Document:

Exhibit
10.3

    

     

    STOCK
PURCHASE AGREEMENT

     

    This
Stock Purchase Agreement (“Agreement”) is entered into and effective as of
January 18, 2010 (“Effective Date”), by and among Neah Power Systems, Inc., a
Nevada corporation (“Company”), and Knightsbridge Law Co. Ltd., a
company organized under the laws of Thailand (including its designees,
successors and assigns, “Investor”).

     

    RECITALS

     

    A.           The
parties desire that, upon the terms and subject to the conditions contained
herein, Company shall issue to Investor, and Investor shall purchase from the
Company, from time to time as provided herein, up to $5,000,000.00 of shares of
its Common Stock; and

     

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

     

    AGREEMENT

     

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

     

    1.  DEFINITIONS

     

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

     

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

     

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

     

    “Agreement”
means this Stock Purchase Agreement.

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    “Financing
Fee” means a fee equal to 20% of the Tranche Amount to be paid in shares of
Common Stock at a price based upon the closing bid price of such Common Stock on
the business day immediately preceding the Tranche Notice.

     

    “Common
Shares” means shares of Common Stock issued pursuant to a Tranche
Notice.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    “Maximum
Placement” means $5,000,000.00.

     

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

     

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

     

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

     

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

     

    “Prospectus”
includes each prospectus (within the meaning of the Act) related to the sale or
offering of any Common Shares.

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    “Securities”
includes the Common Stock issuable pursuant to this Agreement.

     

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

     

    “Success
Fee” means a fee payable by the Company to Investor at each Tranche Closing
equal to 2% of the net Tranche Amount.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

    “Tranche
Purchase Price” means shares equal in dollar amount to 100% of the Tranche
Amount at a price equal to the closing bid price of the Company’s Common Stock
on the date immediately preceding the Tranche Notice Date.

     

    “Tranche
Shares” means the shares of Common Stock that are purchased by Investor pursuant
to a Tranche.

     

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

     

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

     

    2.  PURCHASE AND
SALE

     

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

     

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

     

    (b)           The
Company agrees to issue the Financing Fee to Investor as provided
below.

     

    2.2          Investment
Commitment

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    (iv)          any
Required Approval has been obtained.

     

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

     

    2.3          Tranches
to Investor

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

       

    

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

     

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

     

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

     

    (vii)        Company
has a sufficient number of duly authorized shares of Common Stock reserved for
issuance in such amount as may be required to fulfill its obligations pursuant
to the Transaction Documents and any outstanding agreements with Investor and
any Affiliate of Investor;

     

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

     

    (i)           the
Financing Fee;

     

    (ii)          the
Success Fee:

     

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

     

    
      
        
        

      

      
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    (iv)           payment
of a non-refundable administrative fee to Investor’s counsel of not more than
$2,000.00, ,
for the first Tranche closing only, by offset against the Tranche Amount,
or wire transfer of immediately available funds.

     

    (e)           Mechanics
of Tranche Closing.  Each of the Company and Investor shall deliver
all documents, instruments and writings required to be delivered by either of
them pursuant to Section 2.3(e) of
this Agreement at or prior to each Tranche Closing. Subject to such delivery and
the satisfaction of the conditions set forth in Section 2.3(d) as of
the Tranche Closing Date, the closing of the purchase by Investor of shares of
Common Stock shall occur by 5:00 p.m. Eastern time, on the date which is 10
Trading Days following the Tranche Notice Date (each a “Tranche Closing Date”)
at the offices of Investor.  On or before each Tranche Closing Date,
Investor shall deliver to the Company the Tranche Purchase Price to be paid for
such Tranche Shares.  The closing (each a “Tranche Closing”) for each
Tranche shall occur on the date that both (i) the Company has delivered to
Investor all Required Tranche Documents, and (ii) Investor has delivered to the
Company the Tranche Purchase Price.

     

    2.4          Maximum
Placement.  Investor shall not be obligated to purchase any
additional Tranche Shares once the aggregate Tranche Purchase Price paid by
Investor equals the Maximum Placement.  In the event that the closing
price of the Company’s common stock during the nine business day after the
Tranche Notice Date falls below 75% of the closing bid price on the day prior to
the Tranche Notice Date, Investor will have the option of not proceeding with
the funding for that Tranche.

     

    2.5          Bridge
Financing.  Nothwithstanding any of the other provisions of
this Agreement, to provide some initial capital to the Company the Investor
agrees to wire to the Company $250,000 by January 26, 2010 in return for which
the Company shall issue 250,000 shares of Common Stock to the Investor at a
price of $1.00 per share. The
Company agrees to authorize the issuance of such shares of Common Stock within
24 hours of receipt of the $250,000 equity investment.

     

    3.  TERMINATION

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    (f)           upon
the occurrence of a Fundamental Transaction; and

     

    (g)           on
the Termination Date.

     

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

     

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

     

    4.  REPRESENTATIONS
AND WARRANTIES

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

    (s)          Certain
Fees.  Investor shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 4.1(s) that
may be due in connection with the transactions contemplated by this Agreement,
except for any placement agent fees payable to licensed broker/dealers
representing the Company or any fees contemplated by the Transaction
Documents.

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

    
      
         

      

      
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    (aa)        Financial
Condition.  Based on the financial condition of the Company as of the
date of the Commitment Closing: (i) the fair saleable market value of the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances, which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the date of the
Commitment Closing.  The SEC Reports set forth as of the dates thereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has
commitments.  Neither the Company nor any Subsidiary is in default
with respect to any Indebtedness.

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

     

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

     

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

     

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

    
      
         

      

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

     

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

     

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

    

    5.  OTHER AGREEMENTS
OF THE PARTIES

     

    5.1         Transfer
Restrictions

     

    (a)          The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than (i) pursuant to  Rule 144, (ii) to the Company, (iii) to an
Affiliate of Investor, or (iv) in connection with a pledge as contemplated in
Section
5.1(b),  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, to the effect that such transfer does not require
registration of such transferred Securities under the Act.

