, claim, suit, investigation or proceeding (including, without limitation,
      an investigation or partial proceeding, such as a deposition), whether commenced
      or threatened.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “Production
      Contract” means
      a
      fully-executed contract between the Company and an unaffiliated third party
      battery manufacturer or wholesale battery distributor (a) pursuant to which
      the
      Company agrees to produce, and the third party agrees to purchase (which
      agreements shall not be conditional (including, without limitation as to
      amounts) except to the extent of customary conditions such as to quality and
      delivery dates), and (b) which provides for the production of a minimum of
      60,000 lead-acid batteries to be produced quarterly on a profitable basis,
      substantially as set forth in the business plan previously provided by the
      Company to the Investor.

    

    “Prospectus”
      has
      the
      meaning set forth in Section 4.3. 

    

    “Proposed
      Financing”
      has the
      meaning set forth in Section 5.5(a).

    

    “Proposed
      Financing Notice”
      has the
      meaning set forth in Section 5.5(b).

    

    “Purchase
      Price” means
      either the Initial Purchase price or the Adjusted Purchase Price, as the context
      indicates.

    

    “Registrable
      Securities” means
      the
      Shares held by and the Warrant Shares issuable to the Investor on such date
      or
      dates as the Company may be required to file a registration statement pursuant
      to Article 4 hereof; provided, however, that the Investor shall not be required
      to exercise the Warrants in order to have the Warrant Shares included in any
      Registration Statement. The term shall not include the Shares and Warrant Shares
      included in the Third Closing Units unless and until the Investor has purchased
      those units.

    

    “Registration
      Period”
      means
      the period commencing on the date hereof and ending on the date on which all
      of
      the Investor’s remaining Registrable Securities may be sold to the public during
      a three month period without registration under the Securities Act in reliance
      on Rule 144.

    

    “Registration
      Statement”
      means a
      registration statement filed on the appropriate Form with, and declared
      effective by, the Commission under the Securities Act and covering the resale
      by
      the Investor of the Registrable Securities.

    

    “Requested
      Information”
      has the
      meaning set forth in Section 4.3(a).

    

    “Required
      Effectiveness Date”
      means
      the earlier of (i) the date that is 150 days after the First Closing Date,
      or,
      in the case of the registration of Cut Back Shares, 120 days after the
      Restriction Termination Date or (ii) five Business Days after receipt by the
      Company from the Commission of notice of “no review” of the Registration
      Statement. 

    

    “Restriction
      Termination Date”
      has the
      meaning assigned thereto in Section 4.1(a).

    

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

    

    “Rule
      415 Response Effort”
      has the
      meaning assigned thereto in Section 4.1(a).

    

    “Second
      Closing Date”
      means
      the fifth Business Day immediately following the later of (i) the Compliance
      Date or (ii) if all other conditions set forth in Section 6.1 and 6.2 are not
      satisfied on the Compliance date, the date following the Compliance Date on
      which all other conditions set forth in Sections 6.1 and 6.2 hereof are
      satisfied, or such other date as the parties may agree.

     

    “Second
      Closing Unit”
      means a
      Unit consisting of one Share and a Warrant to purchase one and one-quarter
      shares of Common Stock, issued in combination. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “SEC
      Objection”
      has the
      meaning assigned thereto in Section 4.1(a).

    

    “SEC
      Restrictions”
      has the
      meaning assigned thereto in Section 4.1(a).

    

    “SEC
      Reports”
      has the
      meaning set forth in Section 3.1(h).

    

    “Securities”
      means
      the Shares, the Warrant, and the Warrant Shares.

    

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

    

    “Senior
      Preferred Stock”
      means
      the shares of the preferred stock of the Company, par value $0.0001 per share,
      that have been designated as “8% Convertible Senior Preferred Stock” by a
      Certificate of Designations, Preferences and Rights dated March 17,
      2005.

    

    “Series
      A Preferred Stock”
      means
      the shares of the preferred stock of the Company, par value $0.0001 per share,
      that have been designated as “Series A Convertible Preferred Stock” by an
      Amended and Restated Certificate of Designations, Preferences and Rights dated
      October 26, 2006.

    

    “Shares”
      means
      the shares of Common Stock issuable to the Investor at the
      Closings.

    

    “Subsidiary”
      means
      any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X
      promulgated by the Commission under the Exchange Act.

    

    “Third
      Closing Date”
      means
      the fifth Business Day immediately following the later of (i) the date of
      delivery to the Investor of a copy of the Production Contract, or (ii) if all
      other conditions set forth in Section 6.1 and 6.2 are not satisfied on such
      date, the date following the date of delivery of the Production Contract on
      which all other conditions set forth in Sections 6.1 and 6.2 hereof are
      satisfied, such other date as the parties may agree.

    

    “Third
      Closing Unit”
      means a
      Unit consisting of one Share and a Warrant to purchase one share of Common
      Stock, issued in combination. 

    

    “Trading
      Day”
      means
      (i) a day on which the Common Stock is traded on a Trading Market, or (ii)
      if
      the Common Stock is not listed on a Trading Market, a day on which the Common
      Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
      Board, or (iii) if the Common Stock is not then
      listed or quoted on the OTC Bulletin Board, a
      day on
      which the Common Stock is quoted in the over-the-counter market as reported
      by
      the National Quotation Bureau Incorporated (or any similar organization or
      agency succeeding to its functions of reporting prices); provided, that in
      the
      event that the Common Stock is not listed or quoted as set forth in (i), (ii)
      and (iii) hereof, then Trading Day shall mean a Business Day.

    

    “Trading
      Market”
      means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      Nasdaq Capital or Global Markets, or the Over-the-Counter Market on which the
      Common Stock is listed or traded on the date in question.

    

    “Transfer
      Agent”
      has the
      meaning set forth in Section 5.1(c).

    

    “Transaction
      Documents”
      means
      this Agreement, the Warrant and any other documents or agreements executed
      in
      connection with the transactions contemplated hereunder.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “Unit”
      means
      a
      First Closing Unit, a Second Closing Unit or a Third Closing Unit, as the
      context indicates.

    

    “Warrant”
      means
      any of the Common Stock Purchase Warrants, in the form of Exhibit A,
      which
      are issuable to the Investor at the Closings.

    

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

     

    ARTICLE
      2

    

    Purchase
      and Sale

    

    Section
      2.1. Issuance
      of Securities at the First Closing.
      Upon
      the
      terms and subject to the conditions set forth in this Agreement, and in
      accordance with applicable law, the Company agrees to sell to the Investor,
      and
      the Investor agrees to purchase from the Company, on the First Closing Date,
      for
      the purchase price of $4.0 million, a number of Units equal to the number
      obtained by dividing $4.0 million by $2.10 per unit (the “Purchase
      Price”),
      each
      Unit to consist of (i) one Share and (ii) a Warrant to purchase 1.5 shares
      of
      Common Stock. 

    

    Section
      2.2. Issuance
      of Securities at the Second Closing.
      Upon
      the
      terms and subject to the conditions set forth in this Agreement, and in
      accordance with applicable law, the Company agrees to sell to the Investor,
      and
      the Investor agrees to purchase from the Company, on the Second Closing Date,
      for the purchase price $4.0 million, a number of Units equal to the number
      obtained by dividing $4.0 million by the Purchase Price, each Unit to consist
      of
      (i) one Share and (ii) a Warrant to purchase 1.25 shares of Common
      Stock.

     

    Section
      2.3. Issuance
      of Securities at the Third Closing.
      Upon
      the
      terms and subject to the conditions and limitations set forth in this Agreement,
      the Company’s Certificate of Incorporation and Delaware law, the Company agrees
      to sell to the Investor, and the Investor agrees to purchase from the Company,
      on the Third Closing Date, for the purchase price $10.0 million, a number of
      Units equal to the number obtained by dividing $10.0 million by the Purchase
      Price, each Unit to consist of (i) one Share and (ii) a Warrant to purchase
      1.0
      shares of Common Stock. 

     

    Section
      2.4. Payment
      of Purchase Price; Delivery of Securities.
      As
      consideration for the issuance of the Securities being purchased at each
      Closing, the
      Investor
      shall on the respective Closing Date pay to the Company, by wire transfer or
      other form of immediately available funds, an amount equal to applicable
      Purchase Price for the Securities being purchased at such Closing,
      and
      the
      Company shall,
      against payment by the Investor of the applicable Purchase Price, (i) issue
      to
      the Investor the Warrants included in the Units being purchased at such Closing
      and (ii) execute and deliver to the transfer agent for the Common Stock
      irrevocable instructions to issue to the Investor the number of Shares included
      in the Units being purchased at such Closing.

     

    Section
      2.5. Additional
      Closing Deliveries.
      At
      each
      Closing, the Company shall deliver or cause to be delivered to the Investor
      the
      following (the“Company
      Deliverables”):

    

    
      	 	
              (i)

            	
              The
                legal opinion of Company Counsel, in substantially the form of
                Exhibit
                B
                hereto, addressed to the Investor; 

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              The
                Certificate of Incorporation of the Company, together with all amendments
                thereto, certified by the Secretary of State of the State of Delaware
                as
                of a date not more than five Business Days prior to the Closing Date;
                

            

    

    

    
      	 	
              (iii)

            	
              Copies
                of each of the following documents, in each case certified by the
                Secretary of the Company to be in full force and effect on the Closing
                Date:

            

    

    

    
      	 	
              (A)

            	
              resolutions
                of the board of directors of the Company approving the execution,
                delivery
                and performance of the Transaction Documents and the transactions
                contemplated thereby; 

            

    

    

    
      	 	
              (B)

            	
              the
                By-laws of the Company; and

            

    

    

    
      	 	
              (C)

            	
              irrevocable
                instructions to the Company’s transfer agent as to the reservation and
                issuance of the Warrant Shares; and

            

    

    

    
      	 	
              (iv)

            	
              A
                good standing certificate of the Company issued by the Secretary
                of State
                of the State of Delaware dated as of a date no earlier than five
                Business
                Days prior to the Closing Date.

            

    

    

    
      	 	
              (v)

            	
              A
                certificate, signed by the President of the Company, certifying that
                all
                of the conditions set forth in Section 6.1 and Section 6.2 are satisfied
                upon the applicable Closing Date.

            

    

    

    
      	 	
              (vi)

            	
              In
                the case of the Second Closing only, a Certificate of the Chief Financial
                Officer of the Company, certifying that the Chief Financial Officer
                is not
                aware of any condition or circumstance that would reasonably be expected
                to cause the Company not to be able to timely file its 2007 Annual
                Report
                on Form 10-K with the Commission, taking into account any extension
                to
                which the Company is entitled pursuant to Rule 12b-24 of the Commission.
                

            

    

     

    ARTICLE
      3

    

    Representations
      and Warranties

    

    Section
      3.1. Representations
      and Warranties of the Company.
      The
      Company hereby makes the following representations and warranties to the
      Investor:

    

    
      	 	
              (a)

            	
              Subsidiaries.
                The Company has no direct or indirect Subsidiaries other than as
                specified
                in the SEC Reports. Except as disclosed in the SEC Reports, the Company
                owns, directly or indirectly, all of the capital stock of each Subsidiary
                free and clear of any and all Liens other than Liens disclosed in
                the SEC
                Reports, and all the issued and outstanding shares of capital stock
                of
                each Subsidiary are validly issued and are fully paid, non-assessable
                and
                free of preemptive and similar
                rights.

