Document:

STANDBY
        EQUITY DISTRIBUTION AGREEMENT

       

      THIS
        AGREEMENT
        dated as
        of the ___ day of July 2005 (the “Agreement”)
        between CORNELL
        CAPITAL PARTNERS, LP,
        a
        Delaware limited partnership (the “Investor”),
        and
XSUNX,
        INC.,
        a
        corporation organized and existing under the laws of the State of Colorado
        (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 Ten
        Million Dollars ($10,000,000) of the Company’s common stock, no par value
        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.

       

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

       

      NOW,
        THEREFORE,
        the
        parties hereto agree as follows:

       

       

      ARTICLE
        I.

      Certain
        Definitions

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

       

      Section
        1.6. “Closing”
        shall
        mean one of 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 Ten Million Dollars ($10,000,000)
        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.

       

      Section
        1.8. “Commitment
        Period”
        shall
        mean the period commencing on the earlier to occur of (i) the Effective Date,
        or
        (ii) such earlier date as the Company and the Investor may mutually agree
        in
        writing, and expiring on the earliest to occur of (x) the date on which the
        Investor shall have made payment of Advances pursuant to this Agreement in
        the
        aggregate amount of Ten Million Dollars ($10,000,000), (y) the date
        this
        Agreement is terminated pursuant to Section 2.4, or (z) the date occurring
        twenty-four (24) months after the Effective Date.

       

      Section
        1.9. “Common
        Stock”
        shall
        mean the Company’s common stock, no par value 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. “Escrow
        Agreement”
        shall
        mean the escrow agreement among the Company, the Investor, and David Gonzalez,
        Esq., dated the date hereof.

       

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

       

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

       

      
        
          
          

        

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

       

      Section
        1.17. “Maximum
        Advance Amount”
        shall
        be Two Hundred Fifty Thousand Dollars ($250,000) per Advance Notice.
        

       

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

       

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

       

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

       

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

       

      Section
        1.23. “Purchase
        Price”
        shall
        be set at ninety six percent (96%) of the Market Price during the Pricing
        Period.

       

      Section
        1.24. “Registrable
        Securities”
        shall
        mean the shares of Common Stock to be issued hereunder (i)
        in
        respect of which 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.

       

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

       

      Section
        1.26. “Registration
        Statement”
        shall
        mean a registration statement on Form S-1 or SB-2 (if use of such form is
        then
        available to the Company pursuant to the rules of the SEC and, if not, on
        such
        other form promulgated by the SEC for which the Company 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.

       

      
        
          
          

        

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

       

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

       

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

       

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

       

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

       

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

       

      ARTICLE
        II.

      Advances

       

      Section
        2.1. Investments.

       

      (a) Advances.
        Upon
        the terms and conditions set forth herein (including, without limitation,
        the
        provisions of Article VII hereof), on any Advance Notice Date the Company
        may
        request an Advance by the Investor by the delivery of an Advance Notice.
        The
        number of shares of Common Stock that the Investor shall receive for each
        Advance shall be determined by dividing the amount of the Advance 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 deliver an Advance Notice
        to
        the Investor, subject to the conditions set forth in Section 7.2;
        provided,
        however, the amount for each Advance as designated by the Company in the
        applicable Advance Notice, shall not be more than the Maximum Advance Amount.
        The aggregate amount of the Advances pursuant to this Agreement shall not
        exceed
        the Commitment Amount. The Company acknowledges that the Investor may sell
        shares of the Company’s Common Stock corresponding with a particular Advance
        Notice on the day the Advance Notice is received by the Investor. There shall
        be
        a minimum of five (5) Trading Days between each Advance Notice
        Date.

       

      
        
          
          

        

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

       

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

       

      Section
        2.4. Termination
        of Investment.
        The
        obligation of the Investor to make an Advance to the Company pursuant to
        this
        Agreement shall 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, other than due to the acts of the
        Investor, 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 termination provision shall not apply to any period commencing upon
        the
        filing of a post-effective amendment to such Registration Statement and ending
        upon the date on which such post effective amendment is declared effective
        by
        the SEC.

       

      Section
        2.5. Agreement
        to Advance Funds.
        The
        Investor agrees to advance the amount specified in the Advance Notice to
        the
        Company after the completion of each of the following conditions and the
        other
        conditions set forth in this Agreement:

       

      (a) the
        execution and delivery by the Company, and the Investor, of this Agreement
        and
        the Exhibits hereto;

       

      
        
          
          

        

        
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      (b) The
        Escrow Agent shall have received the shares of Common Stock applicable to
        the
        Advance in accordance with Section 2.3. Such shares shall be free of restrictive
        legends.

       

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

       

      (d) 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; 

       

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

       

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

       

      (g) the
        conditions set forth in Section 7.2 shall have been satisfied.

       

      (h) the
        Company shall have provided to the Investor an acknowledgement, from the
        Company’s independent certified public accountants as to its ability to provide
        all consents required in order to file a registration statement in connection
        with this transaction;

       

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

       

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

       

      Section
        2.7. Hardship.
        In the
        event the Investor sells shares of 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 Escrow
        Agent on the Advance Date the shares of Common Stock corresponding to the
        applicable Advance, the Company acknowledges that the Investor shall suffer
        financial hardship and therefore shall be liable for any and all losses,
        commissions, fees, or financial hardship caused to the Investor. 

       

      ARTICLE
        III.

      Representations
        and Warranties of Investor

       

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

       

      
        
          
          

        

        
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      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.

       

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

       

      
        
          
          

        

        
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      Section
        3.7. Receipt
        of Documents.
        The
        Investor and its counsel have received and read in their entirety: (i) this
        Agreement and the Schedules and Exhibits annexed hereto; (ii) all due diligence
        and other information necessary to verify the accuracy and completeness of
        such
        representations, warranties and covenants; (iii) the Company’s Form 10-KSB for
        the year ended September 30, 2004 and Form 10-QSB for the period ended March
        31,
        2005; and (iv) answers to all questions the Investor submitted to
        the
        Company regarding an investment in the Company; and the Investor has relied
        on
        the information contained therein and has not been furnished any other
        documents, literature, memorandum or prospectus. 

       

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

       

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

       

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

       

      Section
        3.11. 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. Neither
        the Investor nor its affiliates has an open short position in the Common
        Stock
        of the Company, the Investor agrees that it shall not, and that it will cause
        its affiliates not to, engage in any short sales of or hedging transactions
        with
        respect to the Common Stock, provided
        that the
        Company acknowledges and agrees that upon receipt of an Advance Notice the
        Investor has the right to sell the shares to be issued to the Investor pursuant
        to the Advance Notice
        during
        the applicable Pricing Period. 

       

      ARTICLE
        IV.