     

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

     

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

    
      
         

      

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

     

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

     

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

     

    5.4           Securities Laws Disclosure;
Publicity.  Company shall issue a press release or if required
file a Current Report on Form 8-K, in each case reasonably acceptable to
Investor, disclosing the material terms of the transactions contemplated
hereby.  Company and Investor shall consult with each other in issuing
any press releases with respect to the transactions contemplated hereby, and
neither Company nor Investor shall issue any such press release or otherwise
make any such public statement without the prior consent of Company, with
respect to any such press release of Investor, or without the prior consent of
Investor, with respect to any such press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law or Trading Market regulations, in which case the disclosing
party shall promptly provide the other party with prior notice of such public
statement or communication.

    
      
         

      

      
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    5.5           Shareholders Rights
Plan.  No claim will be made or enforced by the Company or, to
the knowledge of the Company, any other Person that each Investor is an
“Acquiring Person” under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that Investor
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and Investor. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act of 1040, as amended.

     

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

     

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

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

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

     

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

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

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

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

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

     

    6.  MISCELLANEOUS

     

    6.1           Fees and
Expenses.  A non-refundable document preparation fee shall be
paid by the Company to counsel for Investor, in the amount at the time of the
first Tranche Closing Date of not more than $2,000.00 in cash or by wire
transfer to an account designated by such counsel.  Except for the
non-refundable document preparation fee payable to counsel for Investor at the
initial Tranche closing, or as may be otherwise provided in this Agreement, each
party shall pay the fees and expenses of its own advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
the Transaction Documents.  The Company shall pay all stamp and other
taxes and duties levied in connection with the sale of the Securities, if
any.

     

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

     

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

     

    6.4           Headings.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns.  The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of
Investor.  Investor may assign any or all of its rights under this
Agreement to any Affiliate or to any Person to whom Investor assigns or
transfers any Securities.

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

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

     

    6.6           Governing Law.  All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.  Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New
York.  Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by
law.  The parties hereby waive all rights to a trial by
jury.  If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its
attorneys’ fees and other costs and expenses reasonably incurred in connection
with the investigation, preparation and prosecution of such action or
proceeding.

     

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

     

    6.8           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.

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

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

     

    [Signature Page
Follows]

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

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

     

    
      
        	 
      	
                NEAH
      POWER SYSTEMS, INC.

              
	 
      	 
      	 
      
	 
      	
                By: 

              	
                /s/Gerard C. D’Couto

              
	 
      	
                Name:
      Gerard C. D’Couto

              
	 
      	
                Title:
      President and CEO

              
	 
      	 
      
	 
      	
                KNIGHTSBRIDGE
      LAW CO. LTD.

              
	 
      	 
      
	 
      	
                By: 

              	
                /s/ Shayne Heffernan

              
	 
      	
                Name:
      Shayne Heffernan

              
	 
      	
                Title:
      President

              

      

    

    

    [Signature Page to Knightsbridge Law
Co. Stock Purchase Agreement]

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    Addresses for
Notice

     

    To
Company:

     

    Neah
Power Systems, Inc.

    22118
20th
Avenue SW, Suite 142

    Bothell,
Washington 98021

    Fax
No.:  (425) 483-8454

    Email:
cdcouto@neahpower.com

     

    with a
copy to:

     

    Seyfarth
Shaw LLP

    975 F
Street, N.W.

    Washington,
D.C. 20004

    Attention:
Ernest M. Stern, Esq.

    Fax
No.:  (202) 641-9260

    Email:  estern@seyfarth.com

     

    
      To
Investor:

    

     

    Knightsbridge
Law Co. Ltd.

    Mayfair
Marriott Building

    706-707
60 Soi Langsuan

    Lumpini,
Pathumwan

    Bangkok,
10330 Thailand

    Fax
No.:  66 2 6721235

    Email:
knightsbridgecbt@hotmail.com

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    Exhibit
A

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    
      

    

    
      

    

    Exhibit
B

     

    
      
         

      

      
        30Exhibit 10.4

       

      RESERVE EQUITY
FINANCING
AGREEMENT

       

      THIS RESERVE EQUITY FINANCING
AGREEMENT dated as of the 18th day of
January 2010 (this “Agreement”) between
AGS Capital Group, LLC,
a New York limited liability company (the “Investor”), and Neah Power Systems, Inc.. a
corporation organized and existing under the laws of the State of Nevada (the
“Company”).

       

      WHEREAS, the parties desire
that, upon the terms and subject to the conditions contained herein, the Company
shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to Five Million Dollars
($5,000,000) of the Company’s fully registered and freely tradable common stock,
par value $.0001 per share (the “Common Stock”),;
and

       

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

       

      NOW, THEREFORE, the parties hereto
agree as follows:

       

      ARTICLE
I.

      Certain
Definitions

       

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

       

      Section 1.2.
“Advance Date”
shall mean the first Trading Day after expiration of the applicable Pricing
Period for each Advance.

       

      Section 1.3.
“Advance
Notice” shall mean a written notice in the form of Exhibit A attached
hereto to the Investor executed by an officer of the Company and setting forth
the Advance amount that the Company requests from the Investor.

       

      Section 1.4.
“Advance Notice
Date” shall mean each date the Company delivers (in accordance with
Section 2.2(b) of this Agreement) to the Investor an Advance Notice
requiring the Investor to purchase the number of shares of Common Stock
specified in the Advance Notice, subject to the terms of this Agreement. No
Advance Notice Date shall be less than five (5) calendar days after the prior
Advance Notice Date.

       

      Section 1.5.
“Bid Price”
shall mean, on any date, the closing bid price (as reported by Bloomberg L.P. or
other comparable reporting service) of the Common Stock on the Principal Market
or if the Common Stock is not traded on a Principal Market, the highest reported
bid price for the Common Stock, as furnished by the Financial Industry
Regulatory Authority.

       

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

       

      Section 1.7.
“Commitment
Amount” shall mean the aggregate amount of up to Five Million Dollars
($5,000,000) which the Investor has agreed to provide to the Company in order to
purchase the Company’s Common Stock pursuant to the terms and conditions of this
Agreement.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      Section 1.8.
“Commitment
Period” shall mean the period commencing on the Effective Date, and
expiring upon the termination of this Agreement in accordance with
Section 10.2.