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

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

            

    

    

    
      	 	
              (c)

            	
              Authorization;
                Enforcement.
                Subject to the qualifications set forth in this Section 3.1(c), the
                Company has the requisite corporate power and authority to enter
                into and
                to consummate the transactions contemplated by each of the Transaction
                Documents and otherwise to carry out its obligations thereunder.
                The
                execution and delivery of each of the Transaction Documents by the
                Company
                and the consummation by it of the transactions contemplated thereby
                have
                been duly authorized by all necessary action on the part of the Company
                and no further action is required by the Company in connection therewith.
                Each Transaction Document has been (or upon delivery will have been)
                duly
                executed by the Company and, when delivered in accordance with the
                terms
                hereof, will constitute the valid and binding obligation of the Company
                enforceable against the Company in accordance with its terms, except
                as
                such enforceability may be limited by applicable bankruptcy, insolvency,
                reorganization, moratorium, liquidation or similar laws relating
                to, or
                affecting generally the enforcement of, creditors’ rights and remedies or
                by other equitable principles of general application. The Company
                has
                advised the Investor that it has issued approximately 16.8 million
                shares
                of Common Stock, together convertible preferred stock, warrants,
                options
                and convertible debt securities (“Derivative Securities”) that are, in the
                aggregate, presently convertible or exercisable to acquire approximately
                20.9 million additional shares of common stock. In the aggregate,
                the
                Company may required to issue approximately 20 million additional
                shares
                of common stock under this Agreement (including the Warrant Shares
                included in the Units and additional shares issuable to Merriman
                Curhan
                Ford & Co. upon exercise of certain warrants that will be issued to
                them as compensation for services. In the aggregate, the number of
                shares
                that the Company has issued, is presently obligated to issue and
                will
                become obligated to issue under the provisions of this Agreement
                exceeds
                the 50 million of shares of Common Stock currently authorized under
                the
                Company’s Certificate of Incorporation;. The Company has obtained the
                agreement of certain of holders of Derivative Securities that are
                presently convertible or exercisable to acquire approximately 9.1
                million
                to execute and deliver, on or prior to the Closing, an agreement
                (the
                “Forbearance Agreement”) in the form of Exhibit D hereto that requires
                such holders to forbear from exercising or converting the Derivative
                Securities designated in such agreements (the “Designated Securities”)
                without the consent of the Company, and in certain cases, the Investor.
                The Company agrees that it will not allow the conversion or exercise
                of
                any of the Designated Securities that are subject to Forbearance
                Agreements unless after giving effect to such exercise or conversion
                there
                remain sufficient authorized and unissued shares of Common Stock
                to allow
                (a) the conversion and/or exercise of all Derivative Securities other
                than
                the Designated Securities, and (b) all other issuances of Common
                Stock
                which the Company is legally committed to issue.
                In
                the event that the Investors rights to exercise warrants are ever
                limited
                by the provisions of the Company’s Certificate of Incorporation, for any
                reason, then the expiration date of any warrants that the Investor
                is
                unable to purchase shall be automatically extended from time to time
                until
                one year after the date that a Charter Amendment increasing the Company’s
                authorized capital has been proposed to is stockholders and approved
                in
                accordance with the requirements of Delaware
                law.

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
      	 	
              (d)

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

            

    

    

    
      	 	
              (e)

            	
              Filings,
                Consents and Approvals.
                The Company is not required to obtain any consent, waiver, authorization
                or order of, give any notice to, or make any filing or registration
                with,
                any court or other federal, state, local or other governmental authority
                (a “Governmental
                Authority”)
                or other Person in connection with the execution, delivery and performance
                by the Company of the Transaction Documents and the consummation
                of the
                transactions contemplated thereby, other than (i) the filing of a
                Notice
                of Sale of Securities on Form D with the Commission under Regulation
                D of
                the Securities Act (ii) the filing of one or more current reports
                on Form
                8-K; (iii) filings required under applicable state securities laws,
                and
                (iv) the filing with the Commission of one or more Registration Statements
                in accordance with the requirements of Article 4 of this
                Agreement.

            

    

    

    
      	 	
              (f)

            	
              Issuance
                of the Securities.
                Subject to the qualifications set forth in Section 3.1(c), the Securities
                have been duly authorized. Each Share, when issued and paid for in
                accordance with this Agreement, will be duly and validly issued,
                fully
                paid and nonassessable, free and clear of all Liens. Each Warrant,
                when
                issued and paid for in accordance with this Agreement, will be duly
                and
                validly issued. The Company has reserved and set aside from its duly
                authorized capital stock a sufficient number of shares of Common
                Stock to
                satisfy in full the Company’s obligations to issue the Warrant Shares upon
                exercise of the Warrants. The Warrants Shares, when issued and paid
                for
                upon exercise of the Warrants in accordance with their terms, will
                be duly
                and validly issued, fully paid and nonassessable, free and clear
                of all
                Liens

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (g)

            	
              Capitalization.
                The authorized capital stock of the Company presently consists of
                50,000,000 shares of Common Stock and 12,500,000 shares of Preferred
                Stock, par value $0.0001 per share. At its 2008 Annual Meeting of
                Stockholders, the Company intends to submit the Charter Amendment
                to its
                stockholders for their approval. As of the close of business on the
                Business Day immediately prior to the date hereof, (i) 16,834,998
                shares
                of Common Stock were issued and outstanding, all of which are validly
                issued, fully-paid and non-assessable, (ii) no shares of Common Stock
                were
                held by the Company in Treasury, (iii) 1,019,832 shares of Common
                Stock
                were reserved for issuance upon conversion of 137,500 shares of Senior
                Preferred Stock; (iv) 8,015,344 shares of Common Stock were reserved
                for
                issuance upon conversion of 822,997 shares of Series A Preferred
                Stock;
                (v) 4,531,320 shares of Common Stock were reserved for issuance upon
                exercise of options authorized under the Company’s Incentive Stock Plan
                and Directors Stock Option Plan, or previously granted to employees,
                directors, and consultants by contracts that provided for the issuance
                of
                non-plan options (the “Company
                Stock Options”);
                (vi) 3,777,541 shares of Common Stock were reserved for issuance
                upon
                exercise of outstanding warrants to purchase Common Stock (the
                “Prior
                Warrants”);
                (vii) 3,142,857 shares of Common Stock were reserved for issuance
                upon
                conversion of other convertible notes, debentures and securities,
                including warrants issuable in connection with such conversions
                (“Prior
                Convertible Securities”).
                No
                Person has any right of first refusal, preemptive right, right of
                participation, or any similar right to participate in the transactions
                contemplated by the Transaction Documents.  Except pursuant to (i)
                the Company Stock Options, (ii) the Prior Warrants or (iii) the Prior
                Convertible Securities, or as a result of the purchase and sale of
                the
                Securities as contemplated by this Agreement, there are no outstanding
                options, warrants, script rights to subscribe to, calls or commitments
                of
                any character whatsoever relating to, or securities, rights or obligations
                convertible into or exchangeable for, or giving any Person any right
                to
                subscribe for or acquire, any shares of Common Stock, or contracts,
                commitments, understandings or arrangements by which the Company
                or any
                Subsidiary is or may become bound to issue additional shares of Common
                Stock or Common Stock Equivalents.  The issue and sale of the
                Securities will not obligate the Company to issue shares of Common
                Stock
                or other securities to any Person (other than the Investor and Merriman
                Curhan Ford & Co.) and will not result in a right of any holder of
                Company securities to adjust the exercise or conversion price under
                such
                securities. No further approval or authorization of any stockholder,
                the
                Board of Directors of the Company or any other Person is required
                for the
                issuance and sale of the Securities.  There are no stockholders
                agreements, voting agreements or other similar agreements with respect
                to
                the Company’s capital stock to which the Company is a party or, to the
                knowledge of the Company, between or among any of the Company’s
                stockholders.

            

    

    

    
      	 	
              (h)

            	
              SEC
                Reports; Financial Statements.
                The Company has filed all reports required to be filed by it under
                the
                Securities Act and the Exchange Act, including pursuant to Section
                13(a)
                or 15(d) thereof, for all annual and quarterly periods through and
                including the quarterly periods ended September 30, 2006 (the foregoing
                materials, being collectively referred to herein as the“SEC
                Reports”).
                As of their respective dates, the SEC Reports complied in all material
                respects with the requirements of the Securities Act and the Exchange
                Act
                and the rules and regulations of the Commission promulgated thereunder,
                and none of the SEC Reports, when filed, contained any untrue statement
                of
                a material fact or omitted to state a material fact required to be
                stated
                therein or necessary in order to make the statements therein, in
                light of
                the
                circumstances under which they were made, not misleading. The financial
                statements of the Company included in the SEC Reports comply in all
                material respects with applicable accounting requirements and the
                rules
                and regulations of the Commission with respect thereto as in effect
                at the
                time of filing. Such financial statements have been prepared in accordance
                with GAAP applied on a consistent basis during the periods involved,
                except as may be otherwise specified in such financial statements
                or the
                notes thereto, and fairly present in all material respects the financial
                position of the Company and its consolidated Subsidiaries as of and
                for
                the dates thereof and the results of operations and cash flows for
                the
                periods then ended, subject, in the case of unaudited statements,
                to
                normal, immaterial, year-end audit adjustments. The Company has provided
                the Investor with draft financial statements for the year ended December
                31, 2006 and the nine months ended September 30, 2007, and expects
                that
                these draft financial statements will be filed, in substantially
                the form
                provided to the Investor, subject to revisions requested or required
                by
                the Company’s independent auditors prior to filing (the “Draft Financial
                Statements”) Except as disclosed to the investor in writing, (i) the
                financial statements of the Company included in the SEC Reports comply
                in
                all material respects with applicable accounting requirements and
                the
                rules and regulations of the Commission with respect thereto as in
                effect
                on the date hereof, (ii) such financial statements have been prepared
                in
                accordance with GAAP applied on a consistent basis during the periods
                involved, except as may be otherwise specified in such financial
                statements or the notes thereto, and (iii) fairly present in all
                material
                respects the financial position of the Company and its consolidated
                Subsidiaries as of and for the dates thereof and the results of operations
                and cash flows for the periods then ended, subject to normal, immaterial,
                year-end audit adjustments.

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (i)

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

            

    

    

    
      	 	
              (j)

            	
              Litigation
                and Investigations.
                There is no Action which (i) adversely affects or challenges the
                legality,
                validity or enforceability of any of the Transaction Documents or
                the
                Securities or (ii) except as disclosed in the SEC Reports, could,
                if there
                were an unfavorable decision, individually or in the aggregate, have
                or
                reasonably be expected to result in a Material Adverse Effect. Neither
                the
                Company nor any Subsidiary, nor any director or officer thereof (in
                his
                capacity as such), is or has been the subject of any Action involving
                a
                claim of violation of or liability under federal or state securities
                laws
                or a claim of breach of fiduciary duty, except as specifically disclosed
                in the SEC Reports. There has not been, and to the knowledge of the
                Company, there is not pending any investigation by the Commission
                involving the Company or any current or former director or officer
                of the
                Company (in his or her capacity as such). The Commission has not
                issued
                any stop order or other order suspending the effectiveness of any
                registration statement filed by the Company or any Subsidiary under
                the
                Exchange Act or the Securities Act. There are no outstanding comments
                by
                the Staff of the Commission on any filing by the Company or any Subsidiary
                under the Exchange Act or the Securities
                Act.

            

    

    

    
      	 	
              (k)

            	
              Labor
                Relations.
                No
                material labor dispute exists or, to the knowledge of the Company,
                is
                imminent with respect to any of the employees of the
                Company.