      Representations
        and Warranties of the Company

       

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

       

      Section
        4.1. Organization
        and Qualification.
        The
        Company is duly incorporated or organized and validly existing in the
        jurisdiction of its incorporation or organization and has all requisite
        corporate power to own its properties and to carry on its business as now
        being
        conducted. Each of the Company and its subsidiaries is duly qualified as
        a
        foreign corporation to do business and is in good standing in every jurisdiction
        in which the nature of the business conducted by it makes such qualification
        necessary, except to the extent that the failure to be so qualified or be
        in
        good standing would not have a Material Adverse Effect on the Company and
        its
        subsidiaries taken as a whole.

       

      
        
          
          

        

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

       

      Section
        4.3. Capitalization.
        As of
        the date hereof, the authorized capital stock of the Company consists of
        500,000,000 shares of Common Stock, no par value per share and 50,000,000
        shares
        of Preferred Stock, $0.01 par value per share (“Preferred
        Stock”),
        of
        which 121,196,239 shares of Common Stock and no shares of Preferred Stock
        are
        issued and outstanding. All of such outstanding shares have been validly
        issued
        and are fully paid and nonassessable. Except as disclosed in the SEC Documents,
        no shares of Common Stock are subject to preemptive rights or any other similar
        rights or any liens or encumbrances suffered or permitted by the Company.
        Except
        as disclosed in on Schedule 4.3 and the SEC Documents and, as of the date
        hereof, (i) there are no outstanding options, warrants, scrip, rights
        to
        subscribe to, calls or commitments of any character whatsoever relating to,
        or
        securities or rights convertible into, any shares of capital stock of the
        Company or any of its subsidiaries, or contracts, commitments, understandings
        or
        arrangements by which the Company or any of its subsidiaries is or may become
        bound to issue additional shares of capital stock of the Company or any of
        its
        subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
        commitments of any character whatsoever relating to, or securities or rights
        convertible into, any shares of capital stock of the Company or any of its
        subsidiaries, (ii) there are no outstanding debt securities (iii) there
        are no outstanding registration statements other than on Form S-8 and (iv)
        there
        are no agreements or arrangements under which the Company or any of its
        subsidiaries is obligated to register the sale of any of their securities
        under
        the Securities Act (except pursuant to the Registration Rights Agreement).
        There
        are no securities or instruments containing anti-dilution or similar provisions
        that will be triggered by this Agreement or any related agreement or the
        consummation of the transactions described herein or therein. The Company
        has
        furnished to the Investor true and correct copies of the Company’s Certificate
        of Incorporation, as amended and as in effect on the date hereof (the
“Certificate
        of Incorporation”),
        and
        the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
        and
        the terms of all securities convertible into or exercisable for Common Stock
        and
        the material rights of the holders thereof in respect thereto.

       

      
        
          
          

        

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

       

      Section
        4.5. SEC
        Documents; Financial Statements.
        Since
        January 1, 2003, the Company has filed all reports, schedules, forms, statements
        and other documents required to be filed by it with the SEC under of the
        Exchange Act. The Company has delivered to the Investor or its representatives,
        or made available through the SEC’s website at http://www.sec.gov, true and
        complete copies of the SEC Documents. As of their respective dates, the
        financial statements of the Company disclosed in the SEC Documents (the
“Financial
        Statements”)
        complied as to form in all material respects with applicable accounting
        requirements and the published rules and regulations of the SEC with respect
        thereto. Such financial statements have been prepared in accordance with
        generally accepted accounting principles, consistently applied, during the
        periods involved (except (i) as may be otherwise indicated in such financial
        statements or the notes thereto, or (ii) in the case of unaudited interim
        statements, to the extent they may exclude footnotes or may be condensed
        or
        summary statements) and, fairly present in all material respects the financial
        position of the Company as of the dates thereof and the results of its
        operations and cash flows for the periods then ended (subject, in the case
        of
        unaudited statements, to normal year-end audit adjustments). No other
        information provided by or on behalf of the Company to the Investor which
        is not
        included in the SEC Documents contains any untrue statement of a material
        fact
        or omits to state any material fact necessary in order to make the statements
        therein, in the light of the circumstances under which they were made, not
        misleading.

       

      
        
          
          

        

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

       

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

       

      Section
        4.8. Absence
        of Events of Default.
        Except
        for matters described in the SEC Documents and/or this Agreement, no Event
        of
        Default, as defined in the respective agreement to which the Company is a
        party,
        and no event which, 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.

       

      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. 

       

      
        
          
          

        

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

       

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

       

      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. Fees
        and 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. Use
        of
        Proceeds.
        The
        Company shall use the net proceeds from this offering for general corporate
        purposes, including, without limitation, the payment of loans incurred by
        the
        Company. However, in no event shall the Company use the net proceeds from
        this
        offering for the payment (or loan to any such person for the payment) of
        any
        judgment, or other liability, incurred by any executive officer, officer,
        director or employee of the Company, except for any liability owed to such
        person for services rendered, or if any judgment or other liability is incurred
        by such person originating from services rendered to the Company, or the
        Company
        has indemnified such person from liability.

       

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

       

      Section
        4.24. Opinion
        of Counsel.
        Investor shall receive an opinion letter from 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.
        

       

      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.

       

      
        
          
          

        

        
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      (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 based on misrepresentations or due to a breach by the Investor
        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. 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.

       

      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. Listing
        of Common Stock.
        The
        Company shall maintain the Common Stock’s authorization for quotation on the
        National Association of Securities Dealers Inc.’s Over the Counter Bulletin
        Board. 

       

      
        
          
          

        

        
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      Section
        6.3. Exchange
        Act Registration.
        The
        Company will cause its Common Stock to continue to be registered under Section
        12(g) of the Exchange Act, will file in a timely manner all reports and other
        documents required of it as a reporting 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.
        Upon
        effectiveness of the Registration Statement the Company shall deliver
        instructions to its transfer agent to issue shares of Common Stock to the
        Investor free of restrictive legends on or before each Advance Date

       

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

       