       

      Section 1.9.
“Common Stock”
shall mean the Company’s common stock, par value $.0001 per share.

       

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

       

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

       

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

       

      Section 1.13.
Intentionally
Omitted.

       

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

       

      Section 1.15.
“Material Adverse
Effect” shall mean any condition, circumstance, or situation that may
result in, or reasonably be expected to result in (i) a material adverse
effect on the legality, validity or enforceability of the Agreement, (ii) a
material adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company, taken as a whole, or
(iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under the
Agreement.

       

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

       

      Section 1.17.
“Maximum Advance
Amount” shall equal 50% of the average daily trading volume for the 5
days as reported by Bloomberg or comparable financial news service (U.S market
only) (“ADV”) immediately preceding the Advance Notice Date.

       

      Section 1.18.
“FINRA” shall
mean the Financial Industry Regulatory Authority.

       

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

       

      Section 1.20. “Pricing Period” shall
mean the five (5) consecutive Trading Days after the Advance Notice
Date.

       

      Section 1.21.
“Principal
Market” shall mean the Nasdaq Global Select Market, the Nasdaq Global
Market, the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin
Board, or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.

       

      Section 1.22.
“Purchase
Price” shall mean ninety one percent (91%) of the Market Price during the
Pricing Period.

       

      Section 1.23.
“Registrable
Securities” shall mean the shares of Common Stock to be issued hereunder
(i) in respect of which the Registration Statement has not been declared
effective by the SEC, (ii) which have not been sold under circumstances
meeting all of the applicable conditions of Rule 144 (or any similar
provision then in force) under the Securities Act (“Rule 144”) or
(iii) which have not been otherwise transferred to a holder who may trade
such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      Section 1.24.
“Registration Rights
Agreement” shall mean the Registration Rights Agreement dated the date
hereof, regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the
Investor.

       

      Section 1.25.
“Registration
Statement” shall mean a registration statement on Form S-1 or Form S-3
(if use of such form is then available to the Company pursuant to the rules of
the SEC and, if not, on such other form promulgated by the SEC for which the
Company then qualifies and which counsel for the Company shall deem appropriate,
and which form shall be available for the resale of the Registrable Securities
to be registered thereunder in accordance with the provisions of this Agreement
and the Registration Rights Agreement, and in accordance with the intended
method of distribution of such securities), for the registration of the resale
by the Investor of the Registrable Securities under the Securities
Act.

       

      Section 1.26.
“Regulation D”
shall have the meaning set forth in the recitals of this Agreement.

       

      Section 1.27.
“SEC” shall
mean the United States Securities and Exchange Commission.

       

      Section 1.28.
“Securities
Act” shall have the meaning set forth in the recitals of this
Agreement.

       

      Section 1.29.
“Trading Day”
shall mean any day during which the New York Stock Exchange shall be open for
business.

       

      Section 1.30.
“VWAP” means,
as of any date, the daily dollar volume-weighted average price for such security
as reported by Bloomberg, LP through its “Historical Price Table Screen (HP)”
with Market: Weighted Ave function selected (or comparable financial news
service (U.S market only)), or, if no dollar volume-weighted average price is
reported for such security by Bloomberg, LP (or comparable financial news
service (U.S market only)), the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC.

       

      ARTICLE
II.

      Advances

      Section 2.1.
Advances”

       

      Subject
to the terms and conditions of this Agreement (including, without limitation,
the provisions of Article VII hereof), the Company, at its sole and
exclusive option, may issue and sell to the Investor, and the Investor shall
purchase from the Company, shares of the Company’s Common Stock by the delivery,
in the Company’s sole discretion, of Advance Notices. The number of shares of
Common Stock that the Investor shall purchase pursuant to each Advance shall be
determined by dividing the amount of the Advance by the Purchase Price. No
fractional shares shall be issued. Fractional shares shall be rounded to the
next higher whole number of shares. The aggregate maximum amount of all Advances
that the Investor shall be obligated to make under this Agreement shall not
exceed the Commitment Amount.

       

      Section 2.2.
Mechanics.

       

      (a)      
   Advance Notice. At
any time during the Commitment Period, the Company may require the Investor to
purchase shares of Common Stock by delivering an Advance Notice to the Investor,
subject to the conditions set forth in Section 7.2; provided, however, the
amount for each Advance as designated by the Company in the applicable Advance
Notice shall not be more than the Maximum Advance Amount and the aggregate
amount of the Advances pursuant to this Agreement shall not exceed the
Commitment Amount. The Company acknowledges that the Investor may sell shares of
the Company’s Common Stock corresponding with a particular Advance Notice after
the Advance Notice is received by the Investor. There shall be a minimum of five
(5) trading days between each Advance Notice.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (b)        
 Date of Delivery
of Advance Notice. An Advance Notice shall be deemed delivered on
(i) the Trading Day it is received by email (to the address set forth in
Section 11.1 herein) by the Investor if such notice is received prior to 5:00 pm
Eastern Time, or (ii) the immediately succeeding Trading Day if it is
received by email after 5:00 pm Eastern Time on a Trading Day or at any time on
a day which is not a Trading Day. No Advance Notice may be deemed delivered on a
day that is not a Trading Day.

       

      Section 2.3.
Closings.

       

      (a)    
     On the day of the Advance Notice, the Company
shall deliver to the Investor such number of shares of the Common Stock
registered in the name of the Investor as shall equal the number of shares
specified in the Advance Notice. On the later of the Advance Date or one Trading
Day following receipt of the shares of Common Stock corresponding to the Advance
Notice, the Investor shall deliver to the Company the amount of the Advance by
wire transfer of immediately available funds. On or prior to the Advance Date,
each of the Company and the Investor shall deliver to the other all documents,
instruments and writings required to be delivered by either of them pursuant to
Section 2.3(b) below in order to implement and effect the transactions
contemplated herein. To the extent the Company has not paid the fees, expenses,
and disbursements of the Investor in accordance with Section 12.4, the
amount of such fees, expenses, and disbursements may be deducted by the Investor
(and shall be paid to the relevant party) directly out of the proceeds of the
Advance with no reduction in the amount of shares of the Company’s Common Stock
to be delivered on such Advance Date.