            

    

    
    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (l)

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

            

    

    

    
      	 	
              (m)

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

            

    

    

    
      	 	
              (n)

            	
              Title
                to Assets.
                The Company and the Subsidiaries have good and marketable title in
                fee
                simple to all real property owned by them that is material to their
                respective businesses and good and marketable title in all personal
                property owned by them that is material to their respective businesses,
                in
                each case free and clear of all Liens, except for Liens that have
                been
                disclosed to the investor in writing or which do not otherwise materially
                affect the value of such property and do not materially interfere
                with the
                use made and proposed to be made of such property by the Company
                and the
                Subsidiaries. All real property and facilities held under lease by
                the
                Company and the Subsidiaries are held by them under valid, subsisting
                and
                enforceable leases of which the Company and the Subsidiaries are
                in
                material compliance, except as could not, individually or in the
                aggregate, have or reasonably be expected to result in a Material
                Adverse
                Effect.

            

    

    

    
      	 	
              (o)

            	
              Patents
                and Trademarks.
                The Company and the Subsidiaries have, or have rights to use, all
                patents,
                patent applications, trademarks, trademark applications, service
                marks,
                trade names, copyrights, licenses and other similar rights that are
                necessary or material for use in connection with their respective
                businesses as described in the SEC Reports and which the failure
                to so
                have could, individually or in the aggregate, have or reasonably
                be
                expected to result in a Material Adverse Effect (collectively,
                the“Intellectual
                Property Rights”).
                No claims or Actions have been made or filed by any Person against
                the
                Company to the effect that Intellectual Property Rights used by the
                Company or any Subsidiary violate or infringe upon the rights of
                such
                claimant. To the knowledge of the Company, after commercially reasonable
                investigation, all of the Intellectual Property Rights are enforceable
                and
                there is no existing infringement by another Person of any of the
                Intellectual Property Rights.

            

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (p)

            	
              Insurance.
                The Company and the Subsidiaries are insured by insurers of recognized
                financial responsibility against such losses and risks and in such
                amounts
                as are prudent and customary in the businesses in which the Company
                and
                the Subsidiaries are engaged. The Company has no reason to believe
                that it
                will not be able to renew its and the Subsidiaries’ existing insurance
                coverage as and when such coverage expires or to obtain similar coverage
                from similar insurers as may be necessary to continue its business
                on
                terms consistent with the market for the Company’s and such Subsidiaries’
                respective lines of business.

            

    

    

    
      	 	
              (q)

            	
              Transactions
                With Affiliates and Employees.
                Except as set forth in the SEC Reports or as disclosed to the investor
                in
                writing, none of the officers or directors of the Company and, to
                the
                knowledge of the Company, none of the employees of the Company is
                a party
                to any transaction with the Company or any Subsidiary (other than
                for
                services as employees, officers and directors), including any contract,
                agreement or other arrangement providing for the furnishing of services
                to
                or by, providing for rental of real or personal property to or from,
                or
                otherwise requiring payments to or from any officer, director or
                such
                employee or, to the knowledge of the Company, any entity in which
                any
                officer, director, or any such employee has a substantial interest
                or is
                an officer, director, trustee or
                partner.

            

    

    

    
      	 	
              (r)

            	
              Sarbanes-Oxley;
                Internal Accounting Controls. 
                Except to the extent it has not filed its quarterly and annual reports
                for
                periods ending after September 30, 2006, the Company is in material
                compliance with all mandatory provisions of the Sarbanes-Oxley Act
                of 2002
                (including the rules and regulations of the Commission adopted thereunder)
                that are applicable to it as of the Closing Date.  The Company’s
                certifying officers have evaluated the effectiveness of the Company’s
                controls and procedures as of the filing date of the most recently
                filed
                periodic report under the Exchange Act (such date, the “Evaluation
                Date”). 
                The Company presented in its most recently filed periodic report
                under the
                Exchange Act the conclusions of the certifying officers about the
                effectiveness of the disclosure controls and procedures based on
                their
                evaluations as of the Evaluation Date.  Except as has been disclosed
                to the Investor, there have, since the Evaluation Date, been no
                significant adverse changes in the Company’s internal controls (as such
                term is defined in Item 307(b) of Regulation S-K under the Exchange
                Act)
                or, to the Company’s knowledge, in other factors that could significantly
                affect the Company’s internal controls. The
                Company maintains a standard system of accounting established and
                administered in accordance with
                GAAP.

            

    

    

    
      	 	
              (s)

            	
              Certain
                Fees.
                No
                brokerage or finder’s fees or commissions are or will be payable by the
                Company to any broker, financial advisor or consultant, finder, placement
                agent, investment banker, bank or other Person with respect to the
                transactions contemplated by this Agreement except to Merriman Curhan
                Ford
                & Co. (the “Placement
                Agent”).
                The Investor shall have no obligation with respect to any fees or
                with
                respect to any claims (other than such fees or commissions owed by
                the
                Investor pursuant to written agreements executed by the Investor
                which
                fees or commissions shall be the sole responsibility of the Investor)
                made
                by or on behalf of the Placement Agent or any other Persons for fees
                of a
                type contemplated in this Section that may be due in connection with
                the
                transactions contemplated by this
                Agreement.

            

    

    

    
      	 	
              (t)

            	
              Certain
                Registration Matters.
                Assuming the accuracy of the Investor’s representations and warranties set
                forth in Section 3.2(b)-(e), no registration under the Securities
                Act is
                required for the offer and sale of the Securities by the Company
                to the
                Investor under the Transaction Documents.

            

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (u)

            	
              Investment
                Company.
                The Company is not, and is not an Affiliate of, and immediately following
                the Closing will not have become, an “investment company” within the
                meaning of the Investment Company Act of 1940, as
                amended.

            

    

    

    
      	 	
              (v)

            	
              No
                Additional Agreements.
                The Company does not have any agreement or understanding with the
                Investor
                with respect to the transactions contemplated by the Transaction
                Documents
                other than as specified in the Transaction
                Documents.

            

    

    

    
      	 	
              (w)

            	
              Full
                Disclosure.
                All
                written disclosures provided to the Investor regarding the Company,
                its
                business and the transactions contemplated hereby, furnished by or
                on
                behalf of the Company (including the Company’s representations and
                warranties set forth in this Agreement) are true and correct in all
                material respects and do not contain any untrue statement of a material
                fact or omit to state any material fact necessary in order to make
                the
                statements made therein, in light of the circumstances under which
                they
                were made, not misleading.

            

    

    

    
      	 	
              (x)

            	
              Environmental
                Matters.
                To
                the Company’s knowledge, after commercially reasonable investigation: (i)
                the Company and its Subsidiaries have complied with all applicable
                Environmental Laws; (ii) the properties currently owned or operated
                by
                Company (including soils, groundwater, surface water, buildings or
                other
                structures) are not contaminated with any Hazardous Substances; (iii)
                the
                properties formerly owned or operated by Company or its Subsidiaries
                were
                not contaminated with Hazardous Substances during the period of ownership
                or operation by Company and its Subsidiaries; (iv) Company and its
                Subsidiaries are not subject to liability for any Hazardous Substance
                disposal or contamination on any third party property; (v) Company
                and its
                Subsidiaries have not been associated with any release or threat
                of
                release of any Hazardous Substance; (vi) Company and its Subsidiaries
                have
                not received any notice, demand, letter, claim or request for information
                alleging that Company and its Subsidiaries may be in violation of
                or
                liable under any Environmental Law; and (vii) Company and its Subsidiaries
                are not subject to any orders, decrees, injunctions or other arrangements
                with any Governmental Authority or subject to any indemnity or other
                agreement with any third party relating to liability under any
                Environmental Law or relating to Hazardous
                Substances.

            

    

     

    As
      used
      in this Agreement, the term “Environmental
      Law”
means
      any federal, state, local or foreign law, regulation, order, decree, permit,
      authorization, opinion, common law or agency requirement relating to: (A) the
      protection, investigation or restoration of the environment, health and safety,
      or natural resources; (B) the handling, use, presence, disposal, release or
      threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
      pollution, contamination or any injury or threat of injury to persons or
      property.

     

    As
      used
      in this Agreement, the term “Hazardous
      Substance”
means
      any substance that is: (i) listed, classified or regulated pursuant to any
      Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
      material, lead-containing paint or plumbing, polychlorinated biphenyls,
      radioactive materials or radon; or (iii) any other substance which is the
      subject of regulatory action by any Governmental Authority pursuant to any
      Environmental Law.

     

    
      	
            	(y)	
              Taxes. 
                The Company and its Subsidiaries have filed all necessary state franchise
                tax returns when due (or obtained appropriate extensions for filing)
                and
                have paid or accrued all taxes shown as due thereon. While the Company
                and
                its Subsidiaries have not filed all necessary federal, state and
                foreign income tax returns, the Company has had no taxable income
                during
                any of the five preceding years, has retained its independent
                accountants to prepare the required returns promptly after the completion
                of work on the Company's delinquent Exchange Act reports, and has
                no
                knowledge of a tax deficiency that has been or might be asserted
                or
                threatened against it or any Subsidiary which would have a Material
                Adverse Effect.

            

    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
      	
            	(z)	
              Private
                Offering.
                Assuming the correctness of the representations and warranties of
                the
                Investors set forth in this Agreement, the offer and sale of the
                Warrants
                hereunder are, and upon exercise of the Warrants, the issuance of
                the
                Warrant Shares will be exempt from registration under the Securities
                Act.
                The Company has offered the Warrants for sale only to the
                Investor.

            

    

     

    
      	
            	(aa)	
              ERISA.
                Neither the Company nor any ERISA Affiliate maintains, contributes
                to or
                has any liability or contingent liability with respect to any employee
                benefit plan subject to ERISA.

            

    

     

    
      	
            	(bb)	
              Foreign
                Assets Control Regulations and Anti-Money
                Laundering.

            

    

     

    (i)       
      OFAC.
      Neither
      the issuance of the Convertible Note and Warrant to the Investor, nor the use
      of
      the respective proceeds thereof, shall cause the Investor to violate the U.S.
      Bank Secrecy Act, as amended, and any applicable regulations thereunder or
      any
      of the sanctions programs administered by the U.S. Department of the Treasury’s
      Office of Foreign Assets Control (“OFAC”)
      of the
      United States Department of Treasury, any regulations promulgated thereunder
      by
      OFAC or under any affiliated or successor governmental or quasi-governmental
      office, bureau or agency and any enabling legislation or executive order
      relating thereto. Without limiting the foregoing, neither the Company nor any
      Subsidiary (i) is a person whose property or interests in property are blocked
      or subject to blocking pursuant to Section 1 of Executive Order 13224 of
      September 23, 200l Blocking Property and Prohibiting Transactions With Persons
      Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
      (2001)), (ii) engages in any dealings or transactions prohibited by
      Section 2 of such executive order, or is otherwise associated with any such
      person in any manner violative of Section 2, or (iii) is a person on the
      list of Specially Designated Nationals and Blocked Persons or subject to the
      limitations or prohibitions under any other OFAC regulation or executive
      order.

     

    (ii)        Patriot
      Act.
      The
      Company and each of its Subsidiaries are in compliance, in all material
      respects, with the USA PATRIOT Act. No part of the proceeds of the sale of
      the
      Shares and the Warrants hereunder will be used, directly or indirectly, for
      any
      payments to any governmental official or employee, political party, official
      of
      a political party, candidate for political office, or anyone else acting in
      an
      official capacity, in order to obtain, retain or direct business or obtain
      any
      improper advantage, in violation of the United States Foreign Corrupt Practices
      Act of 1977, as amended.

    

    Section
      3.2. Representations
      and Warranties of the Investor.
      The
      Investor hereby represents and warrants to the Company as follows:

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (a)

            	
              Authority.
                This Agreement has been duly executed by the Investor, and when delivered
                by the Investor in accordance with terms hereof, will constitute
                the valid
                and legally binding obligation of the Investor, enforceable against
                him in
                accordance with its terms, except as such enforceability may be limited
                by
                applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
                or similar laws relating to, or affecting generally the enforcement
                of,
                creditors’ rights and remedies or by other equitable principles of general
                application.