      Section
        6.6. Notice
        of Certain Events Affecting Registration; Suspension of Right to Make an
        Advance.
        The
        Company will immediately notify the Investor upon its becoming aware of the
        occurrence of any of 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. Restriction
        on Sale of Capital Stock.
        During
        the Commitment Period, the Company shall not, without the prior written consent
        of the Investor, (i) issue or sell any Common Stock or Preferred Stock without
        consideration or for a consideration per share less than the bid price of
        the
        Common Stock determined
        immediately prior to its issuance, (ii) issue or sell any
        Preferred Stock
        warrant, option, right, contract, call, or other security or instrument granting
        the holder thereof the right to acquire Common Stock without consideration
        or
        for a consideration per share less than such Common Stock’s Bid Price determined
        immediately prior to its issuance, or (iii) file any registration statement
        on
        Form S-8, , except to register up to up to 1,000,000 shares of Common Stock
        issued to employees, officers or directors of the Company or its subsidiaries,
        provided that such issuances are approved by the Company’s Board of Directors
        and that the recipients have agreed to sell such shares in accordance with
        the
        volume limitations of Rule 144(e) of the General Rules and Regulations under
        the
        Securities Act of 1933. Notwithstanding the forgoing, the Company shall have
        the
        right, without the prior written consent of the Investor, to issue or sell
        any
        common stock, preferred stock, or any warrant, option, right, contract, call,
        or
        other security or instrument granting the holder thereof the right to acquire
        common stock provided that (x) the consideration received for such issuance
        is
        ten cents ($0.10) per share or greater, and (y) the aggregate value of such
        shares issued or issuable in any one month period does not exceed ten percent
        (10%) of the market capitalization of the Company.

       

      
        
          
          

        

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

       

      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 Company, at or before each such Closing, of each of the conditions
        set forth below.

       

      (a) Accuracy
        of the Investor’s Representations and Warranties.
        The
        representations and warranties of 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 and the
        Obligation of the Investor to Purchase Shares of Common Stock.
        The
        right of the Company to deliver an Advance Notice and the obligation of the
        Investor hereunder to acquire and pay for shares of the Company’s Common Stock
        incident to a Closing is subject to the fulfillment by the Company, on (i)
        the
        date of delivery of such Advance Notice and (ii) the applicable Advance
        Date (each a “Condition
        Satisfaction Date”),
        of
        each of the following conditions:

       

      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

      

      (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 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
        (including, without limitation, the conditions specified in Section 2.5
        hereof) 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
        trading of the Common Stock is not suspended by the SEC or the Principal
        Market
        (if the Common Stock is traded on a Principal Market). The issuance of shares
        of
        Common Stock with respect to the applicable Closing, if any, shall not violate
        the shareholder approval requirements of the Principal Market (if the Common
        Stock is traded on a Principal Market). The Company shall not have received
        any
        notice threatening the continued listing of the Common Stock on the Principal
        Market (if the Common Stock is traded on a Principal Market).

       

      
        
          
          

        

        
          -18-

          
            

          

        

        
          
          

        

      

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

       

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

       

      ARTICLE
        VIII.

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          -19-

          
            

          

        

        
          
          

        

      

      (b) Nothing
        herein shall require the Company to disclose non-public information to the
        Investor or its advisors or representatives, and the Company represents that
        it
        does not disseminate non-public information to any investors who purchase
        stock
        in the Company in a public offering, to money managers or to securities
        analysts, provided, however, that notwithstanding anything herein to the
        contrary, the Company will, as hereinabove provided, immediately notify the
        advisors 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
        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 8.2 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 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.

       

      ARTICLE
        IX.

      Choice
        of Law/Jurisdiction

       

      Section
        9.1. Governing
        Law.
        This
        Agreement shall be governed by and interpreted in accordance with the laws
        of
        the State of New Jersey without regard to the principles of conflict of laws.
        The parties further agree that any action between them shall be heard in
        Hudson
        County, New Jersey, and expressly consent to the jurisdiction and venue of
        the
        Superior Court of New Jersey, sitting in Hudson County, New Jersey and the
        United States District Court of New Jersey, sitting in Newark, New Jersey,
        for
        the adjudication of any civil action asserted pursuant to this
        paragraph.

       

      ARTICLE
        X.

      Assignment;
        Termination

       

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

       

      Section
        10.2. Termination.
        

       

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

       

      (b) The
        Company may terminate this Agreement upon thirty (30) days 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,
        the Securities Purchase Agreement of even date herewith, or any other agreements
        between the Company and the Investor. Any termination of this Agreement pursuant
        to this Section 10.2 (b) shall not terminate the Registration Rights Agreement
        unless the Investor has disposed of all the Investor Shares (as defined below)
        and all shares issued to the Investor pursuant to Advances, or all such shares
        are eligible for resale pursuant to Rule 144(k).

       

      
        
          
          

        

        
          -20-

          
            

          

        

        
          
          

        

      

      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) upon
        receipt, when sent by facsimile, provided a copy is mailed by U.S. certified
        mail, return receipt requested; (iii) three (3) days after being sent by
        U.S.
        certified mail, return receipt requested, or (iv) one (1) day after deposit
        with
        a nationally recognized overnight delivery service, in each case properly
        addressed to the party to receive the same. The addresses and facsimile numbers
        for such communications shall be:

       

      
        	
                If
                  to the Company, to:

              	
                XsunX,
                  Inc.

              
	 	
                65
                  Enterprise 

              
	 	
                Aliso
                  Viejo, CA 92656

              
	 	
                Attention: Tom
                  Djokovich

              
	 	
                Telephone: (949)
                  330-8060

              
	 	
                Facsimile: (949)
                  266-5823

              
	 	 
	
                With
                  a copy to:

              	
                Sichenzia
                  Ross Friedman Ference LLP

              
	 	
                1065
                  Avenue of the Americas

              
	 	
                New
                  York, NY 10018

              
	 	
                Attention: 

              
	 	
                Telephone: (212)
                  930-9700

              
	 	
                Facsimile: (212)
                  930-9725

              
	 	 
	
                If
                  to the Investor(s):

              	
                Cornell
                  Capital Partners, LP

              
	 	
                101
                  Hudson Street -Suite 3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Attention: Mark
                  Angelo

              
	 	
                Portfolio
                  Manager

              
	 	
                Telephone: (201)
                  985-8300 

              
	 	
                Facsimile: (201)
                  985-8266 

              
	 	 
	
                With
                  a Copy to:

              	
                Troy
                  Rillo, Esq.

              
	 	
                101
                  Hudson Street - Suite 3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Telephone: (201)
                  985-8300

              
	 	
                Facsimile: (201)
                  985-8266

              
	 	 

      

      

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

       

       

      
        
          
          

        

        
          -21-

          
            

          

        

        
          
          

        

      

      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.
        In
        the event any signature page is delivered by facsimile transmission, the
        party
        using such means of delivery shall cause four (4) additional original executed
        signature pages to be physically delivered to the other party within five
        (5)
        days of the execution and delivery hereof, though failure to deliver such
        copies
        shall not affect the validity of this Agreement.