       

       (b)         Obligations Upon
Closing. The Investor agrees to advance the amount corresponding to the
Advance Notice to the Company upon completion of each of the following
conditions:

       

      (i) The
Company shall deliver to the Investor the shares of Common Stock applicable to
the Advance in accordance with Section 2.3(a). The certificates evidencing
such shares shall be free of restrictive legends.

       

      (ii) The
Registration Statement filed pursuant to the Registration Rights Agreement shall
be effective and available for the resale of all applicable shares of Common
Stock to be issued in connection with the Advance and certificates evidencing
such shares shall be free of restrictive legends; provided, however, that the
foregoing condition shall apply only to Advance Notices delivered after the
commitment fee of 1,520,000 shares of the Company’s unregistered stock issued to
the Investor upon signing this Agreement has been exhausted by prior purchases
of Common Stock under Section 2.1;

       

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

       

      (iv) the
Company shall have filed with the SEC all reports, notices and other documents
required of a “reporting company” under the Exchange Act and applicable
Commission regulations;

       

      (v) the
Company shall pay any unpaid fees as set forth in Section 12.4 below or
withhold such amounts as provided in Section 2.3; and

       

      
        
          
          

        

        
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      (vi) the
Company’s transfer agent shall be DWAC eligible.

       

      (vii) the
conditions in Section 7.2.3(a)(i) above and provided the Company is in
compliance with its obligations in Section 2.3, the Investor shall deliver to
the Company the amount of the Advance specified in the Advance Notice by wire
transfer of immediately available funds are satisfied.

       

      Section 2.4.
Intentionally
Omitted.

       

      Section 2.5.
Hardship. In
the event the Investor sells shares of the Company’s Common Stock after receipt
of an Advance Notice and the Company fails to perform its obligations as
mandated in Section 2.3, and specifically the Company fails to deliver to
the Investor on the Advance Date the shares of Common Stock corresponding to the
applicable Advance pursuant to Section 2.3(a)(i), the Company acknowledges
that the Investor shall suffer financial hardship and therefore shall be liable
for any and all losses, commissions, fees, or financial hardship caused to the
Investor.

      

      ARTICLE
III.

      Representations
of Investor

       

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

       

      Section 3.1.
Organization and
Authorization. The Investor is duly incorporated or organized and validly
existing in the jurisdiction of its incorporation or organization and has all
requisite power and authority to purchase and hold the securities issuable
hereunder. The decision to invest and the execution and delivery of this
Agreement by such Investor, the performance by such Investor of its obligations
hereunder and the consummation by such Investor of the transactions contemplated
hereby have been duly authorized and requires no other proceedings on the part
of the Investor. The undersigned has the right, power and authority to execute
and deliver this Agreement and all other instruments (including, without
limitations, the Registration Rights Agreement), on behalf of the Investor. This
Agreement has been duly executed and delivered by the Investor and, assuming the
execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Investor, enforceable
against the Investor in accordance with its terms.

       

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

       

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

       

      Section 3.4.
Investment
Purpose. The securities are being purchased by the Investor for its own
account, and for investment purposes. The Investor agrees not to assign or in
any way transfer the Investor’s rights to the securities or any interest therein
and acknowledges that the Company will not recognize any purported assignment or
transfer except in accordance with applicable Federal and state securities laws.
No other person has or will have a direct or indirect beneficial interest in the
securities. The Investor agrees not to sell, hypothecate or otherwise transfer
the Investor’s securities unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is
available.

       

      
        
          
          

        

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

       

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

       

      Section 3.7.
Receipt of
Documents. The Investor and its counsel have received and read in their
entirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all
due diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; (iii) the
Company’s Form 10-Q for the period ended June 30, 2009 and other SEC filings ;
and (iv) answers to all questions the Investor submitted to the Company
regarding an investment in the Company; and the Investor has relied on the
information contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.

       

      Section 3.8.
No General
Solicitation or Advertising.  Neither the Company nor, to the
knowledge of the Company, any of its directors or officers (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Securities,
or (ii) made any offers or sales of any security or solicited any offers to buy
any security under any circumstances that would require registration of the
Securities under the Act or made any “directed selling efforts” as defined in
Rule 902 of Regulation S.

       

      Section 3.9.
Not an
Affiliate. The Investor is not an officer, director or a person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with the Company or any “Affiliate” of the
Company (as that term is defined in Rule 405 of the Securities
Act).

       

      Section 3.10.
Trading
Activities. The Investor’s trading activities with respect to the
Company’s Common Stock shall be in compliance with all applicable federal and
state securities laws, rules and regulations and the rules and regulations of
the Principal Market on which the Company’s Common Stock is listed or
traded.  Investor agrees never to sell more than approximately 20% of
the trading volume for each day the Investor sells the Stock.

      

      ARTICLE IV.

      Representations
and Warranties of the Company

       

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

       

      
        
          
          

        

        
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      Section 4.1.
Organization and
Qualification. Organization and Qualification.  Each of the
Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as applicable, with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted.  Neither the Company nor
any Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents.  Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in a
Material Adverse Effect and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

       

      Section 4.2.
Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and the Registration Rights Agreement and otherwise to carry out its
obligations hereunder or thereunder.  The execution and delivery of
each of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company other than the filing of the Certificate of
Designations.  Each of the Transaction Documents has been, or upon
delivery will be, duly executed by the Company and, when delivered in accordance
with the terms hereof, will constitute the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors’ rights and remedies.  Neither the Company
nor any Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other organizational or
charter documents except where such violation could not, individually or in the
aggregate, constitute a Material Adverse Effect.

       

      Section 4.3.
Capitalization.
The capitalization of the Company is as described in the Company’s most recently
filed SEC Report.  The Company has not issued any capital stock since
such filing.  No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.  Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or securities
convertible into or exercisable for shares of Common Stock.  The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than Investor)
and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange, or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required for the
issuance and sale of the shares of the Securities.  There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

       

      Section 4.4.
No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Securities
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) conflict with or result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected, or (iv)
conflict with or violate the terms of any agreement by which the Company or any
Subsidiary is bound or to which any property or asset of the Company or any
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.