            

    

    

    
      	 	
              (b)

            	
              Investment
                Intent.
                The Investor is acquiring the Securities as principal for its own
                account
                for investment purposes only and not with a view to or for distributing
                or
                reselling such Securities or any part thereof, without prejudice,
                however,
                to the Investor’s right at all times to sell or otherwise dispose of all
                or any part of such Securities in compliance with applicable federal
                and
                state securities laws. The Investor does not have any agreement or
                understanding, directly or indirectly, with any Person to distribute
                any
                of the Securities.

            

    

    

    
      	 	
              (c)

            	
              Investor
                Status.
                The Investor is an “accredited investor” as defined in Rule 501(a) under
                the Securities Act and a “qualified institutional buyer” as defined in
                Rule 144A under the Securities Act. The Investor is not a registered
                broker-dealer under Section 15 of the Exchange
                Act.

            

    

    

    
      	 	
              (d)

            	
              Access
                to Information.
                The Investor acknowledges that he has reviewed the SEC Reports and
                has
                been afforded (i) the opportunity to ask such questions as he has
                deemed
                necessary of, and to receive answers from, representatives of the
                Company
                concerning the terms and conditions of the offering of the Securities
                and
                the merits and risks of investing in the Securities; (ii) access
                to
                information about the Company and the Subsidiaries and their respective
                financial condition, results of operations, business, properties,
                management and prospects sufficient to enable him to evaluate his
                investment; and (iii) the opportunity to obtain such additional
                information that the Company possesses or can acquire without unreasonable
                effort or expense that is necessary to make an informed investment
                decision with respect to the
                investment.

            

    

    

    
      	 	
              (e)

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

            

    

     

    
      	 	
              (f)

            	
              Disclosure.
                The Investor acknowledges and agrees that the Company neither makes
                nor
                has made any representations or warranties with respect to the
                transactions contemplated hereby other than those specifically set
                forth
                in Section
                3.1.

            

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      4

    

    Registration
      Rights

    Section
      4.1. Shelf
      Registration.

     

    (a)
      As
      promptly as possible, and in any event on or prior to the Filing Date, the
      Company shall prepare and file with the Commission a “shelf” Registration
      Statement covering the resale of all Registrable Securities for an offering
      to
      be made on a continuous basis pursuant to Rule 415. The Registration Statement
      shall be on Form S-3, unless Form S-3 is not available for the registration
      of
      the resale of Registrable Securities hereunder, in which case the Company shall
      (i) register the resale of the Registrable Securities on another appropriate
      form in accordance herewith and (ii) attempt to register the Registrable
      Securities on Form S-3 as soon as such form is available, provided that the
      Company shall maintain the effectiveness of the Registration Statements then
      in
      effect until such time as a Registration Statement on Form S-3 covering the
      Registrable Securities has been declared effective by the Commission. If at
      any
      time the staff of the Commission takes the position that the offering of some
      or
      all of the Registrable Securities in a Registration Statement is not eligible
      to
      be made on a delayed or continuous basis under the provisions of Rule 415 under
      the Securities Act or requires any Investor to be named as an “underwriter” (an
“SEC
      Objection”),
      the
      Company shall promptly notify the Investor of such SEC Objection and if the
      Investor shall request, the Company shall use its commercially reasonable
      efforts to persuade the staff of the Commission that the offering contemplated
      by the Registration Statement is a valid secondary offering and not an offering
      “by or on behalf of the issuer” as defined in Rule 415 and that the Investor is
      not an “underwriter” (a “Rule
      415 Response Effort”).
      The
      Investor shall have the right to participate or have its counsel participate
      in
      any meetings or discussions with the staff of the Commission regarding such
      position and to comment or have its counsel comment on any written submission
      made to the staff of the Commission with respect thereto, and to have such
      comments relayed to the staff of the Commission with the consent of the Company,
      not to be unreasonably withheld. No such written submission shall be made to
      the
      staff of the Commission to which the Investor’s counsel reasonably objects. In
      the event that, despite the Company’s commercially reasonable efforts and
      compliance with the terms of this Section 4.1(a), the staff of the Commission
      has not altered its position and the Investor provides notice to the Company
      to
      cease any further Rule 415 Response Efforts (the “Investor Rule 415
      Determination”), the Company shall (i) remove from the Registration Statement
      such portion of the Registrable Securities (the “Cut
      Back Shares”)
      and/or
      (ii) agree to such restrictions and limitations on the registration and resale
      of the Registrable Securities as the staff of the Commission may require to
      assure the Company’s compliance with the requirements of Rule 415; provided,
      however, that the Company shall not agree to name any Investor as an
“underwriter” in such Registration Statement without the prior written consent
      of such Investor (collectively, the “SEC
      Restrictions”).
      Notwithstanding any other provision of this Agreement to the contrary, no
      liquidated damages shall accrue pursuant to Section 4.1(d) (i) during the period
      beginning on the date of an SEC Objection and ending on the date that either
      the
      Company receives written notification from the Commission that the Company’s
      Rule 415 Response Effort has been successful or the Investor provides the
      Company with an Investor Rule 415 Determination or (ii) on or as to any Cut
      Back
      Shares until such time as the Company is able, using commercially reasonable
      efforts, to effect the filing of an additional Registration Statement with
      respect to the Cut Back Shares in accordance with any SEC Restrictions (such
      date, the “Restriction
      Termination Date”).
      From
      and after the Restriction Termination Date, all of the provisions of this
      Article 4 (including the liquidated damages provisions) shall again be
      applicable to the Cut Back Shares; provided, however, that for such purposes,
      references to the Filing Date shall be deemed to be the date that is 30 days
      after the Restriction Termination Date.

     

    (b)
      The
      Company shall use its best efforts to cause each Registration Statement filed
      hereunder to be declared effective by the Commission as promptly as possible
      after the filing thereof, but in any event prior to the Required Effectiveness
      Date, and shall use its best efforts to keep the Registration Statement
      continuously effective under the Securities Act until the earlier of (i) the
      fifth anniversary of the Effective Date, (ii) the date when all Registrable
      Securities covered by such Registration Statement have been sold publicly,
      or
      (iii) the date on which the Registrable Securities are eligible for sale without
      volume limitation pursuant to subparagraph (k) of Rule 144 (the “Effectiveness
      Period”).
      The
      Company shall notify the Investor in writing promptly (and in any event within
      one Business Day) after receiving notification from the Commission that the
      Registration Statement has been declared effective.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (c)
      As
      promptly as possible, and in any event no later than the Post-Effective
      Amendment Filing Deadline, the Company shall prepare and file with the
      Commission a Post-Effective Amendment. The Company shall use its best efforts
      to
      cause the Post-Effective Amendment to be declared effective by the Commission
      as
      promptly as possible after the filing thereof. The Company shall notify the
      investor in writing promptly (and in any event within one Business Day) after
      receiving notification from the Commission that the Post-Effective Amendment
      has
      been declared effective. 

     

    (d)
      If:
      (i)
      any Registration Statement is not filed on or prior to the Filing Date (or
      the
      Restriction Termination Date, as applicable) or a Post-Effective Amendment
      is
      not filed on or prior to the Post-Effective Amendment Filing Deadline, or (ii)
      the Company fails to file with the Commission a request for acceleration of
      effectiveness in accordance with Rule 461 promulgated under the Securities
      Act,
      within five Business Days after the date that the Company is notified (orally
      or
      in writing, whichever is earlier) by the Commission that a Registration
      Statement will not be “reviewed,” or will not be subject to further review, or
      (iii) the Company fails to respond to any comments made by the Commission within
      15 Business Days after the receipt of such comments, or (iv) a Registration
      Statement filed hereunder is not declared effective by the Commission by the
      Required Effectiveness Date (which date shall be extended by 30 days in the
      case
      of a comment regarding Rule 415), or a Post-Effective Amendment is not declared
      effective on or prior to the fifteenth Business Day following the Post-Effective
      Amendment Filing Deadline, or (v) after a Registration Statement is filed with
      and declared effective by the Commission, such Registration Statement ceases
      to
      be effective as to all Registrable Securities to which it is required to relate
      at any time prior to the expiration of the Effectiveness Period for a period
      of
      more than 60 days in any twelve month period without being succeeded by an
      amendment to such Registration Statement or by a subsequent Registration
      Statement filed with and declared effective by the Commission, or (vi) an
      amendment to a Registration Statement is not filed by the Company with the
      Commission within 15 Business Days after the Commission’s having notified the
      Company that such amendment is required in order for such Registration Statement
      to be declared effective (any such failure or breach being referred to as an
      “Event”
      and the
      date on which such Event occurs being referred to as “Event
      Date”),
      then:
      (x) on each such Event Date the Company shall pay to the Investor an amount
      in
      cash, as liquidated damages and not as a penalty, equal to 1% of the aggregate
      Purchase Price paid by the Investor pursuant to this Agreement for Registrable
      Securities that are not covered under an effective Registration Statement (the
      “Liquidated
      Damages Base”);
      and
      (y) on the same day of each successive month following such Event Date (so
      long
      as the applicable Event shall not have been cured by such date) until the
      applicable Event is cured, the Company shall pay to the Investor an amount
      in
      cash, as liquidated damages and not as a penalty, equal to 1% of the Liquidated
      Damages Base. Such payments shall be the Investor’s sole and exclusive remedy
      for such Events. If the Company fails to pay any liquidated damages pursuant
      to
      this Section in full within seven Business Days after the date payable, the
      Company will pay interest thereon at a rate of 18% per annum (or such lesser
      maximum amount that is permitted to be paid by applicable law) to the Investor,
      accruing daily from the date such liquidated damages are due until such amounts,
      plus all such interest thereon, are paid in full.

     

    (e) The
      Company shall not, prior to the Effective Date of the Registration Statement,
      prepare and file with the Commission a registration statement relating to an
      offering for its own account or the account of others under the Securities
      Act
      of any of its equity securities.