       

      Section
        12.2. Entire
        Agreement; Amendments.
        This
        Agreement supersedes all other prior oral or written agreements between the
        Investor, the Company, their affiliates and persons acting on their behalf
        with
        respect to the matters discussed herein, and this Agreement and the instruments
        referenced herein contain the entire understanding of the parties with respect
        to the matters covered herein and therein and, except as specifically set
        forth
        herein or therein, neither 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
        and Expenses.
        The
        Company hereby agrees to pay the following fees:

       

      (a) Structuring
        Fees.
        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 will pay a structuring fee of Fifteen Thousand
        Dollars ($15,000) to Yorkville Advisors Management, LLC, of which
        Two
        Thousand Dollars ($2,000) was paid on June 19, 2005 and Thirteen Thousand
        Dollars ($13,000) shall be paid on the date hereof. Subsequently on each
        advance
        date, the Company will pay Yorkville Advisors Management, LLC a structuring
        fee
        of Five Hundred Dollars ($500) directly out the proceeds of any Advances
        hereunder.

       

      (b) Due
        Diligence Fee.
        Company
        shall pay the Investor a non-refundable due diligence fee of Two Thousand
        Dollars ($2,000) upon submission of the due diligence documents to the
        Investor.

       

      (c) Commitment
        Fees.

       

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

       

      
        
          
          

        

        
          -22-

          
            

          

        

        
          
          

        

      

      (ii) Upon
        the
        execution of this Agreement the Company shall issue to the Investor shares
        of
        the Company’s Common Stock in an amount equal to Three Hundred Ninety Thousand
        Dollars ($390,000) divided by the average of the closing Bid Price
        of the
        Common Stock, as quoted by Bloomberg, LP, on the three consecutive trading
        days
        immediately prior to the date hereof (the “Investor’s
        Shares”).

       

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

       

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

       

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

       

      Section
        12.6. Confidentiality.
        If for
        any reason the transactions contemplated by this Agreement are not consummated,
        each of the parties 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]

      

      

      
        
          
          

        

        
          -23-

          
            

          

        

        
          
          

        

      

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

       

      
        	 	
                COMPANY:

              
	 	
                XSUNX,
                  INC.

              
	 	 
	 	
                By:________________________________________

              
	 	
                Name: Tom
                  Djokovich

              
	 	
                Title: Chief
                  Executive Officer

              
	 	 
	 	 
	 	
                INVESTOR:

              
	 	
                CORNELL
                  CAPITAL PARTNERS, LP

              
	 	 
	 	
                By: Yorkville
                  Advisors, LLC

              
	 	
                Its: General
                  Partner

              
	 	 
	 	
                By:________________________________________

              
	 	
                Name: Mark
                  Angelo

              
	 	
                Title: Portfolio
                  Manager

              
	 	 

      

      
 

      
        
          
          

        

        
          -24-

          
            

          

        

        
          
          

          
          

        

      

      EXHIBIT
        A

       

      ADVANCE
        NOTICE/COMPLIANCE CERTIFICATE

       

      XSUNX,
        INC.

       

      The
        undersigned, _______________________ hereby certifies, with respect to the
        sale
        of shares of Common Stock of XSUNX,
        INC.
        (the
“Company”),
        issuable in connection with this Advance Notice and Compliance Certificate
        dated
        ___________________ (the “Notice”),
        delivered pursuant to the Standby Equity Distribution Agreement (the
“Agreement”),
        as
        follows: 

       

      1. The
        undersigned is the duly elected ______________ of the Company.

       

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

       

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

       

      4. The
        undersigned hereby represents, warrants and covenants that it has 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, 10-K, 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 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 _____________________.

       

      The
        undersigned has executed this Certificate this ____ day of
        _________________.

       

      XSUNX,
        INC.

      By:_____________________________

      Name:

      Title: 

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      SCHEDULE
        2.6

       

      XSUNX,
        INC.

       

      The
        undersigned hereby agrees that for a period commencing on July ___, 2005
        and
        expiring on the later of (a) the date that all amounts owed to Cornell Capital
        Partners, LP (the “Investor”),
        or
        any successors or assigns, under the Convertible Debentures issued to the
        Investor pursuant to the Securities Purchase Agreement between XsunX, Inc.
        (the
“Company”)
        and
        the Investor dated July ___, 2005 have been paid or (b) the termination of
        the
        Standby Equity Distribution Agreement dated July ___, 2005 between the Company
        and the Investor (the “Lock-up
        Period”),
        he,
        she or it will not, directly or indirectly, without the prior written consent
        of
        the Investor, issue, offer, agree or offer to sell, sell, grant an option
        for
        the purchase or sale of, transfer, pledge, assign, hypothecate, distribute
        or
        otherwise encumber or dispose of any securities of the Company, including
        common
        stock or options, rights, warrants or other securities underlying, convertible
        into, exchangeable or exercisable for or evidencing any right to purchase
        or
        subscribe for any common stock (whether or not beneficially owned by the
        undersigned), or any beneficial interest therein (collectively, the
“Securities”)
        except
        in accordance with the volume limitations set forth in Rule 144(e) of the
        General Rules and Regulations under the Securities Act of 1933, as
        amended.

       

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

       

      Dated:
        _______________, 2005

      

      Signature

       

      ____________________________________

      Name:_______________________________

      Address:_____________________________

      City,
        State, Zip Code:____________________

       

       

      ____________________________________

      Print
        Social Security Number

      or
        Taxpayer I.D. NumberINVESTOR
        REGISTRATION RIGHTS AGREEMENT

       

      THIS
        REGISTRATION RIGHTS AGREEMENT
        (this
“Agreement”),
        dated
        as of July ______, 2005, by and among XSUNX,
        INC.,
        a
        Colorado corporation (the “Company”),
        and
        the undersigned investors listed on Schedule I attached hereto (each,
        an
“Investor”
        and
        collectively, the “Investors”).

       

      WHEREAS:

       

      A. In
        connection with the Securities Purchase Agreement by and among the parties
        hereto of even date herewith (the “Securities
        Purchase Agreement”),
        the
        Company has agreed, upon the terms and subject to the conditions of the
        Securities Purchase Agreement, to issue and sell to the Investors secured
        convertible debentures (the “Convertible
        Debentures”)
        which
        shall be convertible into that number of shares of the Company’s common stock,
        no par value per share (the “Common
        Stock”),
        pursuant to the terms of the Securities Purchase Agreement for an aggregate
        purchase price of up Eight Hundred Fifty Thousand Dollars ($850,000).
        Capitalized terms not defined herein shall have the meaning ascribed to them
        in
        the Securities Purchase Agreement.

       

      B. To
        induce
        the Investors to execute and deliver the Securities Purchase Agreement, the
        Company has agreed to provide certain registration rights under the Securities
        Act of 1933, as amended, and the rules and regulations there under, or any
        similar successor statute (collectively, the “Securities
        Act”),
        and
        applicable state securities laws.