       

      
        
          
          

        

        
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      Section 4.5.
SEC Reports; Financial
Statements.  The Company has filed all required SEC Reports for
the two years preceding the Effective Date (or such shorter period as the
Company was required by law to file such material) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Act and the Exchange Act and the rules and regulations of
the SEC promulgated thereunder, as applicable, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing.  Such financial statements have been
prepared in accordance with GAAP, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

       

      Section 4.6.
Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the SEC, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company equity
incentive plans.  The Company does not have pending before the SEC any
request for confidential treatment of information. The SEC Documents do not
include any untrue statements of material fact, nor do they omit to state any
material fact required to be stated therein necessary to make the statements
made, in light of the circumstances under which they were made, not
misleading.

       

      Section 4.7.
Filings, Consents and
Approvals.  Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than the filing of the Certificate of Designations and required federal
and state securities filings, each of which has been, or (if not yet required to
be filed) shall be, timely filed.

       

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

       

      
        
          
          

        

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

       

      Section 4.10.
Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse
Effect.

       

      Section 4.11.
Environmental
Laws. Except as set forth in the SEC Documents, the Company and its
subsidiaries are (i) in compliance with any and all applicable material
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”),
(ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses
and (iii) are in compliance with all terms and conditions of any such
permit, license or approval.

       

      Section 4.12.
Title to
Assets.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.  Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in compliance.

       

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

       

      Section 4.14.
Regulatory
Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.

       

      
        
          
          

        

        
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      Section 4.16.
Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the SEC, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company equity
incentive plans.  The Company does not have pending before the SEC any
request for confidential treatment of information.

       

      Section 4.17.
Litigation.  There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”), which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities, or (ii) could, if there were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any Subsidiary, nor to the
knowledge of the Company any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary
duty.  There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the
Company.  The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Act.

       

      Section 4.19. Tax Status. The
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.  The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax.  None of the
Company’s tax returns is presently being audited by any taxing
authority.

       

      Section 4.20.
Certain
Transactions. Except as set forth in the SEC Documents none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental 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 corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

       

      
        
          
          

        

        
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      Section 4.21.
Rights of First
Refusal. The Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.

       

      Section 4.22.
Issuance of the
Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens.  The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Securities at least
equal to the number of Securities which could be issued pursuant to the terms of
the Transaction Documents.

       

      Section 4.23.
Listing and
Maintenance Requirements.  The Common Stock is registered
pursuant to Section 12 of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the SEC is contemplating terminating
such registration.  The Company has not, in the 12 months preceding
the Effective Date, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

       

      Section 4.24.
Opinion of
Counsel. Investor shall receive an opinion letter from counsel to the
Company on the date hereof.

       

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

       

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

       

      Section 4.27. Acknowledgment Regarding
Investor’s Purchase of Securities.  The Company acknowledges
and agrees that Investor is acting solely in the capacity of arm’s length
purchaser with respect to this Agreement and the transactions contemplated
hereby.  The Company further acknowledges that Investor is not acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by Investor or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to Investor’s purchase of the
Securities.  The Company further represents to Investor that the
Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.

       

      Section 4.28.
No Legal Advice From
the Investor. The Company acknowledges that it had the opportunity to
review this Agreement and the transactions contemplated by this Agreement with
his or its own legal counsel and investment and tax advisors. The Company is
relying solely on such counsel and advisors and not on any statements or
representations of the Investor or any of its representatives or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.  The Company is not relying on any representation except
for the representations of the Investor contained in this
Agreement.  

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

     

    Section 4.29.
Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

    Section 4.30.
Accountants.  The
Company’s accountants are set forth in the SEC Reports.  To the
Company’s knowledge, such accountants are an independent registered public
accounting firm as required by the Act.

     

    Section 4.31.
No Disagreements with
Accountants and Lawyers.  There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the accountants and lawyers formerly or presently employed by the
Company, and the Company is current with respect to any fees owed to its
accountants and lawyers.

     

    ARTICLE
V.

    Indemnification

     

    The
Investor and the Company represent to the other the following with respect to
itself:

     

    Section 5.1.
Indemnification.

     

     (a)  In
consideration of the Investor’s execution and delivery of this Agreement, and in
addition to all of the Company’s other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Investor, and all
of its officers, directors, partners, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Investor
Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages, and
expenses in connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified
Liabilities”), incurred by the Investor Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement
or the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Investor Indemnitee not arising out of any action
or inaction of an Investor Indemnitee, and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Investor Indemnitees. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (b)  In consideration of the Company’s execution and
delivery of this Agreement, and in addition to all of the Investor’s other
obligations under this Agreement, the Investor shall defend, protect, indemnify
and hold harmless the Company and all of its officers, directors, shareholders,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Company
Indemnitees”) from and against any and all Indemnified Liabilities
incurred by the Company Indemnitees or any of them as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Investor in this Agreement, the
Registration Rights Agreement, or any instrument or document contemplated hereby
or thereby executed by the Investor, (b) any breach of any covenant,
agreement or obligation of the Investor(s) contained in this Agreement, the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Investor, or (c) any cause
of action, suit or claim brought or made against such Company Indemnitee not
arising out of any action or inaction of a Company Indemnitee, and arising out
of or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees provided, however, that the Investor
shall not be liable under this Section 5.1 to a Company Indemnitee to the extent
that such Indemnified Liabilities resulted or arose from the breach by a Company
Indemnitee of any representation, warranty, covenant or agreement of a Company
Indemnitee contained in this Agreement or the Registration Rights Agreement or
the negligence, recklessness, willful misconduct or bad faith of a Company
Indemnitee. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

     

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

     

    Section
5.2  Notification of Claims for
Indemnification. Each party entitled to indemnification under this
Article V (an “Indemnified Party”)
shall, promptly after the receipt of notice of the commencement of any claim
against such Indemnified Party in respect of which indemnity may be sought from
the party obligated to indemnify such Indemnified Party under this Article V
(the “Indemnifying
Party”), notify the Indemnifying Party in writing of the commencement
thereof. Any such notice shall describe the claim in reasonable detail. The
failure of any Indemnified Party to so notify the Indemnifying Party of any such
action shall not relieve the Indemnifying Party from any liability which it may
have to such Indemnified Party (a) other than pursuant to this Article V or
(b) under this Article V unless, and only to the extent that, such failure
results in the Indemnifying Party’s forfeiture of substantive rights or defenses
or the Indemnifying Party is prejudiced by such delay. The procedures listed
below shall govern the procedures for the handling of indemnification
claims.