     

    (f) If
      the
      Company issues to the Investor any Common Stock pursuant to the Transaction
      Documents that is not included in the initial Registration Statement, then
      the
      Company shall file an additional Registration Statement covering such number
      of
      shares of Common Stock on or prior to the Filing Date and shall use it best
      efforts, but in no event later than the Required Effectiveness Date, to cause
      such additional Registration Statement to be declared effective by the
      Commission.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    Section
      4.2. Registration
      Process.
      In
      connection with the registration of the Registrable
      Securities pursuant to Section 4.1, the Company shall:

     

    (a)
      Prepare
      and file
      with the
      Commission the
      Registration Statement
      and such
      amendments (including post-effective amendments) to the Registration Statement
      and supplements to the prospectus included therein (a “Prospectus”)
      as the
      Company may deem necessary or appropriate and take all lawful action such that
      the Registration Statement and any amendment thereto does not, when it becomes
      effective, contain an untrue statement of a material fact or omit to state
      a
      material fact required to be stated therein or necessary to make the statements
      therein, not misleading and that the Prospectus forming part of the Registration
      Statement, and any amendment or supplement thereto, does not at any time during
      the Registration
      Period include an 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 light of the circumstances under which they were made, not
      misleading.;

     

    (b)
      Comply
      with the provisions of the Securities Act with respect to the Registrable
      Securities covered by the Registration Statement until the earlier of (i) such
      time as all of such Registrable Securities have been disposed of in accordance
      with the intended methods of disposition by the Investor as set forth in the
      Prospectus forming part of the Registration Statement or (ii) the date on which
      the Registration Statement is withdrawn;

     

    (c)
      Prior
      to
      the filing with the Commission of the
      Registration Statement (including any amendments thereto) and the distribution
      or delivery of any Prospectus (including any supplements thereto), provide
      draft
      copies thereof to the Investor and reflect in such documents all such comments
      as the Investor (and its counsel) reasonably may propose and furnish to the
      Investor and its legal counsel identified to the Company (i) promptly after
      the same is prepared and publicly distributed, filed with the Commission, or
      received by the Company, one copy of the Registration Statement, each
      Prospectus, and each amendment or supplement thereto, and (ii) such number
      of copies of the Prospectus and all amendments and supplements thereto and
      such
      other documents, as the Investor may reasonably request in order to facilitate
      the disposition of the Registrable
      Securities;

     

    (d)
      (i) register
      or qualify the Registrable Securities covered by the Registration Statement
      under such securities or “blue sky” laws of such jurisdictions as the Investors
reasonably
      request, (ii) prepare and file in such jurisdictions such amendments
      (including post-effective amendments) and supplements to such registrations
      and
      qualifications as may be necessary to maintain the effectiveness thereof at
      all
      times during the Registration Period, (iii) take all such other lawful
      actions as may be necessary to maintain such registrations and qualifications
      in
      effect at all times during the Registration Period, and (iv) take all such
      other lawful 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 (A) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify, (B) subject itself to general taxation in
      any such jurisdiction or (C) file a general consent to service of process
      in any such jurisdiction;

     

    (e)
      As
      promptly as practicable after becoming aware of such event, notify the Investor
      of the occurrence of any event, as a result of which the Prospectus included
      in
      the Registration Statement, as then in effect, includes an untrue statement
      of a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein, in light of the circumstances under
      which they were made, not misleading, and promptly prepare an amendment to
      the
      Registration Statement and supplement to the Prospectus to correct such untrue
      statement or omission, and deliver a number of copies of such supplement and
      amendment to each Investor as such Investor may reasonably request;

     

    
      
        
        

      

      
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    (f)
      As
      promptly as practicable after becoming aware of such event, notify the Investor
      (or, in the event of an underwritten offering, the managing underwriters) of
      the
      issuance by the Commission of any stop order or other suspension of the
      effectiveness of the Registration Statement and take all lawful action to effect
      the withdrawal, rescission
      or
      removal of such stop order or other suspension;

     

    (g)
      Take
      all
      such other lawful actions reasonably necessary to expedite and facilitate the
      disposition by the Investor of his Registrable Securities in accordance with
      the
      intended methods therefor provided in the Prospectus which are customary under
      the circumstances;

     

    (h)
      Make
      generally available to its security holders as soon as practicable, but in
      any
      event not later than 18
      months
      after the Effective Date of the Registration Statement, an earnings
      statement of the Company and its subsidiaries complying with Section 11(a)
      of the Securities Act and the rules and regulations of the Commission
      thereunder;

     

    (i)
      In
      the
      event of an underwritten offering, promptly include or incorporate in a
      Prospectus supplement or post-effective amendment to the Registration Statement
      such information as the underwriters reasonably agree should be included therein
      and to which the Company does not reasonably object and make all required
      filings of such Prospectus supplement or post-effective amendment as soon as
      practicable after it is notified of the matters to be included or incorporated
      in such Prospectus supplement or post-effective amendment;

     

    (j)
      Make
      reasonably available for inspection by the Investor, any underwriter
      participating in any disposition pursuant to the Registration Statement, and
      any
      attorney, accountant or other agent retained by such Investors or any such
      underwriter all relevant financial and other records, pertinent corporate
      documents and properties of the Company and its subsidiaries, and cause the
      Company’s officers, directors and employees to supply all information reasonably
      requested by the Investor or any such underwriter, attorney, accountant or
      agent
      in connection with the Registration Statement, in each case, as is customary
      for
      similar due diligence examinations; provided,
      however,
      that all
      records, information and documents that are designated in writing by the
      Company, in good faith, as confidential, proprietary or containing any nonpublic
      information shall be kept confidential by such Investors and any such
      underwriter, attorney, accountant or agent (pursuant to an appropriate
      confidentiality agreement in the case of any such holder or agent), unless
      such
      disclosure is made pursuant to judicial process in a court proceeding (after
      first giving the Company an opportunity promptly to seek a protective order
      or
      otherwise limit the scope of the information sought to be disclosed) or is
      required by law, or such records, information or documents become available
      to
      the public generally or through a third party not in violation of an
      accompanying obligation of confidentiality; and provided,
      further,
      that, if
      the foregoing inspection and information gathering would otherwise disrupt
      the
      Company’s conduct of its business, such inspection and information gathering
      shall, to the maximum extent possible, be coordinated on behalf of the Investors
      and the other parties entitled thereto by one firm of counsel designated
      by and
      on behalf of the majority in interest of Investors and other
      parties;

     

    
      
        
        

      

      
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    (k)
      In
      connection with any offering,
      make such representations and warranties to the Investor and to the underwriters
      if an underwritten offering,
      in
      form, substance and scope as are customarily made by a company to underwriters
      in secondary underwritten offerings;

     

    (l)
      In
      connection with any underwritten offering, deliver such documents and
      certificates as may be reasonably required by the underwriters; 

     

    (m)
      Cooperate
      with the Investor to facilitate the timely preparation and delivery of
      certificates representing Registrable
      Securities
      to be
      sold pursuant to the Registration Statement, which certificates shall, if
      required under the terms of this Agreement, be free of all restrictive legends,
      and to enable such Registrable
      Securities
      to be in
      such denominations and registered in such names as any Investor may request
      and
      maintain a transfer agent for the Common Stock; 

     

    (n)
      Use
      its
      commercially reasonable efforts to cause all Registrable
      Securities
      covered
      by the Registration Statement to be listed or qualified for trading on the
      principal Trading Market, if any, on which the Common Stock is traded or listed
      on the Effective Date of the Registration Statement; and

     

    (o)
      Include
      in each Prospectus and Registration the Plan of Distribution attached hereto
      as
Exhibit
      C
      (the
“Plan
      of Distribution”),
      unless and to the extent that such Plan of Distribution requires modification
      due to inaccuracy or due to a change in the Commission’s rules and regulations
      under the Securities Act.

     

    Section
      4.3. Obligations
      and Acknowledgements of the Investor.
      In
      connection with the registration of the Registrable
      Securities, the Investor shall have the following obligations and hereby make
      the following acknowledgements:

     

    (a)
      It
      shall
      be a condition precedent to the obligations of the Company to include
      the
      Registrable Securities in
      the
      Registration Statement
      that the
      Investor (i) 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 the registration of such Registrable Securities and
      (ii) shall execute such documents in connection with such registration as
      the Company may reasonably request. At least five Business Days prior to the
      first anticipated filing date of a Registration Statement, the Company shall
      notify the Investor of the information the Company requires from the Investor
      (the “Requested
      Information”)
      if the
      Investor elects to have any of its Registrable Securities included in the
      Registration Statement. If at least two Business Days prior to the anticipated
      filing date the Company has not received the Requested Information from the
      Investor, then the Company may file the Registration Statement without including
      any Registrable Securities of the Investor and the Company shall have no further
      obligations under this Article 4 to the Investor
      after
      such Registration Statement has been declared effective. If the Investor
      notifies the Company and provides the Company the information required hereby
      prior to the time the Registration Statement is declared effective, the Company
      will file an amendment to the Registration Statement that includes the
      Registrable Securities of the Investor;
      provided,
      however,
      that the
      Company shall not be required to file such amendment to the Registration
      Statement at any time less than 5 Business Days prior to the Effectiveness
      Date.

     

    (b)
      The
      Investor agrees to cooperate with the Company in connection with the preparation
      and filing of a Registration Statement hereunder, unless the Investor has
      notified the Company in writing of its election to exclude all of its
      Registrable Securities from such Registration Statement;

     

    
      
        
        

      

      
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    (c)
      The
      Investor agrees that, upon receipt of any notice from the Company of the
      occurrence of any event of the kind described in Section 4.2(e) or 4.2(f),
      the Investor shall immediately discontinue its disposition of Registrable
      Securities pursuant to the Registration Statement covering such Registrable
      Securities until the Investor’s receipt of the copies of the supplemented or
      amended Prospectus contemplated by Section 4.2(e) and, if so directed by
      the Company, the Investor shall deliver to the Company (at the expense of the
      Company) or destroy (and deliver to the Company a certificate of destruction)
      all copies in the Investor’s possession, of the Prospectus covering such
      Registrable Securities current at the time of receipt of such notice;
      and

     

    (d)
      The
      Investor acknowledges that it may be deemed to be a statutory underwriter within
      the meaning of the Securities Act with respect to the Registrable Securities
      being registered for resale by it, and if the Investor includes Registrable
      Securities for offer and sale within a Registration Statement the Investor
      hereby consents to the inclusion in such Registration Statement of a disclosure
      to such effect.

     

    Section
      4.4. Expenses
      of Registration.
      All
      expenses (other than underwriting discounts and commissions and the fees an
      expenses of the Investor’s counsel) incurred in connection with registrations,
      filings or qualifications pursuant to this Article 4, including, without
      limitation, all registration, listing, and qualifications fees, printing and
      engraving fees, accounting fees, and the fees and disbursements of counsel
      for
      the Company, shall be borne by the Company.

     

    Section
      4.5 Accountant’s
      Letter.
      If
      the
      Investor proposes to engage in an underwritten offering of any Registrable
      Shares, the Company shall deliver to the Investor, at the Company’s expense, a
      letter dated as of the effective date of each Registration Statement or
      Post-Effective Amendment thereto, from the independent public accountants
      retained by the Company, addressed to the underwriters and to the Investor,
      in
      form and substance as is customarily given in an underwritten public offering,
      provided that the Investor has made such representations and furnished such
      undertakings as the independent public accountants may reasonably
      require;

     

    Section
      4.6. Indemnification
      and Contribution

     

    (a)
      Indemnification
      by the Company.
      The
      Company shall indemnify and hold harmless the Investor and each underwriter,
      if
      any, which facilitates the disposition of Registrable Securities, and each
      of
      their respective officers and directors and each Person who controls such
      underwriter within the meaning of Section 15 of the Securities Act or
      Section 20 of the Exchange Act (each such Person being sometimes
      hereinafter referred to as an“Indemnified
      Person”)
      from
      and against any losses, claims, damages or liabilities, joint or several, to
      which such Indemnified Person may become subject under the Securities Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon an untrue statement or alleged
      untrue statement of a material fact contained in any Registration Statement
      or
      an omission or alleged omission to state therein a material fact required to
      be
      stated therein or necessary to make the statements therein, not misleading,
      or
      arise out of or are based upon an untrue statement or alleged untrue statement
      of a material fact contained in any Prospectus or an omission or alleged
      omission to state therein 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; and the Company hereby agrees to
      reimburse such Indemnified Person for all reasonable legal and other expenses
      incurred by them in connection with investigating or defending any such action
      or claim as and when such expenses are incurred; provided,
      however, that
      the
      Company shall not be liable to any such Indemnified Person in any such case
      to
      the extent that any such loss, claim, damage or liability arises out of or
      is
      based upon (i) an untrue statement or alleged untrue statement made in, or
      an omission or alleged omission from, such Registration Statement or Prospectus
      in reliance upon and in conformity with written information furnished to the
      Company by such Indemnified Person expressly for use therein or (ii) in the
      case of the occurrence of an event of the type specified in Section 4.3(e),
      the use by the Indemnified Person of an outdated or defective Prospectus after
      the Company has provided to such Indemnified Person an updated Prospectus
      correcting the untrue statement or alleged untrue statement or omission or
      alleged omission giving rise to such loss, claim, damage or
      liability.