       

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

       

      1. DEFINITIONS.

       

      As
        used
        in this Agreement, the following terms shall have the following
        meanings:

       

      (a) “Person”
        means a
        corporation, a limited liability company, an association, a partnership,
        an
        organization, a business, an individual, a governmental or political subdivision
        thereof or a governmental agency.

       

      (b) “Register,”“registered,”
        and
“registration”
        refer
        to a registration effected by preparing and filing one or more Registration
        Statements (as defined below) in compliance with the Securities Act and pursuant
        to Rule 415 under the Securities Act or any successor rule providing for
        offering securities on a continuous or delayed basis (“Rule
        415”),
        and
        the declaration or ordering of effectiveness of such Registration Statement(s)
        by the United States Securities and Exchange Commission (the “SEC”).

       

      (c) “Registrable
        Securities”
        means
        the shares of Common Stock issuable to the Investors upon conversion of the
        Convertible Debentures pursuant to the Securities Purchase Agreement and
        the
        Warrant Shares, as this term is defined in the Securities Purchase Agreement
        dated the date hereof.

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      (d) “Registration
        Statement”
        means a
        registration statement under the Securities Act which covers the Registrable
        Securities.

       

      2. REGISTRATION.

       

      (a) Subject
        to the terms and conditions of this Agreement, the Company shall prepare
        and
        file, no later than forty five (45) days from the date hereof (the “Scheduled
        Filing Deadline”),
        with
        the SEC a registration statement on Form S-1 or SB-2 (or, if the Company
        is then
        eligible, on Form S-3) under the Securities Act (the “Initial
        Registration Statement”)
        for
        the resale by the Investors of the Registrable Securities, which includes
        at
        least 8,500,000 shares of Common Stock to be issued upon conversion of the
        Convertible Debentures and 6,375,000 Warrant Shares. The Company shall cause
        the
        Registration Statement to remain effective until all of the Registrable
        Securities have been sold. Prior to the filing of the Registration Statement
        with the SEC, the Company shall furnish a copy of the Initial Registration
        Statement to the Investors for their review and comment. The Investors shall
        furnish comments on the Initial Registration Statement to the Company within
        twenty-four (24) hours of the receipt thereof from the Company.

       

      (b) Effectiveness
        of the Initial Registration Statement.
        The
        Company shall use its best efforts (i) to have the Initial Registration
        Statement declared effective by the SEC no later than one hundred thirty
        five
        (135) days from the date hereof (the “Scheduled
        Effective Deadline”)
        and
        (ii) to insure that the Initial Registration Statement and any subsequent
        Registration Statement remains in effect until all of the Registrable Securities
        have been sold, subject to the terms and conditions of this Agreement. It
        shall
        be an event of default hereunder if the Initial Registration Statement is
        not
        declared effective by the SEC within one hundred sixty five (165) days from
        the
        date hereof.

       

      (c) Failure
        to File or Obtain Effectiveness of the Registration Statement.
        In the
        event the Registration Statement is not filed by the Scheduled Filing Deadline
        or is not declared effective by the SEC on or before the Scheduled Effective
        Date, or if after the Registration Statement has been declared effective
        by the
        SEC, sales cannot be made pursuant to the Registration Statement (whether
        because of a failure to keep the Registration Statement effective, failure
        to
        disclose such information as is necessary for sales to be made pursuant to
        the
        Registration Statement, failure to register sufficient shares of Common Stock
        or
        otherwise then as partial relief for the damages to any holder of Registrable
        Securities by reason of any such delay in or reduction of its ability to
        sell
        the underlying shares of Common Stock (which remedy shall not be exclusive
        of
        any other remedies at law or in equity), the Company will pay as liquidated
        damages (the “Liquidated
        Damages”)
        to the
        holder, at the holder’s option, either a cash amount or shares of the Company’s
        Common Stock within three (3) business days, after demand therefore, equal
        to
        two percent (2%) of the liquidated value of the Convertible Debentures
        outstanding as Liquidated Damages for each thirty (30) day period after the
        Scheduled Filing Deadline or the Scheduled Effective Date as the case may
        be.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      (d) Liquidated
        Damages.
        The
        Company and the Investor hereto acknowledge and agree that the sums payable
        under subsection 2(c) above shall constitute liquidated damages and not
        penalties and are in addition to all other rights of the Investor, including
        the
        right to call a default. The parties further acknowledge that (i) the amount
        of
        loss or damages likely to be incurred is incapable or is difficult to precisely
        estimate, (ii) the amounts specified in such subsections bear a reasonable
        relationship to, and are not plainly or grossly disproportionate to, the
        probable loss likely to be incurred in connection with any failure by the
        Company to obtain or maintain the effectiveness of a Registration Statement,
        (iii) one of the reasons for the Company and the Investor reaching an agreement
        as to such amounts was the uncertainty and cost of litigation regarding the
        question of actual damages, and (iv) the Company and the Investor are
        sophisticated business parties and have been represented by sophisticated
        and
        able legal counsel and negotiated this Agreement at arm’s length. 

       

      3. RELATED
        OBLIGATIONS.

       

      (a) The
        Company shall keep the Registration Statement effective pursuant to
        Rule 415 at all times until the date on which the Investor shall have
        sold
        all the Registrable Securities covered by such Registration Statement (the
        “Registration
        Period”),
        which
        Registration Statement (including any amendments or supplements thereto and
        prospectuses contained therein) shall not contain any untrue statement of
        a
        material fact or omit to state a material fact required to be stated therein,
        or
        necessary to make the statements therein, in light of the circumstances in
        which
        they were made, not misleading.

       

      (b) The
        Company shall prepare and file with the SEC such amendments (including
        post-effective amendments) and supplements to a Registration Statement and
        the
        prospectus used in connection with such Registration Statement, which prospectus
        is to be filed pursuant to Rule 424 promulgated under the Securities Act,
        as may
        be necessary to keep such Registration Statement effective at all times during
        the Registration Period, and, during such period, comply with the provisions
        of
        the Securities Act with respect to the disposition of all Registrable Securities
        of the Company covered by such Registration Statement until such time as
        all of
        such Registrable Securities shall have been disposed of in accordance with
        the
        intended methods of disposition by the seller or sellers thereof as set forth
        in
        such Registration Statement. In the case of amendments and supplements to
        a
        Registration Statement which are required to be filed pursuant to this Agreement
        (including pursuant to this Section 3(b)) by reason of the Company’s filing a
        report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under
        the
        Securities Exchange Act of 1934, as amended (the “Exchange
        Act”),
        the
        Company shall incorporate such report by reference into the Registration
        Statement, if applicable, or shall file such amendments or supplements with
        the
        SEC on the same day on which the Exchange Act report is filed which created
        the
        requirement for the Company to amend or supplement the Registration Statement.
        