     

    (a)   Any
claim for indemnification for Indemnified Liabilities that do not result from a
Third Party Claim as defined in the following paragraph, shall be asserted by
written notice given by the Indemnified Party to the Indemnifying Party. Such
Indemnifying Party shall have a period of thirty (30) days after the
receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such thirty (30) day period, such
Indemnifying Party shall be deemed to have refused to accept responsibility to
make payment as set forth in Section 5.1. If such Indemnifying Party does
not respond within such thirty (30) day period or rejects such claim in
whole or in part, the Indemnified Party shall be free to pursue such remedies as
specified in this Agreement.

     

    (b)   If
an Indemnified Party shall receive notice or otherwise learn of the assertion by
a person or entity not a party to this Agreement of any threatened legal action
or claim (collectively a “Third Party Claim”),
with respect to which an Indemnifying Party may be obligated to provide
indemnification, the Indemnified Party shall give such Indemnifying Party
written notice thereof within twenty (20) days after becoming aware of such
Third Party Claim.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (c)   An
Indemnifying Party may elect to defend (and, unless the Indemnifying Party has
specified any reservations or exceptions, to seek to settle or compromise) at
such Indemnifying Party’s own expense and by such Indemnifying Party’s own
counsel, any Third Party Claim. Within thirty (30) days after the receipt
of notice from an Indemnified Party (or sooner if the nature of such Third Party
Claim so requires), the Indemnifying Party shall notify the Indemnified Party
whether the Indemnifying Party will assume responsibility for defending such
Third Party Claim, which election shall specify any reservations or exceptions.
If such Indemnifying Party does not respond within such thirty (30) day
period or rejects such claim in whole or in part, the Indemnified Party shall be
free to pursue such remedies as specified in this Agreement. In case any such
Third Party Claim shall be brought against any Indemnified Party, and it shall
notify the Indemnifying Party of the commencement thereof, the Indemnifying
Party shall be entitled to assume the defense thereof at its own expense, with
counsel satisfactory to such Indemnified Party in its reasonable judgment;
provided, however, that any Indemnified Party may, at its own expense, retain
separate counsel to participate in such defense at its own expense.
Notwithstanding the foregoing, in any Third Party Claim in which both the
Indemnifying Party, on the one hand, and an Indemnified Party, on the other
hand, are, or are reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel and to control its own defense
of such claim if, in the reasonable opinion of counsel to such Indemnified
Party, either (x) one or more significant defenses are available to the
Indemnified Party that are not available to the Indemnifying Party or (y) a
conflict or potential conflict exists between the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; provided, however, that in such circumstances
the Indemnifying Party (i) shall not be liable for the fees and expenses of
more than one counsel to all Indemnified Parties and (ii) shall reimburse
the Indemnified Parties for such reasonable fees and expenses of such counsel
incurred in any such Third Party Claim, as such expenses are incurred, provided
that the Indemnified Parties agree to repay such amounts if it is ultimately
determined that the Indemnifying Party was not obligated to provide
indemnification under this Article IX. The Indemnifying Party agrees that it
shall not, without the prior written consent of the Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim relating to the matters contemplated hereby (if any Indemnified Party is a
party thereto or has been actually threatened to be made a party thereto) unless
such settlement, compromise or consent includes an unconditional release of such
Indemnified Party from all liability arising or that may arise out of such
claim. The Indemnifying Party shall not be liable for any settlement of any
claim effected against an Indemnified Party without the Indemnifying Party’s
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. The rights accorded to an Indemnified Party hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise; provided, however, that notwithstanding the
foregoing or anything to the contrary contained in this Agreement, nothing in
this Article V shall restrict or limit any rights that any Indemnified Party may
have to seek equitable relief.

     

    ARTICLE
VI.

    Covenants
of the Company

     

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

     

    Section 6.2.
Quotation of Common
Stock. The Company shall maintain the Common Stock’s authorization for
quotation on the Principal Market.

     

    Section 6.3.
Exchange Act
Registration. The Company will file in a timely manner all reports and
other documents required of it as a reporting company under the Exchange Act and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said
Exchange Act.

     

    Section 6.4.
Transfer Agent
Instructions. On the Advance Notice Date, the Company shall deliver
instructions to its transfer agent to issue shares of Common Stock to the
Investor free of restrictive legends on the Advance Notice Date .

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

    Section 6.7.
RESERVED.

     

    Section 6.8.
Consolidation;
Merger. The Company shall not, at any time after the delivery of an
Advance Notice and before the Advance Date applicable to such Advance Notice,
effect any merger or consolidation of the Company with or into, or a transfer of
all or substantially all the assets of the Company to another entity (a “Consolidation Event”)
unless the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligation to deliver to the Investor such shares of
stock and/or securities as the Investor is entitled to receive pursuant to this
Agreement.

     

    Section 6.9.
Issuance of the
Company’s Common Stock. The sale of the shares of Common Stock shall be
made in accordance with the provisions and requirements of Regulation D and
any applicable state securities law.

     

    Section 6.10.
Review of Public
Disclosures. All SEC filings (including, without limitation, all filings
required under the Exchange Act, which include Forms 10-Q, 10-K, 8-K, etc) and
other public disclosures made by the Company, including, without limitation, all
press releases, investor relations materials, and scripts of analysts meetings
and calls, shall be reviewed and approved for release by the Company’s attorneys
and, if containing financial information, the Company’s independent certified
public accountants.

     

    Section 6.11. Market
Activities   The Company will not, directly or indirectly
take any action designed to cause or result in, or that constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Common Stock or (ii) sell, bid for or purchase the Common Stock, or pay
anyone any compensation for soliciting purchases of the Common
Stock.

     

    ARTICLE
VII.