     

    
      
        
        

      

      
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    (b)
      Indemnification
      by the Investor and Underwriters.
      The
      Investor agrees, as
      a
      consequence of the inclusion of any of its Registrable Securities in a
      Registration Statement, and each underwriter, if any, which facilitates the
      disposition of Registrable Securities shall agree, severally
      and not jointly, as
      a
      consequence of facilitating such disposition of Registrable Securities to
      (i) indemnify and hold harmless the Company, its directors (including any
      person who, with his or her consent, is named in the Registration Statement
      as a
      director nominee of the Company), its officers who sign any Registration
      Statement and each Person, if any, who controls the Company within the meaning
      of either Section 15 of the Securities Act or Section 20 of the
      Exchange Act, against any losses, claims, damages or liabilities to which the
      Company or such other persons may become subject, under the Securities Act
      or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon an untrue statement or alleged
      untrue statement of a material fact contained in such Registration Statement
      or
      Prospectus or arise out of or are based upon the omission or alleged omission
      to
      state therein a material fact required to be stated therein or necessary to
      make
      the statements therein (in light of the circumstances under which they were
      made, in the case of the Prospectus), not misleading, in each case to the
      extent, but only to the extent, that such untrue statement or alleged untrue
      statement or omission or alleged omission was made in reliance upon and in
      conformity with written information furnished to the Company by the Investor
      or
      underwriter expressly for use therein,
      and
      (ii) reimburse the Company for any legal or other expenses incurred by the
      Company in connection with investigating or defending any such action or claim
      as such expenses are incurred;
      provided,
      however,
      that the
      Investor shall not be liable under this Section 4.6(b) for any amount in
      excess of the net proceeds paid to the Investor in respect of Registrable
      Securities sold by it.

     

    (c)
      Notice
      of Claims, etc. 
      Promptly
      after receipt by a Person seeking indemnification pursuant to this
      Section 4.6 (an “Indemnified
      Party”)
      of
      written notice of any investigation, claim, proceeding or other action in
      respect of which indemnification is being sought (each, a “Claim”),
      the
      Indemnified Party promptly shall notify the Person against whom indemnification
      pursuant to this Section 4.6 is being sought (the“Indemnifying
      Party”)
      of the
      commencement thereof; but the omission to so notify the Indemnifying Party
      shall
      not relieve it from any liability that it otherwise may have to the Indemnified
      Party, except to the extent that the Indemnifying Party is materially prejudiced
      and forfeits substantive rights and defenses by reason of such failure. In
      connection with any Claim as to which both the Indemnifying Party and the
      Indemnified Party are parties, the Indemnifying Party shall be entitled to
      assume the defense thereof. Notwithstanding the assumption of the defense of
      any
      Claim by the Indemnifying Party, the Indemnified Party shall have the right
      to
      employ separate legal counsel and to participate in the defense of such Claim,
      and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
      and expenses of such separate legal counsel to the Indemnified Party if (and
      only if): (i) the Indemnifying Party shall have agreed to pay such fees,
      costs and expenses, (ii) the Indemnified Party shall
      reasonably have concluded that representation of the Indemnified Party by the
      Indemnifying Party by the same legal counsel would not be appropriate due to
      actual or, as reasonably determined by legal counsel to the Indemnified Party,
      potentially differing interests between such parties in the conduct of the
      defense of such Claim, or if there may be legal defenses available to the
      Indemnified Party that are in addition to or disparate from those available
      to
      the Indemnifying Party, or (iii) the Indemnifying Party shall have failed
      to employ legal counsel reasonably satisfactory to the Indemnified Party within
      a reasonable period of time after notice of the commencement of such Claim.
      If
      the Indemnified Party employs separate legal counsel in circumstances other
      than
      as described in the preceding sentence, the fees, costs and expenses of such
      legal counsel shall be borne exclusively by the Indemnified Party. Except as
      provided above, the Indemnifying Party shall not, in connection with any Claim
      in the same jurisdiction, be liable for the fees and expenses of more than
      one
      firm of counsel for the Indemnified Party (together with appropriate local
      counsel). The Indemnified Party shall not, without the prior written consent
      of
      the Indemnifying Party (which consent shall not unreasonably be withheld),
      settle or compromise any Claim or consent to the entry of any judgment that
      does
      not include an unconditional release of the Indemnifying Party from all
      liabilities with respect to such Claim or judgment
      or
      contain any admission of wrongdoing.

     

    
      
        
        

      

      
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    (d)
      Contribution.
      If the
      indemnification provided for in this Section 4.6 is unavailable to or
      insufficient to hold harmless an Indemnified Party in respect of any losses,
      claims, damages or liabilities (or actions in respect thereof) referred to
      therein, then each Indemnifying Party shall contribute to the amount paid or
      payable by such Indemnified Party as a result of such losses, claims, damages
      or
      liabilities (or actions in respect thereof) in such proportion as is appropriate
      to reflect the relative fault of the Indemnifying Party and the Indemnified
      Party in connection with the statements or omissions or
      alleged statements or omissions which
      resulted in such losses, claims, damages or liabilities (or actions in respect
      thereof), as well as any other relevant equitable considerations. The relative
      fault of such Indemnifying Party and Indemnified Party shall be determined
      by
      reference to, among other things, whether the untrue or alleged untrue statement
      of a material fact or omission or alleged omission to state a material fact
      relates to information supplied by such Indemnifying Party or by such
      Indemnified Party, and the parties’ relative intent, knowledge, access to
      information and opportunity to correct or prevent such statement or omission.
      The parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 4.6(d) were determined by pro rata allocation
      (even if the Investors or any underwriters 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 in this Section 4.6(d). The amount
      paid or payable by an Indemnified Party as a result of the losses, claims,
      damages or liabilities (or actions in respect thereof) referred to above shall
      be deemed to include any legal or other fees or expenses reasonably incurred
      by
      such Indemnified Party in connection with investigating or defending any such
      action or claim. No person guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the Securities Act) shall be entitled to
      contribution from any person who was not guilty of such fraudulent
      misrepresentation. 

     

    (e)
      Limitation
      on Investor’s and Underwriters’ Obligations.
      Notwithstanding any other provision of this Section 4.6, in no event shall
      (i) the Investor have
      any
      liability under
      this Section 4.6 for any amounts in excess of the dollar amount of the
      proceeds actually
      received
      by the Investor from the sale of Registrable Securities (after deducting any
      fees, discounts and commissions applicable thereto) pursuant to any Registration
      Statement under which such Registrable Securities are
      registered under the Securities Act and (ii) any underwriter be required to
      undertake liability to any Person hereunder for any amounts in excess of the
      aggregate discount, commission or other compensation payable to such underwriter
      with respect to the Registrable Securities underwritten by it and distributed
      pursuant to the Registration Statement.

     

    (f)
      Other
      Liabilities.
      The
      obligations of the Company under this Section 4.6 shall be in addition to
      any liability which the Company may otherwise have to any Indemnified Person
      and
      the obligations of any Indemnified Person under this Section 4.6 shall be
      in addition to any liability which such Indemnified Person may otherwise have
      to
      the Company. The remedies provided in this Section 4.6 are not exclusive and
      shall not limit any rights or remedies which may otherwise be available to
      an
      indemnified party at law or in equity.

     

    
      
        
        

      

      
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    Section
      4.7. Rule
      144.
      With a
      view to making available to the Investor the benefits of Rule 144, the
      Company agrees to use its best efforts to:

     

    (i)
      comply
      with the provisions of paragraph (c)(1) of Rule 144; and

     

    (ii)
      file
      with
      the Commission in a timely manner all reports and other documents required
      to be
      filed by the Company pursuant to Section 13 or 15(d) under the Exchange
      Act; and, if at any time it is not required to file such reports but in the
      past
      had been required to or did file such reports, it will, upon the request of
      any
      Investor, make available other information as required by, and so long as
      necessary to permit sales of, its Registrable Securities pursuant to
      Rule 144.

     

    Section 4.8.
      Common
      Stock Issued Upon Stock Split, etc.
      The
      provisions of this Article 4 shall apply to any shares of Common Stock or
      any other securities issued as a dividend or distribution in respect of the
      Shares or the Warrant Shares.

    

    ARTICLE
      5

    

    Other
      Agreements of the Parties

    

    Section
      5.1. Certificates;
      Legends.

    

    (a)
       The
      Securities may only be transferred in compliance with state and federal
      securities laws. In connection with any transfer of the Securities other than
      (i) pursuant to an effective registration statement, (ii) to the Company, or
      (iii) to an Affiliate of the Investor, the Company may require the transferor
      thereof
      to
      provide to the Company an opinion of counsel selected by the transferor and
      reasonably acceptable to the Company, the form and substance of which opinion
      shall be reasonably satisfactory to the Company, to the effect that such
      transfer does not require registration of such transferred Securities under
      the
      Securities Act. In the event of a private transfer of the Securities, the
      transferee shall be required to execute a counterpart to this Agreement,
      agreeing to be bound by (and shall have the benefits of) the terms hereof other
      than those set forth in Article 2 hereof, and such transferee shall be deemed
      to
      be an “Investor” for purposes of this Agreement. 

    

    (b)
       The
      certificates representing the Shares and the Warrants to be delivered at the
      Closings and the certificates evidencing the Warrant Shares to be delivered
      upon
      exercise of the Warrants will contain appropriate legends referring to
      restrictions on transfer relating to the registration requirements of the
      Securities Act and applicable state securities laws.

    

    
      
        
        

      

      
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    (c) In
      connection with any sale or disposition of the Securities by the Investor
      pursuant to Rule 144 or pursuant to any other exemption under the Securities
      Act
      such that the purchaser acquires freely tradable shares and upon compliance
      by
      the Investor with the requirements of this Agreement, the Company shall, or,
      in
      the case of Common Stock, shall cause the transfer agent for the Common Stock
      (the “Transfer
      Agent”)
      to,
      issue replacement certificates representing the Securities sold or disposed
      of
      without restrictive legends. Upon the earlier of (i) registration of any
      Securities for resale pursuant Article 4 or (ii) Rule 144 becoming available
      with respect to any Securities, the Company shall (A) deliver to the Transfer
      Agent irrevocable instructions that the Transfer Agent shall reissue a
      certificate representing such Securities without legends upon receipt by such
      Transfer Agent of the legended certificates, together with either (1) a
      customary representation by the Investor that Rule 144 applies to the shares
      of
      Common Stock represented thereby, (2) a statement by the Investor that the
      Investor has sold the shares of Common Stock represented thereby in accordance
      with the Plan of Distribution contained in the Registration Statement, or (3)
      a
      statement by the Investor that the securities will be sold in compliance with
      the volume limitations of Rule 144, if any, and (B) cause its counsel to deliver
      to the Transfer Agent one or more blanket opinions to the effect that the
      removal of such legends in such circumstances may be effected under the
      Securities Act. From and after the earlier of such dates, upon the Investor’s
      written request, the Company shall promptly cause certificates evidencing the
      Investor’s Securities to be replaced with certificates which do not bear such
      restrictive legends, and Warrant Shares subsequently issued upon due exercise
      of
      the Warrants shall not bear such restrictive legends provided the provisions
      of
      either clause (i) or clause (ii) above, as applicable, are satisfied with
      respect to such Warrant Shares. When the Company is required to cause an
      unlegended certificate to replace a previously issued legended certificate,
      if:
      (1) the unlegended certificate is not delivered to an Investor within five
      Business Days after submission by the Investor of a legended certificate and
      supporting documentation to the Transfer Agent as provided above and (2) prior
      to the time such unlegended certificate is received by the Investor, the
      Investor, or any third party on behalf of such Investor or for the Investor’s
      account, purchases (in an open market transaction or otherwise) shares of Common
      Stock to deliver in satisfaction of a sale by the Investor of shares represented
      by such certificate (a “Buy-In”),
      then
      the Company shall pay in cash to the Investor (for costs incurred either
      directly by such Purchaser or on behalf of a third party) the amount by which
      the total purchase price paid for Common Stock as a result of the Buy-In
      (including brokerage commissions, if any) exceeds the proceeds received by
      such
      Investor as a result of the sale to which such Buy-In relates. The Investor
      shall provide the Company written notice indicating the amounts payable to
      the
      Investor in respect of the Buy-In.