       

      (c) The
        Company shall furnish to each Investor whose Registrable Securities are included
        in any Registration Statement, without charge, (i) at least one (1) copy
        of such
        Registration Statement as declared effective by the SEC and any amendment(s)
        thereto, including financial statements and schedules, all documents
        incorporated therein by reference, all exhibits and each preliminary prospectus,
        (ii) ten (10) copies of the final prospectus included in such Registration
        Statement and all amendments and supplements thereto (or such other number
        of
        copies as such Investor may reasonably request) and (iii) such other documents
        as such Investor may reasonably request from time to time in order to facilitate
        the disposition of the Registrable Securities owned by such
        Investor.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

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

       

      (e) As
        promptly as practicable after becoming aware of such event or development,
        the
        Company shall notify each Investor in writing of the happening of any event
        as a
        result of which the prospectus included in a Registration Statement, as then
        in
        effect, includes an untrue statement of a material fact or omission to state
        a
        material fact required to be stated therein or necessary to make the statements
        therein, in light of the circumstances under which they were made, not
        misleading (provided that in no event shall such notice contain any material,
        nonpublic information), and promptly prepare a supplement or amendment to
        such
        Registration Statement to correct such untrue statement or omission, and
        deliver
        ten (10) copies of such supplement or amendment to each Investor. The Company
        shall also promptly notify each Investor in writing (i) when a prospectus
        or any
        prospectus supplement or post-effective amendment has been filed, and when
        a
        Registration Statement or any post-effective amendment has become effective
        (notification of such effectiveness shall be delivered to each Investor by
        facsimile on the same day of such effectiveness), (ii) of any request by
        the SEC
        for amendments or supplements to a Registration Statement or related prospectus
        or related information, and (iii) of the Company’s reasonable determination
        that a post-effective amendment to a Registration Statement would be
        appropriate.

       

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

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      (g) At
        the
        reasonable request of any Investor, the Company shall furnish to such Investor,
        on the date of the effectiveness of the Registration Statement and thereafter
        from time to time on such dates as an Investor may reasonably request (i)
        a
        letter, dated such date, from the Company’s independent certified public
        accountants in form and substance as is customarily given by independent
        certified public accountants to underwriters in an underwritten public offering,
        and (ii) an opinion, dated as of such date, of counsel representing the Company
        for purposes of such Registration Statement, in form, scope and substance
        as is
        customarily given in an underwritten public offering, addressed to the
        Investors.

       

      (h) The
        Company shall make available for inspection by (i) any Investor and
        (ii) one (1) firm of accountants or other agents retained by the Investors
        (collectively, the “Inspectors”)
        all
        pertinent financial and other records, and pertinent corporate documents
        and
        properties of the Company (collectively, the “Records”),
        as
        shall be reasonably deemed necessary by each Inspector, and cause the Company’s
        officers, directors and employees to supply all information which any Inspector
        may reasonably request; provided, however, that each Inspector shall agree,
        and
        each Investor hereby agrees, to hold in strict confidence and shall not make
        any
        disclosure (except to an Investor) or use any Record or other information
        which
        the Company determines in good faith to be confidential, and of which
        determination the Inspectors are so notified, unless (a) the disclosure of
        such
        Records is necessary to avoid or correct a misstatement or omission in any
        Registration Statement or is otherwise required under the Securities Act,
        (b)
        the release of such Records is ordered pursuant to a final, non-appealable
        subpoena or order from a court or government body of competent jurisdiction,
        or
        (c) the information in such Records has been made generally available to
        the
        public other than by disclosure in violation of this or any other agreement
        of
        which the Inspector and the Investor has knowledge. Each Investor agrees
        that it
        shall, upon learning that disclosure of such Records is sought in or by a
        court
        or governmental body of competent jurisdiction or through other means, give
        prompt notice to the Company and allow the Company, at its expense, to undertake
        appropriate action to prevent disclosure of, or to obtain a protective order
        for, the Records deemed confidential.

       

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

       

      (j) The
        Company shall use its best efforts either to cause all the Registrable
        Securities covered by a Registration Statement (i) to be listed on each
        securities exchange on which securities of the same class or series issued
        by
        the Company are then listed, if any, if the listing of such Registrable
        Securities is then permitted under the rules of such exchange or (ii) the
        inclusion for quotation on the National Association of Securities Dealers,
        Inc.
        OTC Bulletin Board for such Registrable Securities. The Company shall pay
        all
        fees and expenses in connection with satisfying its obligation under this
        Section 3(j).

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

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

       

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

       

      (m) The
        Company shall make generally available to its security holders as soon as
        practical, but not later than ninety (90) days after the close of the period
        covered thereby, an earnings statement (in form complying with the provisions
        of
        Rule 158 under the Securities Act) covering a twelve (12) month period beginning
        not later than the first day of the Company’s fiscal quarter next following the
        effective date of the Registration Statement.

       

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

       

      (o) Within
        two (2) business days after a Registration Statement which covers Registrable
        Securities is declared effective by the SEC, the Company shall deliver, and
        shall cause legal counsel for the Company to deliver, to the transfer agent
        for
        such Registrable Securities (with copies to the Investors whose Registrable
        Securities are included in such Registration Statement) confirmation that
        such
        Registration Statement has been declared effective by the SEC in the form
        attached hereto as Exhibit
        A.

       

      (p) The
        Company shall take all other reasonable actions necessary to expedite and
        facilitate disposition by the Investors of Registrable Securities pursuant
        to a
        Registration Statement.

       

      4. OBLIGATIONS
        OF THE INVESTORS.

       

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

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      5. EXPENSES
        OF REGISTRATION.

       

      All
        expenses incurred in connection with registrations, filings or qualifications
        pursuant to Sections 2 and 3, including, without limitation, all registration,
        listing and qualifications fees, printers, legal and accounting fees shall
        be
        paid by the Company. 