    Conditions
for Advance and Conditions to Closing

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    Section 7.2.
Conditions Precedent
to the Right of the Company to Deliver an Advance Notice. The right of
the Company to deliver an Advance Notice is subject to the fulfillment by the
Company, on such Advance Notice Date (a “Condition Satisfaction
Date”), of each of the following conditions, any of which may be waived
in writing by the Investor:

     

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

     

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

     

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

     

    (d) 
Performance by the
Company. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction
Date.

     

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

     

    (f) 
No Suspension of
Trading in or Delisting of Common Stock. The Common Stock is trading on a
Principal Market. The trading of the Common Stock is not suspended by the SEC or
the Principal Market. The issuance of shares of Common Stock with respect to the
applicable Closing will not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice threatening the
continued quotation of the Common Stock on the Principal Market and the Company
shall have no knowledge of any event which would be more likely than not to have
the effect of causing the Common Stock to not be trading or quoted on a
Principal Market.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (g) 
Maximum Advance
Amount. The amount of an Advance corresponding to the Advance Notice
shall not exceed the Maximum Advance Amount. In addition, the Advance amount
shall be automatically reduced by 50%, unless, if on any day during the Pricing
Period, the VWAP for that day does not meet or exceed the Floor Price. The Floor
Price shall be 85% of the Volume Weighted Average Price of the Common Stock for
the five (5) Trading Days prior to the Advance Notice Date, or any other price
mutually agreed upon by the Company and the Investor in writing.  In
addition, in no event shall the number of shares issuable to the Investor
pursuant to an Advance cause the aggregate number of shares of Common Stock
beneficially owned by the Investor and its affiliates to exceed 9.99% of the
then outstanding shares of Common Stock of the Company (“Ownership
Limitation”). Any portion of an Advance that would cause the Investor to
exceed the Ownership Limitation shall automatically be withdrawn. For the
purposes of this section, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act.

     

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

     

    (i) 
Executed Advance
Notice. The Investor shall have received the Advance Notice executed by
an officer of the Company and the representations contained in such Advance
Notice shall be true and correct as of each Condition Satisfaction
Date.

    

    ARTICLE
VIII.

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

     

    Section 8.1.
Non-Disclosure of
Non-Public Information.

     

     (a)  Subject to Section 6.6 and except as otherwise provided
in this Agreement or the Registration Rights Agreement, the Company covenants
and agrees that it shall refrain from disclosing, and shall cause its officers,
directors, employees and agents to refrain from disclosing, any material
non-public information to the Investor without also disseminating such
information to the public.

     

    (b) Nothing
herein shall require the Company to disclose material, non-public information to
the Investor or its advisors or representatives, and the Company represents that
it does not disseminate material, non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts in violation of Regulation FD of the Exchange Act, provided,
however, that notwithstanding anything herein to the contrary, the Company will,
as hereinabove provided and subject to compliance with Regulation FD,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting material, non-public information (whether or not requested
of the Company specifically or generally during the course of due diligence by
such persons or entities), which, if not disclosed in the prospectus included in
the Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.1 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain material, non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of material fact or omits a
material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    ARTICLE
IX.

    Choice
of Law/Jurisdiction

     

    Section 9.1.
Governing Law.
This Agreement shall be governed by and interpreted in accordance with the laws
of the State of New York without regard to the principles of conflict of
laws.

     

    Section 9.2.
Arbitration.  Any
dispute arising out of or in connection with this Agreement or otherwise
relating to the parties relationship that cannot be settled by the Company and
the Investor after discussion shall be settled solely by arbitration. Any such
arbitration shall be fully and finally resolved in binding arbitration in a
proceeding in the State of New York, City of New York, in accordance with the
rules of the American Arbitration Association before a single arbitrator. 
The arbitrator shall not have the authority to modify or change any of the terms
of this Agreement.  The arbitrator may award interim relief and grant
specific performance in addition to monetary damages.  The Company and
the Investor further agree that no demand for punitive or exemplary damages
shall be made in any arbitration proceeding.  Any monetary award shall
be in U.S. dollars.  The arbitrator's award shall be final and binding upon
the parties, and judgment upon the award may be entered in any court of
competent jurisdiction in any state of the United States or country or
application may be made to such court for a judicial acceptance of the award and
an enforcement as the law of such jurisdiction may require or
allow. 

     

    ARTICLE
X.

    Assignment;
Termination

     

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

     

    Section 10.2.
Termination.

     

     (a) Unless earlier terminated as provided hereunder,
this Agreement shall terminate automatically on the earliest of (i) the
first day of the month next following the 24-month anniversary of the Effective
Date, or (ii) the date on which the Investor shall have made payment of
Advances pursuant to this Agreement in the aggregate amount of the Commitment
Amount.

     

    (b) The
Company may terminate this Agreement effective upon fifteen Trading Days’ prior
written notice to the Investor; provided that (i) there are no Advances
outstanding, and (ii) the Company has paid all amounts owed to the Investor
pursuant to this Agreement. This Agreement may be terminated at any time by the
mutual written consent of the parties, effective as of the date of such mutual
written consent unless otherwise provided in such written consent. In the event
of any termination of this Agreement by the Company hereunder, so long as the
Investor owns any shares of Common Stock issued hereunder, unless all of such
shares of Common Stock may be resold by the Investor without registration and
without any time, volume or manner of sale limitations pursuant to Rule 144, the
Company shall not (i) cancel the common stock issued to Investor or suspend
(except as provided for in the Registration Rights Agreement)
or  withdraw the Registration Statement or otherwise cause the
Registration Statement to become ineffective, or voluntarily delist the Common
Stock from, the Principal Market without listing the Common Stock on another
Principal Market.

     

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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (d) Nothing
in this Section 10.2 shall be deemed to release the Company or the Investor
from any liability for any breach under this Agreement, or to impair the rights
of the Company and the Investor to compel specific performance by the other
party of its obligations under this Agreement. The indemnification provisions
contained in Sections 5.1 and 5.2 shall survive termination
hereunder.

     

    ARTICLE
XI.

    Notices

     

    Section 11.1.
Notices. Any
notices, consents, waivers, or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally;
(ii) three (3) days after being sent by U.S. certified mail, return
receipt requested, (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same or (iv) or upon confirmation of receipt of email by
the recipient emailing back the sender that they are in receipt of the email.
The addresses and emails for such communications shall be:

     

    
      
        
          
            
              
                	
                        If
      to the Company, to:

                      	 
      	
                        Neah
      Power Systems, Inc.