     

    Section
      5.2. Integration.
      The
      Company has not and shall not, and shall use its best efforts to ensure that
      no
      Affiliate of the Company shall, sell, offer for sale or solicit offers to buy
      or
      otherwise negotiate in respect of any security (as defined in Section 2 of
      the
      Securities Act) that would be integrated with the offer or sale of the
      Securities in a manner that would require the registration under the Securities
      Act of the sale of the Securities to the Investor, or that would be integrated
      with the offer or sale of the Securities for purposes of the rules and
      regulations of any Trading Market in a manner that would require stockholder
      approval of the sale of the securities to the Investor.

    

    Section
      5.3. Securities
      Laws Disclosure; Publicity.
      By 9:00
      a.m. (New York time) on the Trading Day following the execution of this
      Agreement, and by 5:00 p.m. (New York time) on the First Closing Date, the
      Company shall issue press releases disclosing the transactions contemplated
      hereby and the Closing. On the Trading Day following the execution of this
      Agreement the Company will file a Current Report on Form 8-K disclosing the
      material terms of the Transaction Documents (and attach the Transaction
      Documents as exhibits thereto), and on each Closing Date the Company will file
      an additional Current Report on Form 8-K to disclose the Closing. In addition,
      the Company will make such other filings and notices in the manner and time
      required by the Commission and the Trading Market on which the Common Stock
      is
      listed. 

     

    Section
      5.4. Use
      of Proceeds.
      The
      Company
      shall use the net proceeds from the sale of the Securities hereunder (i) for
      working capital purposes (including if necessary repayment of up to $3 million
      of the convertible short-term bridge notes disclosed to
      the
      investor in writing),
      (ii)
      to purchase fixed assets used in the development or production of the Company’s
      products or (iii) for investment in new technologies related to the Company’s
      business (including without limitation through the acquisition of other
      companies). 

    

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

       

    

    Section
      5.5. Investor’s Right
      of First Refusal.

     

    (a)
      Proposed
      Financings.
      In the
      event that, during the period commencing on the First Closing Date and
      continuing to the earlier of (i) the second anniversary of the Second Closing
      Date or (ii) the second anniversary of the Outside Date, the Company seeks
      to
      raise additional funds through a private placement of its securities (a
“Proposed
      Financing”),
      other
      than Exempt Issuances, the Investor shall have the right to participate in
      the
      Proposed Financing on a pro rata basis, based on the percentage that (a) the
      number of shares of Common Stock then held by the Investor plus
      the
      number of shares of Common Stock issuable upon conversion of the Warrants bears
      to (b) the total number of shares of Common Stock outstanding plus
      the
      number of shares of Common Stock issuable upon conversion of the Series A
      Preferred Stock and the Prior Convertible Securities and exercise of the Company
      Stock Options, the Warrants and the Prior Warrants.

     

    (b)
      Pre-Notice
      of Proposed Financings.
      At least
      15 Business Days prior to the closing of any Proposed Financing, the Company
      shall deliver to each Investor a written notice of its intention to effect
      a
      Proposed Financing (“Pre-Notice”).
      If
      within 10 Business Days after receipt of the Pre-Notice, the Investor delivers
      to the Company a written request for detailed information regarding the Proposed
      Financing, the Company shall promptly, but no later than the Business Day
      immediately following its receipt of such request, deliver to the Investor
      a
      notice (a “Proposed
      Financing Notice”)
      which
      shall describe in reasonable detail the proposed terms of such Proposed
      Financing, the amount of proceeds intended to be raised thereunder, and the
      Person with whom such Proposed Financing is proposed to be effected, and shall
      have attached thereto be a term sheet or similar document relating to the
      Proposed Financing. The Investor shall notify the Company no later than 6:30
      p.m. (Little Rock time) on the fifth Business Day after receipt of the Proposed
      Financing Notice of its willingness to participate in the Proposed Financing
      on
      the terms described in the Proposed Financing Notice, subject to completion
      of
      mutually acceptable documentation and diligence investigation. The Company
      shall
      promptly provide to the Investor such diligence materials as it may reasonably
      request, subject to execution of a non-disclosure agreement, in reasonable
      form,
      mutually acceptable to the parties.

     

    (c)
      Investment
      Terms.
      The
      terms
      on which the Investor shall purchase securities pursuant to the Proposed
      Financing shall be the same as such securities are purchased by other investors
      in such Proposed Financing. In the event that the terms of the Proposed
      Financing are changed, the Borrower shall provide the Investor with the same
      notice of the revised terms that is provided to the other investors in such
      Proposed Financing in reasonably sufficient time to allow the Investor to review
      the Proposed Financing and the Company’s financial condition and prospects in
      light of the changed terms. 

     

    (d)
       Financings.
      In
      the
      event that the Investor does not exercise, within 12 Business Days after receipt
      of the Financing Notice, its right to participate in the Proposed Financing,
      the
      Company may sell the securities in the Proposed Financing at a price and on
      terms which are no more favorable to the investors in such Proposed Financing
      than the terms offered to the Investor. If the Company subsequently changes
      the
      price or terms so that the terms are at a price or more favorable to the
      investors in the Proposed Financing, the Company shall re-offer the securities
      to the Investor as provided in this Section 5.5. 

    

    Section 5.6. Company’s
      Right of First Refusal.
      

     

    (a)
      Proposed
      Sales.
      In the
      event that the Investor plans to resell shares of the Company’s stock in open
      market transactions at prevailing prices, the Investor shall consult with the
      Company so as not to negatively affect the value of the Company’s shares in the
      public market. In the event that the Investor plans to resell a substantial
      number shares of the Company’s stock in one or more transactions that are
      neither an open market resale at prevailing prices or effected in connection
      with an underwritten transaction involving a sale to the general public, then
      at
      least thirty (30) days before a disposition of more than 1,000,000 shares of
      stock, the Investor shall notify the Company in writing (the “Notice”) of its
      intention. After the date of such Notice (the “Notice Date”), the Company may
      inform the Investor that the Company intends to exercise its right to acquire
      all or a portion of the shares which are the subject of the Notice only as
      follows: 

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (i) If
      the
      number of shares referred to in the Notice is more than 1,000,000 but less
      than
      2,000,000, the Company shall have the right to advise the Investor in writing
      within ten (10) days of the Notice Date of its commitment to buy all of said
      shares, and the Company shall conclude for cash the share purchase transaction
      within ten (10) days of the Notice Date;

    

    (ii) If
      the
      number of shares referred to in the Notice is between 2,000,000 and 5,000,000,
      the Company shall have the right to advise the Investor in writing within twenty
      (20) days of the Notice Date of its commitment to buy all of said shares, and
      the Company shall conclude for cash the share purchase transaction within thirty
      (30) days of the Notice Date;

    

    (iii) If
      the
      number of shares referred to in the Notice is more than 5,000,000, the Company
      shall have the right to advise the appropriate trustee in writing within thirty
      (30) days of the Notice Date of its commitment to buy all of said shares, and
      the Company shall conclude for cash the share purchase transaction within
      forty-five (45) days of the Notice Date.

    

    (b)
      Purchase
      Terms.
      With
      each Notice, the Investor shall provide the Company with the Investor’s best
      estimate of the minimum and maximum consideration that the Investor anticipates
      receiving from the proposed disposition. As the condition to the exercise by
      the
      Company of its right of first refusal, the Company agrees to pay the minimum
      consideration that the Investor estimates receiving from the proposed
      disposition. If the Company does not timely exercise its right to purchase
      shares described in a particular Notice as provided herein, then it shall have
      no further rights to acquire the shares that are the subject of the Notice,
      provided however, that the Investor conclude the proposed disposition for no
      less than the minimum consideration within 30 days of the last day the Company
      had to exercise the right of first refusal or else the shares the subject of
      the
      Notice will be subject to a new right of first refusal as provided for herein.
      If the Company exercises its right to purchase the shares described in a
      particular Notice but fails to conclude the transaction within the time provided
      herein, the Investor’s sole remedy shall be the right to seek damages from the
      Company for the difference between the exercise price and the proceeds
      ultimately received by the Investor from the sale of said shares.

    

    Section
      5.7. No
      Disclosure of Material Non-Public Information.
      The
      Company will not disclose to the Investor any material non-public information
      concerning the Company except (a) with the consent of the Investor and (b)
      if
      such consent is given, pursuant to a non-disclosure agreement which provides,
      among other things, that the Investor will not disclose the material non-public
      information to any person and the Investor or the Agent will not engage in
      any
      transactions involving the Company’s securities while in possession of material
      non-public information.

    

    ARTICLE
      6

    

    Conditions
      Precedent to Closing

    

    Section
      6.1. Conditions
      Precedent to the Obligations of the Investor to Purchase
      Securities.
      The
      obligation of the Investor to acquire Securities at any Closing is subject
      to
      the satisfaction or waiver by the Investor, at or before Closing, of each of
      the
      following conditions:

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (a)

            	
              Representations
                and Warranties.
                The Company shall have delivered a certificate of the Company’s Chief
                Executive Officer certifying that the representations and warranties
                of
                the Company contained herein are true and correct in all material
                respects
                as of the date when made and as of the Closing Date as though made
                on and
                as of such Closing Date, provided that at the Second Closing and
                Third
                Closings any representations and warranties made as of a specific
                date
                shall be deemed to be made as of such date and not as of the date
                of the
                Second Closing or the Third Closing, as the case may
                be;

            

    

    

    
      	 	
              (b)

            	
              Performance.
                The Company shall have performed, satisfied and complied in all material
                respects with all covenants, agreements and conditions required by
                the
                Transaction Documents to be performed, satisfied or complied with
                by it at
                or prior to the Closing;

            

    

    

    
      	 	
              (c)

            	
              No
                Injunction.
                No
                statute, rule, regulation, executive order, decree, ruling or injunction
                shall have been enacted, entered, promulgated or endorsed by any
                court or
                governmental authority of competent jurisdiction that prohibits the
                consummation of any of the transactions contemplated by the Transaction
                Documents;

            

    

    

    
      	 	
              (d)

            	
              No
                Adverse Changes.
                Since the date of execution of this Agreement, no event or series
                of
                events shall have occurred that reasonably could have or result in
                a
                Material Adverse Effect;

            

    

    

    
      	 	
              (e)

            	
              Company
                Deliverables.
                The Company shall have delivered to Investor the Forbearance Agreement
                and
                the Company Deliverables in accordance with Section
                2.

            

    

    

    Section
      6.2. Conditions
      Precedent to the Obligations of the Company to Sell
      Securities.
      The
      obligation of the Company to sell Securities at any Closing is subject to the
      satisfaction or waiver by the Company, at or before the Closing, of each of
      the
      following conditions:

    

    
      	 	
              (a)

            	
              Representations
                and Warranties.
                The representations and warranties of the Investor contained herein
                shall
                be true and correct in all material respects as of the date when
                made and
                as of the Closing Date as though made on and as of such
                date;

            

    

    

    
      	 	
              (b)

            	
              Performance.
                The Investor shall have performed, satisfied and complied in all
                material
                respects with all covenants, agreements and conditions required by
                the
                Transaction Documents to be performed, satisfied or complied with
                by such
                Investor at or prior to the Closing;

            

    

    

    
      	 	
              (c)

            	
              No
                Injunction.
                No
                statute, rule, regulation, executive order, decree, ruling or injunction
                shall have been enacted, entered, promulgated or endorsed by any
                court or
                governmental authority of competent jurisdiction that prohibits the
                consummation of any of the transactions contemplated by the Transaction
                Documents; and

            

    

    

    
      	 	
              (d)

            	
              Purchase
                Price.
                The Investor shall have paid the Purchase Price payable at such Closing
                in
                accordance with Section 2.3.