       

      6. INDEMNIFICATION.

       

      With
        respect to Registrable Securities which are included in a Registration Statement
        under this Agreement:

       

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

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      (b) In
        connection with a Registration Statement, each Investor agrees to severally
        and
        not jointly indemnify, hold harmless and defend, to the same extent and in
        the
        same manner as is set forth in Section 6(a), the Company, each of its directors,
        each of its officers, employees, representatives, or agents and each Person,
        if
        any, who controls the Company within the meaning of the Securities Act or
        the
        Exchange Act (each an “Indemnified
        Party”),
        against any Claim or Indemnified Damages to which any of them may become
        subject, under the Securities Act, the Exchange Act or otherwise, insofar
        as
        such Claim or Indemnified Damages arise out of or is based upon any Violation,
        in each case to the extent, and only to the extent, that such Violation occurs
        in reliance upon and in conformity with written information furnished to
        the
        Company by such Investor expressly for use in connection with such Registration
        Statement; and, subject to Section 6(d), such Investor will reimburse any
        legal
        or other expenses reasonably incurred by them in connection with investigating
        or defending any such Claim; provided, however, that the indemnity agreement
        contained in this Section 6(b) and the agreement with respect to contribution
        contained in Section 7 shall not apply to amounts paid in settlement of any
        Claim if such settlement is effected without the prior written consent of
        such
        Investor, which consent shall not be unreasonably withheld; provided, further,
        however, that the Investor shall be liable under this Section 6(b) for only
        that
        amount of a Claim or Indemnified Damages as does not exceed the net proceeds
        to
        such Investor as a result of the sale of Registrable Securities pursuant
        to such
        Registration Statement. Such indemnity shall remain in full force and effect
        regardless of any investigation made by or on behalf of such Indemnified
        Party
        and shall survive the transfer of the Registrable Securities by the Investors
        pursuant to Section 9. Notwithstanding anything to the contrary contained
        herein, the indemnification agreement contained in this Section 6(b) with
        respect to any prospectus shall not inure to the benefit of any Indemnified
        Party if the untrue statement or omission of material fact contained in the
        prospectus was corrected and such new prospectus was delivered to each Investor
        prior to such Investor’s use of the prospectus to which the Claim
        relates.

       

      (c) Promptly
        after receipt by an Indemnified Person or Indemnified Party under this Section
        6
        of notice of the commencement of any action or proceeding (including any
        governmental action or proceeding) involving a Claim, such Indemnified Person
        or
        Indemnified Party shall, if a Claim in respect thereof is to be made against
        any
        indemnifying party under this Section 6, deliver to the indemnifying party
        a
        written notice of the commencement thereof, and the indemnifying party shall
        have the right to participate in, and, to the extent the indemnifying party
        so
        desires, jointly with any other indemnifying party similarly noticed, to
        assume
        control of the defense thereof with counsel mutually satisfactory to the
        indemnifying party and the Indemnified Person or the Indemnified Party, as
        the
        case may be; provided, however, that an Indemnified Person or Indemnified
        Party
        shall have the right to retain its own counsel with the fees and expenses
        of not
        more than one (1) counsel for such Indemnified Person or Indemnified Party
        to be
        paid by the indemnifying party, if, in the reasonable opinion of counsel
        retained by the indemnifying party, the representation by such counsel of
        the
        Indemnified Person or Indemnified Party and the indemnifying party would
        be
        inappropriate due to actual or potential differing interests between such
        Indemnified Person or Indemnified Party and any other party represented by
        such
        counsel in such proceeding. The Indemnified Party or Indemnified Person shall
        cooperate fully with the indemnifying party in connection with any negotiation
        or defense of any such action or claim by the indemnifying party and shall
        furnish to the indemnifying party all information reasonably available to
        the
        Indemnified Party or Indemnified Person which relates to such action or claim.
        The indemnifying party shall keep the Indemnified Party or Indemnified Person
        fully apprised at all times as to the status of the defense or any settlement
        negotiations with respect thereto. No indemnifying party shall be liable
        for any
        settlement of any action, claim or proceeding effected without its prior
        written
        consent; provided, however, that the indemnifying party shall not unreasonably
        withhold, delay or condition its consent. No indemnifying party shall, without
        the prior written consent of the Indemnified Party or Indemnified Person,
        consent to entry of any judgment or enter into any settlement or other
        compromise which does not include as an unconditional term thereof the giving
        by
        the claimant or plaintiff to such Indemnified Party or Indemnified Person
        of a
        release from all liability in respect to such claim or litigation. Following
        indemnification as provided for hereunder, the indemnifying party shall be
        subrogated to all rights of the Indemnified Party or Indemnified Person with
        respect to all third parties, firms or corporations relating to the matter
        for
        which indemnification has been made. The failure to deliver written notice
        to
        the indemnifying party within a reasonable time of the commencement of any
        such
        action shall not relieve such indemnifying party of any liability to the
        Indemnified Person or Indemnified Party under this Section 6, except to the
        extent that the indemnifying party is prejudiced in its ability to defend
        such
        action.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

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

       

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

       

      7. CONTRIBUTION.

       

      To
        the
        extent any indemnification by an indemnifying party is prohibited or limited
        by
        law, the indemnifying party agrees to make the maximum contribution with
        respect
        to any amounts for which it would otherwise be liable under Section 6 to
        the
        fullest extent permitted by law; provided, however, that: (i) no seller of
        Registrable Securities guilty of fraudulent misrepresentation (within the
        meaning of Section 11(f) of the Securities Act) shall be entitled to
        contribution from any seller of Registrable Securities who was not guilty
        of
        fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
        Securities shall be limited in amount to the net amount of proceeds received
        by
        such seller from the sale of such Registrable Securities.

       

      
        
           

        

        
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      8. REPORTS
        UNDER THE EXHANGE ACT.

       

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

       

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

       

      (b) file
        with
        the SEC in a timely manner all reports and other documents required of the
        Company under the Securities Act and the Exchange Act so long as the Company
        remains subject to such requirements (it being understood that nothing herein
        shall limit the Company’s obligations under Section 4(c) of the Securities
        Purchase Agreement) and the filing of such reports and other documents as
        are
        required by the applicable provisions of Rule 144; and

       

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

       

      9. AMENDMENT
        OF REGISTRATION RIGHTS.

       

      Provisions
        of this Agreement may be amended and the observance thereof may be waived
        (either generally or in a particular instance and either retroactively or
        prospectively), only with the written consent of the Company and Investors
        who
        then hold at least two-thirds (2/3) of the Registrable Securities. Any amendment
        or waiver effected in accordance with this Section 9 shall be binding
        upon
        each Investor and the Company. No such amendment shall be effective to the
        extent that it applies to fewer than all of the holders of the Registrable
        Securities. No consideration shall be offered or paid to any Person to amend
        or
        consent to a waiver or modification of any provision of any of this Agreement
        unless the same consideration also is offered to all of the parties to this
        Agreement.

       

      10. MISCELLANEOUS.

       

      (a) A
        Person
        is deemed to be a holder of Registrable Securities whenever such Person owns
        or
        is deemed to own of record such Registrable Securities. If the Company receives
        conflicting instructions, notices or elections from two (2) or more Persons
        with
        respect to the same Registrable Securities, the Company shall act upon the
        basis
        of instructions, notice or election received from the registered owner of
        such
        Registrable Securities.

       

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

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      
        	
                If
                  to the Company, to:

              	
                XsunX,
                  Inc.