                        22118
      20th
      Avenue SW, Suite 142

                        Bothell,
      Washington 98021

                        Attention:
      Gerard C. D’Couto, President

                        Email:
      cdcouto@neahpower.com

                      
	 
      	 
      	 
      
	
                        With
      a copy to:

                      	 
      	
                        Seyfarth
      Shaw LLP

                        975
      F Street, N.W.

                        Washington,
      D.C. 20004

                        Attention:
      Ernest M. Stern, Esq.

                        Email:  estern@seyfarth.com

                      
	 
      	 
      	 
      
	
                        If
      to the Investor:

                      	 
      	
                        AGS
      Capital Group, LLC

                      
	 
      	 
      	
                        2
      Water Street, 17th
      Floor

                      
	 
      	 
      	
                        New
      York, New York

                      
	 
      	 
      	
                        Attention:
      Allen Silberstein

                      
	 
      	 
      	
                        Telephone:
      212-217-9139

                      
	 
      	 
      	
                        Email:
      asilberstein@agscapitalgroup.com

                      

              

            

          

        

      

    

     

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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    ARTICLE
XII.

    Miscellaneous

     

    Section 12.1.
Counterparts.
This Agreement may be executed in two or more identical counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party.

     

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

     

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

     

    Section 12.4.
Fees, Expenses and
Restricted Shares. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company shall pay a Due Diligence fee of
Three Thousand Dollars ($3,000) to Investor upon signing this Agreement and
Fifteen Thousand Dollars ($15,000) to Investor upon the first
Advance.  30 days after the signing of the Agreement, the Company
shall pay to Investor 1% of the value of 1,500,000 shares valued at the volume
weighted average price (VWAP), calculated based upon the ratio of the average
value of the common stock of Company traded on the Trading Market to the average
volume of such stock traded on such market for such date (or the nearest
preceding date), for the 10 trading days immediately preceding the Agreement
date. The Company shall also pay a commitment fee of 1,520,000 shares of the
Company’s unregistered stock upon signing this Agreement. 1,500,000 of these
shares shall be used as credit towards shares for the Advance Notices which the
Company shall include in the Registration Statement. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable fees, costs and disbursements
in addition to any other relief to which such party may be
entitled.

     

    Section
12.5 Severability. If any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that, if the severance
of such provision materially changes the economic benefits of this Agreement to
either party as such benefits are anticipated as of the date hereof, then such
party may terminate this Agreement on five (5) business days prior written
notice to the other party.

     

    Section 12.5. Confidentiality. If
for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any information
obtained from any other party (except information publicly available or in such
party’s domain prior to the date hereof, and except as required by court order)
and shall promptly return to the other parties all schedules, documents,
instruments, work papers or other written information without retaining copies
thereof, previously furnished by it as a result of this Agreement or in
connection herein.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
parties hereto have caused this Reserve Equity Financing Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	 
      	
                                  COMPANY:

                                
	 
      	 
      	
                                  Neah
      Power Systems, Inc.

                                
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                                  By:

                                	 
      	
                                  /s/
      Gerard C. D’Couto

                                
	 
      	 
      	 
      	 
      	
                                   Name:
      Gerard C. D’Couto

                                
	 	 	 	 	

                                  Title:
      President

                                
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                                  INVESTOR:

                                
	 
      	 
      	
                                  ags
      capital group, llc

                                
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                                  By:

                                	 
      	
                                  /s/
      Allen Silberstein

                                
	 
      	 
      	 
      	 
      	
                                   Name:
      Allen Silberstein

                                
	 	 	 	 	

                                  Title:
      Chief Executive
Officer

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    EXHIBIT A

     

    ADVANCE
NOTICE

     

    Neah
Power Systems, Inc.

     

    The undersigned, ________________ hereby certifies, with
respect to the sale of shares of Common Stock of Neah Power Systems, Inc. Company”) issuable in
connection with this Advance Notice, delivered pursuant to the Reserve Equity
Financing Agreement (the “Agreement”), as
follows:

     

    1. The
undersigned is the duly elected Officer of the Company, its Chief Executive,
President or Chief Financial Officer.

     

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

     

    3. The
Company has performed in all material respects all covenants and agreements to
be performed by the Company and has complied in all material respects with all
obligations and conditions contained in the Agreement on or prior to the Advance
Notice Date, and shall continue to perform in all material respects all
covenants and agreements to be performed by the Company through the applicable
Advance Date. All conditions to the delivery of this Advance Notice are
satisfied as of the date hereof.

     

    4. The
undersigned hereby represents, warrants and covenants that it has made all
filings (“SEC
Filings”) required to be made by it pursuant to applicable securities
laws (including, without limitation, all filings required under the Securities
Exchange Act of 1934, which include Forms 10-Q or, 10-K or, 8-K, etc.). All SEC
Filings and other public disclosures made by the Company, including, without
limitation, all press releases, analysts meetings and calls, etc. (collectively,
the “Public
Disclosures”), have been reviewed and approved for release by the
Company’s attorneys and, if containing financial information, the Company’s
independent certified public accountants. None of the Company’s Public
Disclosures contain, as of their respective dates, any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

     

    5. The
Advance requested is  _____shares .

     

    The
undersigned has executed this Certificate this  _____  day of
 _____.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	
                                  Neah
      Power Systems, Inc.

                                   

                                
	 
      	
                                  By:  

                                	  
      
	 
      	 
      	
                                  Name:  

                                
	 
      	 
      	
                                  Title:  

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    If
Returning This Advance Notice via email Please Send To:
asilberstein@agscapitalgroup.com

     

    
      
        
          
            
              
                
                  	
                          If
      by Mail, via Federal Express To:

                        	 
      	
                          AGS
      Capital Group, LLC, Attention Allen Silberstein

                        
	 
      	 
      	
                          2
      Water Street, 17th
      Floor, New York, New York,
10004

                        

                

              

            

          

        

      

    

    
      
      

    

     

    
      
        
        

      

      
        22

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