            

    

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    
      ARTICLE
        7

      

      Miscellaneous

       

    

    Section
      7.1. Fees
      and Expenses.
      Each
      party shall pay the fees and expenses of its advisers, counsel, accountants
      and
      other experts, if any, and all other expenses incurred by such party incident
      to
      the negotiation, preparation, execution, delivery and performance of the
      Transaction Documents; provided,
      however,
      that,
      if but only if Securities are sold hereunder at the First Closing, the Company
      shall, at the First Closing, reimburse the Investor for its reasonable legal
      fees and expenses of its legal counsel, up to a maximum of $30,000, incurred
      in
      connection with the Investor’s due diligence and the negotiation and preparation
      of the Agreement. The Company shall pay all stamp and other taxes and duties
      levied in connection with the sale of the Shares.

    

    Section
      7.2. Entire
      Agreement.
      The
      Transaction Documents, together with the Exhibits thereto, contain the entire
      understanding of the parties with respect to the subject matter hereof and
      supersede all prior agreements, understandings, discussions and representations,
      oral or written, with respect to such matters, which the parties acknowledge
      have been merged into such documents and exhibits.

    

    Section
      7.3. Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile (provided the sender receives a machine-generated
      confirmation of successful transmission) at the facsimile number specified
      in
      this Section prior to 4:30 p.m. (Eastern time) on a Business Day, or via email
      (with a confirmation of successful transmission), (b) the next Business Day
      after the date of transmission, if such notice or communication is delivered
      via
      facsimile at the facsimile number specified in this Section on a day that is
      not
      a Business Day or later than 4:30 p.m. (Eastern time) on any Business Day,
      (c)
      the Business Day following the date of transmission, if sent by a nationally
      recognized overnight courier service, or (d) upon actual receipt by the party
      to
      whom such notice is required to be given. The address for such notices and
      communications shall be as follows:

    

    If
      to the
      Company: 
Axion
      Power International, Inc.

    Attn.:
      Thomas Granville, Chief Executive Officer

    1601
      Clover Lane

    New
      Castle, Pennsylvania 16105

    

    Telephone:
      (724) 654-9300

    Facsimile:
      (724) 654-3300

    Email:
      tgranville@axionpower.com

    

    With
      a
      copy to:            Andrews
      Kurth LLP

    Attn.:
      Quentin Faust, Esq.

    1717
      Main
      Street, Suite 4100

    Dallas,
      Texas 75201

    

    Telephone:
      (214) 659-4589

    Facsimile:
      (214) 659-4828

    Email:
      quentinfaust@andrewskurth.com

    

    If
      to the
      Investor:                The
      Quercus Trust

    1835
      Newport Blvd

    A109
      -
      PMB 467

    Costa
      Mesa, CA 92627 

    

    Telephone:
      (949) 646-3785

    Facsimile:
      (949) 903-1598

    Email:
      xaixai@pacbell.net

    

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    With
      a
      copy
      to:                   
Greenberg
      Glusker Fields Claman & Machtinger, LLP

    Attn.:
      Joseph P. Bartlett, Esq.

    1900
      Avenue of the Stars, Suite 2100

    Los
      Angeles, CA 90067

    

    Telephone:
      (310) 201-7481

    Facsimile:
      (310) 201-2380

    Email:
      jbartlett@ggfirm.com

    

    or
      such
      other address as may be designated in writing hereafter, in the same manner,
      by
      such Person.

    

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

    

    Section
      7.5 Termination.
      This
      Agreement may be terminated prior to the First Closing:

    

    
      	 	
              (a)
                

            	
              by
                written agreement of the Investor and the Company;
                or

            

    

    

    
      	 	
              (b)
                

            	
              by
                the Company or the Investor, upon written notice to the other, if
                the
                Closing shall not have taken place by 6:30 p.m., Little Rock time,
                on the
                Outside Date; provided,
                that the right to terminate this Agreement under this Section 7.5(b)
                shall
                not be available to any Person whose failure to comply with its
                obligations under this Agreement has been the cause of or resulted
                in the
                failure of the Closing to occur on or before such time, to the extent
                such
                delay is caused by such Person.

            

    

    

    Upon
      a
      termination in accordance with this Section 7.5, the Company and the Investor
      shall have no further obligation or liability (including as arising from such
      termination) to the other, provided that any liabilities arising prior to such
      termination shall not be affected by the termination.

    

    Section
      7.6. Construction.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof. 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. This Agreement shall be
      construed as if drafted jointly by the parties, and no presumption or burden
      of
      proof shall arise favoring or disfavoring any party by virtue of the authorship
      of any provisions of this Agreement or any of the Transaction
      Documents.

    

    Section
      7.7. Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. Neither party may assign this Agreement
      or any rights or obligations hereunder without the prior written consent of
      the
      other party.

    

    Section
      7.8. No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.6 (with respect to rights to indemnification and
      contribution).

    

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    Section
      7.9. Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and construed and enforced in accordance
      with the internal laws of the State of Delaware, without regard to the
      principles of conflicts of law thereof. Each party agrees that all Proceedings
      concerning the interpretations, enforcement and of the transactions contemplated
      by this Agreement and any other Transaction Documents (whether brought against
      a
      party hereto or its respective Affiliates,
      employees or agents) shall be commenced exclusively in the state or federal
      courts sitting in, or having jurisdiction over, the State of Delaware (the
      “Delaware
      Courts”).
      Each
      party hereto hereby irrevocably submits to the exclusive jurisdiction of the
      Delaware Courts for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein
      (including with respect to the enforcement of the any of the Transaction
      Documents), and hereby irrevocably waives, and agrees not to assert in any
      Proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such Delaware Court, or that such Proceeding has been commenced in an
      improper or inconvenient forum. Each party hereto hereby irrevocably waives
      personal service of process and consents to process being served in any such
      Proceeding by mailing a copy thereof via registered or certified mail or
      overnight delivery (with evidence of delivery) to such party at the address
      in
      effect for notices to it under this Agreement and agrees that such service
      shall
      constitute good and sufficient service of process and notice thereof. Nothing
      contained herein shall be deemed to limit in any way any right to serve process
      in any manner permitted by law. Each party hereto hereby irrevocably waives,
      to
      the fullest extent permitted by applicable law, any and all right to trial
      by
      jury in any legal proceeding arising out of or relating to this Agreement or
      the
      transactions contemplated hereby. If either party shall commence a Proceeding
      to
      enforce any provisions of a Transaction Document, then the prevailing party
      in
      such Proceeding shall be reimbursed by the other party for its reasonable
      attorneys’ fees and other costs and expenses incurred with the investigation,
      preparation and prosecution of such Proceeding.

     

    Section
      7.10. Survival.
      The
      representations, warranties, agreements and covenants contained herein shall
      survive the Closings and the delivery of the Securities.

    

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

    

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

    

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

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

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

    

    Section
      7.15 Attorney’s
      Fees.
      If any
      action at law or in equity (including arbitration) is necessary to enforce
      or
      interpret the terms of any of the Transaction Documents, the prevailing party
      shall be entitled to reasonable attorney’s fees, costs and necessary
      disbursements in addition to any other relief to which such party may be
      entitled.

    

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

     

    
      
        	
                The
                  Quercus Trust

              	 	
                Axion
                  Power International, Inc.

              
	 	 	 	 	 
	By:	
                 

                /s/
                  David Gelbaum 

              	 	By:	
	 	
                David
                  Gelbaum

              	 	 	
                Thomas
                  Granville

              
	 	
                Trustee

              	 	 	
                Chief
                  Executive Officer

              

      

    

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

    

    FORM
      OF WARRANT

     

    
        

       

      
        
           

        

        
          35

          
            

          

        

        
           

           

            

           

          
            
               

            

            
              36

              
                

              

            

            
               

            

            
               

              
                  

                 

                
                  
                     

                  

                  
                    37

                    
                      

                    

                  

                  
                     

                     

                    
                        

                       

                      
                        
                           

                        

                        
                          38

                          
                            

                          

                        

                        
                           

                           

                          
                              

                             

                            
                              
                                 

                              

                              
                                39

                                
                                  

                                

                              

                              
                                 

                                 

                                
                                    

                                   

                                  
                                    
                                       

                                    

                                    
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            49

            
              

            

          

          
             

            
               

              

               

              
                
                   

                

                
                  50

                  
                    

                  

                

                
                   

                   

                

              

            

        

      

    

    EXHIBIT
      B

    

    OPINION
      OF COUNSEL

     

      

     

    
      
         

      

      
        51

        
          

        

      

      
         

      

    

     

     

     

    
      
         

      

      
        52

        
          

        

      

      
         

      

    

     

     

     

    
      
         

      

      
        53

        
          

        

      

      
         

      

    

     

     

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

    EXHIBIT
      C

    

    Plan
      of Distribution

    

    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

    

    The
      selling stockholders may use any one or more of the following methods when
      disposing of shares or interests therein:

    

    -
      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 effected after the date the registration statement of which this
      Prospectus is a part is declared effective by the SEC;

    

    -
      through
      the writing or settlement of options or other hedging transactions, whether
      through an options exchange or otherwise;

    

    -
      broker-dealers may agree with the selling stockholders to sell a specified
      number of such shares at a stipulated price per share; and

    

    -
      a
      combination of any such methods of sale.

    

    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the 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, under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act amending 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 the shares of common stock in other circumstances, in which case the
      transferees, pledgees or other successors in interest will be the selling
      beneficial owners for purposes of this prospectus.

    

    In
      connection with the sale of our common stock or interests therein, the selling
      stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The selling
      stockholders may also sell shares of our common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The selling
      stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

     

    The
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the warrants by payment of cash, however, we will receive the
      exercise price of the warrants.

    

    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the Securities Act of 1933,
      provided that they meet the criteria and conform to the requirements of that
      rule.

    

    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the Securities Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the Securities Act.
      Selling stockholders who are "underwriters" within the meaning of Section 2(11)
      of the Securities Act will be subject to the prospectus delivery requirements
      of
      the Securities Act.

    

    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this
      prospectus.

    

    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

    

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the Exchange Act may apply to sales of shares in the market and to
      the
      activities of the selling stockholders and their affiliates. In addition, to
      the
      extent applicable we will make copies of this prospectus (as it may be
      supplemented or amended from time to time) available to the selling stockholders
      for the purpose of satisfying the prospectus delivery requirements of the
      Securities Act. The selling stockholders may indemnify any broker-dealer that
      participates in transactions involving the sale of the shares against certain
      liabilities, including liabilities arising under the Securities
      Act.

    

    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the Securities Act and state securities laws, relating to
      the
      registration of the shares offered by this prospectus.

    

    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until the earlier of (1) such
      time
      as all of the shares covered by this prospectus have been disposed of pursuant
      to and in accordance with the registration statement or (2) the date on which
      the shares may be sold pursuant to Rule 144 of the Securities Act.

     

    
      
         

      

      
        56

        
          

        

      

      
         

      

    

     

      

     

    
      
         

      

      
        57

        
          

        

      

      
         

      

    

     

      

     

    
      
         

      

      
        58

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