              
	 	
                65
                  Enterprise 

              
	 	
                Aliso
                  Viejo, CA 92656

              
	 	
                Attention: Tom
                  Djokovich

              
	 	
                Telephone: (949)
                  330-8060

              
	 	
                Facsimile: (949)
                  266-5823

              
	 	 
	
                With
                  Copy to:

              	
                Sichenzia
                  Ross Friedman Ference LLP

              
	 	
                1065
                  Avenue of the Americas

              
	 	
                New
                  York, NY 10018

              
	 	
                Attention: 

              
	 	
                Telephone: (212)
                  930-9700

              
	 	
                Facsimile: (212)
                  930-9725

              
	 	 

      

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

       

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

       

      (d) The
        laws
        of the State of New Jersey shall govern all issues concerning the relative
        rights of the Company and the Investors as its stockholders. All other questions
        concerning the construction, validity, enforcement and interpretation of
        this
        Agreement shall be governed by the internal laws of the State of New Jersey,
        without giving effect to any choice of law or conflict of law provision or
        rule
        (whether of the State of New Jersey or any other jurisdiction) that would
        cause
        the application of the laws of any jurisdiction other than the State of New
        Jersey. Each party hereby irrevocably submits to the non-exclusive jurisdiction
        of the Superior Courts of the State of New Jersey, sitting in Hudson County,
        New
        Jersey and federal courts for the District of New Jersey sitting Newark,
        New
        Jersey, for the adjudication of any dispute hereunder or in connection herewith
        or with any transaction contemplated hereby or discussed herein, and hereby
        irrevocably waives, and agrees not to assert in any suit, action or proceeding,
        any claim that it is not personally subject to the jurisdiction of any such
        court, that such suit, action or proceeding is brought in an inconvenient
        forum
        or that the venue of such suit, action or proceeding is improper. Each party
        hereby irrevocably waives personal service of process and consents to process
        being served in any such suit, action or proceeding by mailing a copy thereof
        to
        such party at the address for such notices to it under this Agreement and
        agrees
        that such service shall constitute good and sufficient service of process
        and
        notice thereof. Nothing contained herein shall be deemed to limit in any
        way any
        right to serve process in any manner permitted by law. If any provision of
        this
        Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
        or unenforceability shall not affect the validity or enforceability of the
        remainder of this Agreement in that jurisdiction or the validity or
        enforceability of any provision of this Agreement in any other jurisdiction.
        EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT
        TO
        REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
        CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
        CONTEMPLATED HEREBY.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      (e) This
        Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase
        Agreement and related documents including the Convertible Debenture and the
        Escrow Agreement dated the date hereof by and among the Company, the Investors
        set forth on the Schedule of Investors attached hereto, and David Gonzalez,
        Esq.
        (the “Escrow
        Agreement”)
        and
        the Security Agreement dated the date hereof (the “Security
        Agreement”)
        constitute the entire agreement among the parties hereto with respect to
        the
        subject matter hereof and thereof. There are no restrictions, promises,
        warranties or undertakings, other than those set forth or referred to herein
        and
        therein. This Agreement, the Irrevocable Transfer Agent Instructions, the
        Securities Purchase Agreement and related documents including the Convertible
        Debenture, the Escrow Agreement and the Security Agreement supersede all
        prior
        agreements and understandings among the parties hereto with respect to the
        subject matter hereof and thereof.

       

      (f) This
        Agreement shall inure to the benefit of and be binding upon the permitted
        successors and assigns of each of the parties hereto.

       

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

       

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

       

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

       

      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.

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

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

       

      

      [REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      

      IN
        WITNESS WHEREOF,
        the
        parties have caused this Investor Registration Rights Agreement to be duly
        executed as of day and year first above written.

       

      
        	 	
                COMPANY:

              
	 	
                XSUNX,
                  INC.

              
	 	 
	 	
                By:___________________________

              
	 	
                Name: Tom
                  Djokovich

              
	 	
                Title: Chief
                  Executive Officer

              
	 	 

      

      

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

       

      SCHEDULE
        I

       

      SCHEDULE
        OF INVESTORS

       

      
        	
                Name

              	
                Signature

              	
                Address/Facsimile
                  

                Number
                  of Investors

              
	 	 	 
	 	 	 
	
                Cornell
                  Capital Partners, LP

              	
                By: Yorkville
                  Advisors, LLC

              	
                101
                  Hudson Street - Suite 3700

              
	 	
                Its: General
                  Partner

              	
                Jersey
                  City, NJ 07303

              
	 	 	
                Facsimile: (201)
                  985-8266

              
	 	 	 
	 	
                By:_______________________________________

              	 
	 	
                Name: Mark
                  Angelo

              	 
	 	
                Its: Portfolio
                  Manager

              	 
	 	 	 
	
                With
                  a copy to: 

              	
                Troy
                  Rillo David Gonzalez, Esq.

              	
                101
                  Hudson Street - Suite 3700

              
	 	 	
                Jersey
                  City, NJ 07302

              
	 	 	
                Facsimile:
                  (201) 985-8266

              
	 	 	 

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      EXHIBIT
        A

       

      FORM
        OF NOTICE OF EFFECTIVENESS

      OF
        REGISTRATION STATEMENT

       

      

      Attention: 

      

      
        	 	
                Re:

              	
                XSUNX,
                  INC.

              

      

      

      Ladies
        and Gentlemen:

      

      We
        are
        counsel to XsunX, Inc., a Colorado corporation (the “Company”),
        and
        have represented the Company in connection with that certain Securities Purchase
        Agreement (the “Securities
        Purchase Agreement”)
        entered into by and among the Company and the investors named therein
        (collectively, the “Investors”)
        pursuant to which the Company issued to the Investors shares of its Common
        Stock, no par value per share (the “Common
        Stock”).
        Pursuant to the Purchase Agreement, the Company also has entered into a
        Registration Rights Agreement with the Investors (the “Investor
        Registration Rights Agreement”)
        pursuant to which the Company agreed, among other things, to register the
        Registrable Securities (as defined in the Registration Rights Agreement)
        under
        the Securities Act of 1933, as amended (the “Securities
        Act”).
        In
        connection with the Company’s obligations under the Registration Rights
        Agreement, on ____________ ____, the Company filed a Registration Statement
        on
        Form ________ (File No. 333-_____________) (the “Registration
        Statement”)
        with
        the Securities and Exchange SEC (the “SEC”)
        relating to the Registrable Securities which names each of the Investors
        as a
        selling stockholder there under.

       

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

       

      
        	 	
                Very
                  truly yours,

                

                [Law
                  Firm]

                

                By:________________________________

              

      

         

      cc: [LIST
        NAMES OF INVESTORS]

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